[turtle777]

Originally Posted by Big Mac 

And actually, certain types of insurance can be thought of as investments. Whole life insurance, for example,...

Well, yes, but that's the worst investment ever.

No serious FInancial Advisor will recommend it, only those that get a fat commission.

-t

[Big Mac]

Yeah, they're not the best investments, although they're generally a whole lot safer than equities. Every person should have a portion of their savings put into life insurance, aside from those of us who could be or are known to be immortal.

[turtle777]

Originally Posted by Big Mac 

Yeah, they're not the best investments, although they're generally a whole lot safer than equities. Every person should have a portion of their savings put into life insurance, aside from those of us who could be or are known to be immortal.

Yes, but only term life.

If you have money left over, get a Term Life and put the rest in a money market account.

-t

[Big Mac]

I don't want to derail the thread, but I would only ever buy Term if it had a return of premium (ROP) provision. I don't like the idea of paying for something for decades and not getting anything back from the company at the end of the term unless, well, you know. And it seems to me that Whole life products can actually provide a pretty decent rate of return. Where else can you buy a policy for a few thousand a year that will pay out hundreds of thousands of dollars in the event you die, will let you borrow against the face value of the policy, and will let you cash out a similar amount of money to the full value if you live to a ripe old age? You're not going to get all that from a simple money market fund. Instead, you'll get a pretty poor rate of return, and you'll be more likely to dip into that fund unnecessarily because the money is liquid. Getting nothing after paying into something for a number of years (as in regular Term life insurance) is a proposition I'm just not comfortable with, which is much the same reason why I don't like the government Entitlement schemes. There, I got us back on track. Really, I'd only recommend Term to those who don't have a lot of money to spare for better coverage, and even then I'd insist on ROP.

[turtle777]

Originally Posted by Big Mac 

I don't want to derail the thread, but I would only ever buy Term if it had a return of premium (ROP) provision. I don't like the idea of paying for something for decades and not getting anything back from the company at the end of the term unless, well, you know. .

Why ? It's an insurance product. You typically don't get any money back if you don't have an incident. It's to MAKE SURE your incidents are not going to financially ruin you.

Originally Posted by Big Mac 

And it seems to me that Whole life products can actually provide a pretty decent rate of return.

Well, financial experts overwhelmingly agree that the rates of return of Whole Life insurance are poor compared to investing the money in alternative investments, even if you deduct the Term Life payments out.

Term Life's can be dirt cheap if you get them early on.

-t

[ebuddy]

Originally Posted by turtle777 

Why ? It's an insurance product. You typically don't get any money back if you don't have an incident. It's to MAKE SURE your incidents are not going to financially ruin you.




Well, financial experts overwhelmingly agree that the rates of return of Whole Life insurance are poor compared to investing the money in alternative investments, even if you deduct the Term Life payments out.

Term Life's can be dirt cheap if you get them early on.

-t

One of the advantages of using insurance as an investment is the tax shelters. Granted, it's been a long time since I thought "insurance", but if I recall there are some pretty creative and profitable ways to use insurance.

[Big Mac]

Originally Posted by turtle777 

Why ? It's an insurance product. You typically don't get any money back if you don't have an incident. It's to MAKE SURE your incidents are not going to financially ruin you.

That's true, and I would agree with you, but in general I'm not the biggest fan of insurance even though I have a license to sell it. I think of it as a necessary evil due to the risks inherent in life. Term may make sense if you don't have the means for anything better, or if we lived in a world where only Term life insurance existed. But we don't, and I personally find Whole to be a better choice for those who can justify the extra up front cost because you're purchasing benefits that don't go away unless you cash out the policy. If your only goal is to protect your heirs from your untimely death during your most productive working years, and you don't want to spend much money in the process, then Term makes sense. But if you want to have protection that extends throughout the rest of your life and even if you live to 100 and outlive the life of the policy, you can spend more per year but get that kind of protection. It's about differing priorities and sensibilities, I suppose.

Well, financial experts overwhelmingly agree that the rates of return of Whole Life insurance are poor compared to investing the money in alternative investments, even if you deduct the Term Life payments out.

Yeah, a lot of them do, but I don't respect conventional wisdom (even from supposed experts) unless it makes sense to me. Let's say there are three people all currently at the age of 30. Person A buys a 20 year term policy for $300 a year that provides $150,000 in coverage; person B buys a $150,000 whole life policy for $1,200 a year, and person C instead puts away $2,000 a year in a money market account in what we'll call an act of self-insurance. If person A dies during the term, then obviously he has lost his life but won in the insurance game because his beneficiaries are going to get $150,000 while the other two would not have that much gained in the same period of years. But let's assume all three live to 70 years of age. Person A is out of luck then - his beneficiaries get nothing because his policy expired (and unless he bought an ROP policy he got absolutely nothing for the amount of money he paid in). Person B's beneficiaries get $150,000; Person C's heirs get $80,000 plus the amount of interest that accrued, so let's be liberal about it and say $90,000. I don't think my numbers are that far off here because I was just looking at life insurance premium rates, and you can clearly see where I'm going with this example. Personally, I expect and hope to live for a very long time, so Term doesn't make a whole lot of sense to me, except perhaps as a backup policy.

[turtle777]

I should have been more clear.

I'm person A. I'm gonna buy Term Life for $ 300 / year AND put $ 900 away in a Money Market account and bonds. Compared to person B, I'm "spending / investing" the same amount.

I'll bet that in most cases, person A has a higher amount of "saved up money" after those 20 years, and still enjoys all the security from getting the whole payout in case of death.

-t

[Big Mac]

Certainly straight Term is better than nothing, and at the low-end it's effective. I think we agree there. But if one can afford more, Term becomes less and less attractive compared to Whole Life. I actually think a Universal Whole Life policy may be a really good choice right now because of the lows currently seen in equities (although there is still market risk involved in Universal life, along with some other risks peculiar to the flexibility of Universal coverage). Btw, ebuddy is right in pointing out that Whole Life insurance provides the benefit of tax deferment on premium payments.