Life insurance as an investment?

[JBRIGHT]

I’m a 23 year old, non-smoking, healthy. I’d like to purchase life insurance so that if anything every happens to me, my Dad(who I’d have as my primary beneficiary) would have enough to pay funeral expenses and have extra money to live on.

[jIM_Ohio]

If you don't support your father now, why would you need to support him if you are gone?

[TheStreetCeo]

Life insurance is not an investment. It's there to cover a need in the event of your untimely death. If you want to have something for him if you die and don't have an emergency fund, do that. If you have a few grand in there and then die for some crazy reason he can use that. Otherwise wait to buy life insurance for when you have a family.

[disneysteve]

Originally Posted by JBRIGHT

I’m a 23 year old, non-smoking, healthy. I’d like to purchase life insurance so that if anything every happens to me, my Dad(who I’d have as my primary beneficiary) would have enough to pay funeral expenses and have extra money to live on.

Do you currently financially support your father? If so, then this certainly makes sense since he would suffer if you were to die prematurely.

If you do not support your father, there is no reason to have coverage that would pay him a windfall upon your death.

As for funeral expenses, save up an emergency fund that can be used for that purpose. Your father should have his own emergency fund which could also be used for that.

[rubyclifton]

Its really good that you care so much about your Dad. I would advise you to cheer up, and not think so negatively. However if you do want to invest, you can go in for Term Policies. They will give you sufficient assured returns to take care of yourself(may you live long) as well as your Dad.

[disneysteve]

Originally Posted by JBRIGHT

my Dad(who I’d have as my primary beneficiary) would have enough to pay funeral expenses and have extra money to live on.

Originally Posted by DeniseM

Most people who have replied to this thread have got it wrong. You are doing the right thing by not letting your dad take on the financial burden of funding your final expenses.

Denise, it isn't the part about covering funeral expenses that we are questioning. It is the part I bolded. Why does he need to leave his father "extra money to live on" unless his father is currently dependent on him?

The purpose of life insurance, IMO, is not to pay a windfall to someone just for the heck of it. Insurance is to replace lost income that someone needs to live. If I die, my wife and daughter couldn't get by without my income so I have insurance to provide for them. If the OP currently supports his father financially, then he should have insurance to cover that upon his death. If he does not currently support his father, there is no need to do so.

[Ashleywatson]

Life insurance is often used as an investment for retirement planning. Basic life insurance can be divided into two general categories, term insurance and whole life insurance. When you buy term insurance, you pay premiums in exchange for a death benefit over a specified period of time. This is the least expensive type of life insurance. Because the death benefit is all that you get with term insurance, it's never sold as an investment

[meowsiang5]

Originally Posted by Ashleywatson

Life insurance is often used as an investment for retirement planning. Basic life insurance can be divided into two general categories, term insurance and whole life insurance. When you buy term insurance, you pay premiums in exchange for a death benefit over a specified period of time. This is the least expensive type of life insurance. Because the death benefit is all that you get with term insurance, it's never sold as an investment

Hi Ashley,
What about for retirement planning. I'm in the same position as JBRIGHT; I'm 23 and live a healthy lifestyle. I have older parents who are not currently dependent on me but within the next 10 years may become finincially dependent on me. How would it benefit me through the years as well as in old age and death? From what you've said so far it's also more expensive, least initially I'm assuming.

[disneysteve]

Originally Posted by Ashleywatson

Life insurance is often used as an investment for retirement planning.

While that might be true, it is a lousy idea. Insurance should NEVER be used as an investment. The costs and fees make it a really bad investment. Buy term insurance and keep your investment money separate.

[Seeker]

There's an awful lot of misrepresentation going on currently about retirement and how you should fund it. I agree 100% with DS assessment... insurance and annuities are not in any way, shape, or form, for the majority of people out there.

When you're young, you have no business buying such a plan; it only costs money and lines the pockets of the salespeople. At a young age, you never know what the future holds.

Read about Annuities & Insurances at the below website.
Guarding Your Wealth

There are mainy financial articles on these issues that lay out the reasons for not going with these avenues of "investing."

Always read the contracts, know that what a salesperson says may have been misrepresented to them as well. Unless you read and understand, DO NOT GET INVOLVED WITH THESE TYPE OF "INVESTMENTS." You'll probably regret it later on.

[whitewater30]

Life insurance is not really an investment, but more to protect your household income should you die. I'd go with a 20 year term policy worth 7-10 times your annual income. You could probrably get such a policy for $200-$300 per year, assuming you are supporting your father and/or other family members.

[dczech09]

Life insurance is "sold" not "purchased." When you look at it this way, it makes sense. The agent always makes more money on permanent life, so it is sold the most. What people do not realize is that permanent life (whole, variable, universal, VUL) policies are best used in estate planning where a lump sum premium can be afforded. When it comes to insurance coverage that is being sought, term is the way to go. Why would you invest in an insurance policy? The only thing that is worse than investing in a policy on YOUR life is to invest in a policy on someone elses life (viaticals).

[asmom]

I'm going to disagree slightly. OP is young and healthy and he could get a term life insurance for the nominal amount of $10,000 for pennies. I'm 40 with a history of hypertension and I only pay ~$5 a month for 100K of life insurance. He can get a cheap policy now and continue to build his EF and once he has enough, then stop the coverage at least until he has a family. It should not be a windfall for his Dad.

I think making sure he has enough to pay for a burial is the right thing to do, especially if it will take him a while to save up the 10K. It is not fair to expect his Dad to pay for it or use his emergency funds.

[asmom]

Originally Posted by disneysteve

The purpose of life insurance, IMO, is not to pay a windfall to someone just for the heck of it. Insurance is to replace lost income that someone needs to live.

It's funny you say that. I work with a woman who along with her sister are splitting the cost of life insurance on their mother so that when she dies, they will be able to take 6 months or a year off from work to "grieve". She tells me this with a straight face so she thinks it's quite a natural thing to do. It sounds like they are trying to make a buck off Mom's demise. The lady's only 73 so she could live for another 15 years easily OR one of them could die first, it does happen. The hook is that because of her age and her history of diabetes, it is costing them each about $150 a month. Now what if they just saved/invested that money for 15 years? Their brains don't even think that way, lol......

[frugalgirl]

Two comments:

1. My husband and I just went through a financial review with a "financial advisor" who turned out to be an insurance salesman. He was pressing us full force to buy a whole life policy on my husband. In order to afford this very expensive whole life policy, he suggested that we refinance our mortgage from 3 years left on it back to a 30 year mortgage AND stop contributing to our 401k. We could tap into the "cash value" of the whole life anytime but the time it took for the actual cash value to equal the amount we paid in took 10 YEARS! The term policies we currently have cost at least twenty times LESS than the whole life policy he wanted us to buy. Interestingly, after we declined to purchase this policy, this advisor "broke-up" with us via email saying that he just couldn't keep us on as clients because we were endangering our future by not refinancing our mortgage, and diverting our 401k savings to a whole life policy. He tried to convince us that the overwhelming majority of financially savvy folks who would never invest in whole life insurance were all wrong and he was right.

2. My husband was diagnosed with cancer at a young age. Thank God we had plenty of term life insurance not only because of the seriousness of the disease but, he will be unable to even get more life insurance until he has been cancer-free for 5 years. As many PP have already pointed out, if you have others depending on your income, get a good guaranteed-term policy.

[disneysteve]

Originally Posted by frugalgirl

My husband and I just went through a financial review with a "financial advisor" who turned out to be an insurance salesman. He was pressing us full force to buy a whole life policy on my husband. In order to afford this very expensive whole life policy, he suggested that we refinance our mortgage from 3 years left on it back to a 30 year mortgage AND stop contributing to our 401k.

I would not hesitate to report this guy to your state's division of banking and insurance. What he is doing is illegal. Misrepresenting insurance products as investments is not allowed. It continues to go on every day but not generally to the extreme like in this case.

Years ago when I was young and stupid (weren't we all), I bought a whole life policy. In about 2 years, when I wised up and realized what a mistake I had made, I cancelled the policy and replaced it with low cost term coverage. A couple of years later, I got a court notice that there was a class action suit against the insurance company (one of the big name companies) for misrepresenting those policies as investments, which was exactly what had happened with me. The case ended up being settled and I received a nice check reimbursing me for all I had paid in in premiums. From all I hear, though, the insurance companies haven't changed their tactics one bit since then.

[frugalgirl]

Originally Posted by disneysteve

I would not hesitate to report this guy to your state's division of banking and insurance. What he is doing is illegal. Misrepresenting insurance products as investments is not allowed. It continues to go on every day but not generally to the extreme like in this case.

Well, he definitely told us we needed to have more life insurance so we knew that we were being offered life insurance. He also pointed out how getting it would benefit us. He did this by using the LEAP system (leap = lifetime economic acceleration process) to show how this is a good idea. He used the LEAP software package to analyze how much insurance we needed. Because the analysis showed that we needed to have more insurance, he used this as a way to show how whole life insurance could serve several purposes: providing the extra insurance we needed now plus providing guaranteed tax deferred cash value that we could use in our retirement. I am not familiar with the laws but I doubt he actually did anything wrong. I will check into it more though. Bottom line: I would stay away from anyone who is a LEAP advocate.

Despite the fancy LEAP software, we were smart enough to realize that we did not need any more insurance and we certainly did not want to refinance a mortgage with 2.5 years left to one with 30 years AND put all of our 401k money into a whole life insurance policy!

[disneysteve]

Originally Posted by frugalgirl

I am not familiar with the laws but I doubt he actually did anything wrong. I will check into it more though. Bottom line: I would stay away from anyone who is a LEAP advocate.

He may not have actually violated the law, but telling a potential client to refinance their house and stop funding their retirement to buy an insurance policy is clearly inappropriate. If it were me, I'd probably file a complaint with the insurance board. Even within the industry, they don't want bozos like that out there. That's what gives the whole field a bad reputation.

[financebanter]

It's really good that you are concern about your father. If you really want to help him, then support him. I will suggest you to cheer up and be positive.

[Aleta]

Many years ago, I encouraged my Mom to set aside enough for a CD. I think it was $8,000. instead of buying a policy for $10,000. which was going to cost her a lot more than what she would have earned on the money she had in a money market. She just had a 1 year CD and allowed it to renew automatically at the new rate. At the time, the rates were higher. A few years ago when her health declined, the CD was cashed and she pre-paid her funeral and plot expenses. She passed away in December of 2009 and that decision turned out to be a very good one.

Her CD in the end kept her from qualifying for certain benefits so it was better for her in the end to just make her will, and pre-pay her expenses.