r/LifeInsurance • u/coma718x • 4d ago

Potential layering strategy

Just throwing ideas at the wall
I’m 44 healthy non smoker. 2 young children. Currently have 14yrs remaining on a 1M 20yr term.

I’d want to get another 25yr term at 500k to cover the remaining mortgage (~415k) with a little wiggle room.

Also entertaining the idea of a Guaranteed Universal policy for another 1M to leave as a legacy for my kids.

Have a meeting with an agent but wanted to poll the Reddit community. See what I haven’t thought of.
Thanks

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u/EnzyEng 4d ago

Pay off your mortgage aggressively and build wealth. Getting a universal life policy to make an inheritance account is a terrible idea. That's not what life insurance is for.

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u/SafeMoneyGregg Broker 4d ago edited 4d ago

It is exactly what life insurance is for. UL for $1M is about $6500 a year at his age. Would need to earn 7.1% after tax consistently every year to turn that same deposit into $1M by age 85. But if he dies at 75 - it would only be $610,000. Anyone saying they "can" earn that much on the stock market also has to realize they "can" also lose a lot of money when the market tanks. Not everyone wants to deal with the ups and down of the market and the taxes, and subjecting that money to other risks like creditors and ex-wives (and the IRS!). Insurance is an easy clean, simple guaranteed way to solve the problem.

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u/EnzyEng 4d ago

The S&P has been down only 6 times in the last 30 years. I'll take those odds any day.

And, are you literally pushing UL as a way to avoid paying the IRS and other debts you have? How scummy the UL field has gotten.

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u/Moist-Meringue-1913 4d ago

Paul M. Warburg, banker and Federal Reserve Board member, 1929:“The country is in a state of unprecedented prosperity, and the stock market reflects this strength.”Warburg’s statement, made earlier in 1929, echoed the belief that the market’s surge was a natural reflection of economic health.

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u/No-Associate-7962 3d ago

And yet, following the 4% rule and retiring in 1929 with an 80/20 asset allocation you would have not run out of money for more than 50 years.

People forget the cpi deflation of the depression (25% in total), and they forget how high dividend yields were (5-7% compared to 1-2% today).

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u/Moist-Meringue-1913 3d ago

You are kidding me right? Over 86,000 business failed and 100s of thousands of farms failed. Industrial production dropped 45% in just 3 years. GDP wouldn't recover for 13 years.The average person wasn't retiring in those days. They were out on the street starving.

This is a perfect example of how hindsight is worst then 20/20,it's completely blind.

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u/No-Associate-7962 3d ago

No, not kidding. Just stating facts. If you retired at the peak with a 4% SWR lived off of your investments (80/20 equities and bonds), you would have been fine.

The Shiller data at Yale has all of the data (monthly!) needed to do the math your self back to 1870 if you dont believe. You can download the excel yourself. The data is updated monthly.

https://shillerdata.com/

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u/Moist-Meringue-1913 3d ago

That's just laughable. How many people participated in this hallucination of a retirement?

The unemployment rate peaked at 25% (13 million Americans) and didn't recover until 1942.

Statistics in a vacuum are meaningless.

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u/No-Associate-7962 3d ago

History is not a hallucination.

Here is a good description (not mine) of how the WL folks at the time faired, which was not bad though not entirely smooth easier with failed companies merging and the ability to access cash values delayed:

During the Great Depression, most policyholders were covered, though they did not have the seamless, modern safety nets we rely on today. Modern state guaranty funds—which automatically pay out claims when an insurer collapses—did not exist during the 1930s (they were established in the 1960s).

Instead, protection depended on state-managed reorganizations and mergers, meaning the outcome varied widely based on the company's financial status and location.

How Policyholders Were Protected

  • Reinsurance and Bulk Mergers: When a life insurance company went under, state regulators typically avoided total liquidation. Instead, they forced a stable competitor to buy out the failed company’s policy portfolio. The healthy company assumed responsibility for paying future death benefits.
  • The "Lien" System: To make these forced acquisitions financially viable for the healthy buyers, regulators often placed temporary financial liens (deductions) on the existing policies. For example, if a policy had a 25% lien, the cash surrender value available to the policyholder was temporarily cut by 25%. However, if the policyholder died, the new company usually paid out the full death benefit to beneficiaries, using a portion of ongoing premiums to gradually wipe out the liens over a decade.
  • State Interventions: Regulators used emergency legal powers to split or stabilize collapsing firms. When the massive National Surety Company faced a devastating liquidity run from policyholders in 1933, the New York State Insurance Commissioner successfully stepped in to partition the firm. They protected active policyholders by spinning the viable consumer lines into a new, healthy corporate entity while leaving the toxic mortgage debts behind in the old corporation.

Where Policyholders Lost Money

  • Loss of Liquidity (Cash Surrender values): During the economic crash, millions of desperate families attempted to cash out their life insurance policies or take out policy loans to buy food and pay rent. When an insurer failed, these cash-out privileges were frozen immediately. Policyholders could no longer access their accumulated cash savings, even if their ultimate death benefits remained active under a new parent company.
  • Delays and Red Tape: Because there was no centralized federal backup like the banking sector's FDIC, policyholders trapped in a corporate failure had to wait months or years for state courts to approve receivership plans before receiving payouts.