Life Insurance for 23 yr old male?

barbcollinsAugust 8, 2012

Our son went directly into the Marines after graduation from HS. He eased out last summer.

He is now a correction officer in training under the county sheriffs dept. He has a small life insurance policy through work based on his annual income. He is making $38-50K year.

He received a letter from the VA today about the VGLI enrollment period ending in October. He can obtain a policy for $400K which would cost him $365/year. A $10K policy is $9/yaar, and there many other price points in between those.

Obviously I don't think he needs this much life insurance, and I question whether he needs more at all. But, I also realize he would not be able to find life insurance at these prices on his own later. You never know... he could be married with children in 4 or 5 years, and then wish he had it.

If you were in his shoes, would get it or forget it?

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I suspect he would be much better off with term insurance if and when
he needs it. He or you on his behalf needs to do some research re life
insurance. Generally speaking, whole term insurance is not a good
investment. Google Suze Orman's website or suze orman life insurance for a discussion re insurance and what you need to know about it before
purchasing anything.

    Bookmark   August 8, 2012 at 10:35PM
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This is Term Insurance not whole life. I am aware of the difference.

This is a group life policy through he VA and he has to sign up within 1 year and 120 days of separation or he loses the benefit.

The question is more about losing that chance.

    Bookmark   August 9, 2012 at 6:50AM
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I don't think that is a big "discount". My term policy isn't much more than that per 100k and I'm not 23. Term insurance is pretty cheap for young, healthy people.

Is your son married? Kids? Insurance is for the people who depend on you to provide income. If he's single, he doesn't really have any insurable needs. If he has a young family, he needs about 20 times his earnings in insurance

    Bookmark   August 9, 2012 at 8:56AM
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In a normal occupation he wouldn't have a difficult time finding competitive term insurance rates. What I question is whether he would get rated for his occupation, depending on his assigned duties. If he has to be licensed for firearms, I would expect that many, not all, carriers would consider rating him as an occupational risk.

You can suggest he talk to an experienced insurance broker and see if his future occupation is of any concern or not, to the insurance companies. There's no obligation implied, and then he'll have something concrete to compare with the VA plan.

    Bookmark   August 9, 2012 at 5:01PM
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I'm assuming he has no one dependent on his income. Not to sound insensitive but if he dropped dead tomorrow the only expenses would be for a funeral. The insurance policy through his employer will likely cover that, right?

I don't see much need for insurance otherwise or buying in anticipation of some future event. Long term disability insurance might make more sense.

Plenty of places to get online rate quotes or try a local independent insurance agent to compare rates with that of the VA.

    Bookmark   August 9, 2012 at 7:28PM
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Billl - Can you tell me who you use for insurance. The online quotes I got were a lot higher. He can get $100K for $90/year thru the VA.

jkom51 - Yes I wondered about his occupation in this too, and whether being a correction officer or a patrol officer (his goal) would effect his rates. The VA plan is only based on age and rate do not change due to health or occupation.

mike_kaiser - Yes, I compared the rates online and that is why I made my original inquiry here. He is well covered for long term disability through work. And yes his currently policy through work would cover funeral expenses (not to mention the VA will kick in too).

    Bookmark   August 10, 2012 at 7:11AM
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What is the term duration? That's an important part of this inquiry. He's healthy now and it's cheap. Now is the time for him to lock his rates in but at the same time he has to look into a crystal ball and forsee what his future will be like, wife, kids etc. 400k is really a weird number, if it were me I'd be asking for rates of a minimum of 500k and I'd go as far as 1 million. Lock it in for 30 years and if possible longer. If his health changed down the road he may not be able to get life insurance or he may end up paying more. I just ran the numbers on a 20 year and 30 year for a 23 year old male in excellent health. 20 year - $307/year and 30 year - $603 a year. My answer would be if it's available and the term duration is a minimum of twenty years, I'd do it. I'd also check to see if the policy is convertible and if there are any accelerated death benefits available as well. Hope that helps.

    Bookmark   August 10, 2012 at 10:44AM
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two.25acres - It will be in place for his lifetime as long as he pays the premiums.

Yes, there is accelerated benefit option for terminally ill. Yes it is convertible to a private policy.

    Bookmark   August 10, 2012 at 12:38PM
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Then I would definately do it. I've got 5 brothers and we're all pretty healthy however 2 of them have had issues with dependency and because of that they cannot get a policy. Things in our lives can change overnight that's why it's best to buy when your young and lock it in. Yes, I sell life insurance and I've lost my dad at 45, a niece at 8 and a grand niece at 6 among many others. The need is always there.

    Bookmark   August 10, 2012 at 1:23PM
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two.25acres - Thanks. I know he would be over insured now, but the right girl could come along and change everything.

I checked with the Insurance Agent that handles some of our policies.

I asked:
Would being a corrections or police officer have an effect on the rates he gets if he waits until later?
She replied: YES very much

She highly recommended purchasing a policy and offered to review the coverage for us.

    Bookmark   August 10, 2012 at 3:16PM
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She's right and it sounds like you have your answer.

    Bookmark   August 10, 2012 at 3:31PM
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At his age, unless he gets married, why bother with any insurance? It's an industry that plays on fear or guilt. If he needs anything, a simple term life insurance policy of 50k is more than adequate. Forget the VGLI.

    Bookmark   August 12, 2012 at 5:30AM
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He is young now. In a few years, he may need way more insurance than what he will have with this plan. If and when he needs to increase his insurance, then he already will have some at a very good rate. One of the ways that you need to think about the money is "the opportunity cost". You are talking $400/year, about 1% of his current income. If he is good about managing his money and he may do much better with $400/year than locking in life insurance rate now. He can save for the next 10 years or so and may have a sizable nest egg. Only you and he know what type of person he is.

Most of us will need life insurance in our life. It is a matter of when and how much. In the future, he may need a sizable life insurance. (marriage, kids, house etc) When he needs more, he can sign up for more at a higher premium. Having this insurance will save some money than. The payback may be 5 to 10 or even 20 years out by the time the savings in the current premium is paid back. This type of weighting the cost does not mean that he does NOT need life insurance now. It simply means that the payback will be a long long time.

    Bookmark   August 26, 2012 at 6:36PM
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The fact that your son would be rated for occupation is a BIG issue, if he continues in that line of work.

So let's consider the pros/cons of this purchase:

- doesn't need it now, but his chances of needing it in the future are probably pretty good
- cost of $365/yr for $400K
- $400K is the max he can buy from the VA. In 10 or 20 yrs, this will probably be insufficient. If he has a couple of kids plus a mortgage, he'll need a supplemental life amount. But many employers offer a base amount of group life, and offer additional coverage (x base salary) as an employee-paid option, which would help bump up his overall coverage.

- Would be rated by insurers for ANY amount of insurance on a future policy
- No end date on policy. Huge plus! It is almost impossible to find a carrier who is willing to write a 30 yr guaranteed level term policy on someone under 30, let alone a 40 yr GLTi policy. 50 yr GLT? Forget it, doesn't even exist.
- When he does need it - wife and/or kids - he has an inexpensive policy for instant protection. A lot of people "know" they should be buying insurance when they get married and start having kids, but they keep putting it off, and putting it off again, until...oops, now it costs too much because I just had my first heart attack.

Until then, he can list parents or anyone else as beneficiaries. Life insurance is one of the very, very few instances where money can be left to people completely free of any taxes, including income tax.

    Bookmark   August 27, 2012 at 5:50PM
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Thank you for all your comments.

We are going to take our agents advice and have him enroll.

jkom51 - I know what you mean about people "putting it off" until it's too late. I am going to tell him to name his brother & sister as beneficiaries on this policy. I am listed on his smaller policy for work, which is enough to cover his funeral expenses etc.

Phew - enough gloom and doom. I am off to work :)

    Bookmark   August 28, 2012 at 9:07AM
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He did sign up for the VGLI and I am glad he did once he got the info packet.

Though he signed up for the maximum now ($400K) he can reduce that amount at any time to lower his premium. He then can increase it BACK to the $400K any time within 5 years as long as he meets the medical requirements.

So he can set it back to as little as $10K for $3.20 a year. Then if his life situation changes he can change it back to the maximum (again assuming no medical issues).

    Bookmark   October 29, 2012 at 7:43AM
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Thanks for the update - it does sound like he made an appropriate and reasoned decision.

    Bookmark   October 29, 2012 at 8:21PM
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My philosophy:

You dont need life insurance when are young. And you dont need a lot when you are older as your 401k will have had plenty of time to grow and should be well over 500k when you are at retirement age. That is your life insurance.

You could use a term policyt once you have kids to cover getting them thru college but as a man, if i die it is silly to think my young widow with kids wont ever remarry. Having said that thru my work i pay like $2-3 a month for 200k of group life insurance.

A whole life plan would be great if and only if you have maxed out all available pre and post tax retirement savings. The fees are high and the return is dependent on the stock market unless you got a whole life index instead of variable.

    Bookmark   November 18, 2012 at 1:56AM
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>>You dont need life insurance when are young. And you dont need a lot when you are older as your 401k will have had plenty of time to grow and should be well over 500k when you are at retirement age. That is your life insurance. >>

That may be your philosophy, but it is not applicable to everyone. $500K is inadequate if you have no pension and can only count on SocSec as additional retirement income.

Had you carefully read through the thread, you would have seen that the biggest underwriting issue for the OP's son was his occupation. If he stays in that field, he is ratable and would have to pay considerably more than someone else of equal age/health who was a white-collar worker.

Should he get married and have even one child, $400K is barely adequate to cover 15 yrs of single-parent expenses, assuming a multiplier of 7-10x annual earnings.

    Bookmark   November 26, 2012 at 10:55PM
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My Mother had a cousin Leo who was an insurance agent. When I graduated from college and left home for an apartment and job, he recommended I buy just enough insurance to cover a funeral, which back in the day was $5000. Since your son is unmarried, I would side with those who say he needs no insurance at this point in life.

    Bookmark   December 1, 2012 at 9:44AM
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jannie - So you think $3.20/YEAR is a waste of money for a $10K policy?

    Bookmark   December 2, 2012 at 2:32PM
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This was term insurance, wasn't it?

At the end of the term, most are guaranteed renewals ... but usually at a substantially increased annual fee.

My original thought was that his main reason for buying insurance now would be if he were to figure that he might not be insurable in later years, or, if so, at much higher initial rates - based on this quote, not one in later years.

The issue of his occupation has a major bearing on the issue.

If he could delay purchasing, until a time when people depended on him financially, he could (but - would he have?) invest the value of the premium for a few years until his need developed.

My original thought of a suggestion ... that, not now having dependents, with expenses, etc., he make an effort to save and invest a portion of his income now, as he'll likely find it much more difficult after a few years, with many more expenses, if he develops a family.

As it is ... can he invest a substantial amount annually, along with the insurance premium, into some assets that have a good possibility of substantial growth, whose dividends may well increase, over the years, that he intends to let run for most of the years of his lifetime? Should he choose to buy well-selected stocks, which I recommend, and get the certificates issued, he can use them as collateral when he makes loans either for emergencies, or investment, at a lower rate than if the loan were to be.

A major issue ... is to learn how money works (and taxes). An interesting hobby - that pays well!

When stocks grow at about 7% per year, long term ... and the mutual fund manager takes 1.5% ... that's upwards of a quarter of the growth ... and the owner gets stuck with the taxes. While the manager has no skin in the game.

Also. if the highly-touted mutual fund managers are so smart ... how come about 85% of the time (or more) their rate of growth doesn't equal that of the broad section of the market in which they invest?

ole joyful

    Bookmark   March 4, 2013 at 6:40PM
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This being a fairly long thread, I'll answer a couple of points from ole joyful on behalf of the OP (but if I've gotten anything wrong, pls do correct me - I'm going on memory here, having contributed several times):

>>This was term insurance/most are guaranteed renewals ... but usually at a substantially increased annual fee. >>

No. This was an offer from the US Government. It is an unlimited term policy, which is unheard of from a private carrier. The premium remains the same in perpetuity, until the policyholder dies or allows the policy to lapse.

>>If he could delay purchasing, until a time when people depended on him financially, he could (but - would he have?) invest the value of the premium for a few years until his need developed. >>

The annual premium is a MAXIMUM of $365/yr and a minimum of $3.20/yr. I don't think there's an investment on this earth that would turn even the $365 maximum amount in a five- or ten-year period, into enough money to purchase a lifetime of premiums for a $400,000 30-yr Level Term policy on a male who is ratable for occupation and may by that time be ratable medically as well.

Being ratable for occupation normally means a premium penalty from 40-150% in annual cost.

The federal government is offering to insure this young man for:
- The same premium a highly-rated A+ private carrier would charge to a healthy, non-smoking, "low-risk occupation" for $400K face amount
- But instead of a 30-yr Level Term that would go up dramatically at age 54**, this policy remains in force and the premium remains the same, forever.

** For those that are not conversant with Level Term, the premium remains the same for the set number of years, but after that jumps so high (because you are now 10, 20, or 30 yrs older) that everybody drops the policy. So you want to have the term policy last until you have no need for it any longer.

How high does it go? Well, after the Level Term period expires, it becomes an Annual Renewable Term policy, which is what ole joyful is referring to.

For example, on a $250K policy I purchased on a 15-yr Level Term, I was rated standard for health, no rating for occupation. My premium is currently $600/yr.

At the end of the 15 yr term, the annual premium jumps to $4,525, the year after that $4,912, then $5,360, etc. etc. Therefore, I will allow the policy to lapse at the end of the Level Term period.

    Bookmark   March 6, 2013 at 11:44PM
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