Some people may assume that insurance agents like me despise term insurance. Look at it and wince with a large degree of disgust.
Nope.
Whole Life Insurance
Buy Term and Invest the Difference?
You didn't think we'd pass on a chance to tackle this mammoth of the financial planning world did you? A hotly debated notion for years and years pioneered by a guy who started a company to hawk term insurance under a simplistic mantra that appealed to the common folk that was later picked up by every stock broker and “financial expert” that had something to sell that wasn't life insurance.
So are we readying our spread sheets and insurance illustration software to blow the friable theory of decreasing responsibility asunder? Hardly, we talk about insurance all the time, the last thing we need is to make this place any more boring–besides, we know the numbers work in our favor, that's why none of us are really afraid of the termites. If mountaints of numbers and methodology are your thing drop us a line and we'll discuss it in detail. Depending on the feedback, we might go real pro and dedicate a blog post to it–an extra special treat for the holidays.
Why then are we going to waste your time with a silly post about one of the most giggle-inducing “theories” of modern personal finance? Because believe it or not BTID is a topic I find remarkable fascinating. Not because I'm an infatuated practitioner (not even close) but because it's a great example of how in marketing, you don't have to tell the truth, you just can't flat out lie.
The Kids…
Since we completely ignored the fact that there was a Holiday earlier this week, we'll take a minute to wish everyone a belated Happy Halloween (it's even more embarrassing that the last article to drop came out on 10/31). Unless you the one around the office who spends an hour or more before work dolling yourself up for the Halloween customs you planned out almost a year in advance, you're biggest memory from earlier this week was likely taking your kids for an after-dark walk around the neighborhood to beg your neighbors for candy that would keep the kids up all night. And since we're already on the topic of children, we figured today would be a great day to talk about the kids and buying life insurance for them. Nothing scary or controversial there. 😉
So this topic has been debated (somewhat passionately) for years. Some argue forcefully in favor others argue forcefully against it. The traditional naysayers suggest that it's sick to purchase life insurance on your children as the thought of “profiting off their death” is sickening. Still others like to point out that since you don't typically rely on your children as a source of income, it would appear meaningless to purchase life insurance on them. Are they right? Is a life insurance policy on your children just a good ruse devised by an insurance agent who came up with a way to boost his case count and make a quick extra buck here and there? I actually used to sort of think so (gasp!). But then something happened that made me change my mind.
What About My Good Credit?
Every once in a little while this question comes up and recently I had someone ask me about this and decided it was a good topic to address. We know that when a policy loan is taken, there is interest charged on that loan that is collected by the insurance company. Now, since whole life insurance is issued by and large by Mutual Insurance Companies the fact that a policy holder is paying interest to a company he or she owns a part of, and participates in the divisible surplus (read profits) of the company, it's not really a kiss-it-goodbye scenario. Still, though, some people take literal phraseology very seriously (I've been in two…disagreements we'll call them…over it literal definitions this week alone). So, for those who look at interest charged on a policy loan and say, “I can get better financing than that with my good credit” is this necessarily the moment when we infinite banking hawks sit back down and say it works for everyone except you Mr. and Mrs. 850 FICO?
Dividends The Power Behind Recapturing Lost Opportunity
Here's something you wouldn't expect to find written around here: Whole life insurance (at it's core) kind of sucks. Sure everything is guaranteed, and to some people and in some applications those guarantees are vitally important. But the thing that drives whole life insurance to the level that makes it an attractive cash accumulation tool for us is what insurance company refer to as the ability to participate in the sharing of divisible surplus, aka dividends.
To be somewhat bold, non-participating whole life insurance is horrendously boring, and probably not worth your time (unless your in your 60's or older and just looking for $5-10k for final expense costs when you die, and if you think that's all it's going to cost, you might want to think again).
The key element that takes Whole Life insurance to the next level is the payment of dividends (participating whole life insurance). Dividends not only supply your policy with loads of extra cash above and beyond the guaranteed cash the insurance company promises you'll have if you pay your premiums, but they also give you the ability to continue to earn money on your money even when you've taken the money out to spend it.
Earlier in the week we declared PUA's the magic behind Cash Value life insurance. If PUA's are the magic, dividends are the mana that grant them their magic.
Here’s the Best Part, You Can Spend It!
Here's something we should address right off the bat that I think a lot of people in the BOY et. al. crowd tend to forget to mention: YOU CAN SPEND YOUR MONEY! So, if today I'm serving you dinner in the form of financial security, we're going to start first with dessert. And if it weren't for copyright law (and a little bit of laziness), I might think about stealing a picture off the internet of a young child with ice cream all over his/her face. But I'll just let you envision that instead.
What Is Whole Life Insurance & How Does It Work?
Life Insurance What Is Whole Life Insurance & How Does It Work? If you typed “what is whole life insurance” into a search bar, you’re probably getting bombarded with two types of answers: overly simplified fluff that tells you nothing useful, or breathless sales pitches trying to convince you it’s the greatest financial product ever …
What Is Term Life Insurance & How Does It Work?
The simplest form of life insurance is called Term Insurance. Term takes its name from the notion that it is purchased simply for a term (period of time), after which is it no longer renewable. Not that long ago the general rule was term products were renewable to age 75 and that was it. More recently this has been reviewed and some companies are offering term products that can be renewed past this date. This is also governed by state insurance law so you should check on this for your specific state.