I need financial opinions on whole life insurance policies and am afraid to ask an advisor for fear that he/she would try to sell me something. We purchased three whole life policies in 1991. I know now that most experts advise against them now because of the high premiums, and advise buying term and investing extra money elsewhere……but we have accumulated a lot of dividends over the years but we’re at the point now that we are tired of paying the premiums and thinking about having the dividends pay for the policies until the dividends run out….and then of course we would start paying for the polciies again. Is this a mistake or should we continue to pay the premiums and keep thinking of it as an investment or more money if one of us dies prematurely? Another thought…..we will be having future college bills whereas we can try to get a student loan or borrow against these policies with an option to payback with interest or not pay back at all thus taking away from death benefit. What’s your opinion on this?
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whole life insurance policies?
lani 7:02 am on August 16, 2010
I would say you would not be wise to cancel a whole life policy for a term, as what people don’t know & agents neglect to tell them, is after the level period has ended, i.e.10 year term, 30 year term, the policy changes into a annual renewable term, which means the premiums increase dramatically & then will increase yearly from that point, going forward. So generally they are no longer affordable, any new policy you will be at a higher premium as it will be based on your current age or worse yet, you may now have a condition that makes you uninsurable.
At the very least, you may want to supplement with a term policy for short term coverage, but keep your whole life policies.
Yes, it is common to have dividends pay the premiums. You can call your customer service & tell them you want to change the dividend option to premium & your mode to annual. If you are not allready paid to the anniversary date, then you can also have the dividends pay you to that date to get everything synched. Then the dividends will pay the premium automatically after the grace period has ended.
Unless you plan on repaying the loan, then you may want to withdraw the dividends. Yes, you don’t have to repay a loan, but the problem is that you OWE the insurance company the loan interest, so if it’s not repaid, then the interest is taken out of the cash value & increases the loan balance, so this creates a snowball effect, as your loan interest will continue to increase yearly. Eventually the loan balance will cause the cash value to go into a negative & YOU will lose the policy.
So, if you pay the loan interest when it’s due yearly a loan is ok.
zeuz 7:02 am on August 16, 2010
Here’s my opinion. Given that you already have whole life policies in force, at some point it either makes sense to cash them in, and replace with term life or just cash them in.
My general rule of thumb is as follows:
- When the cash value of the whole life policy reaches 40% of the death benefit, it’s time to cash in the whole life policy and buy term.
So, if your policies are, say, $250,000, if your cash value has reached $100,000, then cash it in — AFTER obtaining term life insurance.
R J 7:02 am on August 16, 2010
Whole life is a combination of life insurance and investment. Since it’s a hybrid, it will NOT be as efficient as either of the two separately. From a personal financial standpoint (i.e. money in YOUR pocket), it’s best to dump the whole life and take whatever cash balance exists. Then, buy as much term life as you need – for as long as you need it. If you’re young – get a 30 year policy, if older, get enough to last your needs. Take whatever cash balance you get and invest it based on your age/needs. Trying to do both in a singe product (whole life) just gives the insurance company more or your money and you less.
mbrcatz 7:02 am on August 16, 2010
My opinion, you’re playing with fire.
Set the clear financial goal, look at what it’s costing you right now, and reevaluate if you have the proper tools for the goals.
E G 7:02 am on August 16, 2010
my advise: listen to lani
it seams to me that after paying into the policy 18 years you are stating get cold feet and think that buying term and investing the difference is the way to go, well ask most of the people who have an IRA/401K and want to retire now and they cant.
james m 7:02 am on August 16, 2010
My advice is not to take advice on this forum, with one exception:
Call a LOCAL agent, and have him/her do a free personal Financial Need Analysis (FNA), or other Total Need Program, to help YOU determine in YOUR own minds which way to go. You will gain knowledge, after the FNA on what YOUR total need is, based on YOUR short and long-term goals and objectives.
Your Whole Life policies can be assets in this situation. You will have an option to taking reduced paid up life insurance policies, without further payments, and combining that with Term insurance. This would make an excellent choice. But that would be TOTALLY up to you to decide, depending on YOUR goals.
The agent will give several options with the FNA. Remember, it’s YOUR plan and no one else’s.
Don’t allow ANYBODY to tell you what to do, without doing a personal FNA. It would not be professional on their part, and it would be doing you a disservice.
The FNA will also help you determine if you need Disability Income Protection, to provide an income should you be hurt or sick and can’t work. It will also help you determine if you need an Individual Retirement Account (IRA) to provide income at retirement. (All that will be there when you get there is what you send on ahead.)
According to statistics, disability is a greater risk than death prior to the age of 65.
If any other contributor on this forum will be truthful with you, they will tell you that what I suggest is the right thing to do. Have you ever been sorry for doing the right thing?
Lex 7:02 am on August 16, 2010
If you are the type of person who is looking for safety and predictability over time, then whole life insurance may be the right product for you. Whole Life Insurance provides you with the certainty of a guaranteed death benefit and a guaranteed rate of return on your cash values. It also has a level premium that is guaranteed to never increase for life. Another benefit of a participating whole life insurance policy is the opportunity to earn dividends. Dividends give you the opportunity to receive an enhanced death benefit and cash value growth. Dividends are a way for the company to share part of its favorable results with policyholders.
Be sure to discuss your options with a professional. LifeQuoteNow.com is a great place to check out, as they were great with me about finding the best product for me and not just trying to sell me something. The best way to know if you have a bad agent is when they are doing the most talking and telling you what you need rather than asking questions to find what is best for you. Theres no yes or no answer to whole life insurance or other insurance products for everyone. It’s different for everyone.
mob442 7:02 am on August 16, 2010
Never, never, never (did I say never?) cancel a permanent policy. Those whole life policies are going to be a blessing to you one day. I have encountered countless people over my insurance career that only wish they had never canceled their whole life policies because now they can’t get decent insurance due to cancer or some other uninsurable health condition. No one can predict the future and that’s why we have INSURANCE. Never let anyone convince you to cancel a permanent policy for a temporary policy, which is term.
CA license – 10 years
mob442ins@yahoo.com
Joy 7:02 am on August 16, 2010
lifeinsurance.awardspace.info – you can try this company. My parents have their life insurance.