October 28, 2007

Does Warren Buffett "Buy Term and Invest The Difference"?

“At bottom, any insurance policy is simply a promise, and as everyone knows, promises vary enormously in their quality.” — Warren Buffett, Berkshire Hathaway 2004 Annual Report
Free Promises
Some insurance is free
  • Travel insurance with your credit card
  • Extended warranties with your credit card
  • Ontario Place rain-free guarantee
  • 30 minutes or your pizza’s free guarantee
This is possible because the benefits are limited and claims are infrequent.

Term or Permanent?
With life insurance, term coverage costs less than permanent coverage for the same reasons as above. Term life is a gamble because death is unlikely during the period of coverage and because the steep premium increases at renewal encourage you to cancel coverage.

With permanent insurance, the tax-free death benefit will be paid as long as the coverage remains in force for life. Naturally, this stronger promise costs more. As long as you keep paying the premiums, the insurance company must provide coverage even if your health deteriorates.

Your chances of dying increase as you get older. Suppose you bought term coverage with rates that increased each year as you age. Do you see the problem? The insurance becomes increasingly expensive as life expectancy approaches. So you can’t afford insurance when it’s most likely to pay out. What good is that?

How The Government Helps
What’s the solution? Prefunding. To encourage Canadians to save for retirement, the government allows savings to grow tax deferred until withdrawals are made. Permanent life insurance gets the same advantage of tax deferred growth.

You maximize the benefits of compound growth by making large contributions as quickly as possible. This means that when insurance charges are deducted, part of the money comes from investment growth that was never taxed. In effect, the government is subsidizing the cost of your insurance.

The government isn’t crazy. As with RRSPs, there are limits on how much money you can invest. There’s much more flexibility, though. The maximum premium varies by age, gender and the face amount.

Surrender Values
If you decide you no longer need your permanent insurance, you can cancel your coverage and get a taxable cash surrender value. According to Warren Buffett, you’re probably giving up an excellent investment:
Berkshire purchases life insurance policies from individuals and corporations who would otherwise surrender them for cash. As the new holder of the policies, we pay any premiums that become due and ultimately – when the original holder dies – collect the face value of the policies. The original policyholder is usually in good health when we purchase the policy. Still, the price we pay for it is always well above its cash surrender value.”
— Warren Buffett, Berkshire Hathaway 2004 Annual Report

Why Doesn't Everyone Know
If permanent insurance is so good, why would anyone “buy term and invest the difference”?

Universal life insurance, the predominant form of permanent insurance, combines term insurance with the tax deferred growth.

Online, most anyone can publish most anything without verification of facts. Wouldn’t you want to get other opinions? If you search using keywords like “buy term and invest the difference” you’ll find many articles on that alternative to permanent insurance. A good starting point is wikipedia. You won’t find consensus, though.

Using life insurance for tax planning requires specialized knowledge that few have. So teams are used (see The Financial TRAIL To Taming Your Financial Risks) with experts in risk (insurance), accounting, investments and law.


That’s why you won’t find many articles from external credible sources. Insiders know but they
  • are perceived as biased
  • guard their knowledge or lack ways to communicate them
As a result, the tax advantages disproportionately go to the wealthy and the general public doesn’t even know.

What's Right For You?
The answer depends on your age, health, gender, risk tolerance, time horizon and goals. A competent insurance specialist will fairly compare universal life against a conventional investment reflecting taxation and all other costs. You’ll want to compare investment growth and also estate values. The results may surprise you.

Links

70 comments:

timmy stewart said...

The Truth:

Cash Value insurance is a rip-off. Why? because you pay for two things and only get one. Universal Life, and variable universal life are included in the same category (they just has a fancier package)

There are many other ways to get tax defferred investments.

Example: If you die, the insurance company keeps the savings (it does not go to your family)

If you live, and want the cash, you must cancel your insurance. (or borrow some of the cash) I don't know about you, but I've never had to borrow anything that was already mine in the first place.

If you die before paying back the loan, they will deduct the loan amount from the face value, and keep the rest of the cash.

Fact: It is probably the biggest scam in American History, and still millions of people are getting ripped off everyday, and they don't even know it. In fact probably over 70% of the bozos selling it, don't even realize how big of a rip-off it is. Or, they justify it somehow, because the commssions are so big.

It's hard to believe that it is even legal. At one time it was exposed (1976 federal trade commission report). However, the life insurance lobbyists paid-off congress enough to pass a law that the insurance industry can never be investigated by the FTC ever again.

It is probably one of the biggest cover-ups in American Business History.

Fact: 90% of term sold today is renewable only into whole life. Just another way the whole life industry is scamming the public.

The solution: Buy term and invest the difference with a company that has a good quality term product that is offers term renewability till age 95 or 100.

Cash value insurance is an insult to the American Dream.

Promod said...

Thanks for the comments, Timmy. The content here is written for Canadians. The US has a different approach to taxation and regulation. So products are different. There's nothing called Variable Universal Life here. The US tends to be rules-based while Canada relies more general principles and judgment.

Suppose a UL policy has a face amount of $1 million and tax-deferred savings of $100,000. The tax-free death benefit is generally $1.1 million, sometimes called "Face+Fund". Here, the growth on the savings was never taxed.

Access to the UL savings does not require the policy to be cancelled. The policyowner usually has the choice of taking withdrawals, policy loans or commercial loans where the policy is assigned to the bank as collateral.

Borrowing usually requires collateral (which is something you own that's of value). For example, the collateral could be real estate, stocks, bonds, future earnings or the cash value of a life insurance policy.

The lender will want repayment even if the borrower dies. In the case of life insurance, the loan is deducted from the death benefit and the heirs get the balance. That seems fair.

Not only are there differences of opinion, there are now differences by country.

timmy stewart said...

Borrowing your own money?

Why should you have to borrow something that is already yours?

Sounds like the same as American UL to me?

Cash Value insurance is sold all around the world, and it is a rip off, all around the world.

They do not pay cash plus face value, or face+fund, as you say.

Read the fine print: it says, "Your death benefit is an amount EQUAL TO the face amount and the cash"

Give me $20,000 and I will pay your family an amount equal to that if you die. (What I won't tell you, is this: I will take 1,000 of it and buy some life insurance worth $20,000, and I will keep the rest of your $19,000)

That is how it works in a nutshell.

Compare it with buy term and invest the difference, and see which one wins. Buy term and invest the difference wins every single time!

There are many ways to earn tax deferred savings. Anyway, what's the use of getting tax deferred savings if your getting ripped off anyway?

Anonymous said...

What are you all thinking. Cash value insurance has its place and your buy term invest the rest can be a bigger rip off!

Forget about UWL, VWL, or MWL policies lets talk strict Whole life policies.

Your health never changes after you buy a WL policy. You are locked in. Term insurnace at some point you might not be able to afford the rising mortality cost associated with term insurance. So you are forced to cancel and now you have no insurance at all!! OH, thats great advice.

Buy term invest the rest. Have you ever added in the cost factor that you earned a ZERO rate of return on your term insurance. So you invest the rest but hey we need to factor in the cost of the insurance. $300,000 insurance. Forty three year old male. Permanent is $667.80. Term would be $49.50. So investing $618.30 for 20 years. 7.25% interest over 20 years. You have 331,777. Including what you had to spend along side the term you spent $160,272. You made a profit of $171,505 or a 107 profit. Divide by 20 years you made 5.35% per year.

OK lets look at the permanent plan. I quoted the same 300K under a 20 year limited pay whole life plan. So after twenty years no additional payments are required. $667.80 per month. After twenty years I would have $162,342 in guranteed cash value. Lets keep in mind that amount is GURANTEED! The buy term invest the rest is projected. So lets look at the projected cash with dividends included; Projected $262,140. A profit of $101,868. Not bad for a 64% profit over twenty years 3.2% (You just proved that buy term invest the rest is the best way)

OH, do we have more to do. Your $331,777 is taxable. Saying 40% tax bracket you will be paying 68,602 in taxes. You get $263,175 in your pocket. Your permanent plan, you can take a policy loan to get your cash back. You take the max loan of 90% and you get 235,926 back in your pocket and you still have a death benefit of $248,495. Holy cow perm. policy wins.

Sorry to burst your bubble but a perm. policy with a high dividend will beat your term scenario every time.

In addition why does Warren Buffet buy whole life policies and give people the cash and he pays the premimum?? All of the talking heads who say buy term invest the rest are going against Warren's actions. (Lets see add up all the talking heads and compare them to Warren--I think Warren wins)

So lets see here Mr. Stewart you are going to tell me that you are going to tell Warren Buffet that he is WRONG?

We have yet to look at having your money invested and seeing an economic downturn/recession/terrorist attack. All of these can severly hurt your value. So do me a favor imagine you have your money invested and at year 18 something happens and the market goes down by ten percent. Like what is happening currently. So you just lost 30,000 dollars but your insurance lost you nothing.

What is the fast way between two points. A straight line. Well the stock market is up and down and moves all the time. A cash value whole life policy is the straight line. Buying stock and divesting amoung stocks is still having all your eggs in one basket. Having a cash value policy is the back bone. If something severly happens and we see a major correction in the market you still have something to fall back on. When you have all your money in your 401(k) IRAs, etc... you are assuming all the risk. What I am talking about is diversifying your risk. Having some perm. insurance is going to allow you to spread some risk.

Remember Enron, World Com. OH, that will never happen to me. If investing was so easy why don't they gurantee it? Everything says risk is involved.

Yes, full disclosure I am a licensed insurance agent. But in the end when you run the numbers you include the taxes and the fact that you get to have a death benefit after getting your cash back I still win.

By the way we have yet to even talk about life insurance to pay estate taxes.

Anonymous said...

anonymous,

Are you a moron, just like everyone else selling whole life?

your mortality expense (cost of insurance) goes up every year in whole life as well. it comes out of your cash value.

NEWS FLASH!!! IF YOU DIE, THE COMPANY KEEPS YOUR CASH VALUE!!! IT DOES NOT GO TO YOUR FAMILY!!!

THAT IS THE BIGGEST RIP OFF EVER TO BE SOLD TO THE AMERICAN CONSUMER!!

You obviously know nothing about guaranteed renewable term life to age 95, nor do you know anything about securities, mutual funds, and how to get a real rate of return (tax deferred or not). Economic downturns are the best time to invest (idiot).

One of two things, 1. you are selling whole life and ripping off the American consumer, or 2. you own it and are getting ripped.

NEWS FLASH #2!!! I ALSO EARN A 0% RATE-OF-RETURN ON MY CAR INSURANCE, HEALTH INSURANCE, AND HOMEOWNERS INSURANCE.

Insurance is paying for risk, not for saving money. If I have enough money to cover the risk, than I need no insurance.

You go ahead and do what you do, and I will continue building my wealth.

Me and my family have been in the Buy Term and Invest the Difference business for over 30 years. It is not rocket science! It wins everytime, bar none!

It amazes me how dumb some people can be. Your arguments don't even make sense.

I think Warren Buffet is senile. Warren Buffet also regrets not getting taxed more (according to a recent article) Sounds like a crazy old man to me.

Dave Ramsey, Suze Orman, David Bach, and basically anyone with any sense recommends Buy Term and Invest the Difference.

Maybe your company just doesn't have very good Term insurance products or investment products?

Sorry for your ignorance.

peace.

Timmy Stewart

"Termite For Life"

Galina said...

To Anonymous:

I'd like to see how many people can afford that term policy at 95 and what kind of companies sell it? Only 2% of Term policies actually pay-out the death benefit. The other 98% the insurance company keeps - WOW! Here is the rip-off! By investing, you will maximize your estate = more taxes to the IRS... Good Luck feeding uncle Sam's kids! I'd rather use my permanent policy that is guaranteed to work for me at 95 to pay my estate taxes! And one other thing - Watch your language!!!

Anonymous said...

yawn, another moron!

Invest the difference, and pay your self back 4 to 10 times your "guaranteed cash value". And cancel your term policy if you want to! It is a simple, simple, simple, concept.

As far as sheilding myself from estate taxes: well there are many other ways other than whole life! That's what estate lawyers are for.

Sorry for using lanquage like moron, but that is what I usually call people who only have half a brain!

Guarding from estate taxes: That is a typical thing that whole life agents say to try and sell thier rip off policies.

We (my family) were once getting screwed by whole life companies, and, I will use the language necessary to descibe them. I never forgot what they did to my mom and dad!

If the breadwinner dies: THE COMPANY KEEPS THE CASH VALUE!!!! THAT IS THE BIGGEST RIP OFF THE AMERICAN CONSUMER HAS EVER SEEN!!!

Can somebody please explain to me how this is good deal!!!

It is no doubt a horrible product: however, it sounds like it is just perfect for YOU!! LOL!!!

Good Day!!

Anonymous said...

Ok the original Anonymous is here atain. Tim is dead wrong when he says that you don't get the cash value. If you were sold a bad policy that said you did not get the cash that is not my fault. If you buy term insurance and you die in an act of war and the policy does not pay out you going to say that the term insurance screwed you.

You got burned because you had a bad policy. Read the fine print: it says, "Your death benefit is an amount EQUAL TO the face amount and the cash" So your agent sold you a bill of goods. Try looking at a Universal Whole Life policy where you pay your premiums and the policy can still lapse. Try that one on. I am dealing with a couple that is going to lose $300,00 to $500,000 because they listened to your advice of Buy term invest the rest. So when the widow gets NOTHING do me a favor and tell me that term insurance is the best bet!!

Plain and simple Timmy Stewart wants to say that Whole Life is bad. But he has never and I mean never had to go and pay a death claim. I feel bad that at one point he and his family was taken by a bad whole life policy. But guess what you had a bad one. I am talking about the best whole life on the planet. We are never beaten.

So Mr. Stewart you want to call me a moron. Well why don't you come with me and tell the widow or widower that the reason they have NOTHING left because of your advice. CNBC had an article where financial planners suggest that you have at least 5 to 10% of your assets in whole life insurance.

Two more things, you claim that using life insurance to pay estate taxes is foolish. I have news for you. Your advice is pretty misguided. I can show a person where they can pay millions of dollars in taxes for far less. OH, that is what estate tax lawyers are for. I got news for you. You want to tell me that you are going to avoid paying taxes. You are so blinded, taxes will eat your estate up.

Last thing. Warren Buffet is senile. Do me a favor add up every talking heads wealth and see if it comes to 10% of Warrens. Got news from you, Warren beats them to shame. Go to this link http://www.freerepublic.com/focus/f-news/1790039/posts

Seems like Suzy this wonder genius, buy term invest the rest! Guess what HALF (HALF) of her $25 million dollar estate is going to Uncle Sam. Guess she should talk to your Estate guy. Because he is so good. OH by the way Suzy is worth $25 million. Buffet (March 5, 2008) is worth 62 Billion. Tim that old senile guy is worth 62 BILLION. Suzy is .0004 of what he is and you want to tell me he is wrong??

So go and scream all you want. But in the end your faliure to listen will cost you. I have history on my side. Good high grade life insurance is the backbone of the wealthy.

Agent #14279

Anonymous said...

OH, by the way you wanted to know what term to 90,95 or 100.

My customer who is going to lose $300,000 to $500,000.

Their term this year on $300,000 is $1,900 a year. In 2010 the price jumps to $10,100 a YEAR. A 431% increase. Mr. Stewart wants you to pay that. He thinks that is a good deal.

So just as he and his parents were hurt by a whole life policy this couple is going to be hurt by term. Got that everyone, this is real now. A couple is going to be hurt because Mr. Stewart suggest that they should have to pay a 431% increase and that they need to continue to pay. By the way the rate in 2011 is facing a 19.8 percent increase. The following year 22.8% and the numbers keep growing. What is your suggestion pay rising cost or lock in a flat price that will never rise.

Buy term invest the rest, can burn you. If it sounds too good to be true, than it probably isn't.

#14279

Anonymous said...

#14279

I went back and read your reply to my first post.

Stewart sorry but I have you dead to rights.

Your own words, and I quote.

"your mortality expense (cost of insurance) goes up every year in whole life as well. it comes out of your cash value."

You had a dang Universal, Variable or Modified Whole life policy. Those policies do have rising mortality cost. But guess what plain old fashioned whole life. DOES NOT have rising mortality cost.

You bought a piece of junk. Replaced a ton of them. Guess what, you were hurt bad. And I understand why. UWL, VWL and MWL are bad polices and a person should stay away. Because they will bite you in the end.

So sorry you bought crap!

Anonymous said...

Anonymous,

Thank you for agreeing with me that Universal, Variable Universal, and Modified is crap. That is not news to me, I've known that since I was a little kid.

However, traditional whole life is crap too! Why? Because despite what you think (and I don't know why you think otherwise), when the bread winner dies, THE COMPANY KEEPS THE CASH VALUE!!!

That is how is has always been, and how it always will be.

Whole life is junk too. How does it feel to tell a widow, "thank you for your years of loyalty, oh, by the way, if you read the policy: the death benefit is the face amount of the policy (it does not say anything about the cash value), so I guess we will be keeping the cash Mrs. Jones, but at least you were a great saver (for us)!!

So one of two things, you are ignorant of your own product, or you are a liar. You seem like a nice guy, so I will assume that you just need to look a little closer about what whole life really is.

BTW, it's not just that my father had whole life, (and he switched
to BT&ITD). But he also got involved in the business, and started helping others. What started as a part-time business 30 years ago, while he was a youth pastor at a small baptist church, is now an organization of over 500 offices in 3 countries. I've now been in the business for 5 years myself.

After 30 years, and helping hundreds of thousands of people, we have never seen, not 1 time, a whole life policy that pays both the face amount and the cash.

In addition, we always pay death claims for acts of war and natural disasters. We were one of the only companies that stepped to the plate and pay death claims after 9/11, and Hurricane Katrina, while other companies were making excuses. We also pay death claims to families whose spouses are out dying in Iraq, and Afghanistan. We do not have a war clause.

We've paid a lot of death claims. Our average death claim paid is way above any other company, and probably most combined.

Since we've been in business in 1977, we've seen hundreds of whole life companies go belly up. Traditional powers like Prudential, and MetLife, are just dying. These companies are dying!!
Our business is thriving, because we do what's right 100% of the time. Prudential has dwindled from 100,000 reps to around a couple thousand, and that is just one example.

Our company brought the biggest, most powerful industry in world, to it's knees!! To it's dadgum knees!!

Companies like yours are creating an unlimited marketplace, for us to continue to dominate the industry!! Thank You!

I'm sorry about your clients who can't afford insurance anymore. That's why the philosophy is Buy Term, and "Invest the Difference".

If somebody "Invests the Difference", then their investments will more than likely be worth much more than their original face amount. So come time for renewal, they may lower their face value to something more affordable, or they may even cancel because they are now self insured, by accumulating a large cash estate.

Let me ask you a serious question.

If you found out that the Whole Life you are selling pays only the face amount for a death benefit, and your company keeps the cash value, would you continue selling and/or owning it?

Sincerely,

Timmy Stewart

Galina said...

To Timmy Stewart:

You wrote: "when the bread winner dies, THE COMPANY KEEPS THE CASH VALUE!!!" That is so NOT TRUE!!! Look at any real whole life policy,and you'll see that the death benefit goes up every year when the company pays you dividends and it is accumulating. Actually, $1 of your dividend will buy you $3-4 of insurance benefit with the years. SO, if you buy $250,000 Whole Life policy and never cash your dividends, your death benefit goes up to almost 2 time in about 25 years. It seems that you have no idea how Whole Life policies work!!! Term Life is a great "TERM" protection to protect your income or mortgage for a set period of time. It is not a permanent solution to anyone!!! Name says it all! Great Estate Lawyers will tell you that permanent life insurance is the best solution for your estate planning! It seems that YOU ARE A MORON yourself with no knowledge on life insurance, and you work with the same morons: lawyers and agents, who tells you all that crap! Get educated on the subject before talking about it so much! Sorry for your parents! Get them WHOLE LIFE! It is guaranteed!

Anonymous said...

Oh my God!!

How can you people be so ridiculously idiotic!! READ YOUR POLICIES!!

When the policy owner dies, THE CASH VALUE GOES INTO THE POCKET OF THE INSURANCE COMPANY!! IT IS THE BIGGEST SCAM IN AMERICAN BUSINESS HISTORY!!

What are dividends? Return of overpayment. So you are getting change for overpaying, and then buying more face amount. That's all dividends are. Big deal, That has nothing to do with the cash value!!

Where are you getting your information from? You people seriously believe that your family will get both the cash and face amount? Lord have mercy!


I don't care how many dividends you get, or how much your death benefit increases over time. It is common knowledge that, WHEN THE POLICY OWNER DIES, THE CASH VALUE GOES TO THE INSURANCE COMPANY, NOT THE FAMILY!!!

As I said before, we've replaced hundreds of thousands of whole life policies, and not once has there ever been 1, where the family gets both the cash and the face amount.

Yes, term is temporary. But that is why the concept is called, BUY TERM AND INVEST THE DIFFERENCE!! HELLO, It is Buy Term, and "INVEST THE DIFFERENCE!!!!!" Not Buy term and "Blow" the difference!!

Have you ever heard of the Rule of 72? Building a cash estae is a lot more permanent than whole life!!

It absolutley blows my mind that some people just do not get it!!

I would like to thank the whole life industry for creating an unlimited marketplace for me and my business, in which I can share truth that sets people free financially, and build an unlimited business empire, just like my mentors before me!

Thank you!!

Good Lord!! It is not rocket science!

(Lord forgive them, for they know not what they do!!)

"And the War Rages On!!"

Sincerely,

Timmy Stewart

"Termite For Life"

Anonymous said...

As for my parents.

Since they make about 1.5 million dollars a year helping people "Buy Term and Invest the Difference"

And they probably make more than that in their investment accounts!

I don't think they would be interested in a whole life policy!! They went ahead and cancelled their whole life 30 years ago. LOL!! That is seriously funny!!

(and just so you know, I would rather burn in hell than sell any kind of cash value life insurance)

Ha! Ha! Ha!

You people crack me up!!

This is getting more and more fun! Keep 'em coming!

Anonymous said...

Tim if I knew that a policy holder of mine was getting screwed yes I would not sell cash value insurance. If you knew a company that did pay the cash value and the face would you recommend them??? Answer the same question honestly.

Let me give you a couple of numbers for everyone else out there in the real world. 43 year old. Gets a policy that provides $261,971 in life insurance. At age 80 he has guaranteed cash value of $176,747 his projected death benefit is GET THIS.... $709,596.00 So let me get this straight. If the insurance companies is going to only pay the face amount of $261,971 How do you explain how the guy get the $709,596. Where does the money come from. Because according to you the policy holder ONLY gets the face amount.

OH, my gosh cash value and dividend's additional insurance add up making the difference.

I am so sorry that there are some great companies that sell great policies. You are basing your opinion of "buy term invest the rest" with a bias against great whole life companies. You are damaging your clients by not opening your mind.

By term invest the rest has many holes. OK, lets look at it...

Age 28 I buy $1,000,000 in 20 year term. Cost $35 a month, sound fair and lets say that I am saving up a storm and I am layed off for eight months. (Now that does not happen in Tim's real world but lets just PRETEND)

Mortgage, car payments, food, gas, insurance (property, auto, term, health, etc.. all need to be paid)

What happens if during all those years when I was paying term insurance I had lets pretend I became diabetic... (I have heard that happens Tim)

Ok, so I continued to pay all of my bills but drain my savings but I did a super job of keeping everything current.

NOW I am 48 years old, the first policy was bought when I was 28 and had my first child. But now I have had three more kids. At age 48 my kids are now 20, 18, 16, 13. Remember we are just pretending, never heard of anyone having more kids. So at age 48 I am in a bigger house and still have a need for that million dollars of coverage. Annual salary of $100,000 times ten. So I go to Tim and I say hey I want to renew my insurance. I am forced to have renew because I am diabetic.... He says well lets look at your policy. It says here that if you want to renew your policy it will cost $480 a month. Well that is crazy. I am not going to pay that much. OK #14279 but if you don't and you go back on the open market that same policy is going to cost you $625 a month!!!

See my whole life policy (NOT VWL, MWL, UWL) I am still paying the same price at age 28 and I am still in perfect health. Heck guess what at this point my dividends are enough that the policy can self-pay it self. But I am not going to do that because I need every ounce of insurance.

Now granted this is all just pretend. No one ever has to dip into their savings while they are young, no one ever develops health issues, no one needs insurance after the original policy expries.

Tim the numbers don't lie. People if you knew what a cash cow term insurance was for the insurance companies you would never buy it. If you have one hundred term policies the insurance companies know that only 2 (ONLY 2) are going to have to be paid. The reason term insurance is so dang cheap is that the company never has to pay a claim. Now with whole life Tim, even with your face value and cash value debate will you at least admit that whole life isurance is more expensive because someone collects a check.. Come on now be honest.

So you know what I love Tim's buy term because you know what the best insurance companies can make total hay selling great policies that benefits the purchasers.

Another dirty little secret that Tim has not told you is that Whole Life insurance is considered in a person's assets. Just like their 401(k), IRA, stocks, savings; whole life insurance is an asset.

So Tim, you are bais, you don't tell the whole truth in selling term insurance. Things happen in the future, circumstances change, health changes. Would I recommend to a 28 year old who has $200 to buy $200 in cash value insurance. If that same guy is 28 and has a child and one on the way would I tell him to spend $200 on cash value, NO!! I would say lets spend $175 on cash value insurance and $25 on twenty year term. See, I protected his long term future with something that will always be there and something to cover his volume needs if something happens.

If nothing happens he gets cash value, he can gift it, he owns it and it is his. His term is just a donation to the insurance company.

Tim, there is a time and place for w/l insurnace and you don't want to do it. You want to hurt people by not protecting the future.

My note to everyone that has a term policy. Take it out, if you have a 20 year term read what the scheduled premiums will be at year 21. You will be shocked. If you pull out your whole life the premium never changes. It never goes up. No health can change it.

So while Tim really wants to smack around my side of the industry he never says well here is what is wrong with term. There are plus and minus to everything. Tim why not be man enough and tell us the negatives.

You see term works best when you are in perfect health. But once you have any and I mean any health issues your are like lambs being lead to the slaugher. So go read your term policies. You will be in on Tim's dirty little secret.

Anonymous said...

I also for gotten to comment on Tim's cold heartles Buy Term invest the rest. Read all of his post and you will come across the following..

I'm sorry about your clients who can't afford insurance anymore. That's why the philosophy is Buy Term, and "Invest the Difference".

Guess what you MORON. THEY DID!! They did invest the difference but you know that little line that investing comes with risk. Blah, blah, blah. They lost, see you work in the perfect world where stocks always go up. No one ever loses. But they did lose now they are stuck with your philsophy. If they would have listened to me there would be no issue.

So see when you buy term invest the rest it comes with risk. So when the policy holder comes back to Tim and says well where is my money Tim has to say hey you made bad choices. Not my fault you picked bad stocks. But my wife is going to be penniless. Hey not my fault you made bad choices in your stocks. The philosophy worked for me so what.

So Tim's own words show that he does not care about anything but his own pocketbook by collecting the commission. If Tim was selling and I was there I am the gurantee, I am rock solid. Him, all risk. See the real reason for insurance is to transfer risk from yourself to a larger pool. That is the insurance 101. Transferring of risk. Tim's belief is hey the market will never go down, if you take the risk you will be rewarded with higher returns.

Has time ever once mentioned that BTITR theory comes with any risk. Nope!!!

So guess what when Tim's industry is hit with people like my couple who are going broke with term. The blank is going to hit the fan. Financial planners are going to have to say not our fault the theory is great. So what you lost money.. The industry will come back.

Tim you said that you have brought down the biggest and most financial secure companies. Just do me a favor and label the five highest ranked insurance companies by AM Best, Standards and Poor and those that are certified for being ethical in their practices by IMSA. Put the list up.

I guess you will be to afraid to put that list up because the big boys are still there. Can not take them down can you?

Learning said...

What a discussion. I like seeing both sides. Deep down I thought that buying term and investing the difference made the most sense but it looks like you get what you pay for. If term is cheap because it hardly pays and runs out before most people die, getting a payout is a gamble.

I don't want to gamble with my life!!! If permanent insurance is guaranteed to payout, that looks like a sure bet even if it costs more. If I can get tax free investments too, that's got to be better than investing outside and paying tax.

These discussions confirm there are two sides. Please be civil folks.

Anonymous said...

Please bare with me, for this is a very long post, and probably my last.

To all that are reading this argument.

Anyone can pull numbers out of his rear, and put them on a post.

In your example, and it is common for folks to think that they get both the cash and insurance, the company is simply taking some of the cash to buy more insurance.

It's works like this, and this is just an example of how it works: "hey save up or give me $20,000, and if you die I promise I will pay your wife the cash ($20,000)." What they don't tell you is that they will take $500 of that and buy $20,000 worth of insurance to pay your wife if you die, and they will keep in their pocket $19,500.

In reality, you could have bought the insurance yourself, and your wife would have gotten $39,500, instead of $20,000.

I will give the whole-life industry one thing: They know how to confuse the consumer, and appearantly their agents too.

The Fact Remains that in Whole Life Insurance. You pay for two things and only get one.

If you die, the company keeps the cash value. (As I've said before, sometimes, as in anonyomous's example, it appears that they recieve both, but in reality, the company is acutally spending some of the cash to buy more insurance, and they are still keeping the cash! If you kept your own cash AND ALLOCATED YOUR INVESTMENTS PROPERLY!!!!, then you could buy your own "Pure form of insurance, TERM!!, and end up with both!!

If you were to want the cash from whole life, (for getting laid off, etc.) you must cancel your insurance, or borrow against it. So you are borrowing something that is already yours, and paying it back with interest. If you die before paying it back, they deduct it from your face value. How is borrowing something that is already yours a good deal?

Either way, you are getting either the cash or the insurance, NOT BOTH!!

I never said that investments don't go down. Because I am securities licensed I am prohibited from discussing investments on the internet.

However, according to the Rule of 72, if you save $200 a month for 35 years, at 12%, you will have 1.3 million dollars! Which can be considered "Death Benefit". So you buy affordable, term insurance which will give you about 3 times the amount of coverage as whole life for about half the cost, until your investments surpass the amount of coverage needed. In addition, as kids grow up, and responsibilities decrease, the need for coverage goes down.

With guaranteed renewable term, you could still qualify for more coverage at the end of your term if you wanted some, lowering your face amount if necessary. Or you may just want to cancel it altogether, because of your cash estate that you have built.

You can also save your money in a little thing called an EMERGENCY FUND!!! For things like getting laid off, etc. (look into it!)

Because those investments will go to the family at age 80 (or age 150 if that's how long you live), "yes, without paying the death tax, if put in the right types of accounts", then you will see that the death benefit, "the investments", will far exceed that of whole life.

Whole Life can never come close to beating that! The sad thing is, most people (including anonymous) are not educated about how money works. Or else this would not even be an argument at all.

The fact is, that in 1976, the Federal Trade Commission issued a 50 page report exposing the whole life industry for all of their lies, including the enourmous mythconception that people think they will recieve both the cash value and the insurance, this was a major victory for our company and our crusade!

But, because of the enormous strength of the whole-life industry, and their ties with the insurance commissioners and politicians, they lobbied congress to not only demolish the report, but to also pass a law that says that the life insurance industry can never be investigated by the Federal Trade Commission ever again!!

To this day, the FTC, cannot investigate the industry of life insurance. The irony is, that is their job: To investigate industries. That is one of the biggest cover-ups in American Business History, and a glimpse into the corruption in our government.

And by the way, Anonymous, we are at the top of all of those lists (A++ on all of those lists (AM Best, and Standard & Poors, etc.) Just because a corrupt government says you are ethical, hence showing up on rating services, does not make it right!! You steal cash values, one way or the other, and you flat our rob the American Consumer!!

It is appearant that we will not change each other's minds, so as far as this board goes, let's agree to call a truce, and go see who wins at the kitchen table!!

Agreed?

And for those who would like to read the history of my company and our crusade for helping families, I invite you to go to

www.ArtWilliams.com

and order the book "Coach: The A.L. Williams Story". You will see a first hand account of the dirty games and lies that the whole life industry and the politicians played, in order to try to take us down.

You will see how we took on the largest industry in world, overcame adversity after adversity, and grew our sales force from 85 people to 225,00 in 12 years. How? because when people work for a cause, they will do more than those who only work to make a living!

You see, whole life agents sell insurance to make a living: We sell insurance to CORRECT AN INJUSTICE!!

Today we have over 100,000 representatives, the largest sales force in the world!! Whole life companies may get rated on bogus rating services, but the fact is: they are dying!! You whole life agents are dying breed.

The average whole life agent getting licensed today is age 56. The average person getting licensed in our company is 33! We are the future!! Why because we took a stand, and we do what is right 100% of the time!

However you will also see that we are company of Destiny, and that when you stand for something that is right, and you are committed to doing what is right 100% of the time, you will always win in the end.

All of this excites me because I know the war is still brewing!!

Anonymous, thank you for this argument! It motivates me even more to go out and do something great with my life!!

I'll see you on the field buddy!!

It's gametime!!

Timmy Stewart

"Termite for Life"

Anonymous said...

Oh sorry, the FTC report came out in 1979, not 1976.

Anonymous said...

You are correct on one thing. Neither of us is going to change the other person's mind. We can argue till we are blue in the face.

I understand that can not comment because of your license, but I do think when you say invest the rest and earn 12% over 35 years you have $1.3 million or was it $1.5 either way. That does not happen. Because as people get older like the couple I'm dealing with. They got burned with that type of thinking.

Investing comes with risk. We will see who wins in the end.

By the way average age of agent in my office is under 45.

Anonymous said...

I guess your couple did not know how to do it (invest) properly.

Oh well.

see you on the field!

Anonymous said...

But, yes, investing does come with risks!

(and rewards)

Anonymous said...

Yes investing comes with risk and reward.

(Very Calmly)
When you say they did not do it properly, they are not the first couple to lose their money in the market.

See you in the field. By the way dealing with a guy for $2.5 million and I get to show him a 20% rate of return using whole life.

Anonymous said...

20% rate of return using whole life?

now that is funny!! LOL!!

ha, ha, ha!!

(yeah 20% rate of return for the insurance company!!)

Anonymous said...

Sometimes you have to open your mind. LOL

Patrick Donohoe said...

Bottom line is: Banks and Corporations (on average) own more life insurance than they do real estate. That fact should speak for itself. IE Wachovia is worth about 30 billion and have 15 billion in cash value (not death benefit) on the policies they own on their employees. Bill Gates owns a ton of permanent Life insurance as well as Donald Trump. I know Kim Butler who wrote millions of Whole Life insurance for Robert Kiyosaki. Life Insurance is, in my opinion, the greatest financial product that exists not based on the product itself but how it is utilized. Stop bashing on the product and start seeing how these guys use it. And you guessed it, I am a life insurance agent and successful business owner. I write a ton of business on very wealthy individuals and own as much insurance as the agencies will allow.

Allan said...

It seems like everyone on here has a different opinion about this topic and they should. There is no perfect one-size-fits-all solution: for some, the "buy term and invest the difference" solution makes sense, while others actually NEED whole life insurance. But only a professional can answer that question.

I would like to point out that wealthy individuals are the ones that have a true need for whole life insurance, especially when we discuss the topic of using life insurance to pay for estate taxes. However, this is NOT for everyone, and is the reason why Suzie Orman continues to stress the usual "buy term and invest the difference" story. She markets herself to the masses, and for the masses, term insurance makes the most sense.

With that being said, you CANNOT generalize and she is actually WRONG when she says that "buying term and investing the difference" is the ONLY way to go.

For those on here that are only bloggin to bash whole life insurance, I would like to point out some key issues in your reasoning. First and foremost, only 1% of all Term Insurance policies actually end up in a claim... So if we want to talk about the real rip-off, there you have it! Term insurance is the biggest cash cow for insurance companies.

Of course, when you're in your 30's and can get Life insurance for $1,200/year, it's attractive. However, at the end of the term, you must renew the policy and are looking at an annual premium of about $6,000 at age 50. At age 70, premiums jump to north of $10,000/year, with the assumption that you are still healthy by then, which is unlikely. So over the course of holding these term policies until you actually die, you would have been better off throwing your money down the drain. I rest my case here.

My second point is that, depending on the company you have dealt with, you might have various results. It is clear that a bad company would have left a bad taste in your mouth. But again, that goes back to the decision-making process in buying the insurance in the first place. If you chose the lowest premium you could buy in the marketplace, it is probably not going to pan out for you. However, had you taken the time to review the ratings of the company and the amount of money in reserves, you would not have ended up being disappointed. Just like any product you buy, cheaper does not necessarily mean better. Your cheap shoes will only last so long while the ones that you actually "invested" more in will last longer. Simple concept in my opinion. With that being said, there are probably 5 or 6 very good companies (like Northwestern Mutual, Mass Mutual, NY Life, AIG, Met Life, and Lloyd's of London) in an industry with 1,200. So pay attention there.

My third point here, and this is my personal opinion and you can choose to disagree with it, is that it makes practical financial sense to have whole life instead of term life, from a numbers standpoint. What I mean by this is that, mathematically, I would rather pay $10,000 per year for a policy, knowing that if I surrender it in 20 years, I will get everything that I paid for it and more, versus spending $1,000 and getting nothing back. That is simple maths, without any pre-conceived notions about whether this is a good "investment" or not.

I would like to point out that, in the example that Timmy Stewart is giving us, he omitted to let the public know that, when you are with the right company, and have a policy that is $1,000,000 of initial death benefit, with $100,000 of cash in it down the road, the death benefit with a mutual company allows for the death benefit to increase over time. So when you die, your death benefit is $1,100,000, which equals the INITIAL death benefit plus the gain inside the cash value buildup. It's misleading to let people think that the insurance company keeps your money. Again, it depends on the company you are using and how each person's policy is structured.

The bad news is that, with Universal Life, people end up "underpaying" as opposed to paying the exact amount of premiums they should pay, which in turn affects not only the policy performance and the death benefit. If you paid less than you did on your mortgage, the value of your home would go down wouldn't it? Same thing with your life insurance.

My final point has to do with appropriate financial planing and retirement planning. Let's imagine a 40-year that buys a 20-year term policy and invest the difference in their qualified retirement plan. They get to age 60 and they have $1,000,000 in their plan. Let's assume they were to retire on September 12, 2001, and all of their investments were in equities and took a 70% hit. The person would be left with $300,000 that they would have to pay ordinary income tax on and hope they could live off of that for the rest of their life. At the end of the day, they will walk away from the 401K with $180,000 if they are in a 40 percent tax bracket, and no more insurance coverage

On the other , we have another person that chose to go with some term insurance, some whole life insurance, and still invested in their retirement plan. At age 60, they have $500,000 in equities in their qualified retirement plan and $500,000 in their life insurance (as the bond piece of their overall allocation.) After 9/11, this person has $150,000 in their 401K (probably around $90,000 to $100,000 after taxes) but have the entire amount of money invested in their insurance policy because they are protected from the downside in a straight whole life policy, and enjoy tax-free withdrawals via loans form the policy. Not to mention that their insurance coverage is still in-force and in the event that they want or need to keep, they can and do not have to re-qualify medically.

At the end of the day, whole life insurance plays its part in an overall allocation because of its tax advantages and downside risk protection. This is obviously only if the clients are even in a financial position to own ANY of it to begin with. If they aren't, they should own term insurance (as most people should) given the fact that most people are not even in a position to save money above and beyond their basic retirement plan and/or cash accounts. In any case, Universal Life is the worst possible product in the industry and no consideration should be given to it, because the product is built to fail. Whole Life insurance however, if appropriately structured and purchased through a reputable carrier, makes sense for the people that are in a position to purchase it.

To all "termites" out there, the reasons you have chosen to make term insurance a religion are your own, and please make sure that you understand other people's circumstances before you make any suggestions or recommendations to them as it relates to this. Whole Life may be right for them, even if it is not for you and there is no perfect answer for all people when it comes to Life Insurance, as each individual has their own set of circumstances. Hopefully this has struck a chord with some of you.

Cheers.

Allan said...

It seems like everyone on here has a different opinion about this topic and they should. There is no perfect one-size-fits-all solution: for some, the "buy term and invest the difference" solution makes sense, while others actually NEED whole life insurance. But only a professional can answer that question.

I would like to point out that wealthy individuals are the ones that have a true need for whole life insurance, especially when we discuss the topic of using life insurance to pay for estate taxes. However, this is NOT for everyone, and is the reason why Suzie Orman continues to stress the usual "buy term and invest the difference" story. She markets herself to the masses, and for the masses, term insurance makes the most sense.

With that being said, you CANNOT generalize and she is actually WRONG when she says that "buying term and investing the difference" is the ONLY way to go.

For those on here that are only bloggin to bash whole life insurance, I would like to point out some key issues in your reasoning. First and foremost, only 1% of all Term Insurance policies actually end up in a claim... So if we want to talk about the real rip-off, there you have it! Term insurance is the biggest cash cow for insurance companies.

Of course, when you're in your 30's and can get Life insurance for $1,200/year, it's attractive. However, at the end of the term, you must renew the policy and are looking at an annual premium of about $6,000 at age 50. At age 70, premiums jump to north of $10,000/year, with the assumption that you are still healthy by then, which is unlikely. So over the course of holding these term policies until you actually die, you would have been better off throwing your money down the drain. I rest my case here.

My second point is that, depending on the company you have dealt with, you might have various results. It is clear that a bad company would have left a bad taste in your mouth. But again, that goes back to the decision-making process in buying the insurance in the first place. If you chose the lowest premium you could buy in the marketplace, it is probably not going to pan out for you. However, had you taken the time to review the ratings of the company and the amount of money in reserves, you would not have ended up being disappointed. Just like any product you buy, cheaper does not necessarily mean better. Your cheap shoes will only last so long while the ones that you actually "invested" more in will last longer. Simple concept in my opinion. With that being said, there are probably 5 or 6 very good companies (like Northwestern Mutual, Mass Mutual, NY Life, AIG, Met Life, and Lloyd's of London) in an industry with 1,200. So pay attention there.

My third point here, and this is my personal opinion and you can choose to disagree with it, is that it makes practical financial sense to have whole life instead of term life, from a numbers standpoint. What I mean by this is that, mathematically, I would rather pay $10,000 per year for a policy, knowing that if I surrender it in 20 years, I will get everything that I paid for it and more, versus spending $1,000 and getting nothing back. That is simple maths, without any pre-conceived notions about whether this is a good "investment" or not.

I would like to point out that, in the example that Timmy Stewart is giving us, he omitted to let the public know that, when you are with the right company, and have a policy that is $1,000,000 of initial death benefit, with $100,000 of cash in it down the road, the death benefit with a mutual company allows for the death benefit to increase over time. So when you die, your death benefit is $1,100,000, which equals the INITIAL death benefit plus the gain inside the cash value buildup. It's misleading to let people think that the insurance company keeps your money. Again, it depends on the company you are using and how each person's policy is structured.

The bad news is that, with Universal Life, people end up "underpaying" as opposed to paying the exact amount of premiums they should pay, which in turn affects not only the policy performance and the death benefit. If you paid less than you did on your mortgage, the value of your home would go down wouldn't it? Same thing with your life insurance.

My final point has to do with appropriate financial planing and retirement planning. Let's imagine a 40-year that buys a 20-year term policy and invest the difference in their qualified retirement plan. They get to age 60 and they have $1,000,000 in their plan. Let's assume they were to retire on September 12, 2001, and all of their investments were in equities and took a 70% hit. The person would be left with $300,000 that they would have to pay ordinary income tax on and hope they could live off of that for the rest of their life. At the end of the day, they will walk away from the 401K with $180,000 if they are in a 40 percent tax bracket, and no more insurance coverage

On the other , we have another person that chose to go with some term insurance, some whole life insurance, and still invested in their retirement plan. At age 60, they have $500,000 in equities in their qualified retirement plan and $500,000 in their life insurance (as the bond piece of their overall allocation.) After 9/11, this person has $150,000 in their 401K (probably around $90,000 to $100,000 after taxes) but have the entire amount of money invested in their insurance policy because they are protected from the downside in a straight whole life policy, and enjoy tax-free withdrawals via loans form the policy. Not to mention that their insurance coverage is still in-force and in the event that they want or need to keep, they can and do not have to re-qualify medically.

At the end of the day, whole life insurance plays its part in an overall allocation because of its tax advantages and downside risk protection. This is obviously only if the clients are even in a financial position to own ANY of it to begin with. If they aren't, they should own term insurance (as most people should) given the fact that most people are not even in a position to save money above and beyond their basic retirement plan and/or cash accounts. In any case, Universal Life is the worst possible product in the industry and no consideration should be given to it, because the product is built to fail. Whole Life insurance however, if appropriately structured and purchased through a reputable carrier, makes sense for the people that are in a position to purchase it.

To all "termites" out there, the reasons you have chosen to make term insurance a religion are your own, and please make sure that you understand other people's circumstances before you make any suggestions or recommendations to them as it relates to this. Whole Life may be right for them, even if it is not for you and there is no perfect answer for all people when it comes to Life Insurance, as each individual has their own set of circumstances. Hopefully this has struck a chord with some of you.

Cheers.

Anonymous said...

It seems like everyone on here has a different opinion about this topic and they should. There is no perfect one-size-fits-all solution: for some, the "buy term and invest the difference" solution makes sense, while others actually NEED whole life insurance. But only a professional can answer that question.

I would like to point out that wealthy individuals are the ones that have a true need for whole life insurance, especially when we discuss the topic of using life insurance to pay for estate taxes. However, this is NOT for everyone, and is the reason why Suzie Orman continues to stress the usual "buy term and invest the difference" story. She markets herself to the masses, and for the masses, term insurance makes the most sense.

With that being said, you CANNOT generalize and she is actually WRONG when she says that "buying term and investing the difference" is the ONLY way to go.

For those on here that are only bloggin to bash whole life insurance, I would like to point out some key issues in your reasoning. First and foremost, only 1% of all Term Insurance policies actually end up in a claim... So if we want to talk about the real rip-off, there you have it! Term insurance is the biggest cash cow for insurance companies.

Of course, when you're in your 30's and can get Life insurance for $1,200/year, it's attractive. However, at the end of the term, you must renew the policy and are looking at an annual premium of about $6,000 at age 50. At age 70, premiums jump to north of $10,000/year, with the assumption that you are still healthy by then, which is unlikely. So over the course of holding these term policies until you actually die, you would have been better off throwing your money down the drain. I rest my case here.

My second point is that, depending on the company you have dealt with, you might have various results. It is clear that a bad company would have left a bad taste in your mouth. But again, that goes back to the decision-making process in buying the insurance in the first place. If you chose the lowest premium you could buy in the marketplace, it is probably not going to pan out for you. However, had you taken the time to review the ratings of the company and the amount of money in reserves, you would not have ended up being disappointed. Just like any product you buy, cheaper does not necessarily mean better. Your cheap shoes will only last so long while the ones that you actually "invested" more in will last longer. Simple concept in my opinion. With that being said, there are probably 5 or 6 very good companies (like Northwestern Mutual, Mass Mutual, NY Life, AIG, Met Life, and Lloyd's of London) in an industry with 1,200. So pay attention there.

My third point here, and this is my personal opinion and you can choose to disagree with it, is that it makes practical financial sense to have whole life instead of term life, from a numbers standpoint. What I mean by this is that, mathematically, I would rather pay $10,000 per year for a policy, knowing that if I surrender it in 20 years, I will get everything that I paid for it and more, versus spending $1,000 and getting nothing back. That is simple maths, without any pre-conceived notions about whether this is a good "investment" or not.

I would like to point out that, in the example that Timmy Stewart is giving us, he omitted to let the public know that, when you are with the right company, and have a policy that is $1,000,000 of initial death benefit, with $100,000 of cash in it down the road, the death benefit with a mutual company allows for the death benefit to increase over time. So when you die, your death benefit is $1,100,000, which equals the INITIAL death benefit plus the gain inside the cash value buildup. It's misleading to let people think that the insurance company keeps your money. Again, it depends on the company you are using and how each person's policy is structured.

The bad news is that, with Universal Life, people end up "underpaying" as opposed to paying the exact amount of premiums they should pay, which in turn affects not only the policy performance and the death benefit. If you paid less than you did on your mortgage, the value of your home would go down wouldn't it? Same thing with your life insurance.

My final point has to do with appropriate financial planing and retirement planning. Let's imagine a 40-year that buys a 20-year term policy and invest the difference in their qualified retirement plan. They get to age 60 and they have $1,000,000 in their plan. Let's assume they were to retire on September 12, 2001, and all of their investments were in equities and took a 70% hit. The person would be left with $300,000 that they would have to pay ordinary income tax on and hope they could live off of that for the rest of their life. At the end of the day, they will walk away from the 401K with $180,000 if they are in a 40 percent tax bracket, and no more insurance coverage

On the other , we have another person that chose to go with some term insurance, some whole life insurance, and still invested in their retirement plan. At age 60, they have $500,000 in equities in their qualified retirement plan and $500,000 in their life insurance (as the bond piece of their overall allocation.) After 9/11, this person has $150,000 in their 401K (probably around $90,000 to $100,000 after taxes) but have the entire amount of money invested in their insurance policy because they are protected from the downside in a straight whole life policy, and enjoy tax-free withdrawals via loans form the policy. Not to mention that their insurance coverage is still in-force and in the event that they want or need to keep, they can and do not have to re-qualify medically.

At the end of the day, whole life insurance plays its part in an overall allocation because of its tax advantages and downside risk protection. This is obviously only if the clients are even in a financial position to own ANY of it to begin with. If they aren't, they should own term insurance (as most people should) given the fact that most people are not even in a position to save money above and beyond their basic retirement plan and/or cash accounts. In any case, Universal Life is the worst possible product in the industry and no consideration should be given to it, because the product is built to fail. Whole Life insurance however, if appropriately structured and purchased through a reputable carrier, makes sense for the people that are in a position to purchase it.

To all "termites" out there, the reasons you have chosen to make term insurance a religion are your own, and please make sure that you understand other people's circumstances before you make any suggestions or recommendations to them as it relates to this. Whole Life may be right for them, even if it is not for you and there is no perfect answer for all people when it comes to Life Insurance, as each individual has their own set of circumstances. Hopefully this has struck a chord with some of you.

Cheers.

Joshua said...

By Joshua Lee said...

Interesting conversation...citing Warren Buffett as the basis of individual's Life Insurance Purchase Decision or should I said miss-quoted.

Question: How can I find myself in agreement with Warren Buffett, Timmy Stewart & None of you who buy whole life as an individual?

Answer in my opinion:

1. I agree with Timmy combine Term & self insured approach. Little illustration:


Option 1 - 100% self insured with following conditions:
1. If cost of Whole = cost of Term = Zero Saving (never will happen)
2. Alternative between paid-to insured or self insured
3. Withholding 100% insurance premiums over the 20 year and invest yourself
Conclusion: At 20th year, with a min. of 12.5% per annual return, insured sum = cumulative self saving. But the saving will grow the insured sum won’t.

Option 2 – Term & Invest with the following condition:
1. If Cost of Whole > Cost of Term (if Term Cost at max = 10% of Whole Cost)
2. Buy term & invest the 90% saving over the 20 years.
3. Calculated the true-up whole life death benefit payout = whole life Insured sum minus the opportunity cost of 90% saving compound at Risk free rate.
4. Calculated the true-up Term life death benefit payout = Term life Insured sum plus the opportunity cost of 90% saving compound at Risk free rate.
Conclusion: With the 20 years, whole life will never outperform Term Life. But you will say, what happen after the 20th year?? By earning an after return > 6.72% for the 20 years, you cumulative compounded saving will FOREVER greater than continue diminishing “true-up whole life death benefit payout”.

2. Then why did Warren Buffett “The Oracle of Omaha” buy back Life insurance?
2.1 (Sorry to Timmy on this one) Based on my study, Warren is rarely wrong. If he is, he admits it usually in his letter to shareholders. And yes, I do own BRK.B & it’s better than buy any insurance.
2.2 (Sorry to the original poster) You citing of Warren’s opinion is TOTALLY out of context without further citing the complete opinion on his deferred tax saving on purchase the life insurance on behalf of the BUSINESS (where tax saving exist). And not so, on a personal basis.
2.3 By doing so, Warren successful deferring the company’s taxable income by:
2.3.1 Expensing initial cash outlay for the cost of purchase;
2.3.2 Expensing any future cash outlay to maintain the policy active;
2.3.3 While the policy purchase, if you know what warren stands for at all, it’s probably purchase brought at 40 cents for every dollar. (Not verify)
Conclusion: Regardless of the intrinsic value of the repurchased insurance, as a Business only, the deferred tax saving alone is worth the cost of the repurchase; as such deal really creates a positive Free-Cash Flow plus the policies terminal value for Berkshires.

Warren is Warren. Gosh he is amazing! But Timmy is great, too!

Anonymous said...

Well it is nice to come back and post. It has been a while.

Buy term invest the rest is a fantastic plan. Why do the banks and corporations own whole life. Why because the cash is guranteed. See I understand the buy term invest the rest is great for two companies. You buy a term plan to make certain that you if you die your family is protected. If you put your money into the market and it will just grow and grow.

Remember the market never goes down. When we hear that the economy is not doing well right now that is all make believe because we know the market is going up and up. It never goes down. See the cash in whole life policies are guranteed!!!! They are safe, they are secure. Why do we hear about the negative savings rate. Because people are "investing" and not saving a penny!! You can lose money in your investments. So why not lock some of it up.

OH, when you talk about great companies please add to that list the Knights of Columbus. As an agent I can make a very good point tha they are better than Northwestern, MassMutal or any of the others.

If you really want the best advice I suggest that you consider dealing with a great ethical insurance agent. I know stories where buy term invest the rest has crippled a client. Why because the market goes down. The agent only sold them term because he could not sell them whole life insurance because his company does not offer it. So what did he do, he sold them a product that put money in his pocket and hurt the couple. See if I sell a policy that benefits me and hurts my client I lose my job.

See when we buy term and chose not to look at whole life insurance (which I love but don't sell a lot of---now limited whole life plans that the payment ends at some point are my favorite) are doing themselves an injustice.

I suggest if you are really wanting some insight into this market go out and buy a book called the Pirates of Manhattan. Great book that talks about what I have been saying for a long time.

Term insurance has a great purpose. Covering a pay check, the balance due on the mortgage, future college expenses. But as a long term fix it simply is not a great alternative. Remember the insurance companies make more money off of term than any other product. So all of the talking heads who push buy term invest the rest are being paid by companies who have an expertise in term insurance. So the buy term philosophy is being influenced by the companies.

LIFE insurance is dealing with your life. It is not something that should be done quickly. Some thought needs to go into it. Don't simply just buy on price.

Joshua said...

Oh...you mean that whole life "Garanteen" that almost went down the drain with the subprime losses?

So much for that!

TJ said...

BTID is a replacement strategy, plain and simple. It is not a financial planning strategy.

I have a question for the BTID'ers here. What happens to all the premium that you paid into your term policy when you die? Does the insurance company give that back to you?

Tom C. said...

Timmy said - " You see, whole life agents sell insurance to make a living: We sell insurance to CORRECT AN INJUSTICE!! "

So - I take it Primerica doesn't compensate you for pushing their policies? Too funny . . .

" Today we have over 100,000 representatives, the largest sales force in the world!! "

Not even close to the largest - do your research. YTB, a travel company, has more reps. There are 10 more with more reps.

" The average whole life agent getting licensed today is age 56. "

Please post your source to back this up Timmy?

Timmy - you need to quit drinking the primerica kool-aid. If the concept worked so well - why wouldn't ALW still be doing it?

Tom C.

Anonymous said...

Timmy, I sell WL and I beat people like you up at the "kitchen table" all the time...stop drinking the kool-aid and think for yourself.

Anonymous said...

WOW, the posting rages on. To all the BTID, I bet your are doing just great right now? Remember the posting I wrote about the couple who is going to lose the $300,000 to $500,00 and be penniless.

Well lets see how much their investments went up this month. Because we all know that the market never goes down!!

#14279

Anonymous said...

Well i am one of the BTID, my portfolio is up 10% & no worry of make the WL premium if i ever get layoff...you?

Anonymous said...

Beside up 10% in my portfolio, I am shopping for housing now, it's ironic how some of my coworkers/friends have to stop payments to his WL to keep their house...
Or they jokingly said that they wish to actual claim the benefit now. Security eh?!

Anonymous said...

Up 10% in your portfolio. Come on. Who you kidding??
#14279

Anonymous said...

If you can't earn 8 to 10% no matter bull or bear market...then you should stay with buying whole life...

Anonymous said...

Aw... I wonder what prople are goona keep as unemployment increases?
Car? Home? Their kids education fund? or their Whole life Insurance?

Anonymous said...

Great question about what people are going to give up as unemployement rises. According to the previous other posters who portfolio is up 10% why worry about unemployment!

Second if you have a whole life policy that has some years behind it, guess what your policy can survive for a while with the cash inside it. If you dividend is large enough you can simply have the dividend pay itself?! WOW imagine that, you could keep a 50,000 or 100,000 whole life policy and not have to pay a thing. So I could keep the whole life insurance policy and use the money to pay off other bills.

Will someone please tell me that feature exist with term??? No takers?

#14279

Anonymous said...

Anonymous,

Hi guy I want to show comparison cash value and Buy term and invest the difference:

Ex.

25 yrs old

$100 for an insurance and investment program

You can get:

*$100,000 Cash Value Coverage (which is $100/mth, let's make it UL)

The CSV will eventually equal approx. 50% of your Coverage
($50,000)

*Here is the catch, by combining savings and insurance in one plan 4 things happen to your savings plan:

- 2-5 yrs = $0
- 2%-4% interest
- loan 10%-15%
- the company keeps you savings if you die...

You can also get:

* Term insurance for $100,000 (which cost $20/mth)

* Get an investment with an investment company for $80/mth

- @ 12% that monthly payment will give you $325,000

Now Let's compare:

Cash Value (UL)

Coverage
$100,000
Savings
$50,000

= $150,000

Buy term and invest the difference

Coverage
$100,000
Savings
$325,000

= $425,000

***Which one has more value...

Probably a lot of you are asking where you can get a 12% performing fund...here is one fund that i know:

-https://secure.globeadvisor.com/gi/db/gaf.fund_pro?fundname=Templeton+Growth+Fund+Ltd.&pi_universe=PUBLIC_FUND

-http://www.globefund.com/servlet/Page/document/v5/data/fund?style=globe_eq&id=18365&gf_uid=globeandmail.gf.03460322324

(I know its a bit confusing ...read the part that says SINCE INCEPTION...)

Anonymous said...

Anonymous,

Hi guy I want to show comparison cash value and Buy term and invest the difference:

Ex.

25 yrs old

$100 for an insurance and investment program

You can get:

*$100,000 Cash Value Coverage (which is $100/mth, let's make it UL)

The CSV will eventually equal approx. 50% of your Coverage
($50,000)

*Here is the catch, by combining savings and insurance in one plan 4 things happen to your savings plan:

- 2-5 yrs = $0
- 2%-4% interest
- loan 10%-15%
- the company keeps you savings if you die...

You can also get:

* Term insurance for $100,000 (which cost $20/mth)

* Get an investment with an investment company for $80/mth

- @ 12% that monthly payment will give you $325,000

Now Lets compare:

Cash Value (UL)

Coverage
$100,000
Savings
$50,000

= $150,000

Buy term and invest the difference

Coverage
$100,000
Savings
$325,000

= $425,000

***Which one has more value...

Anonymous said...

Anonymous,

I apologize if I posted this twice I still getting familiar with this site...;)

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Anonymous said...

Timmy Stewart.

Having been in the INVESTMENT business for years, I can honestly say you have demonstrated you know pretty much nothing about permenant insurance and investing. I don't even know where to start, your argument is completely worthless.

Anonymous said...

Why don't you show me the math then, stranger?!

Anonymous said...

#14279

Please people wake up, buy term invest the rest!! Don't dance with one of the best life agents in the books.... So lets take a look at those numbers. First, 12% who are you kidding!!!!!!!!!!! Stop pushing that crap on people who don't realize the level of B.S. you feeding them. Either website, same fund. Yes since inception it does say 11.84% (OK,I call it 12%) but have you been in that fund since inception (1954)--I don't think so... So lets look at the twenty year number 5.51%, 15 year 2.20%, ten year-.097%. Go and take a look the numbers keep getting worse. So did the guy mention that over the past twenty years the fund has only made 5.51%, no he forgot to mention that. OK so lets re-run that 12% number term with the 5.51%. Twenty years at $80 a month, with a 5.51% will get you......$35,890.99. I thought you said I was going to have $325,000??? OH, that would take you 30-32 years to get that $325,000. So get this you need to average 12% annually for 32 years. WOW, so the fun is making 5.51% over twenty years. So he needs to have a ten year bull with 23-25% average per year for ten years. You really think we are going to see that again. He forgot to show you the math. He gets to just say a number and say OH, well the market is going to make twelve percent. Well for hte last 20 it only did 5.5% Did he tell you the truth?? So at the end of twenty years (20 year term) you have zero insurance and you have $36K. You have a thirty year term lets give you 7.5% over thirty years and you will have $107,779. See these guys need to add every year of the bull. Never in the history of the market did we have that much growth for that long. See they are not factoring in that they might never see that again. Well we saw it before so we are going to see it again to say those numbers. So back to our case... I will give 7.5% So $108K in cash and zero life isurance.

OK, but life insurance will be worth less. Yep... lets take a look. I sell the same guy a 20 pay whole life. He pays for twenty years and at the end of twenty years the policy is paid up and the insurance goes on till death. So I am going to handicap myself and do the 30 year. Remember he has zero life insurance but he probably would have about $108K. My policy has $33,476 in guaranteed cash (by the way did he guarantee you anything because I just did. I guaranteed that you would have $33,476-GUARANTEED--so do me a favor and back yours up. Tell that guy who was going to have $325,000 which is now down to $108K that none of it is guaranteed. If we do 20 years remember that $108K would really be $36K. So now lets take a look at my projections.. You would have $57,120 in cash (see invest has more) yeah but you have zero life insurance. So honey see I listened to all the talking heads, I listened to Dave Ramsey, Cramer, Orman, etc.. I screwed the life guy and I won. I have nearly double the money. See I won. But guess what you got zero insurance. With me you still have $142,196 in life insurance.

By the way forget the lies that you will have not get the death benefit and interest. They are lying to push their crap. They know it. But guess what I am going to be the one who stands up to those bullies and tell them to stick it.

But I want to be fair to the guys... now at the age of 55 you have 108K in life insurance. It has been 30 years and you made 7.5%. You shift that 108K into nice safe bonds or are you going to keep risking it? Risk it.... we see the market have a decade like we have right now. Your average rate of return in the fund he gave you was negative .97%. So I am going to give him a 3% over the decade. So it grows slow and you are now at $145,000. OK, now you are 65 years old and you have $145K. What did your life guy do for you.... Well I hate to tell you that you have $44,847 in that guaranteed cash. Projected cash value of $101,466. But dang it Dave Ramsey has zero life insurance but you because you listened have $188,549 in death benefit, and you have not spent one more dime with me to this point. You move your cash into a very nice secure bond fund that is going to get you 3.5% You are retired. You are going to take out $5,000 every year for the next ten years. At the end of ten years in that nice bond fund taking $5K out every year you have about $140K left. You took $5K out your life policy every year for ten years offsetting with your dividend you have about $125K in cash. See dang it I still have more cash. Why don't you just give up. OH, well lets just destroy you now. You just died at the age of 75. What did your wife get with the buy term invest? She got the 140K more that the 125K you have in cash. Remember the lie they are telling you. They don't want you to know that you get the full death benefit. So I come over with a check for your life insurance. Madam widow your husband took out a life insurance policy 40 years ago. All during this time he had protection and today that contract is over. Here is your check for $250K.

OK, so lets look at the numbers. Under buy term invest the rest you had insurance for only thirty years, you assumed all of the risk. There are people who are devestated in this economy. They lost alot more than the numbers I gave you. So buy term you are assuming all the risk. ALL OF IT. Both of our policies gave you ten years of $5,000 a year. But when you died all you had was the risk. I gave you insurance protection for 40 years and a death benefit. Quick FYI the death benefit was always more than the cash value of the invest the rest.

So guess what who won. That widow. Who is she going to like more the buy term invest the rest broker with $140K or me the life insurance agent with $250K. One last thing death benefit at 85 is $348K (remember that the bond fund--you are basically living off just the interest. SO at age 85 it is basically still worth $140K)

OUCH!!!!!! So age 85 you get 140K in buy term invest the rest fund or you will get $348K. Oh, yeah, my wife wants to take the 140K to make you guys the winner.

Your total outlay with me was only $85 for twenty years. $20,400. So widow makes a profit of $327,600. So what did you make annually as a rate of return. Average rate of return profit/original capital divided by the number of years.....27% per year for 60 years.

OUCH, you really want to buy the term invest the rest (the twenty which provided you zero rate of return and the 80 in the investment) profit of $104,000/the same $100 over 30 years. 4.8% OH, yeah you won!!!!!!!!

Remember we both took out the same $5,000 every year. You paid for thirty years, I made you pay for twenty (mine is a 20 Pay whole life) So come on guys step up to the plate. Admit the truth stop lying

#14279

Anonymous said...

I wonder why?
http://www.bloomberg.com/apps/news?pid=20601213&sid=at0p6bvmQGm4&refer=home

Anonymous said...

It is really quiet on the buy term invest the rest difference. Things are going so well in the market. Everyone is jumping in and the market has no issues. I just dealt with a great customer who we argued that the DOW will be at 21,000 in three years. He has valid points and we debated it back and forth. I am sure the BTIR are all in agreement. The market is the best place to be; so why do I keep hearing people tell me they have lost all this money and that they can't retire and they need to keep working.

Remember, I sell term just as much as I sell whole life. You have a need for both in your life. You don't put 100% of your money in life insurance. It has a place in your portfolio.

#14279

Anonymous said...

Here is a little something something:

http://perry.kundert.ca/range/finance/ul-blows/

Anonymous said...

#14279

if the market wasn't the best place to be, why would Warren Buffett put billions of his dollars into it now?

Anonymous #416

Anonymous said...

There is a place for term and WL. Term is great -it fills a need. Sometimes a small WL policy with a term companion is very suitable.

Anonymous said...

#416

Great point on Warren Buffet I guess I never thought of that one. Hey, can I ask a question--who owns the most whole life of anyone on the planet? OH my gosh WARRREN BUFFET!

#14279

Anonymous said...

Indeed!
In fact, Warren hires stupid agents like you to sell to idioits that will buy WL...
Get you facts straight... Warren are seller of WL... and the idioits are the ones who bet against Warren & buy WL.

Anonymous said...

Bottom line. Buy Whole life, everyone will die one day and you will be guaranteed that death benefit. Usually with WHole life Insurance the death benefit rises as well as the cash value. Fact of the matter is Whole Life Insurance is a great tax deferred conservative part of your portfolio. Invest the difference if you choose, and good job wasting all that money on term. LESS THAN 2% of term pays out, 100% of whole life pays out as long as the premiums were paid....Some times even dividends can pay the premiums for yOU!!!

Anonymous said...

Suze Orman Weighs In Her Opinion On Life Insurance Term vs Whole Life Insurance

http://vimeo.com/8130779

Anonymous said...

Look at the conditions that Life Settlement companies require:
http://en.wikipedia.org/wiki/Life_settlement

Typically 70 years or older.

If Permanent Life insurance is such a good deal, why don't these companies buy your policy at age 30?

Anonymous said...

It's Life insurance before anything else. Life insurance that lasts your whole life. Life settlements are to make huge profit and fast, tell me what investment you want to compare it with?

Anonymous said...

has anyone heard of index universal life. and the IRS code 7702. seems everyone discusses whole life that is not the best product at all and term as a best solution however i didn;t see anyone post about INDEX UNIVERSAL LIFE.

Anonymous said...

Index Universal Life is a SCAM

Chris G said...

Another brainwashed Primerica agent??

You seem educated on misinformation my friend.

Have you ever considered having a WL policy as part of you allocation of assets? Your portfolio consisting of term, WL, mutual funds, bonds, etc? The performance on a portfolio such as this has been proven to increase your rate of avg rate of return and lower standard of deviation...basically taking out the lower, conservative, guaranteed investments, and replacing them with WL, performing higher and guaranteed.

There is whole life and there is whole life..some whole life is a rip off, some whole life actually performs really well, and in the long run allows the consumer to have life insurance when most term policies are too costly.

I look at whole life as an option to have your life insurance work for you as one part of your fixed portfolio, and buying term, and investing as well...it's hardly ever black and white.

companies who strictly buy term and invest the difference are black or white..think about it, it should make sense. Hopefully some brainwashed aren't too fargone

CG

Mike said...

Primerica... again. I should have known that punchline was coming. Buy term and blah, blah, blah. A singular type of policy does not fit EVERYONE. So, by being with Primerica you are simply limiting yourself. Carry on.

Anonymous said...

One thing I don't understand and am honestly trying to: if the Whole Life company keeps the cash value (Say, 5.7 Million) and gives the family the death benefit instead, (say, 6.6 million) Why is that bad? *using example from a WL policy*

Anonymous said...

After being an admin. assistant with a term company I daily talk to clients who bought 20 yr level term policies and guess what? They did not invest the difference, so it is a question of just buying a product like any other product to do something for you, you need to buy whole life. I thought it was a bad deal for years, however I have changed my mind.

Anonymous said...

It made me laugh so hard as I read through Timmy's ridiculous comments when I came across a link to AL Williams! Which is now Primerica, one of the least respected insurance companies in the industries. Just type Primerica into google and witness the masses pondering whether or not they are being scammed when talking to a primerica rep. That is one thing you should not come across when searching your company. As for calling Warren Buffett senile...he is one of the greatest and most inovative investors of all time. The fact that you would take advice from Suze Orman and Dave Ramsey and disregard Warren Buffett is completely laughable, and I pray for the clients that you will inevitably ruin because you are insanely one-dimensional as a planner. Go ahead, put all of your clients funds into one fund that earns "12%". You will not have too many friends once retirement comes around. -LM

Anonymous said...

Indexed UL is not a ripoff. Whomever said that has only read post about its negatives. There IS something for everyone. Indexed UL can be one of the largest wealth acculation plan for the future in the current and upcoming market. Term plans with guarenteed lifetime benefits are great too. Critical illness riders, disability, and receiving checks should you survive a heart attack, stroke or cancer... how can you beat that? In time of need. Depends on age, dynamamic, wealth and goals of client. Be producers and buyers of diversified products, not one! Just like the Mortgage morons who only knew how to sell the pay option ARM with 3 on the back so they could get paid 15k on 1 deal a month. They had no knowledge of other products for the right people. I have a 30 Year Fixed on my owner occ house, and a pay option with a low margin and index on my investment property and it works great. Annuities with guaranteed income for retirements are great options too. Learn your products people. There is not just one product that works. Tax free is the key. Not a 401k or IRA that you lose half of in the market and Uncle Sam takes the other half. Knowing your products, indexes, options and riders and knowing your clients needs are more important than any of the crap written on here. I am 34 years old, own 3 houses, have a very successfull business, my clients love their safe returns, and I dont overpromise 21% returns and underdeliver. I build wealth, have short terms and long term policies myself, and always make sure I dont over invest and create liquidity problems or set myself up for tax issues. All this learned from trial and error and educating myself and making mistakes in the past. You learn and grow and then figure out how to sell the right programs. I have colleagues that just raised 40 million dollars in capital and they all sat down with me to ask what was best for them. All of them with wealth, some had same goals but sold different policies to them. If you sell or buy ONE TYPE of policy, mortgage, investment or Security you are just like the guy who has 1.5 mill in a checking account and thinks cash in a cookie jar is the answer to creating wealth. Keep studying, most of the agents I work with are 10-20 year older than me, have sold longer than me, and still come to me for advice. Knowledge is power and power equals success and you can do it without GREED>

Anonymous said...

Wow...what a debate. I have both. Term to fully cover my immediate needs for my children and a slightly smaller whole life policy to give me financial choices upon retirement. I have a lot of wealth tied up in my home. One of my income strategies is to do a reverse mortgage and secure it with the death benefit of my whole life policy. My house becomes a source of income for me and allows me to spend down my assets (guilt free) and still provide a nice legacy to my family. I don't know how long I'm going to live or live in retirement, so it's just one of my options as I grow older. Also, I do like the growing death benefit with a whole life policy. My policy will be paid up at age 65. Which is timely because that's my retirement goal. I also invest but paying capital gains every year really makes my overall ROR pretty low (and I own Apple!). I also contribute to the match on my 401k but the growing tax liability is a dark shadow on that asset. I really hate that. In a well balanced financial plan, a whole life policy has its place. Did I mention that I have NO short term debt. That really allowed my hard earned dollars to go toward growth without the drag of interest. I look around at some of my girlfriends who have to have the latest and greatest cars, shoes, etc. and shake my head. They are one paycheck away from disaster. They think I'm boring in that I get excited about how hard my money is working for me in many different areas of my financial picture. I've got 3 months of savings in a liquid savings account and am working toward a 6 month cussion. I save over 15% of my income in some financial vehicle or another. I think I'm going to be alright. My parents retired and they are doing great by utilizing the skills and tools they have tought me. An old but true saying "don't pull all your eggs in one basket" hold true. Good luck to all who aspire for balance in life in all areas.

Steven Hall said...

I never seen such a display of incompetancy. You obviosely have no clue how whole life insurance works. I guess Bank of America (owns 15.5 billion in whole life) is just making a bad investment. I guess Warren Buffett had it all wrong. I guess Jeff Immelt, CEO of GE pays 562k a year into whole life for nothing. Whose company by the way owns the rights to Suze Orman's syndicated network and
publications. Over 4400 exec's at GE own whole life insurance. Keep funding that 401k and end up destitute like the rest of the country because our taxes are going to be 'soooo much lower when we retire'. Good luck buddy.