Insurance is shifting the risk to someone or something that is more likely to be able to handle the catastrophic event. People often insure their life through life insurance, their income through disability insurance, their business through business overhead insurance, etc.
It has been almost exactly two years since I reviewed my life insurance policies. I am not sure what it is about September which makes me think about the topic, but it seems that almost every 2 years I take a look at the topic.
My Family’s Life Insurance Policies
I think it is important to understand and learn about the different types of life insurance policies. I may be one of the few personal finance bloggers with permanent coverage (or at least one of the few that admit it) but these cash value policies are a part of my financial picture (although I don’t check the cash value monthly or apparently even annually).
I think it is pretty clear from the blog, I am a saver, but I find the argument of buy term and invest the difference is complete bullshit. The cash value numbers below would not exist elsewhere on my balance sheet if they weren’t built in here. Yes, I could probably get a better internal rate of return in the market, but having looked at thousands of these policies over the past decade, their IRR are comparable to a bond fund.
The Policies on my Life
- 20yr Term Insurance for $1,000,000 – This is the cheapest I could get on the market. This policy was purchased in 2013.
- 20yr Term Insurance for $1,000,000 – This was more expensive and with a great mutual company. The reason I opted to ‘overpay’ was in case I chose to convert the policy to a permanent whole life product down the road and I couldn’t qualify for as good of a health rating. This policy was taken out in 2013 so I have a number of years before I have to decide whether to convert.
- Paid up at age 99 – Started with a death benefit of $100,000 but currently has a death benefit of $107,408 and cash value of $5,195.
- Paid up in 10 years – I started this account to know that in 10 years I will have a growing death benefit going to my family regardless of what happens in the future. I am currently 4 years into this contract. It started with a death benefit of $44,444 and now has a death benefit of $45,201 with cash value of $4,365.
Total death benefit – $2,152,609
Total Cash Value – $9,560
Items to review by year end – conversion options with the term.
The Polices on my Wife’s Life
I personally believe that traditional insurance and financial planning does not take seriously enough the quantitative value of a spouse who may not be the primary earner. If something were to happen to wife, I am not sure what that would do to my career, but it would obviously take a backseat to my children’s well being.
- Life Paid up at age 99 –Blended policy with a base of $100,000 and one year term policy of $150,000. Death benefit is currently $250,028 with cash value of $3,711
- Life paid up at 121 – started at $120,350 and currently has a death benefit of $121,929 and cash value of $718
- $500,000 Term – I couldn’t find records of this policy online! I am going to have to track down this information ASAP.
Total Death Benefit – $871,957
Total Cash Value – $4,429
Items to Review by Year’s End – Track down information with regard to that term policy! Determine, whether the monthly payment on the 121Life policy could be used to convert the blended life policy quicker.
The Polices on my Children
I am a huge proponent on life insurance on children. First and foremost, if something were to happen to my children I am not going to work for a period of time. I don’t know how long that is, but I know it is long enough where I am going to need additional funds. The Wife hates when I say that reasoning aloud, but buying insurance isn’t taking a bet that it’ll happen, just being prepared in the VERY unlikely case it does. Second, each of the following policies has a rider on it that’ll allow my child to increase their coverage as they get older without medical underwriting. This may come in handy if they are ever to be uninsurable for any reason.
- Paid up at 100 for the benefit of my Son Later in Life – Started at $135,000 and currently has a death benefit of $136,075 and cash value of $2,007.
- Paid up at 65 for the benefit of my Daughter Later in Life – It was taken out a few months after my daughter was born. Started with a death benefit of $135,000 and is currently at $136,283 with a cash value of $63.
Cash Surrender Value of $2,100.
Total Cash Surrender Value
I am shocked to learn that I have $16,089 of cash locked up in the policies. I knew that there were a few dollars, but I didn’t think it would be this much. Granted, the internal rates of returns on the policies are probably all still negative, however, this is money that I am positive would not have ended up on my balance sheet anywhere else.