Life Insurance

[gontek]

Part of my efforts in convincing my wife I need to fly and build airplanes was to get a life insurance policy (sort of as a bribe I guess). Seems like a good idea, right? I got a whole life policy with an OPP rider. I can use this to borrow against the cash value in order to finance things like plans, parts, businesses, cars, planes, etc. Rather than pay a bank for financing I am financing myself through the cash value in the policy, circulating the money in and out of my policy, paying myself the interest, and earning dividends on the whole cash value whether it's in my pocket or in the account. I also have some general term life BS but after thinking about my plans and how and it fits me I thought a whole life policy was a do-able thing.

 

Anyone else heard of this or do this, or am I totally gettimg scammed somehow? The poliy is through New York Life and it's basically referred to as the Infinite Banking Concept (IBC). I figure life insurance, while generally a touchy subject, can & should be discussed amongst a bunch of folks who build and fly airplanes from scratch. So do any of you have life insurance, and if so, what type? An if not, why not?

[Marc Zeitlin]

Anyone else heard of this or do this, or am I totally gettimg scammed somehow?

You're not getting scammed, but in almost every case, a Term Life policy will be a better deal monetarily than a Whole Life policy. My father, a CPA, would almost always make that recommendation for people who need life insurance.

 

I figure life insurance, while generally a touchy subject, can & should be discussed amongst a bunch of folks who build and fly airplanes from scratch. So do any of you have life insurance, and if so, what type? An if not, why not?

I have a 15 year, $1M term life policy that covers me as a pilot, and I'm about 10 years into it. Given my income, my wife's income, and my son's educational needs, I got a policy that would cover me until I was able to retire (after which, by definition, I didn't need insurance anymore since if I could support the two of us on my retirement income, my wife could certainly support herself on it) and my son was out of school. I will probably be cancelling the policy the day I write the last check to Syracuse University.

 

This policy cost me about 2x what it would have if I wasn't a pilot. If you get your certificate AFTER buying the policy, you can probably get it for the lower price (depending upon the terms of the policy, but most do not restrict what you're allowed to do in the future - mine even covers suicide if it occurs more than 2 years after the policy purchase).

 

See:

 

http://www.piclife.com/

 

With respect to borrowing against the whole life policy, you can almost always get more interest on the payments into it that build the principal from other sources.

 

I think you made a mistake, and should get a term life policy instead. Keep your life insurance and your investments separate.

[TMann]

..... as a side note:

If you purchase a policy and do not disclose the fact that you are a pilot, the insurance company can cancel or deny payment ..... IF it is discovered within the first two years of the policy. After that they have to pay.

 

It's called out in the 'contestability' clause.

 

That's why a policy pays in the event of suicide after 2 years.

 

Marc's right about the term path. If you take the difference in whole life payment vs. the term, and plug it into an investment vehicle, you'll end up with a ton more cash.

[gontek]

I do have term life too. In fact the Whole life policy is rather small (~$250K) and is primarily for investment purposes while allowing me to have a lifestyle of financing things and keeping the interest to myself. Your point is well taken on the Term + investments vs Whole life. I keep my eggs in many different baskets.

[TMann]

......... An if not, why not?

I have it but my policy pays off a day late.

[CBarber]

I really can't get into the details but I am an estate planning attorney (and a cop) as well as a licensed insurance agent (maybe I should figure out what I want to do when I grow up), but whole life or what ever they call it, as it goes by various "new and improved" names/products, is usually not a good idea. As stated, buy term and invest the rest. While I like many aspects of the insurance industry in this case they are banking (so to speak) on the fact that you cannot or will not invest the rest. If you know you will not have the dicipline, by all means let the agent make a pretty good commision. Other than that I would think you consider term. Just an opinion, not a legal opinion. Build your plane.

 

Please, I may suggest you consult an independant agent. While a captive agent may be great, they are limited to their product. That may not be bad. Talk to a Piper dealer if you want a Piper. Also, there are good and honest comminsioned agents, just be aware, that even though they are honest, they do have a vested interest in your choice. Also, they are usually honestly conditioned to believe their product is the only way to go. No dishonesty....just maybe a bit of industry brainwashing. They will also fall into the "are we not clever for coming up with this" syndome. Gee, as if no one else has offered this widget just like this before. Heck, I get flooded with emails for this weeks "new" product. Buyer beware. Don't let your passion for the plane drive the choice. IMHO, YMMV, FWIW.

 

All the best,

 

 

Chris Barber, JD.

Legal disclaimer

I AM an attorney. I am NOT YOUR attorney

[Cozy1200]

I too have insurance lic, but haven't used it in about 4 years.

 

If you get your certificate AFTER buying the policy, you can probably get it for the lower price... ...mine even covers suicide if it occurs more than 2 years after the policy purchase).

 

There was a line in our contracts that said something like:

"Do you currently or in the next two years plan to.... ...fly in GA airplanes"

 

I don't think is was a deal killer, but it probably doubled the premiums. So right in line with what Marc's saying.

 

 

Keep your life insurance and your investments separate.

Granted there can be some tax benifects to investing in whole life, but I would avoid it.

 

While a captive agent may be great, they are limited to their product.

I was a captive agent. I would a agree, it works in the insurance companies advantage, not yours.

 

Agents are pushed HEAVILY to sell whole life. And there is HUGE commissions.

 

 

Also, they are usually honestly conditioned to believe their product is the only way to go.

You mean I wasn't working for the best Insurance company and the rest of the industry was crap. ha! HA!

 

Zig Zigler once said he's never met a widely successfully salesmen that wasn't a little sick in believing their product was absolutely the best on the market.

 

Seriously I've learn more since getting out of that business. I now working for the best submersible electric motor manufacture in the world!

[Edge 513]

Hey Drew..I can't remember why I said that about tripping with your 'brew'...what the heck was I referring too?

[Cozy1200]

Hey Drew..I can't remember why I said that about tripping with your 'brew'...what the heck was I referring too?

Gee, I don't know. I've been drinking too much. Sounds like you've joined me! ha ha

 

Seriously I don't drink hardly at all, but Spodman makes a nice home-brew that he brings over. I harass him about it all the time. I think it was something drinking his SpodGrog.

[raiki]

It's not really life insurance but I tried to get mortage protection insurance when I bought my house (that payed out on death or total and permenent disability). A question on that was something like 'Do you fly light aircraft?'. I answered yes, they tore up my application and threw it in the bin.

 

But was only one insurer. Some of the others had the 2 year gig, others didn't care either way. It seems there was no industry standard. Moral of the story, do your homework and get MANY quotes and read all policies carefully.

 

Cbarber, I am an electrician, electrical engineer, computer technician (SGI IRIX/Windows/Linux) and flight simulator technician (helicopter). I figure I don't yet need to decide what I want to be when I grow up because according to my wife I will never grow up !!!!!! It's about my toys.

[MoneySink]

I also got a life insurance and had to disclose that I was a pilot, it's pretty steep in terms of costs.

 

I got additional from AOPA then I read the terms and it didn't cover you if you died while piloting or in a non-certificated aircraft from the USA. I'm not sure if those were the exact wordings but it's pretty close. I'll dig it up and post it here later. Since FAA issues the airworthiness certificate, I'm wondering if were covered flying experimentals.

[Cozy1200]

Cbarber, I am an electrician, electrical engineer, computer technician (SGI IRIX/Windows/Linux) and flight simulator technician (helicopter). .

Adrian,

I know it's off topic, but when are you going to add Cozy Builder to your resume?

[gontek]

I also learned that the insurance companies have relaxed their policies for pilots in the last year. They should, we are probably their best customers.

[REBEL777]

I sold life ins. for a living the worst type of life ins is whole life it is the most expensive. also if you borrow from the so called savings you are borrowing your own money and whatever you borrow you reduce the value of the policy by that same amount. Its the biggist ripoff ever invented by ins companys what do you think they built all those huge skyscrapers with. using your money and letting you borrow your own money back, such a deal. your best bet is a level term policy which is about a third of the cost and take the money you will be saving from the whole life policy and invest it in your own choice at least you won't be borrowing your own money back. The Runnin Rebel

[macleodm3]

If you purchase a policy and do not disclose the fact that you are a pilot, the insurance company can cancel or deny payment ..... IF it is discovered within the first two years of the policy. After that they have to pay.

This seems to hold true with life insurance that you buy yourself, but... I have had three employers over the last 12 years, and the life insurance benfit included with employment at all three stated that they didn't pay if you died commiting a felony or flying or helping fly a plane, as well as organized racing, skydiving, and a few other fun sounding hobbies. I wish flying and felonies were not grouped together.

 

I now pay for an additional plan through Travers Pilot Life Insurance, and they know I'm a pilot. One question was about Experimental aircraft, do I fly them? No I don't. I am building one, but its completion will be a few years out.

 

The flying life insurance isn't to expensive... it seems that $50 a month will get you insured for $350k for a 30 yr term.

 

Like I said, my employer life insurance doesn't EVER cover flying, and its also more expensive than my new life insurance.

[gontek]

The whole life plan I purchased covers flying and isn't too expensive (under $200/mo for $250K). I have heard the "buy term and invest the difference" argument and it's a valid argument, I believe it. I've been doing that for a few years now and will continue to invest in stocks/other. My new life policy is a very low risk (low return) investment but maybe still better long term return than all those US treasury bonds I was buying a couple years ago. We shall see what happens with stocks but right now, but low risk low return is probably a better return than what I have got in my stock values at this moment - I think this will turn around in the future but some of my stocks I'm holding have gone to crap this year, more than offsetting the ones that are doing well.

 

As far as borrowing my own money from the policy, as I understand it I get dividends (not guaranteed however) from the full cash value even if the money is out on loan as long as I am paying back the loan. I am convinced (perhaps incorrectly, but still convinced) that different types of insurance may fit different people better. Term is probably best for most people. I wondered how many pilots and homebuilders had considered whole life. I'm not trying to sell anything. On the contrary, I'm a buyer of things - and I can use the financing and like the idea of keeping the interest I would otherwise pay to a bank, plus being able to shelter retirement income from taxes. I understand the life insurance company and my independent financial advisor are profiting off of me, but so are banks, credit card companies, oil companies, stockbrokers, fund managers, my employer (the top engineering design firm in the world), lawyers, costco, local bars & grills, and everyone else who I buy something from, pays me or facilitates my ROI. I am used to that and accept it.

 

I'll add that they profit greatly from our term insurance too unless, god forbid, we bite the dust. Maybe that goes into my dividend.

[gontek]

You know when I think about it about the only two organizations I can think of offhand that I get return from without them profiting off of me are

 

1. my flying club

 

and

 

2. the government

 

but I still don't like the IRS very much.

 

I know there are many nonprofits out there that help people, I'm just not one of those people yet.

[Marc Zeitlin]

The whole life plan I purchased covers flying and isn't too expensive (under $200/mo for $250K)...

My $1M term policy costs $110/mo.

 

I am convinced (perhaps incorrectly, but still convinced) that different types of insurance may fit different people better. Term is probably best for most people.

When a bunch of people who know something about a subject that you admit that you don't know much about tell you that "A" is better than "B" (and "B" is what you picked BEFORE asking whether you it's a good idea) and then, after being told that yes, in fact, you did make a mistake, you persist in insisting that "B" is actually better for YOU, I have to wonder what the intent of the original question was, since you obviously already knew the answer and weren't really interested in gathering information.

 

I wondered how many pilots and homebuilders had considered whole life. I'm not trying to sell anything.

I considered it for about 4.3 milliseconds, before remembering that it's crap.

[gontek]

Original Question:

 

So do any of you have life insurance, and if so, what type? An if not, why not?

I got some answers. I knew what most of the answers would be (read the phrasing and verb bias - I totally set myself up) and I was right. This forum is fairly predictable, part of my intention was to follow a discussion that I believed would be entertaining. I offered information, asked your opinions, and got your opinions. I just wanted to focus on an audience of pilots and experimental airplane builders and flyers. I am not paying any of you for financial advice.

 

However I admit it would have been nice to have one agreeable "sounds like a good idea Kyle" answer amongst the multitude of knowledgable former insurance sellers and estate planners screaming bloody murder. Maybe that's what I was looking for, but I stand by my decision. If I want support here I'd shut up and build a Cozy IV.

 

 

My $1M term policy costs $110/mo.

Now that is some real useful information knowing actual comparisons. I like numbers.

 

So, anyone recommend any good stocks?

[TMann]

So, anyone recommend any good stocks?

At one time I sold insurance and also held a securities dealer's license.

Hence, my advice to buy term and invest the rest.

 

I would not invest in stocks. In order to do it right you need to invest a lot of time and as a 'aircraft manufacturer' you don't have the time or the training to do it.

 

In today's market, I'm in the same boat so you're not alone.

 

Find a good mutual fund and put some full time professionals on the job. I favor the Calamos funds.

 

Run the numbers and you'll see that you'll be money ahead this year, next year, 5 years....etc.

 

Yes, I believe in life insurance as a means to insure my ability to continue to contribute earnings to my family through my date of retirement. I also insure myself against disability for the same reason (and it's much more likely.)

 

The best approach is to avoid relying solely on your employer for your insurance protection.

[gontek]

I really didn't expect a reply to that especially one so quick but thanks. Yes my managed funds are doing fairly well especially those focused on energy, transportation and foreign growth markets. I agree that's the way to go. Of course my largest stock holding is the company I work for. Anyhow the stocks are better than my craps returns at the casino, they just dont have the adrenaline. That's how I roll.

[macleodm3]

Different things work well for different people. I have several friends that set up there income taxes so that each year, at refund time, they get back $5k to $6000. No we all know that this doesn't make financial sense... but for them it does. Each year, they get a big chunk of cash, and make a nice big purchase. New (used) car, bass boat, new kitchen, whatever. They are getting what they want, and are not paying high interest to a credit card. Sure, they could receive extra pay every two weeks and invest it and end up with more at the end of the year..... But they know that they won't do it. They'll spend it on odds and ends or use it to create more debt (hey honey, we can afford this new $2500 fridge at Lowe's... we have an extra $50 a month to pay off the Credit card now). We usually get a tax refund of around $1400, and we like it. Its a chunk of cash, and we buy something with it. I'm not going to change my tax setup, because it works for us.