When does Whole Life Insurance start paying off for itself? Do you recommend Whole Life or Term?

Answer 1

Whole life insurance never pays off for itself unless you choose a payment option such as 20-pay whole life or life paid up at age 65. You will be paying more premiums than if you were to just pay for life. Most people have the payment option of continuous payment for life. If this is what you have, then your life insurance will neve pay for itself.

While you can stop paying for the premiums in the future, your cash value will be used to pay for the premiums. Your face amount will be reduced by whatever missed premiums and any loans taken out of the cash value. If your policy lapse and you have unpaid loans, you will owe income tax on the loan because the loan has turned into additional income.

I have always recommended term insurance over whole life. Its initially inexpensive and premiums remain level, depending on what kind of term you get. I sell mostly 20 or 30 year term, depending on the age of the client. I rarely sell 10 year term since most of my clients are between 25-55 years old and it doesn't make sense to sell 10 year term to that age group.

Let's say you are 35 years old and you bought whole life insurance and you can only afford $150,000 coverage. You pay monthly premium of $114. With a 20 year term insurance, for the same amount, it will cost you only $22/month. Would you rather pay $114 or $22?

If you invest the difference of $92/month at a 10% rate of return for the next 20 years, you will have: $70,444 at age 55. If you continue to invest for the next 10 years, at age 65, you will have $209,698.

You probably wondering how can you get 10%? If you understand mutual funds, that is how you can get 10%.

What if you outlive the term? Then you need to re-evaluate your needs at that time. Do you still need as much coverage? How much debt do you have left? Who is currently dependant on your income? Maybe you can keep the same coverage and use the gains or interests to pay the premium, that is your portfolio still continue to earn an average rate of return of 10%.

Today, life insurance agents or even your financial planner continue to push forward on cash value life insurance. Why? They earn large commissions on it. While financial experts and investors say term insurance and investing the difference is better. (smartmoney.com March 24. 2005, Wall Street Journal (June 9, 2004)). If you understand the logic of investing the difference, in 20-30 years, you would of accumulate enough money where the gains or interests can pay off the annual premium.

Answer 2

The best insurance is Whole Life. It is true that it is about 10 times more expensive than Term Insurance in the beginning. However, after you own the policy for a while it has a negative cost and the dividends will pay the premium for you. If you can't afford Whole Life in the beginning, there's nothing wrong with getting term for a few years - no longer than 3 or 4 - but then convert it to Whole Life.

Whole Life is a very powerful tool and the foundation of any solid financial strategy. The benefits you get over Term are tremendous...disability benefits, medical benefits, liability protection, basic estate planning, and cash value. But the real reason you should buy Whole Life is because you can effectively spend the death benefit while you're alive during retirement (with the proper strategy). It can make non-income producing assets produce income and increase the power of your overall financial situation in many many ways. Whole Life gives you flexibility that no other product can match.

Most people - as well as many media publications - do not understand insurance and how it really works, thus you get very misguided and incorrect information. Just because it's published doesn't mean it correct.

When you cancel the Term policy you will have lost the premiums, lost the earnings ON the premiums, and ultimately you will have lost the death benefit. Insurance companies LOVE Term insurance because they pay out less than 1% of all policies. They make TONS of money off of it. And in the end, you get nothing for your money.

Buy Whole Life.

Answer 3

Have you tried searching? I've answered this question at least a dozen times in the last two weeks. See the answer pasted below: That all depends on which is better for the person purchasing the insurance. There are also a couple of other options available besides term and whole life, including universal and variable. Term life is relatively cheap and tends to be a good fit for people looking to replace income during the prime earning years. (Take a calculator and multiply your current salary times the number of years you plan to work. That's the amount of income your family would be missing out on if something happened to you this year. Actually, it's a conservative estimate, because it doesn't even factor in raises, etc.) The biggest drawback to term insurance is that it will eventually go away. When the term runs out, it runs out. Most companies will give you the opportunity to convert some or all of the coverage amount to whole life at that point and while there will likely not be any need for evidence of insurability (meaning that you probably won't have to reapply, answer medical questions, or have a medical exam) your rates WILL be based on your age at that time. (And you can bet the rates will be significantly higher than if you'd purchased it earlier.) This is why I usually recommend at least a small whole life policy to cover final expenses in combination with the term life policy. Whole life insurance is designed to cover you until age 100. People talk about the fact that whole life builds cash value and it does. You can borrow against it, if you need to. There are two types of whole life, though: participating and non-participating. For the non-participating type, it will NEVER be worth more than the face amount. Period. The participating type takes the cash value that builds up over years and when the cash value becomes worth more than the face amount, the cash value is used to buy paid-up insurance. This type of policy still won't pay out the "cash value"; however, the policy will become worth more than the face amount once it goes beyond a certain point. Universal and variable are different animals entirely. Universal can be used similar to a term policy that, effectively, never ends. In other words, it won't really build cash value (at least, not after the first few years), but it will provide insurance to age 120 (or even longer, depending on the contract.) And because it's a universal product, you have more options about how it's paid. For instance, I usually set these up for my clients so that they stop paying for them at age 65, based on the idea that this is the age they will typically be preparing to retire and have less income with which to pay. The premium they pay till age 65, in that case, is usually only slightly higher than someone who was scheduled to pay through age 100, but they aren't saddled with that ongoing responsibility (and yes, the policy remains in force.) Variable life requires a different type of license to sell because it's not a guaranteed value that it will pay out. These are typically purchased more for an investment than as true life insurance. And frankly, I think you could do better with other types of investments and not have to worry that your life insurance might run out of money (yes, even if you've been paying into it consistantly) about the time you need it most.

Answer 4

If you are young enough you should own whole life with paid up additions , but just a basic policy with a Guaranteed insurability option , and that would guarantee you to buy insurance later in life without medical . It all depends on the policy and the amount of the divdends the policy will pay out and the dividends aren't guaranteed as to when the policy will pay itself off . They are no guarantee as well that the dividends will pay the premiums for the rest of your life . My suggestion is to keep paying the premium that way your death benefit will increase every year .Term is a large chunk of insurance for a low price but like the word says its term for a period of time and its renewable and convertible , and may be you should have mixture of both depending on your situation and you should sit down with an insurance agent .

Answer 5

Typically at about the 12-15 year point. This normally makes the total premium outlay about the same as a 30-year level term. The important thing to remember is that the dividends which are used to pay the premium are not guaranteed. You'll want to research the dividend-paying history and the financial ratings of the company. Most household name carriers have paid dividends consistently.


Added: Contrary to a comment made in a post above, premiums for a whole life policy are never paid out of cash value. No degradation to the policy can occur. However, in order to keep the policy in force, there is no guarantee that you'll never have to pay a premium.

Answer 6

I sell Term for temporary needs (usually replacement of income)

I sell Increasing-benefit whole-life with a limited payment term for funeral expenses. These are paid up in your choice of 3 or 5-years. They are not paid from the cash-value or from dividends. They are completely paid up policies.

I sell regular whole-life for passing of assets.

All are correct for their correct use and all are poor choices for an incorrect use.

Answer 7

I recommend both.

Everyone can use a permanent plan for final expenses or to leave a legacy tax-free to heirs. Get one. You will have to look at your policy to see when it can start paying for itself.

Term insurance is good to cover major debts like for when you are raising a family. It is inexpensive.

Answer 8

Whole Life Paid Up At 65

Answer 9

Whole life insurance is good for a minority of people. It allows you to save up money you may need later. However, the commissions and other expenses of cash value insurance suck away a lot of your money. You will make more money in the long run if you buy term life insurance and invest the money you save in an IRA, 401K, or no-load mutual fund.

If you look at financial sites not run by insurance companies, they are almost unanimous in recommending term life insurance. Look at big name sites like Yahoo, CNN, Motley Fool, SmartMoney.com and Kiplinger's, and they all recommend term life insurance for most people.

However, read these sources and make up your mind for yourself. You may be one of the rare people who could use whole life insurance.

Sources:

Term vs. Whole Life Insurance Articles:

http://finance.yahoo.com/insurance/article/101749/Term_or_Whole_Life?
http://money.cnn.com/pf/101/lessons/20/index.html
http://www.smartmoney.com/insurance/life/index.cfm?story=whichtype0205
http://www.kiplinger.com/basics/archives/2003/03/life3.html
http://www.fool.com/insurancecenter/life/life06.htm


General Information on Life Insurance:
http://www.fool.com/insurancecenter/life/life.htm
http://finance.yahoo.com/how-to-guide/insurance/12823
http://money.cnn.com/pf/101/lessons/20/index.html
http://www.kiplinger.com/basics/archives/2003/03/lifeinsurance.html

Answer 10

Plenty of great answers already for this