Answers follow...
But first a thought: I feel like something is OFF... that I'm missing something in the spreadsheet.... but I just don't know what it is.
samclem said:
2) I would have selected a more conservative assumed pre-tax rate of return--10% is probably optimistic, especially as you'll likely not be using 100% stocks in this account intended to provide for the basic needs of your family.
3) Will your estate taxes really be 50%? I think if your assets grow to this extent, you'll use trusts, gifting, etc to reduce the hit.
4) Hey, now you've got a spreadsheet to sell on the Internet! Add some colors, special data-entry examples, and graphs to spiff it up and you're in business. Cha-ching!
I left the tax rate and estate taxes variable (just modify the values), so I wanted to base it on two things:
2) An investment I know brings 9-10% relatively risk free and consistently. I should probably lower this to 8% or even 7% to simulate worser-case scenario.
3) Assuming worst-case scenario on estate taxes. Realistically, I expect to shelter well, gift, and other things to transfer the wealth.
4) Not a bad idea. Though knowing me, I'll just give it away for free and let people here use it as a resource. This question comes up enough and people always give the verbal answer but don't have numbers to back it up. Now we can tell people, "Go plug your actuals in". I can write some documentation/instructions on the spreadsheet if it turns out others here think it would be used/referenced.
ats5g said:
fyi - cost of $250,000 term life insurance for a healthy 27 year old is b/w $150-200, not $610. See
quickquote.com
Also, the way I thought whole life worked is that every year the insurance company takes your premium and kicks back some of that premium to you and puts it in a "cash value" account. Also, isn't the "return" the cash value "earns" based on the profits [return - policy payouts] of the insurance companies general account?
If so, then a rate of return closer to fixed income return would be more appropriate, wouldn't it?
Correct, the rate of return is closer to fixed-income because they're just returning the premium (based on profits).
As for the $610 number, you're right. I totally messed that one up because in my tiredness I inadvertently put in what I'm paying for my $1M policy that I recently got to replace my WL.
I should update and use $235 / year instead for my 20 yr Preferred. I don't get the best rates because my dad had to go and have a heart attack before age 60 (fortunately he survived and is now in wonderful health, but still he messed up my life insurance!)
FinanceDude said:
So............imagine how GOOD a policy illustration on a whole life policy will look when the NML rep used an 8% return...........
Of course, the "guaranteed" CV amount is also shown, but unless the agent points it out (unlikely), you will start drooling over the FUTURE VALUE of your contract............ :
:
The one that is in my spreadsheet, I think looks "good" but even then comparing it to buying term and investing the difference, it doesn't compare (as the numbers tentatively show).
bright eyed said:
my dad sells insurance and has said the possible scenarios include...
why do you feel you need whole life?
Thanks for the additional insight. I don't feel I "need" whole life. A year and a half ago I was doing financially fine, but not really serious about wealth-building and LBYM (this has been seriously increased since finding this forum).
My Dad had taken out a cheap term policy when I was younger so that I would have coverage and be able to convert to WL. So when I finally decided to take over the policy, I took his advice and got WL. However, it was a small policy, so I got another one from my insurance agent to cover the rest of my insurance needs above and beyond what I got from my company group policy.
First thing I did was drop my group term and buy a hell of a lot more term privately.
Then, as I became wiser I started realizing that maybe I got duped. I looked into it more and more and everybody says "Buy term and invest the difference" but nobody *shows* why. I wanted answers backed up by numbers so that when I go into my insurance agent's office on Friday to drop this off my policy and get a term for my wife (probably through him to keep the multi-line discount we currently get for the Whole Life), I have the background knowledge to understand clearly the decision I am making without question.
My intention is to drop the WL, but I want proof and the spreadsheet.