Do I need whole life insurance?

All children are grown, no mortgage, no loans, enough money put away for retirement.

Asked by Scott

5 Answers

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Answered by Donn Sharer , CFP ChFC CLU in Millstone Township, NJ
Great question Scott. As with all things related to your financial life, "it depends". At first blush, the answer could be no, you don't need permanent life insurance. There's no need to cover the mortgage or other debt, children's education, or your retirement. If you're already in retirement or financially independent, there's likely no need to cover current lifestyle, and it sounds like final expenses wouldn't make a significant dent in your retirement nest egg.

Where permanent life insurance could play a role in your financial planning is if you have a desire to pass on money to heirs or causes beyond remaining assets, or have a concern about the impact of estate & inheritance taxes on reducing what you leave to those people & causes important to you. Keep in mind that while the federal estate tax exemption has risen substantially over the years, the states have not followed suit & can still extract a significant haircut.

Another consideration could come into play if you have a pension coming. In some cases taking the pension on just your life and then providing a life insurance payout to the surviving spouse or partner could increase your retirement income at essentially no net cost. Of course this is highly dependent on age & health so it's not for everyone.

Yet another consideration has to do with protecting your retirement nest egg. One of the biggest threats to our retirement savings is the need for custodial care, either in home, in an assisted living facility, or in a skilled nursing home. The cost for this can be significant and often puts a severe financial strain on the family having to deal this. Especially true if there's a healthy spouse or partner relying on that nest egg for retirement income.

There are new life insurance products on the market which can provide help to address this issue. They don't make sense for everyone, but certainly can provide critical protection in certain situations.

Hope this gives you a flavor for the considerations Scott. Congrats on putting yourself in such a strong financial position! | 06.12.15 @ 13:44
Comments 7  
Kirby Thomas, Online Life Insurance Rate Comparison: Term.comPRO+ in San Diego, CA — I like Donn's way of reshaping the question from "whole life" to permanent insurance. Consumers typically call ALL permanent plans "whole life" when they actually mean "something other than term that does not come to a predetermined end, other than my dying." By referring to the coverage as permanent coverage, we can avoid implying that Scott needs true whole life (WL). He may avoid that expensive option and still get a permanent plan with a version of Universal Life. WL and UL are different in a couple of ways that may be important (including the cost), and may be worth investigating. | 01.07.16 @ 00:59
Dave Bradley, Investment Manager (Financial Advisor) in North Charleston, SC — Life insurance is a protection against the loss of income that would result if the insured passed away. Let's not distort loss of life with loss of retirement income and/or market losses. The cash component is NOT about growing your nest egg. Investment options & derivatives are used for this purpose and as any Registered Investment Advisor knows there are many regulations that clearly distinguish between Insurance and Investments. | 04.12.16 @ 03:35
Larry Gilmore, Insurance Agent in Marysville, WA — Dave, I think you'd agree that life insurance is a liquid pot of money upon death. Claims can be paid within a few days of death and are not subject to market friction that investments can be like surrender charges and market fluctuations. Nothing has to be "sold" to meet immediate needs, nor does anything have to be purchased (services) with an interest charge. It is entirely up to the insured to decide how much and what for their life insurance choice will be. That's the beauty of it as a product, it can be used a number of effective ways for needs. You also I am sure understand the level of risk involved in an insurance product vs. other investment options. Traditional life does not go backwards in values. I wish I could say the same about all my other choices in 2008. Not everybody dies during an up market.... ;) do they? Depending on the desire of the insured a policy provides instant money without any dependence on the market being up or a buyer. no? | 04.12.16 @ 04:31
Dave Bradley, Investment Manager (Financial Advisor) in North Charleston, SC — Hi Larry. Certainly, we can both agree that life insurance and investments have liquidity and both require proper management to meet our clients liquidity needs. We can also both agree that everyone should invest in themselves first. Surely, you do understand that folks have passed away in up, down, or sideways markets. You should also understand that when a person passes away their life insurance does not go with them because only living beneficiaries can benefit from Life Insurance. Concerning your remarks on 2008, Obviously, your cash value life insurance failed to increase your net worth. My condolences. Had you asked earlier, you would have known that our folks were in bonds. Heck, U.S. Treasuries have more than doubled since 2008. They have a CAGR of 15%. Has the cash value of that liquid pot of money you so fondly speak of done the same? Keep in mind that in 2008, the market lost around 35%. This translates into a 54% gain just to break-even. The market took 4 years to recoup those losses. How long does it take the borrowed cash value from a life insurance policy to do the same? Have you been advising your living clients about this material fact? George Foreman said; "The question isn't at what age I want to retire, It's at what income." How much liquidity can your life insurance afford? It it's not what you make, It's what you keep that determines your lifestyle. There are risks in life. All life. My job is to eliminate risk and demand folks get to where they need to be financially. As a Fiduciary, I do not compete because I always do what is in my clients best interest. | 04.12.16 @ 16:25
Larry Gilmore, Insurance Agent in Marysville, WA — Hi Dave, Actually in 2008 my cash value life insurance INCREASED, it did not lose value, it did not stay at zero during that period of time. I suggest you look a bit deeper into the product as you're not giving correct advice. You are bringing up "borrowing" and I would ask why? What we're talking about is liquidity at death, not borrowing. There is no other financial product that does what life insurance does at death, sorry David, I cannot agree with your advice at all. | 04.12.16 @ 17:17
Dave Bradley, Investment Manager (Financial Advisor) in North Charleston, SC — Hey Larry, You misunderstand, I'm not offering you or anyone else any advice here. Liquidity is also great to have before death. I'm not understanding why you seem to suggest that someone must pass away before they can tap into it? Obviously, I prefer equity over debt and I do not sell any products. Glad your cash value life insurance increased in value during 2008.. Our long term Treasuries ETF increased 55% in 2008 and we did not have to borrow anything. None of our strategies require our customers to pass away before they can access their liquidity. We always do what is in our customers best interest. We also work with Estate Attorney's to ensure that our customers loved ones receive their uninterrupted benefits during all times of need. We value our customers and we respond to their needs. All needs. Also during sickness and in good health. We demand that they enjoy their lifestyles because they earned it. Evidently, you disagree to this. Well, I have no intention of asking anyone to pass way in order to tap into what you refer to as "liquidity at death." Certainly, you are free to contact us directly to dig deeper into this. Keep in mind that as a fiduciary, I am required ethically, legally, & morally to always do what is in my clients best interest. Hope this helps | 04.12.16 @ 22:59
Larry Gilmore, Insurance Agent in Marysville, WA — Dave the thing is what is the first purpose of life insurance? The reason I am gearing my remarks towards death is if the OP has everything else set up, what benefit would life insurance be to him? I brought up liquidity because it is the advantage over everything else he is doing at death. A policy allows his family the ability to take care of his death while not paying surrender fees or liquidating assets in a down market or a forced sale. Life does what no other investment does at death, which is create a pile of money without fees or market conditions to deal with. Dave your here cross selling, I'm here answering the guy's question as to a reason to own life insurance when everything else seems to be in the bag already for him. As I continue to read your reply it is clear you honestly have no idea how life insurance works within planning. Maybe you should ask your estate attorney about the reasons a person would and could use life insurance in their estate plan. And really rethink your disregard of liquidity as you really don't seem to understand what happens at death. The OP has no need as far as accumulation wants, he does have a liquidity problem at his death. Please share this with your estate planner. He's more than welcome to come on tell me how wrong I am. | 04.12.16 @ 23:26
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$commenter.renderDisplayableName() — {comment} | 12.05.16 @ 04:51
Answered by Willard R. Brumbaugh, LUTCF in Victorville, CA
To answer to your question, ask another one: If one is to assume that other assets are sufficient to take care of all 'needs,' what besides a properly designed Whole Life policy could create the tax-favored result that such a policy could?

Such a policy can protect your estate from stock market losses, and at the same time provide a competitive yield on premiums paid without exposing the gains to income taxes. By squirreling away unneeded deposits in Whole Life insurance, thus reducing reportable earnings, one can also reduce the likelihood of income taxes on Social Security income.
| 07.07.15 @ 21:48
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$commenter.renderDisplayableName() — {comment} | 12.05.16 @ 04:51
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Answered by craigssdv
You asked about Whole Life insurance. This is insurance with a savings component as part of the policy and is very expensive compared to Term insurance. Get a quote for Whole Life and then get one for Term insurance. Whole Life keeps the savings portion (cash value) and only pays out the death benefit if something happens to you. To get the cash value, you must cancel the policy or if you borrow, you often pay it back with interest. Also, the cash value often earns 0% interest for the first few years as the agent selling it earns a high commission. Take the amount you would have spent for the Whole Life minus the amount for Term and invest that difference into an IRA. Your IRA (put into a mutual fund) will earn right away and you will have something to replace that Term insurance later in life. | 11.25.15 @ 13:55
Comments 3  
Larry Gilmore, Insurance Agent in Marysville, WA — Craig, are you considering risk in your advice? Are you 100% certain your MF will earn anything immediately? And which type of whole life are you writing about, stock or mutual company products? Can you explain how paid up additions increase the death benefit of a whole life policy to actually pay out more in death benefit than the insured originally purchased? | 04.12.16 @ 04:36
Willard R. Brumbaugh, LUTCF in Victorville, CA — Craig, you are wrong on almost every one of your points. You don't know enough about life insurance to even qualify to answer the question. | 06.04.16 @ 00:57
Saving in WI — William, You are actually wrong. There is no instance where Whole Life insurance makes sense to a consumer. It only makes sense if you are selling it. | 08.05.16 @ 13:59
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$commenter.renderDisplayableName() — {comment} | 12.05.16 @ 04:51
Answered by Larry Gilmore, Insurance Agent in Marysville, WA
Yes, No or Maybe. The choice is yours. You may feel you need no insurance at all and that's OK. You may actually have enough set aside for no worries. But, is what you set aside liquid? Does it have to be sold to get money out of? Is it required to go through probate before it can be touched? You may be absolutely correct "you" may not need life insurance. That said may I ask this question? "How hard do you want to make it for those you leave behind to handle your passing? That's what we're really dealing with in your question. You don't need life insurance, those you leave behind might benefit from your ownership of some. Maybe a son has to take a loan to pay to clean up your affairs, sure he can wait months to recover the costs, or maybe he has to sell your favorite stuff at garage sale prices... I'll stop now because you either get the point or you don't. I bought my first insurance policy at 18, because I didn't want my mom to suffer twice from my loss. It's hard enough to lose somebody, but then if you have to be their bank to settle things up ... | 03.05.16 @ 02:34
Comment 1  
Willard R. Brumbaugh, LUTCF in Victorville, CA — Larry, you are correct in everything you have said. | 04.13.16 @ 00:05
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$commenter.renderDisplayableName() — {comment} | 12.05.16 @ 04:51
Answered by Jed Maslowski, Insurance Agent in Scottsdale, AZ
I think you're asking the wrong question.... It's not "do I NEED whole life?" It should be "will whole life benefit me?" The answer to that question is: Probably (especially if you're willing to consider Universal Life, Variable Universal Life, and/or Indexed Universal Life).

But it's impossible to know without a getting an idea of your current and future financial needs.

Good luck! | 04.14.16 @ 15:48
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$commenter.renderDisplayableName() — {comment} | 12.05.16 @ 04:51
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Answered by

Donn Sharer
Donn Sharer , CFP ChFC CLU in Millstone Township, NJ

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