I have a whole life policy, through the Nights of Columbus. There is a respected financial advisor, Suze Orman, who seems so adamnant that whole life is not a swift move. She makes it sound as if there is not one reason to own whole vs term. Are there any good reasons for owning whole?
Any good reasons for owning whole life insurance? ONLY IF SOMEONE ELSE IS PAYING FOR IT. That’s the only good reason.
But if you ever get the chance to read your policy and be able to understand it, you will see it is a big rip off. Talk to any financial analyst and majority of them will say whole life insurance fits only the person who sells it.
Here’s the hidden truth about whole life insurance:
1) It is very expensive when compare to term insurance. A 30 year old with $100k coverage will pay $1000/year on whole life. With a 20 year term, it will only be around $260/year.
2) Get a low rate of return on the cash value. In the first 2 years, no cash value is accumulated since most of it is used to pay for agent’s commissions. You won’t see a positive return until at least the 10th year into the policy. Even then, you will get a return of 1-3% on your money. I don’t know about you, I wouldn’t be happy about paying so much in the first 10 years to get a negative rate. You would of been better off putting that money in the bank.
3) If you wish to withdraw money from the policy, you have to borrow it and pay loan interest between 6-8% on it. When you pay the loan back, the interest portion does not go back into the cash value. It goes directly to the insurance company as profits. That’s like going to the bank and taking money out, but the bank going to charge you monthly interest on that withdrawal until you put it back.
4) In most policies (which is most likely to be true in your life policy), if you die someday, the insurance company keeps the cash value, but pays the death benefit to your beneficiary.
My question to you is why would you pay so much money to the life insurance company?
Related posts:
The reason most advisors shy away from whole life or universal life is the fees and commissions associated with them. In other words, they are traditionally a more expensive way of owning insurance. The common theme you hear with many advisors is buy term life and invest the difference. This allows you to keep the cost of insurance low (term) and use the additional dollars to fund investments like a mutual fund. Overall, this is a great strategy, but there is a downside. Term insurance is for a set period of time like 20 or 30 years. After that time is up you must get new insurance, and the cost of the insurance is usually very expensive. This keeps many people from having life insurance in their later years of life. Some say you do not need as much life insurance in those later years so it is not a challenge. My advice is if you have had the policy over 4 or 5 years, it may be best to keep it. The best way to determine this is see what a 30 year term policy will cost you (remember you will have to get underwritten so do not cancel your current policy) and then use an investment calculator to see what would happen if you invest the difference.
Hopefully, this helps. By the way, I am a licensed insurance agent and have been selling life and health insurance for 20 years.
References :
You may want to do a little research…
"There is a respected financial advisor, Suze Orman, who seems so adamnant that whole life is not a swift move. "
Suze Orman is not licensed to be giving ANY advice. She has some very valid points, but this one is way off.
""She scores very high on the personality index, but very low on the knowledge and understanding of the complex issues that face a lot of her audience. She’s giving generic, simple solutions to people’s most difficult problems, and judging from her portfolio, she’s taking them on a path she really hasn’t traveled herself.""
References :
http://articles.moneycentral.msn.com/Investing/Extra/IsSuzeOrmanOutOfTouch.aspx
Any good reasons for owning whole life insurance? ONLY IF SOMEONE ELSE IS PAYING FOR IT. That’s the only good reason.
But if you ever get the chance to read your policy and be able to understand it, you will see it is a big rip off. Talk to any financial analyst and majority of them will say whole life insurance fits only the person who sells it.
Here’s the hidden truth about whole life insurance:
1) It is very expensive when compare to term insurance. A 30 year old with $100k coverage will pay $1000/year on whole life. With a 20 year term, it will only be around $260/year.
2) Get a low rate of return on the cash value. In the first 2 years, no cash value is accumulated since most of it is used to pay for agent’s commissions. You won’t see a positive return until at least the 10th year into the policy. Even then, you will get a return of 1-3% on your money. I don’t know about you, I wouldn’t be happy about paying so much in the first 10 years to get a negative rate. You would of been better off putting that money in the bank.
3) If you wish to withdraw money from the policy, you have to borrow it and pay loan interest between 6-8% on it. When you pay the loan back, the interest portion does not go back into the cash value. It goes directly to the insurance company as profits. That’s like going to the bank and taking money out, but the bank going to charge you monthly interest on that withdrawal until you put it back.
4) In most policies (which is most likely to be true in your life policy), if you die someday, the insurance company keeps the cash value, but pays the death benefit to your beneficiary.
My question to you is why would you pay so much money to the life insurance company?
References :
http://finance1o1.blogspot.com
Although a lot of whole life policies are sold for their investment value, it is rarely a good idea to buy permanent life insurance solely for investment purposes. Remember that, first and foremost, the reason behind buying life insurance should be to provide sufficient coverage for your family.
What Is the Whole Life Insurance Investment Value
Agents might try to talk you into buying whole life insurance for its investment value for several reasons:
* Apart from the life insurance coverage, permanent life insurance includes an investment account, called "cash value" where part of the premiums accumulates. This cash value belongs to the policyholder and it can be used for a variety of purposes.
* There are some tax advantages of owning a cash-value whole life insurance: cash value accumulates on a tax-deferred basis which provides some kind of a tax shelter for policy owners.
Reasons against Buying Whole Life Insurance as an Investment
* Whole life premium rates are usually the highest amongst all the life insurance policy types.
* Insurers do not disclose the effective rate of return to policyholders, thus making it impossible to keep track of the profits made on the policy.
* One needs to own a whole life policy for a minimum of 15 years for a reasonable rate of return. The truth is that the majority of policyholders drop their whole life prematurely.
* The high upfront fees eat up a great amount of the cash value in the early years. Expense loading for sales commissions and management fees, is much higher compared to other investments.
* Lots of people sacrifice the face amount of their whole life insurance policy just for the sake of owning cash-value insurance. This often results in people remaining underinsured because they can’t afford to buy more whole life insurance. Remember that there are better ways to save money, and only purchase a whole life policy if you can afford it.
References :
http://www.askforinsurance.com/life-insurance/whole-life-insurance-investment.html