Thinking about buying whole life insurance. Confused on how it works.

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CPA

Elite Member
Nov 19, 2001
30,322
4
0
If you don't have a family or are not dependent on others, then you don't need life insurance.
 

tynopik

Diamond Member
Aug 10, 2004
5,245
500
126
If you don't have a family or are not dependent on others, then you don't need life insurance.

that's not automatically true

if you're old and don't have any dependents, yeah, no need for life insurance

but if you are young, it might be advantageous to go ahead and lock-in a term-life policy while it's cheap because some medical condition may crop up later that will make it impossible to get when you do need it
 

dud

Diamond Member
Feb 18, 2001
7,635
73
91
Unless you intend to fake your own death life insurance isn't worth it.



Untrue.

If you love and want to protect your loved ones then LI is recommended. You dies but they are protected (with money).

Whole life insurance is ridiculous. If you want the best value in insurance ... go term. Depending on your age recommend locking in a 20 or 30 year term rate for 5 times your annual salary.
 

DaveSimmons

Elite Member
Aug 12, 2001
40,730
670
126
Put enough to cover your cremation into a savings account, that will also be useful as an emergency fund while you're alive. Invest the rest.

"Locking in your insurance now" is how they get you to pay for years for something you don't really need, because someday you "might" have a problem getting insurance. But:

- How much extra will it really cost for insurance if you develop some normal medical condition? And how much will you save by not paying for 10 years of premiums now, investing them instead?

- Are you better off losing tens of thousands in retirement savings because of a 0.01% chance that you'll develop plasmids in your middle age and become uninsurable?

- If you do develop plasmids, does the fine print in the insurance you buy now let them jack up your rates?

- If you have a "guaranteed rate that never goes up" is it because the benefits are lousy compared to plans that pay more?
 

dullard

Elite Member
May 21, 2001
25,133
3,538
126
Everyone else here is correct. Whole life insurance is a combination of term life insurance and an investment account. The problem is that it is usually a mediocre term life insurance policy combined with a mediocre investment account. In almost all cases, you are better off getting term life insurance and getting an investment account. Chances are you'll do better with two items each ideal for you than a one-size-fits-all whole life policy.

The worst part is there are dozens of gotchas in whole life policies. Your first 1-10 years of premiums go to the insurance company or agent and not into your life insurance. High yearly fees after that (3% is typical vs maybe 1% or less other investments). No guaranteed payout or even a specified return amount (that is, what interest rate will you earn, I bet your advisor won't ever tell you a straight answer). No clear definition of how much is invested vs how much is for the insurance (they can promise a massive dividend on the investments but if all the money goes to the insurance part, then you still get nothing). And way, way to many ways for them to squirm out of the money you think they owe you.

Plus, you have no dependants and if I recall you have no plans for them either. I agree with the others, there just isn't a need.

I have a time share on Jupiter to sell you. The price is only going to go up! You better lock in a low rate when you can!
 

JS80

Lifer
Oct 24, 2005
26,271
7
81
You are a skinny Asian man you will never die. Whole life insurance is never good for us. Whole life only works well as a tax shelter for the ultra rich.
 

DaWhim

Lifer
Feb 3, 2003
12,985
1
81
I am not sure it is legal to use a dead person's credit card even with a notarized letter from the dead person saying it is OK to do so. But even if is legal, who pays for the credit card bill when it comes due? Isn't having someone pay the credit card bill pretty much the same thing as having that person pay for the funeral directly?

the debt is still mine even if i am dead. my estate will pay for it, that's if there is money left to pay for it. lender can sell the debts pennies on a dollar and collection agency can feel free to come to collect from me. i can be reach at my graveyard. ;)
 

Capt Caveman

Lifer
Jan 30, 2005
34,547
651
126
the debt is still mine even if i am dead. my estate will pay for it, that's if there is money left to pay for it. lender can sell the debts pennies on a dollar and collection agency can feel free to come to collect from me. i can be reach at my graveyard. ;)

Found this doing a google search:

If a credit card is used by an individual authorized to use the account and that person was not aware the primary acct holder was deceased when the card was used, the card company will probably include the charges in the final bill submitted to the estate rep. If death was known they will hold the authorized user responsible for the charges. If the user was not authorized and knew about the death of the holder it was fraud and criminal charges should be filed.
 

Blackjack200

Lifer
May 28, 2007
15,995
1,685
126
My first job out of college was as a Guardian agent. I believed it was a scam when I signed up, but I joined because I had no other job prospects and was assured by the management recruiters at the company that once I understood the product I would enthusiastically sell it.

I went in with as open a mind as I could possibly have, and after 6 months of asking the same questions over and over again, getting the same evasive answers, reading everything I could find, and studying the policies until I was blue in the face, here's what I concluded:

* Whole Life Insurance is not a scam

* Whole Life Insurance is not a very efficient financial tool, nor is it transparent. It will almost certainly under-perform a diversified equity portfolio in the long term

* Whole Life Insurance should not be purchased by middle class or individuals without financial dependents.

* The biggest advantage of whole life insurance is a tax advantage: when you die, the money is generally paid to the beneficiaries tax free. Thus, it makes a ton of sense for a rich person trying to evade estate taxes. The "retirement vehicle" argument is not completely spurious, but again, it doesn't make much sense for someone not in the top tax bracket and with other retirement vehicle options (IRA, 401-k, etc.)

FBB, you can make your own decision, but know this: after making myself as familiar with the product as I possibly could, I do not own Whole Life Insurance today. I could not sell a single policy because I was never able to believe in it.
 

SphinxnihpS

Diamond Member
Feb 17, 2005
8,368
25
91
There is a wealth of info available if you just google "whole life vs. term insurance" - and it's probably much more helpful than anything anyone here can tell you. If you're looking for cliffnotes, the general consensus is that whole life insurance is not worth the hefty premiums you pay and that you're much better off getting term insurance and investing the difference. Your insurance agent likely won't tell you this, however, as they get a huge, front-loaded payment in selling you whole life. Read up. There's no right or wrong answer - but you should REALLY know all the differences before buying one or the other.

Wrong and wrong. I am an expert. Conventional wisdom isn’t.

I didn't know life insurance could also act as retirement vehicle. How does that work?

It doesn't.

Wrong. You lack of knowledge on the subject means you should shut up about it before you cause someone harm.

They take your money, skim a ton off the top, and then give what's left back to you when you're older.

The take you money and invest it, and based on the performance of those investments and the overall performance of the company, credit you account with cash in the form of dividends which are based on a fluctuation interest rate. Most companies guarantee a minimum rate of return, but allow for higher rates of return. For instance the Guaranteed dividend interest rate on Whole Life at Northwestern Mutual is currently 3.00%, but the company is currently crediting 6.15%. They also deduct the cost of insurance and administration, in what are termed “Mortality and Expense” charges. These charges are essentially that company’s cost of term insurance.

Whole life insurance is a scam. Your much better with term life and investing the difference in premiums as was stated by a previous poster.

Depends of the situation. For most people that need permanent life insurance, and there are plenty who do, that statement is false.

Insurance is not an investment vehicle.
Do you have debts that will need to be paid if you die? Do you have dependents that will need money to live on if you die? Anything more in regards to life insurance is unnecessary.

There are far more uses for permanent life insurance than you are aware of. A blanket statement such as this is simply false.

Don't do it. Open a Roth IRA if you haven't yet.

You do not know his situation, therefore your advice is ludicrous.

Get term life, invest the difference in an IRA, come out miles ahead. If you are young and healthy, term life is dirt cheap. Also, if you die, your investment in whole life disappears, they will only pay out the death benefit and keep the investment portion for them. Whereas if you die with an IRA it goes to your beneficiary.

You have no clue what you are talking about.

As a single person with no kids I don't see the point in life insurance. Life insurance is mainly to help those that are left behind in case you die.

Again, without knowing anything about his situation, you could be completely wrong, so why state this? This is not true anyway, you just don’t know all the situations where permanent life insurance is indeed the best option.

If his financial advisor is trying to sell him whole life insurance, time to find a new financial advisor.

This could very well be true. Most general financial advisors only have a cursory knowledge of life insurance. Some unfortunately receive kickbacks/referral fees (illegal) from life insurance agents to sell expensive products people do not need. Then again, some know more than others, so your statement is irresponsible.

Came here to post this. Whole life is trash. Avoid it like the plague.

From your perspective and station in life, this may be entirely true, but there are people who need it. You do not know the OP, so your statement is irresponsible.

It's worse than that. Say you buy a policy for 100k in PAY OUT coverage if you die. Now, over 50 years, you accumulate 400k in the "retirement" fund and then you die. The company pays out 100k per the contract and pockets your 400k retirement fund. It's a fucking rip off. There's no other way to say it.

Once again demonstration your ignorance... You are clueless. This is not how permanent life policies work. If you buy a permanent policy with a minimal face amount (death benefit amount) of $100,000, and over the years put in $400,000 in premiums, A it would fail a 7-pay test, and be classified as a Modified Endowment Contract, and the overfunded cash value account would force the death benefit up. The likely death benefit for such a policy would probably exceed $500,000 due to interest earnings within the policy.

Now it os true that there are permanent life policies where such a scenario could be true in theory, but they would always be a Universal Life policy, with a secondary guarantee. However, life insurance is a competitive business, so it is unlikely any company would put into practice abuses of such magnitude. Urban Legend paranoia is all you are spreading. Useless advice!!!

If you don't have a family or are not dependent on others, then you don't need life insurance.

I own a business with a partner. I owe a bank money. I got divorced. I have kids who will need to go to college. I expect to have a taxable estate. I work for an ESOP. I am an executive... ad infinitum.

All examples counter to your dumb statement.

Unless you intend to fake your own death life insurance isn't worth it.

Stupid.

Everyone else here is correct. Whole life insurance is a combination of term life insurance and an investment account. The problem is that it is usually a mediocre term life insurance policy combined with a mediocre investment account. In almost all cases, you are better off getting term life insurance and getting an investment account. Chances are you'll do better with two items each ideal for you than a one-size-fits-all whole life policy.
The worst part is there are dozens of gotchas in whole life policies. Your first 1-10 years of premiums go to the insurance company or agent and not into your life insurance. High yearly fees after that (3% is typical vs maybe 1% or less other investments). No guaranteed payout or even a specified return amount (that is, what interest rate will you earn, I bet your advisor won't ever tell you a straight answer). No clear definition of how much is invested vs how much is for the insurance (they can promise a massive dividend on the investments but if all the money goes to the insurance part, then you still get nothing). And way, way to many ways for them to squirm out of the money you think they owe you. Plus, you have no dependants and if I recall you have no plans for them either. I agree with the others, there just isn't a need.

I have a time share on Jupiter to sell you. The price is only going to go up! You better lock in a low rate when you can!

Many of your points are incorrect. Some companies are currently crediting higher dividends than can be earned in most other product-based investments. Even when taking into account Mortality and Expense charges, some companies LI products outperform any annuity you could buy today. Not all companies separate “their” investments from “your” investments. Some companies allow agents to minimize their commissions, with more of the first year premium ending up in the CV account of the policy.

My first job out of college was as a Guardian agent. I believed it was a scam when I signed up, but I joined because I had no other job prospects and was assured by the management recruiters at the company that once I understood the product I would enthusiastically sell it. I went in with as open a mind as I could possibly have, and after 6 months of asking the same questions over and over again, getting the same evasive answers, reading everything I could find, and studying the policies until I was blue in the face, here's what I concluded:

* Whole Life Insurance is not a scam
* Whole Life Insurance is not a very efficient financial tool, nor is it transparent. It will almost certainly under-perform a diversified equity portfolio in the long term
* Whole Life Insurance should not be purchased by middle class or individuals without financial dependents.
* The biggest advantage of whole life insurance is a tax advantage: when you die, the money is generally paid to the beneficiaries tax free. Thus, it makes a ton of sense for a rich person trying to evade estate taxes. The "retirement vehicle" argument is not completely spurious, but again, it doesn't make much sense for someone not in the top tax bracket and with other retirement vehicle options (IRA, 401-k, etc.)
FBB, you can make your own decision, but know this: after making myself as familiar with the product as I possibly could, I do not own Whole Life Insurance today. I could not sell a single policy because I was never able to believe in it.

Congratulations, you have the most sensible comment here, but you are still incorrect in some respects because you obviously didn’t spend long enough in the business to know all the uses of PLI. Plus Guardian has many products, and sales agents are trained on and trained to sell the most profitable ones for the company, but they do have other products and ways of modifying them to suit needs, and reduce commissions.

Anyway OP, I would hate for you to get a bum steer because a bunch of knitwits on a computer forum think they know something. Again, my advice is to seek professional advice you can trust. This will not come from someone who makes a commission off of you for anything they do for you, which includes your financial advisor. Hire a fee-only life insurance advisor.

Witt Actuarial Services
Katt & Company (if you net worth exceeds $20,000,000)
Glenn S. Daily
David Barkhausen

Anyone else that tells you they are an objective source of advice in these matters is lying or stupid or both.
 
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EagleKeeper

Discussion Club Moderator<br>Elite Member
Staff member
Oct 30, 2000
42,591
5
0
There is a package now called Universal life. Similar to whole life; but you actually are getting dividends from your policy payments; After 20+ years; the policy payments may be able to stop with the policy paid in full. Standard Whole Life is not that way - pay forever. :(
 

SphinxnihpS

Diamond Member
Feb 17, 2005
8,368
25
91
There is a package now called Universal life. Similar to whole life; but you actually are getting dividends from your policy payments; After 20+ years; the policy payments may be able to stop with the policy paid in full. Standard Whole Life is not that way - pay forever. :(

Unreal...:rolleyes:
 

overst33r

Diamond Member
Oct 3, 2004
5,762
12
81
unless you have dependents you'd be better off investing in disability insurance.
 

dullard

Elite Member
May 21, 2001
25,133
3,538
126
He still addresses a lot of key misconceptions stated throughout the thread.
He addresses them by giving a very biased viewpoint. Virtually everything that was said in the thread (ignoring the truely false statements) apply directly to FuzzyBabyBunny. With his thousands of posts here, fuzzy has built a strong case that he specifically doesn't need whole life insurance. Then Sphinx comes in posting some fairly rare cases where whole life insurance may play a useful role. Sphinx may be telling the truth there, but that is a misleading biased truth. As it applies to fuzzy, there really isn't a role for whole life insurance. Unless fuzzy is hiding something. But if he is hiding something, then an advisor won't do any good either.

Facts pretty much taken in order from Sphinx's post:

1) Sphinx is an expert, but so are thousands of others who formed the conventional wisdom. Sometimes conspiracies are true, usually the conventional wisdom is true.

2) Sphinx posted one company is paying 6.15&#37;. I assume Sphinx cherry picked a good company to list. But that pales in comparison to the 21% plus dividends that the S&P just returned in the last year or the 8% that you are historically likely to get. Sphinx may tell the truth, but it is a sales pitch through and through (by not telling the whole truth and leaving off the other truth that there are far better investments for most people).

3) Whole life insurance is usually the wrong choice. There are exceptions. Fuzzy doesn't appear to be one from his many, many detailed posts about his life. We do know Fuzzy, unlike what Sphinx claims.

4) Owning a buisness with a partner is no guarantee that you need whole life insurance. Owing a bank money doesn't necessarilly mean you need it either. Fuzzy isn't married. Fuzzy doesn't have kids who need to go to college. Fuzzy doesn't have a taxible estate. Fuzzy isn't an executive. Sphinx listed a few cases where whole life insurance MAY be a good option (but often isn't). But it is misleading in a thread about Fuzzy where none of those examples are relevant.

5) For my post, I compared whole life investments to investments in general. Then Sphinx comes back with possibly the worst investment possible for most people (annuities) and says that whole life insurance is better. Probably true, it is better than annuities in most cases. But being better than the worst is a pretty low bar. Being more attractive than the ugliest person in the office doesn't make you a beauty queen. Sphinx's post is very dangerous and irresponsible in the facts that he leaves out (didn't compare it to the better investments).

6) Yes, some companies let you reduce some commissions. But the fact is whole life insurance is usually filled with fees, commissions, and gotchas. Fuzzy should read any whole life insurance plan very, very carefully. Sphinx just brushed that advice aside by claiming some have reduced commissions. Very misleading.

I challenge Sphinx, who is an expert, to come up with honest advice for Fuzzy. If we are all "lying or stupid or both", let Sphinx show his expertise and give Fuzzy a proper analysis of his situation.
 
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blackangst1

Lifer
Feb 23, 2005
22,914
2,359
126
that's not automatically true

if you're old and don't have any dependents, yeah, no need for life insurance

but if you are young, it might be advantageous to go ahead and lock-in a term-life policy while it's cheap because some medical condition may crop up later that will make it impossible to get when you do need it

This.
 

ShawnD1

Lifer
May 24, 2003
15,987
2
81
He doesn't need term life unless his parents need money to pay for his funeral.

If he were a man and not an asshole he would not insist on some expensive funeral. My will explicitly states that people should do whatever cost the least. It's how I would have done it, so they can respect my wishes by jewing out :thumbsup:

Does anyone else realize that you don't actually keep the coffin you buy? You just throw in a hole. You guys know this, right?

Life insurance is supposed to take care of people. It's to send your kids to college, not fuck around with wood boxes and pay morticians to have sex with your dead body.

Life insurance can be useful if your death will cause a burden on someone else. In those cases, it's good to have at least enough to cover the intended method of your burial/cremation/etc.
This would be in contrast to those times when people celebrate your death :D
 
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Blackjack200

Lifer
May 28, 2007
15,995
1,685
126
Life insurance is supposed to take care of people. It's to send your kids to college, not fuck around with wood boxes and pay morticians to have sex with your dead body.

I seriously hope this happens. I don't believe in any of that afterlife crap, so when i'm done with my body, I'm done. If someone can get some more enjoyment out of my rotting flesh, I hope they do.
 

SphinxnihpS

Diamond Member
Feb 17, 2005
8,368
25
91
He addresses them by giving a very biased viewpoint. Virtually everything that was said in the thread (ignoring the truely false statements) apply directly to FuzzyBabyBunny. With his thousands of posts here, fuzzy has built a strong case that he specifically doesn't need whole life insurance. Then Sphinx comes in posting some fairly rare cases where whole life insurance may play a useful role. Sphinx may be telling the truth there, but that is a misleading biased truth. As it applies to fuzzy, there really isn't a role for whole life insurance. Unless fuzzy is hiding something. But if he is hiding something, then an advisor won't do any good either.

Facts pretty much taken in order from Sphinx's post:

1) Sphinx is an expert, but so are thousands of others who formed the conventional wisdom. Sometimes conspiracies are true, usually the conventional wisdom is true.

2) Sphinx posted one company is paying 6.15%. I assume Sphinx cherry picked a good company to list. But that pales in comparison to the 21% plus dividends that the S&P just returned in the last year or the 8% that you are historically likely to get. Sphinx may tell the truth, but it is a sales pitch through and through (by not telling the whole truth and leaving off the other truth that there are far better investments for most people).

3) Whole life insurance is usually the wrong choice. There are exceptions. Fuzzy doesn't appear to be one from his many, many detailed posts about his life. We do know Fuzzy, unlike what Sphinx claims.

4) Owning a buisness with a partner is no guarantee that you need whole life insurance. Owing a bank money doesn't necessarilly mean you need it either. Fuzzy isn't married. Fuzzy doesn't have kids who need to go to college. Fuzzy doesn't have a taxible estate. Fuzzy isn't an executive. Sphinx listed a few cases where whole life insurance MAY be a good option (but often isn't). But it is misleading in a thread about Fuzzy where none of those examples are relevant.

5) For my post, I compared whole life investments to investments in general. Then Sphinx comes back with possibly the worst investment possible for most people (annuities) and says that whole life insurance is better. Probably true, it is better than annuities in most cases. But being better than the worst is a pretty low bar. Being more attractive than the ugliest person in the office doesn't make you a beauty queen. Sphinx's post is very dangerous and irresponsible in the facts that he leaves out (didn't compare it to the better investments).

6) Yes, some companies let you reduce some commissions. But the fact is whole life insurance is usually filled with fees, commissions, and gotchas. Fuzzy should read any whole life insurance plan very, very carefully. Sphinx just brushed that advice aside by claiming some have reduced commissions. Very misleading.

I challenge Sphinx, who is an expert, to come up with honest advice for Fuzzy. If we are all "lying or stupid or both", let Sphinx show his expertise and give Fuzzy a proper analysis of his situation.

Fuzzy posted this:

So I figure that at 25 it would benefit me to start buying life insurance and lock in a low rate while I can. I don't want to wait until I'm older and forced to have a higher rate.

I'm looking at a policy from Guardian Life Insurance, a type of participating life insurance that pays dividends and supposedly acts as a retirement vehicle as well. I'm in preliminary talks with my financial advisor and will get more details next week, but I'm curious now to know how it works.

Anyone else have whole life insurance? Can you comment on things you can do with it, like using it to act as a retirement device?

Whatever other thousands of posts you are talking about I have not seen.

My only point to Fuzzy, is that he seek advice from a fee-only life insurance advisor, rather than listen to ANYONE HERE. The rest of what I posted is simply refuting many common misconceptions regarding permanent life insurance and outright false statements. If it was a sales pitch, I would have PMed him and said, let's set up a consulting contract. I do the service that I would have the OP utilize, but I am referring him to the competition. As for the rest of your silliness...

1) No they are not. The conventional wisdom is "buy term, invest the rest" well that does not always meet someone's objectives. LI death benefits have special tax treatment, so that fact creates a lot of situations for people where PLI is the best option to meet a specific object. Permanent LI is permanent, and term runs out at the end of the term. Let's say you develop some disease or condition in the next several years, then your current term insurance runs out, and because of your condition you can no longer get any LI but still need it, term insurance now cost you your future insurability.

2) They are the top paying company currently and have been for 25 years. When you buy permanent LI, you buy it from the guys that A. you know will be around to pay up when you die (financial strength), and B. who give you the best returns. I do not work for them either, so once again, I'm not selling anything.

3) I never claimed to know Fuzzy. I do not. This is based entirely on his OP. Again, my only advice to him is to pay for some OBJECTIVE advice from someone who is an expert.

4) All the examples I listed where PLI is useful depend entirely on the situation. I did not say that if you have a business you NEED PLI, I said you may need PLI. There are many business situations where PLI is required. Again, the situation dictates. I was merely refuting blanket statements; none of them are true in all cases.

5) I'm not trying to tell ANYONE PLI is a good "investment". LI is not an investment AT ALL. I merely said that compared to this similar product (which people buy in droves), it is far superior PLUS it has tax advantages, borrowing advantages, and has a death benefit far higher than the invested assets. It was an example.

6) Term insurance is the only life insurance. All permanent LI is a term insurance policy with an added cash value account. The fees and "gotchas' in PLI are called Mortality and Expense charges, and are charged against the cash value account. Premium money is paid into the cash value account. Dividends are paid into the cash value account. The mortality and expense charges are equivalent to the cost of the term life policy component. All LI policies have a sales commission whether term or whole life. First year commissions are usually 80% of the first year premium. Some companies allow the agents to reduce the first year commission to as little as 3%. I said this because NOT ALL PLI IS EQUAL, i.e. SHOP AROUND!

I am misleading no one except those like you who have purposefully and willfully misunderstood me. I am selling zero. I am not advocating anyone buy PLI. Most people do not need it. However some people do need it. There are situations where it is the only reasonable alternative, and there are some companies that sell it that treat you better than others. These were my only points.

Thanks for playing.
 

ShawnD1

Lifer
May 24, 2003
15,987
2
81
Retirement vehicles FBB should think about and read about. Read actual books, not just random shit on forums:

1) defined benefits pension (only government and hardcore union people have these)
2) pick and choose your own stocks and bonds (only good if you are not the kind of retard who buys penny stocks and hope they go up a penny)
3) buy stock and bond index funds (ride the average, ~0% chance of losing it all)
4) buy mutual funds (due to higher management fees, these rarely outperform the index, but these are still safe investments)

Life insurance should not be treated as a retirement fund. If you want life insurance, buy life insurance. If you want some dumb ass to manage your money and continually do worse than the average, buy mutual funds.
Since I don't know you or how smart you are, I would say buy index funds. You can buy something that just follows the S&P or the Dow, management fee is low, there's absolutely no chance of losing it all unless the entire economy collapses in which case US dollars would be worth nothing anyway and bullets would be more valuable.