Figuring out whole life insurance

Question: I live with my girlfriend of 4 years. We plan on getting married and rent. Combined we have$18,000 in savings and no credit card debt... She also has a couple term life insurance policies. I have none. I understand term but I don't fully get the whole life product. Family friend is trying to sell me some. I know the premium is higher and I can get tax free money later that is deducted from the value of the policy. I understand the money is tax free because the company treats it as a loan. I assume this would be like a standard loan with fees and/or interest attached. When I bring this to the salesman, he says not to worry because I don't "intend" to pay anything back. To me that doesn't mean myself or my estate would not be penalized. How exactly does this work? All my internet research ends up with ads for Metlife or NYlife. Josh, Chicago, IL

Answer: My advice is simple: Don't buy the whole life policy. A good rule of thumb is to never purchase any financial product you don't understand yourself. Don't buy a whole life policy until you and your partner are sure it's the right product for your financial needs.

Now, for some details: The main reason to own life insurance is to financially protect a loved one from your untimely death. I like term life insurance for most people because term is a pure death benefit. Premiums are cheap if you're in good health, although the cost of the policy increases as you get older. It's a simple, plain vanilla product. (Thank you Elizabeth Warren for the descriptive phase.)

Permanent or "cash value" insurance comes with a tax-sheltered savings component, as well as life insurance. The investment returns are difficult to analyze. Types of policies include whole life, universal life, variable life and variable-universal. You can borrow against these policies., but the terms and rules of borrowing vary. But like any other oan you pay back the money. (If you don't it reduces the value of the death benefit, which can defeat the purpose of owning the policy.) These policies are more expensive, with steeper fees and commission costs.

Don't get me wrong, cash value insurance makes sense for some people, especially anyone with sophisticated estate-planning needs. The book is dated, but to help you learn more about whole life I would look at Smarter Insurance Solutions by Janet Bamford (Bloomberg Press). It's dated, but it still has one of the better discussions of term insurance and cash value insurance (including whole life). I also like the writing of Glenn Daily at Glenndaily.com. He's a fee only insurance consultant. His writing are dense, but he knows what he's talking about.

By the way, you mentioned that your partner has several term policies. How much life insurance will you really need when you get married? Here's one way to think through the question. You should each have enough life insurance so that if one of you dies the other doesn't have to worry about money for a period of time. The survivor can take a year or more--you decide--to deal with their grief, without worrying about earning an income, paying down debts or draining the savings account. If you do end up having children you can always add more insurance coverage at that time.

About the author

Chris Farrell is the economics editor of Marketplace Money.
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Blech, since when did the comments section become a forum for sales people?

I agree. If you dont understand the product dont buy it. But I think the problem is your agent. You have to have confidence in who you are dealing with. You have to believe that they know what theyre talking about. Did you talk to other qualified life insurance agents?
If youre ever in Maplewood NJ Integrity Life Solutions (www.integritylifesolutionsllc.com) is a company that can help you
Make sure youre dealing with the right people

Christ, read care fully.

1. Go for whole life, again "whole life" no universal nor variable universal, and with a AAA rated Mutual insurance company, that has been paying dividend more than 100 years, with an option that you could pay off early, because you don't want to pay till you die.

2. I will guarantee you will not find an investment as unique as this one. Why?

3. Let me tell you why:
-Guaranteed death benefit
-Guaranteed level premium
-Guaranteed cash value
-Guaranteed paid off
-Guaranteed interest rate
-Guaranteed to increase every single year
(no matter how bad the market is)
-Tax free death benefit
-Tax deferred grow
-Tax free loan
-self complete if you were to become disable
(with disability waver of premium)
-eligible for dividends
-dividends could buy more paid up insurance
-more paid insurance means more guaranteed cash value
-Death benefit will grow along with the cash value
-Cash value could exceed the guaranteed death benefit

Now Chris, if you could find an investment that could match all of this features let me know, because I really want to see it. But I will guarantee you can't find one.

One more thing this only works for people that is under 50 and healthy.

email me if you have any more question.


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