I have a 100,000 whole life policy I have had for about 3 years. It is expensive, $815 a year. I keep reading where whole life policies arent worth the extra cost, but term life policies almost never pay out. On the other hand, I have read where life insurance would be better than annuities (which i also have) because youre not taxed on life insurance. All of this is too confusing, can someone help me?
Whole Life Question
- Thread starter jasonten
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- whole life
Absolutely! Great question. You will find two camps when it comes to the value of whole life insurance; the "Ramsey" camp where they believe whole life is a rip-off in price, and suggests buying term and investing the difference, especially since like you said, only 3% of term policies are exercised.
The other camp is of those insurance professionals that recognize the "swiss-knife" function that whole life insurance can provide. Not only does it protect your interests with a death benefit, but it has guaranteed growth, and the option for dividends if you have a participating policy.
If structured properly, you have the opportunity to use the cash value like a piggy bank in the form of loans and withdrawals of basis and paid up additions (don't worry about that for now, just know that you have options to access the cash value of the policy). What's better is the cash value grows tax deferred like an Roth IRA, and if accessed properly the funds are tax free.
Now what other uses are there for whole life insurance? A very important use is for retirees as a form of supplemental retirement income. Based on the same principles above, but the use for it can potentially save a retiree tens of thousands of dollars if not more. How? It's based on the sequence of returns. If you have a portfolio you are taking 2-4% withdrawals from to pay for retirement income, taking withdrawals in a down market could seriously affect how much income is left to grow in addition to provide income (obviously).
If the retiree would access the cash value in the whole life policy (if there's sufficient amount built up over time) in down markets, you could then take withdrawals out of your portfolio during up-times and have even more money left in the portfolio.
So to recap, whole life is a multifaceted tool, term is a phillips screwdriver, both can unscrew a screw[up], but the multi-swiss style tool might bail you out of more situations in the future.
Just ask this guy which tool he'd rather have, a swiss army tool or a screwdriver...
The other camp is of those insurance professionals that recognize the "swiss-knife" function that whole life insurance can provide. Not only does it protect your interests with a death benefit, but it has guaranteed growth, and the option for dividends if you have a participating policy.
If structured properly, you have the opportunity to use the cash value like a piggy bank in the form of loans and withdrawals of basis and paid up additions (don't worry about that for now, just know that you have options to access the cash value of the policy). What's better is the cash value grows tax deferred like an Roth IRA, and if accessed properly the funds are tax free.
Now what other uses are there for whole life insurance? A very important use is for retirees as a form of supplemental retirement income. Based on the same principles above, but the use for it can potentially save a retiree tens of thousands of dollars if not more. How? It's based on the sequence of returns. If you have a portfolio you are taking 2-4% withdrawals from to pay for retirement income, taking withdrawals in a down market could seriously affect how much income is left to grow in addition to provide income (obviously).
If the retiree would access the cash value in the whole life policy (if there's sufficient amount built up over time) in down markets, you could then take withdrawals out of your portfolio during up-times and have even more money left in the portfolio.
So to recap, whole life is a multifaceted tool, term is a phillips screwdriver, both can unscrew a screw[up], but the multi-swiss style tool might bail you out of more situations in the future.
Just ask this guy which tool he'd rather have, a swiss army tool or a screwdriver...
- 15,041
Sure, there are many on here that can help you. First, start with what is your objective. Why do you have a $100,000 life insurance policy? Also, you mention an annuity, why is that a consideration? The clearer you are on what you want, the better a recommendation you will get.
Also, something to keep in mind. Expensive is relative. There are people that pay more than that for $10,000 in coverage and are glad to have it. It if meets your needs at a price comparable to other tools, then it isn't expensive. But if it cost significantly more than a comparable or better tool for the problem, it most definitely is expensive.
Also, something to keep in mind. Expensive is relative. There are people that pay more than that for $10,000 in coverage and are glad to have it. It if meets your needs at a price comparable to other tools, then it isn't expensive. But if it cost significantly more than a comparable or better tool for the problem, it most definitely is expensive.
- 4,132
Not trying to be mean, but you can use the search function here and find a ton of commentary about whole life over several years. I could go on and on, but I will try to be brief.
I have owned whole life polices for 26+ years. They are the ONLY financial product I have purchased that has done what it said it would. How ever boring that may be. I understand return vs. risk and realized that whole life makes great sense in my portfolio.
The price you mention will still be the same price 20 years from now. In fact it will never change. What's expensive today becomes cheap in the future.
And finally, it is the only product where you really have control. Let's say you're an insurance company and you're pricing product. On the products where you maintain control over price and duration, do you make those expensive or cheap for the public to buy? That said, when you have a product where you can't charge more for later, have to get permission to make any changes and give up control to the policy holder, how would you price it?
Tons more that could be said. People are always going to tell you to do something different. Sometimes it's good advice and sometimes it isn't. The only thing you can't do is a do over. Think hard.
I have owned whole life polices for 26+ years. They are the ONLY financial product I have purchased that has done what it said it would. How ever boring that may be. I understand return vs. risk and realized that whole life makes great sense in my portfolio.
The price you mention will still be the same price 20 years from now. In fact it will never change. What's expensive today becomes cheap in the future.
And finally, it is the only product where you really have control. Let's say you're an insurance company and you're pricing product. On the products where you maintain control over price and duration, do you make those expensive or cheap for the public to buy? That said, when you have a product where you can't charge more for later, have to get permission to make any changes and give up control to the policy holder, how would you price it?
Tons more that could be said. People are always going to tell you to do something different. Sometimes it's good advice and sometimes it isn't. The only thing you can't do is a do over. Think hard.
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- #5
I guess I would think of it more as a tax shelter and growth vehicle more than anything else. Something to pass on to my heirs. I really have no plans to borrow against it or take money out of it and I want something that will 100% pay out and not be any red tape that might shock me in the future. Im just making sure I chose the right life insurance. The same thing with the annuities.
- 4,132
Just keep in mind it is a safe slow growth (till later ) choice. Absolutely nothing wrong with that. It is my boring investment. It never surprises me, never disappoints me cause I know how it works. And if you've ever invested money elsewhere, and I have, it has a feature that is pretty nice. It can't go backwards in value. I wish I could say that about my other investments, but I can't. Good luck and I hope you make the choice that works for you.
That is a great way to approach thinking about the investment aspect of life insurance. Cause let's be real even though a good amount of agents may position the growth of cash value akin to an investment, the human mind is wired to view the build up in cash value as an investment, as such we should talk about it in terms like that - and your paragraph was a common way of going about that. Good add...
I'm with LGilmore. WL is a great product! It WILL do what it says, period.
Depending on how your policy is set up, and who its with... it could grow substantially over time. If you are with a div paying mutual, make sure to have your div purchase paid up additions.
All I can tell you... down the road, you will be very happy you set up this policy. There will likely come a time when you'll feel like the premium you pay now is cheap...and the great thing is, it will be the same then.
My wife has a WL policy that is 38yrs old (since she was 6). The death benefit is now almost 3x what it was initially, with the same (tiny) premium. Cash value in the policy is almost 2x what the payments into the policy have been over time. And it wasn't even designed for max growth... just a plain jane boring old wl.
Depending on how your policy is set up, and who its with... it could grow substantially over time. If you are with a div paying mutual, make sure to have your div purchase paid up additions.
All I can tell you... down the road, you will be very happy you set up this policy. There will likely come a time when you'll feel like the premium you pay now is cheap...and the great thing is, it will be the same then.
My wife has a WL policy that is 38yrs old (since she was 6). The death benefit is now almost 3x what it was initially, with the same (tiny) premium. Cash value in the policy is almost 2x what the payments into the policy have been over time. And it wasn't even designed for max growth... just a plain jane boring old wl.
- 15,041
Based on that, you want life insurance and since you want it to be there when you die, permanent life insurance is the way to go. So having a whole life policy is a good idea. The reason I say something permanent is that we don't know when any of us will die, only that we will. With term insurance, the likelihood is that you will outlive the policy. The pricing is built upon that, otherwise the premium for term insurance would be roughly the same as whole life.
We could argue if you have the right policy from the right company, but that probably really won't help you. The fact is you have a policy now, and if you have had it for any length of time, it probably is not in your best interest to replace it with another policy.
The reason I say a life policy over an annuity is simple. While both will pay out to the beneficiary at your passing, the annuity will also come with a tax bill for your beneficiary. Unless you run into estate tax issue, this is not the case with life insurance. Life insurance is not subject to income tax, while all the growth in the annuity is.
Finally, something to keep in mind. While we hope your death is many years off, the life insurance policy will pay at least $100,000 at your passing. It will be many years before you accumulate enough in the annuity to have the same payout. Life does happen and no one is guaranteed any set number of years upon this earth.
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- #10
From all your answers, is it feasible to take my annuity money at the end of their terms and transfer them to a whole life policy to reduce any tax burden? or should I be looking at purchasing more whole life INSTEAD of annuities? Even though I won't be around to see the money, I hate for taxes to eat up what I have earned through my lifetime.
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