What type of Life insurance

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All this talk about life insurance is making me think. What are the different types of life insurance out there and what do they do? I've seen term, whole life, etc. and have no clue what they mean. I'm relatively young...24, but will be getting married in a year, am finishing my MBA at a top 20 school, so i should be making some really good income in a few months. I guess its time to bite the bullet and get some life insurance...i was thinking 250K to start since i spent 60K on my education already. Any thoughts on what i should get...well specifically what the different types of insurance are and what they do.

I also know i'll be getting disability insurance soon just in case

At age 24 your best best is to get a good term life policy. Rates are cheap and you can lock in a rate for up to 30 years now. Term is the easiest to understand. Pay an annual premium for the term and upon your death (during that term), your beneficiaries get a set amount of money

Here is a calculator for the amount of life insurance you should get

Life Insurance Calculator

Cash value policies involve some sort of investment, and the cash value of the policy can fluctuate.

If your place of employment offers a group term life policy, that is usually extremely cost effective. Usually this is a 1 year term policy.

It's kind of like this..

Term is like renting an apartment or leasing a car.. You have it for a brief period of time.. then when it's over you have nothing..


Whole is like buying the house or the car.. You pay into it to own it.. Eventually you'll get enough paid into it that the dividends will be worth quite a bit..
It's yours forever..

As for how much you need depends on your circumstances..

There are lots of online calculators that can help you through it.. I am sure you can easily do a search on google for that.

While its an interesting analogy, I DO NOT AGREE WITH THE ABOVE COMPARISON OF TERM v. WHOLE LIFE...as "buying" a house or car is usually more financially prudent than renting or leasing, but buying whole life is NOT financially prudent unless you have a difficult time saving money on your own...


Whole life is nothing more than a life insurance policy with a higher premium, and some of that additional premium is used as an "investment" to build cash value...problem is, in almost ALL cases, you can invest that additional premium yourself and build more cash value YOURSELF.

Example: A $250k term policy for you can be as low as $10-15/month now, a whole policy may be $35/month...if you simply get the term policy, then take the extra $20/month and invest it yourself, you will likely "build more cash value" than the whole life policy would....

Comparing whole to buying a car or a house confuses me. A house generally appreciates in value, and you have the enjoyment of living in it. In contrast most cars depreciate in value.

Every time some insurance broker starts talking whole life, my mind spins and my eyes glaze over. I use to think that that was because I'm a simple minded person. That may be part of it, but then I noticed that the same thing was happening to all the salesman also.

For me whole insurance doesn't make sense. It is investment vehicle over which I have little control. I would rather take the money that I would spend on whole insurance and split it in two, one portion paying for a term policy, and the other portion in other investments.

Whole is an absolutely prehistoric product that has only outlived the dinosaurs because of the ignorance of the policy owners! Ok, ok... that's a bit of an exaggeration <img src="i/expressions/face-icon-small-smile.gif"border=0> There are those that bought these policies back in the day when all that was available was term and whole and now cannot change to something else because of insurability or surrender charges or whatever. My point is WHOLE LIFE IS THE DEVIL'S PRODUCT! <img src="i/expressions/face-icon-small-smile.gif"border=0>

That's not to say that everyone should go out and buy term tho. There are many more products out there that work quite nicely. Variable universal life, for instance, works for many people. BTW I don't have any affiliation with the above website. I merely did a google search for VUL and thought this page provided a nice summary of the product. It is a 2-part deal as SIS explained above; 1 part cost of insurance, the other part investment. Essentially YOU dictate where that investment portion goes and you can even change your subaccounts (basically mutual funds, but you can't call them that in an insurance vehicle) 12 times per year without a fee. The investment grows tax free and you can take out tax free loans against the cash value of your account. The death benefit will never decrease, but it can increase by the amount of the cash value of your account. It is also fairly flexible in that you can change coverage when different life events occur. Yes, there are some added fees involved with a policy like this that might eat into your earnings a bit compared to just going out and getting the funds yourself, but I guess that's the price you pay for tax free growth and withdrawls. Yes... you get the same with a Roth, but with a life insurance vehicle you do not have to wait until age 59 1/2 to withdraw, nor are you forced to withdraw by any certain age.

Anyway, it really comes down to your needs and every kind of insurance has it's own niche it fulfills (except whole <img src="i/expressions/face-icon-small-tongue.gif"border=0>. Just do your own research online or whatever and decide what YOU need and then go out and get it. If you need to, talk to a professinal. Just don't let some slick salesperson talk you into something you don't need or understand.

Just my .02

Bor

There are a lot of people that will say that just buy term and invest the difference.

Let me tell you the reality, not the math of the situation:

- Most people that I have seen doing this, have stopped investing a few years down the road, cause they wanted that brand new car or leather sofa or whatever.

- Last time I checked(a while ago), 97% of people that buy Term, cancel it before the full term of the policy. Why? Cause they see it as a waste of money.

So the argument of buy term and invest the difference doesn't work most of the time. Not beacause of math, but because of emotional reasons. Like it or not, a lot of "financial" decisions are made based on "emotions" and that is usually dangerous.
In that case, cancelling VUL premiums are usually seen as a "bad" thing by most people and they continue to pay that through thick or thin. There are options to reduce your outgoing premiums too for sometime if you are going through financial hardships and stuff. So it can be a flexible policy, but with a higher premium due to investment.

Yes, the math works in buying term and investing the difference. There are many factors there to consider too, like your tax rates, cost of the investments, will you have enough time to pay attention to your investments and on and on.


Also, how long will you need the life insurance for. Being pretty young, it seems certain that you would need it till atleast age 67 or your retirement age. Even after retirement, there are many circumstances where you would need life insurance.

As an option for lower costs now, you could go for a 10-year term policy that has the "ability" convert to VUL without evidence of insurability. That is very important and you should go with a big company that offers that.

How much should you get? Well, you could just cover your debt and bit more. You could go for your Human Life Value (Your expected salary inflated for the amount of years you are gonna work). A simple definitation here btw. Or you could do a Needs Based Analaysis. That is based on certain goals that you may have for yourself and your spouse, example, did you want to pay for college for your future kids, or did you want your spouse to take yearly vacations and stuff like that.

This is biased info now: Get a good financial advisor. I am not soliciting your business btw.

VULs are not that bad btw, however this is a debate that can go on forever. Do get Disability Insurance though..that is very important.

Any questions can be emailed or posted here. <img src="i/expressions/face-icon-small-smile.gif"border=0>

Good stuff wildviper.

I guess I should clarify a comment I made earlier.... when weighing the VUL vs. Roth I said that you aren't forced to withdraw money from a VUL. That's not entirely true. As with basically all life insurance policies that build cash value, you get the cash value and the death benefit when you reach age 100 <img src="i/expressions/face-icon-small-smile.gif"border=0> That would be a taxable event tho, so keep that in mind as you near your 100th bday.

Another pro for insurance... the amount of cash you can invest each year is MUCH higer than the $3K you can do for a Roth (actual amount will vary depending on the size of your policy).

Bor

wildviper said:
>>

- Last time I checked(a while ago), 97% of people that buy Term, cancel it before the full term of the policy. Why? Cause they see it as a waste of money.

Last I had heard, about 2% of term policy death benefits are actually paid. So I guess it IS a waste of money for the other 98%.

But on the bright side... they aren't dead <img src="i/expressions/face-icon-small-smile.gif"border=0>

Bor

The 2 types of insurance that people seem to be referring to are term and permanent(cash value). Insurance is a very tricky subject and people have different reasons for getting it so there isn't one correct answer. You're young and sound upwardly mobile. My advice to you is to get as much permanent insurance (whole or universal) as you can afford. Insurance only gets more expensive as you get older. If you plan on becoming successful(rich) in life you will later realize that permanent life insurance is essential to successful estate planning. Term insurance is used to insure people over a specific period, such as when they're paying a mortgage or until the kids are finished with school, etc. because it's the cheapest way to go.

Boreal21 said:

<< Good stuff wildviper.

I guess I should clarify a comment I made earlier.... when weighing the VUL vs. Roth I said that you aren't forced to withdraw money from a VUL. That's not entirely true. As with basically all life insurance policies that build cash value, you get the cash value and the death benefit when you reach age 100 <img src="i/expressions/face-icon-small-smile.gif"border=0> That would be a taxable event tho, so keep that in mind as you near your 100th bday.

Bor
>>



True with a caveat. IF..and only IF, the policy is structred right, it could provide supplemental retirement income on a tax-free basis. Tax-Free? you may ask. Yes. It is in the IRS Code. If anyone wants the exact code, I can provide that.

Simply put, here is how that works: Say at age 65 you have $100,000 in cash value. You can then take out a loan on this policy, which you do not have to payback until age 100. Since average mortality runs around 87 these days for people atleast 21 years of age today, more than likely, one will not make it to 100. Grim view, but hey, that is the reality. When one passes away, what happens is that the death benefit is paid out less any outstanding loans. How is this tax free? Well, there is no taxes on loans. <img src="i/expressions/face-icon-small-smile.gif"border=0>

Important point to note is that the policies HAVE to be structured right and the assumptions made must be ensured are coming true.

One more point I forgot to mention: Think twice before you get a 30year or a 20 year Term insurance coverage, especially if you are young and your life insurance need is going to change over the timeframe. Why? Cause to lock in those lower rates for that long, you are paying a premium for it. Instead, consider a 10yr Term with an ability to convert to permanent. Thus when your needs change, you can possibly discard the term and opt for a permanent. So why lock in a premium for the longer terms when who knows what is going to happen in the next 5-10 years????

Both Term and Variable life have their purposes depending on needs. One thing I will point out is with any policy where you are building cash value, make sure you choose the option tha the death benefit will be the face value of the policy PLUS the cash value (usually called an increasing value policy). Here's the reason. You get a $100,000 face value policy that builds cash value. If you pass away on day 1, you don't really have any cash value at that time, and get the $100,000 out. Instead, lets say you pass away 10 years later and have built up a cash value of $10,000. If you don't have the increasing value option, you get paid out $100,000 of which $10,000 is really your own money, so they are really only paying you $90,000. When you take this into account, you realize that the longer you have the policy, the more expensive it is because you are paying the same premiums for lower coverage each year that the cash value increases.

Chgoman said:

<< Both Term and Variable life have their purposes depending on needs. One thing I will point out is with any policy where you are building cash value, make sure you choose the option tha the death benefit will be the face value of the policy PLUS the cash value (usually called an increasing value policy). Here's the reason. You get a $100,000 face value policy that builds cash value. If you pass away on day 1, you don't really have any cash value at that time, and get the $100,000 out. Instead, lets say you pass away 10 years later and have built up a cash value of $10,000. If you don't have the increasing value option, you get paid out $100,000 of which $10,000 is really your own money, so they are really only paying you $90,000. When you take this into account, you realize that the longer you have the policy, the more expensive it is because you are paying the same premiums for lower coverage each year that the cash value increases. >>



This is partly true, but there are somethings which are not true.

An explanation:The increasing option does give you the cashvalue+death benefit, however, these policies are usually MORE expensive as well. Why? Cause what is happening is that you are constantly paying the insurance rates for the said death benefit. However, in the other type of policy, where only the death benefit is paid(or cash value, whichever is higher), the insurance costs actually are going down for the lesser and lesser insured benefit. In layman's terms, per the above example, you are going to pay insurance rates for $90,000 and not $100,000. The more your cash value builds up, the lesser insurance costs you pay because "at-risk" value is going down.

Depending on someone's financial circumstances, either policies can be looked at, but just know what is happening behind the scenes. <img src="i/expressions/face-icon-small-smile.gif"border=0>

Very complicated things here, but if you ask questions and understand the policy structure, you won't be disappointed. Well, atleast, I hope not. <img src="i/expressions/face-icon-small-tongue.gif"border=0>

thank god I'm single w/ no kids.

my creditors can all fight over my DVD collection when I die.

don't buy to much life insurance or your old lady will have ya killed and get paid.

Thanks for the clarification Wildviper, I wasn't aware that they "reduced" the premium to adjust for the cash value build up.

Anyone know any life insurers that accept less than ideal candidates?

I have heart disease. It doesn't shorten my life or complicate my life in any way, (aside from a minute chance of infection) but for all life insurers that I looked at, any type of heart disease is an automatic disqualification. No one will sell me life insurance.

Aside from that, I'm in a similar position to yours. I thought it might be worth it to get something, since these policies seem pretty cheap.

Witold
www.witold.org

The type of Life Insurance depends greatly on each persons indiviual situation (current policies in force, AGE, Life Expectancy, current evidence of insurability, etc.)

If you want to generalize for personal coverage...
1. Insurance is Income Protection for your family.
2. If you don't need to protect your income, don't buy life insurance. If you sell your car, are you still going to pay for your auto insurance? I think not.
3. Stay FAR away from ANY insurance that has a cash value. Insurance should NOT be used for investment purposes, Period.
4. Stay away from ART (Adjustable Renewable Term - goes up each year)
5. Buy straight TERM insurance (cost never goes up for Term period)
6. Most people are under-insured. Make sure you buy enough coverage so that your family will not have to suffer a financial loss in addition to the emotional loss of a loved one.

Some people will argue that cash value insurance (Variable Universal Life, etc.) is a great 'Tax Free Investment'. Do you really get anything in life for free? It is 'Tax Free' because typically the investment is NOT your money, it belongs to the insurance company. READ your policy.

JimmyJoe said:

<<
3. Stay FAR away from ANY insurance that has a cash value. Insurance should NOT be used for investment purposes, Period.

Some people will argue that cash value insurance (Variable Universal Life, etc.) is a great 'Tax Free Investment'. Do you really get anything in life for free? It is 'Tax Free' because typically the investment is NOT your money, it belongs to the insurance company. READ your policy.
>>



JimmyJoe, would you care to explain in detail on why cash value policies are bad? I am not suggesting that it is good for everyone, but it is good if structured right. Waiting for your explanation.

ebas7565 said:

<< am finishing my MBA at a top 20 school, so i should be making some really good income in a few months >>

I have read that MBA offers are hard to come by, heard anything in the grapevine ?



<< JimmyJoe, would you care to explain in detail on why cash value policies are bad? I am not suggesting that it is good for everyone, but it is good if structured right. Waiting for your explanation. >>



Again, my comments were speaking generally about a subject that is very complex. I have read some of your other posts on the forum and respect your opinions. I just wanted to put in my 2 cents. To be clear I am in the buy TERM and invest the difference camp. I will agree that Cash Value policies can be useful in the correct situation, but typically not. This is a generalization and obviously depends on the consumer's individial needs so take it with a grain of salt.

I don't like Cash Value for several reasons, these 'features' can be found in MOST cash value policies:
1. Expensive, high commissions and fees
2. Cash Value after the first year is a big fat $0 (some policies 2 or 3 years)
3. 4% to 6% return on your money
4. In order to get YOUR investment out, you need to take a LOAN because it is the INSURANCE companies money.
5. You will pay a 6% to 8% fee UP FRONT for your loan. If you 'borrow' $1000, subtract the 6-8% from that for your net.
6. The insurance company has 6 months to give you the LOAN.
7. If you die, your family does not get the Invested money (Cash Value). This is true MOST of the time. There are policies out there that will pay the Face Value PLUS Cash Value upon death but they cost A LOT more.

It depends on the specific policy, but also in most CV policies the insurance coverage is provided by and ART vehicle so the cost of insurance increases each year.

You being a Financial Advisor I am sure you are intimately aware of how these policies are typically sold to the consumer from life insurance agents. I don't like how these policies are sold to the consumer, because the consumer is offen misled or just plain lied to. Again this is not always the case, and there are exceptions.

Agents sell CV more than any other type because they get paid approx. 8 times more in commission than a TERM policy with the same Face Value. There is a HIGH turnover ratio in insurance sales. Most agents just push what the company tells them to push. The companies push CV because they profit more from it.

I 100% believe that the consumer should be educated on EXACTLY how the policy they are being sold works. Buyer Beware. Know what you are buying, how it works, and READ your policy. READ your policy. READ your policy.

I am just one person on a forum that is expressing his opinion in a hope to help other people. This article from CNN/Money is a good article and will back up most of what I have said. Good reading for anyone that wants a good primer on Life Insurance.

Here are a couple more articles for anyone interested:
Kiplinger
Smart Money

BTW - Before you purchase any insurance from any company/agent check out the insurance company ratings at ambest
If they are not at least an A-, find another company.

JimmyJoe - Well Done

A few more obscure features of cash value life insurance:
-The cash value of a policie is quite small. On a $100,000 whole life policy, the cash value might be $7,000. Don't make any plans to get any large loans against that whole life policy.
-If you split a case value policy into its 1) insurance and 2) investment components, I would guess the premium you are paying for the insurance component is quite high.
-The arguement that CV policies are good for people who have trouble saving money is simply pathetic. If people are so stupid with their money that they cannot save, why would they choose to pay the bill for their insurance over getting that new TV?

waterman said: The cash value of a policie is quite small. On a $100,000 whole life policy, the cash value might be $7,000. Don't make any plans to get any large loans against that whole life policy.

Cash Value policies is not just whole life. It is Whole Life, Universal Life or the now famous Variable Universal Life policies. Cash value on VULs can get quite high(or low in times like these).

The arguement that CV policies are good for people who have trouble saving money is simply pathetic. If people are so stupid with their money that they cannot save, why would they choose to pay the bill for their insurance over getting that new TV?

"According to a Harris interactive poll conducted in October 1999, less than a fourth of those buying term insurance actually invested any of the difference in premium. The poll surveyed more than 2,000 adults; close to 600 of them owned term policies. The results showed that only 24% of term policyowners polled actually invested any of their premium savings, and only 10% of term life buyers followed through and invested all of their premium savings."

Is it really pathetic as you put it? There is a difference between living in an "ideal" world and a "real" world. <img src="i/expressions/face-icon-small-smile.gif"border=0> I know what I was talking about when I suggested that the Buy Term and Invest the differnce doesn't work for most people. Again, not cause of math(though that can be argued), but because of people and their habits.

JimmyJoe said: Again, my comments were speaking generally about a subject that is very complex. I have read some of your other posts on the forum and respect your opinions.

Thanx! <img src="i/expressions/face-icon-small-smile.gif"border=0>

I don't like Cash Value for several reasons, these 'features' can be found in MOST cash value policies:
1. Expensive, high commissions and fees

True and not so true. Insurance is a very competitive industry and you can find the policies that fit you and your budget. NOTE: There are hidden costs, so buyer beware and always ask questions.

2. Cash Value after the first year is a big fat $0 (some policies 2 or 3 years)
Not true. Cash Value is usually not $0, even if you paid the minimum amounts. Yes, if you paid in less than the minimum amount, there is a chance of that. If you are however, referring to the "big" surrender charges and how you can't take any money out right away...there I could agree with you. But then again, you should never be in this policy if you need the cash in the next 10 years.

3. 4% to 6% return on your money
This really depends on the markets in case of a VUL policy. You can get negative returns too and you can get high returns too. So, it is kinda like your investments..they can go down or up.

A point to clarify: If you get 10% return say, your net return could be different and that is cause of the cost of the policy. But that is somewhat true in the mutual funds as well. So, here, you have to really look.

4. In order to get YOUR investment out, you need to take a LOAN because it is the INSURANCE companies money.
5. You will pay a 6% to 8% fee UP FRONT for your loan. If you 'borrow' $1000, subtract the 6-8% from that for your net.


First off, as mentioned above, insurance is competitive and you should find a policy that charges you less for the loans.

However, this is how it works in most policies that I have worked with: It is called "Zero-Net Loans". Basically, kinda like a 401(k) loan, where the company charges you a certain rate, say 4%, but credits your cash value the same.

6. The insurance company has 6 months to give you the LOAN. I am not sure about this, but I will look into it. Most companies whose policies I have used, usually process this in 3-5 business days.

7. If you die, your family does not get the Invested money (Cash Value). This is true MOST of the time. There are policies out there that will pay the Face Value PLUS Cash Value upon death but they cost A LOT more.

Ok, maybe I am missing a point here, but isn't it good if you invested $100,000 in the policy per se, and get $250K upon your death???? If you are reffering to the idea that within your "Buy Term and Invest the Difference", you would have gotten the $100K plus the $250K, well, there I may have to agree with you somewhat. However, refer to my post earlier, according to Harris Poll, how many people actually end up doing that? 1 in 50! Oh and to counter this, as you mentioned, there are policies that will give you the CV+DB, but they are expensive.

It depends on the specific policy, but also in most CV policies the insurance coverage is provided by and ART vehicle so the cost of insurance increases each year.

No it doesn't. Please read my earlier posts..the insurance cost is calucated as per this formula: (DB - CV)/1000*CPM , where DB is death benefit, CV is cash value and CPM is "Cost per thousand". So as you can see, the "At Risk" amount is what they charge you on.

You being a Financial Advisor I am sure you are intimately aware of how these policies are typically sold to the consumer from life insurance agents. I don't like how these policies are sold to the consumer, because the consumer is offen misled or just plain lied to. Again this is not always the case, and there are exceptions.

I agree, but that is why a consumer should research out a little before going into this complex product.

Agents sell CV more than any other type because they get paid approx. 8 times more in commission than a TERM policy with the same Face Value. There is a HIGH turnover ratio in insurance sales. Most agents just push what the company tells them to push. The companies push CV because they profit more from it.

<img src="i/expressions/face-icon-small-smile.gif"border=0> A difference is the "Financial Advisor" vs. the "Agent". Not to say that advisors won't do the same, but since we have a "fiduciary" duty, most advisors will not risk their careers. And besides, it is not 8 times. If it is, definately don't buy from that company's agents. <img src="i/expressions/face-icon-small-tongue.gif"border=0>

I 100% believe that the consumer should be educated on EXACTLY how the policy they are being sold works. Buyer Beware. Know what you are buying, how it works, and READ your policy. READ your policy. READ your policy.

How True! In that note, I am thinking of actually posting a detailed information on how VULs work, what to lookout for and the potential advantages and disadvantages. Any thoughts on that by anyone? Should I do that or will it be falling on deaf ears(or eyes in this case <img src="i/expressions/face-icon-small-tongue.gif"border=0> )???? I ask cause it will take a lot of my time to do. And where would I post it? In the finance section or in this thread?

Please note that I am not recommending everyone go out and buy these babies...just playing a devil's advocate and trying to educate the public with what are myths and what are facts.

wildviper,

I think we are just going to have to agree to disagree. <img src="i/expressions/face-icon-small-happy.gif"border=0> My comments where speaking generally about CV policies and you seem to be only comparing that to VUL's, which is only one type of CV policy. The 'features' I have described in the above posts are present in "MOST" CV policies. However, "MOST" CV policies are NOT VULs. We are not comparing apples to apples. Everything that I have previuosly stated is true for MOST CV policies. Some of these 'features' do not apply to VULs.

I don't want to be nitpicky and go tit for tat back and forth. Hopefully anyone reading this thread will have received insight from the information we have both provided. Bottom line is to do your research and find someone you trust that will help you. That person should have YOUR best interests at heart, not their own. Oh, and did I say READ your policy? <img src="i/expressions/face-icon-small-smile.gif"border=0>

If a consumer has been properly educated on insurance, investments, and their finances then 'buy term and invest the difference' works very well.

Oh, by the way, I have a "fiduciary" duty to my clients too. <img src="i/expressions/face-icon-small-tongue.gif"border=0>

wildviper wrote:


<< I am thinking of actually posting a detailed information on how VULs work, what to lookout for and the potential advantages and disadvantages. Any thoughts on that by anyone? Should I do that or will it be falling on deaf ears(or eyes in this case )???? I ask cause it will take a lot of my time to do. And where would I post it? In the finance section or in this thread? >>


I've wondered about these advantages for some time. I'd be interested in seeing your post. IMO, it belongs in this thread.

BTW, from my causal inquiries into WL, I get the idea that they may be better suited for high income individuals who have maxed out the 401K/403B and IRA options and are looking for other ways to shelter income from taxes. Is this true?

Also, while it's a bit difficult to predict what will happen with estate taxes, I'm under the impression that these sorts of life insurance policies can help avoid death taxes. Is this true also? If so, are there advantages/disadvantages to starting early (getting a WL policy when you are young) as opposed waiting until you have a clearer picture of the relevant tax codes and amount of money that "needs" to sheltered?

taylor said: I've wondered about these advantages for some time. I'd be interested in seeing your post. IMO, it belongs in this thread.

ok, I will post it. It will take time, so I would appreciate patience from everyone. <img src="i/expressions/face-icon-small-smile.gif"border=0>

BTW, from my causal inquiries into WL, I get the idea that they may be better suited for high income individuals who have maxed out the 401K/403B and IRA options and are looking for other ways to shelter income from taxes. Is this true?

It depends. IMHO, I have seen VULs to be a better choice for most people in this stage. However, everyone's situations are different and an analysis of your situation has to be done. Get a Financial Advisor. <img src="i/expressions/face-icon-small-smile.gif"border=0>

Also, while it's a bit difficult to predict what will happen with estate taxes, I'm under the impression that these sorts of life insurance policies can help avoid death taxes. Is this true also? If so, are there advantages/disadvantages to starting early (getting a WL policy when you are young) as opposed waiting until you have a clearer picture of the relevant tax codes and amount of money that "needs" to sheltered?

Loaded question there. <img src="i/expressions/face-icon-small-tongue.gif"border=0> While life policies can help reduce or avoid estate taxes, that is not always true. It has to be structured right. In fact, life policies CAN increase your estate tax liability if not structured right. Deal with someone who knows what effect buying a new policy will have on your estate tax situation and how to avoid the negative effects.

As far as the advantages/disadvantages of starting early..hmm...for the sole purpose of addressing the Estate Tax issues, I can not comment as everyone's situatin is different and I do not want to post something here that may not apply to you or to someone else.

Yes, you do have to consider your possible health in future and if you will qualify for life insurance later on in life??? Maybe that can be a starting point.

My advice to you: get an expert to deal with this situation on a one-on-one basis. There are waaaayyyyy too many questions that need to be answered to correctly reply to your concerns and thoughts.

Sorry if this didn't help you, but I would rather not comment willy-nilly! <img src="i/expressions/face-icon-small-smile.gif"border=0>



<< My advice to you: get an expert to deal with this situation on a one-on-one basis. There are waaaayyyyy too many questions that need to be answered to correctly reply to your concerns and thoughts. >>

I couldn't agree more. Also, keep in mind that Financial Advisors are NOT tax experts. That in itself is a full time job. Advisors are very tax savy, but you should probably also seek the advise of a tax pro if you are concerned about estate taxes.

wildviper wrote:


<< BTW, from my causal inquiries into WL, I get the idea that they may be better suited for high income individuals who have maxed out the 401K/403B and IRA options and are looking for other ways to shelter income from taxes. Is this true?

It depends. IMHO, I have seen VULs to be a better choice for most people in this stage. However, everyone's situations are different and an analysis of your situation has to be done. Get a Financial Advisor.
>>


Oops... I guess I should have phrased this better. I was looking for some general guidelines rather than specific advice about my particular situation (which does not involve maxing out all of my tax-friendly investment options). One of the main things that I have heard promoted about whole life policies is the tax sheltering opportunities they provide. However, if one has not exhausted other avenues for sheltering income from taxes, WL policies appear to lose some of there appeal. I was wondering if the following generalization was true in most situations: "WL policies typically make more sense for individuals in very high income categories than those who have not maxed out their IRA and 401k/403b options." (Keep in mind that I am talking here from a mathematical, not emotional, perspective.)



<< There are waaaayyyyy too many questions that need to be answered to correctly reply to your concerns and thoughts. >>


Again, if I were looking for specific advice, I would have provided many more details about a particular situation. What I was looking for was more of a general perspective. Perhaps it because the VUL and other WL products are so complicated that there are many who suggest staying away from them.

Making generalizations about when it make sense to invest in a traditional vs a Roth IRA or 401k/403b seem much easier to make. Perhaps that is just because I don't know enough about WL policies (which is why I was asking here).

Thanks for your response. I'll look forward to your more detailed post about VULs when you have a chance wildviper.

viper,
very good on the VUL points... although jimmy joe is correct in saying he is comparing term and "all other cash value policies", i do think that VUL now is a whole other ball game. yes WL and UL have the high fees and what not as jimmy says but insurance is VERY competitive. ive been looking at some companies in particular like pacific life and western reserve life. their monthly "fees and charges" are less than 1% of your premium and the health costs, is only a few cents. investing in stocks, you get charged for the "service fee" or the sales charge wich is gernaly at least 3% of the whole thing... also having to pay taxes on investment income. getting a VUL policy (depending on the company) i think is almost more like investing in mutual funds (with fund managers like morning star) plus getting insurance as a bonus. im only 22 about to graduate from college and i think getting this policy is one of the smartest things ive done in the past 4 yrs. my monthly premium is only only 100$ with my face value at 300k. thats like buying 2 nice shirts a month. economy doing bad? we are getting shares on sale ^^ yes, you can get term for just merely a few dollars (pac life is like 12$/month for a 20yr convertible term) but like someone said... only like a 2% payout.
btw... viper and jimmy, who or what company do you guys represent? any new/better products coming?
thanx
purin

JimmyJoe said: wildviper,

I think we are just going to have to agree to disagree. <img src="i/expressions/face-icon-small-happy.gif"border=0>


It's sad cause I was enjoying this as you brought out points that most consumers won't even think of and I would have liked to put some clear perspective on all of your objections. <img src="i/expressions/face-icon-small-tongue.gif"border=0> But hey, I agree..we can agree to disagree. <img src="i/expressions/face-icon-small-smile.gif"border=0>

I don't want to be nitpicky and go tit for tat back and forth. Hopefully anyone reading this thread will have received insight from the information we have both provided.

No tit for tat, Jimmy..just a deeper level of understanding behind all the "myths" out there. I did appreciate your level of knowledge of the "bad" points of the CV policies. As, you, I hope it helped some people and they realize that this is not a policy without negatives. Though I was talking mainly about VULs, in my experience, most of what was said about VULs apply to the other types of policies too.

As far as reading the policies..good point. However, do note that most insurance companies deliver your policy AFTER you have applied and been approved for the insurance. To get around this issue..ask the company to provide you with a "sample" policy. All of them should have it and you can read through that to your delight. If you don't understand something..ASK..don't feel that I am not smart enough or something..it is YOUR money after all. <img src="i/expressions/face-icon-small-smile.gif"border=0>

purin said: my monthly premium is only only 100$ with my face value at 300k. thats like buying 2 nice shirts a month. economy doing bad? we are getting shares on sale

Purin, I am sure you know what you are doing and don't wanna sound all "parenty" and all, but make sure of something in your policy: The premium you are paying is MORE than the "minimum" amount. This is where most people fail and later on can't take the full fruits of such a policy. Later on, when the cash has built up, you may have the option to reduce your premiums, depending on what your cash is doing of course.

And, bump, for thinking that you are getting shares on sale. That is absolutely correct. (DISCLAIMER: I am not endorsing anyone to go out and buy stocks or funds! Do so at your own risk) Here is a thought that I wish everyone had in mind: "Macy's One Day sale..and most run to get the things...stocks of big companies on sale..and most dump them!" I don't understand that mentality..why buy high and sell low???? So good for you.

btw... viper and jimmy, who or what company do you guys represent? any new/better products coming?

Purin, as much as I would like to say the company name, I am prohibited by company policies to mention its name unless I have prior legal approval! <img src="i/expressions/face-icon-small-sad.gif"border=0> However, I can tell you that the company I work for, has every product imaginable on offer from fixed annuities to variable annuities to term to VULs, from stocks to mutual funds, from REITS to Futures contracts to hedge funds. So it is a big company and well regarded in the industry and by most consumers. <img src="i/expressions/face-icon-small-smile.gif"border=0> I work for it cause I like their sets of ideals..and it is one company that I have seen preach and practice "Customer comes first".

Again, I am not trying to solicit any business here. I will, in fact, not take on any clients from here too. But I will help out fellow FWers here. <img src="i/expressions/face-icon-small-smile.gif"border=0>

yes i do realize my 100$ premium is above minimum... i have it set to hopefuly "endown" at 55 depending on the market of course. thanx for noticing ^^

wildviper said:

As far as reading the policies..good point. However, do note that most insurance companies deliver your policy AFTER you have applied and been approved for the insurance. To get around this issue..ask the company to provide you with a "sample" policy. All of them should have it and you can read through that to your delight. If you don't understand something..ASK..don't feel that I am not smart enough or something..it is YOUR money after all. <img src="i/expressions/face-icon-small-smile.gif"border=0> >>



Don't forget to mention the FREE LOOK PERIOD!! You have a specific period of time to review your policy once it is delivered (10 days in Utah). If during that period you decide the policy was not what you wanted/understood, you can decline it and receive 100% reimbursement of premiums you have paid up to that point. I would imagine this type of regulation exists in all states.

This is a great feature required by the Dept. of Insurance to protect the consumer... it helps reduce their "risk" for lack of a better term. If they review their policy and don't like it, they are totally refunded, which means their only loss would be opportunity costs of what that premium money could have been doing somewhere else.

It is important to note that the free look period starts the day the policy is DELIVERED by the agent, not the date it is actually in force. That means if your agent is a slug and takes 3 months to get you your policy, your free look period starts at that time.

Getting a sample policy is a great idea too.... you'd essentially have unlimited time to review that thing before you commit. Just know that after you "commit" and your policy is setup, you still have an out during that free look period if you feel something isn't quite right.

Bor

Lurked in this thread for a while now. Thought it time to post my observations. I am not a life insurance agent or any kind of financial advisor for that matter. I work for a software company, make a decent living, and appreciate the value of both Term and Whole Life.



    I do believe that the most important thing to understand about permanent or whole life insurance is that the "return" on your investment is directly tied to the mortality and expense charages the company you are dealing with faces. If the underwriting guidelines are very strict and the company doesn't send their agents to the Bahamas every few months, the better your return on a whole life policy. In other words, the tougher it is to get accepted, the better the performance as an investment. See Northwestern Mutual, State Farm, and Principal. If you go with a no name company or poorly rated one - expect to get poor results because they are paying for a whole lot more dead people.



      It is important to understand that the longer you wait to get a whole life policy, the more it costs. If someone buys whol life at 20 and pays until 65, they will have paid less than the guy who buys the same policy at 30 and pays until 65. The longer you wait, the more expensive it becomes.



        Life insurance cash value is typically excluded from financial aid reviews if you plan to send a kid to college, it can be good for this.



          Policy loans are similar to 401K. You pay interest to yourself, so the net penalty is typically less than 1%. If I take a $100K policy loan when I turn 55 because I don't want to wait until I am 59 1/2 when the gov't says I am allowed to retire I can do so. If I die when I am 57, they will take the cash value I borrowed, subtract it from the face value of the policy and pay that to my benficiaries.



            If you continue to buy term, you have to demonstrate insurability every time you buy it. WIth permanent insurance, you demonstrate insurability upfront and then never again. Some policies even allow you to add a rider that allows you to buy additional insurance without demonstrating insurability at specific birthdays or life events (birth of a child, marriage, etc). This is especially helpful to someone like me who seems to get more found of Beer and Pizza the older I get.



              If you have wife and then kids and need more insurance for a period of time, add a term rider to a permanent policy. These are usually dirt cheap and help to ensure that you have adequate coverage during times in your life where those you love may be especially devastated if you get hit by a freight train. Keep this reasonable though so that your wife is not the one driving the freight train....


              I have owned permanent insurance since I was 20 and this is just my opinions as someone who probably does way more due diligence than necessary on crap like this. It is a PART of my investment and financial portfolio. It should not be the main part or the only part for anyone. Anybody that thinks they can go to a life insurance agent only for financial advice is asking for trouble. Go after you have done your research and see the value in having life insurance as part of your overall strategy and then talk with a few about how they can help you with this piece of your overall strategy.

              Just a reminder: I haven't forgotten about my promise to write up about VULs. I just have been busy and need a good amount of time to really do a good job. <img src="i/expressions/face-icon-small-smile.gif"border=0> It will be up soon though. <img src="i/expressions/face-icon-small-smile.gif"border=0>

              Ok here it is as promised. Slightly late, but better late than never right?

              Note: This is a work in progress. Changes maybe made and will be noted later if there are any

              Life Insurance is something that most people need. I said most, not all, btw for all those who will want to pick an argument over that. I am a Financial Advisor and not an insurance agent so if you think I am pushing insurance cause of commissions, that is plainly wrong. Yes, it does pay well. Sometimes very well. But I personally do not take that into consideration in determining who needs the insurance and how much they need. There are always shady characters out there. So buyer beware. Check with at least three Financial Advisors to see what all of them say. Check with three insurance agents as well. You will find most will differ on their opinions on what you need and what type of policy is right for you. Ultimately, you should go with something that will not keep you up at night!

              Since life insurance can be a complex issue, I am going to try and explain some of the things that you should look for and what somethings mean.

              The details below may or may not be representative of the policies you have or are offered. Why? Cause, like anything in life, there are 1000 variations that can happen. Also, State Laws differ and can cause some policies to have different features. I am based in California and the info below pertains more to that state.

              Ok, here we go now:

              First question is if you need life insurance coverage or not. I cant answer that for everyone cause I do not know the situations of everyone. However, as a general rule, I would think a life insurance need exists for these people:

              - Married couple with children or not
              - If there are any dependents on you, there is a need
              - If you have Estate issues, you may have a need
              - Even single persons with no dependents may have a need. For example, if one knows that based on their family history , they maybe prone to a certain illness, it is better to get the life coverage asap before that illness strikes to avoid being un-insurable later on. There are many other reasons that a single person may need life insurance.

              Ultimately, it is for you to decide and see if you need it or not. But make that decision with an Advisor after talking over everything. Some people are anti-insurance and this may cloud their judgement. I was like that until an experience with one of my clients taught me differently. Now I have a Variable Universal Policy on me and I am single with no family history of any illnesses. Touch Wood! So there goes to show you that a need may exist not just financially but emotionally as well.

              Once you decide you need life insurance, the question comes up as to how much you need.

              There are two principal ways to calculate your need for life insurance:

              1) "Needs Based" (Survivor Income) Method - This is the least amount of life insurance that your survivor (spouse, etc.) will need from a financial point of view to meet basic monthly living expenses. "How much would your family need to maintain their lifestyle in the event of your death?" or "How much is needed to have a sound Estate Plan?" and so on.

              2) Human Life Value(HLV) Method - This method is calculated based on replacing your entire earning potential (including retirement and Social Security savings.) Human Life Value takes into account your projected economic value to those you would leave behind, including intangible aspects such as employer provided benefits and personal services such as household chores. This can provide a more accurate analysis of your life insurance needs. "If I were to write you a check today for all of your tomorrows, how much would that check have to be?"

              Usually, HLV comes up with a higher number. You could optimally pick that or choose to go between the "Needs" number and "HLV" number. Your choice. No right or wrong as such. Keep in mind that, usually, "Needs" is the lowest possible amount you need. Sometimes that can be higher than HLV and which is fine since you know that, that is the least possible you need.

              Once you determine how much you need, you need to find out what type of policy you need or want. Your options to provide life insurance coverage for your situation are various. Each type meets slightly different needs. All share some common traits. The basic categories of insurance are:

                - Term: Think of term insurance as renting a house. It typically is for the short term. It is an inexpensive way of funding a need when budgets may be tight. When you purchase term insurance, you are buying coverage for a specific period of time. If you die within the specified period, the insurance company will pay your beneficiaries the face value of your policy. Having the capability to convert your term policy into a permanent policy is an ideal option you should consider when purchasing term insurance. This allows you, at some time in the future, to change your term policy into a universal life policy without evidence of insurability.

                - Whole Life: Whole life was created to allow the purchaser of the policy to build equity and buy insurance at the same time. We refer to this as buying the house. Whole life has guarantees that other forms of permanent insurance do not have. As long as you pay your premium, you will never risk losing your policy, the cash buildup is guaranteed and the amount of premium will never change. As you know, there is no such thing as free lunch, so in exchange for these guarantees you give up some flexibility. You are not allowed to change the death benefit nor the premium unless you purchase the right to do so at onset. For this reason you may have or someone you know may have owned several small whole life policies simultaneously. The interest rate earned on the cash value is typically substandard to the more modern universal life policies. Here, the premium tends to be the greatest of all insurance policies.

                - Universal Life: Universal life came along in response to demands for more flexible and increased investment performance. Universal life policies allow you to adjust the death benefit and premiums. For the increase in flexibility, you guessed it, you give up some of the guarantees that whole life provided. As the policy owner, you can vary the frequency and amount of the premium as you see fit. You can also increase or decrease the amount of the insurance to suit changes in your situation. Though you may have to go through medical underwriting.

                - Variable Universal Life Insurance: These policies operate much the same as universal life policies, with the exception that with a variable universal life policy you can build cash value with a fixed account crediting a guaranteed rate of interest as well as several other investment options.

                - A "Second-to-die" life policy X insures two lives with the benefits payable upon the second death. It serves as an ideal estate-planning tool and often proves valuable for succession planning of a business.


              As you can see, permanent insurance (whole life, universal life, and variable universal life) provide an extremely tantalizing feature. The accumulation of wealth inside the policies is tax deferred. In fact, it is possible, with the adherence to a few federal tax code specifications, to use the accumulated cash for goal funding and never pay tax on the funds. Furthermore, it may provide an opportunity to transfer wealth to your heirs tax free because under current tax laws death proceeds from life insurance contracts are not subject to income taxation.

              However, saying that, these policies also have higher costs involved. Probably the single most important reason why people choose to utilize the "Buy Term and Invest the Difference" strategy. Please read the posts above on my opinion on this strategy and opinions of others.

              The most complex of the policies is the Variable Universal Life or VULs. Since it is the most complex, I am going to try and explain some of the features of this policy and also some of the downsides and things to watch out for. This type of policy has a lot in common with Whole Life or Universal Life policies and many things that are different. Getting to know this type of policy will give you some knowledge as to the other two types of policies. This is why I picked VULs to explain, not cause of commissions or anything.

              I am not soliciting and/or advocating VUL business or any business for that matter.

              As mentioned above, I have this type of policy and I also recommend them to my clients who can benefit from it. Not everyone will benefit from this type of policy. The type of policy you need is based on you and your situation.

              continues in the next post due to FW crashing on me

              Skipping 8 Messages...
              Boreal21 said:

              << Also, if you are found terminally ill, you may have access to the entire death benefit of your insurance plan. Do they do that with IRA's or 401k's? I've never really looked into it...
              Bor
              >>



              Well, there is a provision called "Hardship Withdrawals" with 401ks and IRAs. I am not sure if it accounts for the "terminally" ill, but I know that if your financially in hardships, you can withdraw without the 10% penalty. You will still have to pay income taxes.

              I will post my reply to Taylor's question soon. <img src="i/expressions/face-icon-small-smile.gif"border=0> Sorry for taking time, but I need a good hour or two for this as it is not a 5 min post. <img src="i/expressions/face-icon-small-smile.gif"border=0>



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