Whole Life Insurance is a Rip-off, 100% of the Time!
Sometimes there are things we do for our family that we don’t necessarily enjoy doing, but we do so anyway because we love our family members dearly. None of us enjoy writing a will because it reminds us of our own mortality. The same is very true for having life insurance. Far too often one of the spouses becomes permanently disabled or dies suddenly and unexpectedly leaving the other spouse high, dry and in a financial mess. If any of your family members depend on your income, such as your wife or children, you need life insurance.So let’s say you do the right thing and decide to go buy some life insurance. If you walk down to your insurance person and tell them you would like to get a policy, 70% of the time they will try to sell you whole life insurance (also called cash value, universal life and variable life), even though these products are really a bad product to buy! They pitch their whole life plans because they make a much higher commission than if they sold you some good old fashioned term insurance. Term insurance is always a better by than whole life insurance!
Let’s take a look at an example. If a 30 year old non smoking man has $150 a month that he can invest in life insurance and shops around to find the best rate, he’ll probably be able to buy around $200,000 in whole life insurance which will pay his family in the event of his death. The insurance agent will also tell that gentleman that his policy will build cash value which can be part of retirement savings! Sounds like a great deal, huh?
If the same man were to purchase term insurance, the policy would probably cost around $10-15 a month for a 20 year level term policy! If this man were to invest the other $135 a month into a savings account over the course of twenty years in a very nice mutual fund, he would have $133,549 in his mutual fund if it averaged the 12% rate of return which the stock market has averaged since inception.
If he put it in his cash value plan, he would earn anywhere from 2.6% to 7.4% depending on which type of whole life insurance that he gets, according to Kiplinger’s Personal Finance Magazine. Instead of being able to invest that money for the full 20 years of the term, instead the first three years are eaten up by commission and fees, so he would only have 17 years of savings. Let’s say the man got an average of 5%, which is pretty decent for whole life, he would have $43,270 in his cash value, a whopping $90,000 less than if he had taken the term insurance and invested the rest into quality mutual funds inside of a retirement account!
But there’s a dirty little secret with whole life insurance. If that man were to die, they would pay his family the value of the policy, $200,000 and keep the cash value that was built up inside of it! What kind of savings plan keeps your money after you die? Doesn’t sound like much of a deal to me!
posted by Matthew Paulson @ 11:00 AM
5 Comments:
Woody Allens classic joke was that a stock broker is a professional who invests your money till it is all gone.
Once these charlatans realize you know their game they change their title to hide their intentions and theft from the naive.
These individuals are for the most cases despicable human beings devoid of any human values , decency and personal integrity.
http://www.lawton.mb.ca/
This article is factually and substantially incorrect.
At the root, all insurance has the same cost. If I want to buy $250,000 of insurance, the cost of insurance is the same, whether I buy 1-year, 10-year, 20-year, whole life, universal, or variable. If I die the day after I buy the policy, the insurance company pays the same amount regardless, and my likelihood of death does not change if I buy 10-year or whole life insurance.
So why is a 5-year term policy cheaper than a 20-year term policy? Because every year that passes, I am more likely to die. So ignore the cash value buildup in whole life policy, and think of it as term insurance that goes to age 100 (for a 30-year-old, it is equivalent to buying a 70-year term policy).
To offer another apples-to-apples comparison, compare the lifetime cost of continually buying 10-year term policies or buying a whole life policy at age 30. You will find that by the time you reach your 50s or 60s, the cost is even, and in the 70s and 80s, the whole life is far less expensive -- if you are even healthy enough to get a new term policy at that age!
The truth of the matter is, buying whole life is like buying a house, and buying term is like renting. Both term and renting can be cheaper in the short term, but in the long run they are the fool's choice.
Mr Adler, I won't be seeking financial advice from you. If I moved once in a blue moon you'd have me buy a large truck to drive every day instead of buying a smaller vehicle and renting a U-Haul when I needed it.
If I had bought whole "life" insurance when I was younger, I'd be stuck with it and its term component even though I presently need no death (let's call it what it really is)insurance now that I have no dependents. A person's need for death insurance tends to vary with age.
So who's going continually buy 10-year term policies for the same amount throughout their lifetime? Including into your 70s and 80s? Answer: the financially less sophisticated, such as those who spend more on burial policies over their lifetime than the coverage they get.
When I'm in my 70s and hopefully 80s, I'd rather have the added funds from investing the difference myself.
Mr Adler makes more sense than the other 2 posts together - He understands the concept and the value of the different types of insurnace - the origional poster and EMF are clueless and just like to hear the sound of their own voices spewing words, with little effort put into even trying to understand what they are saying. So it you are looking for advice LISTEN to Mr Adler :)
By your 60s or 70s your need for insurance should be greatly diminished, if not gone altogether.
By that age, the kids are grown, and your net worth/survivor's benefits (government & private) should be sufficient to cover the surviving spouse's financial needs (no need even for burial insurance)
People who buy whole life usually drastically underinsure, and often the whole life policy is abandoned altogether (making it a very expensive term policy)
With very few exceptions, there is a limited (roughly 20 years) timeframe where insurance needs are greatest - to replace income when kids are young & net worth is too low to replace the breadwinner's income by itself.
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