All Life Insurance Tips

Should I buy Whole Life Insurance???

I am looking as this a way to invest, I know that term is cheap. My wife and I both have a good income in our 30's and contribute our max $15.5K/year to our 401K's. To meet our retirement goals, we'll likely need another 1 million at 65. I've heard a lot of people say stay away from whole life, but I think it's the only way for us with high incomes to invest after our 401K's. My NW Mutual rep wants to sell me Variable Life, saying their average returns have been around 8% (and tax free). What do you think??

Public Comments

1. Depends on what you want, i would recommend it. Check this site and see if it fits you: http://articles.directorym.com/Whole_Life_Insurance-a895.html
2. You have to decide if you need insurance or if you want an investment. Insurance is typically not the best investment available, although there are advantages it may have in estate planning. consider what would happen if you die suddenly. How much would your wife need to manage the family without your income? Let's assume you think $1 million is sufficient. Then decide how much the insurance will cost. If you need $1 million and can afford the premium of a term policy but you can afford to pay only for a $500,000 whole life policy, then you should buy the term policy. But if you can afford the whole life policy and you like the investment feature, then you can buy whole life. Keep in mind that most of your initial premiums will go to the agent as commission so it will take some time for the policy to acquire a cash value. Also consider what you can do with the difference in premium between the two policies. Say you want a 20-year policy. Calculate what you would get from each policy if you buy it now and die next month, including in your calculation the difference if the premium you pay. Then calculate what you would get from each policy if you die 19 years from now. Include in your calculation what you would have if you invest the premium difference each year at some nominal interest rate. The answers may surprise you.
3. No. Your goal is investing. If I said to you, I have this GREAT investment. You pay $1,000 a year, and at the end of 10 years, you have $1,000. If you WANT that $1,000 back, you have to pay me $500 (surrender charge). I can LEND you that $1,000, but then you pay ME interest. Does that sound like a good investment to you??? LIFE INSURANCE IS NOT A GOOD INVESTMENT TOOL. Not whole life, not variable life, nada. Do a ROTH IRA!! How about PLAIN OLD SAVINGS or mutual funds, outside the retirement vehicle?? The MAIN profits of a life insurance policy go to . . . THE LIFE INSURANCE COMPANY. Commissions on that first year, are usually around 95% of what you pay, so SURE someone's happy to sell it to you. It's just a rotten investment vehicle.
4. Whole Life builds cash value (equity) which you can borrow against like a retirement 401K plan, so yes this would be a wise choice instead of buying a term life policy. 8 year veteran on wall street =)
5. He's probably trying to sell you an investment grade Variable Universal Life. In my opinion, it's a pretty good deal. You can take out your basis whenever you want and not have a taxable event. Also, if you "borrow" the assets after a few years, there's no taxable event either. It's totally non-compliant with NASD regulations, but some people call it the "Super-Roth" because there's no limit to how much one can put into it as long as you keep the face value high enough so that you don't create a Modified Endowment Contract (MEC). Your rep will explain a MEC in more detail, but in essence, the MEC limit is the maximum amount of money you can put into a life insurance policy before the IRS says you now have created a different product. I would look at the proposal and see what you can afford to put into it. 8% is actually kind of conservative, so your rep is the kind who underpromises and overdelivers. My kind of person, actually. I don't agree with the concept that one should NEVER buy permanent insurance. Obviously, there are some people still buying it, and there are some VERY wealthy people buying it, so to say that it's a stupid move is uneducated at best, at least in my opinion. Take this for what it's worth. Make sure you read the prospectus. Don't make a decision based on an anonymous Yahoo Answer.
6. buy term its cheaper. use the different to invest in a cd, or bond that pays higher than your insurance company because all they do is to take your money and invest into some cd, or bond anyways because they cant invest into stocks because its risky. well of course they would tell you on average its 8%-your question is when was the average started and when did it end. are you gaurenteed that, of course they cant. you wouldnt want to be in the down cycle while being averaged. 4 years down and 4 years up so to equal 8% on average. well if you died in first 4 years your money is total crap.
7. Absolutely not!!! If you don't trust my advice, do the following. Take half of the money you want to "invest" and open a whole life policy. Take the other half and open an after tax mutual fund account. Allocate the money 1/3 1/3 1/3 into index funds, Vanguard for example, Total US Market, Total International Market, and Total Bond Market. And in 10 years, compare the balances of your whole life "investment" vs your mutual fund account. I would bet you any amount of money, you'll wish you had invested your entire after tax investment amount in the mutual funds.
8. read the fine print, the annual 8% may not be calculated on the amount you have invested. Usually it is based on the cash value. Cash value = Your Money - Commission - Cost of Insurance - Management fees. Also look at the cash value alloacation portion. Unlike Mutual Trust fund the allocation is usually 95%, as 5% will used to cover the commision and cost of sales. Whole Life insurance is never designed for investment purpose. Variable whole life is a hybrid of insurance + saving. I won't use the word investment for an insurance product. If you are looking for some form of "FORCE" saving plan then insurance is a good vehicle. Make sure your 8% is net, meaning you don't have to deduct management fees and etc. Ask your agent how much you can cash out if you plan to save for 3 years only. Will the amount more than what you have put in? All the questions above will help you understand the product better.