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

[dullard]

However some people do need it.

Such as people like Fuzzy who can't afford a down payment on a house let alone a $300/hour advisor that you suggested.

Thanks for playing.

You are welcome, and thanks for finally agreeing with the rest of us in that sentence above (although you won't admit it).

 

[JS80]

Why would FBB waste his time going to an advisor, after reading this thread? Bottom line is at his age and income level, whole life never makes sense. Who the fuck wants to earn 3% for the rest of his life starting at age 2X?

 

[dullard]

Who the fuck wants to earn 3% for the rest of his life starting at age 2X?

But wait! Temporarilly, while they choose to do it, he might get up to 6.15% (after subtracting unclear fees and subtracting unspecified contribution to the insurance part) from the best company instead of ~10% in the stock market! Will someone please think of the children FBB doesn't have!

 

[JS80]

But wait! Temporarilly, while they choose to do it, he might get up to 6.15% from the best company instead of ~10% in the stock market! Will someone please think of the children FBB doesn't have!

But the stock market isn't guaranteed!

 

[ShawnD1]

But the stock market isn't guaranteed!

That's why you are supposed to buy both stocks and bonds. Stocks ~always grow faster, so you'll have stocks when you are young. As you get closer to retirement, the retirement fund will have more bonds. The bonds are rock solid and stable so you can always sell them to get cash, or they mature and you get cash. Stocks can't always be sold because selling when the market is down means you lose fuckloads of money.


Also, remember to subtract 3% from any return to account for inflation. If they say you'll grow 6% per year and the management fee is 3%, then you take off another 3% to adjust for inflation, and suddenly you see that this bullshit fund isn't actually growing. If they said the return is something like 5% and management is still 3%, it's very likely you're actually losing money. You'll put in $1000, it grows to $2000 after a number of years, but that $2000 will buy less than the original $1000 you put in. Seriously, remember inflation. God damn old people are retarded and they fuck this up all the time.
"oh back in my day burgers were only $1"
"how much was minimum wage at the time?"
"about $0.85"
"so in today's dollars your burger would be about $10? that's fucking expensive"

 

[DaveSimmons]

My only point to Fuzzy, is that he seek advice from a fee-only life insurance advisor, rather than listen to ANYONE HERE. ...

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. ...

The first $5 million of your estate is tax-free, so "favorable tax treatment" is a lousy reason to accept a third-rate investment.

It still sounds like you're trying to extol virtues of life insurance that don't apply to 99.9% of the populace.

 

[Vic Vega]

He still addresses a lot of key misconceptions stated throughout the thread.

With his opinion. The guy sells the stuff for a living. He's biased.

 

[SphinxnihpS]

Such as people like Fuzzy who can't afford a down payment on a house let alone a $300/hour advisor that you suggested.

You are welcome, and thanks for finally agreeing with the rest of us in that sentence above (although you won't admit it).

I don't know fuzzybunny. He asked a question. I answered it with sound advice (seek advice from UNBIASED PROFESSIONALS). If he doesn't have two nickels to rub together, HOW ON EARTH WOULD I KNOW THAT!?!?! Fuck you for suggestinging I am offering some bad advice here. The guy said he is looking at PLI. I was trying to help him NOT GET SCREWED. Sorry I don't know fuzzy's life story.

 

[SphinxnihpS]

But wait! Temporarilly, while they choose to do it, he might get up to 6.15% (after subtracting unclear fees and subtracting unspecified contribution to the insurance part) from the best company instead of ~10% in the stock market! Will someone please think of the children FBB doesn't have!

Those points had nothing to do with Fuzzy Bunny. I was contradicting some blanket statement about PLI.

I never claimed PLI is an investment.

Most people have no need for PLI.

However most of the comments prior to mine are full of errors because they are all-encompassing. I was just pointing out that there are people who do indeed need PLI, and situations where it is the only thing that will work. They had nothing to do with Fuzzy Bunny.

 

[SphinxnihpS]

But the stock market isn't guaranteed!

Neither is any LI. Guarantees from companies require the company to be around. A company can say they guarantee something, but if they fail abd are not around to pay up, what's the guarantee worth? Zero. This is why financial strength ratings are important factors to look at when selecting insurance carriers.

 

[SphinxnihpS]

The first $5 million of your estate is tax-free, so "favorable tax treatment" is a lousy reason to accept a third-rate investment.

It still sounds like you're trying to extol virtues of life insurance that don't apply to 99.9% of the populace.

My comments have been misconstrued and taken as advice for FuzzyBunny. Most of them pertain to shooting down blanket statements. They were just examples of situations where the statement made by whoever was false. Blanket statments are always false for some situation.

Life insurance certainly has virtues, but in most instances, it is oversold, and under shopped/evaluated. This is because most people who are explaining it are also selling it. They call themselves advisors, when they are really salesmen. It's like buying a Chevy because you heard Chevys are the best from the Chevy salesman. Again, my only advice was get some.

 

[sunzt]

Check if your employer offers group life insurance

 

[SphinxnihpS]

With his opinion. The guy sells the stuff for a living. He's biased.

You're a real gem.

 

[JimW1949]

Neither is any LI. Guarantees from companies require the company to be around. A company can say they guarantee something, but if they fail abd are not around to pay up, what's the guarantee worth? Zero. This is why financial strength ratings are important factors to look at when selecting insurance carriers.

As far as I know, that is not correct. If an insurance company goes belly up, I believe the failing insurance company policies are swallowed up by one or more insurance companies who are licensed by that State. In the past there have been insurance companies bought out by larger insurance companies and all that changes is the name of the company. The policies are still in effect and the policy holders are still expected to make their premium payments.

 

[dullard]

I don't know fuzzybunny. He asked a question. I answered it with sound advice (seek advice from UNBIASED PROFESSIONALS). If he doesn't have two nickels to rub together, HOW ON EARTH WOULD I KNOW THAT!?!?! Fuck you for suggestinging I am offering some bad advice here. The guy said he is looking at PLI. I was trying to help him NOT GET SCREWED. Sorry I don't know fuzzy's life story.

Fuzzy asked a question. People who do know his life story (Fuzzy posted 7000+ posts with too much information in a lot of threads all over these forums) gave sound advice. But, that advise unfortunately was written as blanket statements.

You are correct that blanket statements are usually wrong. But, it is the way you said it that is the problem. By saying basically everyone in this thread (who know fuzzy and his story) is lying or stupid and wrong what are we to conclude? The logical conclusion to your post is that if everyone who says Fuzzy doesn't need a product is wrong, then Fuzzy must need the product. But that isn't the correct conclusion.

The correct conclusion is that everyone in the thread is giving sound advice when speaking about Fuzzy. There are exceptions and their blanket statements were poor statements. Their advice however, was quite accurate. You could have avoided this by confirming their advice but rebutting the blanket statements.

Fuzzy is a great artist making ~60k a year. But, he lives in California where $60k doesn't get very far. He has little savings, complains that it'll be very difficult to ever get a down payment on a house. He has relationships, but they are far from typical, and as far as I know aren't going to lead to children any time soon. A $300/hour advisor won't tell him anything that we haven't already said: for him, whole life is probably not the best answer at this point in his life.

There is no such thing as an unbiased professional anyways, even fee only professionals are biased since their livelyhood depends indirectly on the product. Please start another thread and we can discuss the people who DO benefit from whole life and how best to get it and sound advice when you need it.

 

[SphinxnihpS]

As far as I know, that is not correct. If an insurance company goes belly up, I believe the failing insurance company policies are swallowed up by one or more insurance companies who are licensed by that State. In the past there have been insurance companies bought out by larger insurance companies and all that changes is the name of the company. The policies are still in effect and the policy holders are still expected to make their premium payments.

True to an extent. Some companies however are not bought and go into receivership like any other company. When this happens, that company's policies are handed over to the sate for "rehabilitation", which means that policyholders will get pennies on the dollar. The policies are distributed to other solvent companies, but the death benefits and cash values are not necessarily going to remain intact. It depends on state law and regulation, and each state is somewhat different. There is a fellow named Joel Belth who makes a living evaluating such situations before and after they occur.

 

[GuitarDaddy]

Buying whole life insurance is like buying cables or speaker wire from Best Buy

And all you have to do is whisper "whole life" and an insurance salesman will come running to tell you why it's not so bad, as is witnessed by this thread.

 

[SphinxnihpS]

Fuzzy asked a question. People who do know his life story (Fuzzy posted 7000+ posts with too much information in a lot of threads all over these forums) gave sound advice. But, that advise unfortunately was written as blanket statements.

You are correct that blanket statements are usually wrong. But, it is the way you said it that is the problem. By saying basically everyone in this thread (who know fuzzy and his story) is lying or stupid and wrong what are we to conclude? The logical conclusion to your post is that if everyone who says Fuzzy doesn't need a product is wrong, then Fuzzy must need the product. But that isn't the correct conclusion.

The correct conclusion is that everyone in the thread is giving sound advice when speaking about Fuzzy. There are exceptions and their blanket statements were poor statements. Their advice however, was quite accurate. You could have avoided this by confirming their advice but rebutting the blanket statements.

Fuzzy is a great artist making ~60k a year. But, he lives in California where $60k doesn't get very far. He has little savings, complains that it'll be very difficult to ever get a down payment on a house. He has relationships, but they are far from typical, and as far as I know aren't going to lead to children any time soon. A $300/hour advisor won't tell him anything that we haven't already said: for him, whole life is probably not the best answer at this point in his life.

There is no such thing as an unbiased professional anyways, even fee only professionals are biased since their livelyhood depends indirectly on the product. Please start another thread and we can discuss the people who DO benefit from whole life and how best to get it and sound advice when you need it.

Well my sincere apologies to those making blanket statements specifically to Bunny but which someone like me who doesn't know him from a hole in the wall might take exception to. The ones I had the biggest problems with were the most general, e.g "PLI has no use, run like it was the plague", "LI is a scam", etc. My defense of PLI had nothing to do with Bunny, or me selling PLI.

Believe me, if he were my client, I would get his situation nailed down before offering any advice. If he seemed to be unforthcoming, I would fire him.

From how you put it, it sounds like he needs a policy that would cover his current and future debt, cover his lost income for his wife, and pay for final expenses. I don't know his age, so I can't say to buy X (10, 20, 30)level term, but term is obviously the way he should go, or perhaps term/UL (UL priced as term, but with the UL flexibility to pay more into it should he ever aquire the need for PLI. I can't reccommend an amount because I don't know his financial picture more than what you stated. He should also immediately fire is financial advisor. He has no use for one because he has no assets to manage, and if the FA is leading him to PLI, I suspect there is some hidden motive such as illegal referral fees, outlawed in all states except California. In law they are known as Unfair Inducements, but at any rate that FA seems to be comporomised.

 

[SphinxnihpS]

Buying whole life insurance is like buying cables or speaker wire from Best Buy

And all you have to do is whisper "whole life" and an insurance salesman will come running to tell you why it's not so bad, as is witnessed by this thread.

You are correct. Most life insurance agents, indeed anyone selling something on commission, is going to make recommendations based on how much they get paid whether that reccommendation is in the customer's best interests or not, which is why I always advise people to seek objective advice from experts who are not paid based on the sale of anything.

You are incorrect if you think I came running in here to sell anything. I opened my mouth in this thread with the sole intention of keeping some total stranger from getting fucked. Sorry I am such a bad person for that.

 

[JimW1949]

True to an extent. Some companies however are not bought and go into receivership like any other company. When this happens, that company's policies are handed over to the state for "rehabilitation", which means that policyholders will get pennies on the dollar. The policies are distributed to other solvent companies, but the death benefits and cash values are not necessarily going to remain intact. It depends on state law and regulation, and each state is somewhat different. There is a fellow named Joel Belth who makes a living evaluating such situations before and after they occur.

I think you are being way to pessimistic about having the State Guaranty Association take over and decide how to handle the policies. As I am sure you are aware, the State Guaranty Association will assist in paying the claims of the insolvent insurance company. The legislature of each State writes the laws regarding what happens when an insurance company becomes insolvent, so I would agree that each State is a little different. Some of the policies would be transferred to other insurance companies within the State and nothing would change except the name of the insurance company. As far as the other policies, I am quite certain that some claims may be delayed and/or limited, depending on the State, but I hardly think it would amount to a few pennies on the dollar. I could be wrong on that, but I seriously doubt that would be the way it works out.

But in any case, I think you are being way too melodramatic about this. There is no doubt that if your insurance company becomes insolvent, you COULD have a problem. But more likely you would have a problem only if you have an outstanding claim. You COULD also have a problem in cases where you are an older person and you have a rather large insurance policy. (I am sure there are other cases as well) I imagine the magnitude of the problem would depend on several factors and without specific information there is no way to tell with any degree of certainty exactly what would happen. I would not however, be as pessimistic about it as you seem to be. You MAY end up getting screwed, but I am pretty sure they would give you a large economy size jar of Vaseline first.

 

[ultimatebob]

Can someone explain to me why in the hell Fuzzy needs life insurance??? Unless he got himself a mail order bride and didn't tell us, I don't think that he has any dependents that need to be taken care of when he dies.

And, please PLEASE don't get whole life insurance as an investment. The only people who get wealthy off of an "investment" like that are the brokers who get big commissions and fees off of people who are gullible enough to sign up for it.

 

[ShawnD1]

And, please PLEASE don't get whole life insurance as an investment. The only people who get wealthy off of an "investment" like that are the brokers who get big commissions and fees off of people who are gullible enough to sign up for it.

This reminds me of something interesting my dad said. Instead of buying mutual funds, buy stock in the company that sells mutual funds. Honest to god, he's right.

 

[SphinxnihpS]

I think you are being way to pessimistic about having the State Guaranty Association take over and decide how to handle the policies. As I am sure you are aware, the State Guaranty Association will assist in paying the claims of the insolvent insurance company. The legislature of each State writes the laws regarding what happens when an insurance company becomes insolvent, so I would agree that each State is a little different. Some of the policies would be transferred to other insurance companies within the State and nothing would change except the name of the insurance company. As far as the other policies, I am quite certain that some claims may be delayed and/or limited, depending on the State, but I hardly think it would amount to a few pennies on the dollar. I could be wrong on that, but I seriously doubt that would be the way it works out.

But in any case, I think you are being way too melodramatic about this. There is no doubt that if your insurance company becomes insolvent, you COULD have a problem. But more likely you would have a problem only if you have an outstanding claim. You COULD also have a problem in cases where you are an older person and you have a rather large insurance policy. (I am sure there are other cases as well) I imagine the magnitude of the problem would depend on several factors and without specific information there is no way to tell with any degree of certainty exactly what would happen. I would not however, be as pessimistic about it as you seem to be. You MAY end up getting screwed, but I am pretty sure they would give you a large economy size jar of Vaseline first.

It depends. For most policy holders of life insurance, the limits of State guarantee are higher than the policy benefits anyway. It's similar to an FDIC bank that goes under; most customers would get all their money back because they don't keep $100k in their account (or whatever the new limit is). But some policy holders with larger policies, which can represent a large population, would get only partial returns on their contributions or partial payment of DB due to limits.

But you do not need to reach the limits to get fucked.

For permanent insurance, part of the "rehabilitation" is recalculating the cash value needed to sustain those policies.

My friend for example had a policy from a company called Executive Life. They went belly up and were taken over. My friend had a CV PLI policy which was supposed to provide him a $100,000 DB until at least age 100 at X premium. After the policy was rehabilitated, the CV required to drive the DB in his policy quadrupled, requiring HUGE premiums. Since he didn't have that kind of money on hand, he was forced to let the policy go. He got some cash, but it paled to what Executive Life promised him.

My original point in this regard was simply that because some big company "guarantees" something, does not mean that it is.

This is far more germane to my clients than average people. 90% of the policies I control are in the $5,000,000+ permanent insurance range with high cash values. If the companies insuring these people were to go away, my people would be SOL for millions and millions of dollars.

 

[Squisher]

There is an instance where a whole life policy does make some sense. A single premium policy taken out on an infant can have some benefits. Usually a parent will make a one time payment of $3K -$4K for a policy from $30K to $50K. This usually allows for loans to be taken out on the policy to help for schooling and such and might also assure that no matter what the child will be insurable.

 

[DrPizza]

So, Sphinxnihps, what percentage of all Americans do you think would benefit from whole life? (vs. term & investing the difference) 2%? 3%?

I completely agree with you that it's a wise decision for some people, but for the vast majority of people (I think you even mentioned something about not for middle class without dependents), it's a poor choice.