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My wife and I just had our first child. My wife is a huge fan of "whole" life insurance. I have always been confused by whole life insurance because... well... it doesn't seem like insurance at all.
Term life makes sense to me. If I die young, I want my family to have a big payday because they won't have my income to support them. If I die the day after a 30 year term life policy expires, they won't need it because, even if I saved nothing, I would have still already earned the income that I was afraid of them living without.
Whole life is just confusing. I am very financially savvy, but I don't even understand what it is. It isn't equity (like stocks) where I would own a part of a business. It isn't a commodity like gold. It isn't someone else's debt, that they owe me. It isn't a savings account. It has an "insurance" aspect to it, in that there is a payoff if an insured event occurs, but I don't get the other "half". I have heard some people call it a "savings half".
If I wanted savings, why wouldn't I just buy 30 year treasury bonds?
To make it worse, whole life policies just seem like peanuts. So, if I die they get a whopping $35,000? That wouldn't even cover their expenses for the first year!
I guess it is just hard for me to wrap my brain around it. I have a general rule that the more complex something is, the better it is for the person trying to sell it to me and the worse it is for me. Am I being paranoid?
No. There are cases where an investment in whole life has worked out to the benefit of the owner, but generally speaking you are much better off buying dirt-cheap term insurance for the death benefit and investing the difference in the cost of the premiums in vehicles that will provide a higher return.
And I'm not speaking theoretically. I bought into the sales pitch early in my adult life and bought a couple of whole life policies. It was only after completing a bachelor's degree in finance and looking back to see that my returns weren't anywhere close to what was promised during the sales pitch (not to mention that the death benefit was barely enough to cover a funeral) that I realized it was a bad choice.
My wife has life insurance also. I want to be able to be a stay at home dad if I need to. Hers is 1/3 cheaper than mine, assuming it is because she is a female.
To keep it basic when do you expect to die and do you want to leave any money behind on a guaranteed basis? You can get a whole life or a guaranteed universal policy and add a term rider for the years you need the high coverage.
Something to consider is equities are not guaranteed. For years people have said buy term and invest the difference but down turns have blown up those plans. Leaving people with sticker shock at renewal time when the coverage is still needed. So speak with an independent agent and consider blending some term with some permanent coverage.
Just as a side note death is a 100% event for all but it's said only 2% of term policies go to claim. Yet a permanent policy is designed to go to claim whenever death happens. In some plans up to age 121.
One more observation. I have seen people have the ability to borrow from their WL policy when banks said no. An insurance policy doesn't care about your fico scored when in a pinch.
Just as a side note death is a 100% event for all but it's said only 2% of term policies go to claim.
im sure thats why its so much cheaper than whole life.
whole life may or not be a scam but it certainly isnt worth trying to figure it out. if you are concerned about your family losing your income in the next 30 years, then get a term life plan to cover that.
my mother had some kind of whole life product for a bunch of years. put a lot of money into it. her financial situation changed and she had to give it up. so money down the toilet. im sure her financial advisor made a sweet commission on the deal though!
Whole Life isn't a scam. It's just a tool designed for a purpose. For those with term policies look at the premiums say at year 21 for a 20 year term or year 31 for a 30 year term going forward. Buy the policy you need but just be as much informed as possible.
There's a reason the Final Expense market (small WL policies for burial) is exploding for the baby boomers. Most people don't save and life events happen. Oh one more thing. When you get your term if possible discuss how the payout will be used. For many people it's gone in a few years after paid out. A $350,000 check that's meant to last many years can go real quick.
Whole Life isn't a scam. It's just a tool designed for a purpose. For those with term policies look at the premiums say at year 21 for a 20 year term or year 31 for a 30 year term going forward. Buy the policy you need but just be as much informed as possible.
There's a reason the Final Expense market (small WL policies for burial) is exploding for the baby boomers. Most people don't save and life events happen. Oh one more thing. When you get your term if possible discuss how the payout will be used. For many people it's gone in a few years after paid out. A $350,000 check that's meant to last many years can go real quick.
If it's a significant amount the best move is to create a trust to administer the proceeds if there's any question as to whether the intended beneficiaries will use the money as intended.
Whole Life isn't a scam. It's just a tool designed for a purpose. For those with term policies look at the premiums say at year 21 for a 20 year term or year 31 for a 30 year term going forward. Buy the policy you need but just be as much informed as possible.
There's a reason the Final Expense market (small WL policies for burial) is exploding for the baby boomers. Most people don't save and life events happen. Oh one more thing. When you get your term if possible discuss how the payout will be used. For many people it's gone in a few years after paid out. A $350,000 check that's meant to last many years can go real quick.
there's gotta be a better "forced savings" vehicle than a life insurance policy.
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