Finally, everyone who accumulates assets will have a life insurance policy of one type or another. Social Security currently is “a life insurance policy”. Will it be around in 30 years? Who knows…who knows what will be there. All I know is that a good plan will have a guaranteed income source that they can not outlive. Many people with assets take Social Security before age 70 because they want to be sure to get something out of it…this is a life insurance decision. They reduce their life time income by taking payment early. If they owned a permanent life policy, they could reduce their investment risk by spending assets and leverage the insurance policy to replace the assets they use while they delay taking income from SS and the increased payment the benefit provides can increase their life style, pay the premium and create a legacy for their children, grand children or favorite charity. Life insurance “loans” are not income. They are loans. So if a person planned ahead, they could receive 10’s of thousands of dollars from the cash value of their policy (and ROTH IRA money) and not pay a dime of income tax on the social security benefit. If inflation happens and interest rates and taxes increase, the SS benefits will increase and this person will have increasing income that won’t be consumed by an increase in taxes as all their income would be tax free.
Within Australia there are also a number of industry bodies that issue professional accreditations to members that comply with best standards of professional practice and integrity and maintain up to date skills and knowledge. The two main accreditations are the ANZIIF CIP (certified insurance professional) and NIBA QPIB (qualified practicing insurance broker) qualifications.
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Any risk that can be quantified can potentially be insured. Specific kinds of risk that may give rise to claims are known as perils. An insurance policy will set out in detail which perils are covered by the policy and which are not. Below are non-exhaustive lists of the many different types of insurance that exist. A single policy that may cover risks in one or more of the categories set out below. For example, vehicle insurance would typically cover both the property risk (theft or damage to the vehicle) and the liability risk (legal claims arising from an accident). A home insurance policy in the United States typically includes coverage for damage to the home and the owner's belongings, certain legal claims against the owner, and even a small amount of coverage for medical expenses of guests who are injured on the owner's property.
Matt, the illustration does have a guaranteed element to it, the guaranteed keeps going up every year whether the company issues a dividend or not, obviously the guarantees are less. Like I said the purpose of this type of life insurance is not to “invest” its to have something that you wont other wise have. with 30 year term, the term is guaranteed to expire in 30 years. anyhow I wont debate you on that as I can see where you are coming from. I understand that when a person gets into a plan to pay off debt and invest heavily they will have “no need” for life insurance after they’ve paid debt and their children have grown. I’m more conservative therefore I like to make sure I have something despite having debt paid for etc.. I’d like to leave an article for you to read, its an actual case study of a gentlemen who opened a small 29000 participating whole life policy back in the mid 60’s. in 2013 he now had $166,424 in Coverage and had only paid $26,186. Anywho not bad for the guy. heres the article for anyone interested in reading the case study.
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Here are a few more important items to keep in mind when dealing with Agents and Health Insurance: * There is no cost to using a Broker or Independent agent. If an agent helps a client purchase a plan with a specific company, the insurance company will pay the agent a small stipend each month in which the health insurance plan is kept in place. * With Affordable Care Act - ACA in effect insurance companies are dropping the multiple network option for more specific smaller networks, or only one network. Agents, whom do their job correctly, will help to make sure that your doctor is in network with the insurance company that you choose. * If you work with a Captive Agent make sure to check other options with non-captive agents so that you have all the information you need to make an informed decision. * Using an Agent as your personal representative should go beyond just purchasing a plan. When you have an issue with if a doctor is on a plan or if your medications are covered you should be able to refer back to your agent for help in getting these issues answered or resolved. A good agent will go above and beyond just "selling" a plan to you. * Agents are aware of the Open Enrollment times in which you can change plans. A good agent will send an email out reminding their clients each year that now is the time to move plans or insurance companies since there is only a small period of time (Open Enrollment in the Fall) in which you may move to a different insurance company each year for a Jan 1st effective date. * Each year when rates increase Brokers and Independent Agents will be able to see all the companies rates and plans for the new year and help you decide if you should move to a new insurance company or plan for the new year *Agents are aware of what a Qualifying Event is and if you can change plans each year, how to do that and what is required. With all the knowledge agents possess...why not take advantage of free!
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Did you mention anywhere that the cash value of “permanent” insurance is owned by the insurance company? Did you mention that you don’t own it; the insurance oompany does. Did you mention that the only way the client ever gets the cash value is to cancel his policy? If the client dies, then the cash value is taken to pay off part of the face value of the insurance.
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Once you write the check, it’s insurance company money. After some time, you may have the right,to borrow some money from them. They decide how much insurance they will pay and how much you can borrow. Let’s take a look at what they have named a universal policy. Let’s say you want to get the savings started right out the door. So you write them a check for $5000. Next month you have an emergency an ,you kneed $25.0/0. Too bad! In a few years, you’ll have a few dollars in cash value. First year or two – none! Now let’s say they have have a guaranteed return of 4%. N ow if you actually have a “cash value” of some kind, don’t you think there would be something there? 4% of WHAT = $0 ??? It’s all insurance company money – they said so to the US government in 1985.
It is not a valid argument to me to say that the “administrative pain in the ass” is a reason to ignore the tactic. It’s a pretty simple procedure and certainly not worth paying all the extra costs of a whole life approach just to avoid. Yes, you have to be careful if you have Traditional IRAs, but there are ways around that too. No, it’s not for everyone, but I would much rather try to make the backdoor Roth work first than immediately jump to whole life.
4. If you end up wanting permanent life insurance when you get older, you have plenty of options other than buying whole life insurance as an investment when you’re young. You could convert a term policy. You could buy guaranteed no-lapse universal life. There are plenty of options that don’t require you lock yourself into a poorly-performing policy at a young age when that cash flow would be better used elsewhere.
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To echo what everyone else has said, great article! My wife and I were pitched this idea earlier today and I thought it sounded great until she made me read this article. I then returned to the paperwork they had given me to find it riddled with “these values are not guaranteed”. The footnotes even went as far as to say these projections were based on their dividend schedule for 2014 and that future years could be “higher or lower” and the went on to recommend looking at a hypothetical lower schedule illustration available upon request. My question for you is in regards to your conclusion. I’m self employed and put 30k into a sep-Ira and also utilize a tIRA->Roth conversion for my wife. You said this might be worth it if it was ossicle to front load the plan, the one I was presented with called for 15k/yr. are you saying it would be worth hit if I could put say 30-45k into each of the first few years? I’d still be a little skeptical after reading the brochure where it says the dividends are essentially at the discretion of he carrier
As for your question, USAA is a fantastic company and I would happily recommend them for many things, like auto, home, and umbrella insurance. With that said, I have never reviewed one of their whole life insurance policies and therefore can’t really comment on that specifically. I will say that I would be careful about taking that 4.5% return at face value, as I describe in the post. I would encourage you to run the numbers for yourself to see what it really comes out to.
2Partial withdrawals and surrenders from life policies are generally taxed as ordinary income to the extent the withdrawal exceeds your investment in the contract, which is also called the "basis." In some situations, partial withdrawals during the first 15 policy years may result in taxable income prior to recovery of the investment in the contract. Loans are generally not taxable if taken from a life insurance policy that is not a modified endowment contract. However, when cash values are used to repay a loan, the transaction is treated like a withdrawal and taxed accordingly. If a policy is a modified endowment contract, loans are treated as a taxable distribution to the extent of policy gain. On a modified endowment contract, loans, withdrawals and surrenders are treated first as distributions of the policy gain subject to ordinary income taxation, and may be subject to an additional 10% federal tax penalty if made prior to age 59½. Loans, if not repaid, and withdrawals reduce the policy's death benefit and cash value.
Nick this was a terrific overview. You didn’t mention the whole life rip-off, i.e., that the Client is paying for 2 things but in the end only gets 1. If the insured dies the death benefit goes to the beneficiary, the cash goes back to the company. Conversely, if the Client takes the cask the contract is terminated and the death benefit is gone. Bad, bad, bad!
James, be very careful about blanket advice to roll your pension into an IRA. A lot of financial professionals can make money through a transaction like that and you’d likely be giving up guaranteed income for the rest of your life. To be clear, it’s certainly possible that this would be a good move, but you would only know that after a careful and detailed analysis of your specific pension, your specific goals, and the rest of your financial situation.
We are both in our 40’s with 2-young children and already have term life policies. We are a single income family who relies on my husband’s commissions (he is in sales)which are not guaranteed year to year. While he has had a few good years where we have managed to max out his yearly 401k contribution, have money in stocks/mutual funds, Roth IRA and at least a years worth of savings set aside in the event of no income we were recommended to invest in whole life as another investment vehicle. Basically, transferring the money in our less than %1 savings account into the whole life policy over the course of 24-years. It seemed very attractive at the time. We simply wanted a better vehicle for investment than our poorly performing savings account. Our advisor (who does work for a big insurance company) came up with whole life ins. We kept asking what other low risk investments that kept our cash flow flexible we could do and he kept coming back to this one. We are currently trying to get more information from our advisor on how to cancel our policy or do you think it is worth it to leave the $20,000 in the policy and just not make any more contributions? Also, any recommendations on what to do with the rest of our savings rather than keeping it in a low earning savings account, but maintaining cash flow flexibility?
In the 1980s and 1990s, the SOA 1975–80 Basic Select & Ultimate tables were the typical reference points, while the 2001 VBT and 2001 CSO tables were published more recently. As well as the basic parameters of age and gender, the newer tables include separate mortality tables for smokers and non-smokers, and the CSO tables include separate tables for preferred classes.
The problem is that it takes a long time for the returns to reach that level. There will be many years at the start of the policy where your return will be negative, and many more years where the return will be only slightly positive. If you stick with it for a long time, you eventually get into a reasonable range of returns. But if at any point before that you decide you want to do something different, you will have spent many years and a lot of money getting very poor returns.
3 Assumes the average cost of a gallon of gasoline is $2.37**. Comparison is based on the average weekly premium for Nebraska Payroll Premium rates industry Class A; Aflac Life Solutions WHOLE LIFE POLICY - Series A68100; Female non-smoker age 18-21. Premiums may vary by coverage type, account, state of issue, and the election of additional/optional benefits.
Home insurance, also commonly called hazard insurance or homeowners insurance (often abbreviated in the real estate industry as HOI), provides coverage for damage or destruction of the policyholder's home. In some geographical areas, the policy may exclude certain types of risks, such as flood or earthquake, that require additional coverage. Maintenance-related issues are typically the homeowner's responsibility. The policy may include inventory, or this can be bought as a separate policy, especially for people who rent housing. In some countries, insurers offer a package which may include liability and legal responsibility for injuries and property damage caused by members of the household, including pets.
OK, I made the mistake of getting whole life insurance policy for $25000 when I was in my late 20’s. I’m now 63 & have been paying $126/month since then. What happens to the amount over the $25000 I’ve already paid in? Do my beneficiaries get back more than the $25000 death benefit? Should I quit making payments &, if so, what does that mean for my death benefit?
In the United States, insurance brokers are regulated by the individual U.S. states. Most states require anyone who sells, solicits, or negotiates insurance in that state to obtain an insurance broker license, with certain limited exceptions. This includes a business entity, the business entity's officers or directors (the "sublicensees" through whom the business entity operates), and individual employees. In order to obtain a broker's license, a person typically must take pre-licensing courses and pass an examination. An insurance broker also must submit an application (with an application fee) to the state insurance regulator in the state in which the applicant wishes to do business, who will determine whether the insurance broker has met all the state requirements and will typically do a background check to determine whether the applicant is considered trustworthy and competent. A criminal conviction, for example, may result in a state determining that the applicant is untrustworthy or incompetent. Some states also require applicants to submit fingerprints.
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Any reputable source will report mutual fund and stock returns as “annualized” figures, which takes the sequence of returns into account. Another term for this is “geometric average”, which again accounts for the order in which returns are received. So while there are some financial “experts” out there touting average returns (cough, Dave Ramsey), for the most part what you’re talking about here is not a factor.