I only read the first couple of paragraphs here but so far what you are talking about is universal insurance, not whole life. Whole life builds cash value but the policy holder doesn’t get that money….they can take it out on a loan but they have to pay it back with a small interest rate…the cash value a whole life policy collects is what keeps the policy going and it is why they are able to pay out everything they promised you. No one anywhere ever would say hey how about you pay me ten dollars and I will give you twenty in a week….the whole life policy builds up cash value and between that and your premiums they are able to make the money to cover the whole cost. Term life is exactly what its name says…it only last for a term and will be terminated within a set period of time (usually like 20 years) so when you buy it at 20 and live till 50 you don’t get the money you just paid almost 2,000 a year for nothing….but whole life has to pay out it covers you for your whole life. The reason that the term is so much cheaper is that statistically the person will not die in that set time so they are able to make money off the people who don’t die to cover the select few that do and when you are 50 trying to buy term it is crazy expensive. Everyone has their own opinions and I understand that I am just 99% sure that you are talking about universal insurance which is a mix of term and whole and will soon be illegal because of how shady it is.
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.
My argument is based on the fact that whole life insurance is often sold as an investment, and therefore many people buy it as an investment. I am well aware that there are other reasons people buy it, and those are explicitly acknowledged in the article. The rest of your questions have already been addressed in both the article and other comments.
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.
As a 31-year-old, I think about how many changes I’ve made over the past 10 years as I’ve grown wiser (or just changed my mind). Whether it’s mutual funds, investment companies, credit cards I’ve added or removed, banks, stocks/bonds, heck even jobs and location! The only things I want to be tied to at age 65 are my wife and kids. To think you can purchase a product like this and still feel you want to stick with that policy and company in 30+ years is insane. Do I really still want to be with whatever insurance company I purchased the policy with? Even if my Roth IRA gets no better returns, I like the peace of mind that I can move those funds around between brokerages, mutual funds, and so on. Even a term policy you can cancel or get a different one (assuming you still are in good health) with no dire consequences. I can’t think of any other product in finance or elsewhere that you’re supposed to stick with the same one for life.
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.
Gap insurance covers the excess amount on your auto loan in an instance where your insurance company does not cover the entire loan. Depending on the company's specific policies it might or might not cover the deductible as well. This coverage is marketed for those who put low down payments, have high interest rates on their loans, and those with 60-month or longer terms. Gap insurance is typically offered by a finance company when the vehicle owner purchases their vehicle, but many auto insurance companies offer this coverage to consumers as well.
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.
Unless you truly need permanent life insurance, then you’re likely looking at these policies purely as an investment. In most cases it makes sense to max out at least other tax-advantaged accounts first (like your IRA, but also a 401(k) and others). Are you already doing that? You can read more about which accounts to consider here: How to Choose the Right Investment Account.
NerdWallet compared quotes from these insurers in ZIP codes across the country. Rates are for policies that include liability, collision, comprehensive, and uninsured/underinsured motorist coverages, as well as any other coverage required in each state. Our “good driver” profile is a 40-year-old with no moving violations and credit in the “good” tier.
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.
As for your question, I don’t believe I’ve ever reviewed a USAA whole life policy so I can’t comment on then specifically. I would simply encourage you to start by clarifying your personal goals and to then evaluate each option based on how well it will help you meet them. With that said, of your main goal is investing for retirement then I would typically encourage you to max out traditional retirement accounts before considering any kind of life insurance.
Weiner was talking about rolling returns for Vanguard. So, it’s his argument, not mine. And, this is a different issue from what you’re talking about anyway regarding annual returns based on monthy savings. So I’m not sure where you’re going with this or why you think it’s misleading. I believe Weiner got his figures from Vanguard…so…that would mean Vanguard is misleading itself? Doesn’t make sense man.
Point Three: One of the catches of the whole life agent is “Whole life insurance never expires!” Okay let us imagine a house insurance agent selling you an addon savings plan to your house fire insurance. Say you eventually sell the house and move to an apartment. Now would you want to keep paying house insurance when you DO NOT HAVE A HOUSE ANYMOFE ??? 🙂 Or paying for car insurance when you no longer have a car??? So why would you want to keep paying for a poor savings plan that only saves the life insurance company any money??? 🙂
A few comments… You shouldn’t ever be buying whole life insurance for purely for the reason of investing, you buy any life insurance because you need life insurance, the investment component is secondary. So not sure why we are analyzing it purely as an investment (I actually do know why, because some agents try to sell it this way, and Matt is trying to help them avoid a pitfall).
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.
People in the tobacco category typically have to pay higher premiums due to the higher mortality. Recent US mortality tables predict that roughly 0.35 in 1,000 non-smoking males aged 25 will die during the first year of a policy. Mortality approximately doubles for every extra ten years of age, so the mortality rate in the first year for non-smoking men is about 2.5 in 1,000 people at age 65. Compare this with the US population male mortality rates of 1.3 per 1,000 at age 25 and 19.3 at age 65 (without regard to health or smoking status).
Insurance is underwritten by The Travelers Indemnity Company and its property casualty affiliates, One Towers Square, Hartford, CT 06183. In TX: Automobile insurance is offered by Travelers Texas MGA, Inc. and underwritten by Consumers County Mutual Insurance Company (CCM). CCM is not a Travelers Company. In CA: Travelers Commercial Insurance Company, One Tower Square, Hartford, CT 06183. Certificate of Authority # 6519; State of Domicile: Connecticut and Travelers Property Casualty Insurance Company, One Tower Square, Hartford, CT 06183. Certificate of Authority # 6521; State of Domicile: Connecticut. In CA: Boat and Yacht insurance is underwritten by The Standard Fire Insurance Company, One Tower Square, Hartford, CT 06183, Certificate of Authority #0335-0, State of Domicile: Connecticut.©2017 The Travelers Indemnity Company.
Health questions can vary substantially between exam and no-exam policies. It may be possible for individuals with certain conditions to qualify for one type of coverage and not another. Because seniors sometimes are not fully aware of the policy provisions it is important to make sure that policies last for a lifetime and that premiums do not increase every 5 years as is common in some circumstances.
In the United States, economists and consumer advocates generally consider insurance to be worthwhile for low-probability, catastrophic losses, but not for high-probability, small losses. Because of this, consumers are advised to select high deductibles and to not insure losses which would not cause a disruption in their life. However, consumers have shown a tendency to prefer low deductibles and to prefer to insure relatively high-probability, small losses over low-probability, perhaps due to not understanding or ignoring the low-probability risk. This is associated with reduced purchasing of insurance against low-probability losses, and may result in increased inefficiencies from moral hazard.
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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).
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My husband and I purchased a 20 year $250,000.00 term life insurance policy in 1999. I purchased a $500,000.00 20 year policy a couple of years ago but due to my husbands health he was declined. Our $250,000.00 term policy will expire in 2019 and it does allow us to convert to a whole life policy before it expires. From what I’ve researched it appears my husbands only option is to convert his term life insurance policy to a whole life policy since a health examination is not required. Plus we do not have enough funds to retire at present. Is this his only/best option?
Converting term life to whole life insurance can be an excellent way to continue your life insurance policy and also build cash value that you can borrow from. There are many different ways to structure this type of policy, depending on your needs and goals, so be sure to work with a life insurance professional who can answer all of your questions and help you make the best choices.
If someone really does want and need permanent insurance, and that may be especially relevant for those in Canada who own corporations, there are a variety of strategies to which the Minister of Finance is taking the axe for policies issued after January 1, 2017. As it stands now, the absurd inflation of surrender charges in the early years of a policy allow for a maximum funded LCOI (level cost of insurance) Universal Life policy to sock away a small fortune, tax-sheltered. That’s on the way out. But until it’s gone, there are some great applications that take advantage of a policy’s ability to pay out the investment portion of a policy tax free to a beneficiary upon the first death on a joint-last-to-die contract. That’s just one application…this is but one way insurance companies have adapted permanent insurance products to benefit the wealthy and there are many others, but these strategies tend to be offensive to the Canada Revenue Agency and as such their existence is always under threat. Life insurance companies tend to engage in games of cat and mouse in terms of finding and exploiting holes in the Income Tax Act in Canada, such as 10/8 policies or triple back to back arrangements, then the authorities shutter them. Rinse and repeat. This is probably not a bad thing…it exposes and then closes holes in the income taxa act. Frankly, the best use of an insurance policy is as INSURANCE. The death benefit is where the juice was always supposed to be. Not in engaging in elaborate tactics to skirt the rules. This is especially true as what is legal today may not necessarily be legal tomorrow. A lot of highly beneficial strategies amount to playing with fire.
This is a very helpful example of why WL insurance IS a good investment: http://www.mypersonalfinancejourney.com/2013/04/infinite-banking-concept-whole-life-insurance.html. Also, Paradigm Life has several very good models to show how WL policies can out pace “buy term and invest the difference” products long term. One size does not fit all. I have Term Life insurance supplementing my WL policies right now, but they are all convertible. So I will be able to lump in money later and convert them into permanent policies with all of the borrowing and tax sheltered benefits.
Life insurance companies in the United States support the Medical Information Bureau (MIB), which is a clearing house of information on persons who have applied for life insurance with participating companies in the last seven years. As part of the application, the insurer often requires the applicant's permission to obtain information from their physicians.
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.
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.
According to the section 80C of the Income Tax Act, 1961 (of Indian penal code) premiums paid towards a valid life insurance policy can be exempted from the taxable income. Along with life insurance premium, section 80C allows exemption for other financial instruments such as Employee Provident Fund (EPF), Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), National Savings Certificate (NSC), health insurance premium are some of them. The total amount that can be exempted from the taxable income for section 80C is capped at a maximum of INR 150,000. The exemptions are eligible for individuals (Indian citizens) or Hindu Undivided Family (HUF).
*Payoff Protector is not an insurance product. Subject to the terms, conditions, and restrictions of the Payoff Protector provision in your State Farm Bank Promissory Note and Security Agreement. If your vehicle is determined to be a total loss before the loan is paid off, State Farm Bank will cancel the difference between the insurance payout and the unpaid principal balance due on the loan. Certain restrictions apply. For example, your loan must be in good standing.