Buying Whole Life Insurance with adjustable term protection at 27?

Question

I am a 27 year old male with no dependents, not married, $60,000/year income, and a poor family health history(Dad died of heart attack, mom of cancer, 3 living brothers with heart attack, diabetes, and pancreatic cancer between them).

I put 12% into my 401K through my employer, get 2x my income in life from my employer, $300/month into a mutual fund (FAIOX) and $200/month into my Roth IRA (FMILX).

I like the idea because getting it young makes it cheaper and I might not get it later in life because of my family history (Am I being too cautious?), and I like the investing idea.

With my situation, should I get whole life insurance with adjustable term protection at my age? It is specific because that is what an advisor recommends ($800,000 to be exact {$350,000 for whole and $450,000 for term}).

Answer 1

Let's look at some numbers. These are just example rates that I found online. You can substitute your own quotes and compare yourself. I'm not going to name the company, but these advertised rates are all from one nationally-known company for a 25-year old female.

• Whole life: $78.13/month for $100,000 of coverage.
• 10-year term: $15.00/month for $250,000 of coverage.
• 20-year term: $15.45/month for $250,000 of coverage.
• 30-year term: $20.23/month for $250,000 of coverage.

If you went with the whole life option, you would be paying $937.56 per year. The policy builds a cash value; the amount this grows can vary greatly, and you'll need to look at the fine print to see how it will grow, but let's pretend that after 30 years, the cash value of the policy is $50,000 (a reasonable guess, in my opinion). Let's look at what this means: You can cash out your policy, but at that point, you'll stop paying payments, and your heirs won't get your $100,000 death benefit. You can borrow against it, but you'll have to pay it back. You could use it to pay your premium, in which case you'll stop paying payments. However, keep in mind that if you do pass away, you lose the cash value you've built up; your beneficiaries only get the $100,000 death benefit.

Now let's look at the term insurance option. We'll go with the 30-year term. It will only cost you $242.76 per year, and the death benefit is more than double the whole life coverage. If you were to take the difference between the two premiums ($58 per month) and invest it in a mutual fund growing at 8% per year, you would have $86,441 in your account after 30 years. This money is yours (or your heirs), whether or not you pass away before your term is up. After the 30 years is up, your insurance is over, but you are now almost all the way up to the death benefit of the whole life policy anyway.

In my opinion, term life insurance is better than whole life for just about everybody.

I don't want to be morbid here, but the earlier someone dies, the more benefit they get with term insurance vs whole life. If someone does have reason to believe that his life expectancy is shorter than average, term insurance makes even more sense, as he is more likely to get the death benefit for much less money in premiums than he would in whole life.

Answer 2

You, yourself, cannot spend the money from life insurance because, well, you are dead.

So the question becomes "what is best for those you leave behind?". Thus is a question that can only be answered by examining the individual(s) you would leave behind. Near as I can tell, you currently have no one else who may be significantly hurt by your passing. So you cannot answer this question until there is (are) that (those) other(s).

In the meantime, 'self-insure' by saving (true investing) up the money that you would otherwise be spending on premiums.

Answer 3

The reason that I and many others recommend term rather than permanent life insurance is that the expenses charged for investing through permanent life insurance are so high.

Everyone was alluding to that truth in their comments above, but the actual numbers would astound you. The commission that your agent receives for your purchase can be as high as the entire first year of premiums that you pay. (Only on the whole life portion).

Instead you could get a term life policy from a company like USAA (I mention them because they are very competitive, so compare your other quotes to them) for $500k at a cost of about $30/month on a 30 year term. Don't take my word for it, get quotes on the Internet and consider the cost savings.

Ask this salesman, ahem, I mean advisor, what kind of commission he will earn over the lifetime of your investment. He won't give you a straight answer. He'll talk about tax advantages as if there aren't better retirement accounts that were designed to be retirement accounts.

Or buy it from him, it's only money.

Answer 4

We frequently get whole insurance vs term insurance questions; and most of the answers will support term insurance.

We get questions regarding getting insurance before there is a need in case there is a problem getting it later. And for most people it doesn't make sense to over-insure early.

You have asked from a slightly different position, you have a more solid reason to be concerned about your health.

You don't have a need now, and can't estimate what your need will be, or when it will be. Those numbers you quote may seem high, but when you don't know how many kids you may have, or what you will need to protect against, they may turn out to be inadequate when you do need the insurance.

You need to sit down with a fee only financial planner. They can lay out your options today, and as your situation changes. Then as the years go by, have that plan reexamined. The fee only planner will not tell you what company to buy insurance from, or what funds to invest in, but they will help you decide what types of protection and investment you need.