My financial adviser recommended I buy whole life insurance...

I would definitely contrast it against term life in your situation. Generally there are more suitable investment vehicles if that is your overall goal; given your current situation, your term premiums should be CHEAP.

The best advice I've gotten on it is, buy insurance because you need insurance, not as an investment. As you said, compared to other options, the ROI is poor.

Does it really make sense for someone in my situation to be buying whole life insurance?

Of course it makes perfect financial sense....for the financial plannner who is recommending it.

Wouldn't I be farther ahead if I were to invest that money each month in something else?

Of course you would, but the financial planner would be much further ahead if you just purchase the life insurance.

Based on my reading, whole life insurance has one of the worst ROI.

You need to look at it from the financial planner's perspective. Selling whole life insurance has a great ROI for them, not so much for you.

Your big mistake was hiring a financial planner. Most of them are nothing but glorified salespeople.

Thanks for the advice. This post was more of a sanity check. Lucky for me the meeting didn't cost me anything, but I will most likely stay away from this financial adviser in the future.

Who will be the beneficiary? If no one depends on you financially, you do not need life ins.

lgyeresi said: A few days ago I met with my financial adviser. I am looking into a business venture with a partner, and my question to her was how much can I afford to loose. Bit of background on myself, I'm 22, single, no kids, no debt besides mortgage, I have emergency savings, 401k, roth ira, etc... The adviser asked me if I had any whole life insurance. My answer was no. She recommended that I buy some whole life insurance, it was basically the only thing missing from my portfolio. She said that I can borrow against the ACV of the policy in case I get in a bind, and I can always borrow against it, even when traditional sources of lending may have dried up. She then gave me an example of how she was able to purchase a distressed apartment complex a few months ago. She needed $2xx,000 to close on the property, she didn't have the cash, but she was able to borrow against her whole life insurance. Basically I told her that I'd do some reading on the whole life insurance before I make a decision.

Now my question is this. Does it really make sense for someone in my situation to be buying whole life insurance? Wouldn't I be farther ahead if I were to invest that money each month in something else? Based on my reading, whole life insurance has one of the worst ROI.

Why did your financial advisor ask if you had whole life insurance? As your advisor, she should have known. Recommending whole life insurance without understanding your financial goals is idiotic. One doesn't buy it because it is missing from their portfolio. One should buy it if it helps them to accomplish their financial goals. Based upon this post, I'm GUESSING that she was looking to sell whole life insurance instead of looking to help you accomplish your financial goals.

Did you tell her that one of your financial goals was to leave money behind at death regardless of when death occurs? If you didn't tell her this, WL definitely doesn't make sense.

Do you health insurance, disability insurance (above what's given through work, and term insurance based upon your future need? If no, WL definitely doesn't make sense.

My GUESS is that having some WL might make sense for you, but this "advisor" doesn't have a clue as to whether it does or not and the recommendation is based upon her wallet and not yours.

By chance is your financial adviser also an insurance agent, or a close friend of an insurance agent, or affiliated in any way with an insurance company?

SuperMxyz said: You should do it. Also you should spend the money on a gold coffin once it pays out. This is honestly the best use I can think of for life insurance on a single person with no dependents.

Having to borrow against a whole life policy should tell you that you're getting in over your head and putting yourself at high risk of going broke.

If one has to borrow, then then they may have gotten in over their head. However, borrowing from a policy often makes very smart financial sense. One shouldn't buy a policy just so that they have a source to borrow funds, but it is a very nice feature.

swandown said: By chance is your financial adviser also an insurance agent, or a close friend of an insurance agent, or affiliated in any way with an insurance company?

Almost all financial advisors are insurance agents. In fact, in most states, it is very important that your financial advisor be licensed as an insurance agent. This is because if one is looking for a financial advisor as opposed to just an investment advisor, insurance is obviously an important part of this. In the majority of states, one can't give insurance advise without being licensed.

InsuranceExpert said: Life insurance, unlike investments, is purchased more with one's health than with one's dollars. That's an argument for young, single people to buy life insurance and has nothing to do with type.Why would insurance companies over-charge older people and under-charge young people? After all mortality tables are no secrets.

ppatin said: Your big mistake was hiring a financial planner. Most of them are nothing but glorified salespeople.

why glorified? They are just salespeople..

InsuranceExpert said: EvilCapitalist said: When selecting the advisor, did you ask her to produce her Schedule D for as long as you have been an investor as well as information on her other investments? If not, you should do that as soon as possible and compare your performance with hers. Should she be outperforming you, there may be a reason for you to listen to her. I'm going to make an educated guess she's broke.

I would 2nd your guess that she's broke.

Your advice, though, doesn't make any sense. A good advisor will help people invest according to their tolerance for risk and their goals and their time horizon. My money is invested differently than my client from 10:00 this morning and his money is invested differently from my 11:00 client.

That simply means that your clients are not terribly bright to use you. Congratulations, you found a fool whose money should go away.

Did you notice that the people who service multi-million and multi-hundred million dollar family accounts tend themselves to be multimillionaires or did that nugget escape you?

nycll said: InsuranceExpert said: nycll said: InsuranceExpert said: Life insurance, unlike investments, is purchased more with one's health than with one's dollars. That's an argument for young, single people to buy life insurance and has nothing to do with type.Why would insurance companies over-charge older people and under-charge young people? After all mortality tables are no secrets.
Please do me a favor and re-ask the question. I want to try to answer the question and I really am not quite sure what you are trying to say.Sure. The reason I posted that question is because a standard sales pitch of whole life is that to buy it young one can "lock in" a low rate for life. To simplify things, lets look at the mortality side of the WL policy (which is just term to end of life + tax deferred compounding), the term life. Also ignore the time value of money (which works against such a sales pitch) by assuming interest rate =0.

Sum of premium of a term life = mortality risk - expected cancellation profits + expected profits

Do you have any evidence to suggest that life insurance companies demand higher expected profits from older people than younger people? I am completely open to the answer because I really don't know.

Another way to ask the question is using a twins example: brothers A, B, same health, same notional coverage.

A buys a 20 year term life in Nov 2009
B buys a 10 year term life in Nov 2009; and he doesn't die, he buys another 10 year term life in Nov 2019.

Which brother will end up paying more for insurance? If the answer is more or less the same, then there is really no point in locking in a rate early. We are not even considering if they have insurance needs or not during the earlier years or not.

Thanks for the clarification. I definitely didn't make myself clear. My post had nothing to do with whole life insurance and just life insurance in general.

In your example Brother B will pay less money, but you are making a gigantic assumption which leads to the point of my post. You are assuming that brother B will still be healthy in 2019.

So, what I'm really trying to say is simply that insurability is very fragile. We're insurable until the day that we are not. My advice to a 22 year old is to buy term insurance if the premium is easy to afford. This assumes that they plan on getting married in the future. This advice comes from my experience of dealing with way too many people who need coverage and can't get it at affordable rates. The vast majority of these people were insurable at excellent rates when they started adulthood.

InsuranceExpert said:
Do you health insurance, disability insurance (above what's given through work, and term insurance based upon your future need? If no, WL definitely doesn't make sense.

My GUESS is that having some WL might make sense for you, but this "advisor" doesn't have a clue as to whether it does or not and the recommendation is based upon her wallet and not yours.

Health insurance? Yes, through my employer. It's a high-deductible policy, but I have savings that more then cover the deductible
Disability insurance? No, none is provided through my employer either
Term life insurance? No. I'll have to go back through my paperwork, this might be available through my employer, but I declined it. I'd have to go back and look.

And to answer the other question, nobody is currently depending on my income. I have no plans to get married or have kids in the foreseeable future.

InsuranceExpert said: katx said: Who will be the beneficiary? If no one depends on you financially, you do not need life ins.

Just because it's not needed today doesn't mean that it shouldn't be purchased today. Life insurance, unlike investments, is purchased more with one's health than with one's dollars. That's an argument for young, single people to buy life insurance and has nothing to do with type.Do you also recommend that say 10 year old buy auto insurance?

Do you per chance sell insurance or work for an ins co? At any rate, please tell us why the OP needs life ins, or more specifically, whole life?

katx said: InsuranceExpert said: katx said: Who will be the beneficiary? If no one depends on you financially, you do not need life ins.

Just because it's not needed today doesn't mean that it shouldn't be purchased today. Life insurance, unlike investments, is purchased more with one's health than with one's dollars. That's an argument for young, single people to buy life insurance and has nothing to do with type.Do you also recommend that say 10 year old buy auto insurance?

Do you per chance sell insurance or work for an ins co? At any rate, please tell us why the OP needs life ins, or more specifically, whole life?

I don't work for an insurance company. I do sell insurance. I only insure people. I sell life insurance, disability income insurance, and long term care insurance. I have expertise in all three of those areas. I also "sell" health insurance also. I put "sell" in quotes for health insurance because I am not an expert. I have people on my staff with much more knowledge than me take care of it. I make money from it, but I only know enough to be dangerous.

I'm happy to answer all questions including nonsensical ones. I have no expertise in auto insurance. However, if purchasing auto insurance before it was needed would guarantee that someone would always have the best rates regardless of how many accidents that they had, it would merit consideration for someone to buy it before they started driving. Unfortunately, auto insurance doesn't work this way. Nor will a company insure someone before they can legally drive. Life insurance does work this way, thus it often makes sense to purchase it before there is a need.

I don't think that the OP needs life insurance. As best as I can tell, nobody cares financially if he dies today. However, experience has taught me that it does make sense to buy coverage today if he will need it in the future. From what he's posted so far, I don't think that he should be buying WL at this point.

Do you agree that there is a conflict of interest when the same person who ADVISES if his client needs life insurance and the same person benefiting from the sale of life insurance.

Sure, there is a level of conflict. So what? "So what" isn't really what I mean, but there's not much that can be done about it. Anytime that you see any sort of professional or any time that you are buying any type of product, there is always going to be some level of conflict. I find that the conflict is an interesting subject and I'm happy to continue on this tangent if you'd like.

katx said: InsuranceExpert said: Do you agree that there is a conflict of interest when the same person who ADVISES if his client needs life insurance and the same person benefiting from the sale of life insurance.

Sure, there is a level of conflict. So what? "So what" isn't really what I mean, but there's not much that can be done about it. Anytime that you see any sort of professional or any time that you are buying any type of product, there is always going to be some level of conflict. I find that the conflict is an interesting subject and I'm happy to continue on this tangent if you'd like.Say there are two types of ins A and B (say term and whole life). When advising, do you recommend the one that is better for your client or the one that is better for you?

I recommend the one that is better for my client. In some cases, it is all term insurance. In other cases, it is a combination of both. All WL is virtually never recommended by me in the family market.

The reality is that recommending the one that is better for my client is the one that is best for me. This is something that career salespeople understand. The salespeople that do the best long term are the ones who always do what is best for the client. Let's look at this selfishly. My goal for my business is to make as much money as is possible. Obtaining clients is always difficult and not always very profitable. Getting clients via happy referrals is very easy and typically profitable. Keeping existing clients happy is usually very profitable. What I'm attempting to say is that doing what is best for the client under all circumstances is what should lead to the highest income for the salesman.

InsuranceExpert said: Thanks for the clarification. I definitely didn't make myself clear. My post had nothing to do with whole life insurance and just life insurance in general.

In your example Brother B will pay less money, but you are making a gigantic assumption which leads to the point of my post. You are assuming that brother B will still be healthy in 2019.

So, what I'm really trying to say is simply that insurability is very fragile. We're insurable until the day that we are not. My advice to a 22 year old is to buy term insurance if the premium is easy to afford. This assumes that they plan on getting married in the future. This advice comes from my experience of dealing with way too many people who need coverage and can't get it at affordable rates. The vast majority of these people were insurable at excellent rates when they started adulthood. That is because insurance companies refuse to write life policies on people who are not healthy. In fact not all people with long term illness will die within a few years. But I understand the risk of death is much more prominent, the insurance will be much more expensive or not even offered. I agree with your conclusion that a young adult should look into term life early.