Smart retirement or getting screwed?

[photo]

Originally Posted by Spiffster

Im still up in the air about WL, but treated as a savings account it doesnt sound all that bad to me.

But it isn't comparable at all. A savings account is 100% yours and most likely FDIC-insured. You can drain every penny from it, if you wish. You don't have to borrow against the account -- it's all yours.

Many people, when they are older, don't even carry life insurance. What life insurance is supposed to cover is the income and expenses that the deceased would have contributed to the household. If you're retired and bringing in no income, your spouse should have enough in savings to survive.

[photo]

Here's something I found:

Say a 40-year-old nonsmoking male has a choice between a $250,000 Met Life universal policy with a $3,000 annual premium and a same amount of renewable term coverage with a 20-year fixed premium of $350. At the end of one year, the universal policy, assuming it paid 5.7% per year, tax-deferred, would have a cash value of exactly zero (cash value is the amount you would get back if you canceled the policy). But say he had instead invested $2,650 (the difference between $3,000 and $350) in a no-load mutual fund that averaged a total return of 10% annually. At the end of the first year, he'd have $2,841, accounting for taxes on the earnings at a 28% rate. At the end of 10 years, he would have accumulated more than $46,000 in after-tax savings in the mutual fund. Over the same period, the cash value of the policy would have climbed only to $31,819.

Whole Life Insurance or Term? - SmartMoney.com

[disneysteve]

Originally Posted by Spiffster

Im still up in the air about WL, but treated as a savings account it doesnt sound all that bad to me.

And if I die at 90 my family should still get the 400K, is that correct?

Originally Posted by photo

Here's something I found:

Say a 40-year-old nonsmoking male has a choice between a $250,000 Met Life universal policy with a $3,000 annual premium and a same amount of renewable term coverage with a 20-year fixed premium of $350. At the end of one year, the universal policy, assuming it paid 5.7% per year, tax-deferred, would have a cash value of exactly zero (cash value is the amount you would get back if you canceled the policy). But say he had instead invested $2,650 (the difference between $3,000 and $350) in a no-load mutual fund that averaged a total return of 10% annually. At the end of the first year, he'd have $2,841, accounting for taxes on the earnings at a 28% rate. At the end of 10 years, he would have accumulated more than $46,000 in after-tax savings in the mutual fund. Over the same period, the cash value of the policy would have climbed only to $31,819.

Nice example, photo.

Spiffster, you are missing a couple of extremely important points.

1. You don't need whole life insurance because you don't need insurance for your entire life. As photo mentioned, when you get older, the need for insurance goes away. I am only 47 and I have already decreased the amount of insurance coverage I carry twice. Why? As our debts have been repaid and our personal savings have increased, the amount of insurance needed to take care of my family if I die has diminished. Also, our child is now nearly 16. When she was a newborn, I needed a lot more coverage to provide for her if I died. Now, she is close to adulthood and will soon be able to provide for herself.

2. And this is a HUGE factor that people just don't take into account. The salespeople make such a big deal about the cash value that accumulates in the account. What they never seem to mention is that that cash value doesn't belong to you. It belongs to the insurance company. When you die, your beneficiary gets the death benefit but does NOT get the cash value. The company keeps that. You could spend decades "investing" money with the insurance company and as soon as you die, that money is gone forever. If, however, you had bought term and invested your money in a traditional investment, even something as boring and low yielding as a money market account, upon your death, that money would belong to your heirs.

So whole life is NOT a savings account because once you put the money in there, it no longer belongs to you. It belongs to the insurance company. You can't get that money back. Yes, you can borrow it but if you die while a loan is outstanding, that amount gets deducted from the death benefit so the company gets it one way or the other.

Whole life is a tremendous rip off. I don't know how much clearer I could possibly be on this issue. I'm sure your father is a nice guy but on this matter he is absolutely wrong.

[Spiffster]

Originally Posted by disneysteve

Nice example, photo.

Spiffster, you are missing a couple of extremely important points.

1. You don't need whole life insurance because you don't need insurance for your entire life. As photo mentioned, when you get older, the need for insurance goes away. I am only 47 and I have already decreased the amount of insurance coverage I carry twice. Why? As our debts have been repaid and our personal savings have increased, the amount of insurance needed to take care of my family if I die has diminished. Also, our child is now nearly 16. When she was a newborn, I needed a lot more coverage to provide for her if I died. Now, she is close to adulthood and will soon be able to provide for herself.

2. And this is a HUGE factor that people just don't take into account. The salespeople make such a big deal about the cash value that accumulates in the account. What they never seem to mention is that that cash value doesn't belong to you. It belongs to the insurance company. When you die, your beneficiary gets the death benefit but does NOT get the cash value. The company keeps that. You could spend decades "investing" money with the insurance company and as soon as you die, that money is gone forever. If, however, you had bought term and invested your money in a traditional investment, even something as boring and low yielding as a money market account, upon your death, that money would belong to your heirs.

So whole life is NOT a savings account because once you put the money in there, it no longer belongs to you. It belongs to the insurance company. You can't get that money back. Yes, you can borrow it but if you die while a loan is outstanding, that amount gets deducted from the death benefit so the company gets it one way or the other.

Whole life is a tremendous rip off. I don't know how much clearer I could possibly be on this issue. I'm sure your father is a nice guy but on this matter he is absolutely wrong.

Hmm, well I may have to be more aggressive with the changes I plan on making... seems WL isnt the right way to go these days so I am now leaning towards getting rid of it entirely...

[snafu]

Spiffster: Your dad is to be respected but does he have the financial investment expertise you need? We are all learning to update our thinking and understanding of new financial products. You've asked for advice from respondents and are under no obligation to follow their suggestions or accept the reasons given. One option not yet mentioned would be meeting with a Certified Financial Planner who charges an hourly rate, as opposed to a product sales agent. CFPs can layout a long term plan based on a couple of probable scenarios.