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Can you help me? Life Insurance


40Rocket
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The True Cost of Term Insurance

However, term insurance has its drawbacks. It certainly isn't right for all people or under all circumstances. Among its weaknesses, be aware of the following:

 

You do have to "die to win." As unpleasant as that sounds, it's true. Term life insurance provides a death benefit only, for a specific period of time. When the term coverage expires, so does your protection. Also, if you stop paying premiums, the coverage ends.

Wow, just like EVERY OTHER form of insurance out there.

 

I'd like to know if whomever wrote this has whole-life car insurance and whole-life house insurance. I mean, it it's that great, why WOULDN'T they offer such a terrific product?

 

There is the very real danger of becoming uninsurable when the term coverage expires. While many term policies are convertible to permanent coverage, others may not be.

This is true - but I also know of at least one company that WILL NOT drop you if you become uninsurable once you are already insured.

 

Many people buy term coverage when they're in their 20s because it seems more affordable when compared to a cash value life insurance policy with the same death benefit amount. By the time they're in their 40s, the coverage seems a bit pricey, as the rate goes up. In their 50s, the cost has generally outstripped the cost of permanent coverage. Finally, in their 60s, if not sooner, they drop the policy — not because they no longer need the protection, but because they usually can't afford it. Meanwhile, the person who may have paid more for that permanent policy in his or her 20s may still be paying the same premium.

This is specious - the cost of insurance in ALL policies will ALWAYS go up. With whole life, you pay a higher initial premium, but a % of that higher premium goes into your cash value (or whatever they call it) to build up equity there. What you need to worry about is "vanishing premiums" - the point at which the cost of insurance and fees and such outstrips the amount you are paying in premium. At that point, most (if not all) companies will begin to suck money OUT of your cash value to cover the shortfall -resulting in your cash value eventually disappearing if you live to any sort of ripe age.

 

Despite higher initial premiums, cash value life insurance can actually be less expensive than term in the long run.

This is a lie - all things being equal, the cost will be the same or more. This is a fact.

 

Most permanent policies are eligible for dividends, which are not guaranteed, if and when they are declared by the insurance company.

This would ONLY be if your policy is through a mutual insurance company; and a "dividend" isn't a dividend in the sense of a stock paying out money, it is actually a refund of your premium due to lower-than-expected costs for that year.

 

In insurance, "dividend" = "refund"

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No, a whole life policy doesn't make sense for most people: a middle class american probably doesn't need whole life. What they need is a term policy that basically protects your family in the event the primary wage earner gets whacked while the spouse and kids are still dependent on him (or her). Because after your kids are grown and the house is paid for, you are basically then free to die without making your family homeless. And that's what term insurance is designed to protect against (i.e., you want to select a term that covers the period of time your family would be financially vulnerable if you died).

 

If you are, or foresee becoming, a wealthy person with a substantial estate then I can provide you more info on how whole life can be used effectively. Otherwise, just forget about whole life for now.

 

Good info here.

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Maybe that's because you don't hang out with multi-millionaires with family-run businesses. Whole life is a useful tool for folks in that situation. And there are several Huddlers in that situtaion, so you actually do know some folks for whom whole life makes sense. But it's certainly not for the average bear, that's for sure.

 

Ideally, couldn't you use an annuity for the same purpose as whole life without worrying about your cash value getting eaten up by increasing premiums? Or in estate planning, do you generally use paid-up insurance policies as opposed to making the monthly nut?

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Ideally, couldn't you use an annuity for the same purpose as whole life without worrying about your cash value getting eaten up by increasing premiums? Or in estate planning, do you generally use paid-up insurance policies as opposed to making the monthly nut?

 

 

Listen to this man! He's good! :D I'm serious as a heart attack!

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Many good points on both sides of this arguement.

 

Going back, to the original question, however.

 

The real issue on whether to buy term or permanent insurance can be boiled down to this. How long do think you NEED the coverage and why. If the coverage is for a period of time....say make sure that if I die my kids can go to college or my wife can still retire at the age we have planned.....then term probably makes the most sense...because the need is for a fixed term.

 

If you need the insurance for a term of longer than say 30 years...and are healthy today...the question starts to become more complicated.

 

If you need the insurance for as long as you live, you do not want term. Buying insurance as an investment is pretty expensive. But permanent insurance for the right reason and at the right age can be very cost effective.....if you need insurance.

 

Blanket statements on which is better are frankly poor advice. And below the standard usually found here imho.

 

Good luck

Hardrocker

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The real issue on whether to buy term or permanent insurance can be boiled down to this. How long do think you NEED the coverage and why. If the coverage is for a period of time....say make sure that if I die my kids can go to college or my wife can still retire at the age we have planned.....then term probably makes the most sense...because the need is for a fixed term.

 

If you need the insurance for a term of longer than say 30 years...and are healthy today...the question starts to become more complicated.

 

If you need the insurance for as long as you live, you do not want term. Buying insurance as an investment is pretty expensive. But permanent insurance for the right reason and at the right age can be very cost effective.....if you need insurance.

 

Blanket statements on which is better are frankly poor advice. And below the standard usually found here imho.

 

Good luck

Hardrocker

 

This is where I say "yes, but..."

 

"Yes, but..."

 

 

...a person needs to be VERY careful when dealing with the question of whole life vs term, because any insurance agent offering both is also probably cognizant of the fact that comission on whole is MUCH larger than the comission on term (and I think I spelled comission wrong), creating an immediate conflict of interest.

 

The plain truth is that in at least 9 out of 10 cases (if not more) a person does not need whole life insurance, and would be better off with term.

 

The final point I would make is that anyone trying to tell you to buy life insurance as ANY sort of savings/investment vehicle is full of it. Not to say that it has NO value (again, to the average schmoe like myself) - I just can't really think of any.

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Ideally, couldn't you use an annuity for the same purpose as whole life without worrying about your cash value getting eaten up by increasing premiums? Or in estate planning, do you generally use paid-up insurance policies as opposed to making the monthly nut?

 

Depends on the client's cash flow. I've got clients that like to make a one time taxable gift to an Irrevocable Life Insurance Trust (ILIT), have the trust purchase the insurance, and then just put the policy in their safe desposit box until they die. This is typical in a situation where they want a specific dollar amount upon death. This works well if there are, for example, two children: the parent wants to give the family busiess to one kid (because they are involved) but want to simply give a specific amount of cash to the other kid that isn't involved.

 

Another common variation on the ILIT is a "Cristofani Trust," which is also an ILIT. However, rather than making a big, one-time premium payment the policy holder makes use of the annual exclusion against gift tax (currently $12,000 per year) to help make policy payments in a tax-efficient manner. By making numerous family members, including grandkids and more remote descendents, beneficiaries of this kind of ILIT you get to make multiple annual exclusion gift each and every year without gift tax consequences. (And, upon death, the policy proceeds are excluded from estate taxation because the ILIT is considered a separate taxpayer). However, this type of set up works best for a policy holder than has strong annual cash flow, compared to a big lump sum of cash in the bank.

 

Most of my clients do not enter into policies with the intent to draw down on the policy's value, or for investment purposes. Yeah, that's always a nice aspect to have in case you need it. But having a few hundred thousand in equity built up in a life insurance policy doesn't mean much to someone whose worth $50 million.

 

Another, lesser used set up is to fund the ILIT with income-producing property. Not only due you get the property out of your taxable estate at a discount, the income the property kicks off is used to pay policy premiums. This set up is most frequently used by people who have a lot of assets, but not a lot of cash. "Small" business owner, successful rental real estate owners, and owners of fixed-income producing passive investments are good candidates for this scenario.

 

As far as annuities go, that's not something I've had much experience with.

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This is where I say "yes, but..."

 

"Yes, but..."

...a person needs to be VERY careful when dealing with the question of whole life vs term, because any insurance agent offering both is also probably cognizant of the fact that comission on whole is MUCH larger than the comission on term (and I think I spelled comission wrong), creating an immediate conflict of interest.

 

The plain truth is that in at least 9 out of 10 cases (if not more) a person does not need whole life insurance, and would be better off with term.

 

The final point I would make is that anyone trying to tell you to buy life insurance as ANY sort of savings/investment vehicle is full of it. Not to say that it has NO value (again, to the average schmoe like myself) - I just can't really think of any.

 

 

 

Any insurance agent should be able to sell both, and of course his commission would be higher on whole life vs term. However, if he is good, he will discuss my earlier points and sell what you need, not what pays him best. Obviously, this is a perfect world assumption, because most sales people are over time going to sell more of what pays them best. However, to justify your purchase based on what it pays him would be missing the forest for the trees. If you were only buying a house, would you buy a lesser priced house because the commission was lower or would you buy the house that suited your needs better.....

 

Again, this is not an argument for whole life, just an arguement against blanket statements about the relative value of either....and of course again, it is just my 2 cents.

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Not that he needs my support, but Yo Mama is 100% correct. I also know wealthy folk who have effectively incorporated whole life insurance into an estate planning scheme ...

 

Its all way above my head though. I send them to my partners ...

 

Otherwise, I would stick with the advice of my estate prof in law school, who also said it is generally true that if you are going to invest, then invest, if you are going to buy life insurance, but life insurance, but do not confuse the two ...

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