Whole Life with Massmutual Good Idea?

[Sailerdude78]

I'm a young mechanical engineer who is thinking about starting a whole life insurance policy with Massmutual for both death benefit and as a savings plan for the future. I've been working with an agent, and I've also read (well honestly skimmed, but plan to read) the book <i>Becoming Your Own Banker</i>. I like the idea, but I'm a little confused and I'm not sure what my agent is telling me is the truth, or if he even knows the answers himself.

I'm thinking about a policy probably around 500k (maybe $1 million). My agent tells me I can "overfund" the policy and this will somehow help the cash value. This is what I believe the Banker book is talking about as well. I am confused however basically on how this all works. I guess I've been ignorant all these years to how life insurance could have a cash value. I know my parents have policies that have cash value, but they don't have the kind of cash value my agent told me I could get. If there is cash value, where does it come from, and how much am I paying for the insurance? My agent gave me an amount for $500k, which seemed like a lot, but I'm told a portion of this is where the cash comes from. Is that true. Also, can I change the amount I put into it over time? My agent gave me a somewhat indirect answer on this.

A little information on me:

Mechanical Engineer, I'd tell you more, but it's government work so it's a secret ;-)

Married with a kid on the way

Currently life insurance coverage is through work.

I'm in my 30's.

Also, is Massmutual the best company to look at? I did a quick search but didn't find much.

 

[pcbinsurance]

Without knowing more about your situation and whether you have health issues, I will assume you are a healthy non tobacco user.
I would look at a 30 year term policy for 500K and take the money you have left over (the difference between the whole life premium and the term premium) and invest it in products that fit your risk profile. Google "buy term and invest the difference".
I'm sure a whole life guy will pipe in with his recommendation and it will just boil down to your comfort level and whether you are disciplined enough to actually invest the difference.

 

[LGilmore]

I've owned whole life longer than I've been in the business. It's a great product, does what it says it will do. So much so that it is boring because of it's consistency. When my other investments tanked in 2008 (lost roughly 50%) my whole life still cruised along. They don't go backwards.

Mass Mu is a good company, several others are too. Would you be making a terrible mistake buying from them? No.
I think you should go back and talk these things over with your agent again, or forum search as there's a ton of information.

The engineer part about you scares me because you will only make the simple hard. Can't help yourself.

One of the problems you're going to run into in this forum is the diverse backgrounds of agents and their opinions. There are some agents who will bad mouth a type of insurance simply because they don't have it to sell or their training taught them a certain type was bad. I have a full tool box and think you can find a plan that does what you want it to.

For me, Whole life made sense because I wanted a policy to be inforce till the day I died. I wanted the price locked in, so nobody could price me out later. I like cash values, I like the tax aspects of dividend paying WL. I like what WL does with FASFA (absolutely nothing, it doesn't count) I like a death benefit that increases over time. I like when I need cash for anything, I can call and get it wired over. If I need a chunk of cash I don't have to explain to somebody in a cubical why I need it. I just get it. In the last few years I really like that it doesn't go backwards.

Everybody has their reasons to own or not. Figure out what yours are and if it works for you cool, if it doesn't that's cool too. Either way you live (and die) with the results.

Now you know why I would never work for you. I will not bother to take this four decimal points to the right. Whole life works well, doesn't require a lot of fuss or muss. It will provide no drama in your life. It will just do what it's supposesd to.

good luck. and try to keep it simple stupid. There are many other choices in life that will not work out as planned, stress over those.

 

[JeffM]

I'm an independent agent in California and sell MassMutual along with about another 50 companies. I can tell you that when it comes to whole life products, MassMutual is an excellent choice. I personally believe that as long as the premium is affordable for you, there's nothing wrong with permanent life insurance being a part of your financial portfolio.

But keep in mind that whole life is a long-term commitment as it will realistically take 15-20 years to build up significant cash value. Expenses to the policy are recaptured in the early years of the policy (marketing, agent commissions, etc), and should you decide to lapse the policy in the early years due to cost, you would be better off buying term.

An alternate, if you're on the fence, is to buy a MassMutual term policy which has excellent guaranteed conversion privlleges to whole life in the term policy's first 10 years. MassMutual term is usually more expensive than some other term products, but not that much more.

 

[Fisher]

I would look at a 30 year term policy for 500K and take the money you have left over (the difference between the whole life premium and the term premium) and invest it in products that fit your risk profile. Google "buy term and invest the difference".

Yes, I would definitely Google BTID. Lots of stories of living happily ever after with that strategy.

 

[RyanCO]

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The use of Whole Life versus BTID depends entirely on the individual and their comfort level. I spend a great deal of time talking with my advisory clients about this so that I can know what is most appropriate for them and for a part of their portfolio.

A potential problem with BTID is that it assumes that investing will necessarily create a higher long term rate of return than whole life. That just isn't true. It may, and it may not. That's where the individual's comfort level comes in to play. Obviously, the performance (or lack thereof) of the individual's investments will determine that.

And no investment advisor can guarantee that they can beat either the market or a good WL plan, either.

Studies have shown that the average active investor significantly underperforms "the market", with an average return of 2.9% to 4.0%, depending on the study you're reading (see below). Another issue is psychological. The constant stress of trying to predict markets or of trying to implement the right investment strategy is simply out of the comfort zone of many. That stress can manifest in making poor decisions, such as trying to time the market or picking inappropriate investment vehicles.

Will BTID outperform a good Whole Life policy? Maybe. Maybe not. But assuming it will is not in the best interest of the client, nor does it necessarily match their personal financial comfort level. I'm perfectly comfortable placing parts of many clients' portfolios in cash value life if it fits their comfort level.

Many people prefer "boring", and "boring" is worth a potential one or three or five percent return for them, not to mention the tax deferred growth and access to cash that WL and UL give them. Makes sense to me. Nothing wrong with steady, consistent, risk-free, tax-deferred, if boring, returns.

There's no "one size fits all."


2012 DALBAR Study Reveals Average Investor Returns


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[Norwayguy]

Make sure your agent's quote includes purchasing Paid up Additions or whatever Mass Mutual calls them.

 

[BNTRS]

I was thinking to myself just the other day it's been a while since we've had one of these posts. I was beginning to wonder if we've done too good a job in the past answering them and people were just searching the forum instead of posting.

So back to the topic at hand...

Massmutual is a superlative company. Stellar ratings, amazing financial strength, and a massive insurance company to boot.

I'm a broker with them, and I do like them. They can also certainly put some impressive numbers on paper from time to time. However, in the interest of full disclosure, I'll also note that I rarely write business with them. Why?

It has a lot to do with your question concerning adjusting the amount of money going into the policy.

I want to start by pointing out first that, yes, what you're talking about definitely works. However, I'm of the opinion that there is a right and a wrong way to do this. A lot of agents sell for premium. That's not a terrible thing, but when cash value is a big discussion, Paid-up Additions as Norway guy pointed out, are hugely important. I do a ton of this stuff, and the problem I run into regarding Mass is their extremely inflexible PUA rider (they call is the ALIR or Additional Life Insurance Rider). You basically choose an amount and at issue and can only increase it by 3% per year and you have a 3 year catch up (i.e. if you choose not to increase it for two years, they'll let you make it up and carry on). You can decrease the amount down to $300/year and then make up the former amount for 3 years (if you don't that $300 becomes the new amount increasing at 3%/year).

The other piece about Mass that is a little tricky is their blending process.

Again, if cash is a focus, you can squeeze more out of these things with blending, Mass blends ok. Better than many.

Now, Mass also has a 10 pay, and blended 10 pays can produce quite a bit of cash value. If your agent hasn't brought this up, I'd encourage you to bring it up.

As for the BTID stuff. I don't know why people bring this up. Whole life insurance is a low risk asset. If BTID is an us vs. them WL vs. stocks discussion, then it's not unreasonable to assume stocks might yield better (big maybe though). When you compare it to the assets more appropriate for its risk profile (fixed income assets, and cash equivalents it smokes them). The fact that whole life can even be confused as a substitution to stocks is a testament to its relatively high yielding (high compared to its risk exposure) nature.

So yes, this is all completely doable, and you're likely on the right track. There are some other details about Massmutual that you might like to consider. We can discuss here if you wish.

 

[Sailerdude78]

Thanks for the responses.

I'm kind of on the fence about term insurance. I already have two times my salary through work. I guess what I was thinking was that whole life could be used not only for life insurance, but also as a place to save money. I have a 401k that is pretty well funded, so I'm not really looking to get into more stocks at the moment.

As for health, I don't smoke, and don't have any health problems that I'm aware of. How does health play into this?

Thank you Lgilmore for your frankness. I was feeling a little underwhelmed by my agents explanations on certain points. Maybe there just isn't that much there? Though I can't help but feel like I'm missing something. Diverse opinions seem like a good thing to me, more to consider.

JeffM, if it takes so long to build cash value, why would term insurance be a good idea? And what does excellent conversion privileges mean? I know I can probably ask my agent, in fact I already did. I was just wondering if I could get a faster answer.

BNTRS, I'm confused on what the difference between a paid up addition and the additional life insurance rider is. Is that the overfunding part? I'm also a little confused on the catch up provision. Does this mean I can't change the amount I put in? What is blending?

 

[VolAgent]

I'm kind of on the fence about term insurance. I already have two times my salary through work. I guess what I was thinking was that whole life could be used not only for life insurance, but also as a place to save money. I have a 401k that is pretty well funded, so I'm not really looking to get into more stocks at the moment.

Odds are, you are severely under insured.

Is your wife going to work after the child is born, is her income anywhere near yours?

Basically, you are saying that after two years, she either needs to get a job or find someone who can replace your income. That isn't exactly what I want to be telling my wife.

A financial needs analysis would be a good idea, but shoot for 10x income or even more. If you can afford that all in maxed out whole life, great. If not, max out as much whole life as you can and get the rest in convertible term.