Term life Vs. whole life

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roth_stuff
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Term life Vs. whole life

Post by roth_stuff »

I’m 37 and I need to get a life insurance. I have a house (about $280,000 left on mortgage) for 19 more years. My expenses are about 3.5k per month, including mortgage.

Dave Ramsey, Matt (3 portfolio fund) and the index card rule (some finance professor who wrote the book “index card”) all day that whole life and universal is waste of money. They all say look into term life.

I spoke to my insurance guy and he said as you get longer terms the premiums go higher, and he ran the number for me.

Question:

1) whole life v. Term life - what’s your take?
2) who is a good credible insurance company? (Do you actually have it with them, and your experience?)
3) would you take 10/15/30/40 year term?

Any advice would be helpful. And if you have other feedback or things I should consider please share. Thanks!
johnsmithsf
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Re: Term life Vs. whole life

Post by johnsmithsf »

If you are buying for your family in case something happens, just get a 30 year 2 million, cheapest, level-premium, term life insurance policy from a reasonably-reputable company that you can find.

Never ever buy any cash value insurance like whole life, index universal life, variable universal life, infinite banking etc. Run away from anyone selling these like plague. :twisted:
bluegill
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Re: Term life Vs. whole life

Post by bluegill »

I think a INDEPENDENT insurance agent can show you prices and rating of insurance companies. Whole/universal life is very expensive.
Whole/universal life has a crummy savings/investment part to it. Term is strictly insurance. If you want insurance, buy term insurance. If you want a lousy savings/investment and insurance buy whole/universal life.
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Re: Term life Vs. whole life

Post by chipperd »

roth_stuff wrote: Sat Jul 24, 2021 2:55 am I’m 37 and I need to get a life insurance. I have a house (about $280,000 left on mortgage) for 19 more years. My expenses are about 3.5k per month, including mortgage.

Dave Ramsey, Matt (3 portfolio fund) and the index card rule (some finance professor who wrote the book “index card”) all day that whole life and universal is waste of money. They all say look into term life.

I spoke to my insurance guy and he said as you get longer terms the premiums go higher, and he ran the number for me.

Question:

1) whole life v. Term life - what’s your take?
2) who is a good credible insurance company? (Do you actually have it with them, and your experience?)
3) would you take 10/15/30/40 year term?

Any advice would be helpful. And if you have other feedback or things I should consider please share. Thanks!
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Re: Term life Vs. whole life

Post by Jack FFR1846 »

You didn't say if you have a wife and/or kids. If no, you have no need for any insurance. If yes, insurance will replace your income should you die. Universal is like a combination of the worst of 1 year term and high cost whole life. The insurance portion resets every year until your premium plus saved cash value isn't enough to cover the high cost of insurance and then it starts eating itself, coming to a point where although you've paid premiums for decades, the cash value goes to zero and the death benefit goes to zero.

Whole life is even more expensive.

If you need insurance, buy term. If you go to buy a car, and the car salesman says that for only ten times the price, he'll include a chainsaw, would you think that's a good deal? That's the kind of numbers you're likely looking at. Term life is sold like a commodity and is therefore cheap and easy to compare. Universal and whole life tend to have adders and riders that protect you from Blue Origin falling on your head, but only on a Wednesday for only $10 a month.
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Rex66
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Re: Term life Vs. whole life

Post by Rex66 »

There is a cost of insurance within all these products

With term (which should be level 20-30 year at your age), the premium just pays for insurance and insurance company profit.

With permanent insurance it’s that plus a crappy investment.

Finally term for the same health rating has a lower cost of insurance over 20-30 years.

Agents always present false scenarios to make that look different. Examples would be rebuying term every 5-10 years, not showing the rates on cheap term companies, and using unrealistic assumptions for performance of the investment part of the permanent insurance.

85% of people surrender permanent insurance and lose lots of money.
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Re: Term life Vs. whole life

Post by Stinky »

roth_stuff wrote: Sat Jul 24, 2021 2:55 am
I spoke to my insurance guy and he said as you get longer terms the premiums go higher, and he ran the number for me.

Question:

1) whole life v. Term life - what’s your take?
2) who is a good credible insurance company? (Do you actually have it with them, and your experience?)
3) would you take 10/15/30/40 year term?
Your "insurance guy" sounds like he's trying to sell you whole life. He's hardly an unbiased source - he will make a TON of commission dollars if he can convince you to buy whole life (or universal life).

Your post doesn't have enough information for us to recommend how much term life insurance, and at what duration, you should purchase. At one extreme, if you're a single guy, I don't believe that you need any life insurance at all, since you have no one else who is depending on your income. At the other extreme, if you're the sole breadwinner in your household, and you have children that you are supporting, you probably have a significant need for term life insurance, because there would be a huge financial loss to your spouse and children if you were to pass away in the near-to-mid-term future. If your kiddos are newly born, you likely need at least 20 year term life insurance; if your kiddos are older, you may be able to get a shorter term period.

Here's a calculator that you can use to start the process of assessing how much life insurance you need. You can find a variety of such calculators on line: https://lifehappens.org/life-insurance- ... do-i-need/

I wouldn't talk to your "insurance guy" about buying term life insurance, because I have no confidence that he would show you quotes from the best companies. Rather, I would go online to a couple of sites - term4sale.com and zander.com. You'll see a wide variety of companies shown there, and you can price out a policy from the comfort of your home. I would personally feel comfortable buying a policy from any of the companies listed on that site.

Post back with questions.
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pindevil
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Re: Term life Vs. whole life

Post by pindevil »

The insurance agent most likely will get a large commission from whole or universal. They typically won't push for you to get term because it's not in their best interest.

If your goal is to protect those who you leave behind go with term.

Also the length of the term policy should be determined by how long your dependents will need your income. Usually your spouse and any children you would leave behind. If you think your kids will be out of your house and on their own in 15 years then you should get a 15yr policy. It's that simple. Also, you can always buy another term policy if you need more later.
Last edited by pindevil on Sat Jul 24, 2021 11:07 am, edited 2 times in total.
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Re: Term life Vs. whole life

Post by nisiprius »

Suppose there were such a thing as "whole car insurance" which cost five times as much as regular "term car insurance," but builds up "cash value," lets you take out loans against the insurance to pay for car repairs, offers nontaxable compounding of the cash value, and pays you back $5,000 when your car dies. Would you buy it?

Term insurance is simply insurance, like any other kind of insurance. The only things you need to consider are how much you actually need, available terms and conditions, and comparison shopping. Because it is easy to compare, there is decent competition in the market and many reasonable choices.

The biggest knock on whole life insurance is that if you are in circumstances like yours, it is usually easy to afford the cost of enough term life and usually impossible to afford the cost of enough whole life so you end up being underinsured.

Whole life is just an obfuscated mixture of insurance and investment. It's as if McDonald's offered a McSmoothie of a hamburger, fries, and a Coke in a blender. The investment is a mediocre high-fee investment that is probably inappropriately conservative, and one in which you (usually) have little understanding or control. It may not be highway robbery in the sense that an MBA might calculate that the net present value of the likely money you will get out of it is almost worth the value of what you pay for it. But it just doesn't make any particular sense or fit any particular need. Not compared with the obvious alternative of keeping insurance and investment separate. I've yet to see anybody without a connection to the insurance industry say anything good about it.

The arguments for whole life insurance are often phony comparisons between having whole life insurance and not having any kind of savings at all, or selective highlighting of tiny details made to look big (there is a feeble tax break that is far less useful than the tax breaks on a Roth IRA or a 401(k) at work, for example). Or they involve emotions, like comparisons between (yech!) renting and (yay!) owning.

By the way, if you live in Wisconsin be sure to look up the Wisconsin State Life Fund" It's the best deal going in life insurance, the only problem being that they are not allowed to advertise it and it is capped at a ludicrously low $10,000 death benefit. OK, that makes it essentially useless, but it's still the best deal going, if you're willing to do the paperwork and get another $10,000 in insurance.
Last edited by nisiprius on Sat Jul 24, 2021 7:18 am, edited 4 times in total.
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Re: Term life Vs. whole life

Post by nisiprius »

For a nuanced view from an impartial source:

Is Whole Life Insurance Right For You?

TL;DR summary: Any headline that ends in a question mark can be answered by the word no.
Last edited by nisiprius on Sat Jul 24, 2021 7:18 am, edited 2 times in total.
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StevieG72
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Re: Term life Vs. whole life

Post by StevieG72 »

RUN from whole life policies! The person that sells it to you gets a HUGE commission so there is a conflict of interest.
Last edited by StevieG72 on Sat Jul 24, 2021 4:55 pm, edited 1 time in total.
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Re: Term life Vs. whole life

Post by anon_investor »

StevieG72 wrote: Sat Jul 24, 2021 7:15 am RUN from whole life policies! They person that sells it to you gets a HUGE commission so there is a conflict of interest.
+1.
BitTooAggressive
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Re: Term life Vs. whole life

Post by BitTooAggressive »

From what you posted i don’t know you need any insurance. If you do have a family and you save and invest you won’t need life insurance when you get older because your investments will have grown.
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Re: Term life Vs. whole life

Post by rockAction »

Rex66 wrote: Sat Jul 24, 2021 6:27 am There is a cost of insurance within all these products

With term (which should be level 20-30 year at your age), the premium just pays for insurance and insurance company profit.

With permanent insurance it’s that plus a crappy investment.

Finally term for the same health rating has a lower cost of insurance over 20-30 years.

Agents always present false scenarios to make that look different. Examples would be rebuying term every 5-10 years, not showing the rates on cheap term companies, and using unrealistic assumptions for performance of the investment part of the permanent insurance.

85% of people surrender permanent insurance and lose lots of money.
+1 This is important to understand. Permanent insurance is extremely expensive, and most people can't pay the premiums after a few years. If ANYTHING goes wrong (lose job, get sick, etc) and any large unexpected expenses come up, you may not be able to make the premium payments. It takes several years of paying HUGE premiums to build up virtually any cash value, at which point most people drop the policy and lose almost all the money they put into it. Is an 85% failure rate a game you really want to play?

I was one of the 15% who actually paid off the policy early using the Paid-up Additions Rider, and I can without reservation say that it is THE WORST investment decision I ever made. After holding it for 12 years and paying it off in 7, it's not worth much more than what I put into it, and if I ever want to borrow from the cash value, they'll charge me 8% interest, making it nearly inaccessible (who would pay 8% on a loan today, and against their own "cash value" no less!?). Run from these policies, and don't let the salesman use their tricks to talk you into it (like they did me). Buy term, invest the rest, and avoid all these headaches.
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Topic Author
roth_stuff
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Re: Term life Vs. whole life

Post by roth_stuff »

Great replies! I do have a daughter.
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Re: Term life Vs. whole life

Post by Stinky »

roth_stuff wrote: Sat Jul 24, 2021 12:55 pm Great replies! I do have a daughter.
How old is your daughter?

If she’s 0-5 years old, you should likely be thinking about 20 year term. If she’s older, shorter term periods might be appropriate.
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student
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Re: Term life Vs. whole life

Post by student »

anon_investor wrote: Sat Jul 24, 2021 7:17 am
StevieG72 wrote: Sat Jul 24, 2021 7:15 am RUN from whole life policies! They person that sells it to you gets a HUGE commission so there is a conflict of interest.
+1.
+2.
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Re: Term life Vs. whole life

Post by arcticpineapplecorp. »

roth_stuff wrote: Sat Jul 24, 2021 2:55 am I spoke to my insurance guy and he said as you get longer terms the premiums go higher, and he ran the number for me.

Question:

1) whole life v. Term life - what’s your take?
2) who is a good credible insurance company? (Do you actually have it with them, and your experience?)
3) would you take 10/15/30/40 year term?

Any advice would be helpful. And if you have other feedback or things I should consider please share. Thanks!
Of course a 30 year term policy will cost you more than a 10 year policy (both purchased at the same age, apples/apples).

Same will be true for a $1,000,000 policy as opposed to a $100,000 policy. duh (to the insurance guy, not you)?

but that's not the question.

say you need a certain amount of insurance (say $500,000). The question is which will cost more:
1. A 30 year term policy for $500,000
2. A whole life policy for $500,000

If you add what the premiums will cost you for each, you're going to pay WAY MORE for the whole life policy OVER 30 YEARS than you will pay on the term policy OVER THE SAME 30 YEARS. (even including the cash value). Regarding the cash value, insurance guys who sell whole will tell you with term you lose the money and with whole you can get some back. But that's not why we buy insurance. It's a sunk cost. You don't pay homeowner's insurance or auto insurance with the intent of getting it back, do you? But you still buy it. And with life insurance, you're really not wanting it to pay off technically, or you'd be dead, right?

So how is it possible that term will cost you more than whole life?

It won't.

Drop the insurance guy and find another.

you can go to policygenius and get quotes yourself.

The insurance agents don't like to sell term life because it makes them no money.

And therein, you have the lesson of the day: conflict of interest. Another way of saying it is, "It's difficult to get a man to understand something when his salary depends upon his not understanding it."--Upton Sinclair

As for how long the term should be, you look at the time period for when it would/might be needed. If you're 50 and you plan to have enough assets by 70 for your spouse to live on for the rest of her life, then you only need a 20 year policy to get from here to there. It's to fill the gap in your savings should the unexpected happen. Once you have financial independence you don't (or shouldn't) need life insurance at all. If you're 30 and will be independent by 60, get a 30 year policy.
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Re: Term life Vs. whole life

Post by sport »

The people selling whole life like to tell you that the cost of the insurance will not go up, no matter how old you are. This is not really true. Consider a WL policy with a death benefit of 100k. Let's say you have had that policy for 30 years and the "cash value" is 30k. The problem is that you can take the cash value, but you lose death benefit. If you keep the policy and die, it pays the death benefit and the cash value disappears. So, if the 100k policy has a 30k cash value, you really have 70k insurance and 30k cash value because you cannot get both the 100k and the 30k. Accordingly, as the cash value grows, the amount of actual insurance decreases although the premium stays the same. Thus, the insurance gets more expensive as you age, even though it may seem like it does not.

The biggest problem with WL is the cost. Let's say you need $2 million coverage. Compare the prices of 2MM term and 2MM WL.
WL quickly becomes unaffordable. When I was growing up in the 1950's, my father had a 10k WL policy. At times, the premiums were difficult for him to manage. Yet had he died then, the 10k would have been woefully inadequate for my mom to raise two children. She was a SAHM and there was a mortgage to pay, to say nothing of food, clothing, utilities, etc. etc. etc.
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Re: Term life Vs. whole life

Post by Zeno »

From my current position in the Cosmos this thread appears right beneath the “sticky” thread entitled “Be Wary of Whole Life threads”
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Re: Term life Vs. whole life

Post by reln »

roth_stuff wrote: Sat Jul 24, 2021 2:55 am I’m 37 and I need to get a life insurance. I have a house (about $280,000 left on mortgage) for 19 more years. My expenses are about 3.5k per month, including mortgage.

Dave Ramsey, Matt (3 portfolio fund) and the index card rule (some finance professor who wrote the book “index card”) all day that whole life and universal is waste of money. They all say look into term life.

I spoke to my insurance guy and he said as you get longer terms the premiums go higher, and he ran the number for me.

Question:

1) whole life v. Term life - what’s your take?
2) who is a good credible insurance company? (Do you actually have it with them, and your experience?)
3) would you take 10/15/30/40 year term?

Any advice would be helpful. And if you have other feedback or things I should consider please share. Thanks!
The typical advice is to buy term and invest the difference. This is what I did. And I'm happy with my outcome.

You should definitely buy term for at least 20 years. Go for 30 if you're willing to pay a little bit more.

Buying whole life is about 20x more expensive than term for the same amount of coverage. And it has surrender charges for the first ~7 years. So you will typically not afford a large whole life policy. It is more expensive because you are certain to die. So, there will be a claim if you never lapse. On the other hand, a 37 year has a very little chance of dying within 30 years; about between 1% and 2% chance of dying within 30 years depending on many factors. So, term coverage is cheap because over 99% of term policies issued to an age 30ish never have a claim (low mortality plus lapses).

So now you know the con of whole life, it's expensive because you are insuring against a certain claim. Similar to how car insurance rates go up after a few at fault accidents; eventually a driver may get dropped or offered extremely high rates. And it's less liquid during the surrender charge period.

What's the positive of whole life insurance? It's certain to payout so it can make estate planning much easier. It can build up cash value and function as a buffer asset in retirement to avoid drawing down on a stock portfolio during a bear market. It has an IRR higher than the aggregate bond market (very long term whole life guaranteed IRR today is about 3.5%).

My advice is if you are a 100% stock investor, you may not need whole life insurance. But, if you hold bonds, I would suggest holding whole life insurance instead of bonds since bonds will have negative real returns over the next 20 to 30 years. Whereas a whole life policy that isn't lapsed will have at least real returns of 1 to 2 percent.
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Re: Term life Vs. whole life

Post by an_asker »

student wrote: Sat Jul 24, 2021 3:36 pm
anon_investor wrote: Sat Jul 24, 2021 7:17 am
StevieG72 wrote: Sat Jul 24, 2021 7:15 am RUN from whole life policies! They person that sells it to you gets a HUGE commission so there is a conflict of interest.
+1.
+2.
+1! I get only one vote ;-)
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Re: Term life Vs. whole life

Post by bluegill »

StevieG72 wrote: Sat Jul 24, 2021 7:15 am RUN from whole life policies! The person that sells it to you gets a HUGE commission so there is a conflict of interest.
I think the commission is around 80-90% of the first year's premium.
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Re: Term life Vs. whole life

Post by ralph124cf »

I agree that whole life is garbage.

However, not all universal life needs to be lumped in with that.

I had a Group Term Universal Life policy thru my company for twenty years. I needed to pay the term component of the cost, but any investment deposit was optional. About 2015 interest rates nose-dived. The fixed income investment account had a minimum guarantee of 4% interest. I didn't jump in heavy, but I did deposit enough in the investment account to cover four years and six months of premiums (considering the effect of the 4% interest on the decreasing balance in the investment account). I let the insurance company pull the premiums out of the investment account for four and a half years, and then I allowed the insurance to lapse as I no longer had a need for life insurance.

Ralph
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Re: Term life Vs. whole life

Post by Alpha4 »

ralph124cf wrote: Sun Jul 25, 2021 1:57 am I agree that whole life is garbage.

However, not all universal life needs to be lumped in with that.

I had a Group Term Universal Life policy thru my company for twenty years. I needed to pay the term component of the cost, but any investment deposit was optional. About 2015 interest rates nose-dived. The fixed income investment account had a minimum guarantee of 4% interest. I didn't jump in heavy, but I did deposit enough in the investment account to cover four years and six months of premiums (considering the effect of the 4% interest on the decreasing balance in the investment account). I let the insurance company pull the premiums out of the investment account for four and a half years, and then I allowed the insurance to lapse as I no longer had a need for life insurance.

Ralph
At a 4% guarantee for the fixed account why did you let it lapse? Were you not allowed to max fund the thing up to non-MEC status (or even up to MEC status if you had no intention of taking withdrawals and/or didn't mind withdrawals being taxable if you did take them)? I know you can't actually Reduced Paid Up a UL like you can a WL but you can overfund it so much that the corridor between the death benefit and the cash account value is minimized and thus the amount at risk (and thus the COI charged on said amount at risk) is minimized; if you did this wouldn't it be possible that even after insurance COI that you'd still earn a higher return on the fixed account than could be earned on safe cash or bonds elsewhere?

Granted, this is a moot point if you wanted a 100% (or near 100%) equity allocation but if not, it would be hard to beat a 4% guaranteed return (tax-deferred too) on something that was almost as liquid as cash or T-Bills.
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Re: Term life Vs. whole life

Post by Fat Tails »

If you have a wife and or kids you need term life insurance. Probably 20 or 30 year. You wife may need life insurance as well. There are calculators to tell you how much you need. We have used Select Quote to get life insurance, several times in our life. There are other similar services. You don’t have to talk to a sales person. After the online questionnaire and easy lab blood test they came back to us with 3 options from 3 different insurance companies and we each picked one.

Cheers
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Re: Term life Vs. whole life

Post by Miriam2 »

Alpha4 wrote:
ralph124cf wrote: I agree that whole life is garbage.
However, not all universal life needs to be lumped in with that.

I had a Group Term Universal Life policy thru my company for twenty years. I needed to pay the term component of the cost, but any investment deposit was optional. About 2015 interest rates nose-dived. The fixed income investment account had a minimum guarantee of 4% interest. I didn't jump in heavy, but I did deposit enough in the investment account to cover four years and six months of premiums (considering the effect of the 4% interest on the decreasing balance in the investment account). I let the insurance company pull the premiums out of the investment account for four and a half years, and then I allowed the insurance to lapse as I no longer had a need for life insurance.
At a 4% guarantee for the fixed account why did you let it lapse? . . . Granted, this is a moot point if you wanted a 100% (or near 100%) equity allocation but if not, it would be hard to beat a 4% guaranteed return (tax-deferred too) on something that was almost as liquid as cash or T-Bills.
We also have a guaranteed 4% fixed income option in our very old Universal Life Policy from Lincoln Life. When we had this policy looked over by an independent insurance policy evaluator years later, he told us the policy was a very good policy (no longer sold, obviously :wink: ) and the 4% fixed income option should allow us the investment flexibility to keep the policy going until we (gulp) leave it to our kids.

He noted that many old policies have features like this and it can be financially worthwhile to just keep the old policy, if you want or don't mind the life insurance as you get older.
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Re: Term life Vs. whole life

Post by LadyGeek »

FYI - I moved a question by anthonypals and related replies into an earlier thread. See: Mass Mutual whole life legacy pay 20
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Re: Term life Vs. whole life

Post by yatesd »

I’m surprised people are recommending terms for such a long period. Your age, or age of your children is not necessarily the deciding factor.

The real question is at what age are you able to essentially “self insure”? Meaning, at what age will you have enough Net worth to leave your heirs in an OK scenario? For me it was 50 years old. My guess based on the info you provided is that a 15 year term will work well. Take any savings, and invest the difference.

Why give your money to the insurance company unnecessarily? I have added umbrella insurance as my net worth has increased. Seems like a reasonable place to spend money as well.
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Re: Term life Vs. whole life

Post by nisiprius »

reln wrote: Sat Jul 24, 2021 8:53 pm...bonds will have negative real returns over the next 20 to 30 years. Whereas a whole life policy that isn't lapsed will have at least real returns of 1 to 2 percent.
Please tell us more about whole life policies with contractually guaranteed real returns of 1 to 2 percent.

Consumer Reports doesn't mention them, and says
the average annual rate of ­return—1.5 percent for the whole life guaranteed cash value... is undercut by inflation, currently about 2.2 percent per year.
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Re: Term life Vs. whole life

Post by yatesd »

Fat Tails wrote: Sun Jul 25, 2021 2:26 am If you have a wife and or kids you need term life insurance. Probably 20 or 30 year. You wife may need life insurance as well. There are calculators to tell you how much you need. We have used Select Quote to get life insurance, several times in our life. There are other similar services. You don’t have to talk to a sales person. After the online questionnaire and easy lab blood test they came back to us with 3 options from 3 different insurance companies and we each picked one.

Cheers
I had also used Select Quote about 15 years ago, and ended up with a 15 year term for $500K from Prudential. It provided just enough insurance to keep us safe. I also had about $100K provided through work. My Prudential policy was about $170 a year.
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Re: Term life Vs. whole life

Post by Rex66 »

Alpha4 wrote: Sun Jul 25, 2021 2:09 am
ralph124cf wrote: Sun Jul 25, 2021 1:57 am I agree that whole life is garbage.

However, not all universal life needs to be lumped in with that.

I had a Group Term Universal Life policy thru my company for twenty years. I needed to pay the term component of the cost, but any investment deposit was optional. About 2015 interest rates nose-dived. The fixed income investment account had a minimum guarantee of 4% interest. I didn't jump in heavy, but I did deposit enough in the investment account to cover four years and six months of premiums (considering the effect of the 4% interest on the decreasing balance in the investment account). I let the insurance company pull the premiums out of the investment account for four and a half years, and then I allowed the insurance to lapse as I no longer had a need for life insurance.

Ralph
At a 4% guarantee for the fixed account why did you let it lapse? Were you not allowed to max fund the thing up to non-MEC status (or even up to MEC status if you had no intention of taking withdrawals and/or didn't mind withdrawals being taxable if you did take them)? I know you can't actually Reduced Paid Up a UL like you can a WL but you can overfund it so much that the corridor between the death benefit and the cash account value is minimized and thus the amount at risk (and thus the COI charged on said amount at risk) is minimized; if you did this wouldn't it be possible that even after insurance COI that you'd still earn a higher return on the fixed account than could be earned on safe cash or bonds elsewhere?

Granted, this is a moot point if you wanted a 100% (or near 100%) equity allocation but if not, it would be hard to beat a 4% guaranteed return (tax-deferred too) on something that was almost as liquid as cash or T-Bills.
With load and coi escalations (common with old ULs beyond of course the normal age related increases) these policies are not returning near 4%. One may still be ok with the return compared to current cds or savings accounts but I’d be also needs to realize UL s lag as interest rates go up.

Purchasing a policy today is a huge mistake. Keeping an old policy can be a very reasonable decision but it isn’t a true 4%
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Re: Term life Vs. whole life

Post by Alpha4 »

Rex66 wrote: Sun Jul 25, 2021 7:15 am
Alpha4 wrote: Sun Jul 25, 2021 2:09 am
ralph124cf wrote: Sun Jul 25, 2021 1:57 am I agree that whole life is garbage.

However, not all universal life needs to be lumped in with that.

I had a Group Term Universal Life policy thru my company for twenty years. I needed to pay the term component of the cost, but any investment deposit was optional. About 2015 interest rates nose-dived. The fixed income investment account had a minimum guarantee of 4% interest. I didn't jump in heavy, but I did deposit enough in the investment account to cover four years and six months of premiums (considering the effect of the 4% interest on the decreasing balance in the investment account). I let the insurance company pull the premiums out of the investment account for four and a half years, and then I allowed the insurance to lapse as I no longer had a need for life insurance.

Ralph
At a 4% guarantee for the fixed account why did you let it lapse? Were you not allowed to max fund the thing up to non-MEC status (or even up to MEC status if you had no intention of taking withdrawals and/or didn't mind withdrawals being taxable if you did take them)? I know you can't actually Reduced Paid Up a UL like you can a WL but you can overfund it so much that the corridor between the death benefit and the cash account value is minimized and thus the amount at risk (and thus the COI charged on said amount at risk) is minimized; if you did this wouldn't it be possible that even after insurance COI that you'd still earn a higher return on the fixed account than could be earned on safe cash or bonds elsewhere?

Granted, this is a moot point if you wanted a 100% (or near 100%) equity allocation but if not, it would be hard to beat a 4% guaranteed return (tax-deferred too) on something that was almost as liquid as cash or T-Bills.
With load and coi escalations (common with old ULs beyond of course the normal age related increases) these policies are not returning near 4%. One may still be ok with the return compared to current cds or savings accounts but I’d be also needs to realize UL s lag as interest rates go up.

Purchasing a policy today is a huge mistake. Keeping an old policy can be a very reasonable decision but it isn’t a true 4%
The returns on one of today's new UL policies probably would not be worth it; under the new regulations from 2020 ULs and even WLs can guarantee as little as a 2% minimum on CV (and given current interest rates I suspect they might start doing so soon on all/most newly issued policies). With that said, how much would an older policy return (i.e. an old UL that had a guaranteed 4% minimum) after expenses? I agree that the returns would be somewhere between "sub-par" and "abysmal" if one did not reduce the corridor between cash value and death benefit; the increasing COI simply due to age would eat the interest and eventually the principal too.

However, I've seen several old group ULs like this (one from MetLife, one from TIAA-CREF, and one issued as a group UL through AICPA) and if one chose to either:

A. Immediately max fund the policy at either the "premium to endow" or the remaining "maximum non-MEC single premium" (i.e. the maximum amount of premium that could be put in as a lump sum--assuming that the policy was at least seven years old--that would still allow the policy not to be classifed as a MEC) in order to minimize the amount at risk by minimizing the corridor between cash value and DB,

or,

B. Assuming the policy was at least 15 years old and thus would have no "force-out" issues, reduced the death benefit to the minimum that would allow it not to be a MEC given the premiums already paid (both this step and the step listed in A. above assume the policy is guideline tested and not CVAT tested); re-test each year to see if the DB can be reduced further without MECing the policy or causing a force out. The effect of doing this is the same as in A. above; namely, reducing COI charges by reducing the amount at risk.

Let's assume the policy had a level DB of $100K and a current cash value of, say, $18K. In the case of A. above you would immediately pay in enough premium as a lump sum to make the cash value as close as legally possibly to MECing the policy without actually MECing it and indeed without making it a pure endowment and thus having it lose its tax-deferred status as an insurance policy altogether; this would depend on the age of the policyholder (since the guideline test applies both a test on premiums paid and an age-based minimum CV-to-DB corridor factor to determine whether or not a policy is legally insurance or not) but for example let's just say that it would take the CV up to, say, $45K. Each year after this you would then reduce the DB if need be and if doing so would not create a MEC or a pure endowment (given the total premium paid in). In the case of B. above the ratio of CV to DB would be the same as in A (0.45) but would instead be accomplished by reducing the DB rather than increasing the CV (so the CV would remain $18K but the new now-reduced DB would be, say, $40K).

Aggressively minimizing the corridor between the DB and CV this way drastically improves the investment return IRR on the policy by reducing amount at risk which in turn reduces COI paid each year (by age 75 the corridor between the DB and CV can be as little as 1.05 or a ratio of around 0.9523 of CV to DB; from age 90 to 95 this reduces further so that by age 95--assuming the policyholder lived that long to begin with--the CV and DB are in fact equal and COI charges go away). IIRC the Metlife policy done this way had a CV IRR or just over 3.1% which was tax-deferred (and tax-free if one held it until death) and it actually was the lowest performing one vs the AICPA policy and TIAA-CREF policy due to higher COI charges per a given amount of death benefit vs the other two policies. Of course, this assumes that the insured didn't need the larger DB to begin with but since he/she admitting lapsing the policy as they no longer needed the life insurance protection I think that is a pretty safe assumption.
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Re: Term life Vs. whole life

Post by Lee_WSP »

From earlier threads where we did the math, whole life pays better than a bond if you die early, but unless you were planning on putting all that money in a treasury and have a high risk of early demise, it usually does not make financial sense. There are edge cases that prove the rule, but it's pretty much always a bad bet.
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Re: Term life Vs. whole life

Post by Rex66 »

Certainly the best way to maximize csv is the technique you mentioned but it does not “drastically” change the IRR of the death benefit if you die as expected for your risk. It decreases the irr if you die prematurely and it does in all likelihood improve the IRR if you die “as expected” but like by 1%.

Depends on dividends. The non overfunded approach is more based on guarantees.

For ULs need to still consider them further increasing cost of insurance or change in load fees.

Keep in mind they have done that.

For WL all the companies have done at least one of the following:
Increased load on puas, reduced the amount of puas you can purchase, put stipulations on it where if you skip a year or whatever you can’t make up for it, and a few other techniques bc none of the overfunding factors are guaranteed such that it’s harder to accomplish the original plan. Not even talking reduction in dividends.

So need to realize they can modify your plan.
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Re: Term life Vs. whole life

Post by 123 »

Insurance agents are strongly motivated to steer you to whole life insurance products since the commissions to them can often be 50% - 90% (or more) of the first year premium. That's just one of the reasons that whole life insurance products are so costly over time. Insurance companies actually lose money the first year on most whole life insurance policies due to first year costs like commissions and underwriting expenses.
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Re: Term life Vs. whole life

Post by Alpha4 »

Rex66 wrote: Sun Jul 25, 2021 7:39 pm Certainly the best way to maximize csv is the technique you mentioned but it does not “drastically” change the IRR of the death benefit if you die as expected for your risk. It decreases the irr if you die prematurely and it does in all likelihood improve the IRR if you die “as expected” but like by 1%.

Depends on dividends. The non overfunded approach is more based on guarantees.

For ULs need to still consider them further increasing cost of insurance or change in load fees.

Keep in mind they have done that.

For WL all the companies have done at least one of the following:
Increased load on puas, reduced the amount of puas you can purchase, put stipulations on it where if you skip a year or whatever you can’t make up for it, and a few other techniques bc none of the overfunding factors are guaranteed such that it’s harder to accomplish the original plan. Not even talking reduction in dividends.

So need to realize they can modify your plan.
Maxing the CSV vs the DB in the way I described took the Metlife $100K DB group UL policy (insured's current age at the time was 55) from either:

Expiring with no CV whatsoever and lapsing at the insured's age 69 (assuming no further premiums paid and assuming just under $18K CSV at the start and a DB of $100K plus the CSV) or expiring at the insured's age 76 with nothing left whatsoever either (same $18K CSV, DB at a flat $100K, and premiums until age 60 of just enough to pay the COI charged each year)

to

Having a CV IRR of around 3.1% or just over that at life expectancy and a CV IRR (and for that matter a DB IRR since after age 95 the CV and DB were identical) of just under 3.2% assuming the insured made it all the way to age 115; this was with no more premiums paid and the DB reduced to the minimum possible allowed under the GPT/corridor tests. 3.2% is not a huge rate of return (although better than CDs, bank accounts, or short-term commercial paper or a bond fund like VCSH or VFISX over this same time period...and tax-deferred/tax-free to boot) but having a financial product with a return that somewhat beats other safe assets is better than having a lapsed policy with nothing at all to show for it; this is what I meant by a "drastic improvement" (of course, doing this meant that if the insured did die in the first fifteen or so years after reducing the DB he'd have been better off just to have kept the policy as it was--since doing so would yield a much larger DB--but that is simply a bet on dying earlier rather than later and assuming the insured will live to anywhere close to his life expectancy he'll have been better off to have reduced the DB relative to the cash value rather than keeping the full $100K or $100K + CV DB).

Any premium loads weren't a factor here since no more premium was paid into the policy (all he did was reduce the DB); if he had instead chosen to max-fund it (i.e. keep the DB at $100K rather than reducing it but then on top of that paying enough premium in to essentially make the policy a quasi "paid up" policy with the max CV to DB allowed for it to still be considered a valid insurance contract under TEFRA/DEFRA/TAMRA) he'd have paid a just over 4% load on the money paid into the policy (this policy had no sales loads to pay things like trail commissions since it was a group policy and had been issued in 1992 and the current year was 2013; the policy load was mostly just to pay state and Federal premium taxes). The money dumped in would've earned circa 3.1 or 3.2% after COI and other charges which would've easily beat what CDs/T-Bills/short-term commercial paper was paying and would've thus recouped the cost of the premium load in less than two and a half years (vs just keeping the money in bank CDs or short-term paper).

I can't speak to any aspects of WL (PUAs, premium loads on PUAs vs base, term riders, company stipulations on funding each year) as this was a UL policy and not a WL.
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Re: Term life Vs. whole life

Post by exodusNH »

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Re: Term life Vs. whole life

Post by exodusNH »

roth_stuff wrote: Sat Jul 24, 2021 2:55 am I’m 37 and I need to get a life insurance. I have a house (about $280,000 left on mortgage) for 19 more years. My expenses are about 3.5k per month, including mortgage.

Dave Ramsey, Matt (3 portfolio fund) and the index card rule (some finance professor who wrote the book “index card”) all day that whole life and universal is waste of money. They all say look into term life.

I spoke to my insurance guy and he said as you get longer terms the premiums go higher, and he ran the number for me.

Question:

1) whole life v. Term life - what’s your take?
2) who is a good credible insurance company? (Do you actually have it with them, and your experience?)
3) would you take 10/15/30/40 year term?

Any advice would be helpful. And if you have other feedback or things I should consider please share. Thanks!

Please search this board for whole life. You'll see it is almost always a terrible idea.

Search my posts on the matter. If you go that route, you will be $10,000s to $100,000s poorer than you otherwise could be.
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Re: Term life Vs. whole life

Post by Rex66 »

One doesn’t know if it will beat CDs etc. I agree that it probably will in the case you oresented. It frequently does not. It never does if held for a short term and if held until death it probably will be bond like. Depends on where interest rates go and how fast. A quick rise in interest rates obliterates these products. A slow decrease like over the last 30 years and they appear better. There is typically about a 6 year lag on interest rates and improvements on dividends/interest rate although they are not required to increase either on old policies and sometimes have not with upticks in their investments. They have little reason to do so when the money can be used to entice new clients within the first few years of a policy. If you are going to invest over your entire life, it’s a bad choice99.99999% of the time.
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Re: Term life Vs. whole life

Post by HomerJ »

BitTooAggressive wrote: Sat Jul 24, 2021 7:26 am From what you posted i don’t know you need any insurance. If you do have a family and you save and invest you won’t need life insurance when you get older because your investments will have grown.
Of course he needs life insurance. It insures his family in case he DOESN"T get older. i.e. gets hit by a bus.

Term life is, of course, the way to go. Very cheap, it's pure insurance.

Whole life is a scam. Don't mix investments with insurance. Instead of spending $1000 a month on whole life, spend $80 a month on 20-year term life, and invest the left-over $920 each month.

You're still covered if you die early in an accident. And the investment money will grow far faster than whole life. In 20 years, you'll have far more money, and you can let the term life policy lapse because you won't need it anymore...

So you don't have to care how expensive term life will be when you're older because you won't need it when you're old. You'll have a million or two in the bank, and your kids will be grown.
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Re: Term life Vs. whole life

Post by afan »

If the insurance salesperson was simply saying that 20 year level term annual premiums are higher than 10 year level and lower than 30 year level, then they were right.

OP should start by doing some financial planning. Look at total assets, income, expected future income and expenses and estimate the need for life insurance. If they need life insurance, and having a child suggests that they LIKELY do, then estimate how much and for how long.

Life insurance to replace earned income should be term. It is just that simple.

There are some legitimate reasons to buy whole life in providing for closely held businesses or estate planning. If a non-insurance-salesperson financial advisor or estate planning attorney were to suggest a cash value policy, they would also explain why it would be useful, how much to get and how long, perhaps but not necessarily for life, it should be kept.

If you do not have good explicit reasons for buying a cash value policy you should not buy one.

The sort of customization that Alpha4 is discussing begins with a specific goal. Without that, there is no way to tailor a policy to fit an undefined purpose.
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Re: Term life Vs. whole life

Post by afan »

Shopping for life insurance:

Understand that there are two models of how insurance is sold. Some of the largest companies in the country sell through their own agents. These companies have a huge share of the insurance market, have been around for over a century and have many happy customers.

Other companies, including some that are quite large, sell through independent agents. These agents sell policies from a variety of companies. These companies have a huge share of the insurance market, some have been around for over a century and have many happy customers.

Neither way of selling policies is inherently better than the other.

You can identify policies from a variety of companies by going to independent agents and looking at some of the sites mentioned up thread. But those independent agents and sites will not return proposals from the companies that sell through their own agents.

If you want to do careful shopping you need to look at both options. Of course salespeople who work with only one company will say theirs has the best policies. Of course salespeople who work with multiple companies will say that they have the best policies. This is called capitalism. When you are looking to buy something, you have to shop for the best deal. The same is true for life insurance.
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Re: Term life Vs. whole life

Post by Rex66 »

Except all of the career companies push permanent insurance and don’t have the cheapest term. You really don’t have to deal with them and likely best you don’t. Go independent and forget the permanent insurance pushers.
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Re: Term life Vs. whole life

Post by Stinky »

afan wrote: Mon Jul 26, 2021 11:21 am Shopping for life insurance:

Understand that there are two models of how insurance is sold. Some of the largest companies in the country sell through their own agents. These companies have a huge share of the insurance market, have been around for over a century and have many happy customers.

Other companies, including some that are quite large, sell through independent agents. These agents sell policies from a variety of companies. These companies have a huge share of the insurance market, some have been around for over a century and have many happy customers.

Neither way of selling policies is inherently better than the other.
In general, term life insurance is less expensive if purchased from companies that use independent agents than from companies that have “exclusive field forces”. The “exclusive field forces”, sometimes referred to as “career agent” shops, are very expensive to operate, so those companies charge higher prices.

Also in general, “exclusive field force” companies push permanent insurance, mostly whole life, much harder through their distribution systems.

The ideal customer for an “exclusive field force” company is one who enters the system early, places his term insurance and IRA accounts with the firm, and then “graduates” to whole life and taxable investment accounts with the firm. That is a very profitable customer for the insurance company, because he’s being charged a boatload of fees.

This ideal customer is definitely not operating in the best Boglehead way.
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Re: Term life Vs. whole life

Post by afan »

Rex66 wrote: Mon Jul 26, 2021 12:29 pm Except all of the career companies push permanent insurance and don’t have the cheapest term. You really don’t have to deal with them and likely best you don’t. Go independent and forget the permanent insurance pushers.
If you shop for term and they do not offer the best deals, don't buy from them. But you will not know what they offer until you ask. Pointless to assume these huge companies will never make a competitive offer. You have nothing to lose by looking.

If they offer you something you don't want, then don't buy it. If you go to a used car dealer looking for a 5 year old Prius and they offer you a 1 year old Mercedes S class, no need to stalk out in anger. Just say "no, I am interested in a Prius". If they have any even at lower profit, eventually they will show you the cars. If they don't have any, then you will neither buy a Prius from them, since the don't have any, nor an S class, since you don't want one.

I have not shopped life insurance for a long time. Back when I did, several times I found my best offers from companies that did not use independent agents. I would not have known this had I never looked.
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Re: Term life Vs. whole life

Post by afan »

Stinky wrote: Mon Jul 26, 2021 12:38 pm
afan wrote: Mon Jul 26, 2021 11:21 am Shopping for life insurance:

Understand that there are two models of how insurance is sold. Some of the largest companies in the country sell through their own agents. These companies have a huge share of the insurance market, have been around for over a century and have many happy customers.

Other companies, including some that are quite large, sell through independent agents. These agents sell policies from a variety of companies. These companies have a huge share of the insurance market, some have been around for over a century and have many happy customers.

Neither way of selling policies is inherently better than the other.
In general, term life insurance is less expensive if purchased from companies that use independent agents than from companies that have “exclusive field forces”. The “exclusive field forces”, sometimes referred to as “career agent” shops, are very expensive to operate, so those companies charge higher prices.

Also in general, “exclusive field force” companies push permanent insurance, mostly whole life, much harder through their distribution systems.

The ideal customer for an “exclusive field force” company is one who enters the system early, places his term insurance and IRA accounts with the firm, and then “graduates” to whole life and taxable investment accounts with the firm. That is a very profitable customer for the insurance company, because he’s being charged a boatload of fees.

This ideal customer is definitely not operating in the best Boglehead way.
Happy to defer to your much greater knowledge of insurance. It is interesting to hear how those companies and agents operate.

However, the question here is whether one should look at multiple sources of quotes and pick the best one, or assume that these big companies will never have a competitive product and never look.

The logic of the second option eludes me.
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Re: Term life Vs. whole life

Post by Rex66 »

Likely you didn’t find a good independent

It’s just not the case as both I and stinky pointed out that they offer competitive pricing. It will lead to a push for WL as well. Not everybody knows how to combat that . Might want to consider that with your recommendations.
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Re: Term life Vs. whole life

Post by afan »

Again, if I wanted term, I would buy term. A pitch for whole life might waste a little time but it is otherwise harmless.

I did shop independent agents as well. Sometimes the independent agents had better policies, sometimes the single agent companies did.

Still not seeing the downside to getting quotes from both and buying the better option. Perhaps spell it out explicitly "If you shop single agent company policies you risk..." What?

Hearing a pitch to buy from them? I got the same thing from independent agents.

Being offered a cash value policy when I wanted term? So what? I don't have to buy whatever they offer.

Some other risk? If so, what is it?

Hard to see why one would NOT shop both sources...
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Re: Term life Vs. whole life

Post by BitTooAggressive »

HomerJ wrote: Mon Jul 26, 2021 8:38 am
BitTooAggressive wrote: Sat Jul 24, 2021 7:26 am From what you posted i don’t know you need any insurance. If you do have a family and you save and invest you won’t need life insurance when you get older because your investments will have grown.
Of course he needs life insurance. It insures his family in case he DOESN"T get older. i.e. gets hit by a bus.

Term life is, of course, the way to go. Very cheap, it's pure insurance.

Whole life is a scam. Don't mix investments with insurance. Instead of spending $1000 a month on whole life, spend $80 a month on 20-year term life, and invest the left-over $920 each month.

You're still covered if you die early in an accident. And the investment money will grow far faster than whole life. In 20 years, you'll have far more money, and you can let the term life policy lapse because you won't need it anymore...

So you don't have to care how expensive term life will be when you're older because you won't need it when you're old. You'll have a million or two in the bank, and your kids will be grown.
Agree. In the original post I did not see that he said he even had a family.
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