From what I understand even if whole life was a decent investment as far as percentages go, when you die you only get the face value of the policy and they keep your “investment”. It costs more for the opportunity to invest at low rates so that when you die they keep the money you invested. Sounds like a fantastic deal for everyone associated with the insurer.
Quit getting in a snit over a deliberate mis-reading. You know very well that I said “virtually” nobody–it was in the part that you quoted.
Now that that’s out of the way, congratulations on being on of the few people with financial self-discipline.
I’ve had a life insurance license for some time now. I haven’t really done anything with it (long story), but I do know quite a bit about the field.
I see that most people in this thread (the main exception being Snnipe 70E) still are hung-up on the old type of life insurance–which is really a misnomer–it should be called “death insurance,” because that’s all it is. The new type of life insurance is vastly different.
The purpose of life insurance is NOT to be an all-encompassing retirement product–but it CAN be used as a retirement supplement.
This is an actual test illustration that I just ran–a 30-year-old man buys a $150,000 policy, and puts $120/month into it for 40 years. At age 71, he stops paying premiums, and starts drawing money out. Even if he lives to 110, he will get about $1,763/month for the rest of his life.
Now–and here I’m speculating a bit–let’s call that amount $400 in today’s dollars to account for inflation. Is there anybody on this board who could not use an extra $400 each and every month? Is there somebody, or perhaps several sombodies, on this board for whom an extra $400 would make a world of difference? And furthermore, that would be tax-free money – because it’s a loan from the cash value of the policy.
Whole life insurance is the ONLY form of investing in the entire world that (A) is accessible to the average person, (B) allows you to grow money tax-deferred, and (C) allows you to take it out tax-free.
And besides all that, the new type of life insurance really is for life–not for death, which is only a small part of what life insurance can do. You don’t have to die anymore to use your life insurance. It’s called “living benefits.” This 3-minute video explains it much better than I can.
A Roth IRA does this as well.
Insure only to protect your interests, not as a get rich scheme. Determine how much your heirs will need to cover financially for the loss of your earning power. You are “overinsured” if your insurance benefit would pay out more than your would earn if you were alive.
While still earning, that would be a high amount, so term is affordable. The older you get, the less affordable, and the less necessary, becomes term insurance. When you reach that point, consider switching to whole, or dropping insurance entirely, according to the circumstances that prevail when you reach that point in your life.
And that money doesn’t die with you.
Insurance or an annuity? I converted my pension into an annuity which is reasonable as a small part of my retirement plan. I’m another person saving a lot - 30% for the past few years.
The cash value of which then decreases, right, until you pay it back?
[quote]
Whole life insurance is the ONLY form of investing in the entire world that (A) is accessible to the average person, (B) allows you to grow money tax-deferred, and (C) allows you to take it out tax-free.
And besides all that, the new type of life insurance really is for life–not for death, which is only a small part of what life insurance can do. You don’t have to die anymore to use your life insurance. It’s called “living benefits.” This 3-minute video explains it much better than I can.
[/QUOTE]As mentioned there are plenty of other ways of doing this. And how much would that investment have made for the guy if put into the market? Mine has done pretty well, especially since I didn’t panic in 2008 and kept buying.
I read lots of retirement columns, and haven’t seen life insurance touted as a real good investment in any. But it is good that you believe in your product.
You said “virtually nobody actually”. 
Thanks, it seems rare these days.
You mentioned it was accessible to the average person, but I wonder if that’s really the concern anymore. There are 401(k) plans which people can retrain after they leave the company. Some of the 401(k) plans even have brokers assigned to the account, so it’s very much like having an account at a regular brokerage firm. People can still do trading online cheaply, but this is all about knowledge too.
So I think it’s safe to say, that Whole Life is a simple option for some people who either don’t have access to the other things I mentioned, don’t understand or want to understand them. I wondered how they are approached to even be sold a Whole Life policy, but since I’m not the target audience they aren’t advertising to me or I’ve ignored them.
Even though I started early, in elementary school with a passbook savings account, I wished I had started an insurance company because the payout on life insurance policies in general is pretty low. I read an article recently that mentioned with Term Life, many people let their policies lapse so the insurance company ends up keeping 100% of the money and never has to make a payout even if the insured passes before the end of the policy because they are no longer covered. Even those who keep the policies current live it to the end of the term.
[quote=“Flyer, post:22, topic:751525”]
Quit getting in a snit over a deliberate mis-reading. You know very well that I said “virtually” nobody–it was in the part that you quoted.
Now that that’s out of the way, congratulations on being on of the few people with financial self-discipline.
I’ve had a life insurance license for some time now. I haven’t really done anything with it (long story), but I do know quite a bit about the field.
I see that most people in this thread (the main exception being Snnipe 70E) still are hung-up on the old type of life insurance–which is really a misnomer–it should be called “death insurance,” because that’s all it is. The new type of life insurance is vastly different.
The purpose of life insurance is NOT to be an all-encompassing retirement product–but it CAN be used as a retirement supplement.
This is an actual test illustration that I just ran–a 30-year-old man buys a $150,000 policy, and puts $120/month into it for 40 years. At age 71, he stops paying premiums, and starts drawing money out. Even if he lives to 110, he will get about $1,763/month for the rest of his life.
Now–and here I’m speculating a bit–let’s call that amount $400 in today’s dollars to account for inflation. Is there anybody on this board who could not use an extra $400 each and every month? Is there somebody, or perhaps several sombodies, on this board for whom an extra $400 would make a world of difference? And furthermore, that would be tax-free money – because it’s a loan from the cash value of the policy.
Whole life insurance is the ONLY form of investing in the entire world that (A) is accessible to the average person, (B) allows you to grow money tax-deferred, and (C) allows you to take it out tax-free.
And besides all that, the new type of life insurance really is for life–not for death, which is only a small part of what life insurance can do. You don’t have to die anymore to use your life insurance. It’s called “living benefits.” This 3-minute video explains it much better than I can.
[/QUOTE]Whole life insurance isn’t a great investment on its own. However, that’s not the only purpose it serves.
Term insurance is perfect for younger people, or for those who are on a very limited income. Particularly level term, in which you get a guaranteed face amount of insurance for a specified monthly or annual premium for a given length of time. For example, my lovely and talented wife, Aries28, and I both have level-term policies. They’re good for 20 years.
The problem arises when you outlive that period of time. At the end of the term policy, we’ll be given the option to renew the existing policy with no medical exam – but the premium rate will increase significantly (like, by a factor of 10 or more). If we’ve developed medical conditions that would make us uninsurable while we were covered by the term policy, our options would be:
- Suck it up and pay MUCH higher rates to have life insurance;
- Have no life insurance.
Here’s where a whole life policy can be useful. Whole life will stay in effect, as the name implies, for your entire life. Once you have it, the premium never goes up, and you never have to have another medical exam once it’s in effect.
I wouldn’t recommend whole as a single-source solution for everyone’s insurance needs, because it’s significantly more expensive than term insurance. However, a small whole life policy, coupled with a larger term policy, makes good sense, in my opinion. The term policy will help cover the catastrophic loss of income your loved ones could suffer in the event of your death while you’re in your prime earning years; once those years are done (i.e., when you retire), you can drop the term policy. The smaller whole life policy can cover funeral expenses and such regardless of when you die, and because the payments never go up, there’s not a danger of you “outliving your coverage,” so to speak.
We have been talking about the lower rate of return as an investment for Whole Life. Does anyone have real numbers on this to compare? It use to be for investing they would say you need 8% on average (not every year, but on average) for investments. I think that number has been lowered to 6% now. Is the Whole Life return less than 1%?
Depends on the company who issues the policy, and how aggressive they are with their investments. They can’t be TOO aggressive, or they risk falling below the capital reserves they’re required by law to hold to cover the face amount of the policies they’ve issued.
Last time I checked, I think the annualized return on some MetLife policies was around 5%.
I’d almost say whole life might be a better investment for younger people than for older, though of course that depends on costs etc.
With term, the rates will go up as you get older. My husband and I both have insurance through work, and he has a policy through a professional group, and they went up 40% last year when we turned 55.
My whole policy, on the other hand, has been the same for 13 years.
I got the whole-life policy when my employer was acquired. I was declined when I applied for coverage with the new employer (there was no guaranteed-acceptance rule) for health reasons. My main insurance was through them and the old employer’s policy couldn’t convert to an individual term policy. It COULD be converted to an individual whole policy. I wound up going with a 100,000 whole policy (the term had been about 700,000), at about double the cost of the existing term.
That was 13.5 years ago. The rate has not gone up, but it’s steep - about 1,800 a year. On the other hand, the cash value has gone up a bit over a thousand a year. So the “real” cost would be about 700 a year. It would have been even cheaper if I’d been a couple years younger.
As it happens, both my husband and I have whole life policies that our parents bought for us when we were in college. Premiums are about 120-140 a year for 10,000 in coverage, After 35ish years, his policy’s cash value is about 7K; mine is about 4K. So, a pretty substantial portion of those premiums are assets.
I once heard a story of someone who was age 69 and in poor health, and his only “asset” was life insurance - a term policy, that ended when he turned 70. He had the option of converting it to a whole policy at that point and was advised to do so. Sure, the premiums would have been exorbitant but it wasn’t like he was gonna be paying them for long, right?
So anyway: the argument re term life is that at varying points in your life you need more, or less - arguably when you’re getting older, you’re supposed to have more assets and fewer drains on your resources, so you need less insurance. We’re within a few years of that - right now we’re keeping our high levels of coverage, because we still have a large mortgage balance and 2 kids to get the rest of the way through college. When we turn 60 I’m hoping we can cut it in half - as the rates are GOING to go through the roof.
Anyway - without any reasoning except my gut feeling, I’d actually suggest that someone younger get a whole policy for a small amount, simply to have something in place for the future. It’s more expensive, but a fairly large portion of that will go into building the policy’s cash value.
I wasn’t aware that it had to be invested so conservatively. It makes sense though, considering its purpose. But that 5% currently (just as an example) you mentioned for MetLife, doesn’t have a limit of how low it can go either?
$1800 a year for $100K coverage sounds very expensive comparing it to Term Life. At that rate, $2M of coverage would cost $36K a year for Term, which is not something most people could afford. Even though it has a cash value that is expense to carry.
If you don’t mind me asking, why only $100K coverage? Is that just the way the policy was written many years ago when that seemed like a huge amount of money? Because in 2016, $100K is only about two years salaries at most for a middle income wage. It wouldn’t go to replace income for many years. But is there additional money there from the cash value of it that gets paid out?
We have a Term Life policy which has a rate set for 15 years to carry us till retirement age. After that, it gets way to expensive to continue, but at that point our object was to have coverage until retirement.
No, I don’t think there’s a set floor for the return; however, as a practical matter it will always be higher than the rates for government-backed securities. That’s not always an attractive return, of course.
It is very expensive for 100K of coverage, especially compared with term insurance. Bear in mind, this happened when my company was acquired by a larger one; my main life insurance was through work, and we were not guaranteed coverage through the new employer. I had some health issues, and the new employer’s coverage wasn’t guaranteed.
And, only 100K because that’s all I could afford and it was better than nothing - if 100K was 1800 a year, 500K would have been 9,000 a year, for example. It was a considerable drop in coverage from the group term policy.
I’ve since gotten group insurance through work, and it’s convertible - if I leave, I can keep the coverage (albeit at a higher rate). That’s something anyone should think of if your primary life insurance is through work: if it ain’t convertible, get a separate policy.
The whole-life conversion would certainly be cheaper if I had been younger (I was in my early 40s at the time) - though surprisingly not THAT much cheaper: my husband and I have 10,000-dollar whole policies our parents bought when we were in college. His is about 150 a year, mine is about 120 a year. Scale that up to 100,000 in coverage and it’s 1500 or 1200 - not that much lower than the 1,800 for the policy I described above.