Whole Life Insurance

How old are you?

I would think you probably want to drop it honestly.

If your wife is healthy, you could get her a solid term life policy (more than 30k) with a child rider for a better deal.

At 200k in term life you are probably under insured anyway.

 

To add, the value in whole life insurance is having permanent insurance. They are terrible investment vehicles. They've been sold as that so much that they have a terrible reputation, however, many people who purchase whole life end up happy with it when they are older and uninsurable. So keep that in mind.

40 year old gets diagnosed with throat cancer. Boom. Thrilled you have a relatively inexpensive whole life policy.

 

I hate to tell anyone "No way you should have whole life" because then you get sick and wish you had it, but it doesn't seem like a smart investment honestly. You have such a long time horizon that you'd be better off investing that money and letting it grow.

I would think you might want to look at upping the life insurance on yourself and on your spouse though honestly. It's cheaper now than it will ever be. I don't know your income levels, but my guess is that you'd be better served having something like 500k on yourself and like 150 or 200k on your spouse with a child rider.

Did you get that term life through your job or on your own?

 

OK good. Then you are in decent shape. Obviously don't know all the details of your financial situation, but I think you would be better off without paying for the whole life insurance. Sticking it in your 401(k) or some other savings vehicle will probably put you ahead and you'll benefit from it more down the road.

Only issue with term life through your work is portability. If you don't own the policy you can't take it with you. Check into the portability of those policies. I know people who have left a company, lost their insurance and were unable to get insurance somewhere else because they were sick now.

 

Example, healthy 28 year old can get a 500k term policy from Transamerica for $30 a month.

 

^^good advice here^^

I've also decided against whole life and used term exclusively.

If I were you, I'd up my term life policy to at least 5X your annual salary. 10X is what you want if they allow. That way it could replace 10yrs of your salary for your wife if something were to happen to you.

 

I'm 34, with three little ones.

I've switched to a hybrid policy.

I still recognize it as not the 100% best investment decision...

EXCEPT, just by the way I invest money, and spend money on the kids, etc., writing the whole portion check is getting me to invest. Yes, yes, perhaps a little expensive reminder to invest, but you know how life is.... oh, I can pull some money out of X,Y and Z to finance the new house type thing and you do it. In the whole life policy that's way too complicated to happen. Which is why I went hybrid... I'm putting some money away at 4% (or whatever it is) as opposed to perhaps not putting it away at all...

There are some other benefits, of course... but from a pure financial perspective, if it is put in option A every month vs. option B, then term is the better investment decision, over the long-run.

EDIT: And to clarify, the hybrid portion is only on me. My wife is purely term. Also, I have no insurance on the little ones. As far as I can tell the only reason to get life insurance on your kid is to cover potential costs like funeral, etc. Am I wrong?

 

Its good to see you thinking seriously about these kind of things at 28. I didn't think about them until my mid-30's.

If you're looking at a long-term financial path in life - I always recommend Dave Ramsey as a Starting Point. Good solid financial advice to start. Take his Financial Peace class, and then expand with your own studies after that. It's great advice to begin with, but I wouldn't take everything he says to be the standard - its a good solid start though.

http://www.daveramsey.com/fpu/

 

My dad's former boss had large policies on his children. His reasoning was that he wasn't sure when/if he'd go back to work if he lost a child. To me, that is good reasoning for having a child policy.

Personally, I have a child rider on my term policy that covers my children. It costs me very little.

 

Investment and insurance are not exactly the same thing. In investment, your goal is to make money. Your expected return on the investment should be proportional to the risks of your investment.

For life insurance, it is more about a transfer of risk. Your risk is the loss of your future income if you have family or people who depend on your income. Life insurance death benefit should offset some of that risk, in return, you pay a premium for it.

For WL policy, you are paying more. At the same time, you get a guarantee return on your money in the form of the policy's CV. I believe it is around 4% nowadays? Plus you get dividends that can be reinvested into the CV. It is not that bad considering you need to get about a 6% return annually before tax to get that annually. In the case of emergency, you can always get those money out tax free through a policy loan. Of course, that will lower your death benefit if you pass away while you have a policy loan out.

It is always good to have fixed income in your portfolio anyway. It helps to plan your future finance a little easier.

As for your current WL policy, 27k is a pretty small amount. I don't know how much of a difference it will make. If you have a mortgage, I'll suggest you get a high face amount term life to cover your mortgage balance. I know you have a term life through work, but is that a group policy that is only there when you are working with them, or is that your even when you are not longer with the company?

 

from my short stint with insurance, I would tell you that whole life is great if you were to ever get sick, but a cash vacuum if you dont have a side investment to tie along with your payments. Perhaps a universal variable may be better suited if you're looking for more coverage plus the ability to put away on the side at the same time.

 

I have no clue about your financial situation.

But, I know one thing --- you're under insured HR.

When you die, who would generate the income you got?

That's what the term life insurance is for or any insurance for that matter.

To supplement the lost income of the dead person.

You get a term life insurance so that when you did while your kid is still young, they'll have money to pay for their future expenses.

At the same time, you get a chance to generate enough money to cover your expenses for the span of the term life.

Correct me if I'm wrong, but I believe the calculation is ANNUAL INCOME x 30 years = Payment.

 

Always a tough comparison. If you think of it as savings rather than "an investment" you are being a little more realistic. If you never buy whole life, you are gambling that you will never need life insurance since only a tiny, tiny fraction of term life policies ever result in a paid death claim.

 

I can see this to an extent. As a salaried employee working for a small business, I would undoubtedly get some time off, and then some time to "part-work", which I'd appreciate. Eventually I'd have to go back to work fully... but what else would I do? Yes, i work partly to support my kids, but also to support myself, wife, and other kids (assuming one passed... don't even like writing about it).

The only time I might see myself saying "time to hang it up" emotionally after a child's passing would be if I am considerably older... at which point it might just be time to hang it up....

I like your comparison of thinking of it as savings vs. an investment. That's effectively what I do, which led me to a hybrid policy...

...alternatively, your comment about it being a gamble isn't 100% accurate. The idea of "term and invest the rest" isn't that you'll never need life insurance, it's that you'll be able to self-insure. The gamble is that in the 30 years of your term that market will get you that 10% a year return... which may not be the case... but over the long long long haul seems to hold true, +/-... so not a huge gamble.

 

The problem with whole life that a lot of people aren't aware of, is that your price rises through the years, although you're still paying the same amount. Where does the extra money for the rising payments come from? The additional savings/interest/dividends you've earned over the years. Once that money runs out you'll be paying out of pocket.

Term is pretty much always the way to go. If you're worried about being uninsurable when you get older, you can add the guaranteed insurability rider to your policy to guarantee you will be insured. I've got a rider in mine that increases my policy by $25,000 each year until I reach 500k. I started at 250k. Like juicy mentioned, you can add a child protection rider onto your policy, their coverage can be purchased in $1,000 increments. The best rider, in my opinion, is the return of premium. You'll pay a higher premium each month, but at the end of the term, you'll get all of your money back. Of course, the question is...are you better off paying the higher premium and getting your money back at the end, or investing the extra money you pay each month?