Consider the tax benefits of whole life insurance: But look at the tax benefits you don't get. If you buy a whole life policy and a couple years later decide you want to work part-time or take a sabbatical or something else happens to your income, you can spend less money and save less money for retirement. Somebody above asked you what you do for a living. This is a huge boon if you’re worried about not having money for funeral expenses or leaving a legacy behind. During the divorce proceedings, a whole life policy must be listed among the marital assets to be divided, and it could be cashed out and divided equally. Instead, I would argue that you don’t need whole life insurance to accomplish that. In fact, the policy for all its talk of “guarantees” really only guarantees a return of about 2% per year, less than the average rate of inflation, on a policy held for the rest of your life. I suspect something similar is going on with the issue of permanent life insurance. Now you know why. After some years she talked to a local investment group that told her WL wasn’t an investment and they should be managing her money. So they just have a blind spot that can’t be overcome. And if you have a morbidity issue, it will also affect the cost of whole life. Many whole life insurance policies also pay dividends, but they aren’t guaranteed. Insurance salesman: Whole life> not saving at all Yep, you guessed it, another sibling was an agent. Whole life and universal life insurance policies don't have that same averaging. If you invest tax-efficiently using total market index funds, municipal bonds (or funds), and equity real estate, a non-qualified account is an excellent place to invest for all kinds of purposes, including retirement. A large amount of the cash value in a whole life insurance policy is protected from your creditors in many states. These are two very different numbers, and only in the very long term (3-6 decades) does the rate of return begin to approach the dividend rate of 5-7%. Cool, that’s a bonus. The regret of purchasing a whole life insurance policy is often wrapped up together with the realization that you have been getting bad financial advice. But, it’s not that hard to figure it out, either. Have you bought whole life insurance? I don’t pay fees and I’m a Buffet style investor. Same as it ever was. Imagine you’re a young insurance salesperson, trained to believe these products are in the clients best interest (or at least “suitable”) and then read this tacit endorsement of permanent life in the study materials of the highest certification in your profession. You can put other investments besides whole life in an irrevocable trust. But fortunately these later other investments pull the load for me and WL is in comparison a tiny part for me now. That’s a shame. I’m a DIY investor and I’ve done well, much better than I’d ever have done by having these idiots construct a diversified portfolio for me. Most people would be better off saving and investing that money themselves versus pouring it into a quasi-investment like whole life. The company offers dividends? And another: Your children were not blessed with desire or talent or skills to have a job that can provide them with a good retirement. This one happens way too frequently. That includes time periods before you have an insurance need and after you have an insurance need. At this point, it sounds like Social Security is her main plan for retirement. In Canada PPLI is a much better deal since you can have investment control over the premium/asset-accumulation, throughout the period where you do own the PPLI. Bryan, rather than take potshots at the author’s “opinions,” why don’t you tell us where you disagree and why. Remember as you go down the list, that I don't have a problem with YOU buying whole life insurance or even with the product itself really. One thing I’m trying to get a better sense of is what percent of the whole life pushers are true believers. Unfortunately, Suze Orman thinks that your friend may not be your friend at all. I guess that’s what the new Throwback Tuesdays are for. Expected long term returns on a whole life policy bought today range from 2% (guaranteed) to 5% (projected.) Do you financially support her? Based on my local currency, at my average high savings rate, I will be able to retire early. But only if I retire in my home country. If long-term care policies weren't so terrible, this wouldn't even be a consideration. Depending on your circumstances, you may not need life insurance for the rest of your days, meaning you could end up overspending on an unnecessary product There are four circumstances when insurance is typically necessary. Perhaps people who lives past retirement age might regret buying an insurance when they were young, if they knew how to invest then they might have more money 20 years later if they’re alive. Or am I missing something? If she puts that same $50 in a index fund or invests in some kind of stocks, even with the average to high payouts in the next 20 years, she will hardly get close to $19k. Or maybe you changed employers and now have four times the amount of tax-protected space in retirement accounts. What I would challenge the insurance salespeople to consider is the alternative tools available to better accomplish the same goals. However, whole life policies are substantially more expensive than term policies, and the rate of returns on the investment portion of those premiums is often low. A lifelong resident of Indiana, she enjoys gardening, reading, and traveling the world with her husband and two children. You probably could get the job done, just inefficiently. I instantly balked at the idea of buying whole life, and for more reasons than one. So far I haven’t seen one that really changes my general opinion on the product. Eric…can you provide an example of a person that needs life insurance for their entire life? Even after the policy eventually breaks even (and all but the most terrible will eventually), many investors are disappointed to learn just how low the returns on your cash value are. Notify me of followup comments via e-mail. Sure, kids are a big reason why some people get life insurance. Finally, many docs get suckered into buying whole life insurance because they don't know where to invest more money for retirement after maxing out their 401(k). As a doc becomes financially literate, she realizes that insurance is, on average, a bad deal. The policy I purchased through Haven Life was also the type that doesn’t require a medical exam – a perk you may qualify for if you’re of average weight and in excellent health. BUT going over the reasons why she did so and her health, age and weight, it turned out to be the best/only option for her. You didn’t mention how much she has saved or how many hours she works per year, but from what you’ve described she hasn’t been able to save $19K in her first 54 years of life on this planet. The insurance company legally is allowed to take the extra premiums from the clients cash value account. Ok, I died 5 years into having this plan, only paid around $5,000.00 over the course of owning this policy, and now my beneficiaries get $100,000.00. That whole life insurance premium. Not only are you getting older, but there is a chance that you could experience some type of health change. If you’re trying to double your money in 100 days, that isn’t investing, it’s speculating. My dad had 4 UL polices because he was sold the idea this is a good thing to do for your family. It’s added up to hundreds of thousands so far in my life. After running the numbers, Consumer Reports found that Treasury notes earning 2.17% would provide a higher return on your money. Those looking for traditional whole life insurance policies will likely be able to find one through MassMutual and Guardian Insurance. Another big arguing point for whole life insurance is that it helps you leave behind a legacy for your kids. Their retirement is made of investments and SSI. Policy obligations are the sole responsibility of the issuing insurance carrier. Policygenius reports that whole life insurance can cost six to 10 times more than a comparable term policy. So why do so many doctors regret purchasing whole life insurance? Buying a whole life policy is like getting married–it's either until death do you part, or it's going to cost you a lot of money to get out. But for a little extra each month, why not take advantage of benefits the company offers? Both are usually sold with high commission costs, although some claim there are ways around this with universal life. If you really understand how it works and you want it, then buy as much as you like. Whole life truthers are akin to chiropractors who believe what they offer truly is a panacea. Additionally, you have the option of cashing out the policy and the money that you have paid into the policy at any time during your lifetime. I know for a fact, You will be WAY better off, perhaps 100s of 1000s of $$ better off, purchasing a level term insurance product for 10-35 years, with monthly premiums about half what you would pay for CV/UL and investing the difference in the premium you would have paid for ul product in tax deferred investments. We are an independent, advertising-supported comparison service. While the “excess premiums” go to guaranteed savings that build cash value over time, Consumer Reports showed how you could accomplish the same thing by buying term life insurance coverage and investing the difference. The line of reasoning asks why anyone would ever invest in whole life insurance when you can buy term and invest the difference, earning average returns of 12% a year. This compensation may impact how, where and in what order products appear. At the end of the day, I try to keep our lives – and our finances – as simple as possible. WL probably made sense at one time for many people, possibly even most, but if so that time has past and it’s a different world now. Now I understand why my brother in law decided to shave his head bald: so he’d never have to use that tool again, Whole life may be a tool (ironically sold by tools), but its use should be reserved for exceedingly rare cases. Straighten out your financial life today! I agree that whole life insurance is not appropriate for physicians and others in similar income ranges. From an efficiency perspective, PPLI is the best (least bad?) But this is a major reason why people regret and even surrender a policy they've held for 2, 3, 7, even 10-15 years. Insurance premiums rise by an average of 8% to 10% for each year you postpone buying coverage , according to Policygenius. In today's post, I'll list them all out. You won’t be the first to do so nor the last. However, it’s probably not the best choice in the log run. Likewise, some combination of income and expenses resulted in her having not a dime to her name at age 44. That’s a great post and should be sent to anybody considering purchasing whole life. In a universal life policy, the cost of insurance actually goes up each year just like it would with an annually renewable term life insurance policy. It must be so. If I pass away in the next 20 years, I want to know our bills are covered and my two children will have money for college. What do you think? For example, they call beneficiaries “heirs”. There’s term too, but that’s another story. Unfortunately, “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” – Upton Sinclair. I disagree that the return is necessarily higher than other guaranteed investments. Insurance agents earn on commission, and since a whole life insurance costs so much more than term life insurance, they’ll get more money from the sale. is also a ripoff. HomeInsurance.com, LLC may receive compensation from an insurer or other intermediary in connection with your engagement with the website. That’s a great post and should be sent to everybody considering purchasing whole life. … You wouldn’t use a tape measure to hammer a nail now would you? With whole life, the same thing is going on, but behind the scenes. I have several 1000s of clients from all different occupations, not just physicians, that we as a team have helped get out of WL/UL/VUl and taught them how to invest their money properly, many of them are now millionaires. Life insurance for retirees. However, given she only makes $20K a year, I would assume she’s already partially dependent on you so what’s the big deal if you are making up the difference between the value of her estate at death and the cost of burial? In the end, this just sounds like a disgruntled writer who didn’t do their research, or at the very least, read what they were purchasing. Sounds like the author of this piece had a poor experience and rather than giving 10 reasons where it CAN be bad, they speak from opinion rather than all facts. It’s not a good one for most people as WCI shows. Try Bitcoin or Roulette. How about I email you a specific illustration and you tell me why I should get out of the profession ;). She has a crisis of both wealth and health! That would actually be a useful comment–tell us when and how this “tool” is the right one to use. I feel like this debate has occurred on this site at least dozen times. No surprise there, it’s just math since the insurance company portfolio is mostly composed of bonds so after their expenses/profit, your return has to be less than the return provided by bonds. If you want to build your wealth, invest in stocks, bonds, precious metals and real estate. Where term life insurance only lasts for the term you select upfront (for this policy, 20 years), whole life insurance is set up to offer a death benefit no matter how old you become. What they don’t mention is that the cost of insurance goes up every year, Since some of the overpayment of premiums initially goes into their cash value account it looks good in the beginning.
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