Whole Life Insurance?

[dans2992]

So everything I've ever read and been told basically says "Never buy a 'Whole Life' insurance policy. Stick to Term Life."

Does _anyone_ have anything good to say about Whole Life as a retirement planning / investment strategy?

I have a guy (also a pilot / semi-retired insurance salesman) pitching me on this and I am quite skeptical....

 

[weilke]

Does _anyone_ have anything good to say about Whole Life as a retirement planning / investment strategy?

No. ';

 

[EppyGA]

 

[gismo]

I got talked into putting $40k into a whole life policy in a UGMA trust about 15 years ago that was supposed to become self sustaining and be a vehicle to fund my daughter's college education when she graduated high school (two years ago). It never got close to self sustaining and after dumping another $60-75k into it I quit adding money. It's now got a cash value of about $25k and dropping fast. Fifteen years of term insurance ($500k) probably would have cost about $20k so it looks like I lost at least 60k in what has to be the worst "investment" I ever made.

 

[jhausch]

Some sort of whole insurance allows over payment of premiums and investment in mutual funds and later borrowing which the payout (death benefit) pays off. I think these only make sense if you have "exhausted/maxed-out" most other conventional retirement options.

I am not a broker and my recollection of this discussion with an agent is old and foggy. I remember thinking to myself, "if I can max out ALL other forms of tax-smart retirement savings I'll be in pretty good shape already!"

 

[KeithASanford]

I got talked into putting $40k into a whole life policy in a UGMA trust about 15 years ago that was supposed to become self sustaining and be a vehicle to fund my daughter's college education when she graduated high school (two years ago). It never got close to self sustaining and after dumping another $60-75k into it I quit adding money. It's now got a cash value of about $25k and dropping fast. Fifteen years of term insurance ($500k) probably would have cost about $20k so it looks like I lost at least 60k in what has to be the worst "investment" I ever made.

Second best way to make a small fortune.

The only way a whole life policy will fund anything is by borrowing against the cash value. Borrowing, which means the cash value you assume is the nest egg you're building is actually the insurance company's asset. What they don't tell you is, if you die, your beneficiary gets the death benefit minus the balance of the loan against the cash value. Oh, and in most cases, your beneficiary gets the death benefit and the insurance keeps the cash value. WORST INVESTMENT EVER.

Insurance companies that sell whole life policies purchase term policies from reinsurance companies to offset the risk. Enough said.

 

[Geico266]

I got talked into putting $40k into a whole life policy in a UGMA trust about 15 years ago that was supposed to become self sustaining and be a vehicle to fund my daughter's college education when she graduated high school (two years ago). It never got close to self sustaining and after dumping another $60-75k into it I quit adding money. It's now got a cash value of about $25k and dropping fast. Fifteen years of term insurance ($500k) probably would have cost about $20k so it looks like I lost at least 60k in what has to be the worst "investment" I ever made.

Ouch!!!!

 

[Bill]

Buy term to cover the need.

 

[weilke]

Whole life is a really great deal,........... for the broker who sells it.

You are never 'maxed out' on retirement options. You may max out on tax deferred vehicles, but if you have money left (despite being a pilot) just put it into another brokerage account.

If you have dependents, buy term life and a disability policy.

 

[Derek Zeanah]

Does _anyone_ have anything good to say about Whole Life as a retirement planning / investment strategy?

My wife and I opted for a whole life policy a couple of years ago. In our case it made sense as part of our entire financial plan. It likely wouldn't for most.

Talk with your accountant and a financial planner and see if it makes sense for you.

 

[DJTorrente]

Insurance proceeds are not taxable to the beneficiary, and move outside of the decedant's estate. A big, juicy whole life policy therefore can be a dodge around inheritance taxes for very large estates that exceed the exemption. It is also sold to high net worth individuals who are subject to personal liability in their professions (docs, lawyers) as a way to shield assets. Insurance companies are well paid for conferring these benefits, however. TINSTAAFL

 

[CJones]

Whole life is a really great deal,........... for the broker who sells it.

Shortly after we moved to Georgia, the State Farm agent that we had moved all of our insurance policies (including term policies on both me and my wife) called and said they would like us to come in to go over our insurance. I thought "Great! Maybe there are different requirements/rates in Georgia. Good idea to go over everything."

Two minutes after we sat down, he was going on-and-on about how we should switch our term policies to whole life policies. He actually said "401k is a bad deal compared to Whole Life". At that point, I stopped listening.

 

[wabower]

Whole life policies are two products in one wrapper. The insurance portion is declining term in which the payout drops each year as life expectancy decreases.

The annual cash value increase (paid for by the excess premiums over the cost of the term insurance) is sufficient to maintain the face value of the policy at the stated amount and is basically a low-interest savings account.

When the policy is fully paid up, the cash value equals the face value and the insurance value is zero. If you die, the beneficiary gets the face value of the policy and the company keeps the cash value. If you survive until it's paid up, you can withdraw the cash value that is equal to the face amount, and the policy is then worth nothing.

The industry has added some wrinkles and features to make the product more attractive, but it is what it is. The fallacy with the "buy term and invest the difference" argument is that a high percentage of people don't invest the difference, so the insurance companies can truthfully say that even though you pay more for whole life, your chances of having at least some value at the end of the term are better than with term.

Everybody handles their investments and financial planning as they think works best for their situation, so one size doesn't fit all.

 

[weilke]

Shortly after we moved to Georgia, the State Farm agent that we had moved all of our insurance policies (including term policies on both me and my wife) called and said they would like us to come in to go over our insurance. I thought "Great! Maybe there are different requirements/rates in Georgia. Good idea to go over everything."

Two minutes after we sat down, he was going on-and-on about how we should switch our term policies to whole life policies. He actually said "401k is a bad deal compared to Whole Life". At that point, I stopped listening.

The other day I was doing some admin work in the local starbucks. One table over, some out of town insurance guy was trying to talk a recently divorced mid 50ish looking lady into plowing her money into a whole life policy. I dont know what sums were involved, but I doubt that evading estate tax was a concern, the pitch was all around 'security', the unreliability of the stock market and how all these people lost their life savings in the 2008 recession blablabla.

 

[CJones]

The fallacy with the "buy term and invest the difference" argument is that a high percentage of people don't invest the difference, so the insurance companies can truthfully say that even though you pay more for whole life, your chances of having at least some value at the end of the term are better than with term.

When our agent was trying to talk us into switching to whole life and made that comment about "buy term and invest the difference" doesn't work, I made sure that when I got home after meeting with him I upped my 401k contribution by a percent.

 

[wabower]

Most agents now have various annuities and other products to plug into the "invest the difference" gap, so they're not out in the cold if the buyer decides to buy term coverage.

 

[jhausch]

Whole life is a really great deal,........... for the broker who sells it.

You are never 'maxed out' on retirement options. You may max out on tax deferred vehicles, but if you have money left (despite being a pilot) just put it into another brokerage account.

If you have dependents, buy term life and a disability policy.

You are right, I should have been more specific. I was under the impression that there is still a tax benefit - and possible net benefit - to what I described, even after fees. Again, after you max out all other tax advantaged options first (deferred and un-taxed at w/d time). And, again, the chances of most people being in the position to max out all other options is pretty slim, especially if they are able to start a small business and take advantage of a SEP.

 

[weilke]

You are right, I should have been more specific. I was under the impression that there is still a tax benefit - and possible net benefit - to what I described, even after fees. Again, after you max out all other tax advantaged options first (deferred and un-taxed at w/d time). And, again, the chances of most people being in the position to max out all other options is pretty slim, especially if they are able to start a small business and take advantage of a SEP.

An investment with a 1.5% return is still a bad investment, even if it is partially tax advantaged.

Whole life makes a twin owner look like a financial genius.

 

[jhausch]

An investment with a 1.5% return is still a bad investment, even if it is partially tax advantaged.

Whole life makes a twin owner look like a financial genius.

At a 1.5% ROI, you are absolutely correct.

As referred to in my original post, the whole life policy I referred to allowed one to choose the investment vehicle for the excess contributions (not sure if I am using that term exactly right, but what I mean is "additional money sent in above the premium").

The one I was told about had a group of Mutual Funds to choose from. It was the same group of funds this company offered broadly and were "average" to "above average" in performance among its peers (and, as I recall, not as good as a broader index fund)

 

[wabower]

Most products meeting that description are just mutual funds packaged in variable annuity wrapper, and originally designed primarily for the insurance industry. Some VA's are now sold as stand-alones, but most are dissed by the advisors.

At a 1.5% ROI, you are absolutely correct.

As referred to in my original post, the whole life policy I referred to allowed one to choose the investment vehicle for the excess contributions (not sure if I am using that term exactly right, but what I mean is "additional money sent in above the premium").

The one I was told about had a group of Mutual Funds to choose from. It was the same group of funds this company offered broadly and were "average" to "above average" in performance among its peers (and, as I recall, not as good as a broader index fund)