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Whole life policies are pretty terrible, because they're high-fee and opaque. It's very difficult to compare them like-to-like, and that's on purpose - each in

by tmorton 11y ago

Whole life policies are pretty terrible, because they're high-fee and opaque. It's very difficult to compare them like-to-like, and that's on purpose - each insurance company wants to sell a slightly different set of guarantees, risks, benefits and fees. Term life insurance is what you need to protect your family. 401ks, IRAs, then simple index funds are superior investment vehicles. Here's the really short guide to life insurance: http://www.reddit.com/r/personalfinance/wiki/insurance http://www.reddit.com/r/personalfinance/wiki/insurance

bcheung 11y ago
If you are going to have life insurance until you die, then whole life insurance is cheaper. 95% of term life insurance policies expire and are not renewed. The reason is because term insurance gets extremely expensive as you get older. WL is the same cost every year until you die. Include the cost of term insurance for a person who is 99 years old and term life is extremely expensive. It doesn't make sense to me to have insurance when there is close to 0% chance of you dying and to have no insurance when there is near 100% chance of you dying. Plus there are the tax and loan benefits of WL. They are inferior with 401k and IRA plans. You can't take out a loan whenever you want. You can only take out a certain amount (usually up to 50%) and only under very strict circumstances. There are maximum contributions with 401k. No so with WL. 401k's are taxed as ordinary income. There are more fees over the longer run with 401ks (2-3% every year vs just high front load with WL). You can't withdraw before 59.5 without penalties (except for 72t). There are strict provisions on when you have to pay the loan back. With WL you can take out your money whenever you want with no penalties. You can take out loans whenever you want and pay them back whenever you want or just not pay them back at all. Most smart people will just take out loans against their policy and effectively access their money tax free. You can't get that with 401k and IRAs. https://www.youtube.com/watch?v=oZSwnPApNWs https://www.youtube.com/watch?v=oZSwnPApNWs https://www.youtube.com/watch?v=GP2d3BhzWB0 https://www.youtube.com/watch?v=GP2d3BhzWB0
- brightball 11y ago
  That's kind've the point though. Ideally, by the time you're out of the 30 year term for life insurance your investments and assets left to your family will be more than enough to pass on to them. With a 30 year term policy, you can pay $50 / month for 30 years from age 35 to 65 and if something ever happens you'll be able to leave $500,000 for your family. That's a total cost of $18,000 over 30 years for $500,000 in benefits which is an outstanding value. Taking out loans against whole life policies isn't something I was aware of though. I'd be interested to know what type of rates you could get with the loans against that compared to home equity loans or equity lines of credit that you can also use to get at the money you put into paying off the mortgage if you need it.

by tmorton 11y ago

bcheung 11y ago

If you are going to have life insurance until you die, then whole life insurance is cheaper. 95% of term life insurance policies expire and are not renewed. The reason is because term insurance gets extremely expensive as you get older. WL is the same cost every year until you die. Include the cost of term insurance for a person who is 99 years old and term life is extremely expensive. It doesn't make sense to me to have insurance when there is close to 0% chance of you dying and to have no insurance when there is near 100% chance of you dying. Plus there are the tax and loan benefits of WL. They are inferior with 401k and IRA plans. You can't take out a loan whenever you want. You can only take out a certain amount (usually up to 50%) and only under very strict circumstances. There are maximum contributions with 401k. No so with WL. 401k's are taxed as ordinary income. There are more fees over the longer run with 401ks (2-3% every year vs just high front load with WL). You can't withdraw before 59.5 without penalties (except for 72t). There are strict provisions on when you have to pay the loan back. With WL you can take out your money whenever you want with no penalties. You can take out loans whenever you want and pay them back whenever you want or just not pay them back at all. Most smart people will just take out loans against their policy and effectively access their money tax free. You can't get that with 401k and IRAs. https://www.youtube.com/watch?v=oZSwnPApNWs https://www.youtube.com/watch?v=oZSwnPApNWs https://www.youtube.com/watch?v=GP2d3BhzWB0 https://www.youtube.com/watch?v=GP2d3BhzWB0

brightball 11y ago
That's kind've the point though. Ideally, by the time you're out of the 30 year term for life insurance your investments and assets left to your family will be more than enough to pass on to them. With a 30 year term policy, you can pay $50 / month for 30 years from age 35 to 65 and if something ever happens you'll be able to leave $500,000 for your family. That's a total cost of $18,000 over 30 years for $500,000 in benefits which is an outstanding value. Taking out loans against whole life policies isn't something I was aware of though. I'd be interested to know what type of rates you could get with the loans against that compared to home equity loans or equity lines of credit that you can also use to get at the money you put into paying off the mortgage if you need it.