Necessary part of financial security portfolio or not?
38 years old.. wife and I have more than enough term life, disability insurance, maxing out 401K, decent start on 529 for the kids.. financial advisor recommending this as next step.
Just curious to see the BBI opinion.
It does require a new way of thinking though since so many people have been conditioned to view whole life as a scam or at worst a gimmick (from an investing standpoint), but as a way to balance a portfolio it has a lot of utility if you understand it.
term life has a place too. lower premiums for similar coverage - it's almost like renting vs buying.
I have both term and whole life.
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Check out universal life insurance.
term life has a place too. lower premiums for similar coverage - it's almost like renting vs buying.
I have both term and whole life.
It just doesn't make sense to me to pay and not anything at the end. Universal allows you to take out loans if you need the money for a very low rate or use it as you plan to. Just my opinion.
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In comment 16013756 robbieballs2003 said:
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Check out universal life insurance.
term life has a place too. lower premiums for similar coverage - it's almost like renting vs buying.
I have both term and whole life.
It just doesn't make sense to me to pay and not anything at the end. Universal allows you to take out loans if you need the money for a very low rate or use it as you plan to. Just my opinion.
You have insurance for your car, right? Your house, right? maybe an umbrella policy, right? what do you get when you're done paying for those if you are ever done. Why not insure yourself the same way.
I decided term life was a good option for us because while my kids are growing up and pre-career/their own family age if something should happen to me I wanted to be able to make sure them and my wife are taken care of - above and beyond comfortable.
So in addition to my whole life policy, I have term life, but at some point my kids will have families of their own, and my wife, assuming she outlives me, will have our whole life policy and all the assets in our estate so more life was not needed. And you can borrow against/withdraw from whole life if you need to.
Basically in every other case, it's a bad financial product. About 20x more expensive than term (on average for the same coverage), no growth in the first few years typically, then rotten rates of return after the fees, then the insurance company keeps your cash value after you die.
If you do a little googling, it won't take long to read about why the consensus is that whole life considered to be a pretty poor vehicle for investment.
Just guy insurance for what you need to insure and make separate investments.
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In comment 16013760 pjcas18 said:
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In comment 16013756 robbieballs2003 said:
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Check out universal life insurance.
term life has a place too. lower premiums for similar coverage - it's almost like renting vs buying.
I have both term and whole life.
It just doesn't make sense to me to pay and not anything at the end. Universal allows you to take out loans if you need the money for a very low rate or use it as you plan to. Just my opinion.
You have insurance for your car, right? Your house, right? maybe an umbrella policy, right? what do you get when you're done paying for those if you are ever done. Why not insure yourself the same way.
I decided term life was a good option for us because while my kids are growing up and pre-career/their own family age if something should happen to me I wanted to be able to make sure them and my wife are taken care of - above and beyond comfortable.
So in addition to my whole life policy, I have term life, but at some point my kids will have families of their own, and my wife, assuming she outlives me, will have our whole life policy and all the assets in our estate so more life was not needed. And you can borrow against/withdraw from whole life if you need to.
You're betting on yourself dying early and if you do then you win. But there are other ways to look at it. Again, look into universal life. It makes so much sense. The flexibility you get with it makes it very appealing. Everyone's situation is unique and needs to be handled as such. It just sounds like since he is funding all these different investments that universal is something that should be looked into first and foremost.
I've had a whole life for about 15 years, and my wife has had one for about 10 years. They're for modest amount but have built up a decent equity. I also have the military's term life (SGLI) plan while I am in the reserves. We thought those were enough for us as a young family. However, when our youngest was diagnosed with an incurable genetic disorder as a toddler, I got a term life policy for 30 years for several million dollars as an added security for my wife if I ever bought the farm since my wife has been out of the workforce since having our oldest (11 now) and since there's a potential for her to be a single mother of three kids. While it's not building any equity (renting life insurance as said above), providing security for my family is well worth the couple of hundreds in premium we pay for my term life each month.
Or, buy the whole life, and in most cases in 10- 20 years there will be enough dividends to pay the premiums if you’re suddenly unable to work yet have the policy remain active , or, have access to borrow against, or let accumulate.
Is the WLP you are looking at have a spousal and/ or family option, or is your spouse also possibly buying ?
You need to look at your risk tolerance level and go from there.
The key selling point I'm getting from my FA is this is a market removed investment product to help insulate from losses in short term market downturns during retirement. So essentially if the stock market crashes, leave your money in until it recovers and use your whole life policy as your liquidity source..
It makes sense but to a lot of points here, this is a pretty tough topic to research because of the very wide spectrum of opinions and vested interests out there..
The key selling point I'm getting from my FA is this is a market removed investment product to help insulate from losses in short term market downturns during retirement. So essentially if the stock market crashes, leave your money in until it recovers and use your whole life policy as your liquidity source..
It makes sense but to a lot of points here, this is a pretty tough topic to research because of the very wide spectrum of opinions and vested interests out there..
100%. Every person and situation is unique. This is really driven by your personal goals and financial situation. I just don't know why your FA would bring up whole life without bringing up universal life insurance.
Or, buy the whole life, and in most cases in 10- 20 years there will be enough dividends to pay the premiums if you’re suddenly unable to work yet have the policy remain active , or, have access to borrow against, or let accumulate.
Is the WLP you are looking at have a spousal and/ or family option, or is your spouse also possibly buying ?
You need to look at your risk tolerance level and go from there.
Recommendation is for us to each get a policy... rough numbers its $450 monthly for a $400K policy for each of us... So yes, a pretty decent hit to short term liquidity.
The answer is a lot. Whole life policies are sold not bought. If you want insurance get cheap term life that covers your family for your lost wages in case of catastrophe. If you want an investment, then look at investments. In whole life the money is never really “yours” as you have borrow against your policy.
The key selling point I'm getting from my FA is this is a market removed investment product to help insulate from losses in short term market downturns during retirement. So essentially if the stock market crashes, leave your money in until it recovers and use your whole life policy as your liquidity source..
It makes sense but to a lot of points here, this is a pretty tough topic to research because of the very wide spectrum of opinions and vested interests out there..
Sounds like you have my same financial planner.
The point about diversifying and offsetting market tied vehicles is what made me consider it. I looked at it like in retirement if you withdraw from a market tied investment account during a down market it's a double whammy just trying to make that up when the market rebounds.
comparing the return of the cash value of a whole life policy post premium stage to more fixed investments is what sold me. And the longer you can go without using it the more it continues to grow (captain obvious?)
Even net of fees it's a better option than almost every other fixed option and that's not even considering the death benefit.
But a: 100% do your own research and b: make sure you understand it.
my father is a stock broker and insurance salesman, but is mostly retired now. When I told him I was considering this he almost came through the phone and kicked my ass. lol. But then he calmed down and read the research (and talked to my CFP) and then he agreed it's good investment (for me, maybe not for everyone).
Additionally you want life insurance early in life when you have young children and a mortgage, but later if you planned your finances properly your need for life insurance lessens and goes away completely allowing you to save and invest even more. Term life is a tool that bridges that gap
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I don't really view the whole life as a safety net for short term unexpected death, that's why I have a term life policy with a much much higher payout and much much lower monthly payment..
The key selling point I'm getting from my FA is this is a market removed investment product to help insulate from losses in short term market downturns during retirement. So essentially if the stock market crashes, leave your money in until it recovers and use your whole life policy as your liquidity source..
It makes sense but to a lot of points here, this is a pretty tough topic to research because of the very wide spectrum of opinions and vested interests out there..
100%. Every person and situation is unique. This is really driven by your personal goals and financial situation. I just don't know why your FA would bring up whole life without bringing up universal life insurance.
Easy they say this because they get a big fat bonus for every new insuracne plan. Please dont take out more then one insurance plan its a scam. i had a finaical advisor doing this and i didnt like alot of the reasons he was selling me onthese. I got a new friend in the business and when he review my portfolio he said this is simple. If you are a married man with out much saving you need an insurance plan. If you are single or have a few million in the bank run. These guys are trying to make commissions plain and simple. If you invest your money it will work out far better for your family then any insurance plan. Trust me find a new advisor.
I think "investment advisors" make big commissions on it. Keep your investments and life insurance separate.
Basically in every other case, it's a bad financial product. About 20x more expensive than term (on average for the same coverage), no growth in the first few years typically, then rotten rates of return after the fees, then the insurance company keeps your cash value after you die.
the fees suck. your paying for less volatility. at nearly 59, i am too old to get it. wife is 52 but she will have a pension that will cover our fixed expenses in retirement, maybe a bit more. Not cola adjusted but SS is so that will help somewhat with inflation. ladder a bunch of CDs getting around 4%
I would max out all retirement vehicles first and if your jobs offer mega after tax roths , go big on that.
Do your investing in real estate, or the stock market, and get money that you can enjoy while you're still alive. You can spend those earnings on insurance premiums if you want to.
Most people need insurance the most when they are just starting out. That's when you generally have the least amount of savings and when your children will need the most years of support before they reach adulthood. It is also generally the time when the buyer is healthiest, but has the least amount of money to spend on insurance premiums.
Hands down, term life gives you the most bang for your buck. When you're young you generally want the most insurance coverage that you can afford, but are on a limited budget. Term insurance is less expensive for the coverage you get, so it fills your need for protection much better than whole life.
When evaluating whole life as an investment you are not or should not be comparing it with other insurance vehicles or making a determination about its fit in your portfolio based on if you have "enough" insurance you should be comparing it with other fixed-income portions or options for your portfolio - like bonds, CD's, I guess T-bills, maybe annuities or things like that.
It is not intended to replace your insurance (in this scenario), it is attractive for the return, the cash value, and the tax benefits - and the diversification.
there are other ways to accomplish this - it used to be bonds or bond funds, maybe it still could be for some people.
When evaluating whole life as an investment you are not or should not be comparing it with other insurance vehicles or making a determination about its fit in your portfolio based on if you have "enough" insurance you should be comparing it with other fixed-income portions or options for your portfolio - like bonds, CD's, I guess T-bills, maybe annuities or things like that.
It is not intended to replace your insurance (in this scenario), it is attractive for the return, the cash value, and the tax benefits - and the diversification.
there are other ways to accomplish this - it used to be bonds or bond funds, maybe it still could be for some people.
Absolutely people have a right to make money and just having a commission in no way means a product is inferior but the amount of commission on a whole life policy for the seller absolutely creates at a minimum a huge conflict of interest on the agents part in terms of selling someone the best financial product for that person. Do you disagree?
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invest in whole life or not nor do I care about the commission the person receives who sells it. I am in sales. I get commission when I sell things, it in no way means what I sell isn't valuable to my customers. Strange argument that sounds like something someone read off a website. I think it would be cringeworthy for a competitor or detractor of mine to tell a customer - hey don't buy that the guy selling it gets a big commission to sell it. lol.
When evaluating whole life as an investment you are not or should not be comparing it with other insurance vehicles or making a determination about its fit in your portfolio based on if you have "enough" insurance you should be comparing it with other fixed-income portions or options for your portfolio - like bonds, CD's, I guess T-bills, maybe annuities or things like that.
It is not intended to replace your insurance (in this scenario), it is attractive for the return, the cash value, and the tax benefits - and the diversification.
there are other ways to accomplish this - it used to be bonds or bond funds, maybe it still could be for some people.
Absolutely people have a right to make money and just having a commission in no way means a product is inferior but the amount of commission on a whole life policy for the seller absolutely creates at a minimum a huge conflict of interest on the agents part in terms of selling someone the best financial product for that person. Do you disagree?
IMO the commission should be irrelevant to the buyer unless the buyer is paying it (which I assume they are not).
As a buyer I would evaluate the product in terms of fit and value (and cost) for me and make the decision to buy it or not based on those details.
I would not, for example, eliminate buying a Tesla instead of a Lexus because the Tesla salesperson gets more commission if the Tesla was better for me.
Of course, do your research, salespeople will try and sell you anything, especially something that makes them money. my buy or not decision would be based on my research not based (solely) on their recommendation or the size of their commission.
Whole life us a great product if you integrate it with your other assets.
I.E. I have a pension, if I take a joint and survivor option, my annual amount is 10k less.
So in essence I would be paying 10k for life insurance until my wife dies.
With the amount of insurance I have I opted for a straight pension. When I die her benefit will be more than enough.
There are many ways to use whole life to maximize your assets.
Whole life is a long term asset, it is not for everybody.
You can't go wrong with convertible term, get insured and if you want you can convert at a later date.
it does get more expensive as you age.
If you do buy whole life buy it from a Mutual Company.
There is a great book, Pirates of Manhattan.
Its a quick read and a good resource for whole life info.
You can also look for a term life insurance product that offers the option to convert it to a WL policy, but tbh I still think it makes sense to just get a UL policy and keep your Term life for added protecting in your younger years.
Whole life is not a good investment and sometimes the little details of the contract bite you in the butt. How about skyrocketing premiums if and when you get into your 80s that suck all the cash away from you and your heirs. Oh and dont be fooled by the pretty illustrations with some made up interest rate. Insist on only looking at illustrations that show guaranteed numbers the difference is shocking. Or better yet buy term insurance and invest the rest in a bond etf inside a roth IRA.
IMO the commission should be irrelevant to the buyer unless the buyer is paying it (which I assume they are not).
As a buyer I would evaluate the product in terms of fit and value (and cost) for me and make the decision to buy it or not based on those details.
I would not, for example, eliminate buying a Tesla instead of a Lexus because the Tesla salesperson gets more commission if the Tesla was better for me.
Bad analogy. Lexus salesmen and Tesla salesmen only sell their particular brand. And there’s plenty of independent information with which you can judge each car be for you walk in the door.
Insurance salesmen sell both Term and Whole. He gets a much bigger commision on the whole life product than he does on the term, though he doesn’t tell you that. That fact should tell you something why he pushes you to buy that whole policy instead of the term.
And Whole life is a much more difficult product to evaluate. Term is very straightforward and easy to compare: You get X dollars of coverage for Y number of years at a price of Z. Whole is much more complex, and every policy is different. There’s no review you can go read about the whole life he’s put in front of you.
He is a CFP, he personally doesn't sell term or life, and I already had term - I had to go through an insurance company. He recommended whole life as a good way to diversify my portfolio and put money into a low-risk vehicle that protects the principal and provide some growth and other benefits.
When compared with bonds or other vehicles and what the bond market or those other vehicles are fixed or expected to do it is a very good choice for some people.
My whole life policy is predictable, I can see the cash value every month and similar to bonds the expected growth.
comparing whole life as a fixed-income investment vehicle and term life is irrelevant, they are not for the same purpose.
Also, the analogy is not a bad one because the Tesla dealer could get a bigger commission for a Model X vs Model Y or get massive kickbacks for extended warranty or undercoating or whatever - and they do not need to tell me. At the end of the day I don't care about their commission, if I want the Model X I'll get it even if the salesperson recommends it and gets a bigger commission for selling it.
My final parting advice is do your own research and meet with a professional if you don't understand the concepts, this thread is jammed with ignorance.
That being said I do not trust the stock market of late and not sure I would invest the difference anymore. The market to me is currently 1) super overvalued and 2) bloated given 401K contributions made by the working class.
I may need to revisit Whole Life but probably too expensive for me now given my age and various lifestyle choices :-)
It's odd that people don't know this.
It's odd that people don't know this.
This
I have always been a buy term and invest the rest.
What the heck people think is going on with IUL policy’s or whoever life. U have term, u pay them a hefty commission that’s hidden in all the bell and whistle BS they throw on a PowerPoint pdf and u get the crumbs
How the heck are they gonna make a profit and equal market returns paying the agents? They aren’t. That’s why u never get the return of the market. You pay to not have volatility and get to “ share in market gains” within a cap. Big deal
Industry just roles out new versions of the same thing all the time. Say you bought term and invested the rest the last 30 yrs. Go look at a chart of the Dow or nasdaq. You gonna make that from a whole life policy? No
It may keep u from going gray early by not being focused on market ups and downs but it isn’t making you optimal returns.
Whole life is not a good investment. WHOLE LIFE IS NOT AN INVESTMENT. COMPARING IT TO STOCKS or Bonds IS CERTAINLY NOT A COMPARISON OF SIMILAR RISKS. Sometimes the little details of the contract bite you in the butt. How about skyrocketing premiums if and when you get into your 80s that suck all the cash away from you and your heirs.THAT WOULD ONLY HAPPEN ON AN UNDERFUNDED UL TYPE CONTRACT.PREMIUMS FOR WHOLE LIFE PRODUCTS ARE LEVEL, GRADED PREMIUM PRODUCTS HAVE NOT BEEN SOLD FOR YEARS. Oh and dont be fooled by the pretty illustrations with some made up interest rate. Insist on only looking at illustrations that show guaranteed numbers the difference is shocking.YES IT IS,BUT MUTUAL COMPANIES HAVE CONSISTENTLY PAID A DIVIDEND FOR OVER A HUNDRED YEARS.DIVIDENDS ARE COMPRISED OF THREEE COMPONENTS AND TO THINK THY ARE ALL GOING TO BOTTOM OUT IS A BIT OF A REACH.(BTW all full illustrations carry a guaranteed only page, you don't have to ask for it.) Or better yet buy term insurance and invest the rest in a bond etf inside a roth IRA.WHAT IS THE GUARANTEED RETURN ON YOUR BOND FUNDS, WHAT IF YOU HAVE TO SELL IT BEFORE MATURITY?
In todays environment whole life ROR regardless of carrier is somewhere's around 4%. That is probably after 20 years.
If you are looking for an investment.....invest.
If you are looking to protect your family buy life insurance. There is no law that says you cannot do both and you should.
Your whole life contract value goes up every day..it never goes backwards.
It can provide along with a death benefit a waiver of premium should you become disabled.
Some of the long term care riders are of an indemnity type which you cannot buy in the ltc market.
Depending on your state, the cash value may be creditor protected.
If you are looking for college aid, the cash value of any life policy is not included with your assets.
IF YOU ARE LOOKING AT WHOLE LIFE ASK THE AGENT TO DESIGN IT TO YOUR GOALS...MAXCASH VALUE OR MAX DB.
Is it for everyone no, but for those that want the permanent protection, it can be a very valuable asset.
If you want comparisons of how Whole Life performed against other asset classes Google Wade Pfau, I believe he has many white papers on the subject.
My whole life policy had a payment period (10 years). My premiums were constant and once done, I don't pay premiums anymore. Yes, there are whole life policies that you do have premiums annually up to whatever age, but that's not what this discussion is about, you would consider one with a payment period - and the payment period is flexible but the premiums do do not change during the payment period. the fear about "what happens to my premiums when I turn 80 and my health is poor" lol, no idea what they're talking about.
Also, I did not pay a commission (directly at least) was it built into my premiums, sure, of course it is, but in the same way it is for a car, or term life policy, or anything else where a commission is paid. Making a decision on any purchase based on a commission the seller may get is silly. If, you understand the purchase, the price, the risk, the reward and are satisfied they are right for you and your family.
Lastly, the whole life policy rate of return outpaces bonds today. will it always? who knows, no one has a crystal ball, but fact is the principal/premiums you invest in whole life are protected - it is guaranteed. And comparatively this is not a situation where you second guess "what if you bought Apple with that money?" That is not what this portion of your portfolio would be about. You invest in instruments like whole life policies to diversify, expose your money to less risk, and have tax advantages in retirement (and a hedge) against market volatility.
Do your own research to filter out the noise and get the facts.
The obvious negative with whole life is if you die and you have not use the appreciated cash over your death benefit, you lose those funds. What that means is if you have a $1M death benefit and your cash value has appreciated to $1.2M and you die, they only pay out the death benefit and the insurance company keeps the appreciated cash value (200k). Most people don't face this scenario, but you should be aware of it so once you are in retirement what a lot of people do is take that cash value (simple withdrawal with no penalties) over the death benefit and invest it in their equity side of the portfolio or a different investment instrument.
If you do a little googling, it won't take long to read about why the consensus is that whole life considered to be a pretty poor vehicle for investment.
Just guy insurance for what you need to insure and make separate investments.
I agree 100% with this way of thinking.