Life Insurance

[Brad243480]

Anyone have any opinions on life insurance?  I know life insurance folks love selling whole life, others say buy term and invest the difference.  Is there any good reason to buy whole life?  Thanks.

[MediumTex]

Buy two term policies--one that will cover you until your children are grown and another to cover you until you reach retirement age.

A typical person might buy one 30 year term policy and another 10 year term policy and that ought to take care of the matter.

Employer provided group term life coverage is also often a good deal.

Whole life policies are normally a rip-off whose best use is to purchase jewelry for the wives of insurance salesmen. 

[Brad243480]

Thanks a lot, Tex.  It confirmed the beliefs I had based on what I've been reading.  But I really respect your opinion on these boards, and I believe you said you are an estate planning attorney, so that doesn't hurt either.  Thanks again.

[MediumTex]

I believe you said you are an estate planning attorney, so that doesn't hurt either.  Thanks again.

I am actually a retirement plan, health and welfare and executive compensation attorney.  Basically, compliance issues surrounding anything provided by the employer in lieu of additional compensation is what I do.

The laws I work with are basically ERISA and parts of the Internal Revenue Code.

Life insurance policies are used to fund certain kinds of executive compensation, so I have a little professional exposure from that angle.  In general, whole life policies are a lot better for the agents selling them than for the customers who are buying them.

Roth IRAs should have put the individual whole life policy industry out of business (since it provided an after-tax "inside buildup" opportunity with a much lower fee/commission structure), but a lot of those life insurance agents are very skilled salespeople.  

[Libertarian666]

As a former actuarial "student" (trainee), I can say that whole life insurance is okay... in a non-inflationary environment. With even a small amount of inflation, it is a guaranteed loss. Buy term and invest the difference.

[Reido]

I agree that Whole-Life might not be the best investment - as everyone has reported - but...

What about annuities - If you had no additional tax-sheltered savings, would annuities, like Vanguards, with very low fees, be a reasonable choice???

[MediumTex]

I agree that Whole-Life might not be the best investment - as everyone has reported - but...

What about annuities - If you had no additional tax-sheltered savings, would annuities, like Vanguards, with very low fees, be a reasonable choice???

What would the goal of the annuity be?

[Brad243480]

Is there ever a situation where whole life insurance might be a good idea?  What if one had a sizeable estate and very illiquid assets, trying to prevent a firesale at death?

Thanks.

[Coffee]

MediumTex:

Are you practicing in Texas?  What part?  If an opportunity where somebody might need legal representation in that field falls into my lap... do you take referrals?

[MediumTex]

MediumTex:

Are you practicing in Texas?  What part?  If an opportunity where somebody might need legal representation in that field falls into my lap... do you take referrals?

I work in the Dallas area.

I do pretty specialized pension work, but if you know of a company with a defined benefit plan that would like to hire a new actuary or pension consultant, please let me know.

[Brad243480]

Sorry, I just want some clarification on this point, as I find these boards to be a great place of discussion with people I generally agree with on many topics.  Tex, you said that "whole life policies are normally a ripoff..."  Is there ever a case where they are not a ripoff?  Could they make sense for ANYONE?

What if you are very wealthy and are maxing all of your other tax-deferred options and have a lot of money left over?  Is taxable investing better than whole life because of the commission structure?  Is whole life useful from an estate planning standpoint as many of the skilled salespeople claim?

Thank you very much.  This is a difficult subject for me and I have met wealthy people on both sides of the aisle.

[MediumTex]

Tex, you said that "whole life policies are normally a ripoff..."  Is there ever a case where they are not a ripoff?  Could they make sense for ANYONE?

I think you would have to look at an individual's unique situation to determine what would work best.

What I find, in general, is that people will buy whole life policies who are not maxing out their 401(k) accounts, Roth IRAs, education savings accounts and 529 plans.

For someone who has truly maxed out every possible tax deferred vehicle outside of whole life products and still has a lot of money left over and is otherwise concerned about their tax situation I'm sure that there are some whole life policies that COULD make sense.

The PP, though, is pretty tax efficient so I would think of the PP as an alternative to a whole life product as well.

Whole life insurance is mostly about storytelling, and successful whole life agents are generally master storytellers.

I think that many of the premises on which life insurance are based are reflective of foolish approaches to personal finance in general.  In particular, I think people who are living beyond their means will attempt to purchase enough life insurance to continue living beyond their means following the death of the primary wage earner.  A different approach would be to live within your means, reduce your life insurance needs, and pocket the difference that would otherwise be going to pay part of the life insurance agent's Mercedes payment.

[AdamA]

Buy two term policies--one that will cover you until your children are grown and another to cover you until you reach retirement age.

My father has a whole life policy that he could cash in for around $90K.  He's 60, still working, but also collecting a pension.

From what you've written above, sounds like he definitely doesn't need whole life, and probably doesn't need any at all (all of his dependents would be financially okay if anything were to happen to him).  

I don't know a whole lot about life insurance, but I just got him to put some money into the PP, and was thinking it might be to his benefit to add the $90K

Any opinions?

[LifestyleFreedom]

I've thought about buying "longevity insurance" (which is a deferred income annuity in new marketing clothes, http://blogs.reuters.com/prism-money/20 ... insurance/).

Those who die before reaching age 85 pay for those who die after reaching age 85.  The challenge is that I don't know in which group I will fall when I buy the policy at age 65 (if I decide to go ahead and buy the policy).

If I happen to be one of the people who dies sooner, I've wasted some of my heirs' inheritance.  If I happen to be one of the people who dies later, I'll get a potentially great return on my investment.

The insurance company as the counter-party takes on the risk of my life expectancy and the well-managed insurance company will price its products so that it will not be losing any money no matter when I die.