Insurance and Investing: Buy Term and Invest the Difference

Here's a question a reader had for Money magazine regarding using insurance as an investment versus buying term life insurance and investing the difference:

Question: My adviser wants us to invest our money in a variable life insurance plan, where we can avoid taxes. Would it be better to buy term life insurance and invest in mutual funds?

Answer: In a word, yes. Here's why: Variable universal life--the most commonly sold variable policy today--gives you life insurance in combination with tax-sheltered investments for retirement. But it does neither job well. That's because most variable policies are extremely expensive and bewilderingly complicated.

If you need life insurance, buy a low-cost term policy. And for your retirement savings, stick with your 401(k) or tax-managed mutual funds.

This is pretty much my take on VUL. I've always been a "buy term and invest the difference" sort of guy. This works only as long as you "invest the difference." Many people I've known "buy term and spend the difference." In their cases, some sort of forced investing through insurance products might not be a bad deal. Even if it is expensive, it still has a better return than blowing your money on a new big-screen TV.

Comments

[Dan]

I've read similar advice from a few different sources lately, and it's really got me wrestling with our own life insurance situation. We'd each had our own policies from before we were married, and wanted to bulk up our coverage. So we each bought a policy that offers VUL with additional term coverage. But the more I read, the more I feel like we're paying more than we need to. Plus, it would be nice to consolidate our insurance a little bit.

So I'm considering scrapping everything and starting over, but I'm not sure where to begin. I'd have to untangle four separate insurance policies, and the surrender charges and tax implications of each. I love personal finance, but insurance policies are so complicated I don't want to screw something up. Then there's shopping for new term insurance. I can certainly see why people procrastinate on this stuff.

[jp]

In general, I agree. Ameritas, USAA and TIAA-CREF, however, offer low-load VUL products that shouldn't be overlooked assuming you have the discipline to keep up with the payments.

[j]

As a life insurance guy, it hurts me to see people buying term and thinking that is all they need. As I have seen posts below about home mortgages, i will compare life insurance to the home buying experience. Term insurance is like renting and permanant is like owning your home. Term may be appropriate for a young breadwinner in their 20's with a spouse and baby, but if you have any sort of assets, permanant is the way to go. With term insurance, once the term is over, you do not have any insurance and your health and therefore your cost of insurance may not determinable. Worse yet, you may be uninsurable. With perm. insurance you can build up cash value and pass on assets to your spouse tax free and you can get your policy guareenteed for life. You see, the reason why so many people buy term, is because it is an easy sell. The salesman sell the death benefit. There are so many great things that you can do in regards to structuring your business and estate so that your beneficiaries will retain maximum value after you pass on with G UL.

[Dan]

Answer me this, j. (And this is a genuine question, not meant to be confrontational.) My wife and I have no children (yet) and are in our late 20s. We're in good financial shape and have all our bases covered (retirement, life insurance, disability, savings cushions, little debt, etc.). And as of now, we're completely insurable, likely for the best available rate an insurer would offer.

Why wouldn't it make more sense for us to get 30-year term policies instead of permanent insurance? By the time the term expires, most of our major obligations - mortgage payments, college savings, and other kid-related expenses - will be gone, so if one of us dies the other should be able to live easily off the remaining income. Your point about building up cash value and passing it on is valid, but aren't there other, more efficient vehicles for doing that? Why wouldn't I be better off taking the savings from a VUL and loading up a Roth IRA?

[j]

*this is case study only, not a recommendation*

absolutely,fully fund your Roth. In this case,both are better. When your term ends around age 60, it is gone. With a G UL you will have the asset all your life. All I am saying is that a perm. policy could act a cash value oriented life insurance program that provides flexibilty to meet your changing needs, such as a tax-advantaged college-funding vehichle, or a IRA alternative, or a supplemental retirement program which would assist you to put your money somewhere once you've met your contribution limits. etc, etc

[Tom Goodman]

Good to see the comments.I am just looking for the information and i came across this one.I really liked it.
I admit that the information given is good and I agree with you.

[Charles B]

I am a Financial Advisor for 25 years. This question is really needed to be answered by each individual. Usually the answer you hear most is the one that best helps the individual selling the product. The truth is the VUL has high fees but has good tax advantages. The direction an individual should take needs based on these two questions.1) Is
what tax bracket am I in? 2) Am I able and responsible to make investments that will bring me at least a 12% return or better. If an individual is over a 15% tax bracket then the VUL tax advantages are worth it. If you know how to make money than term is the way to go. Yet either way you look at this your making provision and savings! Its I like Pepsi or I like coke question. They both work. One thing I do like about a VUL compared to putting all my eggs in a 401k, or Roth IRA (that you need) The VUL money is touchable money. Qualified money can not be touched till age 59 1/2. I personally have a SEP/IRA,
a Roth IRA, a VUL, and I have outside investments. JUst to give you an idea.

[Jim]

Being in the financial sector, I may be looked at as having a potential bias to life insurance. I do, however, have the ability to work with whole, term, VL, and UL policies. Each are different and carry unique features that need to be considered for EACH INDIVIDUAL. Just like no one persons retirement portfolio is the same, each persons insurance portfolio is not either. I find it somewhat reckless for a person to take the opinion of a friend, family member, or tv and radio financial personality and read it as gossple. Talk to a professional. In most cases it cost no money for someone to evaluate your life insurance need, so get multiple opinions. The truth of the matter is constant: You do not need any life insurance EVER! What you need is money; and life insurance is the cheapest and most effective whay to create that money.

[Erich Riesenberg]

I personally think it is an outright lie to claim term insurance is somehow "temporary" while vul or some other sort of insurance is permanent.

The standard mantra is "buy term and invest the rest". The term insurance will expire, as it should for most people when they no longer need it. "The rest" should be invested, in stocks, real estate, mutual funds, etc. and need not ever disappear. As a bonus, the term is generally cheaper, has no capital gain component so no tax complications, is relatively easy to compare among different companies, all of which also reduce the motive to procrastinate if the time comes to change course.

Instead of talking to biased salespeople, get a book on personal finance and educate yourself. Then, if you feel the need, find a salesperson who you can confirm is giving you honest, unbiased advice.

[Kyle Carson]

Looking over some of the post I realized that their should be made a concerted effort to understand the types of insurance available.
Term insurance is just that good for a designated term of level premium
whole life insurance is a level premium till the policy end date usually when the primary insured reaches age 100.
Now in Erich's post he suggested the old advice of buy term invest the difference, invest in what? what other product besides whole life can you invest in with little to no risk,ease of liquidity,tax free withdrawl to basis,tax free loans and generaly a tax free death benfit for your heirs.
Also suggested a capital gains tax, thier is no capital gains tax in a whole life policy retained to maturity.

[Tony]

two things.. one, why invest all this money into pre-tax investments (401k, Traditional IRAs)?? right now, we are in one of the most tax advatageous times of our governments history.. why are we deferring our taxes today only to pay them later at a potentially higher income tax rate.. HUGE tax trap..
So where does perm life Insurance come into play.. well.. for those who do not qualify for a ROTH IRA.. what are your options? a VUL policy can be a great option for you. providing you with the same tax benefits, no max contributions, and the same flexibility of investment options as your ROTH.. Whole Life provides the same steady growth of a bond fund (b/c most whole life polices are invested in just that) which should be considered as a conservative investment.. Your money does TWO things for you.. protects your family for life, and provides you with tax free income later.. sure, the first two or three years the return is not the greatest.. but think about this, when you cash your mutual funds or stocks in, you are paying a 15% capital gains tax, oh and you are paying your financial advisor an annual fee(about $1000) or a percentage of your account (usually 1% of the value of your porfolio).. so if your porfolio grows to the 10% rate everyone would like, then you are paying the same fees the first few years of your insurance policy is going to pay.. only you'll continue to pay them for the 30 years you are investing your money.. only without the benefit of life insurance coverage..

[Abe]

There's one case I see as a financial planner that most people never think about when making life insurance decisions -- What happens if you and your spouse have term life, good until you are in your 50s, you think you are set to save, save, save from your 20s to your golden years. But, what if you have a few years of hard luck, layoffs, illness, etc. and not been able to save the $250,000 - $1 million you had planned on being able to. And what if one of the couple is partially disabled, and cannot work a steady job, although still to young to retire, say in their 50s? And what if the hard working breadwinner spouse dies after the term insurance is gone -- how will this survivor manage financially? I've seen it happen twice, and it is not pretty.

[FMF]

That's why you:

1. Have disability insurance.

2. Live below your means so you do have savings accumulated. (If you don't have the money to save, how could you have any money to invest in a cash-value policy? The problem is the same either way.)

[Skott]

The purpose of life insurance is to take care of dependents if their provider dies. If you're in your 20s, 30s, or 40s and buy a 20 or 30 year term policy, by the time it expires you should have no dependent children and have built up enough assets that you and your spouse are self-insured. The insurance industry has an interest in making this topic seem more complicated than it really is in nearly all cases.

[JSV]

If all of this were so over complicated then why doesn't everyone just rent their homes and not buy them? Why do people get suckered in Level 30 or Level 20 life insurance products only to NOT have insurance after 20 or 30 years? I've met far too people in their 50's & 60's who wish they still have their life insurance. People are extending their mortgages well into their 60's & 70's. With a quality Permanent insurance product, the breakeven point is usually 15 years. This is the point where the dividends from the cash value will ultimately pay for the policy for the rest of your life. This concept is overlooked. There are several companies that offer an average 6.5 - 7.5% fixed for 365 days without market flucuation. Don't listen to the Suze Ormann and Ramsey's of the world. Please re read Karl Carlson's post again, it makes a lot of sense.

[Skott]

You bring up an interesting point. I can't seem to find a financial guru or any un-biased source that advocates whole life over term life insurance. It seems to be one topic where their various philosophies are in agreement! Also, a tax advantage in and of itself does not justify high fees and poor returns.

[Skott]

Also, if I could rent my current home rather than owning it... say, for 1/4 of the cost... I probably would! But as it is the mortgage payment is about the same as rent for would be for something similar. False analogy there.

[AP]

I work for a large insurance company which offers all types of life insurance, mutual funds, retirement plans for businesses, CD's, Roth and traditional IRA's, college savings plans, etc, etc. And we offer free financial consultation. So basically, whatever you decide on this issue, we make money.

I happen to be the life and health insurance specialist for our office, so I do a high volume of personal life insurance plans. In a vast majority of situations, some combination of term and permanent, combined with other direct investments, turns out to be the ideal plan. Bear in mind, if you don't have enough in your budget to technically AFFORD to 'buy term, invest the rest' anyhow, then all of this becomes a non-issue for you anyway.

And is it absolutely true that every situation really is different, and it is worthwhile to spend some time with a professional if for no other reason than the fact that there are so many options.

But a good BASIC rule of thumb is to simply use products that are designed for the sole purpose of achieving the goals you set. Thus - use IRAs, 401Ks, etc for funding your retirement; use 529 Plans or Coverdells for funding kids' future education. Use savings accounts or CDs to save up to for major purchases and emergencies. Use life insurance to generate tax-free money for your family when you die. But, bear in mind that the policy that has the lowest premium right now (generally term), is actually NOT likely to result in the lowest costs over the course of the next 30 years.

[matt]

actually all insurance goes up over time. VUL, WL, UL, etc. all is built around annual renewable term with savings vehicles. annual renewable means the cost per thousand goes up annually. Don't BS anyone. Buy Term and invest the rest into a Roth IRA, 401k, etc. is really the best option out there. And I have seen term policy's that have guaranteed coverage to age 95, so there is nothing temporary about it. Insurance = protection and Savings = Savings! The bottom line when you start buying insurance with a bunch of bells and whistle's is you are going to pay for it. And the tax-free money, you get with the savings side of Whole Life, VL, UL, etc. comes in the form of a loan, and when you die it usually reduces the death benefit to the family. Most 401k's offer loan provisions to where if you really needed cash you could access cash. And if you have a real financial advisor, they should be helping you with tax-free money market instruments to save for those unforseen illnesses or emergencies. The rest of them are just used car salesmen in Brooks Brother's suits looking for commissions!
A great book, one that is really hard to find these days is "Whats Wrong With Your Life Insurance".
Life insurance is a temporary need, to replace cash you do not have, to replace you if you die, nothing more. There are alot better investment vehicles that can beat the socks off any built in options in life insurance, do you research, and always get a couple of opinions!

[homie]

I see a lot of "life insurance is to do X" or "life insurance is only for Y" when in reality, life insurance can be used for many purposes.

Someone even (naively) said "don't talk to salespeople"... I've got news for you all... EVERYONE is a sales person. The "book" you read, the website... they're all trying to sell an angle or two.

Generalizations get people nowhere. Hire a professional planner who knows you and your situation and you'll be better off... this has been proven time and time again. Most people don't "invest the difference" and a LOT of people don't reach the point of financial independence when it's time for retirement, so believe me when I say it's not a simple question to answer.

Research and do your homework, ask intelligent questions, be sure you are comparing "apples to apples" (a very common mistake!) and find out what makes the most sense for you and your situation.

[Heath]

Don't let these people fool you. The only reason you would ever want a permanent policy in any way is if you have no financial discipline and cannot make yourself to put money into a Roth or your 401k on a monthly basis. As you get older and your portfolio grows your need for insurance will start to go down. Why the hell should a 75 year old person who has invested correctly have a insurance policy at all? Much less a 95 year old. Whole life is the perfect name, cause that's how long you pay for it. And remember permanent insurance is NOT insurance AND a savings account. It is one or the other. If you die, the company keeps the cash value. If you cash out, your coverage ends. Yes you can borrow against it. But why would you when you can borrow against a 401k? You also don't have to put your money in a tax protected IRA, you can just stick it in a mutual fund and pull it out whenever the hell you want to. You can do whatever you want with your investment money because it is yours.
For all those who want to argue with me, go find the nearest rich guy. Ask him if he as EVER, even before he was rich, had a whole life or universial life policy. The answer will be no.
Also, be wary of agents with prospectus. Prospecti are NOT a part of your policy. You need to carefully read all sections of your policy because what is in the brochure isn't necessarily what's in your policy. If the agent says that a certain percentage of return is GUARANTEED, then you ought to be able to look in your policy and find a table that shows the GUARANTEED growth per year. If you don't see one, it ain't GUARANTEED. Remember if its not a stapled in part of the policy, it ain't a part of the policy and the insurance company sure as crap isn't going to hold to it.
It all comes down to what type of person you are. Most people, probably 75% or more, are lazy when it comes to finances so they buy permanent policies and forget about it and the insurance companies make a killing on them. These people shouldn't buy term and invest the difference because their idea of investing the difference is buying a new car, a new kitchen or a big flat screen TV. But if you are financially savvy and want to do more with your money, buy a good low cost term 30y term policy, and invest the maximum amounts the law will let you in your 401k and Roth IRA and don't look back.

Just remember. Why do you think New York Life is touting how they can GUARANTEE you 4%? Cause they are going to take your money and invest it in the market at 8-10% in the funds you were too lazy to go look for, send the 4% to your "savings account" portion of your policy and laugh all the way to the bank. Oh yeah, and if you die during the policy they will keep that other 4% as well.

[Heath]

Don't let these people fool you. The only reason you would ever want a permanent policy in any way is if you have no financial discipline and cannot make yourself to put money into a Roth or your 401k on a monthly basis. As you get older and your portfolio grows your need for insurance will start to go down. Why the hell should a 75 year old person who has invested correctly have a insurance policy at all? Much less a 95 year old. Whole life is the perfect name, cause that's how long you pay for it. And remember permanent insurance is NOT insurance AND a savings account. It is one or the other. If you die, the company keeps the cash value. If you cash out, your coverage ends. Yes you can borrow against it. But why would you when you can borrow against a 401k? You also don't have to put your money in a tax protected IRA, you can just stick it in a mutual fund and pull it out whenever the hell you want to. You can do whatever you want with your investment money because it is yours.
For all those who want to argue with me, go find the nearest rich guy. Ask him if he as EVER, even before he was rich, had a whole life or universial life policy. The answer will be no.
Also, be wary of agents with prospectus. Prospecti are NOT a part of your policy. You need to carefully read all sections of your policy because what is in the brochure isn't necessarily what's in your policy. If the agent says that a certain percentage of return is GUARANTEED, then you ought to be able to look in your policy and find a table that shows the GUARANTEED growth per year. If you don't see one, it ain't GUARANTEED. Remember if its not a stapled in part of the policy, it ain't a part of the policy and the insurance company sure as crap isn't going to hold to it.
It all comes down to what type of person you are. Most people, probably 75% or more, are lazy when it comes to finances so they buy permanent policies and forget about it and the insurance companies make a killing on them. These people shouldn't buy term and invest the difference because their idea of investing the difference is buying a new car, a new kitchen or a big flat screen TV. But if you are financially savvy and want to do more with your money, buy a good low cost term 30y term policy, and invest the maximum amounts the law will let you in your 401k and Roth IRA and don't look back.

Just remember. Why do you think New York Life is touting how they can GUARANTEE you 4%? Cause they are going to take your money and invest it in the market at 8-10% in the funds you were too lazy to go look for, send the 4% to your "savings account" portion of your policy and laugh all the way to the bank. Oh yeah, and if you die during the policy they will keep that other 4% as well.

[Dustin Burnett]

Buy term and invest the rest is the general thought for someone who is ultimately trying to get self insured during retirement. First you have to be disciplined to "invest the rest". Studies show that only 17% of people actually do invest the rest.

Don't focus on the fact that "salesman" want to sale the permanent insurance for the money. I believe insurance companies make more money off of Term insurance sales than permanent insurance sales.

Less than 1% of Term policies are paid on. 99% of the time, the owner of the policy does not renew it after the 10 or 20 year period, and that is because at the attained age the premium is very expensive to replace.

Therefore, it is a pure money maker for the insurance industry.

Permanent insurance is 95% of the time a HORRIBLE place to put your money, but there are a few exceptions.(companies like Northwestern Mutual, Mass Mutual, and a few more have proven to have a decent rate of return). I believe this is the real key. Find a company that has a great track record with Permanent life insurance.

Benefits for Permanent life insurance:

1. Borrow against the cash value, tax free.
2. If you are a physician, this is a place to put your money where it can't be touched in a law suit.
3. You can put as much in to it as you want, with no limits like Roth IRA.
4. Purchase it for a child at a VERY low cost. Yes, I know that children shouldn't need life insurance because they don't provide income, but this policy can again be borrowed against in instances like college, weddings, first homes, etc. and still provide life insurance. It is very inexpensive for a child. There are also options that they can execute later to double the value without proving insurability. (the premium goes up, but that is their choice)

Benefits to Term life insurance:

1. Lower premium for more death benefit versus permanent life.

But all in all, it has to fit your budget. Life insurance is very NECESSARY, but you must be able to afford it.

The Bottom line is to get yourself insured with something you can afford.

We offer 65 Life and 90 Life, so you don't HAVE to pay for it for your WHOLE life. And yes, there is a point where you can choose to have the dividends pay for the premium. Of course the cash value doesn't grow as fast, but it is a nice option.

Someone mentioned that you either get the cash value or the death benefit upon death. That is true, but what you actually receive is the greater of the two. If the death benefit has increased, then you would receive that. Say your death benefit has grown over time from $300,000 to $400,000 and the Cash Value was at $250,000. You would get paid $400,000 upon death. Yes, the company gets the Cash Value, but you also received an increase in death benefit over the time of the policy. And what if along the way, you took out $50,000 in loans and never paid yourself back? well you get to keep that too, but in this case the death benefit would go back to $350,000.

[t]

What if you have $100,000 that you can do anything with. Would it be worth it buy VUL, put all that money in over the next few years (putting in the largest amount allowed in a year), and then let it sit? All the money generated is tax free and liquid. Is this a good idea?

[t]

No comments?

[FMF]

That's not what I'd do with $100,000, but it's hard to suggest what you should consider given that there are so many unknowns.

[Aaron]

I posted this as a comment to a different post - I think it fits here as well

Note - I am a professional in the financial service industry, I have studyed economics, I hold an MBA and multiple other licenses in the insurance and securities industry. I Love this FMF website as it encourages people to save more money - we have a savings epidemic and we all should utilize many of the strategies FMF puts forth. I am simply answering FMF question with what I am doing and some of the strategies I teach my clients

1) I believe in purchasing your Human Economic Life Value in Life Insurance. I disagree with the trends of purchasing only what your "think" your family "needs" - How do you know what your family will need or what your life will look like in five years - let alone 20 or 30. For those of you that question this - do some research on Solomon Huebner - the Father of Insurance education.

2)I own term insurance and permanent whole life insurance - that right - the insurance that magazines, financial institutions and radio talk shows say is evil. In fact, permanent life insurance is the centerpiece of my investment strategy. Permanent LI is not for everyone, you must have the cashflow to correctly fund and implement this strategy.

Reasons why I own PL insurance.

a) Death Benefit that increases - I won't need to worry about renewing my term or losing an asset in my families' life when my term insurance comes up - it is permanent - it will go to my family, church or charity when I leave this earth.
b) Disability protection - every dollar that goes to my permanent policy is protected from disability. Even if you own disability insurance -how many of you can say that if they became disabled their 401K, RothIRA, and 529s will continue to be funded- Waiver of premium protects every dollar I put into my policy in the event of disability.
c) Guarantees - Unlike the stock market, bonds, etc.. I have contractual guarantees in my policy - I don't need to lose sleep about the market swings and losing principal - in fact - since I own a policy from a mutual LI company I recieve dividends every year that are projected to give me a net return of 6% - with no 1099 tax - in my tax bracket that equals a 9+% taxable rate of return with no risk.
d) Creditor Protection - in my state, my cash value is 100% lawsuit protected - ***not all states have this protection
e)Liquidity - access to Cash Value - no penalties or taxes if cash is accessed correctly - you can't say that about government controlled retirment plans - in fact I can use my policy value to get in and out of the stock market at my control.
f) Asset Maximization - I have an asset (Death Benefit) that never goes away - it gives me infinite number of options to spend down my assets instead of merely living off the interest in retirement. You are correct to say that you won't "need" life insurance in retirement if your house is paid off, kids are gone, etc.. but for this reason alone you may "want" life insurance.
g) Flexibility - I can put more money in, stop putting money in, have the policy pay for itself - take cash free dividends, etc...
h) It works in all circumstances

Please - first buy as much term as the insurance company will give you HEL (usually 10-20 times your income) and protect your family, but remember term insurance is a cost - it is not a wealth building strategy! (studies have shown that only about 1% of term policies pay out). Please contact a qualified insurance "professional" to see what guaranteed products work in your circumstance (I'm personally not a fan of UL & VUL products - they don't work in all circumstances)

Take care

[Voice of Reason]

I am reading most of these responses and literally laughing out loud. What about borrowing YOUR OWN MONEY makes sense to you??? Who are you kidding? Don't buy into this scam people. Get yourself an affordable term policy and invest the rest of your money in places that you can get it if you need it like Mutual Funds - and I'm not talking about buying that boat...I am talking about those things in life that you can't predict. Also, make sure that you have disability insurance. Life Insurance only protects those that are left behind in the event that a life is lost, not a serious life altering injury or illness.

Yes, max out your 401K and Roth IRAs. Some employers match 401K benefits which is free money but don't plan on that money to be available until you reach the required age. Mutual funds are completely liquid and other than paying the government regulated taxes on them, it's YOUR money at your fingertips if you need it.

Borrow your own money...man, I haven't laughed like that in ages - thanks!!

[Timmy Stewart]

The Truth:

Cash Value insurance is a rip-off. Why? because you pay for two things and only get one. Universal Life, and variable universal life are included in the same category (they just has a fancier package)

Example: If you die, the insurance company keeps the savings (it does not go to your family)

If you live, and want the cash, you must cancel your insurance. (or borrow some of the cash) I don't know about you, but I've never had to borrow anything that was already mine in the first place.

If you die before paying back the loan, they will deduct the loan amount from the face value, and keep the rest of the cash.

Fact: It is probably the biggest scam in American History, and still millions of people are getting ripped off everyday, and they don't even know it. In fact probably over 70% of the bozos selling it, don't even realize how big of a rip-off it is, or they justify it somehow because the commissions are so big.

It's hard to believe that it is even legal. At one time it was exposed (1976 federal trade commission report). However, the life insurance lobbyists paid-off congress enough to pass a law that the insurance industry can never be investigated by the FTC ever again.

It is probably one of the biggest cover-ups in American Business History.

Fact: 90% of term sold today is renewable only into whole life. Just another way the whole life industry is scamming the public.

The solution: Buy term and invest the difference with a company that has a good quality term product that is offers term renewability till age 95 or 100.

Cash value insurance is an insult to the American Dream.

[spencer shelton]

I recently sold a 50 year old male a permanent Whole Life insurance policy blended with Term. I over funded his policy by about 30 percent and by age 65 he will have all the money he has put into the policy and it will be paid up meaning he will no longer pay premiums into the policy and the face amount and cash value will continue to grow regardless of the economy.Word of caution, be careful when you over fund a policy as you can only put in so much cash before it becomes a MEC(modified endowment contract). The IRS only allows you to put so much in as it grows tax deferred.He was heavily rated due to health issues and to be honest I was worried he would be declined at certain points in the underwriting process. His previous Term plan had just expired. When he purchased his Term policy many years ago he thought "I'll have enough assets and won't need life insurance." Although his assets have significantly increased since he was 25 he realizes if he passed away the income he provides to his dependents would be gone not to mention estate taxes his heirs will face when he passes away. These are not things 25 year olds typically think about. Had I not gone into the business I would most likely be oblivious as well.Case and point: What did this fellow have to show for his Term plan that had expired? He sure wished he had purchased permanent insurance when he was 25 but he didn't. It was good he had coverage but think how much the insurance company made on his premiums through the years and then one day it expired. It doesn't always have to be Term or Permanent. That is a silly notion to adopt and is really a stuoid thing to say. I'm an advocate for the person and identifying their needs; but why not be an owner and build eqiuity on a tax deferred basis while being your own banker?? There is a reason I make a good living selling Term to all these older people who bought "Term and invested the difference". . Right..Thanks hot shots, I know I'll continue to make a good living in the future due to this widely accepted mentality of adopting term and investing the difference. I have a few close friends that are getting their masters degrees and still don't get the bigger picture of life and how permanent life insurance fits in your overall long term portfolio long term.I have a hunch they will when they are 45, assuming they are even insurable..If you're dealing with a sophisticated intelligent planner he or she will design a plan based on your needs and show you how permanent life insurance appropriately fits in your portfolio but you have to be willing to accept they know more about you and there is a reason they are the professional sitting behind the desk. I let my accountant do his job, let us insurance professionals do ours.Sometimes Term makes sense but I always tell people to convert it to permanent down the road. Never buy life insurance from a stock company and only whole life from a select few Mutual conpanies like Northwestern Mutual which is the company I work for. There are too many variables with each individual situation to claim one type of plan or policy is best for everyone but I can tell you long term Permanent is always the best.

[jsv]

I met with my client who is an engineer and he bought a 20 Year Level Term policy approx. 18 years ago. He called me to get some addtl insurance since he has a set of twins at home who are 2 y/o. His life insurance is about to expire in 2 years and wanted me to find him another 20 Yr. Level Term. The only problem is that he was diagnosed with cancer a few years back and has been in remission. No one, I mean no one wants to underwrite him for anything close to what he was paying 18 years ago. If he had bought Permanenet insurance 18 years ago, it would have been paid up. More costly over the 18 years, absolutely! But if he dies in the next 5 years, how do you think he'll feel when he's looking down on his family w/ no coverage and less than half of his retirement funding now gone. If I can get 7.5 - 8.0 percent ROR inside my permanent policy without market volitility for the next 20 -30 years, that makes me feel good. AS for those who say that you don't get the cash savings, if I have a 1M dollar policy that I only paid a few hundred thousands dollars for, I think the 800K that was not my money would be just fine with me. Why are people so worried about the cost of the insurance when you get all of your premiums back after 10 years from the growth on the general account?

[Geoff]

I bought a 20 year level term policy some 19 years ago. Now, I'm looking at needing another policy soon. Of course, the premium will be higher than before due to my current age. But, I'd rather it be that way and here's why.

When you buy a whole life, or similar policy you pay a higher premium, of course, than you would if buying a term policy. This is because part of the premium actually pays the insurance premium, the other part goes into the "savings".

Let's say you buy that whole life policy and have paid on it for 20 years. And let's assume that after the 20 years of premium payments your savings in the policy has reached $100,000, (which is also the policy face value).

Now, unfortunately, you just died. Fortunately, the insurance company is going to cut a check to your family. How much is your family going to get?? $100,000. That's it. NOT $200,000.

Why ONLY $100,000??? Because over the years your SAVINGS has been replacing your INSURANCE. As your savings in the policy increases, your actual insurance decreases. You will always get at least the face value of $100,000. It's just a matter of where the money comes from, your savings, or insurance. The insurance company is no longer providing you insurance, they are providing you savings.

Oh, by the way, they are making much more than the 4% - 6% they are paying on your savings, and they are doing it with YOUR money. I don't know about you guys, but I make 12% and higher on my 401K.

Now... who wants to make the insurance companies richer??

Let's vacilate. If you really love to blow your dough on useless stuff instead of providing for your family, then it's probably a good idea to buy some sort of universal whole life type thingy that has the built in "savings".

Oh, and, you do NOT have to have life insurance. But it sure makes life a lot easier on the family members left behind when they don't have to scrape up the cash, use a credit card, or borrow from friends just to have your dead butt put in it's final resting place. Buy at least a burial policy that will pay your burial expenses. $25 bucks a month gets you $10,000. More than enough to pay for a basic funeral.

[jsv]

The above person has NO IDEA what the 'F' he's talking about. Clearly he does not understand how whole life works. If you die w/ cash value, you don't get the cash value, you get the death benefit so who cares about the 100K, your family would get 200K TAX FREE. I don't think your family would live the same life style with only a 10K burial policy.

[Jw]

No, you're the one that has no idea.
He wasn't quite clear on the scenario, but what he was talking about was a scenario where the face value was 100,000 and the accumulation of the cash value was also 100,000. At death, the beneficiary would only receive the GREATER of the two: the face value or the cash value. Since they're both of equal value, it doesn't even matter - the beneficiary would get only 100,000. If the policy owner bought term for 100,000 and invested the difference, the beneficiary would have gotten both the face value and keep the investment.

The point is the fact that whole life forces you to choose between your "savings" and your insurance in itself is absurd.

[TGO]

I have a term policy through Primerica which allows me to exchange the policy for another term policy with a lower face amount once the premium starts to increase at age 55. That is fine with me because when the premium begins to increase at age 55 I will have enough in savings and most of my mortgage paid. I will then exchange my $600,000 coverage for $100,000 or less. I will no longer have need for a large face value.

Can someone answer this question? How much term insurance can a 30 year old purchase for $100 per month? How much Universal Life insurance can a 30 year old purchase for $100 per month? Which one is better if the insured dies at age 35?

[DRM]

Geoff---where do you get 12% YEAR AFTER YEAR....AND IF YOU DO, THEN YHER irs WACKS 35%,,,SOUNDS LIKE bs TO ME....12% HA!!

[Geoff]

TGO, I'd say a 30 yr old could get about $600,000 term, maybe a little less, for $100 a month. And maybe $200,000 UL for $100 a month. Dieing at age 35 would get the beneficiary $600,000 term, and $200,000 UL.

[Ken]

In TGO's scenario, what happens when a person suffer from a terminal illness/ cancer/ disability at age 35, can't work or work at a much lower capacity (such that he can't afford the $100 a month premium) for the next 5 years and die?

[Joe]

It's funny looking through all these comments from the Buy Term and Invest the difference people claiming their 10-12% growth in mutual funds, qualified plans, etc. 34% decline in Stock Market in 2008. SO much for your AMAZING rates of return. You people don't understand: CONSTANT vs. VARIBLE, DIVIATION, the effect of management fees, taxes, and have no CLUE what about Asset Maximizatoin. Everyone should contribute 5-10% of their portfolio to Whole Life, it enhances all your other assests so you can actually spend those assets down. This argument should be over now after the recent Stock Market crash. DO YOU PEOPLE REALIZE THAT THE ACTUAL RATE OF RETURN OVER THE LAST 100 YEARS OF THE STOCK MARKET IS 4.6%?

[TVP]

Are you saying the insurance companies investing in a different market than the rest of us?

[Anthony]

I guess insurance is compulsory and if u believe that by applying in mutual funds you may earn more but the risk would be high so we need to take the rite step for investing