I realize these policies are inherently frowned upon by many.
Others feel like they have benefited them so this is not about whether to purchase or not.

The premium is paid once Year.

So at a point in the policy you meet your obligation to fund the policy. Say 15 years. At that point you do not need to continue to make the annual premium. Or the policy funds itself at that point.

In addition the policy produces a annual dividend which is added to the cash value of the policy.

Do I have this right?

A 15 pay whole life insurance policy (if even offered) would be extremely expense.

As for dividends it depends on if it's a mutual company or not and if it's a participating policy. Some companies only offer guaranteed cash values, others (participating/mutual) add to that dividends.

You will get a lot of people telling you to stay as far away from whole life as possible. The argument against it is that you can buy term only for the time until you retire then drop it when the need goes away (retirement). During your working years you can then take that difference in premium and invest it and possibly earn a better return over all.

I can't advise you one way or the other without a bunch of information you wouldn't want to post here. I'll leave that to others, I'm sure they will have plenty of soultions for you.

I had term from employer and whole life personally. All the whole life are self sustaining after many years. Probably do not need in my retirement but it is a great comfort for wife. Well off financially and do not need the funds anyway

quote:

Originally posted by Skins2881:


You will get a lot of people telling you to stay as far away from whole life as possible. The argument against it is that you can buy term only for the time until you retire then drop it when the need goes away (retirement). During your working years you can then take that difference in premium and invest it and possibly earn a better return over all.

.

Yes

Plus you can get WAY more term coverage for a lot less.

Got a 20 year level term policy through USAA $750k - for $45 per month.

Insurance is insurance. Investments are investments. Apples / Oranges.

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The other comments in this thread are spot-on. I will only add that for every policy you have or are thinking of buying, you will have an illustration that shows exactly how the policy grows over the years, including the point where the policy becomes "paid-up" at the illustrated rate of return.

I have had term, especially to cover mortgage. Whole life has different advantages, as well as the disadvantages above.

I am about to benefit from a large whole life policy started as a retirement vehicle. The details of the policy can be structured quite different, get clear advice. I'll draw all the cash value over 12 years as a nice supplement to retirement. The face value remains in effect even as I deplete the cash reserves. It's a benefit I planned for.

My examples are not for everyone, as they are all over 30 years old, they had time to grow cash value. This was for diversification not short term.

If you wish to leave a little something to the family your whole life beneficiaries do not pay tax on that benefit. What you leave them in a 401K for example will get taxed at Fed, State, and in some cases Local level. Taxes could be a disaster approaching 50%. The non-taxable death benefit is a offset to your rate of return if you compare to investing elsewhere. I will try to spend my retirement, and leave the kids the life insurance.

A whole life is two components inside. The insurance expense account and the savings account.

You pay a set amount into the policy for the life of the policy. In the beginning, the insurance expense is very small allowing more of the premium to go to the savings portion. Every year, the insurance expense rises so the portion going to the savings gets smaller and smaller. However, the savings account also earns interest. You get to a point when the insurance expense is higher than the premiums you pay. At that point, the savings account kicks in the shortfall and the value continues to grow because the Insurance expense is less than the sum of the premium paid and the interest earned by the savings account.

That's the real mechanics of what happened. The net result is the cash value of the policy. They can market how the cash value increases such as "annual dividends" and such. There are "mutual insurance companies" that do pay dividends to policy owners.

There are a lot of variables in permanent insurance. The policy you describe may support the ending of premium payments. The only way to know for sure it to request an In force Illustration from the insurance company. They can run them with multiple variations. I would suggest one showing the premiums stopped and one showing the premiums continuing. You need to know the projected effect of both scenarios to make a good decision. Ultimately the decision is going to come to "why" you have the policy.

Keep in mind that ALL insurance illustrations are HYPOTHETICAL and only prove that ink sticks to paper. If anything changes, and it will, the illustration is no longer accurate. I recommend my clients review an in force Illustration each year when we review their other investment accounts.

Thank you guys. This is all very helpful. I really appreciate it.