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Should I buy this whole life insurance?
Old 10-03-2014, 04:04 PM   #1
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Should I buy this whole life insurance?

Hi all,

Thank you for your advice in advance!
This is my first post and I have been reading other people's post for the purpose of learning about FIRE.


I am looking into buying life insurance to protect my love ones, because I have $390,000 total in mortgages and my love one's dont make enough to get by without my income.
Little info about me:
25 years old.
yearly income $55k

I have a 20 year term life insurance for $750k coverage, about $440 a year.
I am looking into whole life insurance because i have been reading on it.

I have been offered a NY whole life insurance for $250k coverage, and payment of $350 per month. They said I only need to pay for 15 years and i will no longer need to pay anymore?
so I will be investing about 63K for the next 15 years.

Is that something I should consider? Buying it later would be more expensive and would I ever need whole life?
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Old 10-03-2014, 04:07 PM   #2
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Originally Posted by AJ520 View Post
Hi all,

Thank you for your advice in advance!
This is my first post and I have been reading other people's post for the purpose of learning about FIRE.


I am looking into buying life insurance to protect my love ones, because I have $390,000 total in mortgages and my love one's dont make enough to get by without my income.
Little info about me:
25 years old.
yearly income $55k

I have a 20 year term life insurance for $750k coverage, about $440 a year.
I am looking into whole life insurance because i have been reading on it.

I have been offered a NY whole life insurance for $250k coverage, and payment of $350 per month. They said I only need to pay for 15 years and i will no longer need to pay anymore?
so I will be investing about 63K for the next 15 years.

Is that something I should consider? Buying it later would be more expensive and would I ever need whole life?
Whole life is generally a bad investment. Why would you want to have an insurance company invest funds for you since they are not in that business? Just stick with straight term insurance as it is very cheap for someone your age.
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Old 10-03-2014, 04:10 PM   #3
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Is that something I should consider?
No, don't buy whole life, buy more term insurance.

Whole life policies cost considerably more for the coverage you get and have many 'bells and whistles' to make them look attractive so the seller can earn a big commission. You'll be better off in the long run buying more term coverage and investing what you save in premiums.
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Old 10-03-2014, 04:13 PM   #4
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Good that you have term insurance already. Get some more if you feel you need it. Put me down for a 'No'. I agree with above opinions.
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Old 10-03-2014, 04:25 PM   #5
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Absolutely no way should you buy this whole life insurance or any other whole life insurance. Just get some more term insurance from a cheap place.
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Old 10-03-2014, 04:28 PM   #6
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... yearly income $55k

I have a 20 year term life insurance for $750k coverage, about $440 a year.

... whole life insurance for $250k coverage, and payment of $350 per month. ...
So 33% (corrected my math error!) of the coverage for 80% of the cost. That's no deal.

You want coverage for your family - keep investments separate.

If your family were to draw a conservative 3% annually, adjusting for inflation each year, the $750K could provide them $22.5K each year. If you really want to replace all your income, you need roughly double the coverage.

If you LBYM, save, and invest simply, you should be able to build up a nest egg over the next 20 years.


Quote:
They said I only need to pay for 15 years and i will no longer need to pay anymore?
I think the question mark is appropriate. I suspect there is lots of fine print surrounding that. Ask the company to guarantee it in writing (I think you'll get a song & dance).


Quote:
Is that something I should consider? Buying it later would be more expensive and would I ever need whole life?
No, yes, and no - so the 'yes' doesn't matter. Buy term if you need Life Insurance.

BTW, I didn't run the numbers but $390K mort sounds like a lot on a $55K income. That could hurt you in building a nest egg, and your family to get by if you were gone. Just stuff to think about.

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Old 10-03-2014, 04:28 PM   #7
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Absolutely no way should you buy this whole life insurance or any other whole life insurance. Just get some more term insurance from a cheap place.
+1 , and get away from any sales person trying to sell such " whole life" products.
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Old 10-03-2014, 04:55 PM   #8
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No. The term life you have is perfect. Get your investments building and never speak with insurance companies again.


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Old 10-03-2014, 05:00 PM   #9
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As others have said, buying whole life insurance, or anything other than straight term insurance is mixing insurance and investing. I like to keep things simple. Insurance is for catastrophes.

Term is by far the way to go IMO. It is generally accepted that you need sufficient term insurance to make up the difference in what your survivors need for income and what they can make in income on their own. In your case children will need to attend school, etc. but that would simply come from your income if you were still alive so I don't see that as an additional amount but others may take a different approach.

For example, let's say you make 55k and your spouse makes 25k. Combined you're at 80k. Two approaches, the first is to simply replace the 55k and the second is to replace the entire 80k so your spouse doesn't have to work.

There are all sorts of ways to slice this and many will differ on the approach but one way is to consider a withdrawal rate. Possible withdrawal rates are 5%, 4%, 3% and anything in between depending on how aggressive or conservative you want to be. I like to think of the 5, 4 and 3% withdrawal rates at factors of 20, 25 and 33 respectively. The inverse of 5% (.05) is 20 and so on.

So if you want to replace 55k you need a term life policy that will pay $1,100,000, 1,375,000 or 1,815,000 using the factor of 20, 25 or 33.

Of course you can reduce that amount as needed for your scenario. Will your spouse remarry? Will the spouses income grow? Will the kids education be paid for in some other manner?

Lots of questions to ask yourself but most on this forum will say there is no choice that includes whole life.
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Old 10-03-2014, 05:21 PM   #10
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Buy term and invest the $350 a month in a Vanguard fund.

You probably have plenty of term insurance already. If you passed they would have a paid off house plus 8 or more years of living expenses available.

Use Calculate Your Needs | Life Happens to assess how much you need.
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Old 10-03-2014, 05:43 PM   #11
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Absolutely do not buy whole life insurance. The reason the agent wants to sell it to you is he makes some money each time you pay a premium. You got an excellent deal on the term insurance you have, and the premium is locked in for 20 years. I also had a policy for the exact same amount, and for 21 years before I cancelled it, but my rate was higher since I had to renew in 2003 and I was older. Take the money you would have spent on the whole life policy, take that monthly premium, and invest it. At an average rate of return of 6%, which is quite conservative, you would have over $93K.

Also, if the $55K is in job income, you are in way over your head in mortgages.

So I'm guessing the mortgages are for rental property. Which means the income will still be there when you pass away, and will go to your estate and your beneficiaries stated in your will, but someone will need to manage the property. Is the $55K income above the mortgage payments, property taxes and insurance? If so, then your $750K life insurance policy should be enough. Otherwise you need more insurance.
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Old 10-03-2014, 05:50 PM   #12
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I was sold whole life when I was only a little older than you are. They made the same "pay for a few years and then the prepaid additions will pay for the policy" promise that you got. They used lofty projections that were completely unrealistic. The reality is that you are going to likely get only the guaranteed return, which will never pay off the policy.

As they say, it is better to learn from other's mistakes than your own. Learn from mine. Buy the term.
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Old 10-03-2014, 05:51 PM   #13
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Totally agree with all the responses above.


Whole life attempts to mix insurance and investment - not a good thing. And it is an excuse to reap more in commissions for the salesperson and the company..

If you need more insurance coverage, buy more term life.
If you need investment, buy a Vanguard fund.

If you need both, do both above. Don't combine them.

Ignore the whole life salespeople. they are looking primarily at their commission, and not your welfare.
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Old 10-03-2014, 05:54 PM   #14
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Hi all,



They said I only need to pay for 15 years and i will no longer need to pay anymore? so I will be investing about 63K for the next 15 years.
?
That pay for itself thing is a racket. Run away!! I know because I got caught by it in 1980. That is not a guarantee, but a projection. If the economy goes to heck and the insurance company investments go bad that scenario will be delayed, possibly even indefinitely. I still have a couple of those policies with Met life. And I did get $2K as the result of a class action suit on the insurance company for churning.

I know the agent will say "what if you become uninsurable before you can renew your term life policy". The way to deal with that is take the difference between the term policy and the WL policy and invest it somewhere you can't take it out very easily, except for home down payments, etc. Then in the case you do become uninsurable you at least will have some semblance of self-insurance.
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Old 10-03-2014, 06:58 PM   #15
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Further at some point in the future you hopefully won't have the mortgages. As it looks now that could be at age 55. Beyond 55 presuming that the kids are on their own what insurance beyond burial insurance would you need? Anyway its after 55 that the premiums take off, because mortality begins to kick in.
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Old 10-04-2014, 04:42 PM   #16
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See The Mortality Merchants. Although written in 1968 (someone else feel free to suggest a better/more recent book on the life insurance industry) I read it at the age of ~25 - I'm 64 now - at the suggestion of a senior officer. It saved me from wasting thousands of dollars in premiums.

Buy the term life insurance. The salesguy is interested in lining his pocket, not yours. Commissions on whole life policies are huge and account for much of their cost.

I'm also concerned about the $390k mortgage and $55k income. I hope most of that mortgage total is on positive-cash-flow rentals!
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Old 10-09-2014, 01:31 PM   #17
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Hi all,

I have $390,000 total in mortgages and my love one's dont make enough to get by without my income.

yearly income $55k
I know its not your original question but this would cause me to lose sleep at night if you couldn't cover even the mortgage on one partners income!
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Old 10-09-2014, 01:55 PM   #18
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Welcome to the forum.... Now I'll be blunt.

I don't understand your logic. You want to reduce your insurance by 2/3 and pay almost 10 times more for it? Think about that and you should be able to answer your own question.

Whole Life products are expensive insurance with the illusion of a safe investment component. I was about your age when I bought a whole life policy. After 3 years I compared my "projection" against my actual account value. It was well under the projection and that was in a period with good interest rates and a rising stock market.

If you feel you need more insurance which I don't think you do, you should add another 20 or 30 year term policy for what you think you need. You didn't say if your loved one's were a wife, kids, dogs or cats. If you don't have kids (or planning them), I suspect your 26 (more or less) year old wife can take care of herself even if she has to sell the McMansion.
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Old 10-09-2014, 01:58 PM   #19
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I don't understand your logic. You want to reduce your insurance by 2/3 and pay almost 10 times more for it? Think about that and you should be able to answer your own question.

Whole Life products are expensive insurance with the illusion of a safe investment component. I was about your age when I bought a whole life policy. After 3 years I compared my "projection" against my actual account value. It was well under the projection and that was in a period with good interest rates and a rising stock market.

If you feel you need more insurance which I don't think you do, you should add another 20 or 30 year term policy for what you think you need. You didn't say if your loved one's were a wife, kids, dogs or cats. If you don't have kids (or planning them), I suspect your 26 (more or less) year old wife can take care of herself even if she has to sell the McMansion.
Well, that's pretty much unanimous now, and hopefully OP has taken it to heart. There's a reason why insurers push whole life a LOT harder than term life, and there's a reason why salespeople get a much greater commission for selling it.

The majority of people need both investments and insurance. But insurance should not be used as an investment and investments should not be used as insurance. They are separate but necessary parts of financial plan, and buying term life and investing the difference in premiums more properly accomplishes both goals and meets both needs.
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Old 10-09-2014, 02:08 PM   #20
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Well, that's pretty much unanimous now, and hopefully OP has taken it to heart.
I probably should have disclosed to the OP that I pretty much hate all insurance products except those directly focused on risks I can not cover with my own assets - liability being the biggest. I'm not sure I'd have insurance on my house and vehicles if it wasn't required for the umbrella liability policy.
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