Flying & Life Insurance

steamee

steamee

Pre-takeoff checklist
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Steamee
What are people here doing for life insurance?

I'm looking at a Metlife whole life variable universal life insurance policy for at least $500K of death benefits. I am getting help from my financial advisor, but the bottom line is that aviation is one of those risk factors that jack up the price. We are in the process of pursuing several different strategies including excluding aviation activities from the main policy and supplementing it with a term. Basically we'll shop and min/max.

I've looked at the AOPA insurance product, but can't honestly tell if it's a good deal or not right now. I'd be interested in understanding the general insurance strategies people have chosen (including none if that was your choice).

Free advice portion: If your wife says, "Why do we need life insurance? We're never having kids and I make enough money to support myself." Buy it anyway. 5 years later we're having a child and she may stop working. :yikes: Had I bought it then (before I was a pilot) things would have been easier/cheaper. :sigh:
 
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Say NO!! to universal life. Term life gets you same benefit at a much better price, and doesn't lock up the non-benefit funds. The money manager you mention is pushing it because he gets a big commission out of it, so it provides him more of a benefit immediately than you. I know I get flack for being a Dave Ramsey fan, but his site does have a good simple language explanation on the differences between universal and term and why term is a better deal.

Regarding carriers, I got lucky as a USAA kid and got $300k (single guy, no depend ants) on a 30yr term policy for just $40/month. And not an hiccup that I'm a recreational pilot.

Others will have to provide direction to other GA friendly carriers. They are out there.

But do give that universal policy a second thought.
 
I agree ... 30 or 20 year fixed term life insurance... Zurich Kemper Life (now Chase) did not have a GA exclusion or higher rate a number of years ago when I purchased.
 
How young are you? Whole life MAY make sense if you're under 25, in good health, and a bunch of other factors. A couple hundred bucks a year for 10 years and then it pays for itself. I had a whole life policy at 18, and I haven't paid a penny into it since I was 26 but it's still growing. Check the terms too, do you get to decide what to do with the dividends whenever you like. There's a lot of factors in insurance. I also have a nice term package for less than 20 bucks a year tacked on, I haven't paid for that for years either. If either me or the missus die, the other will be able to cover the other's pay for a couple years after taking care of some big ticket item payments. That's without touching the cash reserve for job loss, et al.

That being said, set a hard number for payout and look at that. You don't want to be overinsured, but need to cover 2-3 years for adjustment to the new pay level.
 
My employer provides optional life insurance that does not exclude flying,so I do that. I get 6x my annual salary for about $30 a month.
 
Or you can do as I do - have type I diabetes, which already jacks it up to the maximum level, and then being a pilot simply isn't an issue anymore :goofy:
 
Group term life through AOPA actually ended up being the best deal for me, with several higher risk hobbies and work activities. Group life=less stringent underwriting. it supplements my FEGLI basic coverage I have with the government which is too small.

My wife has a term policy that PIC helped us with, very reasonable. I had intended on getting policies for both of us but they didn't have a product for me that wasn't highway robbery after underwriting chimed in. The original quote was awesome. It was the underwriting questionnaire that did me in. If you are a little more normal than I am you might end up very happy with something they shop you ;)

PIC=pilot insurance center.
 
Helpful as always. I say that without sarcasm. :wink2:

I am 41 tomorrow with no major health issues.

I don't have an employer (independent contractor) at the moment so that's out.

The universal life policy should not tie up my money excessively and in fact I was told I could get interest free loans against it as well as take out money tax free (up to certain amounts). It was pitched to me as an investment vehicle with a death benefit with the investment side being a better deal than setting up say a brokerage account long term (20-30 years) because of the non-taxed status of the earnings. Obviously interested in hearing if people have experienced otherwise.

What's the difference between the AOPA Group Term Life and Level Term Life? The premium rates for Group Term seem higher but there looks like there might not be a benefit cap.
 
i think i have life insurance through work
 
I dunno, I have a fundamental problem placing a bet that I'm going to die.
 
I've got some sort of policy through the University. I've always thought of Life Insurance as a ripoff, since you're "betting" that you're going to die.
 
Sac Arrow said:
I dunno, I have a fundamental problem placing a bet that I'm going to die.
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Your chances are only 100%. But the guess is WHEN and HOW.

I bought life insurance because I no longer wanted to be subject to what my employer provides and wanted to freedom to not have those strings attached. Additionally, I could drop some of the payment protection plans I have on the few items of credit I have (like my credit card and car loan) if something were to happen to my income (like death). I wanted the security of knowing that if something were to happen to me, that my wife wouldn't be so greifstricken (gotta love humility) that she didn't go to work and could no longer stash money away for our children's education. So, I got enough to replace my future income's value and invest at a moderate rate to allow the possibility of a lifetime annuity.

I once read a line in a book about 'a good man providing for his children's children'. I had an example in an uncle I never met. He provided for his sons and widow with a deed to a house and farmland. Just trying to follow a good example.
 
Dean said:
Stay away from whole life policies, buy term life and invest your money elsewhere.

http://www.smartmoney.com/plan/insurance/term-or-whole-life-8011/
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It's comparing apples to oranges, really. You're comparing a fixed interest vehicle (UL) to an equity investment (mutual funds). The linked article compares the fixed interest vehicle at what is likely its lowest ever performance rate and mutual funds at a projected 10%. According to DALBAR the average equity fund investor for the 20 year period of 1989-2009 averaged a 3.17% rate of return... before taxes. I'm not saying that you won't average 10 or 12% in your portfolio, but if you do you will be decidedly well above average.

Unless you are very young, not every dollar saved for retirement should be allocated on aggressive mutual funds. The prudent investor has a diverse portfolio including fixed investments. Other fixed investment options are what you should really be comparing against permanent life insurance, and with life insurance's tax advantages (plus not having a term premium to pay out of pocket), permanent insurance can be a good investment.
 
steamee said:
What are people here doing for life insurance?

I'm looking at a Metlife whole life variable universal life insurance policy for at least $500K of death benefits. I am getting help from my financial advisor, but the bottom line is that aviation is one of those risk factors that jack up the price. We are in the process of pursuing several different strategies including excluding aviation activities from the main policy and supplementing it with a term. Basically we'll shop and min/max.
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I would not consider VUL. If you want market return potential consider an indexed policy. Allianz is coming out with a new one in a few weeks with a 20% annual cap on returns and you can get it with a rider waiving surrender charges if you ask for it. Your first year cash surrender value will approach or exceed your premium paid depending on market results. With an indexed policy your money is not exposed to market risk - you will not lose any money due to market losses.

Variable life insurance doesn't make a lot of sense to me... insurance is supposed to be a risk transference vehicle, and you're still taking all the risk with a product of that sort. If you want to play the market, play the market. But don't put yourself in a position where if 2008 happens again you not only lose your nest egg but your insurance protection as well. The costs inside a VUL product can be very high as well. Make sure you know what you're getting into.
 
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Dean said:
Stay away from whole life policies, buy term life and invest your money elsewhere.

http://www.smartmoney.com/plan/insurance/term-or-whole-life-8011/
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:yeahthat:
There are many examples out there where you get a better return on the investing concept by taking the difference between the cost, and putting it into a mutual fund with a excellent long term track record.

If you are concerned about being able to access the funds, then make it a ROTH IRA. Your invested cash can be pulled out at anytime without IRS penalty (since it's post tax money)... you just lose the interest earning power while it's not in the fund.
 
AggieMike88 said:
If you are concerned about being able to access the funds, then make it a ROTH IRA. Your invested cash can be pulled out at anytime without IRS penalty (since it's post tax money)... you just lose the interest earning power while it's not in the fund.
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That's not true. If you take a premature distribution from a ROTH IRA (that is, you withdraw money before age 59.5) you will pay a 10% early withdrawal penalty and, if you draw enough to take from the earnings, you will pay ordinary income on them too. I'm a big fan of ROTHs, but with all qualified plans you're basically handing the government the keys until 60, unless you start taking 72(t) distributions or have a qualifying hardship.
 
Thanks everyone. This has been helpful. My intention is to get enough benefit to not have my demise be a financial burden (and from what I've seen dying is expensive), but I don't intend right now for anyone to be able to actually live off my death. :rolleyes:

Andrew:

I actually rolled an IRA into an Allianz fund on advice of my advisor a few months back. Glad to hear others think highly of it. I am reasonably diversified and the insurance is not going to be my main investment vehicle by far. Its absolutely true that this would have to be a long term thing. MetLife's own numbers that were run for me don't show an advantage <20 years, but so much of it has to do with the rates of return.

I've fired off an e-mail asking for some more clarifications on several factors. It doesn't seem like a good idea if I have to waive aviation coverage to get a good deal on it. That seems like just way too much insurance. More number crunching needed.
 
Someone once said to me (I was in an audience full of people) that "diversification" means: let's spread it out, because we have no idea what we're really doing - like throwing toilet paper on the ceiling of the bathroom in elementary school and just see what sticks.

(flamesuit on)
 
Andrew Sego said:
That's not true. If you take a premature distribution from a ROTH IRA (that is, you withdraw money before age 59.5) you will pay a 10% early withdrawal penalty and, if you draw enough to take from the earnings, you will pay ordinary income on them too. I'm a big fan of ROTHs, but with all qualified plans you're basically handing the government the keys until 60, unless you start taking 72(t) distributions or have a qualifying hardship.
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One of us is mistaken. I was told when I set up mine that I could withdraw principle after a specified time, I believe it was a year, but I couldn't touch the growth, or earnings, or interest, until 60 (or 59.5, if that's what it is). So either you're incorrect, or I've been defrauded by my financial advisor.
 
steingar said:
One of us is mistaken. I was told when I set up mine that I could withdraw principle after a specified time, I believe it was a year, but I couldn't touch the growth, or earnings, or interest, until 60 (or 59.5, if that's what it is). So either you're incorrect, or I've been defrauded by my financial advisor.
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I'm with Steingar on this one. You can withdraw the principle without penalties and taxes because you have already paid the taxes on it. It is the growth that you can't touch without penalties.
 
Here is the chart from IRS.gov.

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Obviously I was having a brain fart earlier, probably because I hadn't eaten lunch yet.
 
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steamee said:
What's the difference between the AOPA Group Term Life and Level Term Life? The premium rates for Group Term seem higher but there looks like there might not be a benefit cap.
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They are both group policies.

Level term locks in a rate over the life of whichever term you purchase.

With regular term, the rate changes depending on what age bracket you are in. As you get older, your rate goes up. This is not necessarily a bad thing...over the life of your policy many things might affect whether it may be cheaper or it may be more expensive than the level term, ni the long run.

I chose the traditional term policy because after a few years some of my activities which insurance underwriters consider high risk will roll off my recent history and I will probably cancel the AOPA plan and go with someone else who is cheaper. In the meantime I am paying less expensive premiums in my younger age bracket than I currently would have with level term. I think the benefits are identical.
 
For those who are really interested in the details of VUL vs. Term & Annuities/Funds/etc I read this paper on the weekend despite its length:
http://www.consumerfed.org/elements...ce/VariableUniversalLife2007ReportPackage.pdf

Some take aways I got were:
  • VULs purely for life insurance is not the best play. It needs to be thought as one type of investment strategy and ideally held to death for maximum benefit.
  • They are complex. The number of moving parts and charges (some possibly undisclosed) makes it tough for a layman to compare it with other financial strategies.
  • You really need to effectively understand your long term financial needs to decide how to use it effectively. Specifically do you think you'll take any loans against the cash value. I'm still having trouble with this since I've not typically been much of a money borrower.
The concluding statement makes sense:

"Is the purchase of a VUL policy worth it? Yes, if one takes the time to understand how the policy works and is confident of his or her ability to hold the policy until death. Those who are unable or unwilling to invest the time to become reasonably familiar with VUL’s should probably stay away from them."

Still muddling through my crash course in all things personal finance. Can't say I enjoy this stuff, but it'll be too late when I'm actually old so I'm biting the bullet.​
 
steamee said:
What are people here doing for life insurance?
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Self insured. But if it makes you sleep better and you can rationalize that it is improving your quality of life now to have it, well then it's a smart purchase for you. I could never make that leap.
 
I have been an insurance agent for 25 years. I'm not going to try and sell you any life insurance so take this for what its worth.

Do not buy anything but term life insurance. All the others are a big rip off. As someone else said, buy term and invest the premium difference on your own. These life insurance products come and go. Just as fast as the sales people that pitch them.

Any good life insurance agent will find you a term product that does not exclude pilots. Its going to cost you more than if you were not flying, but we all new that.

Good luck.

Andy
 
PittsDriver said:
...and you can rationalize that it is improving your quality of life now to have it....
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I don't think that is the reason to have life insurance :rofl:

I mean, look, investing wisely for retirement doesn't improve your quality of life now either but I've not heard too many people arguing against it :nono: :dunno:
 
Insurance wise I think the most critical aspect for me is making sure our new baby would be looked after for about 5 years. Basically enough to pay for full time day care while my wife worked full time. Maybe help pay off the mortgage. The rest of my holdings (401K, IRAs, brokerage, etc) well stewarded should be enough to take the child through college. The wife would probably be "condemned" to working a real job like anyone else though. :rolleyes:

I'm inclined to just do the term at this point.
 
alaskaflyer said:
I don't think that is the reason to have life insurance :rofl:

I mean, look, investing wisely for retirement doesn't improve your quality of life now either but I've not heard too many people arguing against it :nono: :dunno:
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That was my point. Investing the money you'd spend on the insurance meant more to my present quality of life, i.e. I slept better, than buying insurance. I've never felt that any form of life insurance is a "good deal" compared to my own financial management so it's never caused me any anxiety to not have it. If anyone else feels differently and you sleep better having it then you're quality of life now is improved with the perceived safety net it provides. That's all I meant.

OTOH, catastrophic illness health care, home, and umbrella liability are all reasonably good deals for me so I have those.
 
steamee said:
Insurance wise I think the most critical aspect for me is making sure our new baby would be looked after for about 5 years. Basically enough to pay for full time day care while my wife worked full time. Maybe help pay off the mortgage. The rest of my holdings (401K, IRAs, brokerage, etc) well stewarded should be enough to take the child through college. The wife would probably be "condemned" to working a real job like anyone else though. :rolleyes:

I'm inclined to just do the term at this point.
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Since your will can provide any set of instructions you want with the death benefit, you can have enough in there to take care of anything.

I'd consider beyond 5 "kid" years. Consider enough death benefit to cover: Mortgage, credit card debt, vehicle notes (road and air), child rearing through high school grad, plus 4yrs (and only 4) of college education at a state-funded college.

While you're amongst us living and breathing folk, you plan to do those things, right? So it demonstrates your love for the family to provide for them when you're not amongst us.

And, again, your will can dictate how the death benefit is to be distributed. You can say that "only this much" can go to the mortgage, and "only this much" to credit cards, and the kids get "this much" at age XXX, but only if ____ and ____ occur, and then the remainder needs to be wisely invested for the extreme long haul.
 
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