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Or is it always best to get term life and invest the difference?
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It's never a good idea to buy whole life insurance. -
I don't agree with never.
If
a) you have a need for insurance and expect to be uninsurable in the future
b) the need for insurance does not go away
c) you have a high value of assets to protect or transfer
d) there are estate tax issues with c) you might want to get around
then some form of permanent insurance might be considered.
Remember its really a discussion of TERM vs PERMANENT insurance- whole life is just one of the many forms of permanent (the types would include whole life, universal life and 2 others I don't specifically remember names of).
Consider these situations for permanent life insurance:
1) age of one spouse is much different than age of other, and the younger spouse does not work or have the skills/ability to support themself. If the term policy expires, its possible the person carrying the coverage becomes too expensive to insure once policy lapses. If the older spouse has retirement income from a pension, this is another example where the insurance need is permanent to support the younger spouse which may not be able to claim survivorship on the pension.
2) Lock in low rates for long terms... for example if you buy a 20 year term policy, then ask what it would take to extend that policy to a 21st year... then compare that rate to some forms of permanent insurance, you will see that permanent insurance, over time, has a significant cost savings compared to extending an existing term policy.
An example here might be you have a 500k/20 year term policy. At year 5 you have a kid (15 years left) and at year 10 you buy a bigger house (10 years left) and at that time you also get a promotion.
You could cancel existing term policies, then purchase a new one- the costs to do this are low... or you could start with permanent insurance and you know you will always have it, regardless of what curves life throws at you.
3) The Parents are both highly successful professionals and earn 500k+ per year, are able to bank 20%+ of this money, and need a way to transfer money to kids when they pass. If they use gifts, there is an income tax associated with that... I am not an estate planner, but my guess is taxes would be comperable to income taxes, meaning 25%+ federal and 5%+ state... if you take out a permanent life insurance policy and fund that, you might be paying a 10% commission (much less than the taxes) and can transfer the money to kids free of estate taxes.
I do not sell insurance, these are examples I came up with to dispute the "never" comment of post #2.Last edited by jIM_Ohio; 03-29-2010, 08:43 AM.Comment
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One way to extend term is to reshop it every five years or just before a major rate hike age.Originally posted by jIM_Ohio View PostComment
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The purpose of insurance is to cover expenses/committments you've made if you die. It's not to enrich heirs. Don't incur expense just for idea of leaving someone something.
Whole life has a bad rap because it has earned one. Typically these "investments" have a low return and high fees compared to other investments.
You can get term for 10, 20 or 30 years depending on your health and age. If you are young, it's wise to buy more that you think you need right now to lock in for the long haul.
The time to get life insurance is when you are young and healthy. Also, that is when you need the security for your family. 50 and single? You don't need life insurance at all.
Insurance payouts are always tax free. You can also structure your estate to avoid/reduce tax liability for your heirs on your other assets. Usually transfers to a surviving spouse are just that - and tax free.Comment
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