Monday, July 14, 2008

Buying Life Insurance

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional.

When I bought insurance, I got a $50,000 Whole Life Participating Policy. This means I got covered by insurance for life (Whole Life) and I got dividends each year (the participating part of the policy). Currently I am paying no premiums and I am getting some $250 each year in dividends over the premium due each year on my policy. In 2007, my dividend was $1123.49; my premium was $866.45, so I got $257.04 in cash. When I bought my policy in 1985, there were all sorts of fancy policies being offered, especially the new style Universal Life policies.

When you buy life insurance, do not forgot that you are buying guarantees. Life Insurance is not an investment, what you are getting is guaranteed future payments. So, when I bought Life Insurance, I bought a plain vanilla type policy. Nothing fancy at all. I wanted a policy that would do what Life Insurance was developed to do, which was to pay a set amount of money at my death to my beneficiaries.

At the time, I bought this policy; I was married and had a small child. I also had investments. This policy was to ensure that my husband had enough money to pay for my funeral and any taxes required on my investments. He would not have to sell any investments if he did not want to. It is important for an investment portfolio that stocks from it do not have to be sold at a specific time, as it may be an inopportune time to do so. For example, in the current market, you would not want to sell stocks as the market is very volatile and we keep getting bear market type declines.

Through my work, I was covered by group term insurance policy. If this were not the case, I would have attached to my policy a term insurance rider. This would have been probably a 20 year term insurance rider. Attaching a term insurance rider to a policy is a very cheap way of getting insurance coverage. The purpose of it was to help my husband support our child, partially replacing the income I was bringing into the family unit. It would be for 20 years as it is meant to cover the time it takes for our child to become an adult and therefore self-sufficient.

Life Insurance has not changed all the much over the years. You do not tend to get participating policies anymore, as most Insurance companies are now owned by stockholders, not policyholders. However, you can still get Whole Life Insurance (that is coverage as long as you live). You can also add cheap term riders on the policies to cover the expensive years when your partner would need extra money to support any underage children. I still believe in getting insurance for the original purpose it was meant for; and to get simple policies. You should be buying a future guarantee of money on a future event.

I should also mention that when I worked, I worked for a number of different Life Insurance companies as a Business Analyst in the computer systems area.

See my website at for a list of the stocks for which I have put up spreadsheets on web site.

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