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BouncyEgg t1_iueah5u wrote

Pretty much all forms of Permanent (Whole, Universal, Variable, etc) life insurance are terrible for 99.9% of Americans.

It tries to do two things:

  • Insurance on a life
  • Investing

Unfortunately it does both very very very poorly.

  • It is a very inefficient path for investing.
  • It is an expensive life insurance.

The two combined make them a poor choice.

It is better to accomplish the two goals with separate products:

  • Life insurance: Term.
  • Investing: Follow the PF Wiki Prime Directive.

The Wiki has an excellent section for those looking for a more in-depth explanation on life insurance.

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Reasonable-Program29 OP t1_iuejht7 wrote

Thanks for breaking this up in such a clean way. I've brought up Term during the conversation with them before, but their concern is that with 30-year Term if they end up living past that point all of it would go to waste and they won't be able to give anything to their adult(20-30s) children (us).

It's the thought that people are dying older and also my grandmother recently passed in her late 90s so they dont want the chance they out live the policy term.

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longshanksasaurs t1_iuevtbe wrote

Term life insurance is best used to support people who depend on your income to survive, not to leave an inheritance to adults.

If you're already in your 20s-30s, you may already not rely on your parents income, and 30 years from now you really shouldn't be relying on their income.

If your parents want to leave something to their heirs, they should be investing -- that money can be used if they need it in their lifetime, and can be left to you adult children if they don't need their own money.

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Reasonable-Program29 OP t1_iuewti3 wrote

None of us rely on their income. It's entirely them that want to leave a little more than their savings after they pass. But want it guaranteed as opposed to a 30-year Term.

They've never been taught basic investing so they're risk-averse in losing money from stocks that's why they like the IUL pitch. And I find it difficult to change their minds this late in their life about it. I just hope it won't hurt their current lifestyle.

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BouncyEgg t1_iuf69xg wrote

> their concern is that with 30-year Term if they end up living past that point all of it would go to waste and they won't be able to give anything to their adult(20-30s) children (us).

This is exactly how the salespeople sell these things.

The fact is that you need to see the other side.

This is:

  • Term Life with cheaper premiums
  • Taking the savings and investing that (following the principles as outlined in the PF Wiki).

Once you perform this assessment, you will very quickly realize the impact of fees/commissions/premiums.

You will very quickly realize that IF you make it to the 30 year mark, you will have MORE money than if you went down the Permanent life pathway. Even though that money to Term Life went to "waste," you're still richer.

The other thing to realize is that Insurance is always going to be a "waste."

Why?

Because Insurance is meant to protect you in case a "bad thing" happens. You don't want any "bad thing" to happen. But you acknowledge that sometimes "bad things" happen and you want to prevent yourself from going bankrupt from those things.

For example... car insurance might be considered a "waste" if you never get in a car accident. You're paying all this money. If you never get in a car accident, then you've paid all this money for nothing.

So what's the smart thing to do?

Go with whoever provides reasonable amount of car insurance for your needs at the cheapest price.

Similarly, you buy a reasonable amount of life insurance NOT for the purposes of leaving an inheritance (this is a sales tactic, this is generally a very inefficient use of life insurance). You buy it because someone depends on your income. If you died, this person would have a very hard time surviving. Usually this is young children.

So you buy a reasonable amount of life insurance for your needs at the cheapest price.

This is what Term is for.

You SHOULD outlive the policy.

By the time the policy ends, you should either:

  • Have accumulated enough assets so that your dependent can live even if you died.
  • Your dependent has their own assets and no longer depends on your income to survive.

This requires a fundamental unwinding of all the sales tactics that your family has already been convinced of. It requires an understanding that it's okay to pay insurance and get nothing out of it. It means you've actually won the game.

  • Health insurance: Never use it? Great! You've won the genetic lottery
  • Car insurance: Never use it? Awesome! I hope you never have to.
  • Disability insurance: Never use it? Nice! Being disabled is not fun.
  • Umbrella insurance: Never use it? Strong work! Avoiding random liabilities!
  • Life insurance: Never use it? Amazing! It means you're not DEAD.
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