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Life Insurance

Started by will, September 19, 2018, 02:58:56 PM

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will

A little over a year ago, my wife and I got talked into buying whole life insurance when we opened two individual IRAs and a joint account at a financial advising company.  We were 28 and 29 at the time.  I felt like I understood why it was better than term for us, but most days since then I feel like we made a poor choice.  Combined, we pay $183/month for $150K on me and $100K on her. The push for us to buy whole was that we were told $183 was a good price, it would never change, and there was later a cash value, as opposed to term where the rate can change and you don't get anything in return after the term is complete.

I am doubting whole life now because in 30 years when we are 60, if we continue contributing to our retirement accounts like we currently are, we should have ~$2M from which we can start withdrawing, so we should not be in a position where we are depending on that cash value. My wife plans to be a stay at home mom, and I want to be in a position to retire by the time I am 50, so I am wondering if we should switch to term and invest the difference in our joint account which is an account that we will use for withdrawals from age 50 (retirement) to 59.5.  We have are already paid about $2,700 into our whole life policy which we would of course lose if we cancel the policy, and I would think if we got a 30-year term policy, we should expect to lose at least $10,000 on it. We can afford whole life, but for our situation would we be better off putting more into an investment we can reap the benefits from sooner but take the loss on paying for term insurance? 

jekamom

I think you need different "buckets" of investments.  We invest in life insurance to meet a present need -- the crisis of losing a partner to early death and being financially disabled because of it.  Term is soley built for that, but permanent life insurance, if you can afford it, has benefits.  The cash value does build.  The dividends can be used to purchase paid up additions of additional life insurance.   Life changes in a blink.  We plan to invest and sometimes we get to, sometimes we have to bury a loved on and need time to heal.  Like we put money aside in our investments for the future, we put money in life insurance in case the future isn't what we hoped.  We are mortal.  I hope you have an emergency fund, and homeowners or renters insurance, and health insurance, and a will.  Those don't give the greatest returns either but they sure do help in thier way in an emergency.
 

will

Quote from: jekamom on September 19, 2018, 06:21:59 PM
I think you need different "buckets" of investments.  We invest in life insurance to meet a present need -- the crisis of losing a partner to early death and being financially disabled because of it.  Term is soley built for that, but permanent life insurance, if you can afford it, has benefits.  The cash value does build.  The dividends can be used to purchase paid up additions of additional life insurance.   Life changes in a blink.  We plan to invest and sometimes we get to, sometimes we have to bury a loved on and need time to heal.  Like we put money aside in our investments for the future, we put money in life insurance in case the future isn't what we hoped.  We are mortal.  I hope you have an emergency fund, and homeowners or renters insurance, and health insurance, and a will.  Those don't give the greatest returns either but they sure do help in thier way in an emergency.

I hope I didn't come across that I am considering dropping life insurance altogether. I was just considering if I should switch from whole to term. I know whole works for some people and certain situations, but I have just caught myself wondering if the person that sold it to us was just trying to make a higher commission and that whole isn't really the better option for us. We do have the other items you listed.

nycrite

I recall reading an MMM post about re-framing current circumstances such that if you were given the decision today, would you still purchase the product? In other words, if you could choose to purchase whole life today versus an appropriate term policy, would you still purchase whole life? Your post suggests term would be your preferred choice today. Judging by your financial discipline, I think you'd get more value purchasing term and investing the difference. The most guaranteed part of any insurance policy is the premiums. Everything else is there if you end up needing, and hopefully you won't!

I would go for term and keep the remaining premium in more flexible investments.

Bonsai

I too think term life is the way for you to go concerning life insurance.  First, the $2700 is a "sunk cost."  Essentially, what you have already paid should not be part of you analysis for the future life insurance.  Second, you did get something for your money, i.e., coverage for the period you paid the premium.  Third, if you do buy a 30 year term policy, and your financial future goes as you predict, you will be self-insured and not need additional life insurance.  However, a whole life policy with cash value does provide some nice estate planning potential and there is also a viatical settlement option some time in the future.  Although tragedies happen, most folks die of old age.  Your insurance dollars may be better directed to a disability policy.  Good luck.

cbass99

Whole life is ~20 times more expensive and they keep your "savings" and pay out the face value of the policy when you die.  And investment returns are nonexistent (mostly eaten by fees, commissions, etc.).  Get 20 year term, and assuming you are doing what the rest of us are doing in Sam's forum, (saving, investing, paying down the house, etc.), you will be self-insured by the time your term expires.  Much more cost-effective way to go. 

Chris

Jon Sharpe

I have always been told that whole life insurance is good to sell (for the broker) and bad to buy (for the consumer). If you need life insurance than buy term and if you need to save, than save your money. No reason to mix the two. I will say that it can be useful for estate planning purposes if your net worth is north of $4MM-$5MM.

I have always had term insurance and would recommend you take the same approach.

david123

I think as a right of passage to adulthood, everyone needs a "financial planner" to try to sell them a whole life plan.  they push it pretty hard because they make big commissions on it.  When you start asking about the commissions or rate of return on your investment, they get very defensive.

A lot of people I know start with whole life, then cancel after a few years and lose a lot of their money, and shift to term insurance.

As a rule, I stick with term policies - over a long term 30 years or so.