3 Comments to "Not-so Smart Advice"

1. 

   Jerry McClellan

   May 8, 2008

   

   I disagree with your assessment. Comparing the so called safety of the savings account attached to a whole life policy to a separate mutual fund or other investment vehicle is disingenuous in that you can get the same return in a regular money market account or a short term and long term CD with better security. Life insurance was never intended or meant to be used as an investment vehicle. It is solely for income replacement. Ms. Paskin is right on in her assessment that one should buy a term policy and invest the difference in a higher yield account such as a mutual fund. Not only that but you seem to imply that a mutual fund is too risky, in spite of the fact that historically, mutual funds have out-performed most other investment vehicles, including real estate, averaging 11 percent in the past 20 or so years alone. Remember, the goal is long term return on investment.

   You also said “Something Ms. Paskin also failed to highlight in her article is that with whole life insurance, the insured has a guaranteed death benefit that he or she can never outlive”, this is not accurate either, since in reality what usually happens is at retirement age, the insured cannot afford the premium any longer and has to use the cash value of the policy to continue to pay for the face value of the policy, so they may not even see the fruit of their savings anyway. In addition, what happens at the inception of the policy is the true travesty, what is sold doesn’t match what is actually received, meaning, the insured is given a policy with a cash account believing that their beneficiary will receive both the face amount and the cash value amount upon death, but what usually happens is the beneficiary only gets one or the other, and naturally they will request the face amount as it is usually significantly more than the cash value amount. This is a result of a clause within the policy itself that allows the company to withhold one or the other. Also, on a whole life policy, or any life policy, as the insured’s age increases so does the premium over time, this can lead to a relatively large obligation during retirement years when the goal is to reduce debts. With a term policy, the rates starts low and will usually remain relatively low, even when as the insured ages, barring some extraneous health issues, getting re-insured may cost more, but still be less than a whole life, cash value policy.

   Many agents do not educate their clients properly on this fact, they only emphasize the savings account and relatively low premium at the start of the policy, which causes the insured to lose out on potential gains in a traditional investment vehicle and puts them at greater risk come retirement in having to keep the policy in force by paying a higher premium.

   Purchasing term life and investing the difference is the absolute best way to go and the wisest way. Life insurance can be a great hedge against estate taxes in retirement years so why purchase a whole life when you can purchase a term with a renewable option attached, it would be a little more but still far more cost effective than a whole life, cash value policy. Someone in their 30’s could simply purchase a 20 or 30 year term, invest the difference in a high yield account and then come retirement age, be well positioned with no need for life insurance as they will have an estate established through their investments and other savings. Upon death, the face value would be paid and, with proper structuring, cover any estate costs and taxes incurred, leaving more money for the beneficiary.

   In the future it would help to actually include the title of the column, author, and direct link to the article in question.

   Thank you for the opportunity to comment.

   Jerry

   Reply
2. 

   Marvin H. Feldman, CLU, ChFC, RFC, President and CEO of the LIFE Foundation

   May 15, 2008

   

   Jerry’s comments are geared toward retirement planning and income replacement, and if this is the client’s only concern and the investments perform well, term may be appropriate. But if the client wants to retire at a time when the market is in a downturn, the insurance may still be needed beyond the planned time frame.

   Yes, the market has averaged over 10% in the long term, but timing may require the client to delay retirement to rebuild the investment accounts. Insurance coverage may be needed during this time. What happens when the low cost term rates expire and renew at a very high rate? Can the client afford to continue the policy? Can he purchase a new policy at his current age and health? Perhaps, but at what cost? If, as you say, he cannot afford the permanent insurance premium based on his age of 20 or 30 years ago, how is he going to pay for the term at his advanced age?

   The cost of term insurance may be low when initially purchased, but can become very expensive if it must be renewed at the current age and guaranteed rates. Whole life insurance has a rate which never changes and, if necessary, the values can be used to defray the premium cost.

   Life insurance is designed to replace income, replace assets, indemnify for a loss or perhaps pay a debt. Term insurance does not always fill the need just as whole life is not always the correct answer. Jerry’s comment “Purchasing term life and investing the difference is the absolute best way to go and the wisest way” is just not accurate. Life insurance must be tailored to fit the client’s needs and term insurance is not “always” the best solution.

   Reply
3. 

   Julissa

   December 20, 2008

   

   Life insurance plan offer lot of benefit like retirement planing, investment option,tax benefit, accidental coverage etc..One should know the right way to make his investment in insurance to get a good returns.

   Plans should be flexible enough to suit all financial situation,the term period and percentage of returns expected should be taken into account.

   The health condition and the age of the person seeking for the insurance is examined by the client.
   ————-
   Julissa
   Make Money

   Reply

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