The word choice the author used just comes off as someone who wasn’t aware what they bought, or intended for it to be something else. She’s happy with them, but I wouldn’t be if I were her. You’d think 10 years later, I’d learned my lesson. I’m a DIY investor and I’ve done well, much better than I’d ever have done by having these idiots construct a diversified portfolio for me. Any information on the Site does not in any way alter, supplement, or amend the terms, conditions, limitations or exclusions of the applicable insurance policy and is intended only as a brief summary of such insurance product. The fact is that many investment advisors stridently say “WL isn’t an investment, you should buy term and invest the difference” with them! Can somebody who is not an insurance salesmen describe the scenario where whole life is an appropriate product? Eventually, it eats up the entire premium and starts into the cash value. The Simple Dollar has partnerships with issuers including, but not limited to, American Express, Capital One, Chase & Discover. Term life insurance, a type of life insurance, stays in place for a set period of time. Does your aunt live with you? The regret of purchasing a whole life insurance policy is often wrapped up together with the realization that you have been getting bad financial advice. Cash value life insurance, such as whole life insurance, universal life insurance, and variable life insurance are products designed to be sold, not bought. It’s difficult for immigrants in America, no matter how disciplined they may have been in their past lives in their home countries, to start from scratch because it’s literally starting from scratch. I would love to get your feedback on her situation if you don’t mind. This means the premiums are a lot cheaper than whole life policies. The following states have weak (I'm defining that as less than $100K) or no creditor protection for whole life insurance cash value: AR, CA, CO, CT, GA, ME, MN, MT, NH, ND, PA, SC, SD, VA, WV. is also a ripoff. Whole life insurance is a product designed to be sold, not bought. When I found that out it made me wonder that though I thought I had a rough layman’s appreciation for the history of things, that maybe finance had changed even more than I thought. Yeah sounds right. Unlike a whole life insurance policy, many universal life policies really aren't designed to provide a large death benefit after a long life. No surprise there, it’s just math since the insurance company portfolio is mostly composed of bonds so after their expenses/profit, your return has to be less than the return provided by bonds. Here's another common issue. You benefit from the lower qualified dividend rates, the lower long-term capital gains tax rates, tax-gain harvesting, tax-loss harvesting, the ability to use appreciated shares for charitable giving (flushing the capital gains out of your account), and with real estate, depreciation and exchanging. You can also subscribe without commenting. It might sound like a good thing to have life insurance coverage for your entire life. I have found that purchasing a hammer can be very difficult. The Fees are Too High. I can give a few reasons. You need life insurance only if anyone would be put at risk or suffer financially because of your death. Get started in your early 40’s As you close in on 50, you can expect the cost of whole life insurance to rise. These people understand there are flaws also, but they have done some sort of mental cost/benefit analysis and they have determined that it is on balance better for anyone they would sell it to. The craziest part about buying term life insurance is just how easy it’s become. During the divorce proceedings, a whole life policy must be listed among the marital assets to be divided, and it could be cashed out and divided equally. So she sold out her WL and I kept mine, but my portfolio vastly outstrips hers. The Flowbee haircutting vacuum was also a tool. I earn more money now, and I have two children, which means I need a larger policy to replace my income. Cash value life insurance can make sense for people whose business or estate planning require permanent insurance. Insurance salesman: Whole life> not saving at all When I realized how much they took advantage of him and how badly they ripped him off, I chose to join PFS and crusade against the life insurance industry. As the policy matures, 5-10-15-20 years down the road, the cost of insurance goes up, but the premium stays the same. We are an independent, advertising-supported comparison service. The second of ten points lists the types of insurance you should have early in your career, including “disability, term life, and malpractice insurance”. Buying a whole life policy is like getting married–it's either until death do you part, or it's going to cost you a lot of money to get out. The problem as I see it is that half the financial advisors are no less conflicted than WL agents. I’m not a doctor but even if I am I would buy a life insurance because there is no guarantee that I would be alive in the next 20 – 30 years and if I have young children, they would be able to continue with the lifestyle I am able to give them while I am alive as the insurance money will replace the income that is lost when I’m gone. At issue is the fact that secondary features of whole life insurance are often touted as primary reasons for its purchase. The downside, however, is that by waiting to buy, you may be facing higher premiums. If she isn’t staying with familiy, she should get a roommate or rent a room (not an apartment) off of craigslist. Rising premiums can soar dramatically as you get older, leaving you with no choice but to cancel the policy. Sure, kids are a big reason why some people get life insurance. But, it’s not that hard to figure it out, either. “I'm still underwater! Whole life insurance has a cash value that is collecting interest tax-free. If you're a 20-something, you're more likely to be single and childless—but that doesn't mean you'll stay that way. Policygenius reports that whole life insurance can cost six to 10 times more than a comparable term policy. I for example am in the upper 1% of savings for age in my country. There are lots of life insurance options for anyone in less than optimal health, … Both are usually sold with high commission costs, although some claim there are ways around this with universal life. For a period of years after purchase, the cash value of the policy will be less than the total of premiums paid. Please see a copy of your policy for the full terms, conditions and exclusions. Or maybe you changed employers and now have four times the amount of tax-protected space in retirement accounts. Notify me of followup comments via e-mail. The policy needed to be in force at death, so permanent policy. If the investment performance of the policy was not as good as projected (and it usually isn't), the entire cash value can be used up to pay the premiums. Ok, I died 5 years into having this plan, only paid around $5,000.00 over the course of owning this policy, and now my beneficiaries get $100,000.00. “I used to sell crap until I saw the light.”. It depends upon whether your life insurance policy is a Whole Life policy or a Term Life policy. I disagree that “whole life” is the “base form.” I would argue that annually renewable term is the base form, but I guess you’re entitled to your opinions, just like I am. Canada’s provinces collect similarly to the states. This article made me remember my young dentist who died in a vehicle accident. For a study they conducted, they asked for several life insurance quotes for a 40-year-old Illinois man in excellent health. So the cycle will continue. Hi WCI, it’s nice seeing you showing such distate for whole life insurance hahaha. I don’t know what percentage of whole life defenders are these types, but I’m sure there will always be some. When policy holders realize the tax benefits aren't nearly as good as the agent made them sound, they often regret their purchase. Additionally, you have the option of cashing out the policy and the money that you have paid into the policy at any time during your lifetime. What task do you see this tool as ideal for and what percentage of my readers need to accomplish that task? I agree with EVERYTHING in your comment (honestly, it’s full of so many hard truths that I hope the OP will be able to convey as compassionately as possible to his aunt)… Except the point about “no savings in 44 years”. Even after the policy eventually breaks even (and all but the most terrible will eventually), many investors are disappointed to learn just how low the returns on your cash value are. Same as it ever was. Term life, whole life, … Also available on Audible! They keep your money when you die. Earlier this year, I did something I should have done years before – I bought another term life insurance policy to add to the coverage we already had. If you really understand how it works and you want it, then buy as much as you like. You probably obtained whole life insurance for reasons such as insuring your income, protecting beneficiaries or building up an emergency/opportunity fund. Investing is a gamble just as Life Insurance is a gamble. All insurance products are governed by the terms, conditions, limitations and exclusions set forth in the applicable insurance policy. With whole life, the same thing is going on, but behind the scenes. It can certainly be more nuanced and complex than that, and I’m aware that whole life insurance can be a smart way for wealthy families to leave tax-free money to their heirs. You don't pay the fees directly, but you do pay them with lower returns. If not, she should consider moving somewhere with a lower cost of liiving. That’s the important question. Remember as you go down the list, that I don't have a problem with YOU buying whole life insurance or even with the product itself really. Here’s why I would never buy whole life insurance, and why term life insurance policies suit our family just fine: #1: Whole life insurance can be absurdly expensive. I think it’s pretty versatile and can play a unique part in most people’s financial plan. For some reason I find it amusing enough that I’ll keep following along. There are pros and cons, but it’s something readily available to you and it’s still insuring you and your family. Your email address will not be published. Great article with detailed explanations! Yes! You may decide to settle down in your 30s or later and at that point, the appeal of life insurance may become clearer. Their whole world view is tied up in it, and if they were some how convinced that all they were doing is ripping people off that would be a hard pill to swallow. Cool, that’s a bonus. It must be so. Go back to flogging commissioned products to uninformed consumers. Read your policy, this is considered a loan to you that you have to re pay to the life insurance company at 6-8% interest, and from the point it bell curves it is considered income and is now a tax able event. One thing I’m trying to get a better sense of is what percent of the whole life pushers are true believers. So anyway, just realize that most advisors don’t grasp the historical context, and they’re not doing their clients any favors by not elucidating the problems with WL, as has WCI thankfully, and basically being as partisan as insurance agents and as blind to financial reality. The Simple Dollar does not include all companies or all available products. Half of this info reflects facts, but too much is left to opinion which just shows a lack of knowledge around the subject if you actually truly study this stuff. Build Cash Value. Older brokers/salespeople are stuck in the old ways. Before I purchased this term policy, however, I was contacted by an insurance agent who wanted to sell me a different kind of life insurance – whole life. So no, I don’t know exactly how much they wanted me to pay for the amount of coverage I wanted – $750,000. You know efficient frontiers and all that. WCI had a post a few years back detailing situations when it may be appropriate: https://www.whitecoatinvestor.com/appropriate-uses-of-permanent-life-insurance/. The stock brokerage commissions were high too, like $0.06/share and even higher for public offerings. Perhaps this would take out the opinion from this article and actually just present all information. This one is technically not about whole life insurance, where the premiums are guaranteed, but about its cousin universal life insurance. There are still hundreds of thousands of brokers and insurance salespeople compared to low tens of thousands of fee-only advisors. Why or why not? Among physicians that actually purchase the product, 3/4 of them regret their decision. Insurance brokers may appeal to the logic that, because a whole life policy covers you for life, your family is guaranteed a payout. Probably more than that. Ie when the client starts the UL, to keep the numbers simple, let’s say they pay $100/m in premiums. Personally, if I’m going to tie up money for decades, I expect a higher return. Eric…can you provide an example of a person that needs life insurance for their entire life? Spending $600 per year on whole life insurance when she can’t save $1900 per year for her life in retirement doesn’t sound like a prudent use of her time and money. Universal life ins. But to sum up life insurance – you buy Whole Life insurance for just that: your life. You don't need to insure against it. There are a number of reasons, and usually, it's a combination of a few of them. At this point, it sounds like Social Security is her main plan for retirement. What if you need to take a withdrawal? This isn’t a trust. That would actually be a useful comment–tell us when and how this “tool” is the right one to use. But if my country’s politically and economic instability gets to boiling point and I choose for non financial reasons to emigrate (safety, human rights etc) my relative wealth will hardly get me through my recertification let alone the costs of moving to a developed country. She didn’t become extremely overweight overnight. Obviously, this is just one estimate from one insurer, and I might pay more or less for whole life insurance based on the provider I select. I’ve had life insurance since I was 25 years old, but our needs have changed and I was starting to feel insecure. In the end, this just sounds like a disgruntled writer who didn’t do their research, or at the very least, read what they were purchasing. 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