20-year Term Life Insurance, Got His $3,000 Cash-back, Is It True?
Posted July 17, 2009 – 4:23 am in: term life insurancewhich policy is better, whole or term. is this a good way of investing money? not sure..
Tags: $3000, 20year, Cashback, Insurance, Life, Term, True
6 Comments
Life insurance is not a good way to invest. It’s a good way to provide for your family if you die.
The only person who recommends life insurance as an investment is a life insurance salesman.
“Life insurance is not a good way to invest. It’s a good way to provide for your family if you die.
The only person who recommends life insurance as an investment is a life insurance salesman.”
Typical answer from someone who is using a blanket statement for a type of product. Is life insurance a good investment? SOMETIMES, for the right person and situation it is a very good investment for people. If they are healthy and are maxing out their retirement plans, they can over fund certain policies to build cash value with the same tax efficiencies as long term tax deferred plans. As to which policy is better term or perm, that depends what you need the insurance for. Term would be recommended for mortgage protection, self-completing education planning or just covering your heirs until they are of a certain age where you don’t think they will need protection anymore. Permanent is mostly used for protection purposes; income replacement, estate purposes, leaving something to your beneficiaries, etc. You should sit down with a non-biased adviser and have a conversation on what would be best for YOUR situation since it varies case by case and without knowing your situation, whatever anyone tells you here is worthless.
Generally, you purchase life insurance because, well, you’re insuring your life (or, more accurately, your potential lifetime earnings – “life value” it’s sometime called). Life insurance is not usually considered a very good investment, though there are some occasions when it may be used as such (often in business settings, as a form of deferred compensation, etc.).
Unless there’s some compelling reason to do differently, buy a cheap, level term life policy (probably with a 20 or 30 year level premium) and, if your disciplined enough, “save” the additional money you would have spent on the whole life plan.
If you’d like more help for your specific situation, see below…
If you’re asking about a 20 year return of premium term policy, then yes for some people it can equate to about a 5-7% tax free rate of return on the additional premium over standard term insurance. It doesn’t always make sense, but if it’s in that range it should be considered a no-brainer.
As a rule of thumb if you make less than $100-$150k then a whole life insurance policy (except for maybe a burial policy – small amount) is probably not for you.
The person who stated that life insurance is a less than efficient investment vehicle had it mostly correct. There are life policies that function like an investment, they are called variable life products. These products actually are investments where your premiums go towards the purchase of stocks and bonds.
Traditional whole life policies are fantastic in a couple of respects, while they also have their down sides. The real benefit of this type of policy is that you will have a level premium for the life of the product, and they do accumulate cash value that you can cash in, or take a loan against down the road at a low interest rate. The down side though is that this type of product does cost more.
Term life insurance, while significantly less costly than whole life, only provides level premiums for a defined duration. Following the set time limit, usually 10, 20 or 30 years, the premiums skyrocket and become unaffordable to most people. You can certainly buy a lot more insurance for less money, but if you live longer than the 30 years your are covered for, you are suddenly left without protection.
There is also a newer policy type that would help term life insurance act like an investment as well. This is known as term with return on premium. The way that this works is you would set up a term policy for 20 or 30 years, and if you do not die during that time, you would reveive back all of the standard premium that you put into the policy. So, if your premiums totalled $500, and it was a 20 year term with return on premium, after 20 years you would receive a check for $10,000. If you die during the 20 years, your beneficiary would receive the policy death benefit.
The best bet is to find a combination of products that works for you. Most people will need to sit down and look at their total need, and identify what parts of that need will run out (i.e. home mortgage, student loans, credit debt) and buy term insurance for this part of the need. Most people will also want to ensure that they have some money for burial expenses, income replacement, and emergency fund. This is the portion that will not go away as time goes on, but might only increase, and thus is more appropriate to cover with whole life insurance.
Anyone who tells you that whole life is a bad buy no matter what either has no idea what they are talking about, or they simply don’t understand the product.
My best suggestion is either to look into providing for your family with a mix of products, and continue to invest in the 401k/IRA as this will best serve you for income once in retirement, or purchase the same mix of life products that I discussed and an annuity product that works like a 401k/IRA.
If you would like greater detail on any of the products I mentioned (as there are far too many available to list them all here), I would be happy to help.
Term is for specific time frame that builds no cash value. Whole life builds cash value and their are a few good policys that build cash value better then you can get on a return in the stock market right now. you can borrow against your whole life policy. Stay away from a Unversal life insurance policy. You build no cash value in term, however you can get policy’s with a return of premium which means you get every dollar you pay into it back at the end of the term.
If you have any questions feel free to contact me at 800-457-5518 Stacy with Western & Southern Financial