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A young fellow was asking me about life insurance recently, and I realized that many people do not know a whole lot about the subject and that it would be worth sharing some information here. Obviously, this is not meant to spark a theological discussion about whether or not one should have insurance. Those whose Rabbonim tell them not to have insurance should not have, but the rest of us should know what to get and why.
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As a general rule, anyone who is relied upon by others for financial support or for providing care should have their life insured. Breadwinners, stay-at-home moms, etc. This way, if chas vesholom a person passes away before their dependents are self-sufficient, their income or services can be replaced with the money paid by the insurance company. Pretty simple concept.
Income protection need is best filled with what is called Term Life Insurance. This is the type that most young marrieds should be looking at because it is cheap, so they can afford the right amount of coverage. Anyone of moderate means but extraordinary responsibility (what frum family man/woman doesn’t fit this description?) should find that this is what best suits them.
There are a few different types of term insurance, but the most popular one is Level Term. The way this works is that you select a period of time (usually 10, 15, 20, 30, or 40 years) during which your premium is “locked in”. For example, if your term period is 20 years then your premium will not go up for 20 years. The amount of your premium is decided based on your age, gender, health risk and the dollar amount of insurance coverage you are covered for. You can easily shop around for this, and it is really cheap for young healthy people. I’m sure you hear quotes about this on the radio all the time.
After the level period, generally one could continue the coverage but the premiums will go up by a lot. So it is almost never worthwhile to continue beyond the initial level period that you selected. This could be a problem because some people will still need life insurance after 20 or 30 years, but will be unable to afford it at that point in time (since premiums are higher for older people, and a change in health could make it impossible to get coverage).
The other type of term insurance is called renewable term. This insurance stays with you as long as you are willing to continue paying premiums. The premiums are set at the beginning when you sign up, and can only change as much as it says in the contract. The problem is that the premiums will go up every year, and they quickly reach a very high level. Therefore, most people will only consider this if their plan is to keep the coverage for just a few years (since it is cheaper than level term for a short while).
With any term insurance, the problem remains that the coverage expires or becomes unaffordable after a certain amount of time.
Return of Premium Term Life Insurance (ROP)
This is term life insurance with an added bonus. If you are still alive at the end of a certain number of years, the insurance company will pay back all the premiums you paid in (without interest). It is more expensive per year than regular term insurance, but it could make sense for certain situations. For example, a person I know who has this told me that he is paying $1200 per year for 20 years of coverage and that at the end of 20 years he can get $24,000, which he hopes to use to pay for a child’s chasuna. From what I have heard, this may have once been a good deal but now is not (because of low interest rates and companies not liking how it worked out). But this too, can be easily researched using an internet quote.
As the title implies, this is a contract that you can get which will give you coverage for as long as you live and continue paying the required premiums. This appears to be a really good idea, because first of all, you are guaranteed to not be paying all those years for nothing, since you can’t outlive the term (of course everyone would rather live and get nothing than the alternative, but we will all die at some point, so why not get paid for it) and secondly, it enables you to lock in your costs now that will stay in effect for the rest of your life.
The reason why this is not usually an option for income protection is due to the cost. Permanent insurance is quite expensive, compared to term, and is usually only bought by wealthy people. Permanent insurance coverage is usually tied to a tax advantaged “bank account” which grows every time that you pay premiums, so wealthy people buy it as a way to save money for retirement in a tax efficient manner. It is generally not affordable enough to cover all of a person’s income coverage needs. Chances are that if you are someone for whom this makes sense, a life insurance salesperson will find you and tell you about it.
There are two types of permanent life insurance that might make sense for a typical frum couple:
1) Joint Life Insurance – This covers two people, such as a husband and wife, and pays money after both of them pass away. This is less expensive than purchasing permanent insurance on just one person. This is also normally bought only by rich people whose heirs will need money to pay their estate taxes, but I can imagine that it might also be useful for a family with children.
2) Term insurance for life – this is available in Canada, but was not in the USA until recently. In the USA, it is called “Secondary Guarantee Insurance” for some reason. The way this works is that as long as you pay the required premiums you keep the insurance coverage. The premiums that you have to pay are written in the contract when you buy it and are guaranteed. This is expensive, but not as expensive as a normal Permanent insurance policy.
Here are a whole bunch of reasons why to get life insurance:
1) The most obvious – if you earn an income, your dependents will need the money to live
2) If you watch your children while your spouse works, your spouse will need to pay someone else to do it in your stead
3) Untimely death sometimes comes after expensive medical care. This can leave a family deep in debt. Life insurance money can pay off these debts.
Disclaimer: I am not at all involved with life insurance salespeople. Everything that I’ve said above comes from personal experience and discussions with knowledgeable people. It is possible that someone more knowledgeable than me will say that I am wrong, but I am pretty confident that my information is correct. If I am wrong, I still think that what I posted is worthwhile because it gives you the knowledge base you need to think about life insurance. I am basically making a case for the needs that I think are most common in our community (and so I highlighted Level Term), but if your situation is in any way unusual, talk to someone who can help you look at your bst options.
Term is usually the best way to go. Whole Life and other permanent life policies, is usually (I believe) best stayed away from. You can get term and an annuity (or other investment product) separately, and generally you will do better and have less complications.
Within term, Annual Renewable Term (what squeak referred to as renewable term), I have found you pay less over the life of the policy. (This may vary.) The problem can be finding a provider that still offers ART. AXA Equitable is one. I also think its better than 10/15/20/25/30 year term, since it doesn’t expire after 10/15/20/25/30 years – requiring a new medical and a new policy.
Re: Return of Premium Term Life Insurance, you are almost always better off getting plain term and investing the difference (what more you would’ve paid for Return of Premium Term Life Insurance).
Same with Permanent Life Insurance. Get Term Life and invest the difference in an annuity or other investment product. You can choose from a wide variety of investments, have more control of it, and not have the HEAVY financial penalties if you cancel a Permanent Life Insurance policy early.
ames, thats why I recommended Annual Renewable Term. Its rates are spelled out to you up to age 70 in New York, and 100 in most other states.
thanx squeak and joseph for this very useful info!!$
Joseph-
I think AXA Equitable refers to that product as YRT, Yearly Renewable Term.
But what do I know? I’m just the 800 lb. gorilla in the room.
Many policies are dropped in the middle, so ROP policies tend to be great for the agent but bad for the customer. Everyone used to laugh at annuities, saying you do better invested in the S&P, but annuities are looking mighty good now.
squeak,
AXA Equitable has a great Annual Renewable Term that I found costs less than even the best Level Term policies from even the best priced carriers. Less even in gross dollars vs a (10/20/30/etc. year) Level Term policy over the same period. Plus you pay less in the early years, thus holding onto your money longer. And it IS affordable. And you can even keep it longer than 30 years. With Level Term after the (10/20/30) policies period, you are essentially forced to drop it by the premiums thereafter.
And like Jothar said, with ROP policies, and especially with Permanent Life policies, policyholders have a very frequent tendancy to drop the policy early costing them dearly in hefty premiums plus in the case of Perm Life hefty Surrender Charges (usually in the first 10 years or so), often losing even principal money. So yes, “buy term and invest the difference” does entail necessary discipline, but so does Perm Life — and at some point(s) a policyholder may no longer be able to afford a Perm Life’s premiums, costing him principal.
5 years ago. AXA already owned Equitable. (It was Equitable that demutualized late 80’s; AXA is the French insurer that purchased Equitable early 90’s.)
ames: what’s Areivim?! the only areivim i know is the cr member with that name!? 😉 but seriously what is such a thing to enroll in Areivim?! i’ve never heard about it!
but having life insurance is really something to get, people just push off getting a policy thinking they have so many other bills to pay! then if C”V something happens to them, there are yesomim that have nothing to live on! & Rav Laibel Katz talks about a goung couple should get a life insurance policy, as a segullah for arichas yomim!
rav moshe Ztl, has a tshuva in Igrous Moshe on life insurance. if you would like to know what it say please go ask your Rov, and then go out and purchase some insurance.
My husband signed up for Areivim around a year ago. I’m not sure that he had to choose a level. But what I do know is that in this year we only had to pay once $28. So. it’s not a bad thing to be part of since hopefully this will help the child get married and there won’t be a need for Hachnosas Kallah teas and parties. They won’t be put into the schnoorer category.
On the thought of life insurance. A lot of the heimishe people buy whole life and some add PUA as an investment to help marry their kids. All financial advisers are against whole life. Their claim – get term – which can be gotten for very cheap / good rates and the extra money invest. Eventually term does become more expensive however, the money that you invested should have grown substantially. Now I know in this market money in mutual funds etc. aren’t growing substantially if anything, you might be losing some, but in the long run the market will hopefully turn around.
thanks for explaining it! sounds like something Rabbaim should be getting!
Purchasing me will definitely give you arichas yomim… every day spent with me will feel like years 😉
BS”D
If you suffer from multiple personality disorder, and one or more of your personalities are integrated or otherwise cease to exist, are you covered as if those personalities had indeed been niftr?
KiloBear- I’m considering for POY….
areivim, how many years are you up to by now??
no, not me- the person that purchases areivim
To answer that question literally based on my previous comment- the youngest I can be is 16,060 years old
PS- the reverse calculation of my cheshbon is a lot simpler to figure out than the cheshbon it took to get to that number (16,060). So- analyze my comment regarding the days and years, do a little math and… bingo- there’s my age. Kindly keep your findings to yourself 😉
ok- you’re pulling my leg that you actually figured it out.
So answer this- you thought younger or older?
ok squeak- doesn’t look like they’ll allow my response in this thread. I’ll take it to General Schmooze’s quarters’
it seems the mods don’t want any personal info to mistakenly come out of this- my general schmooz post did not go through
Some advise- forget you ever figured out my cheshbon (if you did)
now I look like I’m yapping…. thank you mod 😉
areivim: for the first time in my entire life, i wish i knew math at this very moment! 😉
and Hi areivim!
Are there really any frum Jews who feel it is improper to have life insurance? If you buy a home, you insure the property. You insure your health, you pay to insure your valuables — why would that be considered a no-no by anyone, if in fact anyone does feel that way? (I am not trying to start an argument, I would just like to understand the rationale, if it exists).
Oomis, I do not know if anybody holds this way today, but the first book on Reb Aryeh Levin says that he did not want to buy insurance, because then if he did something wrong C”V, and was chayav misah, the beis din shel maalah would say, look, his family is well-provided for, so he can be given what he deserves. However, if he had no insurnace, then the beis din shel maalah would not only be punishing him, but punishing his family as well by taking away their source of income, if he were to be given a capital sentence, and the RBSH would not allow that, because it says Hatzur tamim poalo…Kel emunah v’ain ovel… There can be no avlah in the RBSH’s judgement. If his innocent children and his wife would also suffer poverty because of his aveirah, then the RBSH would have to cancel the sentence on their account. He thought this way he would be assured of living longer.
This is probably only for people of extremely high madreigos and bitachon.
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