# Whole life insurance



## emperor (Jul 24, 2011)

I've been talking to a friend that sells whole life insurance. I'm wondering if it's a good investment or not.

20 year term life 200K (Basically just for premature death)
Then whole life is 100K 

I pay 200 dollars a month (2400 a year). From the sheet he gave me it says if I keep my money in there for 35 years my return would be 242,420.

Says

First year planned premium 200.00
Number of years planned premium 32
first year annual minimum premium 831
first year annual maximum premium 8,182
premium tax 2.00%
imaxx top balance portfolio assumed return 7% for 67 years
marginal tax rate 39%

Does this all make sense and does it seem like a easy and good way to invest 2,400 a year until my retirement?


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## the-royal-mail (Dec 11, 2009)

I don't agree that this is an investment (except in the ins. co.). I could do a lot better things with $2400/yr. That's an awful lot of money. You've been given quite a sales pitch.

In your case, ask yourself what you are trying to protect yourself against and who stands to benefit from you spending all this money. Life is expensive enough as it is.


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## Soils4Peace (Mar 14, 2010)

My first instinct is to buy insurance from and insurance broker and investments from and investment broker. 


What are the tax consequences of the $242k? Income, capital gains or non-taxable? Pay as you go or at the end?
Is that number reliant on the 7% rate of return or guaranteed? 
If it is not guaranteed, what is their asset allocation? What is the basis for the 7%? That is a stock-like return; I am not so sure bonds can help much in the next while. So are they doing a variation on the Yale portfolio?


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## crazyjackcsa (Aug 8, 2010)

Term life insurance should only run you $20-$30 a month for a 200k policy.
So that gives you at least $170 a month to work with.
Take that 170 a month and at 7% (their assumption) after 35 years, that's $307,000. And you have access to that money for any reason you want, and can manage the tax ramifications yourself.


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## OptsyEagle (Nov 29, 2009)

First of all, what you have there is a universal life (UL) policy, not a traditional whole life policy. (that is a good thing, by the way).

The 7% return, might be hard to obtain. The fees within those policies are usually quite high. The surrender fees (taking money out within the 1st 10 years or so) are pretty brutal. Once you set these up, you can't really stop it or cash it out or you will be brutalized with surrender charges. With that in mind they can change the fees and there is very little you can do about it. You can't just transfer a life insurance policy to their competitor when you get discontented. Imagine what the banks would do to you if you couldn't transfer your RRSP. That is Life Insurance.

If you don't need the actual life insurance it is a horrible idea. If you do, I would bet your interests would be better served with some straight term life insurance and an RRSP or TFSA savings plan of any sort.

The life insurance question is very simple to answer. "Would anyone that you care about take a financial loss if you were to die". The answer is either yes or no.

UL is sometimes sold as superior to straight term insurance because with the straight term insurance if you don't die, the insurance company keeps all your premiums. With UL, you get money back. The problem with that analogy is that all UL does is take extra money from you to build up a savings plan to pay you back. Paying yourself with your own money is not paying you back for anything. You need to know that to make a better decision.


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## CanadianCapitalist (Mar 31, 2009)

As others have pointed out, for most people, buying term and investing the difference is the right strategy.


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## MoneyGal (Apr 24, 2009)

Ask your person to run the numbers with something other than a 7% return. Does it still work at 5%? What about 3%? 

What is the break-even point at which the strategy no longer makes sense, and what's the likelihood of achieving that break-even point over 67 years? (?!?!?! Why 67 years?)


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## doctrine (Sep 30, 2011)

You're locking yourself in for 20 years. Heck, $200 a month is about the interest on a $50k loan at 4.5%. Invest in dividend growth stocks yielding 4.5%, and the interest is now tax deductible. Use the growing dividends to pay down the principle - even in your first year, with deductions, you'll pay down your loan by $900 or so. In 35 years, at 5%/yr capital growth plus 5%/yr dividend growth, you will have $275k of capital that is now paying you $13,750 a year - and your $50k loan is long gone. That sounds like a pretty good bonus to any retirement.


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## fraser (May 15, 2010)

We did term insurance. I was able to carry 7X salary in term insurance for much less than a whole life policy when our children were small and the risk was greatest.

Our insurance requirements varied over time. Term insurance allowed us to satisfy these variations. Any time that we looked at whole life the numbers and the investment return added up for the insurance company-not for us. 


Like others, I don`t believe in mixing insurance and investments. Much prefer to evaluate each seperately on their respective merits and in a manner where the costs and benefits can easily be understood. As the old saying goes...where there is mystery there is margin.


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## dave2012 (Feb 17, 2012)

Haven't had a Whole Life in many years, but as I recall the pitch included the fact that eventually the premiums would eventually be paid automatically as the plan grew. Was also told that with a Term policy it would get much more expensive down the road.

I eventually cancelled the Whole Life and went with Term, and invested the 'savings' portion. I'm not worried about the Term policy getting more expensive as I get older because I don't need as much coverage. Back then I had a mortgage, other liabilities, and young son and not much net worth, and a larger insurance coverage was necessary. These days I need only a fraction of the life insurance coverage and that requirement will only continue to decrease as I age.

Adding the insurance company between you and your 'savings' only adds another middleman that must take his cut.


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## Lephturn (Aug 31, 2009)

emperor said:


> I've been talking to a friend that sells whole life insurance. I'm wondering if it's a good investment or not.


The short answer is NOT. 

First year max premiums 8 thousand dollars? Um - so they are managing a leveraged investment portfolio for you and if the markets get killed you are forced to pay 4 times as much? Uh.... no I don't think that's a good idea at all.


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## uptoolate (Oct 9, 2011)

CanadianCapitalist said:


> As others have pointed out, for most people, buying term and investing the difference is the right strategy.


I was just wondering if you could give any examples of who might come out on the good side with UL instead of term life. I have heard this said many times but no one has ever said who the few may be. Are they the folks who have maxed out RRSPs, and TFSAs and are still looking for tax sheltered growth and estate planning or those using UL to cover large tax liabilities that their estate could face or someone else? Or are people just trying to avoid getting taken to court by insurance companies?


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## MoneyGal (Apr 24, 2009)

Some quick examples include:

- people who want insurance, but can't buy term (most companies will not sell straight term to people over a certain age)
- people who want to use UL as part of an estate planning strategy
- people with corporations (in some situations)
- generally, people with excess cash who want to take advantage of the tax benefits of UL 
- people who are 10 years or more into an UL policy (as in, the sunk costs mean you should probably just stay in the policy at that point)
- people who want lifetime insurance, not just insurance for a given term

Whole and universal life insurance policies have benefits and these are legitimate products. They're just often pitched to people who can't really take advantage of the benefits.


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## indexxx (Oct 31, 2011)

-What doctrine and moneygal said.

You're being given a sales pitch by someone who will receive massive ongoing commissions from your policy. I did a training stint with a large insurance company and this is exactly how we were told to sell this product. We were also directed to bring in our 'warm markets'- meaning, our friends and family who would be easy sells, as they would be less likely to turn us down vs a stranger. Playing on trust in other words. Imagine this- if some guy knocked on your door and offered you this, what would your reaction be? Personally, I have a strict rule about almost never doing business with friends, especially involving something like your life savings/retirement. The reason is that if it blows up, or you want out, you'll have to 'fire' your friend as your financial planner- there are countless horror stories of this happening. Not to disparage this particular person at all, but every unscrupulous 'advisor' has friend's money tied up in what they are doing, for their own best interests. Are you willing to go there? But maybe you are, and it will be a great investment for your situation. You can only find general advice on here, unless you give more specifics about your needs. A good advisor has a fiduciary duty to always act in YOUR best interests- so maybe this person has determined that a UL or Whole Life policy is right for you.

I'd look online for more info on the pros and cons of these polices for investment purposes.

Not that it can't have benefits, but given that you're asking on this forum, you probably have or can acquire the knowledge to beat a UL policy with minimal effort.


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## MoneyGal (Apr 24, 2009)

indexxx said:


> *A good advisor has a fiduciary duty to always act in YOUR best interests*- so maybe this person has determined that a UL or Whole Life policy is right for you.


Not to nitpick, but no, they don't. A good advisor will _act in the interests of his or her clients_, but the concept of fiduciary is a very specific and rigorous standard which doesn't apply to insurance sales. 

In addition, a fiduciary duty of care either applies to a class of people (lawyer, doctor) or it does not - it isn't something that only applies to "good" examples of the profession. 

I know that some insurance advisors describe themselves as having or taking a fiduciary role with their clients, and I know the term "fiduciary" is used in a colloquial way. This is actually more sales talk. If insurance advisors genuinely had the role of fiduciary vis-a-vis their clients, this would typically require them to talk clients OUT of unsuitable products - you wouldn't hear it as part of a sales pitch.


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## Mike59 (May 22, 2010)

I'm a believer in these policies but agree that they're not for everyone.

I have a universal policy that guarantees 4% annual growth, so far i've earned no less than 4.5%. I treat it as a separate asset class. For the type of investor i am, it grows like an annuity, and i've exported risk to the insurance co instead of me playing the bond market.Only time will tell if the gamble pays off, but with debt crises left and right I'd rather steer away from bonds.

As one who doesn't believe in RRSPs, i plan to eventually borrow against the ULife policy,which for me would be over 1 mil by the time i'm 65. This would be less than 1/4 of my portfolio, the rest being in TFSA and a corporation non reg account. It's my understanding that borrowing against the policy minimises tax , if not it eliminates it on income derived from the policy . Over time the interest earned is astronomical an completely tax sheltered. I'll let the lifeco worry about selling the proceeds and settling with CRA after I'm gone


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## larry81 (Nov 22, 2010)

Here some math:

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

Short answer: dont touch it


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## indexxx (Oct 31, 2011)

MoneyGal said:


> Not to nitpick, but no, they don't. A good advisor will _act in the interests of his or her clients_, but the concept of fiduciary is a very specific and rigorous standard which doesn't apply to insurance sales.
> 
> In addition, a fiduciary duty of care either applies to a class of people (lawyer, doctor) or it does not - it isn't something that only applies to "good" examples of the profession.
> 
> I know that some insurance advisors describe themselves as having or taking a fiduciary role with their clients, and I know the term "fiduciary" is used in a colloquial way. This is actually more sales talk. If insurance advisors genuinely had the role of fiduciary vis-a-vis their clients, this would typically require them to talk clients OUT of unsuitable products - you wouldn't hear it as part of a sales pitch.


That's the point I was getting at- that a good advisor would, in fact, talk you out of this investment if it was a bad idea for you; but again, I don't know your advisor nor your situation.


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## OptsyEagle (Nov 29, 2009)

As far as most life insurance goes, if you buy it for the death benefits it can actually be quite good ... and lucrative (for the estate), but if you buy it for the investment, you will almost always regret it.


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## MoneyGal (Apr 24, 2009)

My apologies indexxx; I misread your post. We agree!


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## brocko (Apr 20, 2009)

Too bad you have not told us how old you are, this is important. How is your health as needs change and so too does health especially in a 20 year window.
It sounds like you have revealed to the agent a budget and he is offering you alternatives. From the advisors side of the table he/she will make a bundle more selling the universal life versus the term and while it doesn't matter what anyone makes it does matter how wisely you spend your money.
It concerns me that you have two different products and two different face amounts as a primary consideration is need now. As well an interest assumption of 7% scares me simply because if they are using that to sell insurance then why are insurers losing money hand over fist and blaming interest rates? Universal Life is all about interest rates and in the current environment it is about rising interest rates and when we will firmly see rates such as 7%.
REmember life insurance is really simple (stop laughing guys) as the insurance company is betting your going to live and your betting your going to die so in your own mind figure who might be right in the longer term of things. Finally insurance is either to create an estate or to handle the costs of administering an existing estate such as taxes.
You have been given clear choices to make in the present for something that hopefully will not be needed until much in the future. Be sure you clearly know what you are buying, why you are buying it and is it the right choice for an event much later in your life when all of today's circumstances have changed.
Did you know that the type of insurance policy you buy, term or whatever, has nothing to do with you living or dying? The death cost to an insurer is the same while the premium varies based on bells and whistles, reserves,expenses,interest rates and the assumptions the insurer makes as to policy turnover.


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## emperor (Jul 24, 2011)

Thanks for all the info. I'm 33 btw.

The term of 200K is just to help pay some bills for my family if I die prematurely.

The UL is supposed to be an investment. What he suggested is you save the money until you need it during your retirement then you borrow against it. When you actually do die the policy pays the loans you have against the policy and the remainder goes to your family.


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## MoneyGal (Apr 24, 2009)

Yes, that is how the product works. And for the right situation, it's a great idea. But nothing in what you've said about your situation suggests this is a good idea for you.


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## wheel (Jun 22, 2010)

Don't ever mix life insurance and investments. Not ever. 

There is never a case where you don't have better options for investments than a life insurance policy. 

People will bluster you with distractions about things - but if you compare investments in insurance against other investments (MER's, deferred sales charges) there's always a better option.

You buy whole life or Universal life (with level cost of insurance only) only if you need permanent life insurance - and then only do so based on cost, ignoring and not using any investments. 

Anyone who's suggesting any strategy where Universal life investments are ever a good idea are either selling you something, or have bought into the hype themselves.

I'm an insurance broker, and I own a universal life policy, and so do my kids. And there's not a penny in the investments.


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## wheel (Jun 22, 2010)

larry81 said:


> Here some math:
> 
> http://perry.kundert.ca/range/finance/ul-blows
> 
> Short answer: dont touch it


While I admire the ferocity, I'm not sure that 100% of what he's saying works. 

For example, he discusses leveraging Universal Life cash values in your retirment via a bank loan. IT's a common insurance marketing tool, one I dislike as does he. But then he says you can use any investment as collateral - and I believe that's factually incorrect. If I recall my info from RRSP loans at insurance companies, you can't use an RRSP as collateral on a loan. If that's still correct (or if my memory is correct) then there's an example of where he's just flat out wrong.


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## Soils4Peace (Mar 14, 2010)

wheel said:


> While I admire the ferocity, I'm not sure that 100% of what he's saying works.
> 
> For example, he discusses leveraging Universal Life cash values in your retirment via a bank loan. IT's a common insurance marketing tool, one I dislike as does he. But then he says you can use any investment as collateral - and I believe that's factually incorrect. If I recall my info from RRSP loans at insurance companies, you can't use an RRSP as collateral on a loan. If that's still correct (or if my memory is correct) then there's an example of where he's just flat out wrong.


There are some math errors but I didn't take the time to track them down. There is no way that RRSP (eventually taxed as income) should beat an unregistered account when the MITRs are so close.


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## RoR (Jan 18, 2012)

Someone mentioned that a term policy will incease in cost over time. A term 100 policy has level premiums that will never increase, and if you live past age 100, premiums are waived and the insurance policy is still inforce. 

Anyway, I agree. Keep your investments out of an insurance policy.


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## wheel (Jun 22, 2010)

RoR said:


> A term 100 policy has level premiums that will never increase, and if you live past age 100, premiums are waived and the insurance policy is still inforce.


That information is incorrect. that's why I basically avoid posting in financial forums like this. People post stuff so emphatically and authoritatively, when in fact they're just plain wrong. And then everyone else parrots it around to the next place like it's a fact.


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## OptsyEagle (Nov 29, 2009)

wheel said:


> That information is incorrect. that's why I basically avoid posting in financial forums like this. People post stuff so emphatically and authoritatively, when in fact they're just plain wrong. And then everyone else parrots it around to the next place like it's a fact.


What's wrong with it?


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## Eclectic12 (Oct 20, 2010)

wheel said:


> While I admire the ferocity, I'm not sure that 100% of what he's saying works.
> 
> [ ... ]
> 
> If I recall my info from RRSP loans at insurance companies, you can't use an RRSP as collateral on a loan. If that's still correct (or if my memory is correct) then there's an example of where he's just flat out wrong.


The main references I'm finding where an RRSP loan is not allowed is for a Locked In RRSP (i.e. LIRA) or if the financial institution internally has a policy against it. 

Of course, except for a few special situations, I'm not sure I'd want to do this.


Reference Links:
http://gailvazoxlade.com/blog/archives/472
http://www.fiscalagents.com/learncentre/QArrsp.shtml#QA_pt12
http://www.taxspecialistgroup.ca/public/taxtips.asp?n=10-02&site=tsg
http://www.theglobeandmail.com/glob...-do-i-have-when-i-borrow-money/article656618/


Cheers


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## Four Pillars (Apr 5, 2009)

You can't use an RESP or RRSP (or any related accounts ie rif, lif etc) as collateral for a loan. 

TFSA is eligible however. Not sure if that is a plus or minus.


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## MoneyGal (Apr 24, 2009)

Four Pillars said:


> You can't use an RESP or RRSP (or any related accounts ie rif, lif etc) as collateral for a loan.
> 
> TFSA is eligible however. Not sure if that is a plus or minus.


The thing is, you CAN use an RRSP as collateral for a loan. Except you essentially cause it to be de-registered as an RRSP and taken into income for the year. 

Here's an old Tim Cestnik article on the topic: http://m.theglobeandmail.com/report-on-business/article806690.ece?service=mobile

You used to see promotions to "unlock" the value of your RRSP - I don't see them anymore, presumably because they don't usually benefit the borrower. 

The ITA sections are 146 (12) and (13), but they are hard to follow. 

The ITA does not technically prohibit anyone from using their RRSP as collateral for a loan. Indeed, it specifies exactly what shall happen from a tax point of view if an RRSP is used as loan collateral. 

And the consequences (taking the entire value into income in the year) mean that this is almost always a bad idea, but strictly speaking you can pledge your RRSP as collateral for a loan. (And the Gail Vaz Oxlade article linked earlier provides an example in which this could be a reasonable strategy.)


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## RoR (Jan 18, 2012)

wheel said:


> That information is incorrect. that's why I basically avoid posting in financial forums like this. People post stuff so emphatically and authoritatively, when in fact they're just plain wrong. And then everyone else parrots it around to the next place like it's a fact.


Explain what part is incorrect.

Eta: Quick search the RBC site agrees with me:
_Your Premiums Stay the Same for Life
Your premiums are guaranteed to stay the same for life. As long as you continue to pay your premiums, your payments will continue at these rates, up to the policy anniversary nearest your 100th birthday. After you reach age 100, you will no longer pay premiums; however your cove__rage will continue until your death._
http://www.rbcinsurance.com/lifeinsurance/term-100-life-insurance.html


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