Anyone here have Whole Life Insurance?

Joey_V

Anyone here have whole life insurance? Just wondering what your experience has been.

I'm getting older so now is the time to convert some of my term into whole.... but I feel a little skittish with the commitment.

My 2 advisors cant come to an agreement. One says yes, the other says no. Useless...

Willow

Interesting topic. Our terms are up for renewal in 3 years. Years ago I worked for one of Canada's biggest insurance companies. Not as an agent but in the underwriting area. Again not as an underwriter. If I remember correctly, the term is less expensive but when your term comes up you can convert to a perm with no medical which can be great if you've you're getting older and your health has taken some hits. Lock in now while you can. Also if going to another term your premiums will increased as it is now based on your current age and health. So if you get another term plan I do believe you'll be required to provide some type of blood, urine and or medical questionnaire.
Typically terms are not used for estate planning, they are more for short term planning like income replacement, mortgage insurance... that's not to say you can't keep renewing your terms, they just come with higher premiums everytime you renew and the risk of being declined due to new issues or having some conditions on the plan. I think for us, we are 40, when our term is up we will reduce the total amount and get a perm plan so we can just forget about it.

Strong Bad

I've been in a Whole Life dividend paying policy for the last 3 years, but not for the typical reasons associated with life insurance. It's all structured around the "Infinite Banking" concept with multiple policy riders and such, along with the dividends being reinvested back in. Also, there's a cash value attached to it and the option to make loans on it.

I work with a guy that's in one and a friend is as well. My friend has been in one for the last 10 years (courtesy of his planner) and said his values are quite quite healthy! My financial planner recommended it to me as well, same as my coworker.

tonyb

Whole life is fairly cheap, you really need a financial planner for that ? Term is going to get expensive as you age for the obvious reasons.

Plan on getting hit by a truck soon Joey ? lol

More important is the goal you want to achieve, but also you have to consider the tax situation also which can vary from state to state. Your financial planner should be able to give you other options that may achieve the same goals with less tax liability.

For what it is, and the cost, whole life can be a great add on to any plan.

drselect

Had whole life tell I was 40 then switched to term. Wished I switched to term at 39. The reason: Life insurance gets more expensive as you get older. I know this should seem obvious but I have heard and learned that this gets lost fairly easy in whole life policy's. As you get older all those earnings in a whole life policy get quickly eaten up to the point that they are gone. Your monthly payment does not go up but the cost of the insurance does go up and you pay for it from your "earnings" in the policy. With term you pay the same price every month over the life of the policy. It may cost more at the front end but over the life of the policy it could be less expensive. Found in my case getting a term policy at 40 was cheaper then staying with the whole life. Would have saved even more over the length of the term had I done it 39. Also found out that getting that cheap life insurance through work was not that cheap when you looked at it over a 20 year period.

As stated before get with a financial planner talk through your needs and goals.

mhardy6647

Life insurance is a terrible investment strategy in my opinion & for what it's worth.

I'll also opine that (if one is like me and barely understands this stuff) one of the best assets (so to speak) in financial/estate planning is a CFP. A CFP is a fiduciary; he or she has no vested interest in how one's money is invested (unlike, e.g., a stockbroker or insurance salesperson), so he or she can (and, indeed, is obligated to) provide objective assessment of one's financial planning strategy.


FWIW, I do still have a small term life policy as a hedge against total meltdown of our estate, just to insure that there are a few bucks available to disburse to certain charitable organizations after we've both died, in case unforeseen and catastrophic economic situations have wiped out the estate's value. Our financial planners feel like it's completely unnecessary, but it makes me feel better and it's not expensive (even for an old guy like me).

Speaking of estate planning -- I assume that the OP has established trusts to hold all of his tangible assets?

EndersShadow

We have my wife insured for a TON of money... but I cant get anything (medical condition)......

I joke its why she keeps me around... I'm not worth anything yet....


Back to HER, we had a similar discussion and this is what we looked at when looking at Term v Whole.

Our purpose was to make sure if she died I'd be well off enough to keep things going as they are now for a bit. This meant enough to pay off the house, any medical debt she may have incurred, and also put some back for the Kid(s) to go to college, pay daycare (which we dont right now) and have her salary come in for a couple years after the fact. Ours was a worst case scenario, not a set the other up for life type deal.

Since that was our goal we went with 30 year term life for her. Since we both work right now the thought was after about 30 years "in theory" our salaries will have gone up, we will have jettisoned most of our revolving debt of a large sort (house, kids into college, etc) so the "need" for a ton of money after that "should" have gone down, and our ability to handle burial, etc should be there.

So we elected to just to 30 year term on her.

Now for me since it may be a one shot thing (have to be in remission and get medical documentation stating that, etc) we may do whole because I may NOT GET another shot to make that choice, but I think we will probably do the same and just do term.

Now my wife was 25 when we took out the policy so we feel we hedged our bets on that. By 55 I pray to god the kids will have moved out of the house, be through college, etc lol...

Just my .02 cents which may not apply to your situation.

motorhead43026

While you are you young and healthy buy term to cover the mortgage and other expenses. I have both term and whole life. I am dumping term (house is paid for and I am a widower) and will continue whole life. I can always take out the cash value of my whole life policy if I need it. As long as I make payments it stays in force and I never have to pay back the cash out. Just when I die the death benefit will be less the cash surrender. Don't buy whole life, invest your money else where. Remember, it is not life insurance but death insurance.

exalted512

Have you thought about Universal Life instead of Whole Life? That's what my wife and I have.

MrBuhl

We did the same as a few here, we (the wife and I) just purchased 25 year term when we were in our mid-30's, gets us through working, house paying, and ejecting little birds from the nest. Following that the need is not as great for one to be "covered" if something bad happens. Investments would cover that - which is where I believe the whole life payments should be going instead of to whole life. Just IMO, there are all sorts of solutions and comfort levels.

cfrizz

All the points stated above are on the money Joey. You have to figure out what you want to accomplish with the insurance. But keep this in mind, get it while you are young and healthy, because as noted below as you get older it will cost more, and if you have ailments, it will cost more still or you may be uninsurable.

Depending on the amount of the insurance, you will more than likely still need a blood test at the very least.

If you are doing this for estate planning, I would probably go for WL. There are tons of options for insurance these days Joey, sit down with a CFP and figure out what is the best option for you and your family.

cnh

I'm not a finance guy either. Would have been happier growing up in a society that had no real currency, lol. But I do have a life insurance policy though my workplace, that can be increased to whatever parameters you wish. The good thing is that "I" don't have to worry about this. I just consulate with our boys and girls and the college also subsidizes that so I don't have to spend time trying to figure all this nonsense out. And I do consider most economic items to verge on the nonsensical or unnecessary. Unnecessarily complex, that is.

Sounds like the OP is caught between advisers, and that can't be a good thing!

cstmar01

I have a VUL and then also term coverage through my work by both them and my own policy. The VUL I used more as an investment tool for long term funds and so far was working well. Cost of insurance was pretty low and I put about tripe that into it and so far it has been good to me on my rate of return. Not something I'm going to touch for another 35-40 years but I like having it as another tool.

I might look to get something more in the future but right not I have more than enough coverage.

Joey_V

tonyb wrote: »

Whole life is fairly cheap, you really need a financial planner for that ? Term is going to get expensive as you age for the obvious reasons.

Plan on getting hit by a truck soon Joey ? lol

More important is the goal you want to achieve, but also you have to consider the tax situation also which can vary from state to state. Your financial planner should be able to give you other options that may achieve the same goals with less tax liability.

For what it is, and the cost, whole life can be a great add on to any plan.

tonyb wrote: »

Whole life is fairly cheap, you really need a financial planner for that ? Term is going to get expensive as you age for the obvious reasons.

Plan on getting hit by a truck soon Joey ? lol

More important is the goal you want to achieve, but also you have to consider the tax situation also which can vary from state to state. Your financial planner should be able to give you other options that may achieve the same goals with less tax liability.

For what it is, and the cost, whole life can be a great add on to any plan.

No tony... I don't want the pain of a truck rolling over me.

Joey_V

I will post details of why I'm stuck between the two... When I get to a computer. Hopefully this will help clear some of the confusion.

Joey_V

Ok I am on a 20 year term life insurance, with the hopes that in 20 years, all large debts will be paid off and there would not be a need for life insurance.

However, I can convert some of my term into whole life.

Whole life is expensive, but there are several good points to it.
1. Is cash value, and also there is value in the future... you can cash out your policy or take a loan out of the policy and let the insurance pay the monies owed when you die.
2. Whole life income/cash value is not taxed. Which makes it lucratcive when using it as a 2nd option for retirement savings.
3. Whole life insurance is protected from lawsuits, it has never been pierced.
4. The rate of return is approx 5-7% dividends per year.... plus there is no tax so effectively it's like a mutual fund with a return of 7-10%.

The problem is that Whole life is expensive.

I have low rates because of my age and lack of medical conditions... however, the cost is still high.
1. My 20 year term life insurance for $3,000,000 is $164/month.
2. In comparison, my whole life insurance for $3,000,000 is $3,300/month.

And my financial advisor says that I am still a little low interms of my protection.... he wants me to go to 5 or 6 but I don't see the point since this is more than I'm worth anyway.

I guess, my thing is, I want to use WHole life as a vehicle for retirement, a forced savings and a safe bet, dividends pay out 7% in 2009 while the market fell 52%. Also I want the shield that cannot be penetrated by a malpractice or other lawsuit. I also like that it has no tax deduction when you pull out.... since 401K is completely taxed. It's also nice to have something else aside from your equities.

Joey_V

And maybe if I forced saved like in a whole life policy, I would'nt be randomly buying audio gear....

Moose68Bash

Joey_V wrote: »

Ok I am on a 20 year term life insurance, with the hopes that in 20 years, all large debts will be paid off and there would not be a need for life insurance.

However, I can convert some of my term into whole life.

Whole life is expensive, but there are several good points to it.
1. Is cash value, and also there is value in the future... you can cash out your policy or take a loan out of the policy and let the insurance pay the monies owed when you die.
2. Whole life income/cash value is not taxed. Which makes it lucratcive when using it as a 2nd option for retirement savings.
3. Whole life insurance is protected from lawsuits, it has never been pierced.
4. The rate of return is approx 5-7% dividends per year.... plus there is no tax so effectively it's like a mutual fund with a return of 7-10%.

The problem is that Whole life is expensive.

I have low rates because of my age and lack of medical conditions... however, the cost is still high.
1. My 20 year term life insurance for $3,000,000 is $164/month.
2. In comparison, my whole life insurance for $3,000,000 is $3,300/month.

And my financial advisor says that I am still a little low interms of my protection.... he wants me to go to 5 or 6 but I don't see the point since this is more than I'm worth anyway.

I guess, my thing is, I want to use WHole life as a vehicle for retirement, a forced savings and a safe bet, dividends pay out 7% in 2009 while the market fell 52%. Also I want the shield that cannot be penetrated by a malpractice or other lawsuit. I also like that it has no tax deduction when you pull out.... since 401K is completely taxed. It's also nice to have something else aside from your equities. This provided for the girls' educations whether I died or lived.

@Joey_V,

I'm no financial planner, but I have pretty successfully managed my own funds for years with minimal help.

I have used whole life policies to be sure that if something happened to me, there would be money available to pay-off specific present or future obligations -- e.g., college tuition, mortgage, etc.

You might say, therefore, that I have used whole life policies to enforce discipline in my savings plan. For example: We took out one policy on my life and another on my wife's in anticipation of college expenses for each of our daughters when they were born. We calibrated the cash value increases on these policies to match amounts we expected to need for these expenses.

With that said, a couple of additional comments:

1. When you cash out a whole life policy, the increase in cash value from dividends istaxed as ordinary income when you take the distribution. I wasn't clear that you understood that.
2. If you die, as I understand it, the benefit is not taxed and is not part of your estate. [I could be wrong about this, and the law may have changed since I purchased my last whole life policy in 1996.]
3. The value that you may want to achieve is not what your are now "worth" (your net worth), but the present value of your expected earnings over your lifetime. This concept ensures that, if you die, your family is taken care of.
4. Of course, if you live a long time, the present value of your expected future earnings decreases, which is the reason that I have always elected to have dividends used to pay my premiums, rather than to purchase additional whole life, which is what the brokers want you to do because they make more money from the policy.
5. The insurance agent and, if there is also financial planner involved, gets a "cut" of your premium payments -- for as long as you pay them. That is a significant "drain" on the cash value that you build up over time.

Just some random thoughts from a guy with way too much gray hair!

Actually, I have too little hair, but it is all gray!

cfrizz

5.The insurance agent and, if there is also financial planner involved, gets a "cut" of your premium payments -- for as long as you pay them. That is a significant "drain" on the cash value that you build up over time.

This is true however, they get their biggest cut in the first year, after that the amount that they get is far less. Which is why so many agents go back to their biggest clients to try to sell them more or to turn over old policies

It is a good way to build up cash value, and to know that if something unexpected happens to you, your family will have a safety net for a while to fall back on.

I have a small policy, that I will probably convert into an annuity when I retire, to supplement my income.

For 3 million, Joey will more than likely have to get a blood test, and they will get APS's to get a look at his medical/family history.

And for they kind of money the insurance company depending on how big they are, may shop it out for reinsurance so that they don't get stuck with the entire hit.

Joey_V

cfrizz wrote: »

5.The insurance agent and, if there is also financial planner involved, gets a "cut" of your premium payments -- for as long as you pay them. That is a significant "drain" on the cash value that you build up over time.

This is true however, they get their biggest cut in the first year, after that the amount that they get is far less. Which is why so many agents go back to their biggest clients to try to sell them more or to turn over old policies

It is a good way to build up cash value, and to know that if something unexpected happens to you, your family will have a safety net for a while to fall back on.

I have a small policy, that I will probably convert into an annuity when I retire, to supplement my income.

For 3 million, Joey will more than likely have to get a blood test, and they will get APS's to get a look at his medical/family history.

And for they kind of money the insurance company depending on how big they are, may shop it out for reinsurance so that they don't get stuck with the entire hit.

3 Million is guaranteed without a medical exam since I signed a clause that I could convert my current 3 Million of term over to whole life. I agree, the insurance agents WANTS me to convert so he gets a cut.

The insurance company is big, it is Northwestern Mutual.

Now, IF i want additional policy amounts, I will need to go through a set of blood tests and exam, plus my age (33) will increase the pricing since I started my insurance when I was 29.

He wants me to convert 3M into whole. And then add another 3M term for a total of 6M. He suggests to me that I am underinsured currently.

I do not feel so, I think I have adequate coverage.

He also wants me to increase my disability insurance. I maxed it out to $12500/mo (post tax) should I get disabled, but they want me at $15,000/mo atleast....

Disability insurance is costly... I was paying $700/mo to keep that number... though dividends in the past 4 years have brought it down to 396/mo so I'm sitting pretty happy. My guess an addition 2500/mo benefit will cost me a medical exam/blood and probably another $150-200/mo... something I'm not very keen on spending. Especially since the original plan was when I was younger.

Then I have umbrella policies on the house and everything else I do (say Skip comes by and lifts a speaker and breaks his back, I don't get sued, I just pay out of the umbrella).

It's insane. I say I'm overinsured... most people don't even have term life, disability insurance, or umbrella policies.

... but he says I'm underinsured so who knows. I really don't enjoy these biannual meetings we have, he always points out flaws in the system.

Takes out cash from better things like speakers and amplifiers. hehe

Joey_V

Moose68Bash wrote: »

Joey_V wrote: »

Ok I am on a 20 year term life insurance, with the hopes that in 20 years, all large debts will be paid off and there would not be a need for life insurance.

However, I can convert some of my term into whole life.

Whole life is expensive, but there are several good points to it.
1. Is cash value, and also there is value in the future... you can cash out your policy or take a loan out of the policy and let the insurance pay the monies owed when you die.
2. Whole life income/cash value is not taxed. Which makes it lucratcive when using it as a 2nd option for retirement savings.
3. Whole life insurance is protected from lawsuits, it has never been pierced.
4. The rate of return is approx 5-7% dividends per year.... plus there is no tax so effectively it's like a mutual fund with a return of 7-10%.

The problem is that Whole life is expensive.

I have low rates because of my age and lack of medical conditions... however, the cost is still high.
1. My 20 year term life insurance for $3,000,000 is $164/month.
2. In comparison, my whole life insurance for $3,000,000 is $3,300/month.

And my financial advisor says that I am still a little low interms of my protection.... he wants me to go to 5 or 6 but I don't see the point since this is more than I'm worth anyway.

I guess, my thing is, I want to use WHole life as a vehicle for retirement, a forced savings and a safe bet, dividends pay out 7% in 2009 while the market fell 52%. Also I want the shield that cannot be penetrated by a malpractice or other lawsuit. I also like that it has no tax deduction when you pull out.... since 401K is completely taxed. It's also nice to have something else aside from your equities. This provided for the girls' educations whether I died or lived.

@Joey_V,

I'm no financial planner, but I have pretty successfully managed my own funds for years with minimal help.

I have used whole life policies to be sure that if something happened to me, there would be money available to pay-off specific present or future obligations -- e.g., college tuition, mortgage, etc.

You might say, therefore, that I have used whole life policies to enforce discipline in my savings plan. For example: We took out one policy on my life and another on my wife's in anticipation of college expenses for each of our daughters when they were born. We calibrated the cash value increases on these policies to match amounts we expected to need for these expenses.

With that said, a couple of additional comments:

1. When you cash out a whole life policy, the increase in cash value from dividends istaxed as ordinary income when you take the distribution. I wasn't clear that you understood that.
2. If you die, as I understand it, the benefit is not taxed and is not part of your estate. [I could be wrong about this, and the law may have changed since I purchased my last whole life policy in 1996.]
3. The value that you may want to achieve is not what your are now "worth" (your net worth), but the present value of your expected earnings over your lifetime. This concept ensures that, if you die, your family is taken care of.
4. Of course, if you live a long time, the present value of your expected future earnings decreases, which is the reason that I have always elected to have dividends used to pay my premiums, rather than to purchase additional whole life, which is what the brokers want you to do because they make more money from the policy.
5. The insurance agent and, if there is also financial planner involved, gets a "cut" of your premium payments -- for as long as you pay them. That is a significant "drain" on the cash value that you build up over time.

Just some random thoughts from a guy with way too much gray hair!

Actually, I have too little hair, but it is all gray!

Hey Moose, thanks for the tips!

When you cash out, does it really get taxed?

What about when you do a "loan" against your Whole Life Policy... that's definitely not taxed right? That's the selling point right there.

Benefit of 3M will be tax free once I die.

Value of 3M is not my expected income, it's the minimum required to survive based on "X" expenditure profile. The insurance guy wants me a lot higher and says that I am underinsured... but I'm not sure if I want to be overinsured.

I am going to see if I can find some of the scenarios and post some real numbers.

All I'm trying to do is raise capital for retirement in more than simply just investing in the equity market (in addition to I mean).

Good to see there are people here with Whole Life Insurance as well.... means that I'm not making a massive mistake.

cfrizz

I don't know if you are overinsured, but I doubt that you are underinsured either. If you also have STD/LTD at work then I would say you are fine with disability ins.

Keep it mind that if something catastrophic happened that you ended up disabled and had to go on Medicare, once the Medicare kicked in your job would expect you to pay back all of the LTD they paid out to you. But since you are one Medicare in the first place, you can only have 2000.00 in liquid assets so you wouldn't be able to pay it back so that way they can dump you off of their rolls.

You keep buying expensive gear, insurance will be the least of your worries since paying alimony and child support will trump all!

Another kind of insurance you might want to consider is Long Term Care. I know it's hard to do when you are only 33, but just like every other kind of insurance, its best to get it young since you pay more when you get older.

Moose68Bash

Joey_V wrote: »

Moose68Bash wrote: »

Joey_V wrote: »

Ok I am on a 20 year term life insurance, with the hopes that in 20 years, all large debts will be paid off and there would not be a need for life insurance.

However, I can convert some of my term into whole life.

Whole life is expensive, but there are several good points to it.
1. Is cash value, and also there is value in the future... you can cash out your policy or take a loan out of the policy and let the insurance pay the monies owed when you die.
2. Whole life income/cash value is not taxed. Which makes it lucratcive when using it as a 2nd option for retirement savings.
3. Whole life insurance is protected from lawsuits, it has never been pierced.
4. The rate of return is approx 5-7% dividends per year.... plus there is no tax so effectively it's like a mutual fund with a return of 7-10%.

The problem is that Whole life is expensive.

I have low rates because of my age and lack of medical conditions... however, the cost is still high.
1. My 20 year term life insurance for $3,000,000 is $164/month.
2. In comparison, my whole life insurance for $3,000,000 is $3,300/month.

And my financial advisor says that I am still a little low interms of my protection.... he wants me to go to 5 or 6 but I don't see the point since this is more than I'm worth anyway.

I guess, my thing is, I want to use WHole life as a vehicle for retirement, a forced savings and a safe bet, dividends pay out 7% in 2009 while the market fell 52%. Also I want the shield that cannot be penetrated by a malpractice or other lawsuit. I also like that it has no tax deduction when you pull out.... since 401K is completely taxed. It's also nice to have something else aside from your equities. This provided for the girls' educations whether I died or lived.

@Joey_V,

I'm no financial planner, but I have pretty successfully managed my own funds for years with minimal help.

I have used whole life policies to be sure that if something happened to me, there would be money available to pay-off specific present or future obligations -- e.g., college tuition, mortgage, etc.

You might say, therefore, that I have used whole life policies to enforce discipline in my savings plan. For example: We took out one policy on my life and another on my wife's in anticipation of college expenses for each of our daughters when they were born. We calibrated the cash value increases on these policies to match amounts we expected to need for these expenses.

With that said, a couple of additional comments:

1. When you cash out a whole life policy, the increase in cash value from dividends istaxed as ordinary income when you take the distribution. I wasn't clear that you understood that.
2. If you die, as I understand it, the benefit is not taxed and is not part of your estate. [I could be wrong about this, and the law may have changed since I purchased my last whole life policy in 1996.]
3. The value that you may want to achieve is not what your are now "worth" (your net worth), but the present value of your expected earnings over your lifetime. This concept ensures that, if you die, your family is taken care of.
4. Of course, if you live a long time, the present value of your expected future earnings decreases, which is the reason that I have always elected to have dividends used to pay my premiums, rather than to purchase additional whole life, which is what the brokers want you to do because they make more money from the policy.
5. The insurance agent and, if there is also financial planner involved, gets a "cut" of your premium payments -- for as long as you pay them. That is a significant "drain" on the cash value that you build up over time.

Just some random thoughts from a guy with way too much gray hair!

Actually, I have too little hair, but it is all gray!

Hey Moose, thanks for the tips!

When you cash out, does it really get taxed?

What about when you do a "loan" against your Whole Life Policy... that's definitely not taxed right? That's the selling point right there.

Benefit of 3M will be tax free once I die.

Value of 3M is not my expected income, it's the minimum required to survive based on "X" expenditure profile. The insurance guy wants me a lot higher and says that I am underinsured... but I'm not sure if I want to be overinsured.

I am going to see if I can find some of the scenarios and post some real numbers.

All I'm trying to do is raise capital for retirement in more than simply just investing in the equity market (in addition to I mean).

Good to see there are people here with Whole Life Insurance as well.... means that I'm not making a massive mistake.

@Joey_V,

Yes, if you cash out, all proceeds above what you have paid in get taxed. It's like a 401K or IRA in that respect.

No, if you take out a loan, the principal is not taxed. But, taking out a loan against the cash value of your whole life policy is not the great deal that the brokers typically like to make it:

1. If you die while the loan is outstanding, it is repaid out of the death benefit.
2. You have to pay interest on the loan, just as you do on any other loan. Perhaps, this is no surprise to you, but I have talked to folks who think they are, in effect, borrowing from themselves, they don't pay interest or they pay it to themselves. If doesn't work that way. If the interest is charged to your policy, it reduces the cash value and thus the death benefit. If you pay the interest, it costs you that amount.

I'm a bit outside my comfort zone in making such pronouncements about whole life insurance. I only hope what I'm telling you just makes your antennae get up so that you seek definitive answers from your broker.

What I do know is that whole life is not a panacea, although some brokers try to make it sound that way.

Joey_V

cfrizz wrote: »

I don't know if you are overinsured, but I doubt that you are underinsured either. If you also have STD/LTD at work then I would say you are fine with disability ins.

Keep it mind that if something catastrophic happened that you ended up disabled and had to go on Medicare, once the Medicare kicked in your job would expect you to pay back all of the LTD they paid out to you. But since you are one Medicare in the first place, you can only have 2000.00 in liquid assets so you wouldn't be able to pay it back so that way they can dump you off of their rolls.

You keep buying expensive gear, insurance will be the least of your worries since paying alimony and child support will trump all!

Another kind of insurance you might want to consider is Long Term Care. I know it's hard to do when you are only 33, but just like every other kind of insurance, its best to get it young since you pay more when you get older.

Yeah that's something I have nothing of. No one has mentioned that and there has been zero discussion about that. I know those nursing homes can bankrupt you VERY quickly.

Joey_V

Moose68Bash wrote: »

Joey_V wrote: »

Moose68Bash wrote: »

Joey_V wrote: »

Ok I am on a 20 year term life insurance, with the hopes that in 20 years, all large debts will be paid off and there would not be a need for life insurance.

However, I can convert some of my term into whole life.

Whole life is expensive, but there are several good points to it.
1. Is cash value, and also there is value in the future... you can cash out your policy or take a loan out of the policy and let the insurance pay the monies owed when you die.
2. Whole life income/cash value is not taxed. Which makes it lucratcive when using it as a 2nd option for retirement savings.
3. Whole life insurance is protected from lawsuits, it has never been pierced.
4. The rate of return is approx 5-7% dividends per year.... plus there is no tax so effectively it's like a mutual fund with a return of 7-10%.

The problem is that Whole life is expensive.

I have low rates because of my age and lack of medical conditions... however, the cost is still high.
1. My 20 year term life insurance for $3,000,000 is $164/month.
2. In comparison, my whole life insurance for $3,000,000 is $3,300/month.

And my financial advisor says that I am still a little low interms of my protection.... he wants me to go to 5 or 6 but I don't see the point since this is more than I'm worth anyway.

I guess, my thing is, I want to use WHole life as a vehicle for retirement, a forced savings and a safe bet, dividends pay out 7% in 2009 while the market fell 52%. Also I want the shield that cannot be penetrated by a malpractice or other lawsuit. I also like that it has no tax deduction when you pull out.... since 401K is completely taxed. It's also nice to have something else aside from your equities. This provided for the girls' educations whether I died or lived.

@Joey_V,

I'm no financial planner, but I have pretty successfully managed my own funds for years with minimal help.

I have used whole life policies to be sure that if something happened to me, there would be money available to pay-off specific present or future obligations -- e.g., college tuition, mortgage, etc.

You might say, therefore, that I have used whole life policies to enforce discipline in my savings plan. For example: We took out one policy on my life and another on my wife's in anticipation of college expenses for each of our daughters when they were born. We calibrated the cash value increases on these policies to match amounts we expected to need for these expenses.

With that said, a couple of additional comments:

1. When you cash out a whole life policy, the increase in cash value from dividends istaxed as ordinary income when you take the distribution. I wasn't clear that you understood that.
2. If you die, as I understand it, the benefit is not taxed and is not part of your estate. [I could be wrong about this, and the law may have changed since I purchased my last whole life policy in 1996.]
3. The value that you may want to achieve is not what your are now "worth" (your net worth), but the present value of your expected earnings over your lifetime. This concept ensures that, if you die, your family is taken care of.
4. Of course, if you live a long time, the present value of your expected future earnings decreases, which is the reason that I have always elected to have dividends used to pay my premiums, rather than to purchase additional whole life, which is what the brokers want you to do because they make more money from the policy.
5. The insurance agent and, if there is also financial planner involved, gets a "cut" of your premium payments -- for as long as you pay them. That is a significant "drain" on the cash value that you build up over time.

Just some random thoughts from a guy with way too much gray hair!

Actually, I have too little hair, but it is all gray!

Hey Moose, thanks for the tips!

When you cash out, does it really get taxed?

What about when you do a "loan" against your Whole Life Policy... that's definitely not taxed right? That's the selling point right there.

Benefit of 3M will be tax free once I die.

Value of 3M is not my expected income, it's the minimum required to survive based on "X" expenditure profile. The insurance guy wants me a lot higher and says that I am underinsured... but I'm not sure if I want to be overinsured.

I am going to see if I can find some of the scenarios and post some real numbers.

All I'm trying to do is raise capital for retirement in more than simply just investing in the equity market (in addition to I mean).

Good to see there are people here with Whole Life Insurance as well.... means that I'm not making a massive mistake.

@Joey_V,

Yes, if you cash out, all proceeds above what you have paid in get taxed. It's like a 401K or IRA in that respect.

No, if you take out a loan, the principal is not taxed. But, taking out a loan against the cash value of your whole life policy is not the great deal that the brokers typically like to make it:

1. If you die while the loan is outstanding, it is repaid out of the death benefit.
2. You have to pay interest on the loan, just as you do on any other loan. Perhaps, this is no surprise to you, but I have talked to folks who think they are, in effect, borrowing from themselves, they don't pay interest or they pay it to themselves. If doesn't work that way. If the interest is charged to your policy, it reduces the cash value and thus the death benefit. If you pay the interest, it costs you that amount.

I'm a bit outside my comfort zone in making such pronouncements about whole life insurance. I only hope what I'm telling you just makes your antennae get up so that you seek definitive answers from your broker.

What I do know is that whole life is not a panacea, although some brokers try to make it sound that way.

Gotcha. Moose - you bring up great points and I will ask about clarification about the taxation.

The problem I have with Whole Life is 3 things:
1. Limited yield.... 5-7% roi per year.
2. Commitment, you gotta be in the game atleast a decade and you have to be able to fund it. If you go say 4 years and you can't afford to fund it and you stop, you lose out.
3. The cash value of the product is less than what you put in for the first 12 years.... meaning it's even worse than just keep the money cash in the bank. But after that the dividends take off and it's over. After some time, the money just becomes CRAZY.

I am thinking if I cannot do the 3M, then maybe start with 1M or 1.5M.

I think payment goes as this:
1M whole = $1100/mo
2M whole = $2200/mo
3M whole = $3300/mo

3M just seems like a lot, like a mortgage. But it is forced savings in addition to equity investments and it is bulletproof from a litigation standpoint and despite the gains being only about 5-7%, the gains are nearly guaranteed compared to the fluxing market. If I do 3M whole, when I retire (if i'm still alive of course), at age 65yo... I think the cash value will be 3M with an cash input of approx 1M from my end. If this is tax free... that's effectively a 4.5M equity value (that is taxed, 4.5M-30% tax = approx 3M).

But I'm not 100% of my numbers, I am still waiting the figures from the guy.

Problem with the whole life is I gotta be ok watching that kind of monthly leave my hands each month.

Nightfall

Joey_V wrote: »

I was paying $700/mo to keep that number...

Holy c rap. That's my rent.

Joey_V

Nightfall wrote: »

Joey_V wrote: »

I was paying $700/mo to keep that number...

Holy c rap. That's my rent.

yeah man... my dad said, insure yourself.

I did it early.

My mom pays about $500/mo for disability insurance and it's for like $2K. And that's because she started the policy late like she was 50+. I started at 29, so now I'm at $400 and it's dropping every year. I think in 4 years it drops to $286/mo, for the rest of my life until I'm 65yo... in 20 years, when I'm 53, $286/mo is going to be a drop in the bucket with inflation. It's going to be a bargain.

But yeah, I had to suffer through a $700/mo bill to start.

The other choice with DI insurance is that you start off with a low monthly, like $150/mo and then every year it goes up and so by the time I'm 45, it's like $1400/mo and then it goes all the way to past $2K/mo... so I was like I ain't doing that. I'd rather pay the price now and relax later.

Thing I learned about all this insurance garbage is it's cheaper to do earlier in life when you're healthier than later. Unfortunate I know.

Strong Bad

Some other considerations with the Whole Life policy...

1. YES, you can make loans from the policy and YES you have to pay back with interest. Ask yourself this...would you rather go to a bank that you have zero vested interest in and pay them interest OR would you rather make a loan from your policy and pay interest to the company that pays you dividends based on their performance?

2. When you make loans from the policy, your dividend performance is not hurt due to outstanding loans. Let's say you have $50k in there and you borrow $25k. You still get dividends based on the $50k. Try borrowing from your savings or 401k and get that.

3. With regard to the policy being an investment vehicle, why not? Companies like Lafayette Life have NEVER in their over 100 year history, failed to pay a yearly dividend. While yearly dividends are NOT guaranteed, they've still paid them out every single year. Through the Great Depression, through world wars, through the market crashes over the years. In 2008 when people lost 40% or more of their retirement, people with these cash value type policies got their yearly dividend and didn't lose anything since their policy is not tied to the stock market.

I see people still putting all their faith in the mutual fund industry even after all these big crashes. I hear them make comments like..."But the market has to go back up, it always does!" and "They have safeguards in place so stuff like 2008 won't happen again." I'm not sure what fantasy land their living in or perhaps it's just hopeful thinking, but it can and eventually WILL happen again. Sure, historically it has gone back up, but how many years after 2008 did it take to recover those loses and get back to square one? How many years of non-growth is that?

If you're a savvy investor you can make out well when those crashes happen, but the bulk of society is not savvy enough. They continue to put their faith in a system thats run by a few that ultimately doesn't care much beyond lining their own pockets.

As I said before, I do still throw money in my 401k because I have to put in a certain amount to get the full match from my company. I'd be a fool to not take advantage of that!

Moose68Bash

@Joey_V,

I'm getting a step beyond where I usually go in speaking to anybody about their investment strategy, but let me make a couple of final comments:

1. While Strong Bad makes good observations, it is still true that over the long term the stock market has out performed returns on bonds, annuities, life insurance, etc. The key is "long-term."
2. As you approach the age at which you expect to need liquidity from your investments, you may need to start moving funds from more volatile vehicles to less volatile ones. At 55, for example, it makes sense to start selling stocks and building a bond portfolio with "laddered" maturities.
3. Diversity is probably the most important aspect of a long-term investment strategy for an individual at your age and with your income prospects. With that said, it sounds to me like the advice you are getting may be over-emphasizing whole life insurance. But that is largely a matter of your tolerance for risk. If your risk tolerance is low, then whole life is a low-risk option (assuming you choose your insurance provider well, and Northwestern Mutual among the best). As your risk tolerance increases, a mix of assets including more stocks, may be appropriate.
   
   Good luck to you. You have a bright future -- and a couple of great rigs!

Strong Bad

In my particular situation, based on the % of my income that I put along with employer match, my 401k substantially eclipses what I put in the life insurance. My planner told me from the get go, the life insurance and the way it's structured is something great for me to have and utilize throughout my lifetime, but it's not the end all to investments. The savvy investor or someone with a great planner can do well in the market. My planner has advised me over the years on where to put my 401k funds based on my options. I've also had 401k funds from other employers rolled over to external IRA's where he's advised me as well.

I didn't know about the life insurance options up to about 3 years ago.

I'm not married and don't have kids, so the death benefit of my policy doesn't benefit me one bit. It is structured to benefit me in other ways.

Something my planner and I wholly agreed on is...we have no idea whatsoever what the stock market will do. You can speculate till you're blue in the face, listen to the "experts" and their predictions...but in the end they are predictions of the future. A lot of Wall Street is simply Vegas style gambling and we see how that worked out in 2008. Has Wall Street learned their lesson...i'm betting no.

I can on and on, but it's getting quite a bit off topic now. Sorry Joey V!

mhardy6647

Think about how those insurance companies make their money so as to pay dividends... they make it by selling insurance.