Cut off life and medical insurance to save money for investing?

85 Replies

We are trying to find the way to reduce our family expenses and start saving for real estate investing. The biggest expense for us is insurance. What do you think, would it be smart to stop spending about $300 per month on life insurance and $556 on medical insurance, and put these money directly to retirement account? It will be tax-free money, which we could use for real estate through self-direct retirement account. Or not?

It does not make sense for me to pay $6,672 per year for a medical insurance, because we have $3,000 deductible, and usually end up paying for doctors from our pocket anyway. Do you think it is really necessary to have medical insurance? Does anybody have an experience of living without medical insurance?

Another pain is life insurance. We are a family of three with a 4 year old child. All three of us have two life insurances. Totally we spend $3600 per year on life insurance, which does not look as a good investment at all. Am I right? How many of you, guys, have life insurance?

In my mind putting $10,000 a year on the retirement account and using this money for real estate investment is a much better idea than paying for insurance. But may be I do not know this system very well because I am new to the USA. Could you give me some advice, please?

@Tim Herman Thank you for your advise! Sorry for you wife. Is she ok now? 

I don't quite understand what are you recommending - whole or term? Could you please, explain it to me?

You wrote: You must have whole life policies rather than term. 10 year level term would most likely be less than $500 per policy per year for $500000. 

term life has no cash benefits.. and only pays when you pass away.. and is very inexpensive.. if you don't smoke and are in good health.. you can get 250k  for like a few hundred a year.. I did this when I had kids.

also when I was raising my family I ONLY had major medical.. not sure if that exists today.. so doctors and prescriptions were not paid for.. but if you had a major medical were hospitalization was needed or accident or something that was covered.  again much cheaper than full blown insurance..  at our age right before medicare and to get top flight medical my wife and I pay almost 2k a month.  :)  it just keeps going up.  and this is for our business as we have employees we cover.. if not our rate would even be higher. 

Here is what I found in previous BP discussions about medical insurance. Sounds like a great idea. Has anybody tried to do it?

I encourage you to talk to a local independent agent and look into a Healthcare Savings Account. You buy a policy with a very high deductible with very cheap rates. Then you bank the difference in an IRS approved savings account. The amount contributed each year is tax deductible and it grows tax free. You pull from that when you need to pay for something and you have not met your yearly deductible.

HSA is basically a traditional IRA, which also has an allowance to pull for medical bills without the early withdrawal penalty of 10%. Then later in life any unused amounts and any income earned on it is still yours and still tax free.

@Svetlana Ivanova Call the life insurance company (NOT THE BROKER) and figure out what your cash balance is on your cash value life insurance.  DO NOT cancel it, just find out the details.  THEN, contact a local broker (NOT the one that sold you the Whole Life, someone else who has good reviews and get a quote for 20 yer term life.  I am 40, slightly high blood pressure and a bit heavier than I should be and I have 2 million and it is $1200 a year!  My wife has 1 million and it is like $350 a year

Once you have the term IN PLACE  (not a quote, the actual policy is done, they have done the physical all that) then cash out the whole life.  If for some reason you are not able to get term (health issues) then you have the cash value which is better than nothing.

Insurance agents who sell this whole life CRAP make a lot of commission on it, so they will not give you objective advice.  They are either uncaring about the fact it is a awful deal or ignorant of it.

@Svetlana Ivanova   Sure thing!

The reason you want to get the term in place first, is to make sure you are insurable.  My cousin had whole life like you do now, he was diagnosed with cancer (he is doing ok now) and because of that was not able to get term.  If he had cancelled his Whole life before he checked, he would have NO insurance.

NO LIFE INSURANCE < Whole Life < Term           :)   i.e. better to have WHole Life than NOTHING

@Svetlana Ivanova

If your trying to save money, save money.

However, be aware that dropping medical insurance means your probably one serious illness away from a devastating financial crisis. Illness doesn’t call and set up a convenient appointment to visit. Everything is great, until it isn’t. Sorry, IMHO medical insurance is not optional. Cancer put me through the financial wringer before, and I had insurance. I was 35 and very healthy when I got the diagnosis. Don’t ever think it can’t happen to you too.

Originally posted by @Richard Sherman :

@Svetlana Ivanova Call the life insurance company (NOT THE BROKER) and figure out what your cash balance is on your cash value life insurance.  DO NOT cancel it, just find out the details.  THEN, contact a local broker (NOT the one that sold you the Whole Life, someone else who has good reviews and get a quote for 20 yer term life.  I am 40, slightly high blood pressure and a bit heavier than I should be and I have 2 million and it is $1200 a year!  My wife has 1 million and it is like $350 a year

Once you have the term IN PLACE  (not a quote, the actual policy is done, they have done the physical all that) then cash out the whole life.  If for some reason you are not able to get term (health issues) then you have the cash value which is better than nothing.

Insurance agents who sell this whole life CRAP make a lot of commission on it, so they will not give you objective advice.  They are either uncaring about the fact it is a awful deal or ignorant of it.

 I carried term insurance from the time my kids were born when I was 25 up until 50 ish.. and 1mil  and it started at about 250 and ended in the 1k range so maybe 15 to 18k for 25 years of death benefit insurance.  I think this is why term is so popular.. 

Trading health insurance for saving additional dollars is a very risky proposition. Just my opinion, but I wouldn’t do it. You might save a large amount per month, but when a major health event happens, you’ll be in the hook for far more than the dollars you’re saving. My 5 year old broke his arm last year and I’m amazed how expensive it was - even with great health insurance. I’m actually still getting bills for it - couldn’t imagine what it would be like if I had to pay for everything. There are better ways to reach your goal.

@Svetlana Ivanova you could probably find some savings in cutting back on the life insurance. You said the three of you are insured and with 2 policies? What do you mean by that? My husband and I got 20 year term life insurance 4 years ago. For a healthy 23 and 27 year old, we only pay $64/m CAD together for $435k each in coverage.

I think it would be a terrible idea to go without medical insurance. I'm not American and have never had to deal with the insurance system there, but going insurance-less seems like a BIG stupid risk when you could be a car accident or an illness away from financial devastation. I'm currently a healthy (thank goodness) 27 year old, and pregnant. Found out 2 months ago that baby has a severe heart condition which best case scenario will require multiple surgeries and hospital stays. If I lived in the US with no insurance, this could easily be $800,000+. How is anyone going to be able to overcome that if you don't have insurance? Things happen that sometimes you have no control over. Even with insurance that's going to be a LOT of money out of pocket. The thing I am most thankful for right now is that these surgeries are covered and won't cost me anything. You can certainly check into other insurance options and see what's covered, difference in the deductible amount, etc, but don't get rid of it entirely.

You are talking dropping medical and all 3 of you have two life insurances? Keep the high deductible medical, try to get one with an HSA.   A  4 year old should not have two live insurances. They should only have a minimal policy if you think it is needed. My parents had  $10,000.00 for each of us but that was because my brother died and they were seriously strapped after burying him.  You should have term life only at about $500 a year/adult  for the adults only while the kids are young.

Surely there has to be other areas in the budget that can be cut before completing cancelling health insurance?  An HSA might be an option, and I want to echo what others have said.  I wouldn't live without insurance just to save for real estate investing (or any investing, for that matter).

We all need to have medical insurance and anyone that has dependents and those that count on us financially need life insurance. A 4 year old does not need life insurance and you can find much less expensive life insurance for you and you husband (20 year term vs whole life).

Originally posted by @Svetlana Ivanova :

We are trying to find the way to reduce our family expenses and start saving for real estate investing. The biggest expense for us is insurance. What do you think, would it be smart to stop spending about $300 per month on life insurance and $556 on medical insurance, and put these money directly to retirement account? It will be tax-free money, which we could use for real estate through self-direct retirement account. Or not?

It does not make sense for me to pay $6,672 per year for a medical insurance, because we have $3,000 deductible, and usually end up paying for doctors from our pocket anyway. Do you think it is really necessary to have medical insurance? Does anybody have an experience of living without medical insurance?

Another pain is life insurance. We are a family of three with a 4 year old child. All three of us have two life insurances. Totally we spend $3600 per year on life insurance, which does not look as a good investment at all. Am I right? How many of you, guys, have life insurance?

In my mind putting $10,000 a year on the retirement account and using this money for real estate investment is a much better idea than paying for insurance. But may be I do not know this system very well because I am new to the USA. Could you give me some advice, please?

 You might want to investigate an HSA plan for medical. The money that you spend is basically put away for medical purposes only and isn't wasted. You also have tax benefits with these types of plans. Consultant a CPA for more detailed info.

$300 a month for insurance seems high but it depends on what your needs are as well. I don't know how old you are and if you're in good health, but I would get a quote from someone other than the agent that you used and see if you can get priced more reasonably. If you can then put that policy in force before you cancel. If not, you should keep what you have.

Insurance is based on age and health so if you have some type of health issue or conditions, you'll have a hard time qualifying again in the future.

Another option that many investors don't consider is using insurance products as investments vehicles.  IUL's and Fixed Indexed Annuities are great resources to help supplement your portfolio and help with optimizing taxable events. 

Originally posted by @Svetlana Ivanova :

@Richard Sherman Thank you so much for such detailed practical advice!!! I am going to follow it and I will tell you the results. 

The one thing I did not get is why should I cash out the whole one only after the term is in place?

 Follow his advice, you don’t cancel the policy in effect unti you have the new term policy in place in case something happens in between or in case you find out they won’t insure you from the blood work.

Insurance in general is very important so don’t put your family at risk so you can save up for investing. You can look for better deals to save a few bucks and use your cash value for a down payment. If you are not able to save much I would look at your big ticket items like downsizing your house or selling a car.

@Svetlana Ivanova I am a local State Farm agent and would be more than happy to review what you currently have and give you an honest second opinion. My office is in Marietta and you can dm me if you would like to get my office number. Best of luck.

@Svetlana Ivanova I can't speak to life insurance as I don't know much about it.

As for medical insurance, you pretty much have to have it as an American. Our system is so screwed up that a single major health issue can ruin you financially for the rest of your life. In fact, 2/3 of bankruptcies are due to medical issues (https://www.cnbc.com/2019/02/11/this-is-the-real-reason-most-americans-file-for-bankruptcy.html).

It does feel like you aren't getting much for your money. In a day to day sense that's true. You'll likely have a high deductible and have to pay a good deal out of pocket. The key is that basic insurance isn't meant to protect you much against this stuff. It's for the big, catastrophic occurrences. Surgery, cancer, broken bones, diseases. The stuff that can ruin you financially.

So, I'd say it's really not optional. It's a bummer, but the cost benefit is heavily weighted in favor of keeping it.

Cancel insurance and have something major happen to you or your child and there goes every penny you have and then some. Nobody likes paying for insurance... until that one time you need to use it.

@Svetlana Ivanova , I’m a licensed life insurance broker for the state of Georgia (I work remotely so you never have to see my face). If you can email me the policies you have. I can help you look at your available options. @Richard Sherman is right. Call the insurance company and ask for an up to date illustration of your policies. This is usually for whole or universal life, but can be helpful for term life  sometimes people get wrapped up into policies that will increase in cost over time  

You don’t have to buy anything from me, but I can give you some insight into your options since I work with over 20 different insurance companies. I’ve saved a lot of people money. 

Life insurance is a necessary evil, but sometimes people are convinced to buy more coverage than they need. There’s often room to save. 

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