Whole life friend is getting on my nerves...

**Like2Plan** · 02-07-2012, 05:40 AM

I may have in imperfect understanding of whole life ins--but, this is what I understand:
I think the biggest drawback to whole life is the overhead--ie the commissions (sometimes really high commissions at the front end) which eat into any return on investment you might otherwise enjoy on a similar investment type.
Whole life costs more than term. If you buy the coverage you need and it turns out the premiums are too expensive to keep up with, you could end up canceling and it could leave you with very little "investment" (with surrender fees and higher commissions at the front end). Or, you may only be able to afford a policy with inadequate coverage.
It seems like smoke and mirrors to me.

**jpg7n16** · 02-07-2012, 08:15 AM

Originally posted by toemarks View Post

Can someone who is an advocate for term life insurance help me construct a simple but solid argument for why term life insurance is the better choice? What are the major faults with whole life insurance?

Yes. Of course you can. But will it help convince your friend of their errant ways?? Not likely.

What is insurance? It's a product that protects against adverse financial consequences
Is it to save for retirement? No. It's insurance.
Is it to build up an EF so you can borrow your own money in an emergency? No. It's insurance.
What is the purpose of life insurance? To protect your loved ones from lost income if you die.
What timeframe will you earn that income? Until you retire, not until you die.
So what timeframe do you need protection? Until you retire, not until you die.
Does someone age 85 have income they need to replace if they die? No. They should have retirement savings for income

So if you don't need insurance at 85, why would you want to pay for life insurance at 85?

Under what circumstances does a whole life policy make sense? only when the need for coverage literally lasts the entire life of the insured
- Estate liquidity for the super wealthy (this need never goes away)
- Business arrangements who need protection for the entire life of the owner (this need never goes away)

Or, if you're an advocate for whole life, I welcome your opinion as to why you believe it's better.

I'm not a whole life advocate - but I don't believe you

**humandraydel** · 02-07-2012, 02:19 PM

Originally posted by toemarks View Post

Hi-
Can someone who is an advocate for term life insurance help me construct a simple but solid argument for why term life insurance is the better choice? What are the major faults with whole life insurance?

Honestly? The simplest argument is: why do life insurance companies try to sell you whole life as opposed to term life? Because it makes THEM more money. Nothing in life is free, someone is always trying to sell you something!

Now, the NOT simple argument, is to do the full financial analysis on whole vs term. But if your friend isn't willing to study that, he isn't likely to change his mind anyway.

**frugalgirl** · 02-07-2012, 03:59 PM

We had one of these friends, too, who sold life insurance. We let him do his pitch to us. The facts:
1) The whole life insurance cost $10,000/year. The term insurance cost $600/year for the same coverage.
2) The whole life would accumulate a cash value. The break even point -- the point where the amount of money we put in would equal the cash value-- was 10 years! So, we would have to commit to investing $120,000 in whole life insurance over a 10 year period before we would even break even. If we missed a payment, we risked losing the policy and all of the money we had "invested". I am fairly certain that if I bought term insurance and invested the extra $9400 per year that I would have significantly more than $120,000 at the end of the 10 year period. Plus, I wouldn't lose all of my money if I couldn't make a "payment" one month. This is the most common argument against buying whole life insurance.

As a PP stated, there are people who need whole life insurance but very few people do. I have a friend with a disabled child. She and her husband both have whole life insurance so that their child will be provided for when they pass away.

**cschin4** · 02-08-2012, 04:50 AM

Insurance should be insurance and investments should be investments. Whole life combines the two. And, with Term you can get a very large policy which is the point of having insurance for much less money. Basically with term, you are "renting" the policy for a term. And, if you dont' use it , it expires. Whole life, more expensive, has some type of investment vehicle with it and usually you have that forever. But, i would choose to invest in my investments, not my life insurance company. As for convincing your friend, don't bother. You know what is right for you and that is it and your friend may choose something different. I have found you rarely ever convince anyone no matter how good your arguments. And, what may be right for you, isn't what he would choose so that is OK too.

**disneysteve** · 02-08-2012, 12:00 PM

There are many problems with whole life, many of which have already been mentioned, but here's the biggest. When you die, your beneficiary only gets the insurance benefit, not the cash value. So if you have a $100,000 policy, when you die, they pay out $100,000. It doesn't matter how much "cash value" has accumulated. That belongs to the insurance company, not the insured. In fact, if you've borrowed any of your cash value and you die, the death benefit is reduced by the amount of that outstanding loan. So that "investment" isn't really an investment as it doesn't belong to you.

Stay as far away from these things as you possibly can.

**sblatner** · 02-08-2012, 03:54 PM

Suze Orman hates whole life...I laugh every time someone tries to sell it to me or mentions it. We went to a college financial aid advisor and she mentioned whole life insurance and annuities. I couldn't get out of there fast enough. I know some of you probably don't like Suze but I think she is spot on with this subject.

**Robert742** · 02-08-2012, 07:50 PM

The biggest problem with whole life insurance is the opportunity cost; losing the higher returns from the stock market you may get from buying term and investing the difference. If your friend has double digit credit card debt, money is better spent paying down the debt than paying for whole life insurance.

However, this is not a black & white issue of term = "good," whole life = "bad." A lot depends on the money you have available, your risk tolerance, values, & desire for life long life insurance protection.

If your friend is shopping for whole life insurance, bring up the opportunity cost. There is plenty of information on the Web describing whole life horror stories of what can go wrong with whole life insurance.

State your case then leave it alone. I have a friend trading stocks with little knowledge of what he is doing. But he has been doing it for decades and insists he has never lost money. I wouldn't do what he does with stocks, but it's his money. Voicing my opinion about stock investing was hurting the friendship.

You need to accept your friend's money decisions.

**Robert742** · 02-08-2012, 07:56 PM

Originally posted by sblatner View Post

Suze Orman hates whole life...I laugh every time someone tries to sell it to me or mentions it. We went to a college financial aid advisor and she mentioned whole life insurance and annuities. I couldn't get out of there fast enough. I know some of you probably don't like Suze but I think she is spot on with this subject.

I heard Suze on NPR recently, and she is looking for a good whole life insurance policy for estate planning purposes. If you have Suze Orman's money, whole life might be good for you, too.

Whole life friend is getting on my nerves...