Whole Life Insurance

[disneysteve]

I don't know of any site where I can get an insurance quote without entering all my personal info. Does anyone know a site like that? I'm really curious now what the price difference is between term and whole life policies with similar death benefits.

[Runaway Finances]

I'll get you a quote from my insurance agent if you would like. I don't need personal information. Just pick an amount and give me an age. I'll assume you are as healthy as they come. I'll even do the spreadsheet for you and email it to you or post it on this forum if there is an avenue for that. Just give me the amount and age. It'll be fun! Not to mention educating for all of us. My agent sells for several companies and I'll just tell him to get me the cheapest term quote he can get and the best whole life policy he has available to him. Oh, I need a rate of return to assume. What do you want to use? In fact, this spreadsheet could be used by anyone to compare insurance coverages from any company. Someone tell me how to upload it to the forum if they know how. I've never looked to see how to do that.

[disneysteve]

I'm 45 and want $1 million in coverage. Make the term policy for 20 years. Non-smoker, no health problems, qualify for the best rates. Assume an 8% annual return on investments.

[Runaway Finances]

The challenge is on! I've emailed my agent. He just got back from a mission trip to Mexico so not sure how quick I'll get this back. It may take me a few days but hopefully this week I'll post the results.

[Runaway Finances]

I got the proposal for Term and a Variable Universal Life Policy. I had to use a variable policy because Steve wanted to assume an 8% rate of return. I built a spreadsheet in Excel so anyone can use it for future analysis. There are several assumptions I had to make. One is the rate of return to assume in the "invest the difference account" and in the cash value policy. I also had to assume a tax rate for both accounts. Gain on the cash surrender value is taxed at ordinary tax rates. If your invest the difference account is invested in stocks then that gain would be considered capital gain. However, you would have to hold the investment more than 1 year to get long term capital gain rates. I assumed that account was taxed at 15%. I also assumed that the ordinary tax rate was 28%. The Term premium was $1855/yr. and the Variable WL policy preimum was $14,160/yr. The term premium was guaranteed for 20 years, so I assumed the other policy was paid for 20 years too. The spreadsheet takes a picture at the end of each year and assumes both policies are terminated and taxes are paid. IF you can earn 8% in both accounts then you are better off buying Term and investing the difference. The scenario changes away from Term the lower the rate of return you assume and the lower the tax bracket you are in. By the way, the term premium in year 21 jumps to $42,335 from $1855. So you better be sure you won't need the coverage.

If I drop the rate of return to 6% then the breakeven was at 12 years. BUT, that was still using the 8% Whole Life return. So, that is not a fair comparison, but I thought it was interesting to see how much difference only 2% makes.

Assumed tax rates make a difference too but not near as much as investment rates of returns. So, there are a lot of variables that must be plugged in to determine which is better for you. I'll be glad to share the spreadsheet if there is a way to upload it to this site. Then you can plug in your own numbers.

[DeniseM]

If you are still set on whole lofe insurance, make sure you are aware of all the ins and outs involved with the policy and the cash value component. Whole or Permanent insurance operates differently from term life insurance. The premiums are always larger - often five to 10 times the size. The reason that premiums on a permanent policy are more than the actual cost of the policy is that a portion of that premium goes into a savings component known as the policy's "cash value." At the beginning, the cash value is very low because much of the early premiums go towards sales charges and agent's commissions. But as time passes, the cash value accumulates and the insurer can pay the policyholder depending on the dividends or interest agreed upon.

At the point of redemption, depending on the type of policy you have taken, the cash value is either surrendered to the insurance company or included in your death benefits. But the savings portion of your permanent life insurance policy is more than just a way to increase your death benefits. The main advantage is that you have access to this money at any time during your life allowing you to cover any expenses that you otherwise might not have been able to afford.

You can use the cash value component of your policy by requesting a low interest rate loan from your insurance company and use the cash-value account as a guarantee or by surrendering the cash value portion (completely or partially).

Another perk of permanent life insurance policies is that they enjoy favorable tax treatment. You pay no taxes on any earnings in the policy as long as the policy remains active. Money can also be withdrawn from the policy without being subject to taxes as such loans are not considered taxable income.

Denise AccuQuote
Disclaimer: I work for AccuQuote and this is my personal opinion.

[InsuranceGuy]

Originally Posted by arthurb999

Couldn't you just invest in the same things the whole life invests and come out better becasue of lower expenses?

What would you recommmend?