OT: Why do so many people disagree about Whole Life Insurance?
- Thread starter DerHntr
- Start date
I just cashed most of mine in and used the cash to pay down debt and switched to
term insurance. I came to the conclusion there were places that would treat my money better.
The changes to the inheritance tax have really made me question the value of life insurance other than what you need to protect your family if you kick the bucket. Unless you and your wife's estate exceed 10 million the tax no longer applies.
term insurance. I came to the conclusion there were places that would treat my money better.
The changes to the inheritance tax have really made me question the value of life insurance other than what you need to protect your family if you kick the bucket. Unless you and your wife's estate exceed 10 million the tax no longer applies.
Last edited:
They are the best investment vehicle out there. For the insurance company and agent. The concept of a whole-life policy is that you will pay a higher premium and the insurance company will invest it and let the earnings and excess premiums accumulate to you (after taking their fees, expenses and commissions). Any mutual fund is going to charge you fees and expenses, but you can find a lot of good ones that won't charge you a commission. You're better off investing the excess premiums yourself.
The worst person you could ask is an insurance agent. That's like asking a lawyer whether or not you need a lawyer. Take it from a lawyer, the answer will most likely be yes.
+1. If you love whole life, you are going to LOVE this guaranteed annuity that I have as well. Here is your cue. When dealing with anyone who claims to be helping you invest avoid doing anything with anyone who refers to whatever they are pitching as a "product". As in, "We have this great whole life product that I think you will really love." You are welcome. Now go find a registered investment adviser if you want to invest and leave the insurers to insure. You will be glad you did.
Exactly. It's like having your insurance agent tell you that when you pay your home insurance, we'll charge you a little be extra, then invest that little bit extra. If we make any money off of it, then we will subtract our fees and give it back to you when you sell your house. No one would ever do this. The reason people still invest in whole life insurance is because they feel differently about what might happen when they die than they do about what happens when they sell their house.
If you're going to choose an investment advisor, choose a fee-based advisor. Going to a stockbroker for investment advice isn't a whole lot smarter than going to an insurance agent. Most people would be well-served with mutual funds Morningstar rates as 5* or 4*, or index funds. You'll get very good returns relative to the market and save a LOT on fees and commissions.
If you keep the whole life policy until you die, it's an even better deal for the insurance company. They only pay out the greater of the face value of the policy or the cash value to your heirs. So you pay for both, but your heirs only get one.
You pay a flat rate that's guaranteed to never go up on you. And as long as you pay, the death benefit will be enforce. The death benefit may even grow over many years. There are other ways to offset the premium payments through dividends but it takes many many years for that to happen, and I'm not getting into it. As you pay for the insurance, a portion of the premium, is reinvested back into the "general account" which accumulates at a specified interest rate for that year. This return of premium is paid to you if the insurance company is profitable that year-which means they sold a lot of whole life. If the insurance company is a mutual company (Mutual of Omaha), it'll be repaid in the form of a dividend. If the company is a stock company, which means it's a publically traded company (MetLife), you will receive your return of premium in company stock. This money accumulates tax free and you can use this money if you want on a tax free basis as long as you don't take out more than you put in and causes the policy to lapse and a CAPITAL GAIN which means you gotta pay Uncle Sam after all. This again, takes many many years.
Notice I said "many years" a few times. If you take money an invest it, and get even a 3% return after fees, you're going to beat the **** outta whole life. You won't even break even on a good whole life policy till after about 10-12 years. If you do the math of investing on your own in MFs like others said, or paying a fee-based adviser, the decision should be easy on what to do. You would be silly not to buy term and invest the rest of your money in the market in a Roth IRA if you're able or even a general brokerage account with Fidelity or someone like them.
Whole Life, like everyone said, is only awesome if you're an insurance agent because the premiums are literally about 100x higher than term policies, so agents get much bigger commissions. There are very small circumstances where permanent life insurance makes any sense at all for someone to buy, and talking to an estate attorney can help you with that.
Notice I said "many years" a few times. If you take money an invest it, and get even a 3% return after fees, you're going to beat the **** outta whole life. You won't even break even on a good whole life policy till after about 10-12 years. If you do the math of investing on your own in MFs like others said, or paying a fee-based adviser, the decision should be easy on what to do. You would be silly not to buy term and invest the rest of your money in the market in a Roth IRA if you're able or even a general brokerage account with Fidelity or someone like them.
Whole Life, like everyone said, is only awesome if you're an insurance agent because the premiums are literally about 100x higher than term policies, so agents get much bigger commissions. There are very small circumstances where permanent life insurance makes any sense at all for someone to buy, and talking to an estate attorney can help you with that.
+1 again on fee based vs broker. There is more to proper investment strategy than just picking Morningstar rates or indexes, but I can agree somewhat because finding investment guys who beat the market net of fees is not super easy, but it is worth it if you find a good one.
All of these comments are valid... except, how much money do you get back when you 'invest' in a term policy? I think that fewer than 7% of term policies actually ever pay out. You either outlive the policy, let it lapse or your loved ones don't know about it and it doesn't get redeemed.
Now, I am not saying that whole life is the perfect policy. I always advise my clients to take a look at what they 'think' they need for their family TODAY and to think about what they would like to leave for them at retirement age or whatever. I think usually combine their requests into 2 policies. I get them a term policy for the large amount that they would like to take care of their family if something happened to them right now. Then, I get them a whole policy that will stay in effect until the day they die. (Almost all whole life policies can be converted at a certain point into a policy that uses the cash value that has accrued to pay the premium). That's my take. Whole life insurance isn't the devil and the agent trying to sell it probably isn't the devil either. It has its purpose. Do not fall for the 'You are crazy if you buy anything buy term life insurance' crowd
Now, I am not saying that whole life is the perfect policy. I always advise my clients to take a look at what they 'think' they need for their family TODAY and to think about what they would like to leave for them at retirement age or whatever. I think usually combine their requests into 2 policies. I get them a term policy for the large amount that they would like to take care of their family if something happened to them right now. Then, I get them a whole policy that will stay in effect until the day they die. (Almost all whole life policies can be converted at a certain point into a policy that uses the cash value that has accrued to pay the premium). That's my take. Whole life insurance isn't the devil and the agent trying to sell it probably isn't the devil either. It has its purpose. Do not fall for the 'You are crazy if you buy anything buy term life insurance' crowd
I know when I used to work for an insurance company, it's was the single most profitable policy you could sell. You do the math.
When I was a freshman I bought a whole life policy
From a young man going from room to room name of BAILEY HOWELL. Seems that much of the year he was involved with some professional sports organization. Some years later I came to my senses, cashed out, and bought term.
To each his own. I am not trying to sell you anything and I am certainly not trying to make a commission for other agents. I have sold thousands of policies to all types of people. For some, term is the right choice. For some, whole or universal life is the right choice. My point is this is NOT a one size fits all topic... and anyone that advises that it is, is not doing anything but hearing themselves be right (in their own mind)... no offense, MD. I typically align with your choices... but not on this.
I bought three or four whole life policies when I was in my 20s, and was kinda talked into them by the agent against my will.
Now, I'm glad I did. The cash value is getting fairly close to the policy face values now, and the cash value increases about 8 times what my premium payments are each year.
So overall, I think it was a pretty good investment, given that I had the insurance protection for the family during all the years. And no, I'm not an insurance agent and never have been.
Now, I'm glad I did. The cash value is getting fairly close to the policy face values now, and the cash value increases about 8 times what my premium payments are each year.
So overall, I think it was a pretty good investment, given that I had the insurance protection for the family during all the years. And no, I'm not an insurance agent and never have been.
No doubt, the best kind of insurance, hands down
is the one in force when you die.
Insurance is a piss-poor investment because it is intended to be insurance, not an investment.
is the one in force when you die.
Insurance is a piss-poor investment because it is intended to be insurance, not an investment.
At 28 I purchased a 100K UL policy 30 years ago when I was in great health. Pay 28.38 a month. Do u have any idea what a 20 Year term would cost me today IF I Could get it. Wished I had bought 250K. Insurance IS NOT an investment. It covers a risk. If u want Permanent insurance, buy guaranteed UL. A good professional insurance agent will match up ur risk with the appropriate amount and type of life insurance.
Do the math of how much you've put into those policies and compare if you would have put that money in the market and let's go conservative and say you got an average rate of return of 5%
Using time value of money...in 20 years if you invested let's say 200/mo into the stock market as opposed to a WL policy and you got 5%, you'd have $81, 664.21
In WL which the real rate of return industry wide is 1.9% you'd only have $58,045.
No matter how you slice it, whole life is one of the most insufficient ways to save/invest money. It doesn't even keep up with the rate of inflation. I used to work for an insurance company. I did investments too. There's a reason insurance company's make so much damn money. It's almost impossible for them to lose money with their business model and the products they make their money on.
Like someone said before. When it comes to personal finance, you don't need to buy a "product." You need to invest your money in the market wisely, or pay a smart person on a fee basis with professional designations to do it for you.
These posts are so full of stupid
Captial gains charged on withdrawals beyond the basis? Try ordinary income.
And the number is 1% of term policies are actually paid out. Stew on that one. THIS only makes term policies the MOST profitable policies for insurance companies. The logic of saying term is better because it's cheaper is like saying renting is better because it's cheaper.
Some of you are either stupid or have dealt with stupid insurance people. Or didn't listen carefully and entirely. Or listened and then listened to stupid people to taint your knowledge.
The idea of NOT listening to someone who deals with insurace as a profession because they would only sell you is like NOT going to a doctor if you're sick because they'll prescribe medicine, surgery, or a shot. Why would you not trust someone who actually knows what they're talking about instead of going to people who don't have any idea what they're talking about.
I'll leave it there. If you have questions, PM me, but there is so much misinformation out there.
I do agree that the fee-based is the way to go. So there's that.
Captial gains charged on withdrawals beyond the basis? Try ordinary income.
And the number is 1% of term policies are actually paid out. Stew on that one. THIS only makes term policies the MOST profitable policies for insurance companies. The logic of saying term is better because it's cheaper is like saying renting is better because it's cheaper.
Some of you are either stupid or have dealt with stupid insurance people. Or didn't listen carefully and entirely. Or listened and then listened to stupid people to taint your knowledge.
The idea of NOT listening to someone who deals with insurace as a profession because they would only sell you is like NOT going to a doctor if you're sick because they'll prescribe medicine, surgery, or a shot. Why would you not trust someone who actually knows what they're talking about instead of going to people who don't have any idea what they're talking about.
I'll leave it there. If you have questions, PM me, but there is so much misinformation out there.
I do agree that the fee-based is the way to go. So there's that.
In part it matters what the intent is of the policy. For someone who wants to cover funeral expenses, burial costs, etc., whole might make sense. I sold much more term than whole when I was selling but it's easier for someone to envision a 20 or 30 year plan to cover lost income and what it would mean for the person's kids, spouse, etc. in case of death.
I'll have to get back to you on that because I don't want to run upstairs and get the numbers out of the files ... but you were eerily close on what I pay monthly and I appreciate you doing the math in the example. I can't give you the exact cash value right now, but it's more than $81K.
Didn't really buy it as an investment, but as an investment that also covered risk and a nest egg for the family over the past many years had I died at some point. Had I bought term insurance, by now I would have paid out more than I have with the WL, I'm pretty sure (haven't done the math because I don't know what the rates would be) and would have no return at all. What you really need to do is run the analysis on the delta cost between WL and term though.
I'm not pushing either WL or term, but WL has worked out decently well for me. It might not for all. The sooner you die, the better buy term is. And the longer you live, and the earlier you buy it, the better the "investment" in WL is. Or at least that's how I see it from my knothole.
1.9%? There's your problem. If this is the basis of your disdain of WL (which is not the end-all-be-all), it's no wonder so many don't like it. This is like saying all cars suck because of your experience with a Yugo. There are so many other factors at play here, but not worth getting into. Not that facts would get in the way of everyone's expertise.
http://www.cbsnews.com/8301-505123_...tar-star-rankings-fail-mutual-fund-investors/
I agree with the rest of your post.
Give me a break. Everything you've said I was told when I was in the insurance biz. I did really well in it too, but looking back, a lot of what I sold was not a good product.
Anyway, a 30 year term for someone healthy who is young for say $1M face amount would probably be like $50/month at most I would think. A $1M whole life for a healthy young person who costs hundreds if not close to a thousand dollars a month. And yeah, over time the cash looks impressive, but ****, you've put in a ton of money as well.
To your point about cost basis which you say is BS. Here's a simple example. Say you've put in money every month since you're 20s and you have a nice sum of cash in your account. Say you have $60,000 in your account after all those years. Say what you have put in, AKA your cost basis, is $48,000 and you want to cash it all out. I got news for you buddy, all that "tax free money" your agent told you about is only applicable to the money you put in yourself-your cost basis. You pay taxes on the amount gained. In this case you'd pay taxes on $12,000. All you did was hide $48,000 under the mattress at the insurance company while they made money off of it buying bonds. Sorry if I got it confused with Capital Gains and Income Taxes, regardless you pay taxes. Income tax makes this actually worse. The only way you make all your withdrawals tax-free, is if you keep enough cash in the policy to keep a death benefit enforce, so it still remains a life insurance policy, or you could also start paying premiums again although the premiums will probably be higher.
If you think the market will only go down and you'll only lose money in the market, sure go with WL. If you definitely want WL bc of the death benefit and are scared you may die too soon to invest your money wisely and build your nest egg or outlive your term insurance somehow, then fine. WL is basically for the ill-informed or the most conservative people imaginable.
Never had a widow ask if the policy was term or whole, only if that was all he had..,,,Buy mostly term when you are younger, 30 yr level term to cover you debts, surviving spouse, kid's education, etc. It's cheap. Buy yourself a whole in a much smaller amount say $50,000 at the same time. Rates are much lower. Let the cash value build and use to pay premiums much later. It will take care of final expenses, few bills, etc. You can thank me later.
This option is not horrible by any means...but it's still not efficient with you're money.
If you invest your money in the market, it will grow by a tremendous amount more than the WL death benefit by the time life expectancy comes around, thus your investment account value minus funeral/final expenses is greater than your investment account if you had spent the extra dollars on the insurance premiums for WL and the death benefit goes to pay for the final expenses as well, so you still, like always, are never better off buying WL over term, except in extreme estate planning needs.
You guys are all wrong. You need to party like a rock star. Spend it all and die young. Don't leave **** to anyone. The money would only make them lazy and they don't deserve it anyway.
Exactly. WL? Isnt that why you work 40 years so that when you do die, you have a **** load of money to not only pay for funeral stuff but anything else. Old people shouldnt have debt when they die anyway???
I dont have life insurance but I dont have kids and Im not married. Sounds like a stupid investment UNLESS i was 35, married, 2 kids and had a 400k mortgage and the wife didnt work. Then I could understand a 30 year term...
I dont have life insurance but I dont have kids and Im not married. Sounds like a stupid investment UNLESS i was 35, married, 2 kids and had a 400k mortgage and the wife didnt work. Then I could understand a 30 year term...
Who said the anything was tax-free? I said the basis is tax-free.
Wow, you must have worked for a terrible company to feel this way. WL is NOT an only option as you suggest here. It is just a great piece of the puzzle of putting together a prudent plan. Is it conservative? Yes! Just like bonds are, yet even they are included in most every mutual fund out there to balance things out. There are extremely risky investors who put their money (and a lot of it) in WL while going out on a ledge with their investments. It's called balancing things out according to one's risk tolerence. Smart people with money love WL. And with the right company, why not????
You must have worked for an insurance company and not a planning company.
Wow, you must have worked for a terrible company to feel this way. WL is NOT an only option as you suggest here. It is just a great piece of the puzzle of putting together a prudent plan. Is it conservative? Yes! Just like bonds are, yet even they are included in most every mutual fund out there to balance things out. There are extremely risky investors who put their money (and a lot of it) in WL while going out on a ledge with their investments. It's called balancing things out according to one's risk tolerence. Smart people with money love WL. And with the right company, why not????
You must have worked for an insurance company and not a planning company.
Basis is not tax-free.
The basis has already been taxed (unless you're ALGore or Mitt Romney, maybe).
You just get your basis back without additional taxes (until congress changes the rules).
The gain, if any, will be taxable at some rate, based on the whim of the congress at the time - the rules in effect now may or may not be the rules in the future.
The basis has already been taxed (unless you're ALGore or Mitt Romney, maybe).
You just get your basis back without additional taxes (until congress changes the rules).
The gain, if any, will be taxable at some rate, based on the whim of the congress at the time - the rules in effect now may or may not be the rules in the future.
As an Advisor, it's comical to read some of this. Mainly how so many people become insurance agents as their first job, nothing wrong with that, but I think it does show some points y'all are making that benefits the company instead of the policyholders.
To answer the question on taxes, If you w/d money from the policy the goal is to keep the policy alive and treat it as a loan, then it is a tax free distribution even if its gain, however you now have a loan with an interest rate against your policy. If you "surrender" your policy you make have a charge to do so and you will pay income tax on any gains above your cost basis.
As far as WL insurance being a good/bad product. Insurance should be bought for protection not for an investment. For my clients WL or permanent insurance is used for wealth transfer in estate planning circumstances. Term is probably a better solution for younger individuals unless they are high net worth individual, in which case disability insurance is probably more important than permanent life ins anyway.
For fee based advisors, I agree this is the better way to go as well. It works for both the client and for the advisor and it gives both more flexibility. The entire industry is headed more towards this way, I'm pretty positive Australia has required their industry to go to entire fee-based but not certain on that. Having said that, most firms mine included, have fee-based platforms that have minimums to get in (i.e. 50k, 100k, 200k, 500k) So if your below that minimum then commissions is the only way to go unless you think your smart enough to handle your life savings on E-Trade. Commissions are typically flexible so don't be scared to talk about them. Anything worth value should be worth paying for, especially your life savings. Something to think about.
To answer the question on taxes, If you w/d money from the policy the goal is to keep the policy alive and treat it as a loan, then it is a tax free distribution even if its gain, however you now have a loan with an interest rate against your policy. If you "surrender" your policy you make have a charge to do so and you will pay income tax on any gains above your cost basis.
As far as WL insurance being a good/bad product. Insurance should be bought for protection not for an investment. For my clients WL or permanent insurance is used for wealth transfer in estate planning circumstances. Term is probably a better solution for younger individuals unless they are high net worth individual, in which case disability insurance is probably more important than permanent life ins anyway.
For fee based advisors, I agree this is the better way to go as well. It works for both the client and for the advisor and it gives both more flexibility. The entire industry is headed more towards this way, I'm pretty positive Australia has required their industry to go to entire fee-based but not certain on that. Having said that, most firms mine included, have fee-based platforms that have minimums to get in (i.e. 50k, 100k, 200k, 500k) So if your below that minimum then commissions is the only way to go unless you think your smart enough to handle your life savings on E-Trade. Commissions are typically flexible so don't be scared to talk about them. Anything worth value should be worth paying for, especially your life savings. Something to think about.
I worked for one of the top dividend payers in the industry actually, but I won't name the name of the company. And you're still wrong.
BOTTOM LINE: IF YOU INVEST THE MONEY YOU WOULD PUT INTO A WHOLE LIFE INSURANCE POLICY INTO THE MARKET, YOU WILL BEAT THE WHOLE LIFE EVERY TIME IN CASH VALUE ACCUMULATION IF YOU LIVE TO LIFE EXPECTANTCY. EVERY TIME. WHOLE LIFE ONLY WORKS IF YOU DIE EARLY, BUT TERM SHOULD COVER THAT FOR EXTREMELY CHEAP AMOUNT OF MONEY UNLESS YOU'RE REALLY OLD OR UNHEALTHY...unless there's a decade of negative returns in the stock market, whole life will underperform.
I've compared old insurance policies when insurance policies were in their hay day years ago and compared it to market driven accounts putting in the same amount of money and the market driven accounts beat it. You may have to pay taxes in market driven accounts, that's true and a death benefit is tax free, but you will accumulate a lot more money. THE MATH DOESN'T LIE!
I'm not downplaying your job by the way either man. Life insurance is extremely important. I sold a lot of VUL actually. If you have ppl that depend on you and you don't have it, you're incredibly selfish and unfortunately I ran into that all the time and I saw it hurt a lot of ppl when they ended up dying. Anyway, whole life sucks. Good day to you.
BOTTOM LINE: IF YOU INVEST THE MONEY YOU WOULD PUT INTO A WHOLE LIFE INSURANCE POLICY INTO THE MARKET, YOU WILL BEAT THE WHOLE LIFE EVERY TIME IN CASH VALUE ACCUMULATION IF YOU LIVE TO LIFE EXPECTANTCY. EVERY TIME. WHOLE LIFE ONLY WORKS IF YOU DIE EARLY, BUT TERM SHOULD COVER THAT FOR EXTREMELY CHEAP AMOUNT OF MONEY UNLESS YOU'RE REALLY OLD OR UNHEALTHY...unless there's a decade of negative returns in the stock market, whole life will underperform.
I've compared old insurance policies when insurance policies were in their hay day years ago and compared it to market driven accounts putting in the same amount of money and the market driven accounts beat it. You may have to pay taxes in market driven accounts, that's true and a death benefit is tax free, but you will accumulate a lot more money. THE MATH DOESN'T LIE!
I'm not downplaying your job by the way either man. Life insurance is extremely important. I sold a lot of VUL actually. If you have ppl that depend on you and you don't have it, you're incredibly selfish and unfortunately I ran into that all the time and I saw it hurt a lot of ppl when they ended up dying. Anyway, whole life sucks. Good day to you.