110

as a safety net for emergencies, is purchasing life insurance a practical investment? Life insurance is not an investment. It is a necessary expense if anyone depends on your income. You should expect to lose money on life insurance (otherwise, it means you've died). You should absolutely get life insurance ASAP. If you were to die today, your family ...


101

I think the key to this question is your last sentence, because it's applicable to everyone, high net-worth or not: How would one determine whether they are better off without insurance? In general, insurance is a net good when the coverage would prevent a 'catastrophic' event. If a catastrophic event doesn't happen, oh well, you wasted money on ...


77

Yes, that's called an annuity. You give them your money, and they pay you a lifelong monthly or annual payment. Of course, they want the money upfront, otherwise you could die and have nothing left.


70

Term life insurance is something that you purchase when the financial loss that would be incurred by your loved ones if you died would be catastrophic. In your example, 20 years ago when you were expecting a baby, most people would be well-advised to purchase term life insurance. Now that your kids are (nearly) adults, and the insurance money would not ...


63

https://www.investopedia.com/terms/s/secondtodieinsurance.asp What is Second-To-Die Insurance Second-to-die insurance is a type of life insurance on two people (usually married) that provides benefits to the beneficiaries only after the last surviving person on the policy dies. This differs from regular life insurance in that the surviving partner ...


59

Yes, and the math that tells you when is called the Kelly Criterion. The Kelly Criterion is on its face about how much you should bet on a positive-sum game. Imagine you have a game where you flip a coin, and if heads you are given 3 times your bet, and if tails you lose your bet. Naively you'd think "great, I should play, and bet every dollar I have!" -- ...


58

The real money maker for insurance companies comes from investing free cash. Most insurance companies have a diversified portfolio of fixed income and equities. Maybe someone can provide a more accurate number but from my back of the envelope calcs, the insurance company would need to earn maybe 5.4 % or so per year to break even. More than that is ...


47

First of all, congratulations on being in an incredible financial position. you have done well. So let's look at the investment side first. If you put 400,000 in a decent index fund at an average 8% growth, and add 75,000 every year, in 10 years you'll have about $1.95 Million, $800k of which is capital gain (more or less due to market risk, of course) -...


46

There are 2 maxims that help make sense of insurance: never insure anything you can afford to replace always insure anything you can't afford to lose Following those 2 rules, "normal" insurance makes sense. Can't afford to replace your car? insure it. Can afford to lose your TV? Don't insure it. People with a net worth in the low millions have very ...


45

Life insurance should be used to replace your income for someone that depends on it. Since that is not the case, and you have enough in your estate to cover funeral costs, it sounds like you do not need life insurance. It's a "nice to have" at this point. I'm just asking if my surviving family would be able to use my estate to pay funeral costs? Could ...


44

The answer to your question will depend on your own preferences and circumstances, but I would argue that generally at your stage of life you do not need nor want term life insurance. Life insurance exists because having someone die when they are critical to the financial well-being of the family is a disaster. This is often true for people with children ...


40

To expand on Aganju's answer, what you are describing is closer to a lifetime mortgage + annuity. With an annuity, you pay an upfront lump sum amount to purchase a guaranteed future income until your death. This is very much the reverse of a typical life insurance contract (term assurance) because it insures you against living too long (i.e. becoming ...


38

If you have dependents that rely on you financially, you buy life insurance so as to not disrupt their life if you were to die. You have a spouse who would have to pay the mortgage and probably couldn't on a single or no remaining income. You have kids who need to eat and go to school. It's the most effective product for that because you can rollup the ...


37

Life insurance is the perfect emergency safety net if your family would need a safety net in the emergency of your death.


30

While this is a totally personal decision, I still think it would be a good idea to have some life insurance simply because you have someone that is currently dependent on your income. Yes you have about 22 years in retirement, but if you consider taxes and market risk, there's still some uncertainty there. Also, while your wife may be willing and able ...


30

Why would a life insurance company agree to pay out a nominal amount that is higher than the principal given to them? As mentioned in other answers, the insurance company is assuming that they will earn a return on the principal they receive from the annuitant which is greater than they are giving the annuitant. The basic principle behind this is called ...


27

The product is called "second to die," as mentioned in RonJohn’s answer, or "survivorship life," as you saw. I think you’ll find that the premiums for 2nd to die aren’t enough cheaper to make it the right choice for you. Especially considering that you would either continue to pay the premium after the first spouse dies or pay a higher initial premium if a ...


26

There are two common types of life insurance, term and permanent/whole. Term life insurance policies have no payout if you don't die during the term of the coverage, they are just insurance. Permanent life insurance is both insurance and an investment vehicle, but for the majority of people it is not a wise investment. It's prudent to carry term life ...


24

You are exactly right, life insurance is income insurance to replace your income for people who depend on it. If you are retired or have assets to take care of those that rely on you then you are self insured. Also consider the duties of a parent that may not generate an income; maybe child care, housework, meal preparation, tutor, transportation, etc. ...


24

The point of insurance is to trade high variable costs for much lower fixed costs. The question isn't whether you can afford what would be a catastrophic event for anyone else, but whether it would be better to pay a small amount regularly vs. a possibly larger amount occasionally. One of the reasons to buy insurance is to avoid costly litigation (rich ...


21

There is only ONE legitimate reason to purchase life insurance - to protect your family from the loss of your income should you die unexpectedly. No other considerations should factor in. The most effective product for that purpose is simple Term Life.


21

The insurance company is expecting to earn more money investing the initial buy in amount ($100k) than it pays out. You need to calculate what the equivalent rate of return is for that $100k. Unless this is also an immediate annuity there is typically a period of time before any payout begins. There are more criteria for an annuity than you’ve included to ...


20

The purpose of life insurance is normally to protect your dependents in the event of your death. Since you don't have any dependents, I would say you don't need life insurance. (See this question for a fuller answer). However, you may choose to buy life insurance now on the basis that you hope to have dependents in the future, and depending on your ...


20

The thing that is a red flag for me is your statement of "investing in life insurance". No. You probably need to fire her. Investments are great, and life insurance is necessary. Mixing the two is bad, and very bad. The right solution is to buy Level Term Insurance. It is pretty darn cheap. The level part is the number of years the premiums will ...


19

The way to think about this is: what would happen to the family if stay-at-home Mom were to die. You obviously can't do anything about the loss, grief and trauma, but think about the financial implications. Assuming that Dad continues to work, and that the child is young, you are going to have to find someone to take care of him/her. If you have relatives ...


18

The insurance is no longer needed to support either spouse or children in the event of a spouses's death. Life insurance is pretty much only for people who aren't in your situation. You know that the insurance company is making money by using their actuaries to come up with very accurate payout probabilities for large cohorts of their customers. Since ...


16

In the United States, yes it will generally cover suicide. However there is usually a "suicide clause": Usually, this clause states that no death benefit will be paid if the insured commits suicide within two years of taking out a policy. Whenever an insured person replaces an existing life insurance policy with a new one, the time clock for the ...


15

No you are not. Sorry about the goings on in your life that is certainly a lot of drama in addition to the loss of your mother. An advantage of having assets pass without going through probate is they do not have to stand for debts of the estate (usually). The life insurance is yours free and clear. You do not need to pay for any final expenses, but I ...


15

This is not the answer you were hoping for. I recommend that you stay out of it and let your parents do what they want with their money. They are obviously very good savers and very thrifty with their money. At this point, they likely have more money than they need for the rest of their lives, even if it doesn't grow. It sounds like your parents are ...


15

If I was in your shoes I would have some term insurance, and it is pretty darn cheap at your age. Your wife is dependent upon your income, and it will take sometime to transition from non-working to working. As she could probably get a job doing anything, it will probably take many years to build up to the lifestyle she is accustomed. She may never be ...


Only top voted, non community-wiki answers of a minimum length are eligible