My specific question has to do with what happens if we outlive the insurance we buy. Is that money just gone?
If it is term insurance. Yes. The money is gone, when the term expires. You can renew the insurance, with a new term, but the cost would be based upon your new, older age.
Of course, that is because the closer one is to what the actuarial tables indicate is the normative age to die, for sex, health factors, etc. the more likely is the need for a pay out.
Recently somebody through my bank tried to sell me an annuity, with a guaranteed floor in value. The value could increase but it could not fall below a certain amount. I am really hesitant to buy a product such as this, because I feel it is kind of like Las Vegas, the deck is stacked against the consumer.
Since most of us are between 50 and late 60's, there is still time (hopefully) for growth of capital, if this money is no longer needed as an emergency fund or for living expenses.
I was researching today companies that are structured along the line of the conglomerate/holding company run by Warren Buffet. The genius of this stock is that the core holdings are insurance companies. Familiar names like General Re and Geico come to mind. Buffett was attracted to these investments because insurance companies from the investment perspective are actually giant stock and bond portfolios. And then he has these other companies, in varied industries that he buys as good investments, often under market.
You see, the insurance companies invest the premiums they collect, and the annuity money we invest, to anticipate the payouts they have to inevitably make. So, if we are over time paying for a 20 year term insurance policy, say, $20,000, they use our money over time to make much, much more.
So when you buy company like this, (I do not want to mention specific names) you are buying their core investments--huge insurance companies with huge stock and bond portfolios. The conservative nature and diversification of these companies makes them (hypothetically) far less volatile than any given stock (or even bond).
I am wondering if that does not make most sense for Seeking, and for me, for instance, instead of paying an insurance premium, where really the upside would be limited--and in the case of term insurance--not really meeting the need, if it ended before time of death.
The growth in some of these stocks has been impressive. I checked just one. If bought in 1990 it would have delivered a 30x increase in principal. In 15 years.
That is what I am thinking of doing. I have already identified a handful of stocks that have insurance companies (or similar type companies) as their core assets--but need to check them out further. I think I will begin to do a strategy like dollar cost averaging, (actually there are more powerful ways to do it, but I forget right now), putting aside even a hundred dollars a month, to do something like this--spread among several different stocks.
I wonder of RB would let us have a stock club on water cooler.