life insurance

[destillat]

I am looking for a bit of advice from you financial gurus...

I am 33, single (divorced), no dependants.
From my married days I have 3 life insurance policies.
When we split up I decided against cancelling them (at my brokers advice - I was just too preoccupied to question him).

Now that I think about it more, I am spending $120/month for money that someone else is going to enjoy when I die.
I don't really plan on every re-marrying or having kids (but that could change I suppose).

I know this money can be invested elsewhere where I can enjoy it while I'm alive.

My ONLY hesitation is that IF I ever start a family, I will be quite a bit older, and insurance will be more expensive.
But, is it really necessary if the people that I might leave behind will be beneficiary of my other investments?

Here is where I need experienced voices to share their experiences.

Thoughts?

Thanks so much!

 

[alan9080]

I would cancel it.
your broker is getting a commission out of them, so he will advise you to keep paying for them.
Life insurance is like Auto insurance, if you dont own a car, why bother buying a car insurance?
I am assuming you have term insurance.

 

[destillat]

I have 3 policies... 1 term, 1 whole life, 1 accidental death.
Why do you ask that?

 

[justchecking]

Well, you can also change the beneficiaries.

As you say, life insurance are for someone that you cared about, and to make sure they have the financial support he or she needs when you are not around.

But as you get older, the cost will be higher.

You might want to speak to a financial planner about your options

 

[alan9080]

I have 3 policies... 1 term, 1 whole life, 1 accidental death.
Why do you ask that?

Because whole life usually has cash surrender value that you can collect when you need the money.

Personally I think whole life policies are not worth it.

 

[S.C. Joe]

People, life insurance can be used to fund your last days here on Earth

The whole life I would keep, Term life they will refuse to renew when you get so old, like 70. I know people who spent $$$ on Term life only to live too long and never get a dime from the policy. Oh, whole life was too much they thought.

And if you do just poop out one day - get run over by a speeding cop car or something, that life insurance can buy you a nice funeral and flowers at your grave every month for quite a while if you got your will written right

You can always cash in a whole life policy and give yourself a nice holiday later in life

 

[S.C. Joe]

Because whole life usually has cash surrender value that you can collect when you need the money.

Personally I think whole life policies are not worth it.

Why is that ? There is no age limit, the policy will pay off someday unless you kill yourself

 

[gww]

Life insurance is like Auto insurance, if you dont own a car, why bother buying a car insurance?

Does this mean he has no life, so why bother with life insurance

 

[S.C. Joe]

Based upon your current status, I would cancel and invest that $120 per month in a retirement account. Preferably in a low fee stock index fund. Set it up as an automatic withdrawal/investment and you will never miss the money. By the time you retire, you will have a nice chunk of change. It, too, can be used by your estate to pay funeral costs etc. More importantly, you won't be paying the generally very high fees associated with a whole life policy. No need to have term life at this point. If you have kids down the road, you can add that to your portfolio. A slightly higher cost later on, but remember, that 120 is now working for you and that far exceeds the cost savings of keeping term life now just for the lower premium. That salesman wants you to keep the policy because it is in his best interest. If you are disciplined enough to invest, you are far better off. The one thing you should not do is cancel the policies and put that money "in your pocket." Auto invest and you will be glad you did. Just my two cents...

Yeah but your gambling the stock index will be higher then it is today, sure it should be but its far from certain

Maybe things are different today but my Whole Life from Met Life i got in the 80's is only $250 a year and I could get around $6,000 if I was to cash it out right now and it pays around $30,000 if I die today. I'm very happy and glad I brought it, just wish it was more but it keep slowly going up so long as I keep paying $250 each year

 

[destillat]

If you are disciplined enough to invest, you are far better off. The one thing you should not do is cancel the policies and put that money "in your pocket." Auto invest and you will be glad you did. Just my two cents...

That was exactly my plan... cancel the policies and add the surplus to my existing RRSP/TFSA/mutual fund automatic contributions.

 

[needinit]

Who are the beneficiaries on your current policies? - if you are not responsible for them financially, then the policies are of no use to you....it sounds like you need to protect yourself so some sort of accident and disability insurance would be of more use as that would pay for care for you if necessary - rather than look after others if (sorry when) you die!!

 

[atlantica]

There is not enough info to answer fully. What are your personal financial resources? How is your health? Any hereditary issues in your family? Have you started smoking or bungee jumping since last insurance policy? In general, the Accidental Death policy is worthless, which is why it is so cheap. Cancel it regardless of answers to the above.
How long have you had the whole life policy? HOw much coverage? Has it started to build cash values? From a need perspective, you likely don't need the Term policy right now. But, the whole life you may want to keep. By now you have likely spend a good amount of money in it, so you may want to hold it and let it grow. The rates on those type of policies have increased quite a bit as of late, so you'll never get it any cheaper. Besides, it won't ever hurt to have a guaranteed tax free estate of some sort. With most companies internal ROR of the Cash Values are about 6%, which is not bad nowadays .

 

[destillat]

There is not enough info to answer fully. What are your personal financial resources? How is your health? Any hereditary issues in your family? Have you started smoking or bungee jumping since last insurance policy? In general, the Accidental Death policy is worthless, which is why it is so cheap. Cancel it regardless of answers to the above.
How long have you had the whole life policy? HOw much coverage? Has it started to build cash values? From a need perspective, you likely don't need the Term policy right now. But, the whole life you may want to keep. By now you have likely spend a good amount of money in it, so you may want to hold it and let it grow. The rates on those type of policies have increased quite a bit as of late, so you'll never get it any cheaper. Besides, it won't ever hurt to have a guaranteed tax free estate of some sort. With most companies internal ROR of the Cash Values are about 6%, which is not bad nowadays .

I haven't had the whole life policy long enough for it to have built up any cash surrender value yet. $150,000 coverage.
I'm healthy. Both my parents died of cancer, one at 62, one at 78.

 

[atlantica]

Ok, so you have had it for less then 5 years or so then. Bought it in your late 20's. Every companies' whole life policy is created a bit different, so hard to be exact. But, my advice would be to cancel the accidental death and the term policy. Put those savings towards your rsp, tfsa or debt reduction. But I would keep the whole life. Your rate is probably relatively low if you compare it with a current policy, and would be expensive if you ever reconsider it down the road. You can always use the cash values as an emergency fund or to supplement your retirement later. Also, both your parents passing so early of cancer is unfortunately not a good sign. Not to say that it will happen to you of course, but something to bear in mind.

 

[Allejandro2011]

Wrong, wrong, wrong!

Get yourself universal life insurance while it is cheap. This way you will be able to put money/investments into it without paying taxes and accumulate capital in it same way as with RRSPs. In the long run it will get paid off big time.

 

[SoftHands813]

One benefit of insurance is that proceeds are tax exempt. So, if your estate was the beneficiary of your policy, those proceeds would not be subject to estate taxes. In addition, the proceeds could be used to offset any taxes payable on registered savings, which are deemed to be redeemed on the day of your death and therefore treated as income in your terminal year. That alone can trigger a fairly substantial amount of tax payable by your estate.

Life insurance is one vehicle used in estate planning to offset various government take-backs (e.g. estate taxes, terminal income, etc.).

Definitely worth talking to an insurance expert about the pros and cons.

Something else to consider about life insurance in general is your "insurance need". This takes into account several factors, including final expenses (funeral, etc.), outstanding debts (mortgage, credit cards, loans, lines of credit, etc.), and the needs of any survivors (annual income, tuition, emergency funds, etc.). If you have no dependents or other survivors who need looking after, then your insurance need is likely low. Your best bet is to figure out how much insurance you need, given your situation, and then determine how much coverage you already have (e.g. coverage through work, existing policies, etc.). From there, you'll be able to tell if you are over-insured or under-insured, based on your insurance need. Of course, need changes over time, so it's worth evaluating every 5 years or so, or during major life events (children, marriage or split, etc.).

 

[Anynym]

One benefit of insurance is that proceeds are tax exempt. So, if your estate was the beneficiary of your policy, those proceeds would not be subject to estate taxes. In addition, the proceeds could be used to offset any taxes payable on registered savings, which are deemed to be redeemed on the day of your death and therefore treated as income in your terminal year. That alone can trigger a fairly substantial amount of tax payable by your estate.

...

Definitely worth talking to an insurance expert about the pros and cons.

I'm not so sure about the details in the first part: my understanding is that your named beneficiaries could receive the proceeds of the policy without an income tax impact, but that if it goes into your estate, it is subject to everything applicable to your estate, including estate taxes, probate costs, etc.

That is, life insurance proceeds are not income, but if they're part of the estate, estate taxes will apply.

Definitely worth talking to an expert about.

 

[realthing69]

Wrong, wrong, wrong!

Get yourself universal life insurance while it is cheap. This way you will be able to put money/investments into it without paying taxes and accumulate capital in it same way as with RRSPs. In the long run it will get paid off big time.

This is what I am currently doing along with RRSP/TFSA.

 

[atlantica]

Just to be clear, there are no estate taxes in Canada. Yes, probate might be applicable, but that is barely 2%, and doesn't apply to all assets.

 

[SoftHands813]

I'm not so sure about the details in the first part: my understanding is that your named beneficiaries could receive the proceeds of the policy without an income tax impact, but that if it goes into your estate, it is subject to everything applicable to your estate, including estate taxes, probate costs, etc. ...

I'm sorry, I was mistaken. You are correct - the estate does not get the tax exemption the way individuals do.

Thanks for pointing that out!