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amabaie 24 days ago

Until my children have children of their own to support, what would they need life insurance for?

furball4 23 days ago

The only thing that would make sense here is a term product that protects their insurability in a meaningful way. Of course that is gambling – all insurance is. And from a financial perspective it is always *on average* a losing gamble. But that’s the point – you gain security by playing.

I wish that a term life product like this existed:

– Premiums start at birth, or preferably before, either as a rider on another life policy or as a stand-alone for people expecting children

– No benefit is in effect until the child a) gets married, b) gains a dependent, or c) reaches age 25 (for example)

– Term is to age 65, though it may make sense to have a diminishing benefit at age 50 or so

– Premiums and benefit both scale with actual inflation, because when you are planning so long-term there’s no good reason for either the company or the individual to leave that to guesswork

– Premiums scale with actuarial table changes, so if people start living longer the premiums will go down, and vice versa

The value proposition is entirely about getting into a large pool as soon as the world knows you exist, but before it could possibly know about your potential health problems. Bonus points for making this a multi-generational product that automatically covers any insured’s children, if they choose to begin making premium payments at birth.

Why doesn’t this exist? Because regulations forbid it. Most state regulations have been created, either by whole-life lobbying or by sheer political meddling, into demanding that policies over a certain potential term or that represent a certain amount of total premium payments must build a cash value. In other words, pure insurance products of the sort I suggest are currently illegal.

0x520x430x45 20 days ago

"Most state regulations have been created, either by whole-life lobbying or by sheer political meddling, into demanding that policies over a certain potential term or that represent a certain amount of total premium payments must build a cash value."

State your source.

furball4 17 days ago

Sure, sorry about that. Unfortunately it's a complicated topic that is hard to generalize about accurately, though of course I was just trying to up there in my original post. :) Basically, term life of a long enough term will collect enough premiums that it gets caught by rules designed to stop certain predatory whole-life practices. While these rules were originally intended to (and did) limit whole-life products in ways that protected consumers against their own poor decisions, they also by default marked out the limits of term products. Insurers are perfectly happy with that part of the result, because whole life products have a much greater opportunity for profit. Opening it back up for term would mean that term products could compete with whole-life products across the board.

There is a very longstanding thread here ( http://www.americaninsurancebroker.com/showthread.php?t=843 ) that has turned into a good resource for non-insurance types like us to get a handle on the issues involved. In it, a couple of insurance insiders/actuaries are explaining to a broker why there are significant holes in what pure term products can cover under current regulations. Two posts of note that you might want to start with:

http://www.americaninsurancebroker.com/showthread.php?t=843&page=4#32

http://www.americaninsurancebroker.com/showthread.php?t=843&page=3#25

The latter of those discusses the negative impact of out-of-date reserve regulations as well. For two sides of the non-forfeiture issue, check out this article defending non-forfeiture laws in general, though calling for needed reform:

http://www.thefreelibrary.com/Don%27t+Forfeit+Nonforfeiture.%28Industry+Overview%29%28Statistical+Data...-a063126379

and this article recommending they be done away with:

http://www.alantralife.com/news_rewritelaw.asp

There are plenty of other issues at stake in this, as the articles reveal. But regardless of the regulators other concerns, all the research I have been able to do on this topic - though it's hard, as I said - points to the conclusion that the term product I would like to buy has been (un?)intentionally regulated out of existence despite being perfectly fair to consumers and an all-around smart, cheap purchase.

As for why I would prefer to buy the product I describe on a pure insurance basis instead of slowly building up a self-sustaining fund, it is simply cheaper. To attain a self-sustaining fund over one or even a few generations would be much more expensive. Besides, the policy I describe would already be guaranteeing that my children (and their children, etc.) could be insured for an affordable amount. I don't see any benefit to guaranteeing that they are insured for *free* at some point. The point is to do for them what they can't do for themselves: secure a guarantee of coverage before they might be knocked out of the cheap pool. Not to do for them what they can certainly do for themselves: find $50/mo to maintain it. I'm even guaranteeing that the premiums will never increase in terms of relative buying power.

There is this intuition about life insurance that says if you outlive the benefit term, you "didn't get anything for your money". Rational buyers realize this intuition is wrong. Of course you got something: you successfully hedged your risks for the period of time that they were worrisome to you. I want to pay the least amount of money I can to accomplish that goal, because I have other things to do with the money I'm not spending on insurance.

tamar 16 days ago

...wow.

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