Financial Experts Agree: Buying Whole Life Insurance is a Great Investment--for the Life Insurance Salesman
For Consumers, on the Other Hand, it Stinks
Suze Orman, Dave Ramsey, and many other financial experts are against whole life insurance period. Many would support term life insurance instead. They are especially against it as an investment.
What exactly is whole life insurance? What is term insurance? Why are some financial experts so against whole life insurance period and especially against it as an investment?
Whole life insurance, which is also called permanent insurance and universal insurance, is insurance that will cover you for the rest of your life. Term insurance will cover you for a particular number of years--such as 5 to 30. The premiums with term insurance usually will remain the same for the term of the insurance. If you want insurance after that period of time, however, you can expect your rates to go up. With whole life insurance a portion of your premium will go toward the insurance cost of the death benefit. Another portion will go toward the savings in your policy. That money will accumulate and increase over time.
Many financial experts, however, say that whole life insurance is one of the worst financial products on the market. That is partially because when a person is younger, he can purchase more insurance for less money by buying term insurance--even though when he gets older his whole life insurance might then be cheaper, as term rates increase at the end of a term.
For example, a 20-year-old man could potentially pay much more per month for whole life insurance of $125,000 than for term insurance. Strictly as an example, let's say the rate for whole life would be $110 per month. By comparison the rate for term might be $20 a month. While in theory, the extra $90 a month in whole life insurance is being saved and could be considered an investment; there is more to the story.
For a short period of years, like maybe three, the $90 will go toward commissions and expenses. After that his policy might earn, depending on the kind of policy, from 2.6% to 7.4% in interest per year.
The catch is when you die; your family will only get the face value of the insurance policy--$125,000. Where does the rest of the money go? The insurance company gets it!
Suppose, however, you borrow against the savings in your life insurance policy. Maybe your sales agent tried to tell you that is why your whole life insurance is a good deal. In an article, Should You Borrow Against Your Life Insurance, on www.helium.com, doing that would be like borrowing against your savings account--except your savings account pays more interest.
According to the article, a life insurance agent will tell you the money in your savings is actually part of your death benefit, so your family is not losing anything when you die. While you can borrow against your policy, if you do so and die before you pay yourself back, your family will not receive as much in death benefits. If you have borrowed $50,000 against a $100,000 policy, your family will receive only $50,000 in death benefits. In other words, you have lost the money you have been paying out.
On the other hand, according to Dave Ramsey's book, Financial Peace University Workbook, imagine the whole life policy would cost $145 instead. If you invested that same amount of money every month from the time you were 30 in a Roth IRA, you would have $133,000 at age 50 and $1,500,00 at age 70. Even if you could not invest the whole amount, because your term insurance would cost $40, how much could you have saved if you would put the $105 difference in an IRA?
According to the website, www.eon.businesswire.com, Orman is well known for advising Americans to buy only term insurance, even though the article itself includes an interview with someone who disagrees with her. She is also known to have publicly said if you want insurance, buy insurance, and if you want an investment, buy an investment--implying that the two don't go together.
There are many in the insurance industry who would disagree with Dave Ramsey and Suzie Orman about the value of whole life as an insurance policy and as an investment. There may be some financial advisors who would. Nevertheless, these two well known financial advisors who have had national radio and television shows and have advised millions, along with many other experts who agree, say to avoid whole life insurance at all costs.
Citations:
Financial Peace University Workbook, by Dave Ramsey, Lampo Press
How-Does-a-Whole-Life-Insurance-Policy Work, James J. Robinson, Ezinearticles.com
The Truth About Life Insurance, No author listed, Daveramsey.com
Should You Borrow Against Your Life Insurance, by Tim Rodemann, Helium.com
Suze Orman of the Suze Orman Show Offers one-size-fits-all Life Insurance Advice, No author listed, Eonbusinesswire.com
Published by Mike White
Newspaper correspondent for almost three years. Freelance writer with hundreds of articles on the Internet and published in magazines and newspapers, View profile
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- ezinearticles.com/?How-Does-a-Whole-Life-Insurance-Policy-Work?&id=1277116 , www.daveramsey.com/the_truth_about/life_insurance_3481.html.cfm
- www.helium.com/items/714101-should-you-borrow-against-your-life-insurance
- eon.businesswire.com/portal/site/eon/permalink/?ndmViewId=news_view&newsId=2009070900 Suze Orman
22 Comments
Post a CommentIf you want the best return, follow what the life insurance companies do with your money and build your own wealth. They invest high-quality stocks and bonds. What they don't do is buy "magic" insurance beans.
With payed up additions your policy becomes supercharged. Your cash value will well outperform above your base out of pocket premium in less than 15 years while increasing your death benefit to prevent a MEC. Also, the real reason the government investigated life insurance and levied so many rules against it was because of how tax favorable it was. When the government created "qualified" retirement plans (ie, 401k,IRA) they also put restrictions on whole life. They set the max, not the insurance company. If you really did the research you would realize that the majority of our country is stuck in these qualified plans. Being that we are at a historical low in the marginal tax rates, how do the readers feel taxes will move in the future? Who will be effected the most? Investors in qualified plans! Their ability to be tax favorable is somewhat of a myth. All they are really doing is deferring the calculation of the tax to the future when taxes will indefinitely be higher. For e
This author also forgot to mention that the face value of the policy, 125K, also increases in a whole life policy. Yes of course you don't get both the cash value and face value, but the face value of that 125K over let's say 25 years will triple, at least! This article is missing a lot of information. Don't be fooled....when you buy term you are paying for the coverage, that's it. When you buy WL you are buying a lot more than just insurance.
I started a whole life policy 33 years ago and it was the best decision I ever made. My income was too high to contribute to a Roth, so permanent life insurance was one of the only options I had to stock cash away on an after-tax basis that would grow tax-deferred and I could withdraw tax free. With the current market, my 401k is significantly down and so are the rest of my investments connected to the market. My policy has not lost a cent and is still growing each year. It is the only reason I am going to be able to retire at the quality of life I want to live. Not to mention, I know the death benefit will always be there for my family. The only thing I would go back and change is I wish I would have put more into it. Buying term and investing the difference is a load of bull.
@ Robin Graded is a term they use saying how strong the insurance company is. Now The problem I have with this article is the fact that they know nothing about whole life insurance. My death benefit goes up every time I a payment and so does my cash value. I also get dividends (return of payment) every year my whole life company has a profit which also increases my death benefit and CV.Not to mention that I can take a policy loan TAX FREE and when I pay it back the interest That I pay increases the policy. Also I have guaranteed income from my policy when I turn 65.Also I get an increase of 4 percent every year and It is locked in. The "Experts" say invest the rest...WHERE? Nothing is guaranteed in the stock market. My policy amount is and It increases every year. I have had my policy for 4 months and have already seen a 5 percent increase. The Poor buy term The rich buy Whole life.The biggest banks buy whole life as well. It is called boli insurance (Bank owned life insurance).THE "Ex
What does Graded mean?
...therefore I am qualified to coach college baseball. Don't think so. Now I'm just starting to rant. Maybe I should get one of these pages (assuming I can, I mean, I do have a bachelors)and write pseudo-articles that people might take seriously. Oh wait......... that's a blog!
These people are purely entertainers. Bottom line: they are on television driving ratings. The advice they give is generic and if you choose to take it, there is no recourse for the outcome if it is to your detriment. Neither of them are qualified with any current licensing, on-going education, or liability for the advice they give. I'd rather work with someone who sits down with me one on one, looks at my unique and current situation, and works with a reputable company that backs their associate. In my eyes, this is like quoting John Stewart on foreign policy. I'm concerned with anyone who takes financial advice from anyone on television to be frank. Other than that, please look into fallacies of argument. I really hate hasty generalizations like "At least the people I quoted are well qualified, respected experts." What are their qualifications? Who respects them? Does everyone respect them? I used to play baseball in college and was pretty good, therefore I am qualified to coach col
You say I am a complete idiot, but yet you give no qualifications of your own. Do you sell insurance? Have you researched the issue thoroughly? Why should anyone believe you? You give no reason fo anyone to. At least the people I quoted are well qualified, respected experts. By the way, the national media quotes experts all the time, even when a reporter has limited knowledge of an issue.
Mike White=Complete Idiot. You have absolutely no idea what you're talking about. You quote people as your article. Why don't you go try and write something for a medical journal, it seems like you would have just as much knowledge in that field. You obviously have no need for Whole Life because you either...a) can't afford it or b) have such a low income that you will never have an estate or tax issue in your life.