re: Whole Life Insurance - Did I Do Something Wrong?

Actually I’m an IAR that has been in the industry for over a decade and have life and investment clients from every demographic. So I know from every demographic and have given it great thought! I would venture to say I have probably given it more thought than you have.

Life insurance is to replace the responsibility when you don’t have the money to do so. Yes a burial plus more. But as cash grows, the need for life insurance for a lot of people goes down. There is different cases with inheritance tax if there is a large amount in an estate. But that’s not what you’re talking about here.

So a $100k whole life policy for $100 vs $5-10. That $90 over 30 years, even at a modest return is more than the $100k.

What you’re failing to forget is that whole life is term! It’s a shitty, poorly planned decreasing term with the cash value being the equivalent to the investment or “self insurance”. In a $100k whole life policy with say 20k of cash in it is only $80k of insurance. So I know very well what I’m talking about and I have clients in ever social/economic demographic.

So an account that they have to take a 5-8% loan compounding against them is “real value”? Let’s use your logic. You said they won’t invest which I know to be absolutely not true in experience. But let’s say they won’t. Do you think they will be paying this loan back up and above their already high whole life premiums? Cause that loan borrowed plus interest will continue to grow and dwindle down their death benefit. Possibly causing them to have little to nothing they are leaving their family. So that’s terrible advice also.

Even the $20k whole life policies are crap. You’re talking about a negative 100% return the first 3-5 years. 20 years to break even. With a 1.3-3% life time return at age 100. All that attached to just beautify and screw a client with a decreasing term.

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cancel the whole life.

Invest the difference.

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It's amazing that you guys have this all figured out without even knowing his risk tolerance, savings goals, etc...I wish you were my advisor. I could save hours by avoiding meeting with someone who takes the time to know my goals

OP is going to call in to cancel it, and he's going to end up in an annuity and make this topic again but for annuities.

OP- fire this "advisor" and find a fee-only advisor who doesn't make commissions on any products.

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So a $100k whole life policy for $100 vs $5-10. That $90 over 30 years, even at a modest return is more than the $100k.

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I'm not referencing a $100k whole life policy. If you can afford that, you aren't poor.

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So I know very well what I’m talking about and I have clients in ever social/economic demographic.

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You said they won’t invest which I know to be absolutely not true in experience. 

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We aren't talking about the same demographic. Agree to disagree. 25% of Americans do not even have a retirement account. They aren't investing anything. Ever. Most often, they are on fixed income or a significant portion of the household income is fixed income (multigenerational home).

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So an account that they have to take a 5-8% loan compounding against them is “real value”?

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We aren't looking at the same policies.
The ones I see have a 1% interest rate on funds borrowed against the cash value. The insured is borrowing their own money to make a life insurance payment to avoid lapse. If they need 2 or 3 months payment and consequently borrow $100, then it costs them $1/yr to float those 3 months payments. Whether they pay the loan or not isn't very consequential.

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Even the $20k whole life policies are crap. You’re talking about a negative 100% return the first 3-5 years.

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We are talking about 2 completely different purposes for life insurance. Poor people aren't investing. This isn't an investment. There is "no return" the first 3 to 5 years unless they die.

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All that attached to just beautify and screw a client with a decreasing term.

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The "decreasing term" nature of whole life keeps the payment lower than if it wasn't decreasing term (i.e. the actuarial cost of an 85 year old for a $20,000 policy for 1 year coverage is much more expensive than if the amount of risk to the insurance company is now $3000 on an 85 year old for 1 year coverage). It sounds like you should know this.

I'm not a whole life advocate. I hate cash value life insurance policies.
But all of the guarantees built into whole life insurance (due to the rigid guarantee nature of whole life insurance and cash value) benefit people below the poverty line.

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Even the $20k whole life policies are crap. You’re talking about a negative 100% return the first 3-5 years. 20 years to break even. With a 1.3-3% life time return at age 100. All that attached to just beautify and screw a client with a decreasing term

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It is apparent you don't work for and are not familiar with the better mutual insurers.

Good whole life policies can be constructed to provide positive returns in less than 5 yrs and can provide many tax advantages, in addition to covering risks. They also can have increasing death benefits, so while you describe it as decreasing term, it can be much more than that.

There are multiple reasons for having a GOOD WHOLE LIFE POLICY. If this were not so, you wouldn't see the wealthy using them. Should the OP keep his policy? Not nearly enough information to say with certainty. What can be said with certainty is many uneducated people speak with conviction on the subject.

I encourage all with financial discipline to sit down with a financial rep from some of the better mutual companies and let them prepare a plan. You can then make a real educated decision on what makes sense for you.

About 15 years ago I bought a million, 30 term, at $112 a month. That seemed a good buy to get the kids through college and pay off the house. After the term there isn’t much left to insure.

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There are multiple reasons for having a GOOD WHOLE LIFE POLICY. If this were not so, you wouldn't see the wealthy using them

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Special needs children/dependents.
Estate taxes
Pass estate to heirs
Charity

Is anything missing?

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Alternative:

Take the $430/mo and do this:
$30/mo: $500k 30 year term policy
$400/mo: invest

At year 30, your investment will be worth about $450k assuming averaging a 7% return.



I'm stealing this framework the next time someone tries to sell me whole life or a family/friend asks if it's a good policy to have

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I think if you compare those hypothetical results to a good whole life policy, structured for cash value optimization, you will be surprised. When you factor in life insurance also provides the hedge against early death AND its tax advantages, you may end up on the opposite side of your current expectations.

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They should have tools available to quickly educate you on some of the lesser known/understood benefits

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I guess I'm looking for someone to make a case for "banking on yourself with whole life insurance". I referenced it earlier and that someone else would have to make a case for it.
You seem to have been convinced by it from a planner but won't repeat the case here. I'm waiting on someone from a mutual company to explain it in the thread.

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It is apparent you don't work for and are not familiar with the better mutual insurers

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For what it is worth, I've heard the pitch from Northwestern, Mass, Guardian, and New York Life. It feels like a pitch where they highlight half truths. Maybe they said it wrong.
The last time I heard the pitch was over 10 years ago. So I could use an expert to explain it today because it has been a minute.