Permanent life insurance as an investment?

[Zero102]

I was discussing my current financial situation with my adviser recently and the topic of life insurance came up. Right now I have a term life insurance policy which costs me about $120/year and gives me $100k in coverage, however he mentioned getting a permanent life insurance policy for around $50k as an option, by the 20 year mark it would give me about $100k in coverage but from there it gets significantly better than the term policy, and the premiums stop after 20 years. Also, after 40 years (when I am getting close to retirement) it has a cash value of about $130k that I can take away without affecting my life insurance itself (maybe it was more, I am taking that number from memory). Of course this policy carries higher premiums, about $1200/year instead of $120/year, but it seems like at least I am not throwing money away like I currently am with term insurance.

I don't quite understand the details of it all, but apparently there is a portion of the policy that has grown at 5.8% for the last 100 years and is expected to continue to do the same, and that if at some point in the future I want to collateralize the policy I can take out this money plus the guaranteed cash value without paying any appreciable tax or having to repay it, all while keeping the $50k death benefit in place.

Clearly there is a lot about this that I don't understand even after asking to have it explained to me a couple times (and I think not understanding is my fault, kids have fried my brain). What do the educated investors on here think? Is permanent life insurance a good investment?

[Sugarphreak]

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[max_boost]

Originally posted by Sugarphreak
These companies are not in business to generate good faith and rainbows, they are designed to extract money from you in clever ways. They paint a pretty picture, but it is all marketing.

I've looked at these life insurance investment policies myself in the past and they are always deeply flawed once you pry away the sugar coating. Just like the Casino... it is a rigged system and the house always wins.

Every so often you have to deal with them (particularly if you take a mortgage) I laugh my ass off at these guys who do an "assessment" and keep telling me I need 1.2M in life insurance... like fuck off, this isn't Lotto 649 for my family, they need to have enough to pay for immediate bills and sell off my assets if something happens and that is it.

On a side note; almost every person I've ever known that trusts a financial advisor gets burned in the end. Best thing you can do for your financial future is learn to manage your own investments and insurance needs.

As an example I just had a friend who received an inheritance last year... it is the most money he has ever had, instead of running out and spending it, he wanted to do the responsible thing and put it aside so he could use it for something later. He told his financial advisor he wanted a low risk investment... flash forward to today, less than 12 months have passed and his investment is now worth only 40% of what it was before. I don't even know how you can lose that much money that fast!? :rofl:

[craigcd]

Originally posted by Sugarphreak
These companies are not in business to generate good faith and rainbows, they are designed to extract money from you in clever ways. They paint a pretty picture, but it is all marketing.

I've looked at these life insurance investment policies myself in the past and they are always deeply flawed once you pry away the sugar coating. Just like the Casino... it is a rigged system and the house always wins.

Every so often you have to deal with them (particularly if you take a mortgage) I laugh my ass off at these guys who do an "assessment" and keep telling me I need 1.2M in life insurance... like fuck off, this isn't Lotto 649 for my family, they need to have enough to pay for immediate bills and sell off my assets if something happens and that is it.

On a side note; almost every person I've ever known that trusts a financial advisor gets burned in the end. Best thing you can do for your financial future is learn to manage your own investments and insurance needs.

As an example I just had a friend who received an inheritance last year... it is the most money he has ever had, instead of running out and spending it, he wanted to do the responsible thing and put it aside so he could use it for something later. He told his financial advisor he wanted a low risk investment... flash forward to today, less than 12 months have passed and his investment is now worth only 40% of what it was before. I don't even know how you can lose that much money that fast!?

I wish everyone understood this. :thumbsup: Insurance Sales and Pyramid schemes are my two biggest pet peeves.

[max_boost]

I don't see/understand the scam that is life insurance? Everyone's going to have a different take on it, term/life/disability etc. but I don't see how it's a scam. Obviously you aren't going to benefit from your own death, it's to take care of your beneficiaries.

Pyramid schemes are a scam, yes. Having a shitty adviser that loses you 50% in one year, yes.

[Sugarphreak]

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[Aleks]

Originally posted by max_boost
I don't see/understand the scam that is life insurance? Everyone's going to have a different take on it, term/life/disability etc. but I don't see how it's a scam. Obviously you aren't going to benefit from your own death, it's to take care of your beneficiaries.

Pyramid schemes are a scam, yes. Having a shitty adviser that loses you 50% in one year, yes.

Agree. I would not feel comfortable being in a situation where if I died today my wife and kids only got 100k or so. :dunno:
But my kids are both under 3 so everyone's situation is different.

[max_boost]

Originally posted by Sugarphreak


If there is a need for basic insurance, then obviously it has some value. I have a basic disability plan and stupid simple term life insurance policy.

When they try to roll a long term investment into your life insurance policy, you can bet they are not going to be losing money on it. Even if you ignore the fine print that will somehow screw you out of collecting, most of the time it doesn't account for inflation and there is no way you actually make money doing it.

It is like how my insurance agent tried to roll some kick back into my disability plan. I pay an extra $$ per month, in 7 years if I havn't made a claim, I get a kick back of $$$$. WOW what a deal! It was dressed up very nicely, and at first glace it looked like a great deal. Except when you start digging into it, that $$ every month = more than the kickback, and if I made a claim at any point I would lose it... you would have to be retarded to take that deal. Classic insurance policy garbage.

OK that makes more sense. A simple ABC policy is nice.



Originally posted by Aleks


Agree. I would not feel comfortable being in a situation where if I died today my wife and kids only got 100k or so. :dunno:
But my kids are both under 3 so everyone's situation is different.

Absolutely! You just don't know. I don't see the big deal in tossing $5/day into life insurance. It's the same cost as that grande from Starbucks.
:drool:

[skandalouz_08]

Originally posted by Zero102
I was discussing my current financial situation with my adviser recently and the topic of life insurance came up. Right now I have a term life insurance policy which costs me about $120/year and gives me $100k in coverage, however he mentioned getting a permanent life insurance policy for around $50k as an option, by the 20 year mark it would give me about $100k in coverage but from there it gets significantly better than the term policy, and the premiums stop after 20 years. Also, after 40 years (when I am getting close to retirement) it has a cash value of about $130k that I can take away without affecting my life insurance itself (maybe it was more, I am taking that number from memory). Of course this policy carries higher premiums, about $1200/year instead of $120/year, but it seems like at least I am not throwing money away like I currently am with term insurance.

I don't quite understand the details of it all, but apparently there is a portion of the policy that has grown at 5.8% for the last 100 years and is expected to continue to do the same, and that if at some point in the future I want to collateralize the policy I can take out this money plus the guaranteed cash value without paying any appreciable tax or having to repay it, all while keeping the $50k death benefit in place.

Clearly there is a lot about this that I don't understand even after asking to have it explained to me a couple times (and I think not understanding is my fault, kids have fried my brain). What do the educated investors on here think? Is permanent life insurance a good investment?

Honestly, a permanent life insurance policy is a good thing to purchase if you're looking to leave money to your family. If you're looking to grow your investments there are much better vehicles available for you to shelter tax and grow it at a decent rate. Remember the $1200/yr you put into the policy isn't all getting invested, a portion is going to cover the cost of the insurance policy. If the policy doesn't make the "guaranteed" 5.8% or whatever they say it will you could be forced to pay more down the road and cash values of the policy aren't normally guaranteed.

Just a curious question, is this a participating life insurance policy? And what company is it with?

Rates are expected to change on these policies within the next year if they haven't already due to the low interest rate environment.


Originally posted by max_boost
I don't see/understand the scam that is life insurance? Everyone's going to have a different take on it, term/life/disability etc. but I don't see how it's a scam. Obviously you aren't going to benefit from your own death, it's to take care of your beneficiaries.

Pyramid schemes are a scam, yes. Having a shitty adviser that loses you 50% in one year, yes.

Insurance isn't a scam. Say you take insurance today and die tomorrow how has the insurance company made any money on you? They've lost money. They place hedged bets that you will survive past the average lifespan of someone your age. Most people don't understand that life insurance isn't meant for you so paying into a policy that you won't get anything out of (but your family will) often gets overlooked as everything things about themselves first.

As for an advisor losing 50% of what was supposed to be a conservative investment, that's ridiculous. Post up the advisor's name, write to their manager or companies head office and complain. Not enough is done to point out negligence of advisors and losing 50% in the current market is absurd when it should be a low risk investment.

[Sugarphreak]

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[max_boost]

Isn't that where A790 works? Yellow Media? ;) j/k!!!!

I agree that life insurance isn't a scam. I die tomorrow, someone gets $500K tax free and I've paid $27K into it? Seems like a good deal. How do I fake my own death? :rofl:

[skandalouz_08]

Ha! Yellow Media has been going down for years and almost everyone has seen that coming. Who still uses the Yellowpages? And how is their site any better than Google?

I had a friend who worked there and he kept trying to sell me on advertising until he finally saw that the company was going no where but down and jumped ship. I was thinking maybe the advisor invested your friend in RIM...that is another one that would make sense.

[Sugarphreak]

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[craigcd]

I wasn't saying that life insurance is a scam- however how it is sold by some companies often seems that way. I buy life insurance to cover off my loss of income if I die so my wife and kid can continue living comfortably. Not to hit the lottery, not to invest, and for a fixed amount of time.

I guess it is a matter of opinion.

[Zero102]

For those who stayed on topic, the company is Canada Life, and your premiums are allegedly guaranteed to only need to be paid for 20 years, the dividend portion of the cash value is subject to their interest rate which has been steady at 5.8% for 100 (or over 100...?) years now as I have been told. So basically, if that goes down then the dividend portion doesn't grow as quickly.

I am not looking for a big get-rich policy, I want enough for my wife and kids to be able to bury me / burn me up / whatever, and to cover at least a year's worth of bills until they decide what to do with their lives. Plus there is a much bigger policy on me through my work right now and should I lose that due to my work situation changing then I can revisit my total insurance policy value at that time.

This policy has a higher value with dividends and guaranteed death benefits than it has cash value, so 20 years in I think it was worth ~$210k if I die, but only ~$130k if I cash it out, although I was told I still keep the $50k death benefit if I cash it out which would be nice to hang on to. Alternatively, if I die before I cash it out then my family gets extra money, yay for them I suppose, but the plan would be for me to cash it out later then keep the $50k guaranteed death benefit around for whenever that happens.

[max_boost]

Is that a whole life policy?

I have a $500K policy. Premiums are $330/month.

Paid into it for 7 years now. Cash value if I cancel the policy today is $18K. If I die today, the whole payout is $503K. The interest rate is 4.5%

It's expected that after 15-20 years of paying into it, the policy can pay for itself or I keep paying it so the death benefit keeps increasing.

[skandalouz_08]

Originally posted by Zero102
For those who stayed on topic, the company is Canada Life, and your premiums are allegedly guaranteed to only need to be paid for 20 years, the dividend portion of the cash value is subject to their interest rate which has been steady at 5.8% for 100 (or over 100...?) years now as I have been told. So basically, if that goes down then the dividend portion doesn't grow as quickly.

I am not looking for a big get-rich policy, I want enough for my wife and kids to be able to bury me / burn me up / whatever, and to cover at least a year's worth of bills until they decide what to do with their lives. Plus there is a much bigger policy on me through my work right now and should I lose that due to my work situation changing then I can revisit my total insurance policy value at that time.

This policy has a higher value with dividends and guaranteed death benefits than it has cash value, so 20 years in I think it was worth ~$210k if I die, but only ~$130k if I cash it out, although I was told I still keep the $50k death benefit if I cash it out which would be nice to hang on to. Alternatively, if I die before I cash it out then my family gets extra money, yay for them I suppose, but the plan would be for me to cash it out later then keep the $50k guaranteed death benefit around for whenever that happens.

The part I worry about for you is the bolded part. The rest of it makes sense but think about this; after 20 years your policy is worth $210K (only if you die) but you can cash out $130K. If the $130K is your total cash value in your policy then how will your $50K continue to stay in force?

Just because you aren't paying premiums doesn't mean there isn't a "cost" being withdrawn from your cash value/dividends in your policy on an annual basis. Dividends are paid based on the cash value in your policy, if you have no cash value how much dividends are you earning? If the "cost" of the policy becomes more than the dividends/cash value your $50K policy will actually lapse, as we saw happen to many people in the last few years.

Anyway, if I were you I'd ask for a printed projection and more information about the policy. Seems too good to be true and could be a loophole that you just might not understand...or maybe I'm missing it.

Also, $130K cash value after 20 years seems extremely high to me considering you're only paying $1200/yr = $24K over 20 years.

[canadian_hustla]

Originally posted by Sugarphreak
I should find the guys name out and throw it up on here, he totally mislead my friend on what he was going to do with his money. All he wanted was a place to park his money with a slightly better than inflation return. A large chunk of his investment was put into this:


And in case you can't see the price at the end.... it is worth about 3 cents today.

When it was starting to crash, my friend called his advisor and asked him to sell it... the advisor talked him into keeping it and how it was just one of the up's and down's of the market :facepalm:


Similar thing happened to my Dad about 4 years ago, he was looking for a low to moderate risk investment and an advisor from CIBC managed to lose 50% of his investment within a year... to this day it is lingering around 75% of the original value.


My theory is this: An investor that is good and able to read the market and make money... makes a lot of money and then retires shortly after. All of the ones who don't have a clue how to make money end up becoming "investment advisors" and losing everybody else�s money while they rack up commissions.


:hijack:

^ man that sucks, I was looking at it when it was $1.00 or whatever, anyways it shot up to $1.75 because they announced a new CEO or something and then fell like a rock. Come to think of it, the yellow pages is obsolete, I just found one on my doorstep and I used one fluid motion to position it into my blue recycling bin.

Now, back on topic... I am not sure if I am sold on the life insurance = investment either. I met with an insurance advisor 2 months ago, he wanted me to put $15k/yr into a insurance policy/investment hybrid. He said that it would grow, blah blah blah. Why in the heck would I want his firm to choose my investment decisions? Keep in mind you have 0 say as to where it goes, but rather basket 1 basket 2 etc.

I think the whole idea is retarded. I deal with extremely high value clients and it is very rare for someone to do this kind of thing. next... .

[ExtraSlow]

In my opinion, someone with a young family should have some sort of life insurance.

I went with Term life for the following reason. if I die tomorrow, I want to know how much my family will get. In twenty years, my house will be paid off, and my kid will an adult. My family doesn't need a windfall in 20 years, they need it now, if I'm going to die.


I'm pretty simple minded, so i like to keep my insurance and my investments separate.

also, ever notice how the people who sell insurance are always talking up all these complex insurance products? I'm pretty sure it's because they make larger commission off them, not because they are great for the clients.

[Darell_n]

Ask them how much commission they make. The ones I've talked to in the past have been required to disclose this information.

[Nav13]

Sugarphreak you really need to do your research about insurance before you stop someone else from make a decisions based off your lack on knowledge. You are mixing up the good and bad of 2 different types of policies.

Participating or Whole life polices are bought and paid up in 15-20 years. They make money off of people like yourself who buy term insurance. 90 percent of term insurance doesn't get paid out. That's where the whole life policy owners make the 7 percent dividend every year for the past 120 years.

Universal life is another from of permanent insurance. However this type of policy, part of your premium goes to the cost of insurance. Part of it goes into a investment account which will most of the time be a mutual fund. In other words it earns its money from the market. Universal life policies are risky unlike whole life policies. So yes you can loose your money very quickly in universal.

term is good and cheap to cover a debt like a mortgage. However permanent life insurance can be used to supplement your retirement greatly and is probably the most conservative investment you can ad with out taking a lot of risk.

[ReasonOne]

Personally, I think some form of life insurance is prudent - just do your research and understand what you are getting into. One of the main reasons why insurance has such a huge stigma is that few people understand or comprehend the various types of policies available and what fits their needs. Or even want to. And it certainly doesn't help that there are a LOT of insurance weasels out there trying to give everybody a diaper bag treatment like the majority of investment brokers.

Depending on your lifestyle/budget/needs, there's a place for term and there's a place for participating or universal (among other types of policies).

Don't get mad. Get even. If you don't understand how insurance or investing works... learn. Read a book, take an entry level class if you have the time or talk to someone you know and trust that is knowledgeable in these fields. Some people may know a financially independent elderly relative in their family, who will impart some basic, honest and no-nonsense advice in exchange for an occaisonal visit and some quality time.

Why put your financial well being into someone else's hands? It's easy to blame a broker when thing go south, but if you are in charge there is nobody to blame but yourself. I think that many people are afraid or intimidated of taking ownership of their financial future. And there are companies out there getting paid billions just to convince John and Jane Q. Canadian that they are too stupid to do it themselves. And that - in my opinion - is bullshit.

I have a couple of policies myself. But they are not the end all and be all for my overall investment strategy. In fact, it is an extremely small portion (I don't really consider it an "investment" of any kind, per se). It's there so that my loved ones are cared for in case something happens to me.

Diversification is key. Just don't depend on your life insurance policy (or the cash value in it) as your only saving grace or major windfall. Just my two cents.

[CapnCrunch]

Does anyone have any good recommendations for term life insurance? I'm looking for 20-25 year for $550,000.

[skandalouz_08]

I have PM'd you.

[sputnik]

The words "insurance" and "investment" should never be used together to describe the same thing.

For insurance, just get a good 10-20 year term policy. Sure at the end of it you get nothing, but who cares, it was cheap. It also means you didn't need it (which is a good thing). Making insurance into some "investment" is just a means for an insurance company to leverage your hard earned money to bankroll their operations and other policies while giving you a crappy return.

[skandalouz_08]

Originally posted by sputnik
Making insurance into some "investment" is just a means for an insurance company to leverage your hard earned money to bankroll their operations and other policies while giving you a crappy return.

Just to play devil's advocate, you may think of it as a crappy return just because you aren't physically receiving it, but when you look at the amount of money you put into a permanent/whole/participating life insurance plan compared to how much your beneficiaries get out of it the return is often in excess of 5-8% (depending on your life span) but still that's a good return, especially in these markets and over a 40-60 year time horizon.

[max_boost]

Originally posted by skandalouz_08


Just to play devil's advocate, you may think of it as a crappy return just because you aren't physically receiving it, but when you look at the amount of money you put into a permanent/whole/participating life insurance plan compared to how much your beneficiaries get out of it the return is often in excess of 5-8% (depending on your life span) but still that's a good return, especially in these markets and over a 40-60 year time horizon. :werd: I just hope they don't piss it all away on drugs but actually use it as opportunity to gain knowledge and experiences in life. i.e. education/travel

[sputnik]

Originally posted by skandalouz_08


Just to play devil's advocate, you may think of it as a crappy return just because you aren't physically receiving it, but when you look at the amount of money you put into a permanent/whole/participating life insurance plan compared to how much your beneficiaries get out of it the return is often in excess of 5-8% (depending on your life span) but still that's a good return, especially in these markets and over a 40-60 year time horizon.

5-8% is a crappy return on a 40-60 year investment strategy.

[sputnik]

Originally posted by max_boost
:werd: I just hope they don't piss it all away on drugs but actually use it as opportunity to gain knowledge and experiences in life. i.e. education/travel

My life insurance policy will be over when I am 52.

By then my mortgage will be paid off, my kids will be adults and my wife won't need to support them.

Not sure why anyone would want a life insurance policy just so that their kids can hit the lottery when they die.

[max_boost]

Originally posted by sputnik


My life insurance policy will be over when I am 52.

By then my mortgage will be paid off, my kids will be adults and my wife won't need to support them.

Not sure why anyone would want a life insurance policy just so that their kids can hit the lottery when they die. Yea you do it your way buddy.

[cet]

I follow the same strategy with regard to insurance/investing. I ave group insurance through work that will take care of my family for years should I die. I then have term insurance to cover the mortgage. Once the mortgage is paid off I have no more need for the term insurance. All investments are handled seperatly.


Originally posted by sputnik


My life insurance policy will be over when I am 52.

By then my mortgage will be paid off, my kids will be adults and my wife won't need to support them.

Not sure why anyone would want a life insurance policy just so that their kids can hit the lottery when they die.

[ExtraSlow]

Originally posted by sputnik


My life insurance policy will be over when I am 52.

By then my mortgage will be paid off, my kids will be adults and my wife won't need to support them.

Not sure why anyone would want a life insurance policy just so that their kids can hit the lottery when they die.



Originally posted by cet
I follow the same strategy with regard to insurance/investing. I ave group insurance through work that will take care of my family for years should I die. I then have term insurance to cover the mortgage. Once the mortgage is paid off I have no more need for the term insurance. All investments are handled seperatly.


Yep, that's my strategy as well. I don't plan on carrying life insurance past about age 50.

[skandalouz_08]

Originally posted by sputnik


5-8% is a crappy return on a 40-60 year investment strategy.

It's ONE of your investments strategies, its not your only one. Never put all your eggs in one basket. Technically your return could be 50+% but that would mean you died before your life expectancy.

Would you rather live in retirement watching your pennies knowing there are still expenses to be paid after your death (funeral, final taxes, probate, etc.) or live without a care knowing your insurance will cover that and you can spend every last dime you've saved in your retirement?

[Nav13]

Lots of people with mortgage insurance dont realize that a butt load of them dont pay out. Even when you think you are insured the bank insurance company does not have to pay.

For example people dont realize that the underwriting is done after death with mortgage insurance instead of before. Meaning the insurance company can still get out of paying the death benefit if they find anything irregular.

Also people tend to lie on their mortgage insurance application to get a lower rate. If you pass away and they find anything that doesnt match up, they will decline your claim. Also meaning your wife and kids are SOL. The bank can also then claim full payment of your mortgage if they find out there is a death.

heres a link to a video that people with mortgage insurance should watch. www.cbc.ca/marketplace/in_denial/

Weather you get permanent or term its way better to get your own policy rather then the banks. It usuall the same price as the banks or sometimes cheaper and you get a level death benefit rather then a declining on like your bank insurance.

[ExtraSlow]

yep, mortgage insurance is a rip-off. Term insurance of similar value is much better deal.

[craigcd]

Originally posted by ExtraSlow
Yep, that's my strategy as well. I don't plan on carrying life insurance past about age 50.

Agreed

[Xtrema]

Terms insurance is cheaper, especially if you need higher coverage.

I'm with Sputnik, the risk is during kids growing up and mortgage not paid off. Once kids are on their own and you have no debt, it easier to deal with money that's on your hand than in insurance company's hands.

All these 15-20 years plan have a out. If insurance investment doesn't work out, they can ask for top up and push payments beyond original term. And if you don't agree to it, the withdrawal value is usually about 30% less than what you have put in.

Each product is designed for a different goal. Term covers the period of risk, whole life is for inheritance.

[dawerks]

Give your kids enough money to do something. But not so much that they do nothing.