Life Insurance ?

[lisam]

I know that typically term is "better" than whole life, but in what instances is whole life really the way to go?

My DH and I are both teachers and will have pensions at the end of our service. It's MA, we fully fund our own pension system, so I'd like to avoid the debate about pensions and their reliability. 11% of our pay is automatically deducted and contributed. Our option upon retirement will be either:

a. Collect 80% of pay until death, but once you die, that's it - no beneficiary option.

b. Collect smaller percentage (not sure exact amount) of pay until death, but once you die, your spouse will continue to receive your benefit until they die.

So the financial adviser we met with today suggested that we may want to consider doing a whole life insurance policy so that we could choose option B and then be able to supplement our income with a whole life insurance policy upon retirement. But we currently pay extra into a Roth IRA, so that we will have other money upon retirement. Our goal that we're working our way up to is investing an additional 4% for each of us so that we're overall saving 15%. I'm not sure I see the difference though....maybe the whole life is a guaranteed amount and your roth is market dependent?

Anyways, any information regarding this situation or suggestions would be helpful.

Thanks!

[aurora]

I'm not a life insurance expert, but in my research I've never heard of getting a whole life insurance policy to supplement income in retirement. I mean, you have to have someone die in order to get benefit that way, so it really doesn't even make sense to me. As a vehicle for high income earners to pass funds to heirs in a less taxable manner, sure, but not as a retirement vehicle. The general rule of thumb is that if you put away those relatively high premiums into your own retirement account you'll have more benefit in retirement than if you paid them into a whole life policy.

[lisam]

May 16, 2012 19:30:18 GMT -5 aurora said:

I'm not a life insurance expert, but in my research I've never heard of getting a whole life insurance policy to supplement income in retirement. I mean, you have to have someone die in order to get benefit that way, so it really doesn't even make sense to me. As a vehicle for high income earners to pass funds to heirs in a less taxable manner, sure, but not as a retirement vehicle. The general rule of thumb is that if you put away those relatively high premiums into your own retirement account you'll have more benefit in retirement than if you paid them into a whole life policy.

I think he was saying that you don't have to die in order to collect on your whole life policy.... That's why we could access it in retirement, granted that neither of us died.

[laurao11]

I have a whole life insurance policy, and it is one of my investments. It can be accessed at any time for cash, or used as life insurance should I pass.

My financial advisor has provided me with a full spreadsheet of how much it is worth as cash and insurance in each given year for the next 80 years. I am using it in conjunction with my pension as well.

[lisam]

May 17, 2012 8:37:06 GMT -5 laurao11 said:

I have a whole life insurance policy, and it is one of my investments. It can be accessed at any time for cash, or used as life insurance should I pass.

My financial advisor has provided me with a full spreadsheet of how much it is worth as cash and insurance in each given year for the next 80 years. I am using it in conjunction with my pension as well.

So what were some of the deciding factors in you going with whole life vs. term? Or do you have both? Was having a pension the reason you went with it? Just looking for some more information to make an informed decision. It sounds kind of weird to have a life insurance policy also be an investment.

[laurao11]

There were a few reasons. I like the safety of it- it gains about 5 percent a year no matter what. I also did like the additional benefit of the life insurance, for really just having to invest my money there. And I liked the security of planning for retirement having a really great idea where it will be in 50 years (the plan I'm with is about 100 years old so it's got a great track record).
I put in a specific amount annually, which is what made it worthwhile- from what my advisor told me, it's definitely not for everyone, but if you have a bit of extra money you definitely know will be put towards retirement, it's something to consider.

[cjeanette]

May 16, 2012 19:30:18 GMT -5 aurora said:

I'm not a life insurance expert, but in my research I've never heard of getting a whole life insurance policy to supplement income in retirement.

It happens.

[tardyfortheparty]

Also a teacher in MA so familiar with the pension system & my husband is an actuary so lots of insurance talk in my house. Why not choose option A? That is what we plan on doing.

I would wager that it is likely that your advisor makes a good commission on selling you the policy. Whole life is really only a good investment for the very wealthy as a way to protect assets or to provide $$ for a dependent (like a special needs child). Your situation as stated does not seem to fit the bill. I think you should each just plan tolive on your 80%.

[h]

In general, I think whole life only makes sense for certain high income individuals who are using it as part of their tax and estate planning. I think your average middle class couple is better off getting term life and then investing what they would have spent on whole life elsewhere.

[M]

H use to be an insurance agent and sold whole life insurance. He says that your financial advisor makes a lot of money on whole life and that's why he's telling you it's a good investment. But really you should keep life insurance and investments seperate.