Is Investing In Life Insurance Really “Investing”?
I have a $500,000 whole life insurance policy with Hartford Mutual that I pay $200/month to keep up. $8.50 goes to the administrative fee, $100 for the actual coverage itself and the remaining $90.00 goes into the mutual fund. I’ve had it for about 4 years now and I have almost $8,000 in the mutual fund ITHAX which, by my recent inquiry wasn’t directly based on that number, but didn’t have an exact number as to how that $ was being divided; another one of the reasons I’m starting to follow up on my investments!
But based on my first payment to them in 2004, I have paid $7380 to them and the balance is at $8103 today meaning I have made $723 from them in the 4 years there, a measly $181 per year!
I wanted to get into saving when I was younger and it sounds like I may have been roped into the Whole Life insurance that I don’t need. 80% of that $ goes to the Advisor that sells it to you in the first year and maybe 2 years. So really I have only been making money the last 2 years. The expense ratio is 1.18% so that knocks it down even more – Dear God, what have I done!
But I HAVE read that it isn’t a bad investment if you get into it young – I have $100,000 policies out for my 2 kids and that only costs me $25/month. The pros are that the premium is never going to change, so the kids will have those policies forever and they’ll do nothing but grow (unless the world ends) – similarly, my $200/month policy won’t change either, and it is approaching 500k. In 30 years, I imagine it’s going to be around a million+ – so IS it really a bad investment? I’ve stumbled through the first 4 years (which are supposed to be the “bad” years of the Whole Life Insurance phase, so what now? Is it worth it?
I’ve read pros and cons to the situation all over, mostly cons unfortunately. One of the best cases are from CNN Money which says on: http://money.cnn.com/magazines/moneymag/money101/lesson20 plenty on it – and how to shop for what you need. I highly recommend anyone take a look at it -
So the next question is what do I do about my policy now? Do I stick with it? It IS making me $ on my investment, which is good, but people say that I can put it elsewhere. It costs me money to cancel the policy and I can bet my bottom dollar that I’m going to take a chunk off that amount if I cancel the policy. Is that worth it?
I can afford the insurance at $200, and it will never go up on me, but my policy DOES increase in value. I orignally bought a 450k policy on it, and it is pushing 500k. What’s a guy to do?
Another interesting article is: http://www.jsonline.com/story/index.aspx?id=354597, which says:
“In sales presentations you tend to put everything in the best light,” Zickert said. “The idea of buying life insurance to gain wealth can work very well, but you have to make sure (the money for the premiums) is excess money you don’t really need.”
and that makes sense as well – where does that leave a person? Does anyone reading this invest in any life insurance, any ideas/suggestions?
Filed Under: Compensation • Debt • Emergency fund • Insurance • Investing • Net Worth • Portfolio • Uncategorized • advice
[...] investing me, and where she is. Currently she only has the whole life insurance policy that I talked about yesterday. She’s got some good ideas, she’s young, excited about it, but I [...]
[...] I’m still not convinced that my Variable Universal Life insurance policy is a completely lost cause yet. I haven’t gotten any responses on the post [...]
[...] think about switching over life insurance – I’m thinking I need to talk to this person about MY life insurance concerns… 8. If you’re in the market for a new HDTV, Benedict Chan has the place for you that [...]
Hank,
First and foremost, it is important to realize that you bought a Permanent Policy, which in your case is a Variable Universal Life Policy, for life insurance FIRST!! If you think of it that way, then it makes sense as part of your investment portfolio. A VUL policy forces savings, because it has the separate account, which is like a mutual fund, attached to the insurance package. The philosophy of buy term and invest the difference is great, if the client invests the difference, but many times they just wind up with a term policy and never invest!!
[...] I’m getting my ducks in a row and likely dumping my Edward Jones account and cashing out my Universal Life Insurance with Hartford so I’m on the lookout for a new brokerage. I’m dodging the no fee houses [...]
[...] (99.999% of the time*) have to pay taxes on it. This is the one time I don’t mind having my Universal Life Insurance through Hartford Mutual. I slashed the “investment” piece of the policy and am only paying for the insurance [...]
[...] over for free stuff! To join the party, my dumbest purchase ever was investment related. It was my Hartford Mutual Universal Life insurance policy, hands down. That thing had drained over 10k from me before I wised up enough about it! Thanks [...]
I used to have only the life insurance tied to my job and then, when I was laid off, I realized that wasn’t the smartest move (even though it was a “free” benefit). I then purchased a policy on my own and I also purchased a policy for my son when he was 1. With 30% of the American population overweight, and with the skyrocking #s of people with high blood pressure, diabetes, etc – you don’t know if your child would qualify for insurance when they are adults. This way they are covered, at a low rate, for the rest of their lives. In a way, you’re saving them money and possibly helping provide for your grandchildren.
I don’t think life insurance should be used for investing. It should be used for insurance. For investing use strategies without the additional fees of insurance. Also insurance needs change over time. Normally you need more insurance when your family has young kids and less as you get older (even if insurance companies want to convince you that you need to buy more insurance).
John Hunter´s last blog ..Consumer Debt Down Over $100 Billion So Far in 2009