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 Post subject: I know the general consensus about life insurance...
PostPosted: Tue Aug 07, 2012 9:37 am 

Joined: Tue Apr 10, 2012 12:47 pm
Posts: 8
but just wanted to make sure. My uncle bought a policy for me when I was born, now it is mine to do as I wish with and this year the premium is 600$. Cash value is a bit over $6000.

I am 23, working an entry level job, completing physical therapy prereqs and hope to go to PT school in two years. PT school will cost anywhere from hopefully 70k to over 100k.

I feel like I should probably cancel yes?


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 Post subject: Re: I know the general consensus about life insurance...
PostPosted: Tue Aug 07, 2012 12:11 pm 
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Joined: Wed Sep 23, 2009 9:01 am
Posts: 5402
takesflight wrote:
but just wanted to make sure. My uncle bought a policy for me when I was born, now it is mine to do as I wish with and this year the premium is 600$. Cash value is a bit over $6000.

I am 23, working an entry level job, completing physical therapy prereqs and hope to go to PT school in two years. PT school will cost anywhere from hopefully 70k to over 100k.

I feel like I should probably cancel yes?


If you were to die tomorrow, how much would you need to leave to take care of your obligations?


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 Post subject: Re: I know the general consensus about life insurance...
PostPosted: Tue Aug 07, 2012 1:36 pm 

Joined: Sat Jun 16, 2012 8:06 am
Posts: 102
You need to figure out what your taxable amount will be upon surrendering:

IRS Revenue Ruling 2009-13: "...the individual surrenders a policy with a cash value of $78,000 in which prior premiums totaled $64,000. In this circumstance, he or she will recognize income equal to the difference of the cash value and the investment in the contract. Investment in the contract will be the total amount of premiums paid. Therefore, the individual will recognize income of $14,000. This income will be taxed at the ordinary income tax rates."

I doubt it will be much, but it's never fun to be surprised, especially when it comes to the IRS!

Good luck at school and with all your future plans!


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 Post subject: Re: I know the general consensus about life insurance...
PostPosted: Tue Aug 07, 2012 9:37 pm 

Joined: Tue Mar 11, 2008 12:19 pm
Posts: 1791
Location: Ottawa, Canada
DoingHomework wrote:
If you were to die tomorrow, how much would you need to leave to take care of your obligations?


I feel compelled to clarify: How much would you need to leave in order to leave your DEPENDANTS clear of your obligations?

That is, how much do you need to ensure that the cosigners on your loans are not left shouldering your debt? And how much would it take to ensure that any children you have are taken care of?

DoingHomework implied that you should have enough life insurance to cover your debts. But that's not necessarily true. If you don't have any co-signers, you don't need life insurance to cover your debts. Your lenders already have insurance to cover those of you who die without paying back your debts, and the interest rate on your loans is designed to ensure that they make enough profit to cover those few of you who die before paying back the loan.

DO NOT BUY LIFE INSURANCE TO PROTECT YOUR LENDERS. Buy life insurance to protect your co-signers and dependants. Your lenders have already factored the risk of you dying into the interest rate. They will be fine.


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 Post subject: Re: I know the general consensus about life insurance...
PostPosted: Wed Aug 08, 2012 6:15 am 

Joined: Tue Oct 23, 2007 7:07 am
Posts: 201
takesflight wrote:
I am 23, working an entry level job, completing physical therapy prereqs and hope to go to PT school in two years. PT school will cost anywhere from hopefully 70k to over 100k.


Not directed at your question but just some advice about PT school. If I were you, I would think very hard about whether or not that is what I wanted to do. If it is, I would do everything possible not to take on that much debt for it. I know a lot of friends who took $100K and more out to go to PT school and for the most part, it seems starting salaries are in the low $60Ks. That is a lot of debt for that kind of money after school.

That being said, all the PTs I know love their jobs for the most part.


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 Post subject: Re: I know the general consensus about life insurance...
PostPosted: Wed Aug 08, 2012 6:22 am 
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Joined: Wed Sep 23, 2009 9:01 am
Posts: 5402
kombat wrote:
DoingHomework wrote:
If you were to die tomorrow, how much would you need to leave to take care of your obligations?


I feel compelled to clarify: How much would you need to leave in order to leave your DEPENDANTS clear of your obligations?

That is, how much do you need to ensure that the cosigners on your loans are not left shouldering your debt? And how much would it take to ensure that any children you have are taken care of?

DoingHomework implied that you should have enough life insurance to cover your debts. But that's not necessarily true. If you don't have any co-signers, you don't need life insurance to cover your debts. Your lenders already have insurance to cover those of you who die without paying back your debts, and the interest rate on your loans is designed to ensure that they make enough profit to cover those few of you who die before paying back the loan.

DO NOT BUY LIFE INSURANCE TO PROTECT YOUR LENDERS. Buy life insurance to protect your co-signers and dependants. Your lenders have already factored the risk of you dying into the interest rate. They will be fine.


I agree with this clarification. I did not mean to imply that anyone should buy life insurance to protect their creditors.


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 Post subject: Re: I know the general consensus about life insurance...
PostPosted: Fri Aug 10, 2012 9:49 pm 

Joined: Tue Apr 10, 2012 12:47 pm
Posts: 8
Thank you all for the replies. I do not have any dependents at this time. I will look into the exact amount that would be taxed, but the citation helps.

And as for PT school, yes I definitely agree the less loans the better. My target schools are those with in-state tuition that would come out to 60k for all three years.


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