Life insurance at 20? Advice/tips pls Long post ahead

[sheba92766]

Long post ahead!!!!

Hello, im a 19 year old college student. And my mom is urging me to get a permanent life insurance as i can lock the $50/month. Upon research thats reasonable as we get older our premiums is higher. But as i was looking i dont have dependents or mortgage. So i dont have to worry about that and no one will be effected of my death as im not paying anything, right? But then the advisor mentioned, about the death benefits and cash value thats comes with whole life insurance. I can withdraw, yea with tax but there is a death benefits. So i can use that tax benefits for funeral expenses or the cash value for my other expenses. Aside from my retirement funds or investment… but thinking about that, i would be losing $50/month compared if i saved that up and if its about funeral expenses i can just use my retirement or other funds.

So, im thinking at 20 years old and lock in low premium for 30 years. Just in time for my kids to be older and mortgage is paid? Or start when i got a family and kids? But it would be high premium right? Or at my age i can use the permanent health insurance(not sure) or critical illness or disability one or the income insurance??

I mean its normal to get it when youre in mid 20’s to 30’s??

Help me pls, im so conflicted. But life insurance is not for my investing. In terms of investing, it would be in another thing (like tfsa etc)

Thank u advance!!

 

[hannahjane]

@sheba92766 I’m pro having a $50k-100k policy that you can use for final expenses.

The policy should be:
1. A limited payment period (7 - 20 years as affordability allows)
2. Not focused on cash value accumulation but maximizing the death benefit for the smallest premium.
3. Dividend paying so the dividends are used to purchase paid-up life insurance as an inflation hedge.
4. Not considered part of your retirement planning.

But… 19 and in college feels early to me. If your mom is so insistent on the purchase ask her to pay until you’re out of college. Once you’re in your first job you can take over. Or just revisit the purchase then.

Alternatively buy a super cheap 100k term policy that lets you convert to the policy I mentioned above down the road. You should be able to find that coverage for $15ish/month.

 

[texco]

@sheba92766 If you have extra money at your age I highly recommending investing it and not tying it up in insurance. Insurance is ostensibly tax advantaged (and there are minor tax advantages) but not nearly as much as a Roth IRA.

 

[lovelovelove3]

@sheba92766 You can get a policy that ties into the stock market like a VUL or a IUL (be careful with both do your research) that’s the only one that would make sense getting at 19. If not then start putting 50 dollars into the S&P 500, much better returns. Wait til you have kids or mortgage to get a term or get it closer to 25-30 premiums will still be cheap

 

[ativyl]

@sheba92766 Do you have any need at all for a life long death benefit? Assuming no, permanent life insurance makes sense primarily as an investment. It is an investment that compensates for higher costs by giving terrific tax advantages. Given the amounts you are talking about you likely don't have tax problems. Heck, the average 20 year old doesn't have any need at all for a temporary death benefit. Also, $50/mo would be a tiny policy that would be too small for investment and too small for lifetime protection. It pretty much does nothing except get you used to the ideas of whole life. FWIW anything monthly is a waste of money you want to be annual.

I hate to say "buy term and invest the rest" so I'll say "invest it all and wait till you need term". If it is going to be too much of a hassle then get a no load VUL. Make sure that whatever you intend to put in is sane for someone with no insurance need.

 

[ladyeag]

@ativyl Please show me a permanent policy that makes sense primarily as an investment like you are suggesting here.

 

[ativyl]

@ladyeag I did a whole series on this:

https://www.reddit.com/r/IncomeInvesting/comments/14j82hw

Not sure what you mean by "show you a policy". Just about any VUL works. Nationwide no-load or Ameritas no-load you can calculate expenses pretty straightforward. On say $1.5m 7-pay you'll lose about $200k to expenses over the 15 years. In exchange all the gains are tax protected. Longer term (especially for a young person) the insurance costs are low. Even for someone like me in their mid 50s I'm clear of expenses other than insurance before 70. Most of the "accumulator" IUL policies are designed for a similar construction but are bond replacements only. For whole life a Mass Mutual 10-pay with a 10/90 design funded in 4-10 years will beat the federal funds rate after taxes about year 10 with plenty of spread.

Using insurance you can get tax advantaged bonds while deducting the cost of the policy (mortgage loan, margin loan...). I'm using my policy for investment purposes and I have 0 need for death benefit. The life insurance is a pure cost. I'm getting tax deductions on the margin loans against stocks (about Federal Funds rate + 50bp as borrowing cost) while earning credits well north of the federal funds rate tax protected. For example this year I'm already essentially locked in over 11%, likely to hit 13%. Obviously I'm not going to do that well every year but if I do that well half the years I'm fine. Heck just taking the fixed credit of 5.3% I'd be fine. The policy expenses are high since I'm still early years but I'm containing them with a 17/83 design in an IUL with the intention to slash the death benefit (and drop the term blend) as soon as I stop funding.

If you want to see longer term policies that beat bonds they are all over the internet. Beating traditional bonds without taxes crushes muncipals and crushin muncipals creates tremendous possibilities.

 

[ladyeag]

@ativyl I say show me the policy so I can see if it works the way you say. It should be easy to show an actual policy. I'm not looking for a sales pitch or sales documents like an illustration or hypothetical. The actual policy shows what I'd be actually getting.

 

[heatherfeather]

@sheba92766 What is the death benefit for this policy?