why whole life insurance is a bad investment

After I explained to her how ridiculous blogs like this are for her situation she was actually calm and more receptive. Stop doing a disservice to the public and take this down. Totally wrong. But , with the additional dividends he will actually have something like $129,000 . Then the investment that does have healthy returns. You state it’s a bad investment – it’s not it’s life insurance. Even in cars with high rates of defects some last a long time. Thank you. You mention the “tax-free” nature of whole life policies, which again is something I addressed in the posts. That is something I could do for you, and if you’re interested you can email me at matt@momanddadmoney.com to get the conversation started. She will never have to pay a premium but will have $225,000-$350,000 payout one day while providing some protection also during the income/mortgage/child rearing adult years because I purchased it for her at the cost of $120.25 per year! Because people will use whole life in low interest environments with the intention of withdrawing in the event of a market change. after they are adults – then THEY are responsible for their own expense’Term life is for what I would call ‘premature death’ when you do have kids at home etc. Well, I was told that my dad could be reinstated if the payments were brought up to date but I would have to fill out a health questionnaire for my mom. Banks realize they are protected against insolvency, liens, and lawsuits (another benefit of WLI) ( yes trusts can do this but why pay 8-15k in legal fees to structure them). But did you know that if you die, you do not get your cash value, only the Face Amount of the Policy? A traditional whole life policy with paid up additions. Thanks for reaching out Char. As a result, estate planning becomes much simpler and offers the ability to liquidate assets… since you’d know the death benefit would take care of any debts owed, mortgages, etc. PLEASE – ask your broker for an illustration , contact an insurance provider for financial statements and records- these are not falsified they legally must disclose the numbers . Hi Matt, great article. Example a 30 year male old non-smoker can purchase a small 25,000 policy for 34.97 a month, by adding an additional 10 a month or paying 44.97 a month he will have after the 1st year $25,649 death benefit, this will increase every year. 3. 2. Jesus, you completely ignored the gigantic difference between $13k/year and $13k TOTAL over 20 years that Jordan pointed out. And you can count on it . For people who will be passing on more that those amounts, they could be facing significant estate taxes that would leave their heirs with less money. How do you feel about Single Premium Index Life? If you borrow it and don’t pay it back, it is subtracted from the amount paid to heirs at death. So why would you want to keep paying for a poor savings plan that only saves the life insurance company any money??? Whole life insurance does not have a term. If you are still considering whether or not you should surrender the policy, you need to ignore what the policy has done for you (or not done) in the past and focus only on what it should do going forward and compare that to the other options available to you. Please feel free to reach out to me directly if you have any specific questions. While flexibility can certainly be helpful, these policies are often sold as if they will help you achieve all of your financial goals. We got a whole life policy several years ago. And in the meantime, you can use the savings from the cheap premiums to build your financial independence through other, more effective savings avenues. Our gross income is @140k a year. Response 3: I’m sure that some are. Good luck! Unfortunately this kind of story is all too common, and I really feel for your mom. Not hard or misleading at all. I am not necessarily directly responding to either the original post or other comments, but thought I would share our experiences and priorities, and why some whole life has a role in our lives and why we might a little more…, 1) Agreed that whole life on yourself generally makes sense only after other instruments (401k, IRA accounts, etc.) It is good that you can borrow from the cash value because you will need to at times to make ends meet. I agree that if you are insistent on purchasing a whole life insurance policy as part of your investment strategy, then overfunding it is the way to go in most cases. I will say that I would be careful about taking that 4.5% return at face value, as I describe in the post. While the majority of older Americans will need long-term care later in life, there are ways … If they owned a permanent life policy, they could reduce their investment risk by spending assets and leverage the insurance policy to replace the assets they use while they delay taking income from SS and the increased payment the benefit provides can increase their life style, pay the premium and create a legacy for their children, grand children or favorite charity. When people save for retirement, they generally do so with things like stocks, bonds and real estate. I may, or may not, need part of this money during my retirement. And yes, that return stinks. When you buy term insurance the premiums are gone forever. I am looking for a safe haven for some available cash with a minimum return of 4%. I love your article and am very appreciative of your opinions and aound advise. I am not an agent and don’t sell any financial products. You provide 8 great reasons as to why whole life insurance isn’t the best option for the majority of people. they also make their money on forfeited policies, loans and pool payouts so their returns are not “totally” tied to the market performance. Why Long-Term Care Insurance Is a Bad Investment. To be clear, it’s certainly possible that this would be a good move, but you would only know that after a careful and detailed analysis of your specific pension, your specific goals, and the rest of your financial situation. I am 57 years old. …I am so grateful. So while each situation is different, you probably have already swallowed the bitter elixir. I cannot give you specific advice with regards to your parents’ situation, but I can give you some things to think about: 1. He might purchase a $1,000,000 Whole Life with an annual premium of $12,000, but overfund it buy paying $30,000. I’m sorry to hear that you had such a negative experience Chris. Take care, folks! I would also say that regular old taxable accounts used properly will often be a better option. Too many opportunities over a lifetime to miss a payment and then poof… it’s gone. An investment is simply where you put money into something expecting a return in the future. CSV collateral loans typically are cheaper than unsecured loans, or auto loans. Has there been any year when this return has been 0 or negative? So, my question is going to be a little different. Invest it and the future premium payments into this same whole life insurance policy, given what you know now and what you expect the returns to be going forward? But would consider taking it if I had children, just the minimum to make sure they have a replacement income until they turn 18 then they can administrate my estate or start their lives! I am not alive at that point. Another feature is if you pay extra it will go towards adding extra coverage, basically making the coverage grow every year. Even with a 401(k) or IRA, where you can’t access your money without penalty, you can always choose to stop contributing for a period of time if you need that money for other purposes. It is wise to note that as a business owner or individual that the cash values of WLI can serve as collateral (via assignment) when otherwise collateral may not be available. Most carriers will not insure diabetics. This means you can’t even expect to get back the amount of money you put in. So, the insurance is to give me a payout, in the event I can no longer work and earn a salary, so that at least I could still live comfortably. Thats not the sole purpose of whole life insurance is it? This is fine. Whole life insurance can be an excellent way for someone to save for the long term. I will be able to retire with dignity in 20-30 years. My wife and I were pitched this idea earlier today and I thought it sounded great until she made me read this article. Does that make sense? Insurance should A while back I wrote about the mistakes I initially made when purchasing life insurance policies for myself and my wife, and one of the things I mentioned was that at the very least I was relieved we had avoided buying whole life insurance. It’s their livelihood. Let’s talk about rates of return. A loan will actually decrease the dividends, and therefore the return, you receive, because you have less equity in the policy. But I’m sure it happens. 2. I appreciate you informing the public. If you happen to have a small hole in your pocket, you might lose the quarters, but the dollar bill might stay. This is where you might want to bring in your accountant or actuary to do the math. Obviously Whole Life / Universal policies get “better” over time (supposedly)…usually after decades. My current logic below. For term life, I’d agree that it is usually a really bad investment. My parents are actually talking to an agent to get the whole life insurance and their premium monthly is about $1000 so which makes them to pay $120000 (since it’s the 10 yr plan) and the agent presented that the guaranteed value will be $250000. Dividends are not overpayments of insurance. Let’s consider th facts. It’s a pretty simple procedure and certainly not worth paying all the extra costs of a whole life approach just to avoid. My commission is 1/10 of what a whole life agent makes. I might be wrong about some of these things, but everything I’ve written below is what I believe today based on my current understanding and the guidance of my own advisers. at that point assuming I have excellent health or guaranteed insurability. When the life insurance risk is not so preferred the numbers might look very different, as Term is no longer so cheap. Great article! The average return was 8% and the return was capped at 15%. Are you an expert? Cash CDs absolutely do not. So you’ve secured a $100,000 tax free asset for $25,000? I just choose to invest that conservative portion in something other than whole life for all of the reasons listed above. 5. Jason, I need to make a couple points in response to Alex’s comments here. please advise ,and also what would you sell to a older individual ? And there are many other terms and conditions that make these policies very complicated. we also want the surviving spouse to be assured of not being cleaned out financially. Good question Eski. Talk to an agent who can provide the knowledge of each type and you can choose what best for you. View all posts by Andy Rachleff. This can indeed be an attractive feature of the policy, but it comes with several warnings. Life insurance companies that sell traditional policies like whole life insurance invest primarily in corporate bonds and government-backed mortgages where the money will be … Hey Amy. 25 year old male , Guaranteed minimum death benefit $150,000 . In my case and for my intent, whole life insurance was prudent. When this happens, you either need to put more money into the policy (likely not part of your retirement budget) or the policy will lapse and then you will face tax consequences. Life insurance is very important to have but how do you know which one is right for you? Just above I said that the guaranteed return on that policy … 4. Whole life insurance isn’t a product designed to replace term insurance. Yep, there’s a lot that isn’t guaranteed with these policies, just like with anything you might invest in. One size does not fit all. My question: I am 66 and my wife 54. Thanks for the input Ben. Whole life insurance can help with that. For example, let’s say a 25 year old determines that he needs $3,000,000 of insurance. As for the bit about WL returns, I’m not sure what you’re disagreeing with. Your point about eventually not having to pay premiums is a common one used by agents, and in some cases that does happen. I won’t need life insurance when I die. First, I simply couldn’t commit to send such a large portion of my savings for the next 10, 20, or 30 years. They themselves do not understand. Second, that premium difference is typically better off being invested elsewhere, especially if you have access to tax-advantaged accounts like 401(k)s, HSAs, and IRAs available to you. How would TLI or other assets not cover that? What if you don’t qualify for term life insurance? Invest the difference for 30 years at 7% (and yes, this is very doable and almost too conservative over the long term picking solid mutual funds) and you will have $3.1 Million. Thanks. People still get paid to sell those products too even it’s not directly tied to the sale. Do you need counseling? I on the other hand, got married and moved to England,I m not working at the moment, since I have to wait for my spouse documents to be legalized before looking for work, about 6, 7 months, and don t think it s useful for me over there, my husband or even for my son, since I didn t realize that it s only for him to collect it if i die, I would be more open to having something for ME while living, I m not worried about my son so much anymore now that I am married to a wonderful man and through his job, I m fully covered on a number of things.Would u mind replying to my email and letting me know if I should stop payments,and if so, do I get penalized, do I pay any fee for canceling it,surprising enough, I can t reach anyone at the Insurance co that will give me any straight answer or honest, easy to understand reply, and I just don t want to pay another month if I don t have to.Thank you so much for all of your input, clarity and dedication to everyone, you are obviously in love with your work,your calling!All my best! sometime soon here and I definitely am thankful for so many articles out I had a meeting with a friend/part-time insurance salesman and his upper level salesman yesterday. 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