Now that we live in a 2-income house (as opposed to a house that either my wife or I could afford on a single salary), we're investigating life insurance options so that in the case of the untimely demise of one of us, the other does not have to move.
So far, I'm fairly disgusted by the industry. I mean, insurance is a scummy business as a whole, but life insurance has more obfuscations and fear-mongering than I'd expect outside a Republican election platform. When you buy car insurance, it's pretty straightforward. If you pay $X per month, the insurance company will fix your car, pay off anyone you damaged, and possibly pay for your own injuries in the case of an accident. Different policies cover different things, but it's not complex. I thought property insurance was as straightforward, but since reports came out from Katrina of insurance companies playing games and not paying for destroyed homes, it turns out that that sector is about as trustworthy as Mel Gibson producing a Holocaust movie. (The whole "wind" vs "water" debate is crap. People clearly believed they were buying hurricane insurance, and the insurance companies were happy to let them think so.)
When I bought my first house, I purchased a "home warranty". That was probably the most worthless thing I've ever spent money on. It was supposed to cover anything that broke in the house, with a few small print items that were excluded. So when a pipe burst in my crawl space, I called the insurance company. "Not covered." Why? Well, the part of the pipe that broke is excluded in the small print. My A/C died. "Not covered." Why? The way it broke was excluded in the small print. After 2 years of having Every. Single. Claim. denied, I cancelled the stupid policy. I started getting warning letters. "This is your last chance!" I read. A month later, I got a letter saying, "This is your final chance to cover your house!" I got phone calls weeks after that offering discounts. I'd rather send my money to a deposed Nigerian prince.
Which brings me back to life insurance. There are 2 types of life insurance. They're called "Term Life" and "Cash Cow". The insurance companies usually give prettier names to the second, calling it "Whole Life", "Universal Life", "Premium Guaranteed Life". And they talk down the first, calling it "Rental Insurance". Term Life is insurance. You pay the company $X, and if you die, they pay your beneficiary $Y. Permanent Life (Perm), what textbooks will call the Cash Cow, is actually a hybrid product. It's a mix of Term Life and investment account. Perm Life premiums usually stay constant over your entire lifetime, while Term Life premiums go up. But this is misleading. Term Life payments stay constant, while the insurance payments in Perm Life go down. They don't tell you this, because the dollar amount on the check will be the same. What they don't clarify is that part of the money comes from your own investment account. If you wanted to buy Term Life with a declining payout, your premiums could stay constant too. Think of your mortgage. Your payments stay the same, but behind the scenes, more of your money goes to pay down principal instead of interest, as time goes on.
So where's the scam? After all, what's wrong with saving money? Nothing, if your retirement plan is to buy 40 year CD's that you can only cash after you die. Life Insurance companies pay really crappy returns. If all you're interested in earning on your savings is 6% annually, a CD will take care of that for you. Better yet, you can actually use a CD before you die.
Now, I do have to mention that there is one huge benefit to Life Insurance - payments after death are tax-free. It's like a Roth IRA that pays out when you're dead. This is a good way to avoid estate taxes if you want to pass down money to your children. Since there are no estate taxes on spouses, however, nobody gains anything if your spouse is the beneficiary. Except for the insurance company, who's been making tons of interest on your money for 30, 40, or 50 years. Anyway, that's estate planning, and unless your estate is worth millions of dollars, you don't have to worry about it. (If it is worth millions of dollars, there are other ways to shelter the money before dealing with life insurance.)
On the New York Life webpage, the insurance company tries to help you with the confusion. It's heard the saying "Buy Term and Invest the Difference", so it wants to give you a Fair & Balanced analysis on which is right for you. The page has headlines like "Do You Prefer Renting or Owning?" and "Invest the Difference in What?". Translations: "You prefer owning to renting, and we say Term is like renting", and "Do you really want to go through the hassle of planning for your future?"
Maybe some of you who are older and wiser than me can cut through the bull that the insurance companies are feeding us. Explain to me a good reason why Perm is not a ripoff. If I'm disciplined and responsible with my savings, I figure I'm always better off buying Term, until the day comes when I no longer need Life Insurance (house is paid off, kids are through college). Why is someone always trying to steal my money?