Term or whole life?

[bob]

I have heard a lot of debate over this one... From everything I have read, I think Term seems to be the better deal, especially for those will save for the future on their own.

What do you have? What do you think is better?

[inlovewithjen]

Term here.

Don't know of anyone except insurance salesmen who like whole life insurance

The only thing its better than is no life insurance at all.

[bob]

I seem to have had the same experiences, but it is funny because a lot of people only get their information about financial products (or any product really) from salesmen... That is a bad idea...

[paul2006]

As a fee-only financial planner, I have to say that whole life insurance does not make sense for the vast majority of people. Term is much, much cheaper and still meets your objective. Unless you stand to pay massive estate taxes and are concerned about liquidity, you probably don't need whole life insurance. And ignore anyone who says it helps you invest and insure at the same time. Investments and insurance should be separate. You'll pay ridiculous costs to the insurance company if you go with whole life.

[pochax]

i guess i will break from the choir on this one. i do agree that lots of people choose Whole Life (WL) for the wrong reasons and no doubt it's because of biased sales tactics and poor education/information getting out to the public. BUT i do believe there is a role for WL for those people who truly believe they will (or just want) a permanent need for insurance at their death. I agree that WL is not an efficient investment tool due to fees but it makes for a wonderful part of the conservative portion of one's portfolio (likened to savings acct/MMA/CDs/bonds) so long as more accessible liquidity is available for quick emergencies. If one is looking purely for investment potential, i would not recommend WL. if one is looking for an asset that grows like conservative accts, in it for the long-term (>15-20 yrs), has leveraged death benefit in case of an untimely death, has liquidity and tax-advantaged growth, then i believe WL can make sense for someone. Yes, lots of IFs, but i would never say it's NEVER a good thing.

btw, i am no insurance salesman, and i bought a WL policy 4 years ago for all the "wrong" reasons (investment tool, etc.) and only recently figured out what it's really good for. now, i am glad i have it and am considering getting another one for my wife. yes, i own Term as well. i am not "pro-WL"...i'm just not "anti-WL" like many from the Buy-Term-Invest-the-Rest (BTIR) camp.

[paul2006]

I'm not saying it's never good either. You make a lot of good points. I'm just saying that for most people it probably doesn't make sense. The average American isn't likely to go wrong by buying term, but you can end up making a huge mistake if you buy a whole life policy based on faulty information.

[bob]

you know guys there are a lot of people out there who don't have the discipline to do their own investing - so just like a house is a good investment for a lot of people, because it will generally go up in value over the long term, I feel the same about Whole life in certain cases. While Paul you mentioned that it isn't the best "investment" vehicle, some people are willing to make that sacrifice for the convenience of having a single product that serves a lot of purposes. As mentioned, the problem is when sales people seek to fill their pockets rather than providing the best product for the client...

[paul2006]

Bob, I see your point, but the problem is that the sacrifice they're making is HUGE in terms of fees and expenses. It's ridiculous really. If you actually sit down and list all the charges (and why they say they're charging you for it), you'll see what I mean. You'll find two separate charges that are both for administrative costs. I've even found a "mortality and expense risk charge" with an explanation that they need to charge you that in case they didn't charge you enough for the mortality charge and other expense charges. If we got those kinds of charges anywhere else, we'd raise quite a fuss.

Imagine: you go to a restaurant, buy your food, get your bill and it says

Food $8.00
Drink $2.00
Charge to cover other costs I might have forgotten or underestimated $4.00

Total $14.00

What would you think about that?

So it's really an ethical issue for me (as a professional), but the other side is the impracticality of it. I've seen policies where these charges can add up to 3% all the way up to 15% (if you include surrender charges) of your "investment". Would you still think it's a convenient option then? It's really only convenient for the insurance company...they get your money from two or three of your pockets instead of just one.

[matt]

I currently don't have any life insurance (that I'm aware of). But I've been thinking I should get something for my wife and I. Something that would pay off the mortgage in the even one of us kicks off. Don't really want to leave a mortgage payment that's unaffordable with the survivor on top of everything else.

Anyone got any advice? I don't know much of anything about life insurance.

[pochax]

matt,
i think to start off, you need to know how much insurance need you have. there are online calculators (can google them) out there that can assist you, but a lot of it is based on what you think NEEDS to be covered (eg. mortgage like you mentioned, outstanding student loans, childcare necessary for single parent, kids college needs, funeral expenses, etc etc) and what you think would be NICE to cover (same list previous). balance that with what you can afford. Although lots of people will use a ballpark calculation like "10xincome", i don't like that because it doesn't individualize insurance needs but it very well may come out to be in the same ballpark as the income calculation.

once you have what you NEED, you can look into shopping for quotes from agents or websites (insure.com, etc etc). i would start by looking at Term insurance quotes since those will be the least expensive. the quotes are just that: estimates. your actual premium will be based on an underwriting process where the insurance company will send someone out to get a medical history and take some blood work. once they have those results, you will get your premium. I have heard that choosing a company not just by the price but also by how long they have been around and how highly they are rated (A++ is the best, an A rating by itself is actually not so good) is important, because you want the company to be around to pay up down the line in case your beneficiary needs the payout of the policy. i can recommend some good companies if you'd like.

IF you are even going to consider Whole Life Insurance or other forms of permanent insurance, you have to ask yourself, do i want to have this policy no matter how long i live? Term will eventually run out (usually 20 or 30 yrs depending on what you bought). Many believe that one can "self-insure" or not need the insurance by that time because usually the mortgage is paid off and the kids are done or almost done with college. This is your own decision. I have heard that families with disabled children often move towards permanent insurance because the need will be there indefinitely or for a very long time. Whole life insurance premiums can run 6-10x the same amount in Term so it is not inexpensive, plus there are the fees that paul mentions above. They also do not grow very quickly in value early on (first 5-10 years) but grow nicely in later years, but they will almost never beat the growth potential of equities in the long run so do not make a good investment per se. However, if you want piece of mind knowing your savings will grow year after year and not fluctuate with the stock market, you have a clear permanent insurance need/estate issue, and can budget it into your expenses without compromising your retirement contributions (401k, IRAs, etc etc), mortgage, monthly expenses, then you can consider it.

Hope that helps.

[bob]

Paul,

Imagine: you go to a restaurant, buy your food, get your bill and it says

Food $8.00
Drink $2.00
Charge to cover other costs I might have forgotten or underestimated $4.00

Total $14.00

this is a great example - just so you know- for myself I am completely with you and I appreciate that it is an ethical thing for you - I feel the same way about the brokerage industry as well... I do agree with what you are saying personally, but I, and probably yourself know that there are those people who in the case you mentioned above or anything - just wouldn't care - maybe they are lazy, maybe they have more money than they can imagine... But bottom line, I am with you - let's stick up for the truth, what will help the most people possible - which, I believe, was what you mentioned about WL earlier

[matt]

Thank you pochax, that was very helpful and informative. Time to start looking.

[pochax]

no problem matt. please report back and tell us the research you did so we can all learn from your experiences.

[pochax]

Paul,

Imagine: you go to a restaurant, buy your food, get your bill and it says

Food $8.00
Drink $2.00
Charge to cover other costs I might have forgotten or underestimated $4.00

Total $14.00

this is a great example - just so you know- for myself I am completely with you and I appreciate that it is an ethical thing for you - I feel the same way about the brokerage industry as well... I do agree with what you are saying personally, but I, and probably yourself know that there are those people who in the case you mentioned above or anything - just wouldn't care - maybe their lazy, maybe they have more money than they can imagine... But bottom line, I am with you - let's stick up for the truth, what will help the most people possible - which, I believe, was what you mentioned about WL earlier

Again, just to add more facets to this debate, let's use a real example so we can all see how things can work out in the real world:

let's say a 32 year old guy has $6000/yr to spend and needs to decide between a taxable investment and a WL policy (i will use my Northwestern Mutual as an example). Let's see what happens to the money in the 2 scenarios and forward to retirement age at 65 (assuming he lives):
WHOLE LIFE policy with starting Death Benefit (DB) at $500,000
cost basis: $6000 x 33 yrs = $198,000
Cash Value of policy at 65 (based on NWM illustration): $624,684
Death Benefit at 65: $1,119,839

TAXABLE INDEX MUTUAL FUND (assumption of 8% annualized return contributing $6000 yearly, no taxable gains until selloff at end and no expense ratios taken out):
cost basis (same as above): $198,000
Value at 65: $945,760 ($112,164 capital gains pending assuming sell-off at current 15% rate) still leaves $833,596 after taxes.

Comparing Value at 65 to use as supplemental retirement income (again, it makes no sense to do either of these options if you haven't maxed out your tax-advantaged retirement savings in 401ks and IRAs), the taxable index mutual fund looks like the winner ($833k vs. $624k), right? If you only consider what you, the investor, put in and what you can take out, then yes, i agree. BUT if you also consider what you can leave to your heirs/beneficiaries, you need to add in up to $1.1 MILLION that will be added to your estate. I say "up to" because you can certainly spend down the Cash Value in your policy by the use of loans to get to the tax-free gains in the policy but any leftover loan will be deducted from the Death Benefit when you die so it is unlikely all that $ will go to your heirs, but still a significant difference that taken together can be considered a nice ROI if you consider what goes to your heirs as part of it.

Balance this with the fact that most people retain a conservative part of their portfolio (bonds, CDs, savings accts, etc.) and you will see that the WL policy compares competitively with those returns (~6% equivalent annualized return at age 65). To me, however, the DB is the key and makes this a viable option because of what it leaves to the heirs which, personally, i consider part of the ROI for me even though, i, myself, will never personally reap the benefits of that reward.

Feel free to dispute any of my numbers, assumptions....i'm here to learn as well from you all.

[shiny]

According to me there is a a lot of difference's between term term and whole life.A term is nothing but a deal .An insurance broker is a good example of making insurance to our whole life.I guess ,whole life is a type of insurance policy ,made by the people for their rest of the life.
========================

shiny

[Amatachick]

I've always heard and read that Term is the best way to go. I know that's what me and my hubby have.

[pochax]

I've always heard and read that Term is the best way to go. I know that's what me and my hubby have.

i think if you have read some of the comments above, Term is definitely appropriate for the majority of people, but i think it is important to be careful not to give general, blanket statements that don't apply to everyone. There are probably a few groups of people who may benefit from permanent life insurance (eg. uber-wealthy, families with members who have special needs, etc.). i would agree that it is not an efficient investment tool, but it is an effective asset-preservation tool.

[Amatachick]

i think if you have read some of the comments above, Term is definitely appropriate for the majority of people, but i think it is important to be careful not to give general, blanket statements that don't apply to everyone.

I would agree. I wasn't giving a general, blanket statement. Just saying what I've read and heard on the subject.

[mcelizabeth]

I carry term life insurance because Dave Ramsey says it is the only sensible life insurance to have. Many people get excited about a whole life policy building cash value, but my understanding is that in most cases, you will only benefit from the cash value IF you cash it out before you die. If you die without cashing it out, your family will only receive the face value of the policy, not it's accrued cash value.

[pochax]

I carry term life insurance because Dave Ramsey says it is the only sensible life insurance to have. Many people get excited about a whole life policy building cash value, but my understanding is that in most cases, you will only benefit from the cash value IF you cash it out before you die. If you die without cashing it out, your family will only receive the face value of the policy, not it's accrued cash value.

this is only partial truth: while it is true that if you die, your beneficiary will only receive the face value (death benefit) and none of the accumulated cash value, it is quite easy to take advantage of the cash value before death. you can draw down the cash value up to cost basis (what you have put into it) without any penalty. however, due to the tax-advantaged status of whole life policies, you cannot withdraw the gains of your contributions without paying taxes. therefore, you can take out policy loans with the collateral being the remaining Cash Value of the policy. you need not pay it back when you die, because it will be deducted from the death benefit. so you put in $100k over 20 years and have $200k cash value, you can withdraw $100k without problems (cost basis). the rest of the $100k can only be taken out as a loan but need not be paid back (thus effectively being your gains), but that $100k would be deducted from the death benefit (let's say it was a $500k policy - the beneficiary would only receive $400k). also realize that if it is a dividend paying whole life policy (which is usually the case when purchased from a mutual insurance company where the policy holders are the stakeholders and not stockholders), there is usually a PUA (Paid-Up-Additions) clause that will allow the death benefit to grow thereby keeping up or even surpassing inflation devaluing the policy over long periods of time. thus, it is quite feasible for a $500k policy bought at age 30 to have it's face value death benefit grow to well over $1 million by the time the policyholder reaches retirement age (65+).

i would agree that Term Life is the most appropriate insurance vehicle for most people, but i wanted to dispel the myth that the cash value is useless unless you cash out before you die...that is not true at all.

[garyatk]

I agree with pochax that whole life is only a good choice for a small percentage of people. Unfortunately they are usually the people who are selling you the policy. Maybe we can get Obama to fix that too. Just kidding!

[pochax]

yes, gary, that is the problem - whole life (WL) gets a bad rap because there are too many insurance SALEspeople trying to make the square peg (Whole Life) fit into round holes (people who just need Term) to make their commissions. but that doesn't mean there aren't ANY square holes (people who can benefit from WL)out there....unfortunately, there are now square holes who could totally use a square peg but are so disillusioned with those people selling the square pegs they settle for Term insurance that will run out when they probably need it most (later in life).

[garyatk]

The idea that we will need life insurance until we die is silly. Yes, not everyone will become wealthy before we die, but the WL model only works if you keep it until you die. Well if you are uberwealthy, you don't need life insurance. I'll stick with term and avoid the salesman. I will also cancel my policy when I don't need it anymore.

[pochax]

no doubt i respect your opinion...and i would presume most people feel the way you do. but not EVERYBODY would agree that it's silly. for example, what about the person who has a child with a disability that they would like to INSURE that there will be enough resources for their guardian to take care of them? what about the so-called "uberwealthy" who want to INSURE that uncle sam doesn't take most of their wealth through estate taxes (possibly 30-50%!!!)? what about people who want to INSURE some sort of inheritance to their children/loved ones because there's no telling whether they will be "self-insured" enough by the time the Lord takes them? WL may possibly be right for them.

don't get me wrong - i think Term is right for the vast majority of people. i just think WL gets a bad rap because of WHO sells it, and not WHAT it is (or isn't). i don't think WL is your best option as an investment tool, i don't think it's always sold for the right reasons, and i don't think it's a good retirement savings tool. BUT i do think it serves as an alternative for the CONSERVATIVE (non-volatile) portion of someone's portfolio and can help those who are not quite disciplined to save on their own. and IF they are going to consider it, they need to do their homework, figure out what it can and can't do for them, compare it to similar risk tools (savings, CDs, annuities, etc.), and not just listen solely to what the salesperson says - then at least they can make an informed decision.

[garyatk]

For every situation you stated, there is an alternative that is a better solution than WL that will only allow the sales person to get the better end of the deal.

[pochax]

For every situation you stated, there is an alternative that is a better solution than WL that will only allow the sales person to get the better end of the deal.

wonderful...please share and enlighten us

[garyatk]

Spoken like a true Whole Life salesperson. Not willing to get an HONEST job, or do the hard work. I'll get my advice from a fee only Certified Financial Planner instead of a commission based insurance sales person any day!

[pochax]

Spoken like a true Whole Life salesperson. Not willing to get an HONEST job, or do the hard work. I'll get my advice from a fee only Certified Financial Planner instead of a commission based insurance sales person any day!

ahha...a tricky thing when you assume things. i am NOT a whole life salesperson. i never was...i never will be...i'm not even in the finance industry. i am merely an informed consumer. i bet you never thought there would exist a person outside the industry...just an average joe-shmoe such as others here who would actually look into a financial product and see its pros and cons...that's what personal finance education is all about! good discussion though

[garyatk]

pochax,

I never assumed you were a WL salesperson. I merely pointed out that you could be. That is why I said "spoken like". If you really are as you said "informed" you would have learned what I pointed out before, WL is NEVER the best product available for ANY given situation UNLESS you are the salesperson! There is always a better product available to address the situation that is cheaper, better, and doesn't put most of the customers costs in the pocket of a salesperson. But if you like the product, BUY IT. Did I tell you that I am selling some ocean front property in Arizona? I'll sell it to you CHEAP!!!!!

[pochax]

okay gary,
that's fair...no assumptions here on out. since this is both a christian forum as well as a financial forum, let's try to keep this as cordial and respectful as we can. but let's also educate one another and others on this forum since you seem to imply that i am not an "informed" consumer. what are those cheaper and better products for the various situations i mentioned? again, i ask respectfully...you seem like a smart guy who knows what he's talking about, and i think others who read this thread would like to know what other options they have so they don't need to line the pockets of insurance salespeople. that's what we're here for, to educate one another as much as possible. looking forward to your answers....

[garyatk]

You are correct. I am an intelligent person. That does not mean that I know everything however. As I stated previously, there are professionals you can hire (CFP's, lawyers, accountants, ect...) that will show you the best way and product for your need. Sales people sell, and they usually sell you something you don't need because that is where they will make the most money. There is no insurance sales person who could make a living selling term insurance. So instead they sell what pays. That is whole and universal life insurance.

95% of the people who are interested in Life insurance will be well served to buy term insurance directly from the company. The other 5% that have special situations will be best served to see a professional. It is as simple as that.

When you defend any other life insurance product other than term, you are inessence promoting a high fee and commission product that is more income protection for the salesperson, than it is insurance protection for the customer. It is that simple!

Life insurance protects your families income if you were to die. That is what term does. If you need savings, investments, or a vehicle to protect your assets that you either don't feel like you have the knowledge to do on your own or that may need a lawyer to draw up the documents, then go see a professional and pay their fee. It will be much cheaper than to pay a sales commision in the first year alone. Let alone all the residuals each year.

These are just the facts. If you are having a hard time dealing with the facts, I am very sorry.

That is ALL I have to say unless you are interested in that property I have to sell!

[pochax]

As I stated previously, there are professionals you can hire (CFP's, lawyers, accountants, ect...) that will show you the best way and product for your need. Sales people sell, and they usually sell you something you don't need because that is where they will make the most money. There is no insurance sales person who could make a living selling term insurance. So instead they sell what pays. That is whole and universal life insurance.

I think you a generalizing a bit here - i'm sure there are some dishonest CFPs, lawyers, and accountants out there just as there are some honest life insurance agents who sell only what their clients need. My understanding is that life insurance agents sell MOSTLY Term Insurance so if they can't make a living off of that, they're in trouble.

95% of the people who are interested in Life insurance will be well served to buy term insurance directly from the company. The other 5% that have special situations will be best served to see a professional. It is as simple as that.

How am i supposed to know if i am the 95% or the 5%? Do i need to pay a professional to tell me that as well? Shouldn't I actually look at the products themselves, see how much they all cost, and then make the decision which makes the most financial sense rather than take any professional's advice (whether it be a CFP, attorney, or life insurance agent) at their word?

When you defend any other life insurance product other than term, you are inessence promoting a high fee and commission product that is more income protection for the salesperson, than it is insurance protection for the customer. It is that simple!

When you tell me i have to PAY someone else to avoid PAYING a life insurance agent, how am i supposed to know what i am getting for my money? The point is (i'm not trying to be facetious here), I think i would be well-served to know what i am going to ask for from these professionals otherwise, i am just as prone to being "taken" as i am with an insurance agent. A crooked CFP can sell me their hot mutual fund or stock tip which has high expenses and fees which may make it no better than an insurance product. The attorney can offer me an iron-clad probate-proof trust kit which will cost me $3-4k upfront but still won't protect me from estate taxes. i'm still not sure what the accountant can offer me (other than how to avoid certain taxes) but i'll have to pay her something too. You see, you have to know what you are buying inside and out...not just take it at someone's word that CFPs and attorneys are more honorable than insurance agents.

Life insurance protects your families income if you were to die. That is what term does. If you need savings, investments, or a vehicle to protect your assets that you either don't feel like you have the knowledge to do on your own or that may need a lawyer to draw up the documents, then go see a professional and pay their fee. It will be much cheaper than to pay a sales commision in the first year alone. Let alone all the residuals each year.

I agree this is the primary purpose of life insurance, but it is not its only purpose. And that is why Term only does so much. I love Term insurance. I have it...it's cheap and it will protect my family until the term runs out. What then? Some people will be self-insured. But some people won't be, but they will still want insurance. Have you seen the rates for Term insurance for a 55-60 year old person? Yes, whole life insurance has fees. But so do CFPs, lawyers, mutual funds, 529 plans, etc. There are no free lunches in this world. so you might say, "but the fees are ENORMOUS with life insurance!". really? compare the numbers with my real life illustration posted earlier in this thread(http://www.forums.christianpersonalf...-t18.html#p161). i don't think it's as crazy as you make it sound....but then again, i encourage everyone here to do their own homework and crunch their own numbers. i think that's the only way one could be satisfied.

These are just the facts. If you are having a hard time dealing with the facts, I am very sorry.

Your "facts" would lead a reader to pay a professional rather than pay an insurance agent. My "facts" would recommend to do your own research, figure out what's best for your particular financial goals (since no one is exactly like you), crunch the numbers, and make a decision you can feel good about. don't assume any "professional" whether it be CFP, lawyer, or insurance agent is out to get you, but be smart and ask good questions.

That is ALL I have to say unless you are interested in that property I have to sell!

Actually, if it's really on the cheap, i am open to hearing about any great real estate opportunity.

Seriously, i actually don't have a problem with the advice you're giving (Term is great!). but i am a bit concerned that your rationale for it seems more predicated on a prejudice towards a profession (insurance agents) than real cost/benefit analysis. good luck to all who have read this interesting discussion...i hope i've encouraged us all to do our homework on what works best for each of us.

[chandler137]

I think it's funny how worried people are about whether insurance sales people are making money during the transaction. I'm curious if the same people go out to eat and are suspicious of the server, after all, he's just being nice to you because he wants a tip. Or maybe the guy at best buy that's selling you the television. Guess what, it's marked up! Your paying the salary + commission of the sales person, your paying to keep the lights on in the place, your paying the people that own shares of stock in best buy etc. That's the way capitalism works.

[garyatk]

Nobody ever said that a salesperson doesn't deserve a commision. I simply pointed out that the commisions that insurance companies pay to salespeople to sell unneccesary products is obscene and in some cases should be criminal. I also pointed out that the commisions paid to salespeople to sell the products that suits the need of most people is not enough to keep them in business. Therefore they will sell what they can make the most money to sell. That is why they are called SALES people, not customer servants. They are paid to SELL high profit products and they are paid well to do it. The real question here should be why would anyone sign a contract with a person or company where the clients best interest isn't served and the only real motivation is to make a profit for the company which in turn provides a successful SALES person a VERY nice lifestyle. Capitolism works great when a company profits from providing a product or service to a person who needs it at a fair and competetive price. It fails when people are abused and taken advantage of. But never fear, the bail out government is here! I hope that capitolism survives!

[chandler137]

I'd go back to the analogy of any sales, of course they are trying to get you to buy more than you need. The guy at best buy that makes commission wants you to buy the biggest television you ever thought you wanted. The last time I bought a suit, the guy tried to sell me 3 of them because it was a better deal. My wife tells me all the time about all the money she saves by spending a little (which often times becomes a lot) more.

Oh and it is criminal for sales people to sell people things that they don't need. Although (of course) it's not always caught, the SEC is supposed to enforce financial decisions made and products suggested by advisers, aka salespeople.

[rsmallory]

WOW! I read thru the whole log on this subject and feel like I know alot more about insurance. I came here looking for info on alternative health insurance but the life insurance topic piqued my interest so I started reading. I have life insurance thru my employer 3x my salary. This is just over 100K, so not enough-my husband has none and our mortgage is 120k plus we have a ten year old son. You guys have inspired me to look into my options and seek a policy for my husband and possibly a supplemental one for myself as well. Any opinions on life insurance for your kids? I get advertisements all the time that seem really inexpensive, just curious about your thoughts... Also what do you think of the prepay plans for funeral expenses-good idea?

Becky in Texas

[pochax]

Becky, welcome to the forum! i advise you to get as much info as you can to educate yourself on this topic (on this forum as well as elsewhere) before committing your hard-earned money to a decisive action. you will get many differing opinions and ultimately you will have to make the best choice for yourself and your family. be careful where you are getting your info from, there may be issues of conflict of interest as well as lack of understanding your situation so you really have to piece it all together yourself. having given that disclaimer, i will take a crack at some of your questions (i am not an insurance agent...just a fellow consumer).

I have life insurance thru my employer 3x my salary. This is just over 100K, so not enough-my husband has none and our mortgage is 120k plus we have a ten year old son. You guys have inspired me to look into my options and seek a policy for my husband and possibly a supplemental one for myself as well.

I think you clearly have a need for some Term insurance (existence of dependents, outstanding debt obligations, etc.) and i would also agree that you probably need more. how much more can only be answered by you. are there other debt obligations in addition to the mortgage? CC debt? student loan debt? car loans? how much do you rely on your husband's income? would you want the insurance to cover your son's future college expenses or part thereof? if you or your husband were to die, would there be additional need for childcare services or do you have family around to watch over your son while the surviving spouse works? You need this figure before you choose the amount of death benefit. Although you will often hear "10x your gross income" as a ballpark estimate, it does not always take into account your particular situation. But at least that's a starting point. The advantage of getting third-party (non-employer based) life insurance policies on yourself and your husband is that they are not tied to whether you are employed at the time. However, in general, they will be more expensive than employer-based insurance. Therefore, your decision will also depend on how likely you will continue at your current employment. to get a few estimated rates, check out http://www.term4sale.com and plug-n-chug to see if what you estimate your need to be is affordable in your situation. much of it depends on your health as well.

Any opinions on life insurance for your kids? I get advertisements all the time that seem really inexpensive, just curious about your thoughts... Also what do you think of the prepay plans for funeral expenses-good idea?

I would not recommend life insurance on your children (unless you have money to bleed). it is a bit superfluous unless you feel you are dependent on your child's income (unlikely). and even if you have the extra money, why not set it aside in an investment or savings account for their future use? it will grow much more quickly than a permanent insurance (whole life or universal) policy's cash value would. i am not a fan of pre-pays....why not just incorporate that cost into the amount of insurance you buy? for example, if you think funeral costs will be $15k, just make sure the death benefit has that extra room to spare when you choose that number. the only "extra" i would consider would be a rider on the policy that will keep the policy in force in case you become disabled and unable to bring in income. and even that can be considered superfluous if you already have disability insurance in place (it is FAR more likely to become disabled than to lose one's life).

[guy@howto]

Bob,

Were you trying to start a fight? lol

I'm almost positive you've heard of a company called Primerica. I guess around 30 years ago, they had the guts to go up against the then very powerful insurance industry (much more so than now) and tell people the truth about whole life.

Here's the rules of a Whole Life policy as I understand them (slight variations depending on company and policy)

1. The 'savings' or Cash Surrender Value earn a pitiful return of roughly 1-4%
2. The 'savings' or Cash Surrender Value often remain at a zero balance for 1,2,5, and sometimes up to 10 years.
3. If you ever need to take the Cash (your money right?), you would have two options
a) borrow it at a rate determined by the company at that time
b) Surrender / Cancel the policy and forfeit your insurance protection
4. This is my biggest beef. Let's assume you had savings of $10,000 in the policy and the policy had a death benefit of $100,000. How much would you assume your beneficiary would receive in the event of you death?
$110,000 right? Unfortunately, WRONG. They keep the 10G's How do you think they pay for those nice buildings.

Oooh. a bit of a rant, but, TERM. and that's why.

[Tristan]

Bob,

Were you trying to start a fight? lol

I'm almost positive you've heard of a company called Primerica. I guess around 30 years ago, they had the guts to go up against the then very powerful insurance industry (much more so than now) and tell people the truth about whole life.

Yes, he's heard of them...a few of us even have some experience with them.

Check out the following thread: http://www.forums.christianpersonalf...merica-t7.html

[pochax]

Bob,

Were you trying to start a fight? lol

I'm almost positive you've heard of a company called Primerica. I guess around 30 years ago, they had the guts to go up against the then very powerful insurance industry (much more so than now) and tell people the truth about whole life.

Here's the rules of a Whole Life policy as I understand them (slight variations depending on company and policy)

1. The 'savings' or Cash Surrender Value earn a pitiful return of roughly 1-4%
2. The 'savings' or Cash Surrender Value often remain at a zero balance for 1,2,5, and sometimes up to 10 years.
3. If you ever need to take the Cash (your money right?), you would have two options
a) borrow it at a rate determined by the company at that time
b) Surrender / Cancel the policy and forfeit your insurance protection
4. This is my biggest beef. Let's assume you had savings of $10,000 in the policy and the policy had a death benefit of $100,000. How much would you assume your beneficiary would receive in the event of you death?
$110,000 right? Unfortunately, WRONG. They keep the 10G's How do you think they pay for those nice buildings.

Oooh. a bit of a rant, but, TERM. and that's why.

There are basically 3 scenarios as i see it:
1) BEST SCENARIO: BUY TERM, INVEST/SAVE THE REST. the money you save (vs. paying for Whole life), you actually SAVE whether it be in investments, IRAs, 401ks, CDs, savings accts, real estate, etc. but the point is, you actually have to SAVE the difference!!! Unfortunately, not a lot of people do this. They buy term and think, "wow, look at all this money i freed up and i can blow on things that depreciate!".
2) NOT GREAT BUT NOT WORST SCENARIO: BUY WHOLE LIFE. forced savings could wreak havoc on your fixed/limited budget, but also could make you more disciplined in cutting costs in other areas. over a long term horizon, your cash value will approximate that of a conservative savings account. yes, the insurance company will make lots of money off of you, but you are paying for a service. you are entrusting them to make sure you have money later, even though you could've done better on your own....but for some people they know this is still the better scenario than...
3) WORST SCENARIO: BUY TERM, BLOW THE REST. unfortunately, people remember to save money by buying term. the problem is, term is for a limited "TERM"! in 20 or 30 yrs, if you are still alive....all that money is gone. you have nothing to show for it. the money you were supposed to be saving in SCENARIO#1 was blown on things that have no value 20-30 yrs from now. you have no savings....nothing to show for it. you have nothing to leave for your heirs or to take care of loved ones when you pass away.

The point being....there are 2 parts to BUY TERM/INVEST THE REST....make sure you do BOTH parts or you will be stuck in scenario #3.

[tjbaretta]

I don't have either at this point and was asking myself the same question. I can barely afford the $40 extra a month for this. I am going to try to find a way to shave off some other expense so I can get a 15/20 year policy. I am 35 and have 3 kids 10, 3, and 1

[tim_v]

There are basically 3 scenarios as i see it:
1) BEST SCENARIO: BUY TERM, INVEST/SAVE THE REST. the money you save (vs. paying for Whole life), you actually SAVE whether it be in investments, IRAs, 401ks, CDs, savings accts, real estate, etc. but the point is, you actually have to SAVE the difference!!! Unfortunately, not a lot of people do this. They buy term and think, "wow, look at all this money i freed up and i can blow on things that depreciate!".
2) NOT GREAT BUT NOT WORST SCENARIO: BUY WHOLE LIFE. forced savings could wreak havoc on your fixed/limited budget, but also could make you more disciplined in cutting costs in other areas. over a long term horizon, your cash value will approximate that of a conservative savings account. yes, the insurance company will make lots of money off of you, but you are paying for a service. you are entrusting them to make sure you have money later, even though you could've done better on your own....but for some people they know this is still the better scenario than...
3) WORST SCENARIO: BUY TERM, BLOW THE REST. unfortunately, people remember to save money by buying term. the problem is, term is for a limited "TERM"! in 20 or 30 yrs, if you are still alive....all that money is gone. you have nothing to show for it. the money you were supposed to be saving in SCENARIO#1 was blown on things that have no value 20-30 yrs from now. you have no savings....nothing to show for it. you have nothing to leave for your heirs or to take care of loved ones when you pass away.

The point being....there are 2 parts to BUY TERM/INVEST THE REST....make sure you do BOTH parts or you will be stuck in scenario #3.

I think I mostly agree with your order but I would add a 4rth scenario that I would put as the worst and most likely for whole life purchasers.

Calculate how much insurance you '"need" to provide for your family in case you die. Get multiple quotes which are almost impossible to compare because they all make different estimates on how the cash value will grow. Take the quote that has the highest estimate for growth but still can't afford to buy enough to provide the coverage you calculated. Then if you die while your family needs the death benefit they are hard off because you didn't buy as much as you "needed". If you don't die you try to use the cash value for your retirement but find that the initial estimates were very optimistic and your cash value is a small fraction of the estimate you were given when you purchased.

Note: I don't have first hand experience with whole-life other than comparing quotes.

[pochax]

I think I mostly agree with your order but I would add a 4rth scenario that I would put as the worst and most likely for whole life purchasers.

Calculate how much insurance you '"need" to provide for your family in case you die. Get multiple quotes which are almost impossible to compare because they all make different estimates on how the cash value will grow. Take the quote that has the highest estimate for growth but still can't afford to buy enough to provide the coverage you calculated. Then if you die while your family needs the death benefit they are hard off because you didn't buy as much as you "needed". If you don't die you try to use the cash value for your retirement but find that the initial estimates were very optimistic and your cash value is a small fraction of the estimate you were given when you purchased.

Note: I don't have first hand experience with whole-life other than comparing quotes.

underestimating your insurance need is not unique to Whole Life - it is just as likely with Term. The problem with Whole Life is it will cost you more.
Since i did have first-hand experience with a major mutual Whole Life company, i can say that even after this horrible economy, the cash value was practically exactly what was expected when i cashed out earlier this year (almost to the penny). your mileage with other companies admittedly could vary, but the big three: New York Life, Mass Mutual, and Northwestern Mutual give pretty accurate estimates. The caveat is that these three tend to charge you the most as well! Agree with tim's last point: find out what you NEED in terms of insurance and for HOW LONG (ie. the "term"). Then buy level Term for that duration at or above the need. then save the rest (but to my point, actually save it rather than blow it).

[storres]

Definetly Term. It's the least expensive and You basically pay for protection. Here's how I understand it. You pay You Die The Company Pays Your Beneficiary. Why complicated it. Here's a website I have for further education. www.saliquote.com. No You don't have to buy anything..Simply look at the bottom right hand corner for education.

[chandler137]

What do you all think of term policies with disability waivers?

[pochax]

What do you all think of term policies with disability waivers?

if there was one "extra" (Rider) i would get with my Term life insurance, it would be the disability waiver since it's basically pennies more. however, if one didn't get it, i doubt it would make THAT much of a difference if one purchased relatively inexpensive Term life in the first place so i wouldn't sweat it. the most important thing is for one to have the insurance coverage in place if one has the dependents who rely on their income.

[mptpro]

Here's my take on the term vs CV issues:

1) Cash-value IS term, but with a terrible savings component added to it. There is nothing "magical" or special about CV. Anything a CV policy can do, you can accomplish much cheaper and more elegantly with pure life insurance (term) and your preferred savings vehicle (I like American Funds mutual funds).

2) One argument is that some people don't have the discipline to "investment the difference". That's silly. 1) How does someone who has the discipline to pay their insurance premiums, not have the discipline to save monthly in their mutual funds? 2) The solution to a perceived discipline problem is not solved by a CV policy.

3) The tax benefit of CV withdrawls has a lot of gotchas. Not a reason to invest in CV. More on that if you want...

4) You cannot place a CV policy in a Variable Annuity wrapper. If you want guaranteed income at retirement while staying in the market, VA's with Guaranteed Income Riders allow you to do that. VA's is an entirely different discussion, but the point is, you cannot use a CV policy in that way.

5) As an Investment Advisor, I approach this issue as an Investment Professional not an Insurance Salesperson, thus cringe when I see people putting "investment dollars" into an account, that:
a. You earn -100% in the first few years
b. You have to "borrow" your own money to get it out, as opposed to simply withdrawing it.
c. If you die, the company keeps your savings (Universal Plan B policies *look* like they pay out the cash upon death, but it's a trick. They simply add a term rider equal to the cash-value; and you pay for this "hidden" rider).
d. #2 above.
e. The rates-of-return within CV policies are anemic, especially considering the high fees.

Get cheap level term and use a mutual fund. Keep it simple.


Regarding another question as for the amount of coverage. I've been in the industry for 20 years, and the most elegant solution to this problem is a new form of Term Insurance called SalaryShield. It pays the benefit *monthly* instead of a hugh lump-sum. This makes the calculation very easy. Just replace the income of the person your insuring. If you breadwinner earns $4,000 per month, then get a policy that pays a $4,000 monthly benefit until retirement. At the risk of self-promotion, see here for details: http://ss.thomasfinancialgroup.net

[pochax]

i agree with all your other points, but this one needs more fleshing out:

2) One argument is that some people don't have the discipline to "investment the difference". That's silly. 1) How does someone who has the discipline to pay their insurance premiums, not have the discipline to save monthly in their mutual funds? 2) The solution to a perceived discipline problem is not solved by a CV policy.

i agree with you in principle. but the reality is that many people don't see a lump of money in their checking account at the end of the month (or pay period) and think to themselves "look at all that money i saved, let's put that in a savings or investment account!". they usually spend it, give it, waste it, etc. the issue is not a mental one or even one of willpower. it is behavioral/psychological and it is a similar reason Dave Ramsey's debt snowball method of debt reduction works rather than using the "mathematical" method of paying off higher interest rate debt first (which clearly does save you more money in the longrun IF one can stick to it).

however, i do see a possible solution without forcing one to pay egregious whole life premiums: after tweaking a budget for 2-3 months getting a sense of what can be realistically saved, automate transfer of money from your checking account into a savings/investment vehicle after you get your paycheck so that you have already paid yourself first. if you find out you need the money later on in the month, you can always get it back out (whereas you can't with whole life without some catches). of course, this is for the people who actually could save some money if they just disciplined themselves....for those who truly are paycheck to paycheck, the solution can only be to increase income or downgrade lifestyle/frugalitizing.

one thing i wholeheartedly agree with you on: a CV policy is NOT the solution to a discipline problem.

[clydewolf]

Here's my take on the term vs CV issues:

Term Insurance called SalaryShield. It pays the benefit *monthly* instead of a hugh lump-sum. This makes the calculation very easy. Just replace the income of the person your insuring. If you breadwinner earns $4,000 per month, then get a policy that pays a $4,000 monthly benefit until retirement.

That sounds good and is simplistic. But what about an inflation factor? That breadwinner's monthly income would likely increase over the years. And the expenses of the beneficiary/dependents would likely increase too. But they would be stuck with the same income.

[jestrada]

That sounds good and is simplistic. But what about an inflation factor? That breadwinner's monthly income would likely increase over the years. And the expenses of the beneficiary/dependents would likely increase too. But they would be stuck with the same income.

That is a great question, Clydewolf, but as a client of this product, my understanding is that as my income increases I have the option to increase my monthly benefit as well. I also chose to add the lump sum debt elimination rider which may help with those unforeseen expenses. Most people that have regular term insurance when they die, their beneficiaries normally end up broke within 4-5 years. If most people can barely handle managing their monthly income how can we expect them to handle a huge lump sum. I feel with Salary Shield I have a lot more coverage versus having normal term ins. Before I was insured for $350k for $83 a month which frankly I was under-insured since I am married and have kids. With Salary Shield, I have the peace of mind knowing that if I died today, my family would continue to get $3500 monthly plus $200,000 lump sum; over $1 million in coverage if I died prematurely for only $86 a month!