Insurance agents and financial advisors;...?
Question:
Answer:
Advantages- the only one that I have heard and can believe is if you have a family history of an illness such as heart attack or stroke, this might be, a reason to buy whole life. As it says it lasts your whole life, usually paying the cash value (savings) by age 90,95 or 100 depending on what the policy says. Now, some will claim that the savings side is a benefit, but here is where I differ.
Disadvantages- 1) You have no savings for the first 1 or 2 years, maybe more depending on policy. 2) Your "savings" earns 1-4%, less than a bank. 3) To borrow, the company will charge you anywhere from 6-8%. Remeber, this is your own money and you are being charged to use it. 4) You have to plan your emergencies- the times you will use the savings because the company does not have to give you your money for up to six months. 5) Lastly, you pay for two- face value, the amount you asked for,ie 100k and savings. But when you die, your survivors will receive one OR the other, usually face amount because it is bigger. However, for more money to premiums, you can pay to have your survivors receive both.
Buy term- Advantages: You can have a larger, by several times, face policy for less in premiums. You have the insurance until the invested difference would take care of everything in retirement. Once you have the money, you do not need the insurance.
Dis ad's- It is temporary, but just like your car insurance it will protect your family fromfinancial hardship should the worst happen. So does whole life. If you stop paying the premiums it is also gone; so to for whole life. Some will tell you that at a certain point with universal or variable you can stop paying your premiums, you can but the money is coming out of your savings, oh and the amount that goes towards the face value goes up every year- less and less goes towards savings. At some point, your savings will be dried up unless you drop more money into the savings, they'll tell you you can do that or send you a letter saying that you have to renew. If you do, you will pay the higher rate at that time.
For all these reasons, I will recommend buy term and invest the difference. Hope this has helped.
booorrrrriiinnnngggg! It sounds like a homework assignment.
do a search for this on prior answers, it's been discussed a million times.
Permanent insurance where permanency is needed.
Your question is the most debated question in insurance and financial planning. Don't expect a definitive answer.
Do your own research and come up with your own conclusions.
there are advantages and disadvantages to buying whole life. technically if you buy term and invest the rest you should come out ahead most of the time. the only problem with this approach is that few peaople are disciplined enough to invest the difference. This is why SOME whole life is a good idea. the cash value of your whole life accumulates on a tax deferred basis. you can use that can value for just about any reason, keep in mind that if you stop paying the policy the money that you have taken out, anything above the basis is taxable. first i would recommed finding out how much coverage you need. buy a whole life policy w/ a face amount of 50-100k and the rest in term. then invest the rest of the money that you can save. the 50-100k face amount of whole life will have a decent amount of cash value down the road that you can utilize to pay for health or long term care down the road
Well, I do have my securities licence. And in terms of investments, I don't understand why LI can't be considered as part of your portfolio. Especially a Variable policy. Especially for someone who isn't able to contribute to a k1 plan (401k). What is that guy supposed to do?
Open a brokerage account? Well, go ahead and call your fidelity guy and tell him you want to put in your $200 a month. Then try to get in touch with him a second time. You can't. Unless you have $500K you don't even get a birthday card. If you do, you get a birthday card. That's it. No calls, no answers. Oh, but you do get to pay capital gains every time you make a trade. And, oh, you pay sales loads (I know the B shares convert to A after 7 years and all that). And oh, they get paid, too.
Now, the growth inside that permanant policy is not taxible (and therefore will never bump you a tax bracket). And the cost of insurance is whatever it is. With a Whole Life policy, it is a constant number, with a Variable Policy, it's like a one year renewable term insurance which does increase every year. But every dollar over the cost of insurance is directly invested in the market. And the gains are not taxible.
Permanant insurance, correctly constructed, is a great thing. For example, say you have a 100K Variable policy, what is required as a minimum premium is about $90/mo. But you can fund this policy with $369. So you put in $4400/ year and the cash value is over $3600. First year. Run this out a few years, and now we're talking.
No tax on the growth, like with your Roth. No tax on the distributions, like your Roth. The only problem with a Roth (best investment vehicle on the market, BTW) is you can't fund it enough. And god forbid you do well in life, you can't even contribute to it.
Now, loans and withdrawals against the policy. Strength of company is VERY IMPORTANT here. Stronger companies don't recognize that you've borrowed the money from your cash value and continue to pay you your interrest and dividends like the money was still there. So, yeah, you have to pay interrest (just like in your K1 plan), call it 6%, but if your still getting 4% plus dividend, your net is a point or two. OK. So what. Go to the bank and tell them you have to put a new roof on your house, see what rate they charge you.
As for the cash value vs. death benefit... I JUST ran into this. Client had a policy with Transworld and the way his policy was contructed it was just a bad policy. His face amount was fixed and the cash value was growing. That's good, right?
Wrong! The way this is constructed, all the growth was taxible. This is a guy who essentially "bought term and invested the difference" with a guy who obviously didn't know what he was doing.
How it should have been written would have had paid up additions (just a check box on an application). This would simply have additional insurance purchased as the cash value increased within the policy.
So let's take the above example with the 100K policy. We go out 20 years or so, and the face amount of the policy is now over 300K and the cash value is over 200K (assuming we haven't taken the money out to put that roof on). Maybe, this client had decided with over $200,000 in cash value, it might be a good time to get off of that pesky mortgage... I don't know...
Now to address your term policy. If you are dealing with a stock company, this is a bad idea. If the insurance division of this company doesn't produce results, it gets spun off. You now don't have insurance any more. I've run into this one a dozen times in the last couple years. And it wasn't pretty. Someone is with a company for ten years, and the company closes the division because the had to pay out some high faces because their two biggest clients are on a bus that goes off the road (don't know what really happened).
The cheaper the policy, the better it sounds, the worse it is. Let's take company A. They sell the cheapest insurance around, and it's a steal and you did a great job doing your research to save 4 bucks a month. Now one day you slip on the sidewalk and bump your head. If you have 1mil face, or even if it is measurable, they'll go out and check the sidewalk. Buyer beware.
Term is a great product, though. I include it in all of my insurance portfolio's. Short term, medium term and long term insurance. The average cost of insurance should always be lower.
Feel like I've been talking for hours.
jason
More Related Questions & Answers...