life insurance

[blueMD]

So Ive been reading a bit about life insurance lately and was wondering if I could get some opinions as to how much, is it needed, what kind of insurance should i get if i do indeed get one. im a starting resident and have fortunately had some time to read up on this. any suggestions would be appreciated.

fyi, ive been looking at variable appreciable life insurance but ive a read a few articles by "experts" saying they recommend fixed life insurance. whats ur take?

thanks for all the great posts and comments.

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[The White Coat Investor]

"How much" depends on your personal circumstances, e.g. spouse, children, other financial obligations?

Which type is easier for almost all young docs DO NOT REPEAT DO NOT buy cash value life insurance, i.e., variable, universal, whole or any combination of the above. For the typical young resident or recent residency grad most would be best served by level premium term insurance 10 or 20 or 30 years depending oncircumstances. I took out a 20 year term policy when my first child wqs born 1 year out of residency in my early 30s. I expect to be self insured, or nearly so, when the 20 years are up.

I agree wholeheartedly with this advice.

Buy $2 Million dollars of a 30 year level term policy. You might consider looking here to compare rates: termlife4sale.com

 

[schwab]

So Ive been reading a bit about life insurance lately and was wondering if I could get some opinions as to how much, is it needed, what kind of insurance should i get if i do indeed get one. im a starting resident and have fortunately had some time to read up on this. any suggestions would be appreciated.

As others have stated, if you do get life insurance, stick with term life insurance. Life Insurance, as with all insurance, is a bet you're making with an insurance company that something bad will happen (in this case, that you're going to die.. with liability car insurance, it's the bet that you're going to get in a wreck and cause some damage to someone else's vehicle). You're putting up your money stating that the bad thing will happen (although hoping it won't..) while the insurance company is putting up a lot more money betting that it won't happen. The odds are on their side.

That said, insurance isn't an investment - you don't want to profit from any of the above mentioned events. You want to simply ensure that if they do happen, those that need the money are able to get it to make things right. Term insurance is one way to get the most bang for your buck while not purchasing insurance that is also an investment.

Ok, now the real question - do you need life insurance? First, do you already have some through your employer? I assume that most residency programs have some basic life insurance as a benefit (my fiancee's residency program does, anyway). My job provides 1x my salary in life insurance, for example, so you may already have the same.

Once you know how much insurance you have already - ask yourself this question: If I were to die, how much money would my loved ones need to sustain their lives?

Are you single with no dependents? If so - probably not more than what the life insurance through your employer provides. A couple dozen grand should be enough to pay any outstanding debts you may have or pay your mortgage while your home is sold, etc.

If you're married with a stay-at-home spouse and two small kids, however, they'll likely need a large amount of cash to maintain any semblence of a "normal" lifestyle without you (money for babysitters/day-care while your spouse works, money for a vehicle to haul the kids around, money for their educations, etc.).

Now that I typed all that out, it seems really morbid..

Anyway, good luck with your decision

 

[nontrdgsbuiucmd]

I was (years ago) licensed in life & life products for years, whole, term, universal, annuities, et cetera.

My take was that there is a place for life insurance, it'll cost 10K or so for a funeral alone a friend's relative died with no insurance and family members had to run up their credit cards to pay for the funeral.

If one's employer offers it, that is one possibility. The danger is if one is in a terminal illness that prevents one from working for some time and they lose benefits. For me personally (with a family) the best option is a small chunk of universal life and a larger amount of term. My thought on the term would be that it should be sufficient to cover whatever's needed, in my case, until kids are done with college; presumably after that we'll have enough saved to not need it.

The thought behind the universal life is that it can grow tax deferred - I can overfund the product (put in more then the minimum -- part of what's in the account pays the "mortality expense", the rest sits sits in a subaccount, direct which "subaccount" the money is invested in (basically the same as a mutual fund account), and borrow against this value if need be, thereby borrowing money that has grown in value, from myself, without paying taxes on the increase in value. This part (universal) is pricey, so I've got maybe 200K or so in this type of policy, whereas 500K or 1M term life insurance is dirt cheap; I'd go 20 year term as typically the rate stays the same for the full term. There used to be a site "quotesmith.com" which I think is now "insure.com" that offered quotes from a bunch of big life insurance companies, check that out for prices.

 

[foil]

Do not become worth more dead than alive,
get enough coverage to pay off the house , bills and burial.
After that, she can work.

 

[mededu]

It would really depend on your financial situation, if you can afford to have "fixed life insurance"

 

[nontrdgsbuiucmd]

It would really depend on your financial situation, if you can afford to have "fixed life insurance"

I guess,

but if your situation (as an example) was that you're male, born in 1976, 6' nonsmoker weight 185 lbs, you'd pay $40 per month for a 20 year fixed price per month $1 Million term policy, per insure.com

In my situation as a parent with kids, this is something important enough to me to have this type of protection for them.

(I have no ties to this web site company, but they've got a decent site that I used to use as a reality check when I worked in this area years ago.)

My family looked a lot more carefully at this after a death in the immediate family of a younger family member who had young children.

 

[Mcarlson005]

It seem like you have a common problem but take a look at two points to consider. Life insurance costs more as you get older and where are you going to be inside of ten years.
Take care of your immediate needs with a ten year term insurance policy. A reputable insurance company will allow for conversions to a permenent policy at a later time. You sound like within ten years you will be doing very well. So take a ten year term to take of the immediate needs and go high. Cover your costs and if you end up being married you will have enough to allow your spouse to continue on.

Why anyone would want to be self-insured just does not make sense. Why would I force myself to save enough money to take care of myself if something happens to me when I can pass this risk on to the insurance company and pay 1/10 the cost.

Here is what is going to happen in about ten years if you are a successful doctor. You are going to have a large amount of discretionary income. You will open up a retirement account but the problem is you will only be able to invest a small portion of your income. Ok, so you put more into the market.

Now you put some in conservative investments and high risk and you have a nice portfolio. But, you also have a tax problem. Especially when you retire. So, why not take a portion of your income and put it into a SLIRP.

This will allow for you to have a death benefit, an account that grows tax deferred that you will be able to draw off without penalty and tax free, and if you are no longer able to be a doctor, the insurance company will pay your premium. So you end up with money if you live, money if you die and money if you become disabled.

But in the end you end up with a few buckets of money. You will money in the market, money in an IRA, money in a SLIRP, and you will then have money in ultra conservative accounts like a CD.

This is what being balanced is so that when you retire you end up with different places to pull your money so that if you retire in a market like this you don't find yourself being 70 years old working as a janitor because you lost all your money in the market.

Now all the investment guys are going to say a SLIRP will have fees, well everything has fees. Also, ask them what they sell and they will tell you they sell the market. The very place they want to put you. They earn the management fees. Well, so does an insurance company. So it balances out. However, The insurance company can give you a tax-free income when you live and it can give you a tax free distribution if you die... By the way, money inside an insurance policy can also be protected against creditors. You would have to check with your state but that can be huge when you talk about all the lawsuits that take place.
So remember, when all is said and done... You will have money in basically 4-5 different places each with varying risk objectives and make sure the insurance is enough to accomplish what you want. Not what someone thinks it should be.
You don't want your wife to ever work again, then go high, you don't care if she works or not then go lower. If you are not going to keep the house, then only factor enough money to cover the approximate time to pay the mortgage until the house sells. ... Lots of things go into it... Good luck in your career.

 

[dragonfly99]

Agree with Schwab.
As an aside, I'd like to mention that most all residency programs I have either been associated with, or known of, do have life insurance that is free. However, this is usually just $50,000 x one if you die. However, all the places I have trained have had an additional add-on policy that you could buy into if you wanted to...I think at my last program it was an extra $10 or $20 a month. I don't remember how much it paid off if you died (I think $500,000 or 1,000,000 but I'm really not sure). If you are single with no dependents, think about whether you need more than the basic insurance provided by your residency program. If you have kids, I would do it for sure. Before you go off and buy your own policy, you might want to check and see what is available at your residency program...you could ask the GME office.

 

[The White Coat Investor]

It seem like you have a common problem but take a look at two points to consider. Life insurance costs more as you get older and where are you going to be inside of ten years.
Take care of your immediate needs with a ten year term insurance policy. A reputable insurance company will allow for conversions to a permenent policy at a later time. You sound like within ten years you will be doing very well. So take a ten year term to take of the immediate needs and go high. Cover your costs and if you end up being married you will have enough to allow your spouse to continue on.

Why anyone would want to be self-insured just does not make sense. Why would I force myself to save enough money to take care of myself if something happens to me when I can pass this risk on to the insurance company and pay 1/10 the cost.

Here is what is going to happen in about ten years if you are a successful doctor. You are going to have a large amount of discretionary income. You will open up a retirement account but the problem is you will only be able to invest a small portion of your income. Ok, so you put more into the market.

Now you put some in conservative investments and high risk and you have a nice portfolio. But, you also have a tax problem. Especially when you retire. So, why not take a portion of your income and put it into a SLIRP.

This will allow for you to have a death benefit, an account that grows tax deferred that you will be able to draw off without penalty and tax free, and if you are no longer able to be a doctor, the insurance company will pay your premium. So you end up with money if you live, money if you die and money if you become disabled.

But in the end you end up with a few buckets of money. You will money in the market, money in an IRA, money in a SLIRP, and you will then have money in ultra conservative accounts like a CD.

This is what being balanced is so that when you retire you end up with different places to pull your money so that if you retire in a market like this you don't find yourself being 70 years old working as a janitor because you lost all your money in the market.

Now all the investment guys are going to say a SLIRP will have fees, well everything has fees. Also, ask them what they sell and they will tell you they sell the market. The very place they want to put you. They earn the management fees. Well, so does an insurance company. So it balances out. However, The insurance company can give you a tax-free income when you live and it can give you a tax free distribution if you die... By the way, money inside an insurance policy can also be protected against creditors. You would have to check with your state but that can be huge when you talk about all the lawsuits that take place.
So remember, when all is said and done... You will have money in basically 4-5 different places each with varying risk objectives and make sure the insurance is enough to accomplish what you want. Not what someone thinks it should be.
You don't want your wife to ever work again, then go high, you don't care if she works or not then go lower. If you are not going to keep the house, then only factor enough money to cover the approximate time to pay the mortgage until the house sells. ... Lots of things go into it... Good luck in your career.

Might I ask your occupation? I'd give 3:1 odds part of your job is selling cash value life insurance.

 

[nontrdgsbuiucmd]

Might I ask your occupation? I'd give 3:1 odds part of your job is selling cash value life insurance.

the post above pretty much made sense -- again as a former ins. person (who almost never sold life stuff, as generally I would not have bought it myself)

My counterpoints would be:

-if you want "protection", go with term life insurance. I prefer 20 yrs as by then I'm 10 yrs out of med training, kids have graduated college. By then, I would rather self-insure. (i.e. not pay ins. company fees required for them to take the risk of a payout if I kick the bucket)

-check state laws, but I believe that every state requires that a policy holder be able to convert a term policy into a permanent policy. As you age, this gets more expensive on a yearly basis (the annual premium for permanent is age and health based). This may be a reason to consider 20 year term versus 10 year term, as term policies have a fixed annual rate.

-if you want to invest, look at the fees for different options. Realistically, run this by an investment adviser that you pay hourly (not commission based) if you'd like the best advice. It'd be quite a complicated scenario to look at market returns, annual, (and front end and backend) fees on the various life insurance subaccounts versus non-life insurance mutual funds (index funds have well under 1% annual fees versus much higher life insurance, market oriented account fees)

As your nest egg grows, get a professional advisor. Depending on your state, a trust may be a good idea to shield assest if you're sued for med-mal, maybe some type of foundation to fund charitable donations, trust fund for kids possibly..rules on these things are too complicated for a physician to keep up with; at that point, a private client services banker type probably should be consulted. For me, that'd probably be after hitting around 500K or so net worth.

 

[KYTNOH]

My wife and I just bought 20 year term insurance. My policy was for 1 million and her's was for $500,000. We pay a combined $110/month. It would have been probably $60 or $70/month, but my trigs were high and my total cholesterol was 180-something and she has inflammatory bowel.

I was trying to buy enough to cover expenses for an average lifestyle for a physicians 10 years or so into practice. The benefit of doing it now is that premiums will be locked in for a 25 year old for those 20 years.

 

[drguy22]

my parents purchased a whole life insurance policy for me when i was like 18 yo, when the premium was pretty low ( i think i pay 1200/yr for 200K) and dont change as you age. By the time im 40, the dividends itself will continue to pay for the policy and will build cash value to withdraw when needed. i think its a sound investment.

 

[The White Coat Investor]

By the time im 40, the dividends itself will continue to pay for the policy and will build cash value to withdraw when needed. i think its a sound investment.

Based on what?

Consider this:

Let's say you want to invest $100 a month. Let's, just for fun, call it a premium. How long would you have to invest that money at various rates before it will "continue to pay" the premium just from its returns.

Let's say 8%, which is a reasonable long-term return from a fairly aggressive portfolio of low-cost stock and bond mutual funds appropriate for an 18 year old.

How long? 9 years. Yet yours takes 22 years before it starts paying its own premiums. Why do you suppose that is?

It is because, after all the hidden fees, your investment return is significantly less than 8%. (For the curious, the answer is -4%. Yes, that's right NEGATIVE 4% per year.)

Don't mix insurance with investments or you get confused and mistake one for the other while someone steals your money. Your parents got taken for a ride and you're headed down the same tracks.

Are you aware what $1200/year at 8%/year is worth after 22 years? $67K What does your illustration say your guaranteed surrender value is at age 40? I guarantee it is much less than $67K.

 

[drguy22]

Based on what?

Consider this:

Let's say you want to invest $100 a month. Let's, just for fun, call it a premium. How long would you have to invest that money at various rates before it will "continue to pay" the premium just from its returns.

Let's say 8%, which is a reasonable long-term return from a fairly aggressive portfolio of low-cost stock and bond mutual funds appropriate for an 18 year old.

How long? 9 years. Yet yours takes 22 years before it starts paying its own premiums. Why do you suppose that is?

It is because, after all the hidden fees, your investment return is significantly less than 8%. (For the curious, the answer is -4%. Yes, that's right NEGATIVE 4% per year.)

Don't mix insurance with investments or you get confused and mistake one for the other while someone steals your money. Your parents got taken for a ride and you're headed down the same tracks.

Are you aware what $1200/year at 8%/year is worth after 22 years? $67K What does your illustration say your guaranteed surrender value is at age 40? I guarantee it is much less than $67K.

i mite be wrong with the numbers...ill take a look at the actual policy..

heh..i dont think my parents got taken for a ride...both parents are accountants and have MANY friends in the financial/life insurance business.

 

[drguy22]

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[drguy22]

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[drguy22]

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[The White Coat Investor]

i mite be wrong with the numbers...ill take a look at the actual policy..

heh..i dont think my parents got taken for a ride...both parents are accountants and have MANY friends in the financial/life insurance business.

Don't take it personally, I used to own a policy myself. But do run the numbers in your policy and you'll quickly realize it isn't a very good "investment" and it isn't very good insurance either.

 

[dragonfly99]

I agree with activedutyMD on this one.
Whole life insurance is generally seen as not being a good investment. I would get term life for life insurance, and then just invest money in other things (CD's, and/or bonds or stock market).

 

[sleepgas]

Call my financial advisor, Chris Long (803-238-3254) he works with residency programs and physicians across the country through Physicians Nationwide and Northwestern Mutual. His wife is also a doctor and he will give you solid advice without being at all pushy. He may even be willing to do a seminar for your program. What he had us do was get a term policy during residency that was convertible to a permanent policy. This minimized our cost but protected our insurability. After residency, we converted it to a permanent policy that works as a tax shelter and also provides a death benefit. The product we have has been incredible in this market. We have averaged about 7.5% over the past 10 years with the lowest return being 6.5% this year. Everything else we own is way down. I'd contact him before pulling the trigger on anything.

 

[sleepgas]

Another thing our advisor had me do was purchase an individual disability policy with a future increase option rider. I'm glad I did, because 10 years into practice my group decided to drop our group disability insurance. The rider on my resident policy allowed me to increase coverage without any type of exam. Several of my partners were not so lucky as they were uninsurable. I finally understood the benefit was protecting my ability to get coverage later without any type of medical exclusion. One of my partners had a back injury and was excluded coverage for anything related to his back. Two others were uninsurable, apparently antidepresents are big red flags for disability insurance. I believe I would have also had some exclusions were it not for the policy I had from residency. I think there are some other considerations to also consider with getting a policy during residency. Hope this helps.

 

[Finally M3]

I did what gasrider did (term that is converable, disability). My folks also got me a variable life policy when I was a kid.

Ultimately, I view the whole/variable life policy as another place to park money, but this one has some protection from litigation. I agree with the presumed insurance salesman that I'll have/do have enough to invest in multiple areas and that the variable/whole policy serves as a means of assett diversification.

 

[nontrdgsbuiucmd]

What he had us do was get a term policy during residency that was convertible to a permanent policy. This minimized our cost but protected our insurability. After residency, we converted it to a permanent policy that works as a tax shelter and also provides a death benefit. The product we have has been incredible in this market. We have averaged about 7.5% over the past 10 years with the lowest return being 6.5% this year. Everything else we own is way down. I'd contact him before pulling the trigger on anything.

I'd double check the rules, from what I recall when I was life/health/annuity/financial products licensed was that EVERY term policy could be converted to a universal/permanent policy. I know that a work policy (term) can be converted to a perm policy, at least in CO. This is particularly helpful, as stated above, if you become uninsurable during the life of the term policy.

Beware of the "great returns" in the universal life policy. Money within the life policy is held in a subaccount that is basically another name for a mutual fund; these can be invested in stocks, bonds, or similar products depending on what the life insurance policyholder decides regarding their comfort with risk and returns. There is no major difference in the return earned from a mutual fund versus a subaccount, and there are no guarantees of higher, or protected, returns in a subaccount; you can make or lose money, same as any other market investment.

 

[sleepgas]

Our policies are whole life policies with Northwestern Mutual. Unlike universal life, the cash values are vested and guaranteed each year so they cant ever decrease in value. The dividend for 2009 was 6.5%, which is the lowest it's been since we've had the policies for 10 years. Evidently nobody else can sell a Northwestern policy except a Norhtwestern agent so if you have not talked to someone with Northwestern Mutual you may be missing out on this. Apparently their performance is significantly above the rest of the industry. We also looked at Universal life, but the cash values can decrease and are not guaranteed each year. I do know that he structured our policies in a way that allows us to add additional money to the policy without paying sales commissions and somehow goes straight to the cash value and gets the full dividend. I'll take 6.5% vested all day long in this economy. I think you have to compare it to an asset class like bonds or CD's (but with insurance) and not the overall market return.

Our agent works within a group called Physicians Nationwide that is part of Northwestern Mutual that specializes in working with Physicians. You may want to give him a call for a referral to someone in this group or he may be willing to help also. Chris Long 803-409-3741

 

[The White Coat Investor]

Call my financial advisor, Chris Long (803-238-3254) he works with residency programs and physicians across the country through Physicians Nationwide and Northwestern Mutual. His wife is also a doctor and he will give you solid advice without being at all pushy. He may even be willing to do a seminar for your program. What he had us do was get a term policy during residency that was convertible to a permanent policy. This minimized our cost but protected our insurability. After residency, we converted it to a permanent policy that works as a tax shelter and also provides a death benefit. The product we have has been incredible in this market. We have averaged about 7.5% over the past 10 years with the lowest return being 6.5% this year. Everything else we own is way down. I'd contact him before pulling the trigger on anything.

Be sure you realize that "returns" on whole life policies are a bit nebulous. The return is only on the money already in the "cash value" of the policy and on a certain percentage of the new money added that year. If you calculate the returns based on the total amount paid in, you'll realize your returns aren't nearly as good. Part of that "return drain" is due to the cost of insurance (usually a much worse price than a similar term policy) but some is simply profit for the company and your adviser.

As an example, my Northwestern Mutual Policy was an annualized return of -2% over the last 7 years. With investments like that....

How did everything else you own go down this year? Ever heard of bonds? LT treasuries were up over 25%. Most bond funds were up at least a few % unless they were packed with junk.

Also, realize that EVERY term insurance policy is convertible, at least every one that I've seen. It isn't exactly a huge selling point, that's exactly what they want you to do. You might ask yourself, "Self, why does the company want me to convert my policy?" Answer: They make more money from whole-life policies than term policies.

 

[Mcarlson005]

First of all... To mister ActiveDuty MD...That is why people go into the life insurance business... but you lose... I just happen to know more than most people do about the LIFE insurance industry and from your posts it would be wise to be careful what you are saying because your "facts" are what lead people to lose out on potentially great tax savings.

You are focused on returns. Bad when it comes to Life Insurance... Guess what- If put about 600,000 into a life insurance policy over the course of 25 years... and do the same into an investment account... Will I be able to draw 105K a year tax-free for 26 years in the investment account like I would be able to do from my insurance policy.. let's add something else.. and let's say I die 13 years after I start drawing the 105... Will my investment accounts also pass on to my beneficiaries about 3.5 Million- TAX-FREE and possibly outside of my estate thereby not exposing it to federal estate taxes... If you can show me an investment scenario that can do that... then I will be more than happy to denounce life insurance.

Now, once again people, a fairly simple process is made into a nightmare because investment is being compared to life insurance. That is apple to oranges.
Remember life insurance has two purposes.

Two things...
Number One-protection for loss of income from the death of an individual.. In other words you have insured your most important asset- the ability to earn an income... How you protect it depends on your present situation- If funds are tight use term... if make a great income then go the permanent route

Number two- If you have lived a long time and you bought a permanent policy.. you can use the cash.. who cares what return you got on it.. you have a big chunk of change that has grown for over thirty years tax-deferred. You do it right and you can use that cash without paying any taxes on it... If you bought a term policy.. you lose the term because one the period is up.. you would be nuts to keep paying the premium on a term policy at that point...

Try to remember one thing- Insurance is not an investment... Investments need time- Everyone likes to say I can earn more in the market.. blah blah blah... no kidding... but how is that investment going to earn money for you if you die young! Forget about returns and focus on your budget and what you can afford. If term fits your budget for now... then do term.. if a form of permanent insurance fits your budget then go with that..

BUT do whatever you are comfortable with...and know this.. .nothing is free... someone will make money whether it is the insurance agent or the investment guy..

Life Insurance is instant cash is something happens to you...
In the long run you hope to have a bunch of money in investments and a money in savings, money in retirement accounts and money in life insurance...
People get caught up on returns... bottom line is find the product that fits your need... just get the facts right on what each one is and how it works and what its PURPOSE IS! and for pete's sake do not consider life insurance an investment... IT is for PROTECTION! It is to be there if something happens to you... Quit comparing these two financial vehicles...

 

[The White Coat Investor]

First of all... To mister ActiveDuty MD...That is why people go into the life insurance business... but you lose... I just happen to know more than most people do about the LIFE insurance industry and from your posts it would be wise to be careful what you are saying because your "facts" are what lead people to lose out on potentially great tax savings.

You are focused on returns. Bad when it comes to Life Insurance... Guess what- If put about 600,000 into a life insurance policy over the course of 25 years... and do the same into an investment account... Will I be able to draw 105K a year tax-free for 26 years in the investment account like I would be able to do from my insurance policy.. let's add something else.. and let's say I die 13 years after I start drawing the 105... Will my investment accounts also pass on to my beneficiaries about 3.5 Million- TAX-FREE and possibly outside of my estate thereby not exposing it to federal estate taxes... If you can show me an investment scenario that can do that... then I will be more than happy to denounce life insurance.

Now, once again people, a fairly simple process is made into a nightmare because investment is being compared to life insurance. That is apple to oranges.
Remember life insurance has two purposes.

Two things...
Number One-protection for loss of income from the death of an individual.. In other words you have insured your most important asset- the ability to earn an income... How you protect it depends on your present situation- If funds are tight use term... if make a great income then go the permanent route

Number two- If you have lived a long time and you bought a permanent policy.. you can use the cash.. who cares what return you got on it.. you have a big chunk of change that has grown for over thirty years tax-deferred. You do it right and you can use that cash without paying any taxes on it... If you bought a term policy.. you lose the term because one the period is up.. you would be nuts to keep paying the premium on a term policy at that point...

Try to remember one thing- Insurance is not an investment... Investments need time- Everyone likes to say I can earn more in the market.. blah blah blah... no kidding... but how is that investment going to earn money for you if you die young! Forget about returns and focus on your budget and what you can afford. If term fits your budget for now... then do term.. if a form of permanent insurance fits your budget then go with that..

BUT do whatever you are comfortable with...and know this.. .nothing is free... someone will make money whether it is the insurance agent or the investment guy..

Life Insurance is instant cash is something happens to you...
In the long run you hope to have a bunch of money in investments and a money in savings, money in retirement accounts and money in life insurance...
People get caught up on returns... bottom line is find the product that fits your need... just get the facts right on what each one is and how it works and what its PURPOSE IS! and for pete's sake do not consider life insurance an investment... IT is for PROTECTION! It is to be there if something happens to you... Quit comparing these two financial vehicles...

Spoken like a true life insurance salesman. Would you care to enlighten the crowd as to the percentage of their first year's premiums that go into your pocket when they purchase a cash value insurance policy from you?

I agree that investments and insurance are apples and oranges. The problem is that cash value insurance attempts to meld the two in order to confuse the financially illiterate into thinking it is the best of both worlds, when in reality it is the worst of both worlds.

"Protection" can be purchased easily and cheaply as term (or pure) life insurance.

Once you need something beyond protection, it is a damn good idea to compare expected returns. "Who cares about returns?" I sure as hell do.

And if you invest properly and keep your expenses low, neither the "insurance guy" nor the "investment guy" make money. In investing, you get what you don't pay for.

You want me to come up with a scenario that is better than the one you suggest above:

Guess what- If put about 600,000 into a life insurance policy over the course of 25 years... and do the same into an investment account... Will I be able to draw 105K a year tax-free for 26 years in the investment account like I would be able to do from my insurance policy.. let's add something else.. and let's say I die 13 years after I start drawing the 105... Will my investment accounts also pass on to my beneficiaries about 3.5 Million- TAX-FREE and possibly outside of my estate thereby not exposing it to federal estate taxes... If you can show me an investment scenario that can do that... then I will be more than happy to denounce life insurance.

Here's your rebuttal:

#1) The return on cash value life insurance is not guaranteed. In my experience, returns tend to be MUCH lower than projected in the initial paperwork, typically around the minimum guaranteed amount. Are your figures using the minimum guaranteed or the projected returns? That's what I thought.

#2) Tax-free is a line you guys like to use. The only reason it is tax-free is because it is a loan, like a 401K loan. You have to pay the loan back with the proceeds of the insurance when you die. This leaves less money to your heirs. Taxable investments get a step up in basis when you die, and can be sold immediately TAX-FREE by your heirs.

#3) Why would you need insurance after you are independently wealthy? That's like buying insurance on a $20 rice-cooker. It is always cheaper to self-insure if you can. On average, insurance is always a bad deal for the consumer and a good deal for the insurance company (and its commissioned representatives). It has to be this way. The company must be profitable or it won't stay in business.

#4) Proceeds of your cash-value life insurance stay within the estate unless put into an irrevocable trust. If it is in an irrevocable trust, you cannot spend the proceeds while you live. Way to make things sound too good to be true by mixing this up.

#5) 600,000/25=$24K/year. Invested at 10%/year= $2.4 Million. After 13 more years of not adding any money to the account and taking out $105K/year (just to match it up with your scenario) you are left with $5.7 Million for your heirs. Hmmm....that sounds a helluva lot more than $3.5 Million. How about that....wonder where that extra $2.2 million went? I'll give you three guesses and the first two don't count.

#6) Let's say that maybe, just maybe, you have a need for your money at some point before when you initially thought you would. That insurance policy isn't so liquid, is it. But you can sell your investments every day that the financial markets are open.

#7) And this one is for the crowd...have you ever had someone recommend cash-value life insurance (whole, variable, universal etc) to you that wasn't in the business of selling it? Why do you suppose that might be? Could it be that these are products meant to be sold, not bought?

Looks like YOU lose clown. Go find another internet forum to pedal your wares while the rest of us get back to spending most of our time saving lives and stamping out disease without getting ripped off by the likes of you when we're not looking.

 

[Inkarnit]

This post will be short, due to my limited time due to an upcoming appointment with a local doctor, but I am an insurance agent/financial planner. I will be up front about that. I want to hit on some points that ActiveDutyMD mentioned. I also want to refer you to a book called "Tax-Free Retirement" by Patrick Kelly. You can order it on www.tax-freeretirement.com. It will highlight a lot of these ideas.

It is quite true that many insurance agents are dishonest and will attempt to pull the snow over their clients' eyes. Not all policies are the best options for all people. That being said, there is a definite use for permanent life insurance. I will agree that whole life insurance is usually not the preferred method. I will also agree that variable universal life insurance policies are also not preferred. I sell a variety of term and permanent insurance, and my commission rate is the same on both types of policies. Granted, a permanent policy has a higher premium and therefore higher commissions. The type of permanent policy that I usually use, when suggesting permanent policies, is an indexed universal life policy. The amount of interest you earn on the policy is directly tied to the performance of the S&P 500. This means that if the stock market goes down, your gains are lower. Notice I said lower, not negative. There is a guaranteed minimum of 2% on this policy even if the stock market does what it did last year. This coming year, however, I expect I will see the cap on the policy, which is 12%. After 10 years, there is an additional 1.25% bonus interest credited. The historical average interest earned on this policy is 7.4 to 7.9%. It comes, however, with absolutely no risk to the principal. I will post a bit more later, but for now I have to go.

edit: I'm back so here's more...

#1) The return on cash value life insurance is not guaranteed. In my experience, returns tend to be MUCH lower than projected in the initial paperwork, typically around the minimum guaranteed amount. Are your figures using the minimum guaranteed or the projected returns? That's what I thought.

There are guaranteed returns on universal life insurance policies. The amount of the guaranteed return varies by policy and company. As stated above, the guaranteed minimum on the policy is 2%, but it is not realistic to assume that the stock market will only increase by 2% or less forever. A historical average increase in the S&P 500 index shows from 1950 to 2007 a 7.9% rate of return. Certain decades were better than others, with the 1990's showing over 15%. When I do projections on my policies I use 7.4%.

#2) Tax-free is a line you guys like to use. The only reason it is tax-free is because it is a loan, like a 401K loan. You have to pay the loan back with the proceeds of the insurance when you die. This leaves less money to your heirs. Taxable investments get a step up in basis when you die, and can be sold immediately TAX-FREE by your heirs.

Yes, it is a loan that is paid back upon death. But it is optimally a 0% loan. The policies I sell have for example a 6% interest rate but the amount of the loan is put into a separate pot of guaranteed 6% interest, making it a wash. The amount your policy ends up paying back is equal to what you used, with the initial death benefit never being touched. If you had a $1 million policy with $1 million in cash value and borrowed the $1 million in cash, your beneficiaries would still receive the initial $1 million benefit. Regardless of what step-up in basis a taxable investment gets, it cannot beat tax free. That taxable money is added to your beneficiaries income for the year and their entire earnings are then at a higher tax rate.

#3) Why would you need insurance after you are independently wealthy? That's like buying insurance on a $20 rice-cooker. It is always cheaper to self-insure if you can. On average, insurance is always a bad deal for the consumer and a good deal for the insurance company (and its commissioned representatives). It has to be this way. The company must be profitable or it won't stay in business.

Independent wealth does not alleviate the need for insurance. I will agree that at a certain level of wealth it may be unnecessary, but the reason you have become wealthy is through successful investment vessels. Someone with that degree of wealth probably wishes to make even more money, and thus utilizes these policies for their cash value. In fact, most big companies use life insurance as investments. They will take key person cash value policies out on their employees and over fund the policy in order to make money. It is not "always" cheaper to self insure. We are not promised tomorrow. If you died tomorrow, the amount of your self insurance would not be equal to the investment in a life insurance policy, permanent or term. The companies still remain profitable, yes. Absolutely. The insurance companies have huge pots of money that they can afford to invest in various places that the average consumer is unable to, like in long term bonds that most people do not have the time to wait for. The company makes money, the consumer is taken care of, and the agent makes money, usually about 50% of the first year's premium in commission. In the grand scheme of things, that is very little.

#4) Proceeds of your cash-value life insurance stay within the estate unless put into an irrevocable trust. If it is in an irrevocable trust, you cannot spend the proceeds while you live. Way to make things sound too good to be true by mixing this up.

The owner of a cash value policy can take a loan on their cash value at any time to be used for any reason. The only way there would ever be tax consequences on it would be if you surrendered the policy instead of letting it mature.

#5) 600,000/25=$24K/year. Invested at 10%/year= $2.4 Million. After 13 more years of not adding any money to the account and taking out $105K/year (just to match it up with your scenario) you are left with $5.7 Million for your heirs. Hmmm....that sounds a helluva lot more than $3.5 Million. How about that....wonder where that extra $2.2 million went? I'll give you three guesses and the first two don't count.

It is not fair to use 10% when he said he averaged 7.5%. That would alter your calculations by a bit, but I do not wish to attempt the math at the moment. Whether it makes up for $2.2 million or not, I do not know, but I'd hazard a guess that it comes close. There is the cost of the insurance that comes into things and usually a policy fee, so 100% of the money is not going into making money. Your financial professional can show you the actual cost breakdown of how much money is put where.

#6) Let's say that maybe, just maybe, you have a need for your money at some point before when you initially thought you would. That insurance policy isn't so liquid, is it. But you can sell your investments every day that the financial markets are open.

The insurance policy is pretty darn liquid. Whatever you have available in cash value can be accessed within days. Sure, that is not as liquid as running to the bank, but you should have money in a bank account that is accessible at a whim as well. And sure you can sell your investments any Monday through Friday, but what if that investment is not worth as much at that point? Your cash value in a life insurance policy will not have that problem. There is greater potential to make money in stock investments, but greater risk as well, and most people do not have the time or energy to play with it. Not to mention that hiring someone to do it for you is equivalent to a life insurance agent receiving commissions. All investments have commissions to pay out.

#7) And this one is for the crowd...have you ever had someone recommend cash-value life insurance (whole, variable, universal etc) to you that wasn't in the business of selling it? Why do you suppose that might be? Could it be that these are products meant to be sold, not bought?

The reason that it is unlikely to have been recommended this by someone outside the business is because someone outside the business is not licensed to make those kind of recommendations and probably does not know nearly as much about it as a licensed professional. You can do all the research you want, but until you get your license to recommend and solicit insurance products, your opinion is just that, an opinion. Some economists actually recommend that 10% of your investment portfolio be in cash value life insurance as seen here http://www.youtube.com/watch?v=1sskwUTj4z8.

Kind Regards,

Colin
Financial Planner in FL

 

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[Inkarnit]

Dave Ramsey's advice is not complete. He says buy term and invest the rest because that video was when the DOW was at 12000. People's tunes have changed about what a safe investment is since the stock market plunged. Also, he talks about ideals. His example of the 52 year old with the grown kids and a paid off mortgage is unrealistic. How many people at age 52 have the same house they had when they were 32? Also, while it would be nice to have a house paid off in only 15 years, that is unrealistic as well. People just do not do that. Especially with 30 year fixed mortgages at 4.5%. You can pay off a 30 year mortgage and invest money in a 7.5% investment such as a universal life insurance policy and make more money than had you simply paid the house off quicker. He also discusses how much money would be in the mutual funds of that person, which again is a fallacy considering those mutual funds have dropped by roughly 25-50% since that video was recorded and will require a good 6 to 10 years just to recover to what they once were. He also gives advice on the assumption that everyone is perfectly healthy and able to qualify for cheap policies. If that 52 year old were not in the great financial position that Dave Ramsey painted and needed to purchase an additional life insurance policy, that policy would be much more expensive at age 52, whether a term policy or permanent, and he may find that he does not even qualify anymore depending on his health. And after his whole blurb about it he says he has several million dollars of insurance on him anyway. Good for him. Congratulations on being in good health. Following his advice COULD lead to financial disaster.

The CNBC video is from what, the 80s or early 90s? I did not even watch the entire video due to it being outdated. Universal policies back then were not what they are now. This is why the more up-to-date CNBC video that I posted is more relevant.

The third video is also very outdated, but I do agree that I dislike whole life insurance. It talks about how you lose the cash value when you die, which is true. Universal insurance policies usually, if good, add the cash value to the death benefit. That being said, the video was designed and put forth as an endorsement for Primerica, a term only company, and thus would obviously have nothing good to say about anything else out there. I like the blurb at the end that says it was not endorsed by Primerica, though it is quite obvious that someone pro-Primerica created this video. This is why they only attack Whole life, not Universal life. And what are these "high yield investments" that people can easily invest their money in? Do you know where to earn even over 6% easily?

 

[deleted126335]

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[Inkarnit]

I commend you on your sound financial practices. When I said that people do not do that, I did not mean that no one did. Sure, there are always exceptions, and you are one of them. But what happens if you want to buy a new house now? You start over again and have another mortgage. Also, paying off a home loan with a 4.5% mortgage quickly is not the best utilization of your money. If that additional money that you want to put into the house could be put elsewhere that will make higher than 4.5%, you are better served. For example, if you have a $2800 mortgage but have decided to pay $4000 a month instead, that $1200 with the "guaranteed" 4.5% return is not as good as something higher. I put guaranteed in quotations because you are not actually getting a 4.5% return since you are eroding your tax shelter more quickly and thus paying higher taxes. While it is true that the policy I was discussing earlier does not guarantee that high rate of return, it is quite easy to get over 6% per annum on it. Also, another policy I have has a guaranteed 5% interest but has never paid under 6%. The downside of that one is that the cap is much lower than the 12% on the indexed one. Bottom line is that you can better utilize money elsewhere. As to where the insurance company invests it, look at high yield government bonds.

My point really is not to say that you are incorrect. Just that the solution that works best for you does not necessarily work best for someone else. Locking in a low rate on a permanent insurance policy while you are healthy and young will ensure that you are always insurable regardless of what happens down the line. You never know what will happen in the future. Basing your protection on what you assume will happen could lead to financial ruin. We have not even gotten into potential disability or anything else that can effect your future earning potential. A successful surgeon, for example, is only one hand injury away from losing his career. Each person needs to meet with a qualified professional to discuss their options. If term is the best solution for you, it will become apparent both to the financial professional and yourself through the meeting. I guarantee you that the financial professional is not going to refuse to write you a term policy if that is what you want. It all comes down to individual situations.

 

[deleted126335]

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[deleted126335]

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[Inkarnit]

I have said multiple times that I disagree with whole life insurance. I think it is too much money for what you get and does not make enough money either. Also, whole life insurance does not add the cash value to the death benefit, which I think is a crime. The universal life insurance products that I sell add the cash value to the death benefit and many times are only slightly more expensive than term life, except that they do not expire. Also, they are all-in-one policies which contain living benefits such as 100% accelerated pay for terminal illnesses within 24 months, monthly payments up to 2% of the death benefit in the case of chronic illnesses (defined as being unable to perform any 2 of the 6 activities of daily living... ie being disabled), and up to 100% benefit for critical illnesses such as cancer, heart attack, stroke, etc. All those living benefits, by the way, are free. Then you have the option of adding disability income riders as well which would pay in addition to the chronic illness living benefit. Life insurance does not have to be looked at as a "necessary evil" usable only when you die. I sell life insurance you do not have to die to use. Some of my clients dubbed it "living insurance."

As to the amount that goes to first year commission it varies by agent. Some agents have higher commission rates than others. Typical commission rates run from 45% to 90%, meaning that the insurance agent makes $450 to $900 off a $1000/year premium policy. With all the work that goes into getting the policy issued, that is fair compensation. This is the reason policies have surrender charges in the first 5-10 years of the policy. If you cancel it early, the company has not had the opportunity to capitalize on making money from your money yet. Are you saying that the agent does not deserve to make money nor does the insurance company? Obviously no one would be in the business if this were the case.

Do you know what goes into me making one sale? Let us assume it is not a referral, because for the most part, they are not. I then have to pay to market myself or my company. This involves direct mail marketing with reply cards. For every $1000 spent on marketing, I may get 15 to 30 reply cards. Of those, not all of them want to even talk to me. Some of them refuse to meet with me. Some set appointments and then never show up to them or cancel them. When I finally get into someone's house and they do decide to make a purchase, many times it is not going to be the same day as I met with them. Once they decide to do business with me, I then have to hope that they can be approved for the product they want. Then I have to wait until the policy is issued, sometimes up to 45 days, before I get paid the majority of my commissions. I do not even get the rest of it until the end of the first year of the policy. If the client cancels the policy within the first year, I owe a percentage of my commission back to the company, depending on how many months into the policy it is.

Now that you know all that, do you still think it is unfair for me to get that commission? After all, I am not charging my clients for my time. Many times this means I work for free, giving advice that they turn around and do business elsewhere with. I only get paid when I turn in business. How much do you feel my time is worth?

 

[deleted126335]

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[The White Coat Investor]

Dr. Doze has addressed most of what I would have already. Suffice to say I am in a similar financial situation to him and share most of his views, although I'm a few years younger. I'm almost 3 years into my home (3 out of residency) and I've only got 45% of it paid off (not too bad considering the housing downturn.) I have no med school debt.

The main problem with equity indexed cash-value life insurance is the same issue you see with equity indexed variable annuities. First, that 12% cap kicks in A LOT more than you would expect. For example, in the 90s, you would have been capped 6 out of 10 years, earning over 20% a year LESS than the market. But mainly, the problem is one of expenses. All those fees really add up.

As far as justifying your commission, nice try. If you were providing a valuable service to the clients I would say you earned it. But you're not. They pay you all this money and still end up with an inferior product. You're just fooling yourself that it is good like many insurance salesmen before you. If you were really selling something worthwhile, you wouldn't have to spend squat advertising it. Word of mouth would do it for you.

Giving financial advice is a tough business to be in. Once your clients know enough to realize your advice is good they don't need it anymore.

But let the crowd judge who they want to take advice from--two financially successful physicians who have no conflict of interest vs two life insurance salesmen who cruise the internet in an attempt to increase their commissions and joined this forum just to post on this thread. I'm sure if they side with you your "PM Box" will be chock full of new business. Good luck.

 

[Inkarnit]

Wow ActiveDutyMD. Way to take a professional response and turn it combative.

You are absolutely correct about an indexed product capping out. This can certainly occur, though there are not often 10 year periods of time like the 90s. The flipside, however, is that in the years the stock market tanked, like last year, you would have lost no money. While the stock market saw about a 50% drop, you still gained 2%. I think that ends up more than making up for it. Not to mention that you would have had to know where to put your money in the 90s in order to make that money as well.

As for you saying that I do not provide a valuable service, shame on you. Perhaps my service would not be valuable to you, but do you have any idea how much of America has no idea what to do with their money? I got into this business as a way to help people. I had other options. I am a nuclear engineer by trade. I was an engineer on the University of Florida Proton Therapy Institute cyclotron. It was a very lucrative position, but ultimately not what I enjoyed doing. I have never sold a product to someone when I felt they would not benefit by it. There are certainly agents out there who care about nothing other than their wallets, which is when you as the consumer would decide not to do business with them. I never tell someone what they must have. I give options and let them decide. You say they pay me all this money and end up with inferior products. My clients pay me absolutely nothing. The insurance company pays me in order to bring them business. I deal with multiple insurance companies so that I can offer the best possible product to a person depending on their situation. You can not call my products inferior when you do not even know what they are.

As for word of mouth, I certainly have that as well. I do not rely on it, because then I am putting my earning potential in the hands of luck. I currently have a loan officer at Suntrust that I work with who sends me clients after they close on a house. He does this because he is a client of mine and believes in the product. I also have several real estate agents that do the same, also because they are clients who believe in the product. Similarly, I have relationships with property and casualty insurance agents who do not deal with life insurance, and they send me business as well. Oh, and they are clients.

You are correct in that giving financial advice is hard. Many times I have advised clients only to have them take my advice and go elsewhere. It is par for the course.

As for how I came to this forum... I did a google search about doctors and life insurance because I was about to meet with a doctor about life insurance. I wanted to see what the general idea of the community was. I was very surprised to see that so many doctors have enough time to become insurance experts as well, but it is not too far fetched. Doctors are the top tier of intelligence in the nation. I do feel, however, that many physicians are steered in the wrong direction by listening to someone's advice that is not really a professional but has just enough knowledge on the subject to be dangerous. Just because something worked for you does not mean it is the way that all should go. It is imperative that someone take the whole picture into consideration and determine what is best for them. If you are able and willing to accept a certain amount of risk, then you may not need as much insurance. It is the same for car insurance. If you are willing to pay for everything that happens as the result of your car accident, then you do not really need car insurance either. All states allow you to self-insure for automobile insurance. Do you do this or do you minimize the risk by purchasing an insurance policy?

 

[The White Coat Investor]

Wow ActiveDutyMD. Way to take a professional response and turn it combative.

You are absolutely correct about an indexed product capping out. This can certainly occur, though there are not often 10 year periods of time like the 90s. The flipside, however, is that in the years the stock market tanked, like last year, you would have lost no money. While the stock market saw about a 50% drop, you still gained 2%. I think that ends up more than making up for it. Not to mention that you would have had to know where to put your money in the 90s in order to make that money as well.

As for you saying that I do not provide a valuable service, shame on you. Perhaps my service would not be valuable to you, but do you have any idea how much of America has no idea what to do with their money? I got into this business as a way to help people. I had other options. I am a nuclear engineer by trade. I was an engineer on the University of Florida Proton Therapy Institute cyclotron. It was a very lucrative position, but ultimately not what I enjoyed doing. I have never sold a product to someone when I felt they would not benefit by it. There are certainly agents out there who care about nothing other than their wallets, which is when you as the consumer would decide not to do business with them. I never tell someone what they must have. I give options and let them decide. You say they pay me all this money and end up with inferior products. My clients pay me absolutely nothing. The insurance company pays me in order to bring them business. I deal with multiple insurance companies so that I can offer the best possible product to a person depending on their situation. You can not call my products inferior when you do not even know what they are.

As for word of mouth, I certainly have that as well. I do not rely on it, because then I am putting my earning potential in the hands of luck. I currently have a loan officer at Suntrust that I work with who sends me clients after they close on a house. He does this because he is a client of mine and believes in the product. I also have several real estate agents that do the same, also because they are clients who believe in the product. Similarly, I have relationships with property and casualty insurance agents who do not deal with life insurance, and they send me business as well. Oh, and they are clients.

You are correct in that giving financial advice is hard. Many times I have advised clients only to have them take my advice and go elsewhere. It is par for the course.

As for how I came to this forum... I did a google search about doctors and life insurance because I was about to meet with a doctor about life insurance. I wanted to see what the general idea of the community was. I was very surprised to see that so many doctors have enough time to become insurance experts as well, but it is not too far fetched. Doctors are the top tier of intelligence in the nation. I do feel, however, that many physicians are steered in the wrong direction by listening to someone's advice that is not really a professional but has just enough knowledge on the subject to be dangerous. Just because something worked for you does not mean it is the way that all should go. It is imperative that someone take the whole picture into consideration and determine what is best for them. If you are able and willing to accept a certain amount of risk, then you may not need as much insurance. It is the same for car insurance. If you are willing to pay for everything that happens as the result of your car accident, then you do not really need car insurance either. All states allow you to self-insure for automobile insurance. Do you do this or do you minimize the risk by purchasing an insurance policy?

It infuriates me that you put yourself out there as an expert and then spout out things that are either carefully concealed half-truths or revelations about your own ignorance on the subject. We're not talking about insurance here. We both agree (I think) that people need adequate life, disability, liability insurance etc. What we're talking about is insurance products marketed as investments. You seem to think this is a reasonably good option for many people. I adamantly believe these are crappy products bought by ignorant people and sold by people who either don't know better or are out to make a quick buck. You say you're not out to make a quick buck, so.....

This idea of "the client doesn't pay me, the insurance company does" is bull**** and repeated daily in offices of insurance salesmen the world over. Just think about it for a minute. Where does the insurance company's money come from to pay the insurance salesman? The same place ALL the insurance company's money comes from...the client. The less it pays you, the less it can charge the client while still making adequate profit. The money is fungible.

In investing, you get what you don't pay for. If you buy a no-load, low-ER mutual fund, you pay a fraction of a penny on the dollar for management of the investments. If you buy a cash-value life insurance product, you pay higher fees for investment management, a commission to the salesman, profit for the insurance company, and a higher rate on the "insurance" portion of the investment than if you shopped that around buying term. To make it worse, you lose liquidity. All in the elusive search for a tax benefit. This is a classic example of letting the tax tail wag the investment dog.

But what really, really infuriates me is seeing salesmen pawn their wares on the unwary when the alternatives are WAAAY better. For example, selling cash-value life insurance to someone who is underinsured. You could at least do them the favor of making sure they have enough of what they think they're buying before selling them a crappy investment. Also, selling them cash-value life insurance as a "tax-shelter" when they're not already maxing out their Roth IRAs, 401Ks, SEP-IRAs, ESAs, 529s, and other low-cost, higher-benefit tax shelters. I also detest the sale of cash-value life insurance "for estate purposes" to people who do not, nor ever will, have an estate large enough to incur estate taxes.

It's a travesty. Really. And unless term life insurance is about 95% of yoru business, you should be ashamed of yourself.

Here's some resources for the crowd:

http://en.wikipedia.org/wiki/Buy_term_and_invest_the_difference

http://term4sale.com/

https://personal.vanguard.com/us/home

http://money.cnn.com/2004/08/24/pf/expert/ask_expert/index.htm

Now we come to the "time for every purpose" part. Although I think these cases are rare for the vast majority of people, there are instances in which we may want to keep life insurance for our entire lives.

Parents who have a disabled child who will never be able to support himself even as an adult may want to assure that there are some assets for that child after they die. A permanent insurance policy is one way to assure assets will be there.
And unless the estate tax is eliminated (it's currently scheduled to disappear in 2010 and then reappear in 2011), someone who expects to leave an estate well in excess of the current exemptions may also consider permanent insurance as a way to help heirs pay whatever taxes might be due.
In short, any time someone thinks he may need to have an insurance policy that would pay a death benefit regardless of when he dies, permanent insurance is the way to go.

It's not just me saying this stuff. It is every financial expert out there EXCEPT the ones who make their living selling this stuff. Why is that....

 

[The White Coat Investor]

It is the same for car insurance. If you are willing to pay for everything that happens as the result of your car accident, then you do not really need car insurance either. All states allow you to self-insure for automobile insurance. Do you do this or do you minimize the risk by purchasing an insurance policy?

Are you kidding me? You actually consider yourself an insurance professional? Nearly all states REQUIRE automobile insurance (at least the liability portion.)

http://personalinsure.about.com/cs/vehicleratings/a/blautominimum.htm

I carry millions in liability. But no, I don't insure the value of a car I can afford to replace, cash, today. The reason I have that cash is because I didn't waste my money on things like cash-value life insurance, equity-indexed annuities and other horrid investments.

Larry Swedroe is a well-known expert on investments, with a number of widely cited books on the subject. Here is what he has to say about equity-indexed annuities (closely related to the equity-indexed universal life insurance policy you seem so fond of):

IndexUniverse.com: Briefly, what is in the flawed, the bad and the ugly categories? Swedroe: In flawed, there are a lot of things people invest in that I wouldn’t recommend: junk bonds, venture capital, covered call writing strategies, socially responsible investments, precious metals equities, preferred stock, convertible bonds and emerging market bonds, and private equity. They are flawed in the sense that they might have some positive characteristics (e.g., low correlation), but their negative characteristics more than offset the positives. In other words, there are more effective ways to achieve the same objective.
The bad? Hedge funds, leveraged buyouts and variable annuities. These are all products that are sold, not bought. Once you adjust for the biases in the data and the risks involved, for instance, the data show that hedge fund returns barely compete with T-bills. Variable annuities are way too expensive. The ugly? Equity index annuities. These may be the worst investment known to man. I’ve looked at many of them, and I’ve never found one that looks attractive. Another ugly is leveraged funds. And finally, I would add the broad category of structured investment products put out by Wall Street.

http://www.investmentmoats.com/money-management/etf/straight-from-the-source-larry-swedroe/

Soon as you hear the words equity indexed annuity run as fast as you can. They are all products designed to be sold and not bought. My next book, The Only Guide to Alternative Investments You’ll Ever Need: The Way Smart Money Diversifies Risk, The Good, The Flawed, the Bad and the Ugly, covers 20 alternatives. EIAs are in the UGLY category and that is being generous. I would suggest you get the book when it comes out in October. (Can pre-order now on Amazon).
But bottom line is this, they are high expense complex products with the complexity designed in the favor of the issuer. They are also highly tax inefficient, converting long term capital gains into ordinary income and losing the benefit of being able to harvest losses. And for any foreign investments you lose the foreign tax credit. Unfortunately tens of billions of this garbage is sold every year to investors who simply don’t have the knowledge to make the right decision. They are exploited by the sales forces of the marketing machines of insurance companies.

http://www.moolanomy.com/583/ask-the-expert-with-larry-swedroe-may-2008-issue/

http://xkcd.com/386/

 

[Inkarnit]

I do not have time to comment on the body of your post right now, but I did want to respond to the self insurance comment. First, it is two separate licenses to sell life/health insurance and property/casualty insurance, so being a financial professional does not automatically assume you have both licenses. That being said, I hold a property/casualty license as well and know more about it than you do. All states require you to have certain minimum amounts of liability coverage, true. What you fail to realize is that if you have that amount of funds personally available, you do not have to purchase liability insurance. Depending on your state's requirements, you can show proof that you have the proper amount of assets available and thus self insure for automobile. The same applies for a home. If you are comfortable and capable of accepting the risk, you are more than welcome to.

Regarding your quotes from these so-called financial professionals... so what? There are hundreds of quotes to the opposite as well. The fact that he actually ranks variable annuities higher than equity indexed annuities is comical to me. Some professional. Oh wait, I just noticed that it was from September 2007. No wonder. The financial market now versus two years ago is VASTLY DIFFERENT. You are trying to compare apples and oranges. People's tolerance for risk in these economic times is not once it once was. By stating that equity indexed universal life policies and annuities are good ways to guarantee earnings, I am not stating that they are the best money making tools available. It all depends on your risk tolerance. If you are approaching retirement age and have just lost 25 to 50% of the money in your IRA, a guaranteed annuity starts to become very attractive. This goes back to what I have been saying all along: IT DEPENDS ON YOUR SITUATION.

Your statements as a be-all end-all are ignorant.

 

[The White Coat Investor]

I do not have time to comment on the body of your post right now, but I did want to respond to the self insurance comment. First, it is two separate licenses to sell life/health insurance and property/casualty insurance, so being a financial professional does not automatically assume you have both licenses. That being said, I hold a property/casualty license as well and know more about it than you do. All states require you to have certain minimum amounts of liability coverage, true. What you fail to realize is that if you have that amount of funds personally available, you do not have to purchase liability insurance. Depending on your state's requirements, you can show proof that you have the proper amount of assets available and thus self insure for automobile. The same applies for a home. If you are comfortable and capable of accepting the risk, you are more than welcome to.

Regarding your quotes from these so-called financial professionals... so what? There are hundreds of quotes to the opposite as well. The fact that he actually ranks variable annuities higher than equity indexed annuities is comical to me. Some professional. Oh wait, I just noticed that it was from September 2007. No wonder. The financial market now versus two years ago is VASTLY DIFFERENT. You are trying to compare apples and oranges. People's tolerance for risk in these economic times is not once it once was. By stating that equity indexed universal life policies and annuities are good ways to guarantee earnings, I am not stating that they are the best money making tools available. It all depends on your risk tolerance. If you are approaching retirement age and have just lost 25 to 50% of the money in your IRA, a guaranteed annuity starts to become very attractive. This goes back to what I have been saying all along: IT DEPENDS ON YOUR SITUATION.

Your statements as a be-all end-all are ignorant.

Your tactic of suggesting there is a significant percentage of people out there who would benefit from cash-value insurance is ignorant. The actual percentage is so small that most insurance agents would be out of business if they only sold these products to those who would really benefit from it. You say there are "hundreds of quotes" suggesting your viewpoint is correct. Care to share a few? I would really appreciate it if they came from someone who earned their income doing something besides selling cash-value life insurance.

I'm glad you have a license. Suggesting it requires a large amount of financial knowledge is a bit misleading. Ehow says that in addition to a $100 tuition you'll also have to spend an entire day in class to learn what you need to learn to get that license. I'm sure that requirement will really impress our audience, who likely spent 4 years in college, 2 years in med school, and 2 months of intensive study to pass the first third of their licensing test.

http://www.ehow.com/how_2046115_get-insurance-license.html

But what is really revealing about the curriculum for a test like this is what is NOT taught. According to this comprehensive cramming guide's table of contents:

http://search.barnesandnoble.com/Li...f-of-BISYS-Education-Services/e/9780789732606

there is not a single chapter on investing and minimal coverage of tax-protected investing accounts like Roth IRAs, 401Ks, variable annuities etc. So putting yourself forth as an expert on investing is misleading at best, malpractice at worst.

Requirements for licensure are pretty minimal compared to most professions. Here's Florida's list:

Agent Application Licensing System

• Be a natural person at least 18 years of age.

• Be a bona fide resident of Florida.

• Take and pass the required life including variable annuity and health examinations.

• Not be an employee of the United States Department of Veterans Affairs or state service office, as referred to in Section 626.833, Florida Statutes.

• Not be a funeral director or direct disposer, or an employee or representative thereof, or have an office in or in connection with a funeral establishment.

So basically, you pass a test. That's it. You might even have to spend a couple of weeks studying for it. No required coursework. No required degree. No required demonstration of ability. No apprenticeship. etc.

 

[Inkarnit]

Florida is actually one of the most difficult states to get licensed in and your information is incorrect. Prior to being allowed to even take the test, the state has to give you permission to do so. Prior to asking for permission (which includes a thorough background check by the FBI) you must also take and pass a 40 hour classroom course.

 

[The White Coat Investor]

Florida is actually one of the most difficult states to get licensed in and your information is incorrect. Prior to being allowed to even take the test, the state has to give you permission to do so. Prior to asking for permission (which includes a thorough background check by the FBI) you must also take and pass a 40 hour classroom course.

I find it comforting to hear that.