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Something that has been nagging at me lately.

Let's take a person:

  • 30 years old, US, non smoker, no significant medical problems
  • No debt (of any kind, mortgage, student, or credit card)
  • No plans to initiate any kind of debt in the next few years
  • No known current dependents (spouse, children, parents)
  • No plans to initiate dependent in the next few years
  • Enough estate money to cover funeral expenses

Is there any benefit to carrying modest to significant life insurance coverage similar to what an individual with children, a spouse, or parents requiring caretaking might hold?

Would picking up insurance now, convey any sort of benefits to any policy said person might eventually get when it would normally make sense (dependents), when they are older (say 50+ etc.), or have large debt in the estate?

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FYI: Your debt is not going to be passed down with your estate. It will just be paid out of the estate (if there is enough money) before any disbursements are made. So there isn't a reason to worry that your kids (if you ever have any) will inherit your debts. – JohnFx Jan 30 '12 at 21:12
1  
Right! I do understand that. I just add debt because if an estate had $300,000 in debt, and $200,000 in liquid assets, then the estate would pass $0 to dependents. Whereas, if there was $300,000 in debt, $200,000 in liquid assets, and a $300,000 life insurance policy, the estate would pass down $200,000 minus taxman/expenses. – Glorified Plumber Jan 31 '12 at 1:52
    
In the long term a youngish, debt and dependent-free person will tend to become an oldish, debt-ridden parent. – DJClayworth May 20 '14 at 15:48
    
@GlorifiedPlumber: In the last situation, the estate would pass zero to the dependents, and the life insurance policy would pay $300,000. – gnasher729 Sep 14 '15 at 21:00
up vote 8 down vote accepted

There is no benefit in life insurance as such (ie, death insurance.)

There is a great deal of value in other types though: total and permanent disability insurance, trauma insurance (a lump sum for a major medical event), and income protection insurance (cover against a temporary but disabling medical condition). If you don't have that, you should get it right now.

This is about the most important insurance you can carry. Being unable to work for the rest of your life has a far larger impact than having, say, your car stolen.

...

If, later on, you acquire dependents, and you feel you ought to have life insurance, then you will have a relationship with a life insurance company, and maybe they will let you upgrade from income/TPD to income/TPD/life without too much fuss or requalification. Some do; whether yours would I don't know. But at least you have a toe in the door with them, in a way that is infinitely more immediately useful than getting life insurance that you don't actually need.

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If there are no dependents, there is no need for life insurance.

You mention getting insurance when it is not needed, to protect you against some future risk. If you have a policy and a disease crops up that would normally make you un-insurable, you can keep your insurance for the rest of the term. The cost for this would be very high. You would have to have a term that would last decades to cover you until some future child is out of college.

If you never have somebody that depends on you for income, there never is a need for life insurance.

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For most situations the "no need" answers are 100% correct.

The corner case to think about depends on your health and your family history.

Not to be morose, but if folks in your family who died young from heart issues, clusters of cancer or other terminal illnesses, you may want to consider getting medically qualified for a modest amount of insurance when you are young. Then, when you have children, you usually have the option of incrementally upgrading your coverage over time.

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As others have said, if you don't have dependents, there's little need for life insurance. If you can't think of any obvious beneficiary for an insurance policy, than you probably don't need one.

"Dependents" here should be understood broadly. It wouldn't necessarily be limited to wife and children. If you're the only support for your handicapped cousin, for example, you might want to provide for him. But I take it from your question that you have no such special case.

Of course even if you have no dependents now, you might pick some up in the future. And if and when that does happen, your medical situation may have changed, making it difficult to get life insurance. But if you have no immediate plans so that any such even is likely to be far away, a serious alternative to consider would be to invest the money you would have paid in insurance premiums. Then if someday you do acquire dependents, you have a pot of money set aside to provide for them in case something happens to you. If it's not enough and you can get insurance at that time, then great, but if you can't get insurance, at least there's something. If you never do acquire dependents, you can consider that pot of money part of your retirement fund.

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As Mhoran stated, no dependents, no need. Even with dependants, insurance is to cover those who would otherwise have a hardship. Once the kids are off to college and house paid for, the need drops dramatically.

There are some rather complex uses for insurance when estates are large but potentially illiquid. Clearly this doesn't apply to you.

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There are a few questions that need qualification, and a bit on the understanding of what is being 'purchased'.

There are two axioms that require re-iteraton, Death, and Taxes.

Now, The First is eventually inevitable, as most people will eventually die. It depends what is happening now, that determines what will happen tomorrow, and the concept of certainty.

The Second Is a pay as you go plan.

If you are contemplating what will heppen tomorrow, you have to look at what types of "Insurance" are available, and why they were invented in the first place.

The High seas can be a rough travelling ground, and Not every shipment of goods and passengers arrived on time, and one piece.

This was the origin of "insurance", when speculators would gamble on the safe arrival of a ship laden with goods, at the destination, and for this they received a 'cut' on the value of the goods shipped.

Thus the concept of 'Underwriting', and the VALUE associated with the cargo, and the method of transport. Based on an example gallion of good repair and a well seasoned Captain and crew, a lower rate of 'insurance' was deemed needed, prior to shipment, than some other 'rating agency - or underwriter'.

Now, I bring this up, because, it depends on the Underwriter that you choose as to the payout, and the associated Guarantee of Funds, that you will receive if you happen to need to 'collect' on the 'Insurance Contract'.

In the case of 'Death Benefit' insurance, You will never see the benefit, at the end, however, while the policy is in force (The Term), it IS an Asset, that would be considered in any 'Estate Planning' exercise.

First, you have to consider, your Occupation, and the incidence of death due to occupational hazards. Generally this is considered in your employment negotiations, and is either reflected in the salary, or if it is a state sponsored Employer funded, it is determined by your occupational risk, and assessed to the employer, and forms part of the 'Cost-of-doing-business', in that this component or 'Occupational Insurance' is covered by that program.

The problem, is 'disability' and what is deemed the same by the experience of the particular 'Underwriter', in your location.

For Death Benefits, Where there is an Accident, for Motor Vehicle Accidents (and 50,000 People in the US die annually) these are covered by Motor Vehicle Policy contracts, and vary from State to State.

Check the Registrar of State Insurance Co's for your state to see who are the market leaders and the claim /payout ratios, compared to insurance in force.

Depending on the particular, 'Underwiriter' there may be significant differences, and different results in premium, depending on your employer.

(Warren Buffet did not Invest in GEICO, because of his benevolence to those who purchase Insurance Policies with GEICO).

The original Poster mentions some paramaters such as Age, Smoking, and other 'Risk factors'.... , but does not mention the 'Soft Factors' that are not mentioned.

They are, 'Risk Factors' such, as Incidence of Murder, in the region you live, the Zip Code, you live at, and the endeavours that you enjoy when you are not in your occupation.

From the Time you get up in the morning, till the time you fall asleep (And then some), you are 'AT Risk' , not from a event standpoint, but from a 'Fianancial risk' standpoint.

This is the reason that all of the insurance contracts, stipulate exclusions, and limits on when they will pay out.

This is what is meant by the 'Soft Risk Factors', and need to be ascertained.

IF you are in an occupation that has a limited exposure to getting killed 'on the job', then you will be paying a lower premium, than someone who has a high risk occupation.

IT used to be that 'SkySkraper Iron Workers', had a high incidence of injury and death , but over the last 50 years, this has changed.

The US Bureau of Labor Statistics lists these 10 jobs as the highest for death (per 100,000 workers).

  • Logging(LumberJAcks-etc) 117
  • Fisher(men&Women) 112
  • Airline Workers(Pilots-etc) 53
  • Roofers (Heights & Heat) 40.5
  • Structuarl Iron & Steel (IronWorkers) 37
  • Refuse&Recycling 27
  • Electrical Power Line 23
  • Truck/Delivery Sales-Drivers 22
  • Farmers/Ranchers 21.3
  • Construction 17.4

The scales tilt the other way for these occupations:

  • Lending (0.3 %)
  • Professional, Scientific,Technical Services (0.3%)
  • Information Services (0.2%)
  • Patent & TM , Leasing (0.2)
  • Investment Services (0.1)

(In Canada, the Cheapest Rate for Occupational Insurance is Lawyer, and Politician)

So, for the rest in Sales, management etc, the national average is 3 to 3.5 depending on the region, of deaths per 100,000 employed in that occupation.

So, for a 30 year old bank worker, the premium is more like a 'forced savings plan', in the sense that you are paying towards something in the future.

The 'Risk of Payout' in Less than 6 months is slim.

For a Logging Worker or Fisher(Men&Women) , the risk is very high that they might not return from that voyage for fish and seafood.

If you partake in 'Extreme Sports' or similar risk factors, then consider getting 'Whole Term- Life' , where the premium is spread out over your working lifetime, and once you hit retirement (55 or 65) then the occupational risk is less, and the plan will payout at the age of 65, if you make it that far, and you get a partial benefit.

IF you have a 'Pension Plan', then that also needs to be factored in, and be part of a compreshensive thinking on where you want to be 5 years from today.

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Careful with saying "no need".

Look careful at the cost of life insurance. That cost depends obviously on the amount, but also on the age when you start paying into the insurance. If you take out a $100,000 insurance at 20, and someone else takes it out at 30, and a third person at 50, they will pay hugely different amounts when you reach the same age. You will pay less when you are 50 then the person taking out insurance at 30 when they reach the age of 50, and less again than the person who just started with their life insurance.

And as mhoran said, once you have insurance you can keep it even if you get an illness that would make you uninsurable.

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Term life insurance for a healthy 30 year old is a heck of a lot cheaper than for a 40 year old who's starting to break down (and who needs the coverage since he's got a spouse and kids).

So, get a long term policy now while it's cheap.

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