your kid would better off if you put that $75/month into an index fund for the next 30 years. at a conservative 5% return, you're looking at over $63,000.
Whole life isn't terrible until you get older. The way it works is (this is just an example, the years and amounts aren't exact, but it gives you an idea): Assume you pay $25/month for the lifetime of the policy. Years 1-10 The cost is $15/month, so that extra $10 goes into your account, and you earn some interest Years 10-15 The cost is $25/month, so no money is going into your account Years 16-20 The cost is $35/month, so the extra $10 comes from your account Basically you're saving in order to help pay for the life insurance down the line. Like macalu said, you'd be better off investing the money in an index fund. Also, whole life is more expensive. While you're paying $25/month for a whole life policy, you'd be paying $10-$15 for a term policy.
My sis & bro-IL just looked at this with Metlife @ 100 & 125 a month. I sat in on their meeting. They illustrate the guaranteed 3% but also have the historical IRR in the same illustration. Even in 2009 they still paid something like 4.2% The difference is not as big as you'd think as far as cash value at 30 for the kid with the added benefit that there was also a death benefit of 350k. That'd be important if there were family and something happened [like OP here]. They can also borrow against the cash value for college [borrow not subject to tax] The kid could also borrow against the policy for a down pay on a house [again, not subject to tax] Plus the kid could keep paying on it for another 30 years and have an even bigger death benefit & retirement supplement This isn't the only thing I'd do for the kid but it's a nice way to diversify if you want to help set someone up. In OP's case for himself, term is way to go 9/10 i'm sure.
Thread bump - My financial advisor is really pushing for me to buy Disability Insurance. Premium would be about $1,500 per year. He said white collar workers need to secure income supplementation if they get injured or get a serious disease and prevents them from working, and the paychecks stop rolling in. Do any of you guys have any thoughts on this?
Most benefit packages for large companies include disability insurance. Like most insurance, it is great if you need it and have it.
If you've got room in the budget, yes, it's a good idea. Ideally, as mentioned, you'd have something through your employee benefits package. Check with your HR.
Seems expensive, but maybe that is because I'm used to seeing group pricing (or because you have a higher income).
Aflac isn't all that good and a 10 month emergency fund won't help you if you need long term disability payments. However, the average disability claim in the United States is under 3 years I believe. (been awhile since I looked at those stats.) Disability policies are money makers for agents and insurance companies. You aren't likely to need it and you don't get your money back if you don't use it. It's always better to have it through an employer, but if you don't have it then it is a smart purchase if you have room in the budget and losing your income would ruin you financially. edit: If you don't mind, what company is the policy he wants you to buy with?
The policy would be from Standard Insurance, unfortunately, I'm at a small company that does not offer this as a benefit. This seems like something people typically only get if they have it as part of their benefit package. Does anybody else spring for it out of their own pocket?
Sure people do. I don't know anything about you so I can't tell you whether people like YOU buy it, but people definitely buy it. You are not being scammed if that is what you are worried about. Edit: I would think that if you feel like $1500 a year is a huge investments then DI is probably not a good investment for you. Standard is a good company with a good product so that right there tells me you aren't being just sold some high commission garbage. Are you at a high level in your company? Companies are always surprised at how inexpensive it actually is to offer disability plans. If you have the ability to convince someone to look into it I would suggest that route. It's going to be more cost effective that way and as long as it is structured right you won't have any tax issues.
Of course, most people aren't likely to suffer a long-term disability in white collar jobs. I've never had a doctor that didn't have one, of course they used to abuse the heck out of those policies. I don't think the average joe typically gets them outside of work.
This is good advice OP. Press whoever makes the benefits decisions on exploring this offering. My company pays 100% of mine. Perhaps your company could pay say 50% as it shouldn't be a big bullet to bite and is a great benefit to offer.
Disability isn't going to pay if it's an on the job injury anyway, that's workman's comp. Long term disability is going to be for sickness or injury (off the job) that keeps you from being at work. Getting diagnosed with Parkinson's, having a knee injury that prevents you from working, etc.
The thing is, a knee injury isn't going to keep a white collar person from working. That is the point, not on the job injury. Most of what keeps us out of work falls under short-term disability. BTW, what do you not like about AFLAC?
That's not true. A knee injury that limits your ability to drive to the office, to move around at your desk, to get up and down stairs, etc. can definitely qualify you. I actually saw this happen less than 6 weeks ago where a white collar man got full LTD disability benefits approved due to a knee problem. Buying a disability product is really to protect your income from a serious issue before you are at retirement age. But yes, the majority of people will never need it and the majority that do won't need it long. About 20% or so of workers will need disability in their lifetime and about 30% of those will need it for longer than 5 years. Their sales people and accident/cancer products in general. Most people won't have a use for them at all and many others when they do have a use for them don't ever take the time to file the benefits. The actual policies do exactly what they say they will do.
To follow up, I'm just not really a fan of putting money into insurance policies that you have very low probabilities of getting your money out of and I don't think you will on most AFLAC type deals. To the other poster, typical LTD/STD policies will run a company around $50 per employee per month. That number can fluctuate depending on salaries, but that's a good baseline.
Getting disability benefits and being unable to work aren't one in the same necessarily. The injury limits you, but doesn't prevent you from doing them. Okay. I have so many clients that use AFLAC, that I didn't want there to be something terrible about them that made me think I needed to say anything to them.
Thanks guys. Lots of wisdom and knowledge in the Clutchfans community - I appreciate all of the insight.
Definitely GET disability insurance. It's not usually very expensive, but can be well worth it. When my wife took maternity leave, she was out for 6 weeks and we were able to use her disability to help cover the loss of pay. Then last year she had a complete hysterectomy (due to re-occuring endometriosis) and was out for 8 weeks. That Disability really saved us. It was 80% of her pay, but 80% is much better than 0%. I have a coworker that slipped on some stairs and broke her knee. Ended up having several surgeries and has been out for 9 months now..things can happen in a flash & disability is designed to help with the loss of income. You'll never know when you need it.
