My wife and I are coming up on out 1st anniversary. We had a banging first year (pun intended), but our finance were out of control. One reason was, I didn't really know how much money we needed to spend to live the way we wanted. I did however keep pretty good records of everything with Quicken. Now, I'm trying to make a solid budget for 2015 and start investing and saving.

My question today is life insurance. I sell P&C insurance and I know that fairly well. And I know enough about Life to get me in trouble. I've asked my boss, and understand what he suggested. But it still doesn't make sense financially. Here's my 2 options with a budget of $200 per month.

1) $500,000 30 year term for myself and the wife. $102.34 per month, or $36,842.40 for 30 years. Assuming we are both still alive in 30 years, the money is gone, never to return. I would use the other $100 for a roth IRA that I already own. The min it makes is 3%. In 30 years, I will have put in $36,000 and it will be worth about $49,215.39. So, I will have spent $72,842.40 and only have $49,215.39, and of course my wife. I wont have to pay any taxes on the $49,215.39.

2) $250,000 on me, and $150,000 on wife Whole Life Policies. $207.73 per month. In 30 years, both policies will have a cash value of $108,950. So, I will have spent $74,782.80, but will have a cash value of $108,950. At that point, or anywhere along the way, I could cash it in, or just borrow from it. I will have to pay taxes on the gain, though, from what I understand. And, I would defiantly keep my IRA and put something in it once a month.

I am planning on talking with a Financial Advisor in January before I make up my mind. Unless I'm missing something, option 2 looks like the no brainer. My boss/agency owner suggests option 1 though. He says its more bang for my buck.

Sorry for the long post, but shoot me some wisdom.

Lots of things to consider...........what is you and your wife's age?  Do you plan on having children?  Family health history?, meaning do you expect to live a long, full life, barring any accidents?  Do you have a "safe" occupation, or a high risk one?  Dangerous hobbies such as skydiving, racing cars or motorcycles, etc.?  All of these enter into a recommendation by a Fin Adv or a insurance salesman.

Almost 40 yrs ago I sold life insurance for a short time.  The company I worked for really pushed whole life, but for the short time I worked for them, I convinced myself that term was the better way to go for me.  Was I right or wrong?  I don't know, but I'm still around, I haven't collected on life insurance and I've put a decent amount in 401k's.

I strongly recommend you visit with a Fin Adv that you trust, as you mentioned, but even then you will get a professional opinion tinted by his own personal opinion.    

Best wishes!!   Sorry I didn't give you a definitive answer!

What's your insurable interest?  Who depends on your income?  Any dependents?  If no dependents, and wife has education and job, no reason for either of you to have life insurance.

Generally, mixing insurance with investment isn't the best thing to do.  For most people, term makes a lot more sense than whole life.

For option 1, are you talking $102.34/mo for a $500K policy for you and another for your wife? That seems high. I have a $3Million term policy for $110/month.
 

i would be more concerned about saving money than buying life insurance, yea you need some one day when you have kids and a mortgage, but i would start socking money away first

who is the breadwinner?  i have some term life on myself and nothing for the wife,  you will build assets over time, and wont need life ins when you are 60+

i cant imagine saddling up to 200 a month at a young age for life insurance,

We are both 27. Already have a mortgage, and have a kid on the way.

We have a combined income of $3900 per month. So, theoretically, I'd like to save 10% or about $400 per month. The way I think, $200 for the whole life could be part of that savings budget. Then I'd put the other $200 in a savings account to invest in the future.

If I went with the $100 term policy, I wouldn't consider that $100 to be savings, so it wouldn't come out of my $400 budget. Which then, I guess I could invest $200 per month with a stock broker and put $200 in savings. And, this might be the better way. Assuming I could get 8% per year at $200 per month, I think I would have about $150K which is more than I would have with the whole life policy cash value.

I could be WAY over thinking this whole situation. My family's financial history is not that great, so I'm trying my best to do the right thing with my money.

Your term costs seem way high?

I pay $670 a year for 1 million on 30 year term are you way over weight, smoker, diabetic?  If you are healthy you can find better.    Remember that cash value part is vaporware.  They keep your cash value when you die.  If you take it out early but keep the policy they pay your 500k minus the amount to took out.  If you take your cash value out and cancel it won't be near what you think it will be.  the irs usually doesn't tax the cash value because you made nothing on the invested portion after decades once fees ect are added in.  A rule I live buy , insurance is to mitigate risk not make money.  If she isn't a large wage earner I would ditch the wife insurance you are taking a risk but you are much more likely to be disabled than die anyway.   I don't have any on my wife.  It would be hard if she died but I could manage.  I take that money and add it to our investments.  Of course I also never buy a warranty and every time I am offered one I turn it down and add that amount to my monthly investments as well.

Edit: I should add I am trying to save 25% of my income so the needs for life insurance won't be needed 30 years from now.

I waaasss off on my rates.

For $500K 30 year term, $275 for the wife and $318 for me. that makes it $51 per month. That's with premier, which looking at the guidelines, we should qualify for, hopefully.

So, now its a no brainer, the term makes a lot more sense.

Now I just need to decide if I need it or not. I think I will probably go for it.

See, I just needed somebody to question my thought process so I could see the errors. Thanks guys!

Yeah, don't buy whole life as an investment.  Buy term if you need insurance, or set up an IRA/401k, etc. if you want to invest.

Exactly.

Whole life is a scam.

That cash value at the end is worth nowhere near what it would be if you had just invested the difference in term and whole life in a Roth IRA mutual fund.

Life insurance is to help the rest of your family should you bite the big one while still in your prime earning years.

Period.

I'll join the chorus.  Insurance products should be used for insurance purposes only.  

As far as investing goes, the more layers of complication there are between you and the actual underlying asset that is actually generating the returns, the more screwed you are getting.

Thanks guys. I think I'm understanding now.

In the next few weeks, I might post my 2015 Budget and see what yall think about that. Hopefully you can guide me to save money there too.

This^^^ Life insurance isn't a get-rich-quick deal or anything of the sort. It is to help your family financially if you bite it... if you put together a plan to get out of debt, have an emergency fund, have things squared away in advance etc, the "need" for life insurance can effectively go away once your children are older, your mortgage is paid off, etc...

I'm 28 and plan to ditch life insurance within 10 years even though I have young kids. Why? I'm less than 8 years from paying off my mortgage and I already have an extensive emergency fund...

Though term is cheap do you need 500K for you and your wife?  Seems like too much insurance based on your income.  I don't realy see a need for life insurance that is 20 times your annual income.  

My thought process on that is if I were to die, I would want to be able to pay everything off and then have something left for my wife to raise the kid with. I guess I could look at half of that and see how much cheaper it is.

I think your thought process is sound. Term life is pretty affordable, since most who buy it don't ever need to use it. I guess it depends on what options you see the family having down the road.

 

Let me guess, this guy and his associates are the only insurance salesmen qualified to sell you this specific policy?
Bull Crap.

These items are structured in ways to make big sales profits to the person selling it.  Is it possible for it to be worth more than you have put in to it?  Sure.  Will that amount beat compounding inflation?  Not Likely.  Will it beat any other traditional investment plan?  Even less likely.... by ALOT.

The payments into it go to investments with very high sales loads and ridiculous expense ratios.

The only "wealthy people" using this as an "investment" are the fools who have poor financial literacy and are wealthy through dumb luck.

The reason Whole Life gets a bad rap is because it's a bad deal.  There is two majorly different types of "Financial Advisers":
1. Gets paid based on Assets Under Management, regardless of how your finances do he gets a cut.  The more you spend with him the more he makes.  In addition he usually also earns a piece of the sales load of the products he sells you.  You will never cut him a hard check, he just skims what is his (contractually) from the investments - you may infer that his services are "free", but they never said that.
2. Fee Based.  This guy has a flat fee upfront (hourly).  The amount you have has no direct bearing on what he makes.  He may or may not be a fiduciary, however he should not have an affiliation with any "investment company" nor should he provide more than just suggestions of the institutions that can handle the products you need.  Many people avoid this type because they would rather go to the guy pursing them and "not charging them anything".

This.

Don't shop for groceries at a gas station (don't get investment advice from insurance agents)

The only "wealthy people" using this as an "investment" are the fools who have poor financial literacy and are wealthy through dumb luck.

double tap

get term.  don't bother with whole. I paid more into my whole life insurance when I should have been investing the difference of the term policy.

Of course it's cash reserve, but like keeping money in a checking account, or in gold, it's a shit-poor investment with massive opportunity cost.  You are essentially giving the money to a company who will invest it, profit from it, and intends to return to you only a percentage of that.  That's their business model!

 






 

My life is a circus as well, despite lack of kids (though there are two running around the house now, wondering when their aunt is going to drag herself out of bed so we can open presents).  I take no issue with that statement as long as the word equity is removed.  It's a store of wealth, sure.  It's a piss-poor investment scheme.

I'm using that in the future.

if you don't have kids and not much debt life insurance is pointless. IF your death would severely limit the finances of those around you life insurance is a good Idea.  



 

The statement is not bold by any means.  It's true, do the math and you will understand why.  

Keep telling me stories about what you "read on the internet", I'll grab some hot cocoa.

 

http://youtu.be/C7VOZnJy7lE
http://youtu.be/9W68uqkEBiU

I'm a Certified Public Accountant and took the lazy way out by getting both a whole and term life policy.  Why?  After my first wife died in 2007, I was damn near bankrupt and her estate WAS bankrupt.  My main goal was to ensure that my current wife can at least pay off the house, cover my funeral costs, and pay any medical bills, hence the reason I went with both policies.  Sadly, I know first hand what it is like to have no money in the bank, $150k in medical debt, and a house with negative equity due to the housing market taking a hit...  It sucks!  EDIT:  I refuse to leave someone else in that predicament because of me!

 

A guy I work with just told me he was "in the market now". I thought he meant stocks but he bought into some whole life investment. I asked him to explain to me how it worked. He couldn't and told me he didn't have time to figure it out. Another guy I work with keeps telling me about something called bank on yourself which I figured out is another whole life policy. He also can't explain to me how it works. I can't believe people put money into investments they don't understand. Term life seems the better choice to me. I bought a million dollar 20 year term for $39 a month just before I turned 40.  

Makes sense since most people don't buy insurance they are sold life insurance.