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Only certain types of whole life are payed in full after a certain amount of payments.. others you pay premiums forever.....
i would doubt when you figure out how much you paid in vs cash value you are seeing a 9% annual return after substracting out insurance costs.... maybe that 9% includes your own investment money thats included as part of your premium so each year the cash value is up 9%... but thats including your own dough being added in.
take 20 years of premiums that you paid and then figure out what it is based on the cash value. do they break out the cost of insurance your paying in? ..let us know what that works out to.
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I have done that, now part if our good return is that we bought it in the early 90's before the market skyrocketed but even lately we are still seeing about 6% ROR, keeping in mind that we lost NOTHING in the life policy when the market crashed--again, how is that a bad thing? We bought it young and are premiums are pretty dang low--lower then the term we just added--not as much coverage, but we have a nice chunk of change sitting in our cash value now which we will never have with our term. I don't know of ANY whole life policy where you pay premiums for ever.
If your truely getting 6% and your figuring correctly (which im still not sure you are ) then thats an amazing return for a whole life policy. they rarely return a solid 1/2 that figure long term.
If your truely getting 6% and your figuring correctly (which im still not sure you are ) then thats an amazing return for a whole life policy. they rarely return a solid 1/2 that figure long term.
what company??????????????????????
Northwestern Mutual and yes, we are REALLY getting that. Like I said we have had these for 20 years, premiums are low, they will be paid in full when we are 65 and we have a nice cash value sitting there if we need it (which we can access TAX FREE if necessary). We consider this the "stable" part of our portfolio. It isn't ALL we have but it is sure was nice seeing positive returns on this in -08-09. I realize there are fees, etc. and the "cost of insurance" but guess what, it IS insurance.
problem is you never know what you get until its over.. like i said earlier its structured in a fashion that makes it impossible to know how you did until the end.
the early years you get next to nothing in cash value as commissions and fees eat up the early years... it looks decent thru the middle years as insurance costs are low and the savings part of the premium is high.... towards the tail end the insurance aspect subtracted from your premiums is much higher and less and less goes to cash value but they are still collecting the same premium from you....
the later years now alter the return you were looking at in the middle years as you pump more and more of your premuim into the insurance end and less into the cash value end reducing your return overall
Last edited by mathjak107; 02-17-2011 at 06:35 AM..
I realize I already linked to one Dave Ramsey conversation, but here's another where he has an interesting debate with an insurance salesman on this very topic (audio starts immediately):
its the truth..... he is spot on with the statement that term is 5x cheaper then whole life..
most folks dont even know how to figure out their real return. they may show how your getting 6% interest and dividends on your savings but that premium you pay in the later years maybe 80% expenses and cost of insurance and 20% savings account ... you have no idea what your getting until you total up what you spent in total premiums, total cost of insurance and expenses and commissions and what you actually got in savings that your getting 6% on . most policies i have seen have been in the 3% actual return range....
its the truth..... he is spot on with the statement that term is 5x cheaper then whole life..
most folks dont even know how to figure out their real return. they may show how your getting 6% interest and dividends on your savings but that premium you pay in the later years maybe 80% expenses and cost of insurance and 20% savings account ... you have no idea what your getting until you total up what you spent in total premiums, total cost of insurance and expenses and commissions and what you actually got in savings that your getting 6% on . most policies i have seen have been in the 3% actual return range....
I REALLY don't think you understand WHOLE life insurance. I REALLY think you are confusing it with universal life-TOTALLY different things. Once a dividend is declared and your pass your anniversary date for your policy, your cash value is GUARANTEED--it CAN'T go backwards. Rates are also fixed. We will pay the same premium when we are 60 as we did when we were 24 and took the policy out. They CAN'T increase. On a universal policy rates can increase and your cash value is dependent on market conditions so you CAN lose money (same with a variable policy).
there is no confusion.....the premium is fixed , even your interest rate can be fixed but the amount that gets allocated to savings vs costs isnt fixed. as an example the first 3 years or so you see nothing in savings and the premium goes mostly for commissions and expenses. the next decade may see hypothetically 75/25 split of that premium. 75% savings 25% expenses.. by the time you get towards paying the policy in full your same premium may be split 75% expenses and 25% savings or less . your paying a small fortune in later years for that policy up to the point it locks in as little is making it into the savings aspect.
not all policies are alike but thats the general layout of many of them.correct its locked in when your policy is funded fully but up to that point the above takes place.
Cash value is not an investment, I cringe when people always bring this up. There are countless ways to invest your money which are better investments than a life insurance policy. A popular saying we use in insurance goes, "With life insurance you are betting you will die, with annuities you are betting you will live." Now why would you think about an investment and cash options when you are betting you are going to die?
Insurance is complex and the states go way out of their way to protect the consumer. Being a licensed agent I can tell you the test is not easy and you are required to keep learning to keep your license for the rest of your life on a subject most people try to characterize in a few simple words or concepts. It amazes me when people trust Dave Ramsey, a reasonable guy, but a guy with a "story" and an agenda to constantly hammer home instead of having a meeting with an agent to learn about a decision which will be matter for the rest of their lives. A good agent will gladly sell you term policies if they better fit your situation and you would prefer the coverage period it protects, but more importantly they will explain the true pros and cons and allow you to make an informed decision.
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