Originally Posted by
wmuflyboy
my father explained to me that whole life insurance was the way to go. he explained that as i get older my life insurance will gain some cash value and would essentially be a investment. my brother is 27 and started a life insurance plan when he was 21 for $250,000. he said by the time hes 60 or 80 (cant remember), it will have gained a cash value of $1.1 million. i guess, then, i dont understand how whole life insurance is a waste of money. if its gaining cash value then you could essentially take out a loan from yourself. sounds like a good deal....
This will sound like I'm slamming your dad, but you may want to do some math and verify the lesson he was trying to teach you.
Whole life is a waste of money because people don't understand it. And yes, it does sound like a good deal.
Never buy what you don't understand - Are you buying life insurance or investing for retirement? Whole/universal life policies confuse the two, and the scam works because they keep a big chunk as fees. If you split it into two chunks - life insurance and an investment vehicle, then compare the costs, I think you'll find that you're getting ripped off.
If you were shopping for a car and also wanted a gym membership and some guy in a suit offered you a combined car and gym membership for $400 a month, would it be a deal? You don't have enough info - how much is the car and how much is the membership? I guarantee the insurance guy will not tell you these numbers.
The $250,000 whole life policy may run you (a swag) $150 per month, and in addition to the life insurance you'll have 1.1 million at retirement (Not sure if he said 60 or 80? I'm guessing 60). In the prospectus they will give you a "rate of return" on which that 1.1 million is determined. A fair quote would be 10%. They may have told you 14% to make it sound even better. You'll have to check.
Now the comparison...
How much would a term policy cost for that same $250,000? Maybe $30 per month. So from the same $150, you have $120 left to invest.
Invest that $120 per month in your 401k or Roth IRA at the same 14% return. At retirement (60 again) you'll have maybe 2.3 million. Where did the other 1.2 million go? Fees. That's the scam. You paid them 1.2 million to confuse you. Why do you think they make it sound like such a great deal?
If you're silly wealthy you can probably use Whole/Universal insurance to shelter more money for retirement (I guess after you've maxed out your 401s, IRAs, etc) But for a 22 year old regional pilot it's burning money you can't spare.
Do the math (using their numbers, not mine), compare it to any term policy you can find on the internet, and let me know what you come up with.