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Jonathan_hodgkins's avatar

Best resources or books for understanding Life Insurance saving?

Asked by Jonathan_hodgkins (687points) February 25th, 2018

My partner and I recently had a meeting with a financial planner, who described using life insurance as a investment vehicle. This was a very new concept to me.

Do you know of really good resources or books to determine how to properly understand and utilize life insurance?

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5 Answers

CWOTUS's avatar

Your agent won’t tell you, because he has a vested interest in you NOT learning, but “whole life” insurance (or “universal” or whatever is being packaged and marketed these days) – the kind that you’re probably talking about as a savings / investment vehicle – is probably the worst way to save for the future or to “invest”.

The reason for that is that term life insurance for young, healthy non-smokers without extraordinary health or lifestyle risk is very, very inexpensive. So here’s how you can find out how bad a deal this is for you.

Obtain some quotes from wherever you like on term insurance of the same denomination that you’re talking about with your “investment” type. So if you were thinking about a $250,000 policy for yourself (as proposed by the agent), then in order to compare apples to apples, compare his cost to the range of quotes that you’re getting. The difference – because his cost will be substantially higher (and he will say “because of the investment! – fine, we’ll get to that) is in his commission and the value of the vested amount, or the “cash value” of the policy.

That cash value does build up over time – that’s true. It’s also tax-free, and that’s true, too. But look at how slowly it builds up year-over-year. That slow growth (and it is painfully, incrementally slow, compared to how much it will be costing you!) is an indication of how poorly this functions as an “investment” vehicle for you.

So the better advice – and I’m not trying to “sell” this to you – I have no financial interest in how well you do or what decisions you make – is to buy the term insurance policies that appeal to you both, consider the difference between that annual policy premium and your salesman’s cost, and “invest that difference” on your own in a tax-deferred (traditional) or tax-exempt (Roth) IRA.

The investment will grow faster, and you will have full control over how it is invested. In years to come you may elect to simply forget about life insurance altogether (I haven’t bought it for 17 years now) because your estate will have grown to a place where it is no longer necessary for you, because your retirement savings will be the source of whatever income you need later in life.

imrainmaker's avatar

Life insurance is assured Sum of money you’ll get if you’re gone due to any fatal circumstances / once it matures. Don’t make the mistake of treating it as investment vehicle as put by @CWOTUS. Term plan is better option than this for covering your life risks. It won’t give you anything back but provide higher cover for cheaper premium. Look at other options like Mutual Funds etc. for investments.

janbb's avatar

Or you could read a book on it as you requested and decide for yourself. This is just one title that discusses whole and term life advantages and disadvantages. Severol others are listed at Amazon.

LuckyGuy's avatar

You are an engineer so you know it often helps to look at the problem from a higher level.
Insurance companies are “For Profit” entities. They make money by taking in more money than they pay out. Pick a company. And look at the salaries of the top dogs.
I randomly picked Prudential . (You can look up others with similar results.)
Where do you think the money comes from to pay those salaries and the salaries of their staff, buildings, computer networks, sales force, agents, etc.? They take in their customer’s money and pay out a smaller portion of it. They are like “the house” in a casino. They set the rates, they set the fees, they set the rules. Do you really think they make the rules to your benefit?

Sometimes insurance is a necessary “evil”. You might have a family that needs your income. You might be involved in a disaster and not have the resources to pull yourself out without help.
So how do you reconcile the two arguments? Give the insurance companies the minimum you can and still have the coverage you think you need. Term insurance is cheap If you invest the money you save in a good, total market ETF, at the end of 20 years you will have more money than if you invested it all in a whole life policy. Give the insurance company money and you will be financing the grounds keeping staff of the insurance company’s corporate headquarters or paying for hay for the CEO’s daughter’s pony.

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