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Help me understand whole life insurance...

A

AznMaverick

Platinum Member
I met with a financial planner today, and he was telling me about whole life insurance. This is what i basically 'get' about what he said. You basically put in a certain amount of money that fits your needs for a policy that would give you a certain amount of money (100,000, 500,000, etc) if you become disabled or die.

What i don't get, (which he said i could do), is that you can take out money from your premium and it wouldn't incur any charges. in addition to this, all premiums earn dividends which after a certain period of time elapses, would allow the policy to pay for itself. so basically, i'm paying a lower amount to get a higher amount in life insurance (if i die or something happens), and i can take it out any time i want...i don't see the logic in this, the insured seem like they benefit a whole lot more than the insuring party. please help explain this to me.

edit: okay most of you are saying term is better. You pay a significantly lower cost for a much higher amount of coverage, but get nothing back in the end...is that the basic difference between the two?
 
IMO, whole life insurance is a retarded savings plan. Just get term life insurance until the time you have enough saved up to take care of those who would benefit from the whole life policy.
 
It is retarded.
I have one but only because my dad used to sell life insurance and he bought them for me.

Basically, you'll be wasting your money for abour 10 yrs before you see the insurance is worth anything.
 
keep investing and insurance seperate

whole life mixes the two


buy term life insurance if you need it (have wife/kids) to replace income if you croak early
invest money in 401(k) and/or IRA/Roth IRA to save money for retirement


just say no to whole life


but if you want to understand it:

http://www.bankrate.com/brink/green/investing/investing4-1a.asp

With permanent life, whether whole, universal or variable, there's an investment component to build cash value in addition to the death benefit. A policy's face amount is the money that will be paid at death or at policy maturity -- most permanent polices mature around age 100. Cash value is the amount available if you die or surrender a policy before its maturity, according to the Life and Health Insurance Foundation for Education (LIFE).

The cash value grows tax-deferred until you withdraw it. You can borrow against the cash value for any purpose, but you'll have to repay it or your beneficiaries will receive reduced benefits. But building cash value means higher premiums, so these polices are much more expensive than term insurance.

Whole life, according to LIFE, provides you with a guaranteed death benefit and a guaranteed rate of return on your cash values. You pay a set premium that is guaranteed to never increase.

With universal life, the insurer separates the death benefit from the investment portion of the premiums, putting your investment dollars into its choice of bonds, mortgages and money markets. Then your investment fund pays for the cost of the set death benefit. No matter how poorly your investments do, you are guaranteed a minimum death benefit. If the investments do well, your heirs receive more money.

The death benefit and the cash value in a variable policy vary with the performance of the underlying investments, says LIFE. With variable life you're shifting risk from the insurance company to yourself because you're trying to achieve greater returns.

Permanent life policies can be complex. Don't buy such a policy if you don't understand it. If the seller explains it to your satisfaction and it meets your needs, then by all means get permanent life insurance.

Many experts say that, generally, these policies should not be used as savings vehicles for a child's college education or for retirement. Better options would be a 529 plan, prepaid tuition plan, the federal Coverdell plan, a 401(k) or an IRA where you're not paying an insurance premium.

A permanent life insurance policy might be good if you have a disabled dependent who will need long-term care. In that case, you might want to insure yourself for your entire life as opposed to a typical situation where parents stop insurance coverage when their children finish college.
Click to expand...
 
That agent is going to make load of commission off of you for selling that whole life insurance. Don't do it. Like others have said, go for term. Life insurance is not investment vehicle. It's insurance for your family in case you die, nothing more. Buy term and invest the money you would have spent buying that ripoff whole life policy on your own.

edit: Is that financial planner a fee only planner? In any case, dump that planner ASAP.
 
Originally posted by: AznMaverick
can you really take it out without incurring penalty though?
Click to expand...

You can borrow against the cash value for any purpose, but you'll have to repay it or your beneficiaries will receive reduced benefits.

you have to borrow your own money back from them

similar thing with most 401(k) plans
 
Not one type of insurance fits every need. My father is a very respected top agent in NW Mutual since 1962.

That being said, I own whole life. My premiums have actually been reduced by dividends, when the company's investments have done well.
Term is cheaper when you are younger, but unfortunately, the premiums go up, eventually significantly, as you get older.
Whole life is permanent, with level premiums, and increase in cash value. You can even borrow against cash value, should you have an emergency, etc. In my experience, the cash value projections given when I first bought the policies were conservative. They have performed better than that.

Borrowing against the cash value bears an 8% interest rate.

BTW, my Dad is a CHFC (Chartered Financial Planner)

 
Originally posted by: AznMaverick
I met with a financial planner today, and he was telling me about whole life insurance. This is what i basically 'get' about what he said. You basically put in a certain amount of money that fits your needs for a policy that would give you a certain amount of money (100,000, 500,000, etc) if you become disabled or die.

What i don't get, (which he said i could do), is that you can take out money from your premium and it wouldn't incur any charges. in addition to this, all premiums earn dividends which after a certain period of time elapses, would allow the policy to pay for itself. so basically, i'm paying a lower amount to get a higher amount in life insurance (if i die or something happens), and i can take it out any time i want...i don't see the logic in this, the insured seem like they benefit a whole lot more than the insuring party. please help explain this to me.

edit: okay most of you are saying term is better. You pay a significantly lower cost for a much higher amount of coverage, but get nothing back in the end...is that the basic difference between the two?
Click to expand...

any financial planner recommending whole life insurance is suxxors!

dump him immediately!

whole life is a RIPOFF! buy term life. heck, if you dont have anyone depending on you (wife/kids) you dont even need life insurance
 
Just to give you my example.

I have a $100,000 policy that I've been paying $828 for 14 yrs now.
It has a CASH value of $15,055.
Had I just put that $828 into an interest bearing account at 6%, it would be $17,400 by now.

So I've been paying about $2350 for 14 yrs of a $100,000 policy.
Thats about $14/month.
I'm pretty much breaking even.


 
Term you can get a lot more coverage for a lower premium. Whole is a fixed premium for life. I have 2 NWM policies that my father bought when I was a kid. They have a cash value of about 8k.

I probably need to cash them in and buy term, just havent made the effort to do it yet.
 
If you have kids get term life until they are around 25. If you have no kids then you don't need life insurance. Invest the difference you would have spent on whole life insurance.
 
Whole life has its place, it may or may not be right for you but it's probably not. The best way to go is buy term and invest the difference, eventually you will have invested enough so that you need very little life insurance. IE: lets say you need $1million. Over 40 years you save up $800k (seperate from retirement, etc, this is life insurance only). Now you only need $200k of insurance, combined with the 800k you saved. The problem is that most people are not disciplined or sophisticated enough to do this.

So we have...universal life insurance. Kind of a mix between whole life and term, many investment options. I like this the best, you get cash value buildup which you invest, and you end up buying less insurance as that cash value grows (basically the same as buy term and invest the difference). You should find a good financial planner, make sure they are a CFP or CHFC (it's all being consolidated to CFP as industry standard now). This guy is selling whole life because it has the highest comissions. Much harder for a CFP to get away with because they are audited by the SEC at least every 2 yrs and subject to more oversight.

...well that was a lot and barely scratched the surface.
 
Originally posted by: JEDI
whole life is a RIPOFF! buy term life. heck, if you dont have anyone depending on you (wife/kids) you dont even need life insurance
Click to expand...

But...but...it gives you money when you die!😛
 
Originally posted by: CTrain
Just to give you my example.

I have a $100,000 policy that I've been paying $828 for 14 yrs now.
It has a CASH value of $15,055.
Had I just put that $828 into an interest bearing account at 6%, it would be $17,400 by now.

So I've been paying about $2350 for 14 yrs of a $100,000 policy.
Thats about $14/month.
I'm pretty much breaking even.
Click to expand...

I'm sort of confused. You payed 828 in 14 years? or 2350 in 14 years? or 828/yr for 14 years?
 
Originally posted by: shortylickens
Originally posted by: AnonymouseUser
Whole Life is a scam.
Term Life FTW.
Click to expand...

Insurance is a scam.
Sound Financial Planning FTW.
Click to expand...

I agree about the sound financial planning, one should do that anyway. Suppose you were to check out early before your financial plans and dreams were realized and you left a spouse behind with bills and a big mortgage payment. In that case, would the insurance you had bought to protect your family in case of your demise have been a scam?

You guys calling rip off, have no idea what you are talking about.
We had a family friend pass away at 38 years old, with a wife, daughter, and a big mortgage, as well as car payments. Think his widow and daugher would have thought him buying life insurance was a scam? Well he did not have life insurance. They were devastated, both emotionally and financially.

Those who are saying you can go invest money at a certain rate and be ahead of a whole life policy, are forgetting about the death benefit, should the policy be needed. Got a million dollars to invest? Then you probably don't need insurance. Most people don't have that money.

 
Originally posted by: compuwiz1
Originally posted by: shortylickens
Originally posted by: AnonymouseUser
Whole Life is a scam.
Term Life FTW.
Click to expand...

Insurance is a scam.
Sound Financial Planning FTW.
Click to expand...

I agree about the sound financial planning, one should do that anyway. Suppose you were to check out early before your financial plans and dreams were realized and you left a spouse behind with bills and a big mortgage payment. In that case, would the insurance you had bought to protect your family in case of your demise have been a scam?
You guys calling rip off, have no idea what you are talking about.
We had a family friend pass away at 38 years old, with a wife, daughter, and a big mortgage, as well as car payments. Think his widow and daugher would have thought him buying life insurance was a scam? Well he did not have life insurance. They were devastated, both emotionally and financially.
Those who are saying you can go invest money at a certain rate and be ahead of a whole life policy, are forgetting about the death benefit, should the policy be needed. Got a million dollars to invest? Then you probably don't need insurance. Most people don't have that money.
Click to expand...
Not to be a pecker but thats exactly my point. Ever read Rich Dad, Poor Dad? I would rather be one of the people sticking it to America than getting stuck by America. Insurance only works if you meet all the little requirements and actually get to cash in on it. In the case of life insurance, I wouldnt be around to fight with the insurance company. Much better to leave a solid estate. And I have no intentions of building up outrageous debt while making a family of 2.5 children and a house in the suburbs with a white picket fence and a dog named skip. The classic American dream holds no interest for me at age 26. I'd rather get myself set up properly and then work on a solid relationship. I see no problems with having my first kid at age 35 or 40. First (and only) wife absolutely no earlier than 30. And I'm not even planning on that right now.

 
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