Posted: 2/21/2011 9:08:10 PM EDT
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Good or bad?
I have a friend who's an intern at Northwestern Mutual, and I've sat down with them twice. Judging by what they said about it I was thinking about putting $50/mo into a CVLI policy, but when I got home and did some research it didn't look quite so promising. Do you guys have any experience with it? Is it GTG or stay away? Reasons either way are much appreciated. |
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Quoted:
Quoted:
Buy term life. Anything else is a waste of your money. Any reasons to back this up? Term insurance insures only your life and pays off if you die. That's it Policies with a cash value usually have a long vesting period. So your "savings" are minimal and tied up for a very long time. In addition, the salesman who snags you will get a huge commission. You pay for this. This commission is ammortized over the life of the policy. So, the poor return reflects the ammortization of the unnecessary commission paid to the unnecessary broker. Buy term insurance. Invest the rest in a conservative mutual fund. You get very safe cash value and liquidity. |
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Quoted:
Good or bad? I have a friend who's an intern at Northwestern Mutual, and I've sat down with them twice. Judging by what they said about it I was thinking about putting $50/mo into a CVLI policy, but when I got home and did some research it didn't look quite so promising. Do you guys have any experience with it? Is it GTG or stay away? Reasons either way are much appreciated. I was recently approached by the same company with a person I know that just went to work for them. I have always been told to keep your investments and life insurance separate but I want to put a couple things out there for that sparked my interest. I am doing these numbers from memory so please don't quote them as fact- They have a guaranteed return which I think was 4%. Historically it has been more like 7% which in today's market isn't bad. The gains on the growth are tax free and since the policy is funded with after tax dollars as long as it isn't closed in entirety you can withdraw money as needed with no tax consequence. Like a Roth with no restrictions––This is the part I like. So my question is for a person that exceeds the income limit of a Roth is this a good idea? Grove |
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Disclaimer: I used to work for MassMutual, in real estate now.
The points mentioned so far both for and against are all fairly valid, The advantages to whole life are: 1) Safe and tax free- a 4% to 6% yeild isnt bad at all in this market, but combine that with tax free growth and its pretty solid 2) Liquid- you can access your cash value, taking out a loan against your policy. If you follow the rules, this is a big advantage over something like a roth IRA 3) Automatic, having to pay your premiums every month forces some individuals to save Disadvantages 1) This is a long term strategy, with the commission and other costs it will take years for you to break even 2) Expensive If you start young, and go with a mutual company (NYL, MM or NWM) I think whole life is a pretty good investment. At some point, typically 12 to 15 years out your dividends are probably high enough to cover your premiums so you could even stop paying on it. Given that your cash value grows tax free at 4+ %, and is a fairly safe investment, I think you would be hard pressed to find something with the same liquidity, yeild, and low risk. Don't put all your money in it, but if you already have a roth IRA you contribute to, and are maxing out your 401k (or atleast up to your employer match) whole life isn't a bad place to put extra cash... Regardless if you get term or cv start young and lock your insurabilty in. If you do go term, get something convertible. |
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The investment portion of a Whole life policy is taxable as gains so if you ever do need to pull the money out be prepared to pay taxes on the money. In addition, if you get to the point where the money in the policy is enough to cover the premiums, that premiums paid to cover the policy is also taxable as gains even though you never touched the money. I don't know if you die if your benificiaries would have to take a hit on those gains paid to cover the insurance cost too but I knew someone that really hit hard times and took out a loan for just about the whole cash value and now he has to keep paying loan payments as the taxes would eat him alive while he is trying to get back on his feet. It was something like $13,000 in loans and the taxes on it keeps going up to allow him to settle up and walk away from the thing! He warned me to stay clear of whole life policies! |
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A coworker was talking about this the other day. He called it the bank on yourself system. The more he talked about it the more it sounded like a scam. He mentioned a guaranteed 4% return. I asked what happens in a really bad market when the insurance company can't pay this 4%. He couldn't answer. My guess is they go under and you lose some or all of your money. Think AIG. He wasn't clear on many of the details. From what I read the tax free benefits are gone if you out live the policy and it collapses. This would happen if you start borrowing against it for retirement too early. At that point IRS sticks you with a large tax bill. Probably not something you want to deal with as a senior on a fixed income. These insurance companies invest in the same investments we all have access to. They just hide high administrative fees in a complicated product. After all they're a company trying to make a profit, they're not a charity. They're making that profit off the fees and interest they change you. The vanguard investment forums had some good info on this type of insurance. They were charging one guy 9% interest on his policy dues if he paid monthly vs yearly. These dues were 1k a month. How could anyone make money like that? |
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The wife and I have term life policies as we waited until later in life to start buying life insurance. However, for the kids, we bought universal life policies with guaranteed insurability, meaning as they age, they can purchase (or we can) and additional $25K of coverage at given intervals in their lifes. This isn't for us as parents, but for them and their families as they age and as previously mentioned, comes with the guaranteed insurability; if they should get ill, with the aforementioned option, State Farm can't deny the additional purchases as long as we (or they) opt for them as they live their lives.
My latest term policy is a return of premium term policy, also from State Farm. It's unique from the standpoint that I pay my premium on it for 20 years. If I kick off, the policy pays to my wife or son; if I live and make it to the end of the 20 year term, I get all my paid premiums back, which will amount to just over $17K. All of our life insurance is either with State Farm or USAA. State Farm because I bought them awhile back, and USAA because they can't be beat on their range of other insurance/investment products for veterans and present military. Lastly, the most improtant thing about like insurance is that most people don't have enough. I've got about $350K on the wife and about $400K on myself, and that's still not enough according to most professionals based upon our ages and incomes. Term is cheap, buy up and invest the rest. Whole life or Universal life are good products too, but to get the best rates, you need to buy young. YMMV |
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I havent read all the replies, but I had a policy that my old man started and paid on for years. He signed them over to brother and I. I cashed mine in day one. The sales line is, we give you this attractive rate of return and you pay this reasonable insurace premium. In my case the overpriced premium more than brought the attractive rate of return down to bleh.
No amount of math could make my old man face this. They give you 7% You overpay for xyz. Apply a competive price for xyz, and take the overpayment as a charge to the attractive looking 7%, and you see its scrap... They give you 7% Lets try this again... Its basically a lottery system, a stupid tax. If 7 different variables line up, its a great deal. Just get enough term life that your family is taken care of, then save everything you can. Im 33. Its important at my age to get longer term coverage. Paying for a ten year policy at 33, and a ten year policy at 43 is much more expensive than locking in a 20 yr policy at 33. Most term life guys offer what they have. Most whole life guys sell the everloving crap out of what they have. The harder someone sells, the less likely i am to buy. |