Hi Jim. A couple of corrections. She’s actually secured a $36,250 asset for $25,000, as that’s what she would walk away with today if she decided to stop paying the premiums. And it would not be tax-free if she surrendered the policy today. Yes she could take tax-free withdrawals from the $36,250 today, but as I discuss above they would be subject to interest which is essentially the same effect as taxation.
Social insurance can be many things to many people in many countries. But a summary of its essence is that it is a collection of insurance coverages (including components of life insurance, disability income insurance, unemployment insurance, health insurance, and others), plus retirement savings, that requires participation by all citizens. By forcing everyone in society to be a policyholder and pay premiums, it ensures that everyone can become a claimant when or if he/she needs to. Along the way this inevitably becomes related to other concepts such as the justice system and the welfare state. This is a large, complicated topic that engenders tremendous debate, which can be further studied in the following articles (and others):
Disability insurance policies provide financial support in the event of the policyholder becoming unable to work because of disabling illness or injury. It provides monthly support to help pay such obligations as mortgage loans and credit cards. Short-term and long-term disability policies are available to individuals, but considering the expense, long-term policies are generally obtained only by those with at least six-figure incomes, such as doctors, lawyers, etc. Short-term disability insurance covers a person for a period typically up to six months, paying a stipend each month to cover medical bills and other necessities.
If she still needs the insurance, then you’re right that she may just be stuck between a rock and a hard place. I have some independent insurance experts that I work with and could potentially run it by them just to see what the options might be. If you’d like to talk things over in more detail, please feel free to email me directly at matt@momanddadmoney.com, or you can call me at 850-426-4034.
The “fixed returns” you talk about from whole life are not the 4-6% you mention in multiple places. Again, as I said in the post, the guaranteed returns are much closer to 1% or less. Yes you might get better returns depending on the dividends the insurance company decides to pay, but that’s not “fixed” or guaranteed. It changes every year. And yes, you can improve those refunds if you vastly overfund the policy in the early years, which again is something I already mentioned in the post. But for 98-99% of the population that really isn’t a viable strategy.

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Then, when I was excitedly presenting what I saw at the meeting to my skeptical wife at home in front of my two babies, I began to remember what I learned from my reading all the stuff I googled earlier in the day especially the part about comparing this investment to other types of tax advantaged investments. And all of a sudden the excitement began to die down.
And yes, it is nice for children who develop chronic illnesses to have some amount of life insurance, potentially. But is the amount you purchase going to be enough? Yes they will have that amount but in most cases if they want more their health will still cause it to either be more expensive or unobtainable. So it isn’t exactly guaranteed insurability for life for whatever needs they have. It’s mostly limited to the amount you purchased, which is probably helpful but also probably wouldn’t meet their full needs. And again I would argue that you could buy term to cover their needs for a number of years while additionally saving in other ways if you really want to give them money they can use in the event of a chronic illness. Having it in accessible accounts would actually give them more options in that situation rather than having to wait till death.
Brokers - Because a broker is solely focused on your unique needs, he or she can help with comparison-shopping, honing in on the best prices for the coverage you need. They can even advise you on how to best bundle or customize your policies in ways that agents might not be able to do (either because they are restricted in their policy offerings, or simply because they lack the insight into your specific needs).

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Group life insurance (also known as wholesale life insurance or institutional life insurance) is term insurance covering a group of people, usually employees of a company, members of a union or association, or members of a pension or superannuation fund. Individual proof of insurability is not normally a consideration in its underwriting. Rather, the underwriter considers the size, turnover, and financial strength of the group. Contract provisions will attempt to exclude the possibility of adverse selection. Group life insurance often allows members exiting the group to maintain their coverage by buying individual coverage. The underwriting is carried out for the whole group instead of individuals.
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.
So let’s do a quick comparison. Let’s take that $527 annual premium and invest it instead. From 1963 to 2013, the US stock market earned a 10.22% annual return (source), but let’s assume that this person also put some money into bonds (smart) and earned a more conservative 8% annual return. Over those 50 years, at that 8% return, that money would have grown to $327,231. I don’t know about you, but I would rather have my money that way than locked inside a whole life insurance policy.

Often a commercial insured's liability insurance program consists of several layers. The first layer of insurance generally consists of primary insurance, which provides first dollar indemnity for judgments and settlements up to the limits of liability of the primary policy. Generally, primary insurance is subject to a deductible and obligates the insured to defend the insured against lawsuits, which is normally accomplished by assigning counsel to defend the insured. In many instances, a commercial insured may elect to self-insure. Above the primary insurance or self-insured retention, the insured may have one or more layers of excess insurance to provide coverage additional limits of indemnity protection. There are a variety of types of excess insurance, including "stand-alone" excess policies (policies that contain their own terms, conditions, and exclusions), "follow form" excess insurance (policies that follow the terms of the underlying policy except as specifically provided), and "umbrella" insurance policies (excess insurance that in some circumstances could provide coverage that is broader than the underlying insurance).[32]
I have a Dividend Option Term Rider that will expire soon. I am 57 years old. New York life wrote to me stating I can change over to whole life insurance without having to answer health questions or take a physical exam. What are the advantages or disadvantages of this for someone of my age? I currently have a 401K. Would my money be better invested in that or elsewhere? Thanks.

I recently reviewed my mother’s life insurance policy. Someone sold her a whole life policy with a 35K death benefit for $197.00 per month. She was 71 years old when she bought it! She brought it to my attention last month after being diagnosed with lung cancer, explaining she could no longer afford the payments. She requested I review/change the policy to pay less so she would have lower payments. Of course, no one will insure her now! My mother does not have a lot of money and I think the guy that sold it to her is a jerk as she already had a term policy – which she cancelled after buying this one. Is there an ethical recourse?
It’s a great point about the cost causing people to be underinsured. I have no idea if there are any statistics on that, but intuitively it would seem to make sense. It’s a shame if someone with a real need for life insurance is under-protected because a salesman could make a bigger commission off the more expensive product. But I’m sure it happens.
In other words, if you put a dollar into the market, and then the market drops resulting in a panic and you pull out what you put in, you’re more than likely pulling out .65 cents as opposed to the dollar. You’ve lost money, because you pulled out in a low market. However, if you have 3 to 4 years worth of living expenses in a non-correlated asset (I.E. Whole Life) you can use that as an effective way to bridge the gap until the market comes back up again. Sure it may cost a little more, but in the end you’re making a lot more money, since you’re selling your dollar for a dollar or more, as opposed to selling it for .65 cents.
An insurance broker is experienced in different types of insurance and risk management. They help individuals and companies procure insurance for themselves, their homes, their businesses or their families. Brokers may focus on one particular type of insurance or industry, or they could provide advice on many different types of insurance. They provide a service to their customers in helping them find and buy insurance — usually at no cost to their client.
Response 3: I’m sure that some are. It is up to you who to trust. I’d suggest asking up-front how these people are paid, because some are non-commissioned (e.g. if your employer pays them a flat fee to consult). But also keep in mind that you don’t want to take your advice from people with the opposite bias, either. Financial advisers are often paid on discretionary assets managed. If they are, then their incentive is clearly for you to buy term insurance (or no insurance) and let them invest as much as possible on your behalf. Just be careful and take a long time to think through the issues.
Often a commercial insured's liability insurance program consists of several layers. The first layer of insurance generally consists of primary insurance, which provides first dollar indemnity for judgments and settlements up to the limits of liability of the primary policy. Generally, primary insurance is subject to a deductible and obligates the insured to defend the insured against lawsuits, which is normally accomplished by assigning counsel to defend the insured. In many instances, a commercial insured may elect to self-insure. Above the primary insurance or self-insured retention, the insured may have one or more layers of excess insurance to provide coverage additional limits of indemnity protection. There are a variety of types of excess insurance, including "stand-alone" excess policies (policies that contain their own terms, conditions, and exclusions), "follow form" excess insurance (policies that follow the terms of the underlying policy except as specifically provided), and "umbrella" insurance policies (excess insurance that in some circumstances could provide coverage that is broader than the underlying insurance).[32]
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We were sold a whole life policy from Mass Mutual for my husband, but we also have term insurance on both of us. We are on a 10 year track to pay off the policy and have three years left. Is it still a “bad investment” once the policy is paid off? Should we be expecting those 0.74% yearly returns for a fully paid-off policy? Or does that apply only if one is paying premiums on it for the next 30+ years? Whole life insurance appealed to me because I am extremely squeamish about the stock market and don’t want to pay a financial planner on a regular basis. I’d rather have low (but not 0.74%), steady returns than high risk/high reward investments. Did we still make a mistake by buying whole life?
Good question Steve. The full answer is that I don’t know exactly what options you have and it likely makes sense to talk to a good independent agent. But you are right that it is much harder to find affordable term life insurance as you get older, and in your case some kind of permanent insurance may make sense if you have an insurance need. Just make sure that you are only getting the features you need, and none that you don’t, so that your premium is being used as efficiently as possible. For example, if you are only buying it for the death benefit, do you need the cash value?
Many institutional insurance purchasers buy insurance through an insurance broker. While on the surface it appears the broker represents the buyer (not the insurance company), and typically counsels the buyer on appropriate coverage and policy limitations, in the vast majority of cases a broker's compensation comes in the form of a commission as a percentage of the insurance premium, creating a conflict of interest in that the broker's financial interest is tilted towards encouraging an insured to purchase more insurance than might be necessary at a higher price. A broker generally holds contracts with many insurers, thereby allowing the broker to "shop" the market for the best rates and coverage possible.
Between 7/1/15 and 9/30/15,, the average estimated savings off MSRP presented by TrueCar Certified Dealers to users of TrueCar powered websites, based on users who configured virtual vehicles and who TrueCar identified as purchasing a new vehicle of the same make and model listed on the certificate from a Certified Dealer as of 10/31/2015, was $3,279. Your actual savings may vary based on multiple factors including the vehicle you select, region, dealer, and applicable vehicle specific manufacturer incentives which are subject to change.  The Farmers Car Shopping Service website is owned and operated by TrueCar, which is not affiliated with any of the companies comprising the Farmers Insurance Group of Companies.
The IRS regulation on how much can be put in over 7 year period to not cause a whole life policy to be considered a Modified Endowment Contract. Additionally, many long standing highly rated institutions will limit the amount of OPP that can be dumped into the policy over a given period. Why is that? Because people will use whole life in low interest environments with the intention of withdrawing in the event of a market change.

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Still, although I believe that persons without adequate income either to fund adequately retirement vehicles or to pay monthly bills without using a home equity line of credit or leaving any credit card balances unpaid, should probably only purchase term insurance, if you earn more than that, I am thinking that purchasing 15% to 25% of needed life insurance coverage though whole life policies may be a way to mitigate against the needed guessing that goes into picking the length and amount of term policies. Do you agree?

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Often a commercial insured's liability insurance program consists of several layers. The first layer of insurance generally consists of primary insurance, which provides first dollar indemnity for judgments and settlements up to the limits of liability of the primary policy. Generally, primary insurance is subject to a deductible and obligates the insured to defend the insured against lawsuits, which is normally accomplished by assigning counsel to defend the insured. In many instances, a commercial insured may elect to self-insure. Above the primary insurance or self-insured retention, the insured may have one or more layers of excess insurance to provide coverage additional limits of indemnity protection. There are a variety of types of excess insurance, including "stand-alone" excess policies (policies that contain their own terms, conditions, and exclusions), "follow form" excess insurance (policies that follow the terms of the underlying policy except as specifically provided), and "umbrella" insurance policies (excess insurance that in some circumstances could provide coverage that is broader than the underlying insurance).[32]
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This brings me to my next point. It is not a bad idea to consider annuitizing a portion of your retirement income. If you can annuitize enough to provide you with funds to meet your income “needs” (spousal annuities are available for lifetime income security) with the remainder invested to provide for your “wants”, you can still have the security offered by a pension without actually having the pension itself.
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I really wish you would have stated more clearly the difference between the typical whole life plans with zero overfunding and a participating overfunded whole life policy. But I agree with you: What’s the point of not overfunding? Those policies have such a low cash component that they typically are just a ploy to make money by the agent and it seems as if that was your point all along. Which you should have clarified. Why minimum whole life insurances plans are a scam, especially when sold as a main investment vehicle. But then a little drama drives traffic right?
Holly, I just turned seventy years old and retired and constantly looking and applying for jobs because my monthly income is only 1,206.00. I am divorce for only twenty eight years and have a learning disabled adult son who has never work. I need a life insurance policy to be around $30,000 to cover funeral expenses and some money for my son to cope. What life insurance company should I chose and should I chose term or whole life? I would greatly appreciate your response. I have no savings. Thank you. Diahann Cambridge 

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I agree that it isn’t a good investment. However, that doesn’t make whole life a bad insurance policy. As I mentioned before, I realized a lot of things in my years working for a mortuary. First, the vast majority of life insurance policies that we filed were whole life (I would guess 80-90%). Why? Because people who are in their 70’s, 80’s, and 90’s don’t have term policies anymore. And I’ve seen all kinds of things happen to people who have planned well financially. Getting old and having to go into a nursing home generally means depleting one’s assets. With nursing homes in my area costing $5000 per month (and more in some areas), it may not take long to go through someone’s savings. Once they go through all of their assets, Medicaid will pick up the tab for the nursing home bill. Having whole life leaves money at the end regardless of what unforeseen circumstances happen. I’ve seen it happen hundreds of times….I’m guessing that those families didn’t think it was such a bad deal.
Thanks for the insightful article. I agree with the general statement that, in a vacuum, it is better to “buy term and invest the difference.” However, I’m interested to hear your thoughts on using whole life insurance as an investment vehicle in the context of the infinite banking model (assuming you are familiar with the concept). From what I understand, it sounds like a good way to achieve predictable and guarenteed growth on a compounded basis while allowing you to borrow money from your own policy and pay yourself the interest, all while always having access to the funds. I think it might be wise for people, like myself, are looking for guaranteed growth with little risk.
Agents only need to know the products of one company, which can simplify the learning curve. This can also make it easier to keep policyholders abreast of policy changes and provide better service in general after the policy is sold, helping to foster a closer ongoing relationship. Because brokers must know the products and services offered by numerous companies, staying current and providing clients with reliable product knowledge can prove challenging.
The best thing to compare permanent life insurance policy to is to another similar type permanent life insurance policy. And you don’t want to focus on the interest rate specifically but on the actual values in each policy that are “guaranteed” – not projected. All things being equal, this tells you which permanent policy is less expensive and provides a higher net interest rate instead.
Response 3: I’m sure that some are. It is up to you who to trust. I’d suggest asking up-front how these people are paid, because some are non-commissioned (e.g. if your employer pays them a flat fee to consult). But also keep in mind that you don’t want to take your advice from people with the opposite bias, either. Financial advisers are often paid on discretionary assets managed. If they are, then their incentive is clearly for you to buy term insurance (or no insurance) and let them invest as much as possible on your behalf. Just be careful and take a long time to think through the issues.
“In the policy that was attempted to be sold to me, the “guaranteed return” was stated as 4%. But when I actually ran the numbers, using their own growth chart for the guaranteed portion of my cash value, after 40 years the annual return only amounted to 0.74%. There are a number of explanations for this difference, including fees and the way in which the interest rate is applied.”
It’s a great point about the cost causing people to be underinsured. I have no idea if there are any statistics on that, but intuitively it would seem to make sense. It’s a shame if someone with a real need for life insurance is under-protected because a salesman could make a bigger commission off the more expensive product. But I’m sure it happens.
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.
Insurance brokers perform a plethora of duties for individuals and businesses in search of the right insurance for them. When you contact an insurance broker for a quote, he will acquire some information and assess your individual needs. An insurance broker will compare the coverage of various insurers to get you the best conditions and rates. A broker will also search for opportunities to combine different types of insurances to obtain discounts or reduce premiums. As brokers do not work for the insurance companies, their recommendations are unbiased and in favor of the insurance buyer.
4 If your rental car were damaged in a covered loss, this coverage would provide additional protection under your policy’s Physical Damage Coverage (subject to deductible). We would pay the expenses to the rental agency for: loss of use (the rental agency’s loss of rental income); reasonable fees and charges (e.g., storage fees incurred by the rental agency); and loss of market value of the damaged rental.   Not available in NC.
His disciple, Edward Rowe Mores, was able to establish the Society for Equitable Assurances on Lives and Survivorship in 1762. It was the world's first mutual insurer and it pioneered age based premiums based on mortality rate laying "the framework for scientific insurance practice and development"[7] and "the basis of modern life assurance upon which all life assurance schemes were subsequently based".[8]
A broker can also give you the satisfaction knowing that you are adequately insured against all potential liabilities. Whether you are concerned about your company being sued for selling a defective product or about what would happen if you had a fire at your house, an insurance broker can address each of these issues and can build a comprehensive insurance plan to make sure that each and every one of your liabilities concerns is addressed.
On your questions about your specific offer, I would both say that most of the points from this post apply and that without knowing the specifics of the policy you’re being offered I can’t really give any concrete feedback. One thing I will say is that you wouldn’t simply be able to withdraw the $550k you mention tax-free. You would have to borrow from the policy, which would come with interest and potentially other fees and conditions. If you chose to surrender the policy and withdraw the money, the amount above what you have put in would be considered taxable income.
Lastly I believe you said your return was only .74% which I agree is low but just because you had a bad experience with a bad policy doesn’t mean all other whole life policies are the same. Different companies provide different returns and even different coverages. You’re being very general when more specific information is much more relevant in my opinion.

First, although there are no taxes, there is interest. When you borrow from your policy, interest starts accruing from day 1 and keeps accruing until you pay back the loan. If you’re using it for retirement purposes, are you going to pay back the loan? Of course not. So the interest keeps accruing. And that interest applies to all money withdrawn, including your contributions, which were already taxed.
Many insurance executives are opposed to patenting insurance products because it creates a new risk for them. The Hartford insurance company, for example, recently had to pay $80 million to an independent inventor, Bancorp Services, in order to settle a patent infringement and theft of trade secret lawsuit for a type of corporate owned life insurance product invented and patented by Bancorp.
You can own both whole life and term life policies at the same time. People who are looking at this option typically already have a whole life policy. However, they may find that they want additional short-term insurance coverage such as for 10 years. In this instance, buying a term policy for the amount of life insurance you need for that extra protection can be a good solution.
When I was at the meeting yesterday with my parents also present, I was really impressed at the product, which was basically a variation of whole life insurance called FFIUL. I was also impressed with the upper level salesman and the presentation. I saw the simulation that was shown and the resulting table of yearly returns looked impressive at first. I left the meeting with a smile on my face and was really thinking about making the investment especially considering that my friend (an accountant whose house I was at) said that he had invested in the same product.
I have a Dividend Option Term Rider that will expire soon. I am 57 years old. New York life wrote to me stating I can change over to whole life insurance without having to answer health questions or take a physical exam. What are the advantages or disadvantages of this for someone of my age? I currently have a 401K. Would my money be better invested in that or elsewhere? Thanks.

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