Term vs. whole life

The groups charter prohibits making remarks about the way these fold
make their living, no ad hominem attacks.

My best friend happens to be an insurance salesman. So in a rare moment
for me, I'll give you his side.
"I tried to sell Chuck a whole life policy 20 years ago. He said he'd do
better investing on his own. We just had drinks and the topic came up.
His kids are starting college, he has no savings to speak of. Some
people need that monthly bill to come in. I'd not sell you such a
policy, Joe, you and Jane max out your retirement accounts and fund Jane
2.0 college savings. Most people aren't so disciplined."

Igor - I've seen you here awhile now. You are not Chuck.

typo - "these folk" sorry.

Not really - it actually says "And except in flattering terms,
reference to another poster or group of people is inappropriate."

The insurance agent that Igor talked about is neither a poster here,
nor is he a *group* of people.

Thanks for clarifying, I would hate to run afoul of any rules, this is
a great newsgroup and I have nothing except flattering to say about
all posters here.

i

Sorry, I didn't mean to imply that you were guilty of this. It was more
a preface as to why I, myself, was choosing to answer the way I did.

Does the groups charter prohibit me from mentioning that Igor's
experience reminded me of the last time I bought a car? The salesman
kept pushing a model I didn't want. Pushing and pushing. And after I
finally did get the car I wanted, he pushed undercoating, extended
service warranty, and tinted windows.

These categorical dismissals of whole life don't recognize that there
are valid reasons to buy it - it's not strictly an oversold overpriced
product. Whole life lives at both ends of the financial spectrum - at
low net worth, in many cases because of pushy selling directed at
uninformed consumers, and at high net worth, because it fills a need.

One of the whole-life scenarios is "significant net worth tied up in
illiquid assets." Igor I think you've mentioned owning a sub-s and
looking at rental real estate. These sound like relatively illiquid
assets. Maybe they're not worth much now but long-term, you might end up
having a need for a big lump of cash at death, even at age 102, that is
best provided for by life insurance. That may one to talk through with
an agent and attorney who deals with these kinds of cases - small
business owners, estate & succession planning, etc.

-Tad

cial spectrum - at


But couldn't an executor get a quick loan using real estate or other
illiquid assets in the estate as security? Would not the interest on a
short-term loan be less than the cost of an insurance policy over the
years?

To generalize it, the scenario is: large lump of cash needed at death,
irrespective of when you die. A loan doesn't really do that. It isn't a
certainty that you can even get a loan - e.g. borrowing against a
closely-held business is not a straightforward transaction and might not
even be possible. And even if available, you have to pay the loan back
somehow and that isn't always what you want to do.

Think of a business owned by a few principals, where there is a buy-sell
agreement designed to cash out heirs - the spoiled-brat kids who would
just run the company into the ground. When one owner dies, their share
gets bought out and the heirs get the cash so they can blow it on
whatever they want. That would typically be funded with a life insurance
policy, otherwise the other principals would need to pony up the money
somehow - at an unpredictable time.

And keep in mind that life insurance has tax advantages that can be
weighed against the policy costs.

-Tad

Yes, thanks. I guess the crucial matter here is that a LARGE lump of
cash is needed by the executor or the relatives for some purpose at
the time of death. I can appreciate that scenario in your business
example, but have doubts that it applies widely to very many small
estates or even large estates where there are real estate and
securities, usually along with quite a lot of cash.

Tad, while I agree about the importance of having enough cash, I
wonder why that cash cannot be simply held as cash? A whole life
policy only becmoes cash at death, whereas actual cash is cash at any
time. I do not quite see something that is an inherent advantage of a
whole life policy, over simply saving cash.

i

Start saving today - die next Tuesday. How much will you have saved?

I think everyone is right - Tad is right given his scenario, Don is
right that Tad's scenario affects a minority of people, and bo peep is
right that many people are not ready to die soon and their death would
cause financial distress to their dependents, in which case some term
insurance is in order.

Dying tomorrow can be easily covered by term life insurance, a very
straightforward product.

i

You were specifically comparing whole life insurance to saving. No
mention of term life. See:

I have a little of both - from about 20yrs ago when our son was born.
It was not a lot, enough to cover things - at that time -
but now seems totally undervalued compared to my portfolio.

My basic take is that you buy Term for, well, the term of your major
concerns.
- kids growing up
- college or whatever
- paying off the mortgage
- paying off any loans... cars, etc
- portion of survivor's lifestyle

The Whole Life is just like social security - a "forced savings plan" -
There is no magic, it's just another investment like any other.

I've been thinking of just dropping our Term since the premiums
are starting to increase and the actual coverage payout
is only 6% of our total investment portfolio now...

The Whole Life is another matter - fixed premiums.
It's more like a CD or other low yield but safe, investment.
Again, in our case, the payout is only about 5% of our portfolio.

Back 20 years - when I purchased both -
my portfolio was smaller and I wanted to make sure things were covered...
Now - not so much a big deal....