Back to guaranteed growth…. Whole Life policies are interest rate driven based on the economy, but your “Cash Account” will increase every year, regardless of the market. Compound, tax-free growth. The dividends paid to the policy owners are also not taxable. Dividends are not guaranteed, but take a look at the dividend history for companies like Mass Mutual, Penn Mutual and Guardian. They might as well be guaranteed.
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1. Almost ANYONE can benefit from a well designed overfunded Participating Whole Life policy. Are you saying that the vast majority of the population has no place in their investment portfolio for a guaranteed fixed asset that provides long-bond like returns (coupled with a few other bells and whistles)? I would even argue that single people with no children might benefit from this product in the right amount and the proper structure (not to mention that some policies now have the option to pay for long-term-care). EVERY PERSON that cares for someone or something (be it a spouse, a child, a charity, or anything else) can benefit even more, by virtue of having a guaranteed death benefit. Such a benefit allows the comfort (and better cash flow with lower taxation) of spending down assets, rather than relying solely on returns on assets.
Stranger-originated life insurance or STOLI is a life insurance policy that is held or financed by a person who has no relationship to the insured person. Generally, the purpose of life insurance is to provide peace of mind by assuring that financial loss or hardship will be alleviated in the event of the insured person's death. STOLI has often been used as an investment technique whereby investors will encourage someone (usually an elderly person) to purchase life insurance and name the investors as the beneficiary of the policy. This undermines the primary purpose of life insurance, as the investors would incur no financial loss should the insured person die. In some jurisdictions, there are laws to discourage or prevent STOLI.
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The above is meant as general information and as general policy descriptions to help you understand the different types of coverages. These descriptions do not refer to any specific contract of insurance and they do not modify any definitions, exclusions or any other provision expressly stated in any contracts of insurance. We encourage you to speak to your insurance representative and to read your policy contract to fully understand your coverages.
Second, I would say that it’s debatable whether whole life insurance is actually better than a savings account or CD, in terms of a savings vehicle. You mention the guaranteed return. Well, as I mention in the post, my policy had a “4% guaranteed return”, but when I ran the numbers it only actually amounted to 0.74% event after 40 years. It was less before that. And this was from one of the top mutual life insurers in the country. Not only is that incredibly misleading (and that’s being kind), I can get a better guaranteed rate than that right now from an online savings account, even though interest rates are at an all-time low. And my online savings account doesn’t have any of the other huge drawbacks that are also mentioned in the article.
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1 The Banking Benefits – Deposit Introductory program offers a high yield fixed Introductory Rate during the first 12 statement cycles after opening a new Consumer Money Market Savings account with State Farm Bank. A new Consumer Money Market Savings account means you cannot have an existing Money Market Savings with the same ownership currently open or which closed within the last 12 months. Your Benefit account balance must remain below $5,000,000 to earn the Introductory Rate. If the account balance is $5,000,000 or above, you will earn the Standard Rate on your entire balance. The new Money Market Savings must be a Personal or Trust account. IRA Money Market, Estate, Uniform Transfer to Minors, and Business accounts are NOT eligible.
Hi, Matt. My parents are actually talking to an agent to get the whole life insurance and their premium monthly is about $1000 so which makes them to pay $120000 (since it’s the 10 yr plan) and the agent presented that the guaranteed value will be $250000. I have very little knowledge about the whole life insurance plan but wouldn’t it be easier for them to just get it and be insured with that guaranteed value if they are not the type to find where to invest and all that? or is it something that they shouldn’t relay on.. they are doing it for more their retirement and asked me for help but i am very confused about this whole life plan. Thanks!
Hey Jordan. I was a little dismissive in my last reply, and I want to apologize for that. You’re absolutely right that the main reason for getting life insurance is often to make sure that your kids would have enough money even if you weren’t around, and it’s honestly great that you’re already thinking that far ahead. It bodes well for you and your family.
If you need life insurance (which in order to find out , you must ask yourself one question : am I going to die ?) a Whole Life Insurance policy is a non-risky , non-volitile way of earning a high rate of return with a very conservative risk portfolio. A whole life policy is part of a healthy financial portfolio. It grows with preferential tax treatment and pays tax free to your beneficiary or estate. In nearly every case of par Whole life if you are under 50 you will have a cash surrender value equal to 100% and up to 800% of the premiums paid.
Captive Agents - Captive insurance agents represent just one insurance carrier. In essence, they are employees of the carrier. The upside of working with a captive agent is that he or she has exceptionally thorough product knowledge. The downside is that he/she cannot provide access to products or pricing from outside their respective company. For this reason, you must have a high tolerance for carrier-specific terms, since each carrier and its in-house representatives may use language that is tough to compare across several companies that you encounter. Nevertheless, tap into that exceptional product knowledge and get smarter along the way as you search. The surge in online insurance websites offers consumers yet another option to use as part of their selection strategy. It is easy to find an insurance agent online, particularly one from a national insurance provider. Moreover, with 24-7 online access and quick comparison of policies, these web services are convenient, quick and a great way to ballpark quotes and to give you exposure to a wide variety of insurance providers. When you find one that is appealing to you, give them a call or fill out an agent request online.
Unlike GEICO, Esurance, and other “direct writers”, independent agents are a part of your community and are there to help whenever you need it. Unlike American Family Insurance, Farmers Insurance, State Farm Insurance, and other “captive” agents, an independent insurance agent works with many different insurance companies. Atlas agents automatically compare quotes from up to 50, which saves you time & money.
None of the below should be taken as actionable advice. You should consult someone who you know and trust before making any important financial decisions. This is just a window into how I made my decision, so you can see some things I considered. I might be wrong about some of these things, but everything I’ve written below is what I believe today based on my current understanding and the guidance of my own advisers. Please note that I do also max out my 401k and IRAs and keep a modest taxable account as well, so whole life is just one piece (albeit a fairly sizable one) of my portfolio.
I have a joint term life insurance policy with my husband and a universal life insuranc for my self. The term life face value is $100,000 and the uni is $25,000. The latter cash value is $761.00 apparently they were taking the monthly premiumout of it without my knowledge. They asked me if I would like to close it out and take the closed out value of $700.00. I need advice on what to do. I am paying $135.00 a month for the joint policy and I also have a whole life insurance on my 22 years old child in college. I pay $50.00 a month for that. I think the term life is too expensive and I am concerned that with my husband an I whom are in our fifties that we may need to die just before we reach 80 so that our child can have some financial stability times are tough and we are poor people. Poor people take out insurance to cover their death and to leave something for their children. There just aren’t enough money to invest in stocks and bonds or other things and the little retirement money is needed to live off.
Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.
After insurance has been selected and purchased, most insurance brokers will continue to provide service to their clients. This includes advising clients on technical issues that may be helpful in the event that a client has to file a claim, helping clients decide if they should change their insurance policies or coverage, and even making sure that clients comply with their policy’s requirements.
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Example a 30 year male old non-smoker can purchase a small 25,000 policy for 34.97 a month, by adding an additional 10 a month or paying 44.97 a month he will have after the 1st year $25,649 death benefit, this will increase every year. After 20 years he will have $41,492 death benefit non guaranteed death benefit or a $32,258 guaranteed death benefit. The difference in death benefit is the non guaranteed assumes dividends. This company has been around for over 100 years and every year has declared a dividend, which is important to note despite not being guaranteed there is a high probability the person will end up better off than the guaranteed. After 30 years the death benefit will be $52,008 at this point (or any point whatsoever) the person can decide to take reduced paid up insurance,at this 30 year mark if they take RPU they can keep 45,485 of insurance for the rest of their lives, this amount will keep going up as long as the company keeps issuing a dividend. i think this is so cool. The person has paid $16,200 over those 30 years and the coverage is way more than that, a few cents on the dollar.
Universal life insurance is a type of permanent life insurance designed to provide lifetime coverage. Unlike whole life insurance, universal life insurance policies are flexible and may allow you to raise or lower your premium payment or coverage amounts throughout your lifetime. Additionally, due to its lifetime coverage, universal life typically has higher premium payments than term.
Those who buy life insurance do so to help ensure their loved ones are taken care of financially. Life insurance is a promise by an insurance company to pay those who depend on you a sum of money upon your death. In return, you make periodic payments called premiums. Premiums can be based on factors such as age, gender, medical history and the dollar amount of the life insurance you purchase.
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!
I’ll be up front that I am not an expert on life insurance and long term care for people in your situation and therefore don’t have a great answer for you. I have heard good things about certain hybrid policies like you’re describing, but I would be very careful about who you’re buying it from and how exactly the policy works. If you would like a referral to a fee-only financial planner who specializes in this kind of decision, just let me know and I would be happy to help.
2. How come you don’t mention that the GUARANTEED Cash Value on most WL polices increase GREATER that the premium in about year 5-8 depending on product? And typically that begins with a 5% cash to cash return increasing to double digits quite quickly. Why? Because all the insurance costs are up front. And yes you lose if you get out in 1-5 years – It’s insurance and that needs to be accounted for.
After reading the entire thread, couldn’t help but add my thoughts. I am a civilian here so no affiliation as an insurance salesman or financial planner in any capacity. I am however, an owner of a WL policy (one year in) which I got through a friend in the business. I admittedly jumped into this without doing the proper due diligence as more of a favor to him. I have had anxiety about this decision since, and am days away from my second annual premium payment and have thus spent a great deal of time researching and thinking about the implications of this asset. I am at a “cut my losses and run crossroads”. Is this a quality asset, or do I cut and run and chalk-up the loss as the cost of a lesson learned in letting others do my independent thinking for me (two implications here are that 1) I do believe that the person who sold me this actually believes in the products and 2) that doesn’t mean that he is right and any person, no matter how financially savvy, who is willing to dedicate the time, can do the research and come up with their own view). I say all of this to admit that I am biased, even if only sub-consciously, as I have tried to think in a balanced manner with regards to this decision. All of that being said, I am currently leaning towards keeping the asset in place and welcome thoughts. My current logic below.
Home insurance Company
2) With a portfolio of risky assets, the LONG-TERM RETURN is expected to be higher, but the variability around that is MUCH higher. In pretty much all of the “expected return” analyses that people on the internet show to compare whole life to term life + investing the difference, they are just comparing annualized returns or an IRR on a zero-volatility return stream. What they don’t account for are situations where the market crashes and you panic, wanting to move money into cash, or having to draw down on assets because they’re liquid and you can. This is normal behavioral stuff that occurs all the time, and reduces the power of your compounding. If you and your adviser are sure you can avoid these common pitfalls, then that is great and you might want to go for it. But don’t dismiss the reality. Also when running your simulations, make SURE to tax all of your realized capital gains and interest income along the way, and unrealized cap gains at the end. It can make a big difference.
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.
The first is that, as you say, no one invests all their money at the beginning of the period and cashes out at the end. Usually you invest some at the beginning and more at various points along the way. For example, someone who contributes part of their monthly paycheck. And since the stock market generally goes up, that means that you will inherently get lower returns than if you had invested all of your money at the beginning, simply because some of your money will not have been invested for the entire ride.
In times of need, we stand by you. We’re here to make sure you have the right coverage for your needs. And should an accident occur, our claims service will be there to help when you need it most. If you’re comparing our quote or policy to another insurer, be sure to understand the value of the coverage you’re considering. Compare apples to apples. Make sure driver and vehicle information are the same. Our auto policy is the only one backed by an On Your Side promise.
1. Alex hasn’t reviewed your policy, nor does he know anything about your personal goals or situation. Neither do I, which is why I didn’t give any concrete advice in my initial response. All of which is simply to say that any opinion about this policy based on what we know from your comment, whether it’s coming from me, Alex, or anyone else, cannot possibly be informed enough for you to rely on.
These reviews are all from Medicare beneficiaries just like you. Our clients consistently rate us 5 stars for both our up-front help, but also the phenomenal back-end support you get from our Client Service Team. We have some of the very best Medicare supplement agents in the country. These independent Medicare advisors truly care. You can read our reviews here. Notice how many of them are from clients who called us when Medicare denied their claim or rejected their bills or their doctor mis-codes a service or when they are standing at the pharmacy and can’t get their medication. Normally you would call the insurance company yourself to try to figure out how to fix these things.
Not sure how you think term insurance is better you will always get your money back guaranteed with term insurance you usually outlive the policy and you end up paying all that money in and getting nothing in return. I only sell term insurance as a last resort or if its to cover a mortgage for family protection and funeral expenses the whole of life policy is always the best policy
Any person who uses permanent insurance should be out of debt and have the discipline to maintain a long term approach. There aren’t any get rich quick schemes and any plan can work as long as an investor looks to get the maximum value for the money they pay. Cash Value Life insurance provides values that promises you or I can’t keep unless we partner with one of these companies.
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?
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Thanks for reaching out Jean! The truth is that there are a lot of variables in play here that make it hard to give you a direct answer. On the one hand, a $43k surrender value after 25 years is not a great return, assuming that you haven’t taken any loans out and there haven’t been any other interruptions in your premium payments. A guaranteed 7.6% return is also really appealing. But the answer also depends on your overall insurance needs, your other goals, the expected performance of this policy going forward, and other investment opportunities available to you. Those are the things I would look at if I were you. And if you’d like, I would be happy to talk things over in more detail. In any case, I wish you the best of luck!
Know when to cut coverage. Don’t strip away coverage just for the sake of a lower price. You’ll need full coverage car insurance to satisfy the terms of an auto loan, and you’ll want it as long as your car would be a financial burden to replace. But for older cars, you can drop comprehensive and collision coverage, which only pay out up to your car’s current value, minus the deductible.
Insurance Insider Co Aurora CO 80015
But a question for you. Do you have clients that have had an overfunded life policy when markets are tanking and can use that cash to float their business and still earn money while their money is loaned out? Talk about a winner. I have a lot of clients that are in business today because of their policies (and the people still employed). Especially when the interest can be written off. But then again some super conservative clients love them. I guess I’m just bummed you didn’t go any further but I am on a site not geared for my clientele. So here is another free post to build up the conversation and the controversy so you can cash in on the traffic.