Whole life insurance as an investment ?
I started dancing about a year ago and have saved nearly 25k (thumbs up to living at home). My friend hooked me up w his financial advisor who convinced me to take out a whole life insurance policy that I'm mainly trying to use for investment purposes. I've heard mixed things -- some people have told me it's a great idea and others have said it's a waste of money and to put it in a Roth IRA .. But no one has ever specified why. Do any of you ladies have exp with this and can offer some input???
Re: Whole life insurance as an investment ?
I have a Universal Life policy, which allows the tax free accumulation of investment earnings from the policy's available investment sector options. However, the ONLY reason that I entered into this policy was that, with the birth of my son, I NEEDED some form of long term life insurance coverage.
As a pure investment vehicle, the options are far more limited than they would be in a Roth IRA ... which essentially provides access to every type of investment from stocks to bonds to commodities to currencies to precious metals. As a pure insurance vehicle, term life insurance premiums are far less expensive. However, the one advantage of the Universal Life policy versus the Roth IRA is that there isn't any annual limit on contributions.
If you don't have a glaring need for life insurance coverage, I would definitely look at a Roth IRA or other types of investments before Whole Life insurance.
Re: Whole life insurance as an investment ?
Thanks Melonie! Downside -- I've already signed the contract. I don't have kids of my own but I have three nieces and one nephew that I'd want the money to go to should anything happen to me. What do you think is a reasonable amount I should be paying monthly for the policy ?
Re: Whole life insurance as an investment ?
^^^ depends on the amount of life insurance provided. Maybe $15-20 per $100,000 for the insurance coverage component, with the balance going toward the 'investment' component ???
Re: Whole life insurance as an investment ?
I used to have a whole life policy. It wasn't that much more than a term policy and it did accumulate a cash value. When my mother died I cashed it in and reinvested it elsewhere. Right now I don't have any life insurance because nobody I care about is dependent on me. That is the reason to have insurance.
The total premium was a little over $200 a month. It had a face value of $500,000 and when I cashed it in after more than 25 years it had a cash value of about $47,000. I paid about $62,000 in premiums over about 25 years or so and got back close to 80 %. Now keep in mind that for several of those years interest rates were very high and all the gains and dividends were reinvested. During the same time I had the security of knowing that if I croaked , my mother would be taken care of. With term insurance there is no cash value and when the term expires you get nothing. BUT the premiums are a lot cheaper than with whole or universal life policies.
Re: Whole life insurance as an investment ?
Thanks for your input Eric
Re: Whole life insurance as an investment ?
The investment people on the radio [guy and a girl, cannot remember their names] yell and scream and throw things whenever someone mentions whole life insurance. I believe that in Eric's example if he had invested the 62k it would have on average netted enough to come out ahead [IOW get more than 62k after 25 years] and paid for a term life insurance policy.
A 3 percent average return for 25 years gets you 130k, only remaining question is can you at your age buy term insurance for less than 3300 bucks a year[130k-47k/25].
I think so.
Re: Whole life insurance as an investment ?
oh Never go back to that advisor, he got his commission and that is all he cares about
Re: Whole life insurance as an investment ?
Quote:
I believe that in Eric's example if he had invested the 62k it would have on average netted enough to come out ahead [IOW get more than 62k after 25 years] and paid for a term life insurance policy.
Again, this entire exercise in comparative returns boils down to what sort of investment options are available under the particular policy's whole life / universal life 'umbrella', as well as how good you are in picking the right times to reallocate the policy's holdings from stocks to bonds to 'cash'. Of course, the same is essentially true for reallocation of holdings in IRA's etc. If you do a bit of research, you should definitely be able to at least 'double' that 3% rate of return without a whole lot of effort.
Re: Whole life insurance as an investment ?
I think the point is that life insurance is not an investment, it is insurance.
http://www.daveramsey.com/article/th...ife-insurance/
SBLI's google ad says at age 40 1mil costs 55 bucks a month
invest the rest in the stock market
Re: Whole life insurance as an investment ?
I would by term life insurance for now if you need insurance immediately and start a lazy portfolio with your IRAs. It's very, very easy to open account with Vanguard or the like and invest in target retirement funds. This is a great book on the subject that can be read in approximately 2 to 3 hours.
http://www.amazon.com/Investing-Made.../dp/0981454240
Re: Whole life insurance as an investment ?
again, whole / universal life does offer one 'structural' advantage ... the ability to avoid taxes on capital gains and interest / dividend income earned on the policy's invested money in the same way that a Roth IRA does ... but without the comparatively low annual income limits and annual contribution size limits that the Roth IRA faces.
I would also point out that ( non-Roth ) IRA's and 401k's do not exempt capital gains and interest / dividend income earnings from taxes, they merely 'defer' them to the point where the person retires and begins making IRA withdrawls when they reach retirement age. When IRA withdrawls are eventually made, they will count as current year income, which may in turn result in reduced Social Security checks, higher ObamaCare insurance premiums, or a host of other future 'means tested' possibilities that don't exist today.
Re: Whole life insurance as an investment ?
It seems in the above example that there was negative return, as in it is as much of an investment as the 200 bucks I spent in the strip club last night was.
Also I believe the issues you bring out apply to much higher earned[or more accurately for this audience, claimed earned income] people. I think few in a cash business claim over 100k a year on their taxes
Taxes delayed are most always a good thing.
I really cannot see for the regular person that there is a rationale for whole life. I know there are weird business owner related/estate planning issues that it might be useful
Re: Whole life insurance as an investment ?
^^^ ahem ... cough, cough ... unlike IRA's, 401k's or Roth's, insurance companies do NOT have to report contributions / 'cash value' balances to the IRS ... nor do they have to report 'loans' taken out against the 'cash value'.
But you never heard that from me LOL !!!
Re: Whole life insurance as an investment ?
I see your point, but there are probably other invisible ways to keep money that do not actually lose money. It is also rare that little fish get chased by the IRS, mostly as collateral damage from some bigger fish
It would also be smaaaat for anyone involved in a cash business to declare some sort of income if only to be able to collect something in their dotage.
Re: Whole life insurance as an investment ?
Quote:
Originally Posted by
Eric Stoner
With term insurance there is no cash value and when the term expires you get nothing. BUT the premiums are a lot cheaper than with whole or universal life policies.
For a comparison, I pay $75/month for $750,000 life insurance.
Re: Whole life insurance as an investment ?
Before I had a whole life policy I did have an SBLI term life insurance policy with my mother as the beneficiary. She paid the premiums and it was dirt cheap. I remember when I got the whole life policy it was part of a promotion. The carrier was Northwestern and the premiums were less than usual.
As an investment whole life stinks. It's a negative return. At the time I was providing my mother with security and building up a cash value for a very affordable premium. When I cashed it in it was NOT income. Didn't even get listed on my tax return. Was it a good "investment" ? Um , at the time it was O.K. because there were very high interest rates ( late 70's - early 80's ). The premium never went up and I could borrow against the cash value if I wanted to. ( I never did.) Would I recommend buying whole life or universal now ? NO ! Not now. Buy term insurance and invest the difference. Unless interest rates and other rates of return on investment ( that insurance companies are permitted to invest in ) go crazy , it is highly doubtful you would get anything resembling the cash value build up that I did. It was partly a function of the economic times THEN which was A reason why I bought that kind of policy.
Here's a shorthand recommendation : Calculate the premiums on a whole life or universal policy and subtract the cash value after 20 years. That is the net cost. Compare that to a term life policy with the same death benefit. Which is cheaper ?
Re: Whole life insurance as an investment ?
Quote:
Originally Posted by
BANHammerGoddess
For a comparison, I pay $75/month for $750,000 life insurance.
Good for you. That is a good deal. $ 900 a year. I'll bet you shopped around. Over 20 years you will pay $18,000. Now compare that to whole life premiums over 20 years and subtract the cash value. How does it compare ?
Let's all keep in mind that we get life insurance to protect our loved ones in case we predecease them - spouses , children, in my case a parent. In many countries they don't have life insurance. For parents, their security is their children who are expected to take care of them in their dotage. Which works fine so long as their kids don't predecease them.