I want to a Life Insurance and i am confused between the Term and Permanent Insurance. Insurance agents contacted me and gave me loads of info.
Many are recommending the Permanent/Life Policy. In this case i need to pay for almost around 20 years and then the policy is mine and i do not have to pay for life long. At the end of the 20 years, i also have the money value accrued and i can withdraw if i need for some interest. Its probably like taking the bank loan.
The second type of insurance is the Term Insurance and its in the phases of 10, 15, 20 years of time. This probably costs only couple of hundreds of dollars but its not permanent. you need to pay the heavy insurance premiums all the time, as long as you need the coverage.
The also said if i take a policy for the kids (also new born), i would probably need to pay only for 15-16 years and they would have the Insurance for the life time. Not sure, if this is a marketing trick or it really helps kids, when they grow up.
Appreciate if you can share your experiences and which one do you think is better. Do you recommend New York Life ?
Make sure what are your objectives are, is it investment or insurance against sudden stoppage of biweekly cash flow. If it is insurance, take Term Insurance for yourself (and your wife if she works).
If it is investment – you can look at Whole life or other investment options – my opinion is, you will likely find better investment options other than whole life.
Do not take insurance for the child – the child does not produce an income stream, so no need to protect yourself against its sudden stoppage.
Most of the things the agents are telling you is correct…If you can afford the monthly premium of the permanent policy it’s great, otherwise you can have go for a Term insurance (where the policy has no cash value). Also, I wouldn’t recommend you buy a policy for your kids…
This is almost like buying a house vs. renting an apartment.
I’ve my a permanent policy with Met Life since last 15 yrs. The policy just got paid off, meaning I won’t have to pay anymore and I’ve the policy for life. The policy also paid-off $3000 dividend a few yrs back and all in all it,
turned out to be great. I’m also planning to increase my coverage and may add a term insurance on top of what I already have….
If you’re interested in contacting my Met Life Financial Advisor, let me know, and I’ll put you in touch with him.
We went through this a few years ago and figured this out:
You only need life insurance (to replace your income) if there is someone dependent on you — like your kids. Kids don’t need insurance coz they don’t have dependents. So presumably after you have your first kid, you need insurance for about 20 yrs. Also your spouse needs insurance, irrespective of whether they’re working or not — because if they pass away, you have to find childcare for your kids & household help.
Term life is cheaper and it’s exactly what you need – insurance for 20 yrs.
Perm life is expensive because it’s insurance + investment. Also insurance agent gets more commission from this as it’s more expensive.
If you take the premium diff bw perm & term life, you can invest that in the market and make more money than you make in the perm life policy.
So, I’d say, when you have your 1st kid, buy 20 yr term life for yourself & wife, for 1mil each. If later you feel you need more insurance (due to inflation or let’s say you end up having 5 kids but your policy will only cover expenses for 2 kids or you have a kid 10 yrs after the 1st one), you can buy another term life for a smaller amount, and for a different period.
All insurance companies have ratings — any one with an A++ or A+ rating is good.
Most financial analysts that don’t have a stake in selling you something recommend term life insurance. The purpose of this is really that you have insurance to cover the cost of raising your children (typically through college) should something happen to you.
There are a lot of articles and books on the subject. I would check with someone who doesn’t have a financial stake in selling you insurance for some good advice. Taking out life insurance on your children seems very strange to me. There are lots of articles and books out there to help you. Here’s one I found through a quick google search: http://www.smartmoney.com/insurance/life/index.cfm?story=lifeterm&hpadref=1
I think the insurance agents will always recommend permanent/life policy since they get better commission with that kind of policy.
My opinion is for protection: go with term insurance. The premium is much less.
NY Life is highly rated, you should look at the ratings before selecting an insurance company and pay more for the ratings. I use Lincoln which Allstate sells as they have a high rating and since i get auto and home from Allstate, I got a discount.
I recommend Term, and most books you buy will advise the same. Life insurance is to financially protect your loved ones, your spouse and children, in the event that you die and should not be mixed with investing. So just get enough coverage to cover your debt and a little more (there are formulas on how to calculate this figure). Term is signficantly cheaper then Universal or Permanent but agents will always try to sell you Universal/Permanent as they get a bigger commission for it.
Yesterday I was listening to Dave Ramsey an expert in this area and he said that Term is always better.
http://www.daveramsey.com
Hope you can get more info from the URL above if not do let me know and I can go into the details.
I am taking a course with him and I love what I learnt so far. Good to know about the financial traps in this country.
Term life insurance are given in terms like 5 years, 10 years etc. the max is 30 years. whatever you pay as premium is gone to the company. except benefit, you do not get any money back from insurance company. the benefit is not for you. the benefit is for family and dear ones when we are not here
Whole life is for the whole life. you pay premium little by little. at one point of time, the policy pays the premium. for e.g. if you take whole life 100,000 , then you pay premium of 100 usd (approx) per month. like that, you will have to pay for 13-15 years. after that, you do not have to pay any premium. the policy pays the premium. this 13-15 years comes down if you are younger. if you are older, then it goes up.
premium for both term as well as life is based on your habits, issues, body conditions and much more.
normally, term life is cheap. for e.g. 650 K of term life, you may be paying 30 USD per month. where as 100K of whole life, it will be 95 USD per month
in whole life, you are buildng your money. Insurance companies, gives bonus, dividens etc etc.. it gets accumulated and at one point of time, it grows to some amount. for e.g. you dedcide to withdraw at 60 years old. you have completed paying the premium and now the policy is pay the premium. there is something called “Cash value”. you will get this money when you surrender.
No expert here, but this is my understanding:
* Permanent/Life Policy (also know as whole life) is sort of like buying a financial product like a mutual fund that also has life insurance benefits. As noted, is has an investment value that you keep once you’ve paid the entire amount.
* Term insurance is only for the period that you insure for and premiums are calculated as such. The idea is that there is a period where you most need the coverage – during your earning years. Once you’ve paid off your house and saved money for retirement, the death benefit is not as important as your survivors are already properly set up.
* Term policies have less expensive premiums for the same death benefit since they don’t have the cash value that the Life Policy has. Depending on how many children you have, your current income, etc., you may want 5x, 7x or more of your income in coverage. The Life Policy will be a lot more for this level of coverage.
* My understanding is that you can get a better value by purchasing term insurance and separately investing in a mutual fund or other financial instrument.
* You can purchase term insurance for your spouse or children through Oracle; this would cover some expenses incurred if needed.
It really depends on your age and what your needs are. You need to watch out for insurance agents talking you into buying Permanent/whole life insurance. They make more money selling you Whole Life than term. In general, what I found from my research is that the return you get from Whole Life insurance does not justify the amount you pay for the premiums. However, the pros of getting a whole life insurance is that you will lock in the premium amount. So the younger you are when you buy whole life insurance, the cheaper it is.
Another concern is health check when you first buy your policy. Insurance companies can reject your application if you have or are high risk of certain disease. So I do highly recommend that you get an insurance while you are still healthy.
After going through all the dilemmas between Term and Whole life, I personally decided on getting a 10 year term from MetLife (one of the cheapest and biggest companies), and I can later on convert this term insurance into Whole Life without any medical check but with higher premium. It fits exactly what I wanted.
I also would not recommend New York Life. I had bought a Whole Life insurance from NY Life before. It was extremely expensive compare to the other companies, so I canceled the policy and lost a few grand total in premium. I also have a few friends and family who had similar experience.
As for your kids, it is a good idea to buy insurance for them when they are young. If you help them buy it at early age, they can either take out the money when they go to college or continue their own policy.
Term is better. You are right – those who are trying to sell you perm are just trying to sell you more than you need. In Permanent, you pay a LOT more for 20 years and the money that they claim is yours and inversted on your behalf is not really available. I went to the details of it and the “vested” money is a lot less than what they proclaim in the beginning. You can get more information from them – the more numbers you look at, the clearer it will be. You can ask them, if I take XY permanent policy and pay $Z per year, how much money do I have available at the end of year 1? Is it atleast close to 0.8*$Z (assuming 20% goes to premium)?
I don’t believe in getting insurance for kids – that is just a gimmick to get more money out of you.
I have a small permanent policy, and a much bigger term policy to be in effect until my child graduates college (after which it isn’t needed).
Remember that life insurance is primarily to help pay for expenses if/when you pass away. You need to make up for your income while you have dependents, in that situation. Once they’re on their own, it’s no longer needed.
The permanent policy is a version of an investment – if you own other investments it may make sense to own a permanent life insurance policy as well.
It’s reasonable to have a small ($10K or so) term policy on each of your kids, to help pay for funeral expenses – this should be really inexpensive. This should be in effect for as long as you would be on the hook for funeral expenses – so perhaps until the child gets married. A permanent policy is an option, but it’s more expensive to get the same coverage.
I buy my term insurance thru Oracle benefits – I haven’t found a better deal. (My permanent policy is thru MetLife – there are sites out there that give you a comparison of company health and costs – you have to do the research, just as you do for any other investment…..)
Get term. Think of it this way: term gets more expensive as you age, but your savings should be greater as you age, so you shouldn’t need as much insurance.
Kids don’t need life insurance–who are they supporting?–you’re better off investing the payment in a trust for them. None of us needs permanent life insurance–our coverage should change based on how much our dependents rely on us for support. Children and retirees generally need only enough insurance to cover funeral expenses and outstanding debt.
Permanent life insurance is a way of making you pay higher premiums when you’re younger. Sure you get cash back, but the return is lower than if you invest the money yourself. The best approach is to get the cheapest term insurance and invest the difference yourself. You will be able to get a better return on your money.
Caveat, if you don’t have the discipline to invest the difference, then maybe permanent life insurance is an option you could consider.
good article http://www.smartmoney.com/insurance/life/index.cfm?story=lifeterm&hpadref=1
there may be several more on the net
The decision may not be between one or the other. It is a better strategy to have them both, if you can afford. If u cannot afford, start with term life and slowly add permannt insurance. our employer has certain level of term insurance too.
there is a quote like “life insurance is not for the people who live it is for the people who survive”.
permanent life policy is investment and life combined. But the insvestment growth will be much lower and more stable than equity market.
one should have insurance policy to the extent that the survivors won’t see any financial burden in an unfortunate event. if one earns $100k per year and has $500 k mortgage then 10*100+500=1.5mil may be reasonable figure. ( for 1 mil with 5% interest, you get around 50k per year, which is close to after tax on 100k annual salary and one less person)
metlife and newyork life should be good. eventhough AIG is in trouble currently, i feel their rates are very competetive.
I personally felt the permannt life insurance, there is lot more choice in india. there is something like ULIP (Unit Linked Insurance Policy) which will let us choose several types of investments (under some restrictions and guidelines) and investment in market. in traditional permannent life insurance average growth is around 6%, but my permanent ULIP in 2006, 2007 gave me growth of more than 40%. ofcourse it is down since then. it is tied to market, it is up to you how much risk you wanna take.
Agents will always recommend Permanent/Life Policy as they get more commissions out of it.
You need to evaluate the real reason of taking life insurance. Do you plan to use it as an “investment” where you can take a loan from it later in life? Or would it be to provide “insurance” to your beneficiaries in case you are unable to be there for them? If its the later, then I would think your dependents need your earning capacity for the next 20 years and after you retire – by which time your dependents are all (hopefully) settled and can earn/live by themselves.
The assumption here is that you are also separately looking to funding your retirement (savings/401k etc), so you dont need to take a loan on your insurance.
With Perm policy, the insurance company will invest your money, and if the funds they invest in do well, they will use the returns from it to fund your insurance. If the funds fail and the returns fall short, even after 30 years, you will be liable to pay the premiums at that time (or take a loan from your accumulated value)
Thats just my opinion as I am biased towards term life, and have been looking for one myself.
Always go with term insurance. Many states have made permanent life (sometimes called universal life) insurance against the law. It is a very big rip off yet most agents will try to steer you in that direction because they make the biggest commission on a permanent policy.
You are better off getting term insurance and then investing the extra amount you would save into your 401K or other investment.
http://www.eterm.com is a good place to shop for coverage.
Doing the math, whole life will NOT make sense. that is way I chose Term 🙂
For children, if you do want to give that gift, take the payments that you put in whole life for them in an investment vehicle, then at 18, stop investing and then take a 40 year term life for them and pay for the policy at that time. I bet, the investment will produce more than enough to cover the term life premiums.
I compared the two types the following way, and chose Term Insurance.
Permanent (Whole Life) Insurance premium = Term Insurance premium for 30 years + some-delta
The delta is what 1) pays for the policy for the rest of my life, after 30 years and 2) also provides the money value accrued.
1) was irrelevant for me – as I hope that after 30 years my dependents will not need the money from my insurance.
2) the money value accrued was horrible, that i can just invest the extra delta anywhere else and easily beat the returns the insurance company gives me.
As an aside, insurance agents make more money selling Whole-Life policies, and no wonder that’s what they recommend.
I hear Susie Orman say ‘Buy term and invest the rest’.
A rule of thumb I’ve been told, for term insurance is to get a minimum to cover your debts (ie. home mortgage, etc.). If you have children, include costs that would be needed to pay for their expenses through at least college, in case something were to happen to you. And ask agent for ROP (Return of Premium) – that is if you paid your term insurance for 20 years (some offer 30 years), you get all your money back at the end of the term. I think another way is 3x your salary at a minium + if you have kids (include costs thru college, should they lose a parent(s).
Sorry cannot comment much on permanent insurance, except that if this amount is not affordable or a stretch by any means, and you cannot pay, you may lose the monies you’ve put in.
Not sure of NY Life, but I hear Guardian, Ohio National is good.
I have heard Term Life is a better choice. Also regarding life insurance for children, I read in some article, that Life insurance is a tool for income replacement. So basically its good enough if the earning members have Life Insurance since the surviving members would need the income. They recommended not getting Life insurance for kids. I don’t remember where i read this article though.
I think you need to decide whether you want just the insurance coverage (Term) or a combination of investment and coverage (Permanent). Everyone’s preference and priority are different, so there is no one answer that works the best for all. But, in general, it’s recommended that you keep your insurances and investments separate.
There’s a good reason why most agents recommend Permanent. Their sales commissions on Permanent policies are astronomical when compared to Term policies. That should tell you which type is more profitable to insurance companies…
Don’t waste your money buying permanent life policy. They are all annuities dressed up as insurance programs. you will come ahead taking a term life and then investing the left over money in an index fund which you invest or invest in IRA or some other tax deferred vehicle. All this nonsense about paying policy for 20 years is all hogwash. It basically means its an annuity and annuity is one of the worst investment options. So when you hear a whole/universal/permanent life insurance you should be clear its an annuity couched as something sweeter. And BTW the insurance agent makes a ton of money selling annuities so no doubt he is pushing that hard.
for example a 250k universal life you pay around 225 per month ie around 30k for 10 years. if you get a term life you pay $300 per year so basically just 3k for 10 years. so you are left with about 25k which you can invest. so what they are doing is taking your 25k and giving you an annuity. i can go on and on..but i stop. I am preparing for CFP exams so have so much to add on this topic since you pushed my buttons! Good luck.
Insurance is to replace a wage earners income so its basically another scam if you ask me where agents try to sell insurance for kids who do not have a job. if you want to build wealth for kids try out Roth IRA for them….
my 2 cents. no flames please.
I initially didn’t have intention or time to jump into this email thread. But after I read complied responses, I realized that most people just presented over-simplied opinions which potentially will have negative impact on other people’s financial decisions. So I have my 2 cents here.
Most major financial products (including life insurances, whether term or permanent, annuities, 401k or 403b, traditional IRA, Roth IRA, mutual funds, stocks, bonds, …) have their merits and limitations. The key is just a matter of suitability, depending on one’s specific situation: assets, liabilities, income, family, age, health, financial goals, risk tolerenc, and investment horizon (being short, medium or long term), etc. There is no single product which can be claimed to fit all, or to be the best or worst, good or bad.
If a person has liability, is responsible, but it is not affordable for this person to buy permanent life insurances (such as Whole Life, Variable Life, Universal Whole Life, Universal Variable Life and recently emerged Equity Index Universal Life), term life insurance is a wise choice. If this person purchases a permanent life insurance and then later on, he/she can’t afford to pay the minimal required premiums for many years to come, the policy will lapse. This will be a financial disaster for this person or family.
On the other hand, if you have liability, are responsible and it is also affordable for you, then, NOT getting a permanent life insurance (such as VUL or EIUL) can be a very costly bad decision. Statistically, you can’t beat actuarial folks. For young people, chances are much greater that you still live well by the end of the policy term. For old people, premiums for term policy can be extremely expensive. So if you have paid premiums for 10, 20 or 30 years term and you are still alive in the end, not only you basically have already paid a pretty big amount of money for nothing (unless you elected Return of Premium rider with extra premium money), but also either you have to pay extremely expensive premium to get insurance again, or you are not insurable anymore from insurance point of view. Term policy is like renting a house.
If it is affordable for you in a long term, permanent insurance is uaully a much better choice. Although permanent insurance premiums are much higher than term insurance premiums, the cost of insurance of a permanent insurance is just reasonably higher than the cost of inurance for term insurance under the same other considerations. Most of the rest of premiums for permanent policy will be in your cash values. The cash value is your money and your savings. The growth in your cash value is tax-deferred. And if you follow certain basic rules, the growth in cash value can be tax-free. A 8% return in insurance cash value is basically equivalent to 12% return in other non-tax-advantaged investments, if you in 30% tax bracket. Usually, you can put much more money in your insurance cash values than in your other retirement accounts without causing negative tax consequence. Furthermore, permanent insurances can offer living benefit through either cash value withdraw or loan for any purposes. In addition, with certain riders, you can loan money from death beneft in advance while you are still alive if you are disabled, in a need of long term care, etc. And lastly, everyone’s destination is the same and we will all be gone. Your beneficiaries will always get the death benefit no matter what, whether it’s half a million or a million or whatever (with adjustment of withdraw or loan amount). No any term policies can beat all these advantages. Permenant policy is like owning a house. This is why rich people use permanent life insurance extensively as tax shield and estate planning tool.
Stories about annuities are basically down to the same: suitability.
Do not just listen to what other people (including me) say about a product or service. Many financial professionals out there do more harm than good to people. Many non-professionals spread all kinds of gossips without any solid grounds. Educate yourself and then ask yourself if a product or service is suitable to you or not.
One fundamental flaw in all your comments is that your children will not need money from your death benefit since they will be well off. I dont know about you but if my parents were older and passed away and they had a whole life policy it would definately help. You see im jewish. Almost all the jews who can afford it in my community get whole life because its the smarter choice. I will not go on and on explaining the benefits some of which you failed to mention because i do not have time. Jews think about their futures and their childrens futures. Thats part of the reason many of us are family oriented and successful.
I am planning to take one Life Insurance Policy. Your article helped me a lot for selecting the best company.I took Life Insurance policy from Royal sundaram General Insurance Company. The services offered by them are good as of now.Thank you.
http://www.royalsundaram.in