So, I may have mentioned last month that, having left the safe (and inexpensive) harbor of the Serviceman’s Group Life Insurance (SGLI) plan, wherein we few, we happy few, we band of decrepits were grouped with the 19-25 year old set for the sake of actuarial risk, I learned to my dismay that the company I’d used for just about every other insurance need I’d ever had since I was a wee nobbut was all set to charge me a premium, like, on the advertised price, on account of the fact that I flew hemi-, demi-, semi-professionally on the odd weekend just for the hoots that were in it.
Well, hoots and $25 per hour. Which, no, you can’t live on it, but it does pay for your auto gas to and from the airport, doesn’t it?
It does.
Such was the premium, in fact, that taking all under consideration it’d be costing me more to fly for pay than not to fly at all. Which was hard getting the noodle around, being that I’d heretofore done it with a modicum of professional success and safety, and in aircraft and environments that’d have sent me dear sainted ol’ ma straight to the grave had she known about them. Or would have, if it weren’t for the fact that she was there already, God rest her and keep her close.
Which, while I was ruminating over all of this, the good people from AOPA mentioned that there was honest insurance to be had from a company they’d contracted with who didn’t give a fig if you took it into your head to fly the odd aeroplane, from time to time. Ya’ big lunk.
Also sprach the Veteran’s Group Life Insurance set, who kindly offered to be the umbrella over our head, like, for relatively decent terms in the short run, with a payout exactly matching that which we’d selected whilst on active duty ($400k).
But while USAA offered one fixed price over the twenty year term, VGLI and AOPA had ascending rates every five years or so, making direct comparisons difficult. Difficult, but not impossible.
USAA will charge me about $150 per month (rough figures) for 20 years ($1800 per year) for $500k of term insurance. Now, no one retires to Tahiti on $500K and everyone’s needs are different, but for us that’ll get the kids through school and make the mortgage payments until a better plan can be thought out should any untoward thing arise.
VGLI starts out much cheaper – $88 for the first three years – but ramps up over time until you’re paying $600 per month 20 years from now. Ouch.
AOPA’s provider splits the baby, charging more up front that VGLI (but a little less than USAA), $1.40 per $1000 payoff ($2200 annually for a “standard” non-smoker) and $1.10 per $1000 ($1750 annually for a “preferred” non-smoker) before topping out a fair bit less than VGLI, but a great deal more than USAA.
So what’s the best rate? Let’s run a spreadsheet to find out:
Now we see that USAA, even though they charge more up front than the AOPA-sponsored group, will cost me less – a great deal less – over the life of the term plan, provided that I live that long. Which, of course, means that all that cash will have been wasted since there’s no residual value from a term plan and living to 67+ means I didn’t have the decency to provide my family a windfall, like. But never mind: We’re buying peace of mind, here.
VGLI isn’t much better over the 20-year period, which makes sense: The transition courses all teach that VGLI is not a particularly good option in the long term, although it can be useful for someone transitioning out of the service who hasn’t quite got his stuff in one sock (*cough*).
But that doesn’t really paint the whole picture, since all of these dollars will be worth less than in today’s terms because of inflation, which we’ll set at 4%, just for giggles – keeping all proportions constant, it shouldn’t make much difference if we go a little higher or lower.
To get at the future discount on this year’s dollars we use the Net Present Value (NPV) calculation:
NPV = Rt / (1 – i)t,
Where R equals a given year’s present value of dollars at time “t” and i = expected inflation. From the resulting array, it was possible to generate the following chart -
From this we see that VGLI is actually a pretty good deal for the first few years – up to age 50 – but that USAA catches up to the discounted value of those dollars at age 50 and becomes a compelling choice at age 55, beating all the contenders. By the year 2028 that unchanging $150 premium – which sounded so unfavorable in 2008 – will cost us only a little over $60 in today’s dollars, while the other firms are costing three times as much.
Yeah, but wait: The USAA and AOPA policies would have paid out $500k at any given point, while VGLI is limited to only $400k. What gives?
Well, assuming that the same $400k that let us sleep at night for the last 26 years will at least get us through the next few, we can make a new chart that uses the payout value – either $400k or $500k – as the numerator, and the cost per month or year as the denominator to see what our payout dollars are per premium dollar spent:
Once again we see that VGLI – the “bad deal” of transition courses everywhere – is actually a pretty good program for the first couple of years – at least for a guy my age – while USAA runs away with the ball after year 3 or so.
So, while this doesn’t tell us whether it’s worth earning a couple hundred bucks a month to fly only to turn around and give that money to the insurance company (it is), what it does tell us is that Excel is your friend.
Oh, and wonder what that $500k payout would be worth in today’s dollars, if I croak at 67? Around $226k, before deducting my $37,800 in premium payments, thus: $188,200.
And what if I’d invested that same $37,800 up front in a stock mutual fund averaging a conservative 8% over the 20 year period?
$200,325.
What, you think they’re giving it away?
USAA only deals with folks who’ve passed some serious physical exams and serious moral exams. (one hopes) You _should_ get a better deal from them.
Oh, BTW, look at Amica. They seem to be right up there with USAA. I dunno if they do life.
My word, it’s as though Jason Van Steenwyk got to you! Or worse, Pers-42!
As for me, I bailed from a bad choice as an ensign that lost me big bucks with First Command (then USPA&IRA) and switched to term life as we switched investments. Bought a big ol’ plan to last about ten years after retirement, depending on when I get thrown out of this man’s Navy, and then? Self-insure becomes an option, too. Might be worth thinking about at some point there.
However. Long term care insurance? Hoo boy it’s pretty scary what happened to the friend without it. Old, sick, poor and alone is no happy place to be…
You’re worrying me here, Lex.
In the first place, Lex, you’re not going to die at 67. From everything you say, you are extremely healthy and fit … much more so than us civilians. Just be careful on that motorcycle. And another thing — aren’t the military entitled to Social Security and Medicare? Am I being stupid here? [Not impossible, I realize, so don't be shy. Tell me.] And you do have retirement/pension pay? This should make a basis at least, for the future.
And when you start writing your novels, based on all the wonderful things you’ve written so far, that should help, especially if you invest the profits in relatively bullet-proof stuff, which is what we’ve tried to do. Yes, you’re going in to the most expensive years of your marriage, educating your teen-age daughters and son, but I promise you, it eases up afterwards when you’ve launched them downrange, as you put it.
Your Powerpoint presentation is dazzling, but it confuses me, since I never learned to do Powerpoint or Excel. [I'm a writer not a mathematician. You aviators have to be both, and I'm lost in admiration.]
Oh, well. I shouldn’t have gotten into this discussion. But I think you’ll be better than you fear you will.
Marianne, who’s still trying to figure out the mortgage/banks bailout mess.
My head hurts.
*looking for an aspirin*
You’d have loved the Excel-based Solver I created to show the best 401k contribution to optimize annual end-of-year net worth (taking into account after-tax advantages, retirement receipts, VA disability and employer matching) constrained by maximum legal contribution and minimum monthly cash flow.
It was… beautiful.
First it’s an essay on shopping in a “green” store, which kinda had my head hurting, then this dissertation on who’s gonna steal the most from you.
Oy….you owe us a Rhythms, dude.
And yeah, you’ll live to a ripe old age IF you get rid of that damn two wheeler. Yeah, you’re a Naval Aviator, superb reflexes, eyesight, all of that. Still doesn’t protect you from some idiot with a nearly empty can of beer in his lap talking to his girlfriend on his cellphone. Please…get rid of the scooter. And hey! Just think about the insurance savings with no bike!
Yikes! He hurts me head.
And to think that when it came to life insurance, I just closed my eyes and picked one … took my chances, I guess you would say.
BTW, what Byron said – you so owe us a Rhythms.
What can I say … I’m a simple girl, I am.
You’d have loved the blah blah I created to blah blah blah…401k contribution to blah blah blah…constrained by blah blah blah…cash flow.
It was… beautiful.
And this on a Saturday night. Be careful there… all the Lex Babes might start mistaking you for a geek with nothing better to do and forget your high-flying, naval-aviator coolness.
–says the woman doing computer-based work on a Saturday night that she could’ve done any other time this week if she hadn’t been procrastinating…
However, I do beg at least a little leeway for the need to recover from a weekend of partying in Vegas.
I was told there would be no math…
Just as long as there’s no test … please tell me there won’t be a test!
If there’s a test, I’ll strangle Lex before his policy kicks in.
Chap, that’s an ouchy. Old, sick, poor,and alone describes Yours Truly pretty much exactly, at the moment. Anybody wanna buy a TD .010, NIB?
You are SUCH a nerd.
Dang, Lex – you’ve been productively busy today. All I did was watch my Tide team beat the crap out of the GA Bulldogs! That was more beautiful than any ol’ Excel project!!
So its all come to this, huh Lex? Doing Excell spreadsheets on a Sat. nite–Oh how the mighty are fallen……..
Of course, here “I” am reading those same spreadsheets on the same Sat night.
Hummmm………
First to Chap and then to Lex:
Chap, what you have to do to avoid the pitfalls of Long Term Care are straight forward. You need a legally binding document equivalent to a “Living Will”. In it you describe the extent of treatment you wish to have. To ensure that your wishes are meet, they should be discussed with your wife, and specifically with your children. Although much attention is paid to feeding tubes, respirators, cardiopulmonary resuscitation, the central issue is the balance between a natural death with dignity, and prolongation of life, with a chance for recovery. The issue addresses age, and dependents within your family, thus has to be continuously revised.
Chap my man, Long Term Care Insurance is the least of your worries. Someday, when this election cycle is over, perhaps Lex will bring end of life decision making up for discussion…
Lex, we can make millions, drive Porsh’s, race fast sailboats, collect lovely’s in shorts skirts that would make Sarah’s gams a thing only grandmother’s would envy. Here is how:
It is Fat City Lex, all we have to do is work really hard to elect McCain. I mean after all, when it comes to Health Care, he is still wearing Davy Crockett’s raccoon skin cap!!!
You did THAT instead of watching Alabama v. Georgia? Homefront Six is spot on…. Lex, you are a conflicted soul. Only a member in good standing of the Bohemian Bourgeoisie would have chosen Excel over by-God SEC Football in prime time hi-def!
Ahhh. Searching for value from a recently swelling car insurance for “officers-only” company with an atrocious record for homeowners insurance vs. VGLI. Cmon. I’ve learned brand loyalty means zero in today’s world and only stay with them because they won’t give up that subscribers account without a fight. Have you checked how much yours is worth?
The delta seems to be something you could easily handle if you gave up that fancy coffee habit, health food (as per that fancy free-range chicken in lieu of at-sea chili-mac) and foreign tastes in motorcycles. LOL.
re football- I’m starting to think all ain’t what it seems- The SEC isn’t as good as it appears and like USC losing to a smaller more motivated team, nobody is unbeatable..On top of that did you see Navy beat Wake Forest yesterday and BTW, UCONN is still undefeated at 4&0 (whipped VA-ACC, Baylor-B12 and Louisville-BE)! Maybe the Big 12 is best this year. Lex- I think Navy will beat ND this year having viewed both teams play a cuppla games. Nose- even the TwERPS look good!
b2
b2 — as a lifelong Orangeblood, I will accept your recognition of the primacy of the Big 12. Whomever runs the UT-MobilehomaU-Mizzou-TT gauntlet, deserves to be in the BCS championship. UCONN? UVa allowed Duke to end their muti-year ACC losing streak yesterday. Baylor — 12 game conference losing streak. Not even the median for either of those leagues, so not much of a benchmark.
Ready the surface-to-thread hijack weapon….
Gee, from insurance to football. I can see very few want to think about insurance. You’ll buy anything just to make the guilt of being thought irresponsible go away.
Some 30 years ago, about, – me an my accountant looked over my 1040 and it occured to us that the “bloodsuckers” were getting more and leaving me less, (er, the lines had crossed?). So, I quit working. I had saved and invested, (I mostly owned a 2-family house where the tenant payed the taxes and some of the mortgage), so, – I had some “fat” to live on. The point then was to it was okay if I ran out before the money. What-the-hell. Later, I realized that I had that wrong. Yes! Now I don’t care either way. If the money runs out before I do then I can be a dead beat, a dirt bag and live off all those “social programs” financed by all those wage slaves. I will become a burden. And then, I can vote Democrat! (or socialist, or marxest)
Hey, life can be good if you don’t weaken and stay below the radar.
PS: to Lex. Don’t give up your bike!
Nice to see you are using that NPS education for something. And no, I won’t admit to doing similar things – ’cause the wife isn’t here to rat me out
You would fit perfectly with the guys I work with in my office. We’ve got spreadsheets going every which way on everything.
I have to say though, you’d lead the pack. Your spreadsheet and the formulas were a thing of beauty. I need to give them the link just so they can see it in awe… but then I’d give myself away as I blog anonymously.
Man! I tried to make it hard (including spreadsheets) but ultimately came to this: it’s a crap shoot. I hope to live and lose the money I invest each month Just In Case. Two young boys, a lovely bride with no career save saving my ass and helping rear responsible, caring kids. It’s worth the roll of the dice or flip of the coin. FWIW, I found $1M of 20 yr term for 170 (though no flying or parachuting). It if comes up tails, they’ll be ok. If I outlive the tables, there’s no regrets and it helps us sleep well at night.
@JustThisGuy: You’re doing better than the next door neighbor my wife had to save once–you’ve still got your head about youse and know how to navigate the intertubes. Keep on chuggin’…
@Our Paul: I’m cool with the DNR. What I ain’t cool with is being in between the situations of “able to yank the plug or pull the trigger” and “living in my own house without help for seven years”. Best friend’s parents both going through that now, and though he’s going to be able to change his life and move closer to help, it still requires a professional type living at the house…or moving to a care facility…and the last not-so-good one of those I saw would turn Sinclair Lewis’s stomach. Our nuclear family means that our old folks had better not expect extended family style care. Besides, if the actuarial tables mean anything it’ll be my better half dealing with this after me, so I’ll spend the bucks when it’s time to do so, yah.
I dunno Fuzzy. I thought you had to be more than a bit of a geek to actually be a naval-aviator. It seems like it would go with the territory.
I bought my life insurance long before a diagnosis of severe asthma. I’m glad about that – would not want to analyze the premiums now. Even if I could understand what Lex did above; my head kinda imploded a bit.
with reference to #17, concerning LTC insurance. You may clearly state your wishes, but if you need long term “care”, you still have to find a way to pay for it. Respectfully, am I missing something here. Self-insuring and paying out of pocket is not the best financial strategy, having LTCi is a reisk adverse strateg, are they better way?
Regards,
Mike
So, Lex, I guess you took a pass on SBP. Seemed to me (retire ’09, wife 12 yrs younger, kids 3, 1) to be a no brainer. Especially since the benefit grows over time. Do I need to break out Excel?
No, I took the max 55% policy. Tax free, seemed a no-brainer.
And it kept the total insurance amount down to a reasonable level.
I’ve got spreadsheets for all of it
If you are still looking, I suggest you look at Navy Mutual Aid (www.navymutual.org) for a very flexible level term program. No aviation exclusion and one of three rates depending on various risk factors. They beat USAA’s rates for me a few years ago. I think you can get a quote online through their website.
Ach! My name was evoked! An insurance and personal finance discussion, and I MISSED IT!!!
For what it’s worth, I’d probably recommend something completely different. For someone in your position, term insurance is like wetting the bed: It gives you a warm sense of relief at first. But it doesn’t last too long, leaves a rash, and begins to stink eventually. You’re going to have to do something about it.
You won’t hear about this stuff on TV, but my thinking is along the lines of this guy: http://www.amazon.com/Leap-Lifetime-Economic-Acceleration-Process/dp/0977117103
I didn’t learn it from him, but from a combination of other really first-rate advisors with some serious candlepower. Which, of course, makes them totally unintelligble to the cub reporters in the financial media.
Find an insurance professional you trust, who works for a solid MUTUAL life insurance company, and ask him to show you a combination term/permanent insurance solution. Ask him to show you one that’s guaranteed paid up at age X (whenever you want to quit working), and one that’s projected to pay for itself as soon as possible. Ask him to show you what’s possible if you overstuff that policy to the MEC limit.
You may find that on an after tax basis it outperforms anything allocated to bonds in your 401k or TSP… especially if you think income tax rates will be higher. I wouldn’t be afraid to use that money… which of course frees up more space in your tax-qualified plans for risky investments. Or safe ones if you prefer.
Or drop me a line.
Jason