Im age 23. Would it be beneficial to me to buy a whole life policy?

Question

The policy is participating and through a mutual insurance company (guardian Life). I figure after about 15 years of paying, the dividends could end up paying for the policy and id have it for the rest of my life for free. as the dividends keep accumulating i could use the extra dividends over the premium to either take as cash and have a lifetime income. am i missing anything? this sounds like a good plan. is anything i mentioned wrong or am i overestimating the benefit of buying this policy so young?

I hear your guys opinion on investing the money instead but i will need life insurance some day for a family. this way i will have it for my life instead of having to buy term over and over. also as i mentioned the dividends will eventually pay for the policy and after that, as the dividends keep increasing, it will pay me an income. i feel like that may be a better investment than strictly sticking to securities and mutual funds which I already have been investing in.

Answer 1

You seem to be viewing life insurance as an investment. Life insurance is not an investment, it is a way to manage your risk against financial devastation to your family. In other words, it provides income to your family in the event of your death.

This is how a whole life policy works:
1) Your premiums are paid into two parts, which is level term to age 100 and cash value. Generally, you are paying this for your "whole" life.
2) No cash value is accumulated in first two years.
3) Average whole life policy has a historic rate of return of around 2%. If inflation is at 4-5%, you are losing purchasing power.
4) If you want to use the cash value, you have to borrow it and pay loan interest on it (usually around 8%).
5) When you die, all the cash value is kept by insurance company.

As for dividends, even though its a participating policy, you must know that dividends are never guaranteed. In a participating policy, the insurance company share its profits to its shareholders and pays it as a dividend. Since there are so many variables involved, dividends are not guaranteed.

If this was a non-participating policy, the definition of a dividend is different. In a non-participating policy, dividends are received when you have overpaid your premiums, so the insurance company refunds it back to you.

I don't know what your needs are. You must ask yourself if you really need life insurance now? If you are married, the answer should definetly be yes. If you are single, its your own decision on whether you want it or not. Most singles don't need life insurance, unless their parents are going to be dependent on their income.

If you do need life insurance, I would get a 30-35 year level term instead. Why? Besides being inexpensive, you can buy lots of coverage for a low cost. Remember, if you are going to get quotes from various companies, no level term policies are alike. One company may convert your level term at the end of the term to a whole life policy. One company may stop coverage immediately when level term ends. Another company may give you the option of exchanging your current policy to another level term policy.

What if you do outlive the term? Then you need to evaluate your needs. Do you have lots of debt to pay off in 30 or so years? Do you have kids that are going to be dependent on your income? Do you have a mortgage to pay off? But you don't need to worry about it for a very long time. Until then, you should buy the right amount of coverage needed to protect your family and also invest your money into mutual funds.

I don't know what kind of mutual funds you have. Do you have mutual funds from different companies? For example, do you have a mutual fund from Fidelity, another mutual fund from American Funds, and another one from Vanguard and so on? If this is true, you may want to reorganize your portfolio with one mutual fund family. Why? Its because you get sales charge discounts, which means more of your money is being invested if the total value of all your mutual funds reaches a certain level.

What class share do you have? Is it "A" shares or "B" shares? You want to have "A" shares because they have lower expense ratio than "B" shares. No one should get "B" shares because of the high expense ratios. For example, with "A" shares, you could be getting a 14% rate of return in an aggressive growth mutual fund. With "B" shares of the same mutual fund, you would be getting 12%. Even though its a 2% difference, the 2% would compound out in the long run.

Is your mutual funds in a retirement plan such as a 401(k) or a Roth IRA? If not, what is your reason for keeping mutual funds outside of your retirement plan? If you have short term goals such as paying for a wedding or going on a big vacation, then you want to keep a mutual fund outside of the retirement plan.

And finally, how are you investing your money? Are you just putting one time deposit every year or when you have the money or do you invest using the dollar cost averaging (DCA) concept? You should invest using the dollar cost averaging concept because that way you are consistently investing every month no matter how the market performs. You may even lower the cost per share by using DCA.

Answer 2

OK, most people do NOT need "whole life" their entire life.

You seem to be impressed with the "investment" option here, which, btw, is a HORRIBLE rate of return on your money, which is why people are pointing you towards investing the money.

You're interested in buying this because it's being sold to you.

Insurance is a FINANCIAL TOOL, even whole life insurance. It's designed to MEET A GOAL. I haven't seen any "goals" here, just "someday I might need what a small portion of this does" (although that theory works pretty well in the power tool department, too).

SO. MOST of the time, dividends don't end up paying for your policy. You're buying life insurance, AND you're building a savings account here. So, if I told you, ok, give me $200 a month, and I'll put $20 of it in a savings account for you, and eventually invest it, and give you 10% of what I make off of it, what would you say to that? Becaust that, effectively, is the product you're "being sold". Which goal, exactly, does that BEST meet the need of?

Define your goals first. Then look at ALL the financial products out there, and see which combination of them will meet your goals, at the lowest cost.

PS, dividends aren't GUARANTEED to increase. And if you get 2% interest in the bank on a lump sum, the dividents from THAT will continue to increase, too.

And because you can buy term life in 20 year increments, I seriously don't think you'd live long enough to have to buy it more than 3 times. If you're really lucky.

Answer 3

Your investments and mutual funds will pay you more than what your insurance policy will. Get a level term policy for 35 years. There is only one company that offers this product-Primerica.

Do you know that in the first two years, maybe more, your "investment" does not have any money? Where does it go to, you ask. Good question. It goes to your agent to pay his commission and to the insurance company. You will average 1-4% after that. To take any money out, they will charge you between 6-8%. Remember, this is your own money. You can do the same at your bank and you can take your money out anytime you want and you won't be charged by the bank. Plan your emergencies well because it can take up to 6 months for the company to give you YOUR money. Refer again to the aforementioned your own bank. Lastly, your survivors will have to choose between the cash value built up(yeah right they'll choose this) OR the face amount. So, you pay for two and your survivors get one. However, as high as the premiums are for whole life, you can choose option B and pay HIGHER premiums so that your survivors get both face value and cash value.

Over the course of time, you will have fared much better buying term and investing the difference. Get a quote for both- term and whole life. Buy ONLY level term!!! Find out how much you can get for a face amount- 100k, 200k,500k+. What will the premiums be for both term and whole life? Then, take what the difference is between term and whole, each month. Go to a website with a financial calculator and take that difference, figure an interest rate of about 10% for fifteen or twenty years(this is how long it will take to build up your cash reserves to pay the premiums). What do you get? Ask the agent who is trying to sell you the whole life what the interest rate is, actual not what he is quoting you. Figure on, roughly, 15% of your premium goes to the savings. To be generous, figure 25%. Now, on the same calculator figure out 4% over the course of the same ten to fifteen years.

Which would you choose? Your agent is out to make money for himself and his family, NOT for you. He will earn a commission over the next five to ten years. He wants you to buy. Be cautious. Please, do what Is recommended in the above paragraph. Be warned, when you ask what the REAL interest rate is he will probably not tell you.

Answer 4

There are better cash value policies than a whole life policy. A 30 year term is nice if you won't need insurance past 52. I'd consider a return of premium term or another form of cash value policy. The return on a whole life policy over 20 years is about 2-3%, BUT you're not buying one for an investment. You're buying it because you want insurance to last forever.

Answer 5

You would be better off buying a term policy and investing the difference. you'll will get a much better return.

Life insurance is NEVER an investment. The agent may tell or "sell" that it is but you can do better by investing the difference. I sold insurance before and the "investment" approach was the best technique for younger adults.





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Answer 6

The length and depth of the previous answers indicates that this is a much tougher question to answer than most people (consumers) think.

YOUR personal financial position and the need for life insurance will change MANY times throughout your life. It will increase (drastically) when you marry and when you have kids and buy a house or move to a larger house. It will decrease when the kids leave the nest (most likely). It may increase again when you become responsible for helping care for aging parents and again when you consider the high medical bills you may incur at the end of your life. You may have a pension plan that pays a certain amount per month to you for as long as YOU are alive. The pension may offer a smaller amount per month for you and a spouse as long as one of you is alive. Your health will change too.

Keep in mind that you can own BOTH term and permanent insurance. There are several type of permanent insurance - whole life is just one.

There are lots of issues you will face in your financial life for the next 70 (or so) years.

Unless you want to post all of your financial situation here, no one can really answer what is best for you.

Go talk to a licensed financial planner. STAY AWAY from Primerica.

Good Luck.

Answer 7

Well it does build cash value, But you could probably invest that money somewhere else for a higher return. That's what a financial person will tell you. An insurance agent makes more commission selling you a whole life policy. Unless you have someone who depends on your income, you really dont need life insurance except something to pay for your funeral. I think you should get term life.

Answer 8

At your age, if you are in reasonable health and don't smoke the best life insurance is term for as much as you need if you have a family. If you don't you only need as much as your funeral costs or, if you are a support for your parents, the replacement cost of their losing you.
Term will give you much more coverage at a lower price than anything else, whole life is never a bargain, you get paid less than a simple passbook savings and much less than CDs
Insurance companies love having young ones like you on their books forever, its money in their bank, and right there that should tell you something.
Check out those rate too they do vary.

Answer 9

at your age death insurance is dirt cheap...take the money and put it into getting an education. learn investing then you can make your own commision on stuff you sell to yourself.
agents shouldnt sell that type of insurance to young people.