Whole Life Policy Review

I was sold a a whole life insurance policy by a NWM agent about 8 months ago. After a little research I'm not sure if it's something I should hold on to or not and was hoping for some input from some experts.

Hi Scattered Rubbish,
Quick question for you and a few observations. If a family member did not present you this product, do you think you what have sought it out and/or would you have bought it from a stranger?

I ask this because it seems that you were sold a life insurance policy as an investment and the need for death benefit protection is an afterthought. You're 24, may get married in a few years, buy a house and have a few kids. Your young and healthy and most all of us who are a half century old are jealous of you...but that aside I don't understand the rationale behind the purchase.

It was a RESPONSIBLE and SMART move buying life insurance now while you are young and healthy. You will probably have group life ins through your employer but that is unreliable so the individual policy is the way to go.

A $500,000 guaranteed thirty-year term policy is about $35.00 a month and a $200,000 guaranteed age 100 universal life is about $60.00 monthly. These types of products meet the criteria of life insurance being affordable, certain and without risk. You locked in a great rate and you'll never have to worry about the security of your future family.

41 years is a long time. 492 payments of $300 and a total outlay of $147,000. In these years you'll go through good times and bad times. Maybe a job loss, maybe a family member will be in need, maybe you'll open your own company, maybe you'll hit the lottery...who knows. Now that the life insurance is done wouldn't it make more sense to have a rainy day fund of maybe year or two of your expenses and then start putting money away for the future? That two hundred dollars a month your saving in insurance premiums would be a great start.

My personal opinion is never mix your savings needs with your life insurance needs. There are many products that you can use that provide the same tax deferred growth without risking your coverage. Keep it simple and buy life insurance to protect your loved ones and meet with a certified financial adviser to set up your savings and investment plans.

Thoughts?
 
Hi Scattered Rubbish,
Quick question for you and a few observations. If a family member did not present you this product, do you think you what have sought it out and/or would you have bought it from a stranger?

I ask this because it seems that you were sold a life insurance policy as an investment and the need for death benefit protection is an afterthought. You're 24, may get married in a few years, buy a house and have a few kids. Your young and healthy and most all of us who are a half century old are jealous of you...but that aside I don't understand the rationale behind the purchase.

... {excluded for brevity} ...

My personal opinion is never mix your savings needs with your life insurance needs. There are many products that you can use that provide the same tax deferred growth without risking your coverage. Keep it simple and buy life insurance to protect your loved ones and meet with a certified financial adviser to set up your savings and investment plans.

Thoughts?

You're correct in assuming that I wouldn't have sought out buying a whole life policy and that it was sold to me. However, some of the other members who have posted here make a pretty compelling case to hold on to it. At the same time, other are making a good case on just keeping my term and investing the rest. I'm pretty much in analysis paralysis, though it seems that despite my choice I'm in a fairly good position.

As I mentioned in my previous post, my major concerns are:

1) Because I currently pay my premium on a monthly basis, I'm worried that if we run into an emergency and we exhaust our E-fund that the policy is at risk of lapsing.

2) At this point in my life, though it was previously pointed out my priorities in life will change (especially in regards to insurance needs), I don't necessarily value the death benefit.

3) It's tough putting so much money into it and not seeing any sort of CV build up until/breaking even ~year 7
 
I love the concept, don't love the policy. As previously mentioned, it's not set up properly. You can get a better policy with better performance for what you are trying to accomplish. Cut your losses and replace it with a properly designed whole life policy. People are going to tell you that there are better ways to invest and better things to do with your money but if you had done it 15 years ago you'd be raving about how glad you are you did it. I know, hindsight is 20/20.

Think of the whole life as a foundation for how you invest. At your age, you create this foundation which allows you to be more aggressive in other areas of your portfolio. Your asset allocation should account for the cash value of your life insurance as a fixed asset. It's not going to win and sprints but if there are enough twists and turns, ups and downs or a bad sequence (all things you can't control) the hare just might win the race.
 
Buy a 30 year term and invest in a Roth IRA. When you retire the money is tax free and no yearly interest charge as with whole life. Very simple. If you need proof run a S&P 500 index historical hypo over the last 40 years at say 300 a month and spend $35 on insurance. BTW I have been doing this since 1986 and NEVER seen the actual performance of a policy perform as well as the illustration. I would use life insurance as a savings tool after you maxed out a Roth or no longer qualify for one.
 
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Buy a 30 year term and invest in a Roth IRA. When you retire the money is tax free and no yearly interest charge as with whole life. Very simple. If you need proof run a S&P 500 index historical hypo over the last 40 years at say 300 a month and spend $35 on insurance. BTW I have been doing this since 1986 and NEVER seen the actual performance of a policy perform as well as the illustration. I would use life insurance as a savings tool after you maxed out a Roth or no longer qualify for one.

It sounds to me like he's in position to do BOTH....that would be the best option, imo.
The WL gives safe and predictable (bond like) returns, the Roth is a great tool as well that can potentially give higher returns...although with more risk. Between the two, plenty of tax free money available down the road.

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I love the concept, don't love the policy. As previously mentioned, it's not set up properly. You can get a better policy with better performance for what you are trying to accomplish. Cut your losses and replace it with a properly designed whole life policy. People are going to tell you that there are better ways to invest and better things to do with your money but if you had done it 15 years ago you'd be raving about how glad you are you did it. I know, hindsight is 20/20.

Think of the whole life as a foundation for how you invest. At your age, you create this foundation which allows you to be more aggressive in other areas of your portfolio. Your asset allocation should account for the cash value of your life insurance as a fixed asset. It's not going to win and sprints but if there are enough twists and turns, ups and downs or a bad sequence (all things you can't control) the hare just might win the race.

I wouldn't say its poorly designed and to just give it up. It may not be completely maxed out, but its a pretty good policy.
 
BTW I have been doing this since 1986 and NEVER seen the actual performance of a policy perform as well as the illustration.

In all fairness, you started selling life insurance when we had historically high interest rates. Which meant that WL dividends were at historic highs (and UL interest rates). Since the early 90s, interest rates have steadily declined. Which in turn as caused WL dividends & UL interest rates to decline.

As agents, we need to be aware of how the economic environment affects the product we sell and set client expectations accordingly. Im not saying that you dont, just making a general observation based on your comment.

I also agree that a Roth is a great thing to do. Which is better? Depends on what he values. If he has the money he should do both imo. If he doesnt have the money then he can always do the Roth... but he cant necessarily always do the insurance... and the insurance will never cost less for him than it does today. Very few people regret purchasing a quality WL policy 30 or 40 years down the road, especially if it is overfunded.
 
It sounds to me like he's in position to do BOTH....that would be the best option, imo.
The WL gives safe and predictable (bond like) returns, the Roth is a great tool as well that can potentially give higher returns...although with more risk. Between the two, plenty of tax free money available down the road.

The problem is this. He (or she) is currently buying a life insurance policy that is NOT needed. Why pay for that? The only argument to be made for that (and it's a good one) is to guarantee future insurability; the right to keep buying the insurance regardless of a change in health. That is a worthwhile concern.

OK, so the issue then is what amount of insurance would he (or she) possibly need in the future? Based upon the income, I think it is clear that the need for insurance, when a family comes along, will be about $1.5 million. This means 4 times the insurance provided by the whole life policy. Based upon what a he is paying for the whole life, the cost for that would be over $12,000 per year. That's not even close to realistic. As I pointed out, a male age 24 can get a 30 year term plan (preferred plus; assuming he can qualify) for only $790 per year. I remember the old days when just the guaranteed insurability rider would have cost more.

I think the opportunities to participate in the HSA and IRA (I assume a SEP plan) makes the most sense - fully tax deductible contributions. This is a great idea, providing that the money belongs to the employees (fully vested) if they should leave the employer.

There is no need to rush into buying a permanent policy. The actual need for one will not be apparent for 20 or 30 years. If he saves and invests properly, he may never need permanent insurance. Of course if he doesn't save and invest properly, he won't be able to afford the permanent insurance.
 
and the insurance will never cost less for him than it does today. Very few people regret purchasing a quality WL policy 30 or 40 years down the road, especially if it is overfunded.

I just realized this isnt necessarily true. I'm in my 20's and I just had two car accidents last year. If I stay in shape and have a clean driving record after 2 years I can qualify or cheaper insurance.
 
I'm always baffled by the small mindedness that some agents have regarding life insurance. Some people really do live in a color-by-numbers world.

Needing life insurance and wanting it for it's safe cash accumulation and tax benefits are two completely different things.
 
I just realized this isnt necessarily true. I'm in my 20's and I just had two car accidents last year. If I stay in shape and have a clean driving record after 2 years I can qualify or cheaper insurance.

In general it is true. Any rate up you get now, will likely equal the increased COI two or three years from now from being older.

And if I had $100 for every client and every prospect that claimed they would be rated better in 1 or 2 years from now because they were going to lose weight or would stop smoking or whatever... I could retire a whole lot earlier. What happens if you have another wreck? Or a speeding ticket or two? Are you telling me that you never ever speed? There is a small chance that what you say could be true... but there is a much greater chance that it will not be true... regardless of your driving record.

In the next 2 years you could also develop cancer or some other disease and not be able to get any life insurance at all...
 
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