Life Insurance Vs. Savings Plan?

[Golfnut2112]

I take exception to that statement, but prior to making a response out of ignorance, I need to know if you are making it based on regulations governing the sale of insurance or personal opinion and/or ethics concerning the sale of insurance.

Why do you take exception to my statement? I could not based on my ethics recommend life insurance as a savings to someone that has no need for insurance. Why would you not recommend a Roth for retirement? As far a regulations I would not want to be in a court room answering questions as to why I sold a life insurance policy, TO SOMEONE THAT DID NOT NEED LIFE INSURANCE, as a savings or retirement plan instead of a Roth.

I have sold life insurance to single people based upon their needs. One of the needs I have found is student loan debt with either the parents or grandparents cosigning the loan.

 

[VolAgent]

Why do you take exception to my statement?

Perhaps he was single when he bought that policy 40 years ago.

 

[DHK]

If you sell life insurance as a savings to a single person with no kids or no need for life insurance make sure your E&O insurance is paid up. Why would you not recommended something for their short term savings and maybe a Roth for retirement?

Also there is NO WAY a policy is showing a 5% compounded rate of return by year 20!! Also factor in the loan interest you must pay to access the money and it really becomes a poor savings.

I sent you a PM, but let me address that last part. First, it depends on the policy design by the company. Guardian's whole life policies have a fixed 8% loan rate, which isn't exactly competitive in today's interest rate environment.

Let's assume you have $100,000 in cash value, non-direct recognition policy earning 5%. Let's ignore the fact that the policy may still require ongoing premium payments, and these numbers are hypothetical, etc. That policy will earn $5,000 per year.

Let's say that you want to buy a new Lexus SUV for about $50,000 and you have excellent credit. You could buy it from the dealer at 0%, or you could borrow $50,000 from your policy ALSO at 5% loan cost for $2,500 per year.

If you DON'T pay the loan interest every year, then the policy earnings ($5,000) will pay for the loan interest cost ($2,500) leaving a $2,500 net earnings on the policy.

If you DO pay the loan interest every year, then you RESTORE your policy earnings. ($5,000 - $2,500 + $2,500 = $5,000.)

Now, why would someone want to borrow from their life insurance policy at a cost of 5% instead of paying 0% from the dealer?

1) "Required" minimum payments are LOWER. ($50,000 / 5 years = $10,000 per year in payments vs $2,500 loan interest only "required" payment.) And technically, you don't even have to pay that... but it certainly is a good idea to keep the policy afloat and viable.

2) Additional payments above the annual loan interest amount restore borrowing capacity for future purchases or other needs.

3) Protects credit in the event of a gap in employment and cash flow. Life insurance loans are not reported to credit bureaus. This is key because getting hired for a new job often requires a credit check, and this protects your credit standings.

4) No collection calls... ever.

5) Worst case scenario... your car is never repossessed because you own it (and the title) and provided your own financing.

 

[BYSFG]

Why do you take exception to my statement? I could not based on my ethics recommend life insurance as a savings to someone that has no need for insurance. Why would you not recommend a Roth for retirement? As far a regulations I would not want to be in a court room answering questions as to why I sold a life insurance policy, TO SOMEONE THAT DID NOT NEED LIFE INSURANCE, as a savings or retirement plan instead of a Roth.

I have sold life insurance to single people based upon their needs. One of the needs I have found is student loan debt with either the parents or grandparents cosigning the loan.

Might have to talk to those carriers that focus on BYOB or products that have "lifetime income riders" or can be structured as an asset class.

 

[pfg1]

Why do you take exception to my statement? I could not based on my ethics recommend life insurance as a savings to someone that has no need for insurance. Why would you not recommend a Roth for retirement? As far a regulations I would not want to be in a court room answering questions as to why I sold a life insurance policy, TO SOMEONE THAT DID NOT NEED LIFE INSURANCE, as a savings or retirement plan instead of a Roth.

I have sold life insurance to single people based upon their needs. One of the needs I have found is student loan debt with either the parents or grandparents cosigning the loan.

That is fine, a Roth is a good thing. But they have a small amount they can contribute to a Roth....unless they want to load up and convert, which has its own set of issues.
I agree, it shouldn't be in lieu of savings or retirement, but certainly can (and most often) should be in addition to. Having a product like max funded PLI gives a tremendous amount of benefits to the owner/insured, and can perform quite well. Certainly could be compared to a bond portfolio, or similar from a return standpoint.
Most of your posts make good sense, but its also easy to see your bias towards the market vs insurance products. Not that its a bad thing, each advisor has their own path they prefer and reasons why. I used to believe that PLI was the only way. It was how I was taught when I came in. Couple that with the fact that years earlier I had previously lost my a$$ in the market due to a dumba$$ advisor I had, I was very risk adverse. That is not an uncommon place for many people to be - even today.

Since then, as I've grown and learned a ton more, I've opened my mind and understand that PLI is just a piece of the pie ...but a very important one, imo.

 

[VolAgent]

Well said pfg1.

Sadly, too many discussions are anything but. All my way or the highway, only one possible solution. It is nice to see someone realizes there can be multiple ways to work towards the same objective.

 

[DHK]

Golfnut2112 and I spent about 90 minutes on the phone today. We had a great conversation. He's still wrapping his mind around all this, but I think he's not far off. He's quite a lively guy - quite different from some of his posts when I read them.

Give him a break. He'll come around.

 

[pfg1]

Golfnut2112 and I spent about 90 minutes on the phone today. We had a great conversation. He's still wrapping his mind around all this, but I think he's not far off. He's quite a lively guy - quite different from some of his posts when I read them.

Give him a break. He'll come around.

Oh I know he has alot to chip in. I enjoy many of his posts.

 

[Golfnut2112]

Golfnut2112 and I spent about 90 minutes on the phone today. We had a great conversation. He's still wrapping his mind around all this, but I think he's not far off. He's quite a lively guy - quite different from some of his posts when I read them.

Give him a break. He'll come around.

Great talking to you too!!

 

[LostDollar]

Why do you take exception to my statement? I could not based on my ethics recommend life insurance as a savings to someone that has no need for insurance. Why would you not recommend a Roth for retirement? As far a regulations I would not want to be in a court room answering questions as to why I sold a life insurance policy, TO SOMEONE THAT DID NOT NEED LIFE INSURANCE, as a savings or retirement plan instead of a Roth.

I have sold life insurance to single people based upon their needs. One of the needs I have found is student loan debt with either the parents or grandparents cosigning the loan.

I certainly cannot argue with a person making a decision of something not to sell and calling that an ethical basis of their "product to sell" decisions. However, your "statements of fact" in this and the previous post run contrary to posts in this thread, my personal experience and broader site content.

Comments about using life insurance as a savings vehicle were not made to construe life insurance as the "be all" "end all" of savings vehicles. The op asked whether life insurance or savings was/is "better". The responses indicated that there are a variety of vehicles to be used in accumulating wealth and that life insurance has a significant place in the product array. A client would be poorly served by any advisor that recommended a single product to the exclusion of all others, whether that product is life insurance, a stock account or a roth ira.

Saying that a single person does not need life insurance is an arbitrary and incorrect prospect pre qualification. A parallel would be my driving down a dusty country road in the south eastern US and saying "The residents of that house do not need a bible dictionary because they have a rusty pickup." or The residents of this house do not need a bible dictionary because it has green shutters." IMO a person's marital status, single or married is not a qualifier of whether or not they need life insurance. From the limited perspective I have at this time I would say that the sale of a life insurance policy is dependent upon the abilities of the life insurance agent and the probable purchaser to merge the probable purchaser's perceived need for life insurance, the probable purchaser's real need for life insurance and the probable purchaser's ability to pay for life insurance with an appropriate product the life insurance agent can provide.

(Please understand in the following remarks I am using rounded numbers for both time and dollars-the concept is the issue.)

If you look at the "popular forums" list, you will see that the "final expense" forum has roughly twice the amount of posts as the "life insurance" forum. Yet in my current state of knowledge, I would consider final expense insurance to be a subset of life insurance. One for which there is a broad desire and need and one which is based precisely on the principle of saving for future needs. This is sold to, and meets the needs of, folks "originally single" or "resingled" or "firstly married" or "remarried".

I made inquiry in the final expense forum. A seller of final expense products told me that a $10K policy is one of his most commonly asked for products. At age 72 in the state of Kansas I can buy a $10K whole life policy for $740 a year. If I was 32 I could buy the $10K policy for $160 a year.

As it happens, 40 years ago I had gotten out of the service and was attending school on the GI Bill. For the first time in my life I had a small bit of extra money. I decided that one of the things I should do was to purchase a life insurance policy so, in the event something happened to me-such as a car accident, my death related expenses would not be a burden to my parents. I think the arguments at that time were "don't use life insurance as savings-whole life is not a wise purchase" "buy term if you need insurance and just pay for the insurance". I had had a great deal of trouble finding jobs, keeping jobs and saving any money-so I disregarded that advice because I considered that whole life would be a "forced" savings plan. I purchased a $10K whole life policy for---- $160 per year!

In the ensuing 40 years I was fired 4 times. I was unemployed 6-8 years of that 40. Savings accounts, IRA's, a Merrill Lynch Sharebuilder account and a 401k account and a $100K life insurance policy came and went. At one point when I had been unemployed for around 2 years, was diagnosed with cancer and we were making payment on 2 houses because I am a hoarder, I almost lost everything including the $10K life insurance and became homeless with a family of 4. My retirement is arthritis and social security with a travel horizon of the backyard and the grocery store. If my final medical costs, whenever they choose to appear, have much substance or significant duration, any financial resources I have will disappear like straw in a hurricane. Through all that I have managed to keep that $10k policy Only because of accumulated cash value and the policy loan provisions for premium payment-including I think 6% interest.

Now let's assume I can beat the mortality tables and go to at least 92, ie another 20 years. (And let's ignore a discussion of paying more in premiums than the face of the coverage because I don't know how to deal with that.)
$740-$160 = $580 per year. $580 / yr for 20 years = $11,600. $160 per year for 60 years = $9,600. Buying a $10K policy while in my 30's, single, with no kids and "not needing insurance" and holding it for 60 years is cheaper than buying the same coverage at age 72, when "everybody" is buying it and just holding it for 20 years.

(the following does not agree with what customer service told me, I'll have to get some clarification because they said I'd paid $8k+.)
At $160 per year for 40 years I'd have paid $6,400. I have a cash value in the policy of $6k+.

In short, arguments that a (young) single person with no children does not need life insurance, or that life insurance is not a savings vehicle, have no standing in this corner of the world.