Whole Life Insurance

[heyitsyeh]

Hey guys,

I'm a young guy (24) and have been told by my buddies in the financial planning biz that it is prime time to put money in a permanent life insurance to build cash savings. According to them, it would grow guaranteed better than bonds, about 5-7%, while being even safer than bonds in terms of risk. Also it would give me tax advantages while being completely liquid to withdraw (no penalties) unlike the traditional retirement savings plans. What are your thoughts on this?

[compassion101]

My advice would be to seperate your insurance needs from your investment needs.

Use your 401k or other plan your company has, use an IRA or Roth IRA. Use those and investigate other investment opportunities like real estate etc. before using life insurance as an investment.

Use life insurance as it is intended, for protection. Figure out who is financially affected if you die. Kids (until they are old enough to earn their own money), spouse (especially if you make most of the money, parents (did they cosign a loan for you?). If you are single and no kids, then you may have no need to protect anyone financially if you die. If you are protecting your kids, then consider term life to cover the term till they are in their 20s.

Also, visit a fee based Certified Financial Planner. Commission based CFPs make money by pushing certain products to you. In many cases they are not the best products for you. Sometimes the advisor knows this, and sometimes he just buys into the hype that these are good products.

Please don't buy a whole life policy until you speak to someone who can look at your life and give you an unbiased opinion.

[aubie1kenobie2]

+1. Get term life if you need it and invest the money you save had you went for the whole life insurance (which costs way more than term life).  

[wa3more]

+1000 to what compassion and aubie said.

Stick with term. Whole life is only good for the person selling it.

[wa3more]

Forgot to ask. Do you have a family that depends on your income ?

[heyitsyeh]

No I don't have a family yet, I'm mostly interested in locking a low rate at age 24 and I do have the income to support it.

[wa3more]

For a young guy like yourself with no family there is no need for life insurance . The purpose of insurance is to replace lost income so your dependents (wife and kids) can surivive with you no longer providing an income. You already probably have some type of term policy through your employer.

Forget the insurance and just save and invest wisely.

[Anonymous]

I've never understood the idea of using life insurance as "investment." Wouldn't it make more sense to buy stock in insurance companies? 

[BluePoodle]

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@heyitsyeh wrote:

Hey guys,

I'm a young guy (24) and have been told by my buddies in the financial planning biz that it is prime time to put money in a permanent life insurance to build cash savings. According to them, it would grow guaranteed better than bonds, about 5-7%, while being even safer than bonds in terms of risk. Also it would give me tax advantages while being completely liquid to withdraw (no penalties) unlike the traditional retirement savings plans. What are your thoughts on this?

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I was a broker for 10 years. Your buddy is not correct. Either he doesn't know what he is talking about our you misunderstood him.  Life insurance is not an investment product and should not be sold as one.  The idea that you can withdraw your cash value without penalty is not correct. You are "borrowing" your own cash value and when you borrow, you have to pay it back. If you do not, then it will eat up your cash value and your life insurance could default.  As other's have stated, you buy life insurance to protect your family in the event that you die. It prevents others from becoming financially responsible for your death and replaces the income you would have earned.  

I would suggest you look at a term life insurance for a high value (as your income will grow assumably) and make sure it has a conversion benefit. So that you can convert it to whole life at a later time in your life when it is needed.  Depending on your income, assessts and debt you could be looking at easily a $250,000 to $1Million term life policy even at your young age. You could convert some or all of the value to whole life later on.

You need to find yourself a new adviser for investment and insurance products too.

[BluePoodle]

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@wa3more wrote:

For a young guy like yourself with no family there is no need for life insurance . The purpose of insurance is to replace lost income so your dependents (wife and kids) can surivive with you no longer providing an income. You already probably have some type of term policy through your employer.

Forget the insurance and just save and invest wisely.

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I disagree that there is no need for life insurance at this young age.  There are many reasons to aquire life insurance. If the OP has a home/mortage. If they had private student loans and a parent co-signed for the loan. Also, I have seen many young people in their 20's diagnosed with health issues or have accidents that could make them uninsurable for the rest of their lives.  

I agree that they don't need to use life insurance for an investment. But they might need at least to consider term and invest the rest. Even if you carry term through an employer, if you loose your job and become disabled, the cost to continue that policy would be too high for most to consider keeping it. Then how would you replace it?