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Originally Posted by savemoney
I see some of you say this is not an investment when you get whole life insurance and some of you say it is(like a college fund for a child)? Now I'm really confused. I guess what you'll are saying is that you can make money elsewhere with your money.
Thanks for the help.
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You need to read each post and realize there are answers to smaller questions inside them.
The whole life insurance is "clever" way to do some different things. It is NOT an investment. It has a cash value, but it is NOT an investment. If all you wanted to do was save money, there are much cheaper and profitable ways to do it.
But if you have specific needs, it might work to your benefit.
If I died tommorrow, I do not have enough cash saved for funeral expenses. So we decided to buy enough insurance to cover that.
If I died tommorrow, my wife's paycheck is not enough to pay the bills. We bought insurance to cover this gap in cash flow as well.
Will I die? Yes. Some people might suggest that time won't come soon enough, but I guarantee I will die. Therefore the funeral expense will definitely come, and we need this insurance our WHOLE LIFE.
Will my wife always need to supplement my income if I die? NO. As time goes on the mortgage is paid down (paid off), so the need for a high amount of insurance ends at age 48 or 49 (20 yr term policy expires)... the mortgage should be paid off at age 50.
Whole life insurance has many features and many types.
http://www.smartmoney.com/insurance/...story=lifeterm
http://www.mostchoice.com/life_insurance_vul.html
Whole life takes on many types
Universal (this is usually a fixed increase in cash value each year- and the insurance contract is written as though given ages have a given benefit). This would be considered "conservative", IMO.
Variable (This means the insurance contract will NOT guarantee any specific amount above what policy is for). There are two types of Variable Whole Life
"One demands a fixed premium payment. The other, variable-universal life, has a flexible premium like universal life. Remember, though, that variable returns can fluctuate with the financial markets. If the stock market takes a hefty dive, you may find the cash-value portion of your policy in the tank. Variable life is not appropriate for people who are on a tight budget or are likely to need to tap their savings on short notice. Many variable buyers would be better off buying term and making a separate investment in a mutual fund."
I have a variable universal life policy. The goal is a cash value greater than the 25k we insured for. This benefit comes tax free to my wife on death. If I need to transfer more wealth to my son, I could add more to this account, and pass that benefit to him on my death tax free.
I saw that I would be debt free and have significant savings around age 45-50. If I want to pass money to kids tax free, I believe I have that shelter now set up. It's expensive to do this and not for everyone. Not sure what I pay in fees on this policy (that was not important to me).
Funeral costs are covered for us, which was the goal. The side benefits of avoiding estate taxes did factor into the thought process.
In the situation of paying for a child's education, it is possible that one could buy a variable whole life policy for 60k (amount of eduication). If parent dies, this insurance policy pays for the education. If parent lives, the account has a cash value which can be used to fund the education.
One "savings" vehicle and the 60k would not be seen by financial aid process, either. The cost to do this might be $100/mo for 10 years. GUESSING at the payment.
If one were to buy term for 10 years (60k), maybe the cost is $10/mo. The question is can $90/mo for 10 years get you the 60k for kid if you live? My calculations suggest it comes way short (17k assuming 10% return). BIG question. The insurance might cost more... but not sure.