- 8,707
Primerica is NOT convertible...It is possible to extend it but its once again a term policy.
Buy Term And Invest The Difference
- Thread starter Atlas
- Start date
Primerica is NOT convertible...It is possible to extend it but its once again a term policy.
- 7,790
You probably meant to say: then! I will leave to agents who sell life insurance to comment on the accuracy of your post.
BTW I used to own a convertible a/k/a "a ragtop" in my youth.
Last edited:
jamesrcooper
New Member
- 1
Thank everyone for the great posts expressed here. In my opinion, Term life insurance is the most beneficial for a client 95% of the time. Of the cash value life policies, Whole Life is probably the best (stay far away from Universal or Variable life products, they are absolutely horrible, but that’s a sermon for another soapbox). Each individual has different needs, and each case is different, but you guys have no reason to take my word for it. Therefore, whether you are shopping for life insurance or selling it, I am going to empower you to figure it yourself, by showing you how I found mine, and what I do for clients. All it takes is a calculator, a few quotes, and a little know.
STEP 1: How much insurance do is needed, and for how long (if you go with term)? Each person is different, and there are a lot of factors to figure in which the help of an expert is needed (such as debt, length of mortgage, how old the children are, how much income, etc.) A good rule of thumb would be 10-20 times annual income, and getting as close to retirement as possible. In my case, I was 32 with little savings when I got life insurance, and felt like I needed it for 30 years to give me a chance to build income. I Needed $500K on me, and $400K on my wife.
STEP 2: What is the maximum that can be budgeted to spend? If shopping for whole life, it is expensive. Unless a person is wealthy, they may not be able to afford 10-20 times annual salary, so an important factor in choosing a policy will be discovering how close you can get to your needed amount and if that is acceptable to you. I knew I couldn’t pay more than $200 a month for life insurance.
STEP 3: Get several quotes to compare. I would recommend getting at least 3 quotes on each type, and only from companies that carry an A+ rating with AM’s Best. You can check their ratings on their website. Term life is very straight forward, but you do need to ask what options are available at the end of the term. This is just in case things don’t work out the way you plan. Most terms can be converted to whole-life, which is an OK option, but the best option is one that converts to a Decreasing Term, (or less insurance for the same amount of money). Chances are that if you still need insurance, you may not need as much, and term at, near, or after retirement age is expensive. You also need to make sure you are getting a fixed-level term (meaning your payments will not go up for the duration of the term), and that it can be renewed no matter what health you are in. With Whole Life, you need to ask what the interest rate is on the cash value account. You also need to know how much of your money will be going into the savings account every month, and how soon it will start. Most of your monthly premium will be going towards the cost of insurance, and for the first couple of years the money that should be going into the savings is actually going out in fees and commissions. When I was looking for mine, I took the most appealing (not the cheapest) of each category and compared them: -I could get $500K on myself and $400K on my wife (with $10K on each of the kids) in a 30-year fixed level term for 30 years. OR -I could get $150K on myself and $100K on my wife in Whole-Life for @$200 a month. This policy had a guaranteed interest rate of 4%. Every month, approximately $110 paid for my insurance, and $90 went into the savings component. For the first three years, however, the $90 went out in fees and commissions.
Now for me, this was all the information I needed in making an informed decision. The most important factor in getting life insurance is getting the proper amount of coverage, everything else is secondary to that. It does my family little good for me to pay through the nose for life insurance that is not going to last my family very long if something happens to me. If I can not afford decent coverage with whole life, then I am better off with term. But, just for the sake of expounding upon the determination process, I will show you how to complete the comparison.
STEP 4: Evaluate: in which case will my family benefit the most if something happens to me before the term is up? This is very simple, look at your face value and your cost per month. The answer here is almost always term. You get more bang for your buck. Even if the cash value is also available (and in most cases it is not), it is still not enough to cover the spread between the face values. In my case, it was a no-brainer: $500K @ $85/month vs. $150K @ $200/month. As I mentioned before, if I died tomorrow, $150K would not do much for my family, it would leave me woefully underinsured. $500K would pay off our mortgage and debt completely ,and invested properly, would supply my wife with @ $20K of annual income for the next 20 yrs. Term won that round.
STEP 5: Evaluate: In which case will my family benefit the most if something happens to me after the term expires? This is not only the most likely scenario, but this is also where is starts to get confusing for most people. In this case, you have to rely on projections and predictions. Here’s how to weigh the advantages and disadvantages of both: First of all, you have to know how to figure compound interest. The formula is Principal x (1 + interest rate) to the power of the number of years invested. If this is to complex for you, or you just don’t want to spend all day doing this, you can look up one of the many financial calculators on the internet.
Whole-Life: There is no way of knowing exactly when a person is going to die, so the best thing to do is try to shoot for age 65 (the average retirement age of a person, when most people will cash out their savings). Remember that the first few years of the savings component are not being paid in, so you have to deduct them from the number of years saved. I’ll use my example again: $90 of my premium would have went into my savings component, and would have earned a guaranteed 4% interest. Since the first 3 years would have went out in fees and commissions, I would have app 30 years to invest. At the age of 65, I would have $62,464.45.
Buying Term and Investing the Difference: If you only buy term insurance, and do not put the remainder in my savings, the answer here would also be obvious. You would be better off with the Whole-life. Term life has no savings component, therefore your savings and face amount @ age 65 would be $0. However, remember that I advised you to see what you could budget for (in step 2). You can take the cost difference and invest it into your retirement, and get some pretty powerful results. This is what people are referring to when the say “Buy Term and Invest the Difference”. Shoot for the same age of 65 and run your results @ 6%, 8%, and 10% and see what you get. I’ll use my own example. The cost difference between my proposed whole life policy and my term policy was $115 a month. $115 a month for 33 years @6%= $142,763.26 @8%= $222,369.22 @10%=$355,273.02.
STEP 5: Weigh in other factors: Now, it was pretty obvious to me which savings method is the best for me. Neither one of these options is going to get me to retirement in and of themselves, but the key is that even if market performance is terrible, and I only receive a 6% rate, I will already have accrued enough money just in the savings from selecting term to have at least $142,763.26 that I can put aside in a separate account to take care of estate taxes, burial cost, and leave a small legacy for my family when something happens to me. At that point, I will no longer need life insurance. In addition to this, I would no longer have to pay life insurance premiums every month. With the Whole Life option, I would only have $62,464.45 in savings, and would have to continue paying premiums until the policy matures, which is usually around age 85. You would need to do a similar comparison. Now, bear in mind when comparing these options that the 4% from the whole life policy is guaranteed, whereas retirement funds are not. Chances are that you will probably get a better return with “buying term and investing the difference”, but there exists a small chance that you may not. The difference needs to be significant enough that it is worth some risk to a person. Also, another factor to consider is the maturation date of the cash value of the whole life, and how it effects the death benefit. Most whole life policies do not pay the cash value plus the face amount until the cash value matures. In other words, If I were to die prior to age 85, my family would only receive $150K, and the insurance company would get to keep whatever cash value I had accrued. If I died prior to age 63 with term insurance, my family would have access to both my death benefit and my savings. If I die after 63 with term insurance, my family gets my savings, which is still much larger than the death benefit from whole life insurance. In addition, if someone ever makes the mistake of “borrowing” money from a whole-life cash value, it gets even worse. They are charged 8% interest until you put it back, and if you still owe money when you die, they deduct it from your death benefit. For instance, if my face value was $150K, and I had $50K in my cash value. I could “borrow” (this is my own money I’m borrowing by the way) up to $40K. Let’s suppose I borrow $20K at age 56, and die at age 62 without repaying it. I would now owe $32,270.04, and therefore my family would only receive @$120K. If I took the same $20K out of my IRA, I would pay a 10% fee and be subject to capital gains tax, but my $500K death benefit would remain untouched.
I know this is a lot of information, but I hope it is helpful in making your decision. As, I stated before, most people are going to be better off with term, but not always. In todays world, unfortunately, a lot of insurance policies are sold, and pushed upon agents to sell, with smoke and mirrors, but the numbers don’t lie. Rely on the numbers, and the best of luck to you.
STEP 1: How much insurance do is needed, and for how long (if you go with term)? Each person is different, and there are a lot of factors to figure in which the help of an expert is needed (such as debt, length of mortgage, how old the children are, how much income, etc.) A good rule of thumb would be 10-20 times annual income, and getting as close to retirement as possible. In my case, I was 32 with little savings when I got life insurance, and felt like I needed it for 30 years to give me a chance to build income. I Needed $500K on me, and $400K on my wife.
STEP 2: What is the maximum that can be budgeted to spend? If shopping for whole life, it is expensive. Unless a person is wealthy, they may not be able to afford 10-20 times annual salary, so an important factor in choosing a policy will be discovering how close you can get to your needed amount and if that is acceptable to you. I knew I couldn’t pay more than $200 a month for life insurance.
STEP 3: Get several quotes to compare. I would recommend getting at least 3 quotes on each type, and only from companies that carry an A+ rating with AM’s Best. You can check their ratings on their website. Term life is very straight forward, but you do need to ask what options are available at the end of the term. This is just in case things don’t work out the way you plan. Most terms can be converted to whole-life, which is an OK option, but the best option is one that converts to a Decreasing Term, (or less insurance for the same amount of money). Chances are that if you still need insurance, you may not need as much, and term at, near, or after retirement age is expensive. You also need to make sure you are getting a fixed-level term (meaning your payments will not go up for the duration of the term), and that it can be renewed no matter what health you are in. With Whole Life, you need to ask what the interest rate is on the cash value account. You also need to know how much of your money will be going into the savings account every month, and how soon it will start. Most of your monthly premium will be going towards the cost of insurance, and for the first couple of years the money that should be going into the savings is actually going out in fees and commissions. When I was looking for mine, I took the most appealing (not the cheapest) of each category and compared them: -I could get $500K on myself and $400K on my wife (with $10K on each of the kids) in a 30-year fixed level term for 30 years. OR -I could get $150K on myself and $100K on my wife in Whole-Life for @$200 a month. This policy had a guaranteed interest rate of 4%. Every month, approximately $110 paid for my insurance, and $90 went into the savings component. For the first three years, however, the $90 went out in fees and commissions.
Now for me, this was all the information I needed in making an informed decision. The most important factor in getting life insurance is getting the proper amount of coverage, everything else is secondary to that. It does my family little good for me to pay through the nose for life insurance that is not going to last my family very long if something happens to me. If I can not afford decent coverage with whole life, then I am better off with term. But, just for the sake of expounding upon the determination process, I will show you how to complete the comparison.
STEP 4: Evaluate: in which case will my family benefit the most if something happens to me before the term is up? This is very simple, look at your face value and your cost per month. The answer here is almost always term. You get more bang for your buck. Even if the cash value is also available (and in most cases it is not), it is still not enough to cover the spread between the face values. In my case, it was a no-brainer: $500K @ $85/month vs. $150K @ $200/month. As I mentioned before, if I died tomorrow, $150K would not do much for my family, it would leave me woefully underinsured. $500K would pay off our mortgage and debt completely ,and invested properly, would supply my wife with @ $20K of annual income for the next 20 yrs. Term won that round.
STEP 5: Evaluate: In which case will my family benefit the most if something happens to me after the term expires? This is not only the most likely scenario, but this is also where is starts to get confusing for most people. In this case, you have to rely on projections and predictions. Here’s how to weigh the advantages and disadvantages of both: First of all, you have to know how to figure compound interest. The formula is Principal x (1 + interest rate) to the power of the number of years invested. If this is to complex for you, or you just don’t want to spend all day doing this, you can look up one of the many financial calculators on the internet.
Whole-Life: There is no way of knowing exactly when a person is going to die, so the best thing to do is try to shoot for age 65 (the average retirement age of a person, when most people will cash out their savings). Remember that the first few years of the savings component are not being paid in, so you have to deduct them from the number of years saved. I’ll use my example again: $90 of my premium would have went into my savings component, and would have earned a guaranteed 4% interest. Since the first 3 years would have went out in fees and commissions, I would have app 30 years to invest. At the age of 65, I would have $62,464.45.
Buying Term and Investing the Difference: If you only buy term insurance, and do not put the remainder in my savings, the answer here would also be obvious. You would be better off with the Whole-life. Term life has no savings component, therefore your savings and face amount @ age 65 would be $0. However, remember that I advised you to see what you could budget for (in step 2). You can take the cost difference and invest it into your retirement, and get some pretty powerful results. This is what people are referring to when the say “Buy Term and Invest the Difference”. Shoot for the same age of 65 and run your results @ 6%, 8%, and 10% and see what you get. I’ll use my own example. The cost difference between my proposed whole life policy and my term policy was $115 a month. $115 a month for 33 years @6%= $142,763.26 @8%= $222,369.22 @10%=$355,273.02.
STEP 5: Weigh in other factors: Now, it was pretty obvious to me which savings method is the best for me. Neither one of these options is going to get me to retirement in and of themselves, but the key is that even if market performance is terrible, and I only receive a 6% rate, I will already have accrued enough money just in the savings from selecting term to have at least $142,763.26 that I can put aside in a separate account to take care of estate taxes, burial cost, and leave a small legacy for my family when something happens to me. At that point, I will no longer need life insurance. In addition to this, I would no longer have to pay life insurance premiums every month. With the Whole Life option, I would only have $62,464.45 in savings, and would have to continue paying premiums until the policy matures, which is usually around age 85. You would need to do a similar comparison. Now, bear in mind when comparing these options that the 4% from the whole life policy is guaranteed, whereas retirement funds are not. Chances are that you will probably get a better return with “buying term and investing the difference”, but there exists a small chance that you may not. The difference needs to be significant enough that it is worth some risk to a person. Also, another factor to consider is the maturation date of the cash value of the whole life, and how it effects the death benefit. Most whole life policies do not pay the cash value plus the face amount until the cash value matures. In other words, If I were to die prior to age 85, my family would only receive $150K, and the insurance company would get to keep whatever cash value I had accrued. If I died prior to age 63 with term insurance, my family would have access to both my death benefit and my savings. If I die after 63 with term insurance, my family gets my savings, which is still much larger than the death benefit from whole life insurance. In addition, if someone ever makes the mistake of “borrowing” money from a whole-life cash value, it gets even worse. They are charged 8% interest until you put it back, and if you still owe money when you die, they deduct it from your death benefit. For instance, if my face value was $150K, and I had $50K in my cash value. I could “borrow” (this is my own money I’m borrowing by the way) up to $40K. Let’s suppose I borrow $20K at age 56, and die at age 62 without repaying it. I would now owe $32,270.04, and therefore my family would only receive @$120K. If I took the same $20K out of my IRA, I would pay a 10% fee and be subject to capital gains tax, but my $500K death benefit would remain untouched.
I know this is a lot of information, but I hope it is helpful in making your decision. As, I stated before, most people are going to be better off with term, but not always. In todays world, unfortunately, a lot of insurance policies are sold, and pushed upon agents to sell, with smoke and mirrors, but the numbers don’t lie. Rely on the numbers, and the best of luck to you.
Bluefin646
Expert
- 41
James,
That is one heck of a post!
Thanks for going through your thought process on what is important. Very eye opening as it has raised numerous questions i have yet to consider.
To be honest, the entire thread was chock full of nuggets, i learned a lot, top to bottom!
One quick and basic question, what is general price difference b/t 30 yr level term vs 30 year level term that has a conversion ability to WL? SAy individuAl was 40 years old. Thx gents.
That is one heck of a post!
Thanks for going through your thought process on what is important. Very eye opening as it has raised numerous questions i have yet to consider.
To be honest, the entire thread was chock full of nuggets, i learned a lot, top to bottom!
One quick and basic question, what is general price difference b/t 30 yr level term vs 30 year level term that has a conversion ability to WL? SAy individuAl was 40 years old. Thx gents.
G
Guest
Guest
WOW, i didnt come here to read a novel!
- 8,707
Fail - You would be subject to Income taxes. Also if you want to "net" the same $20K you would need to take out just shy of $46K assuming 25% Federal 8.5% State (I'm in Maine) and the 10% penalty tax.
Otherwise a decent post, it does leave out a bunch of the pros of Whole Life but as long as you are happy with your decision.
Uhhh.......
- 4,132
James? are you just getting started? Lots of holes. First are you aware of GUL? basically lifetime term as there really isn't much difference between UL and level term.
Also what if you premium offset your whole life policy? What if you used the dividends to reduce the premuim so it gets cheaper to own over time?
What if your investments don't only go up? What if you're retiring RED? What if your health changes?
Have you given thought to a split purchase of both whole life and term?
But go on, I love you guys. I am making a good income with the second go round term purchasers. Their 20 and 30 years are up, their plans didn't always go in the desired direction and they've picked up a health condition or two. Their income is about to stop and they are faced with a mortgage and other debts. While you may not know this, in your 60's term costs a hell of a lot and if you have to have coverage, even the cheapest premium still is a lot of money.
Your solution pushes the decision off to the future, where you hope everything goes as planned. Problem is, this concept's been around forever, yet only very few actually make it work. I meet lots of people who thought like you do, 20 years ago. I am thankful they put their solution off and didn't hedge their bets. Term premiums the second time around can kick your ass. Just wait, you'll find out.
Also what if you premium offset your whole life policy? What if you used the dividends to reduce the premuim so it gets cheaper to own over time?
What if your investments don't only go up? What if you're retiring RED? What if your health changes?
Have you given thought to a split purchase of both whole life and term?
But go on, I love you guys. I am making a good income with the second go round term purchasers. Their 20 and 30 years are up, their plans didn't always go in the desired direction and they've picked up a health condition or two. Their income is about to stop and they are faced with a mortgage and other debts. While you may not know this, in your 60's term costs a hell of a lot and if you have to have coverage, even the cheapest premium still is a lot of money.
Your solution pushes the decision off to the future, where you hope everything goes as planned. Problem is, this concept's been around forever, yet only very few actually make it work. I meet lots of people who thought like you do, 20 years ago. I am thankful they put their solution off and didn't hedge their bets. Term premiums the second time around can kick your ass. Just wait, you'll find out.
- 1,953
Term is designed to pay for what length? Whole life is designed pay for what length? What is the function of the cash value of the WL policy?
Just to ask James, are you a Primerica agent? I agree with many points but depending when a claim is made is the WL a bad deal if a claim is made early in the policy years with the same face amount? Then there's also the consideration of the possibility of the use of dividends.. I believe in BTID but it's not always so cut and dry..
Just to ask James, are you a Primerica agent? I agree with many points but depending when a claim is made is the WL a bad deal if a claim is made early in the policy years with the same face amount? Then there's also the consideration of the possibility of the use of dividends.. I believe in BTID but it's not always so cut and dry..
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