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Sergio Said:

What might I typically pay for whole life insurance?

We Answered:

I think you need to be fully aware on what whole life insurance is. Whole life insurance contains insurance plus savings that are bundle together. Therefore, premiums are typically 2-5 times more expensive than term insurance, which I will explain later. You are covered until about the age of around 100.

The savings part of the policy is actually called "cash value." In the first 2 years of the policy, there's no cash value accumulated. So all your premiums you paid are going into the insurance and the agent's commissions. After the first 2 years, you will see some money in the cash value. By the time you reach the age of around 100 (when the policy expires), the cash value will be nearly equal to the coverage. So if you bought $200,000 coverage and you get to live to age 100, the policy expires and you get $200,000. As you can see, you get a low rate of return of 1-3% on your cash value.

If someday you wish to take money out of the policy, you will be borrowing the money. That means you have to pay it back with interest. Interest rate being charged on the loan is usually between 5-8%. God forbids something happen to you while there's a loan balance due, this amount plus interest will be deducted from the face amount of the policy. Lets say you took out $2000 and you die the next day. The $2000 plus interest will be deducted from the $200,000 and your beneficiary will receive about $198k.

As you can see from the example, while there's still some cash value left in the policy, all the cash value is kept by the insurance company when you die.

Do you really want to pay lots of money for 2 products in one and only be able to get one of the benefits at any given moment? A better question is why that only life insurance builds savings and all the other types of insurance such as car insurance don't? If you decide to buy this policy and someday want to cancel it in the future, you may get some cash value back to you. Surrender charges will be applied on the cash value. If you die someday, your beneficiary gets the face amount of the policy, but the insurance company keeps the cash value.

The best way to protect your income while also building savings for your future is to buy term insurance and put your money whereever you see fit. I recommend people to open a Roth or Traditional IRA and setup a monthly pre-authorized checking (PAC). That way you pay yourself first every month by having money taking out of your checking and have it automatically deposited into your retirement account. I personally invest $400/month into my Roth IRA into various mutual funds. If you want to know what or how mutual funds work, there's plenty of information online.

Anyway, term insurance does not build savings. It offers protection for a limited time at a very low cost. There's many different level term insurance and its best that you sit down with financial advisor who can accurately determine how much coverage you need and for how long do you need life insurance. I personally used Primerica Financial Services and they provided me a free financial needs analysis that gives an in depth detail of my finances and a game plan to help me improve it and reach my goals. I own their 20 year term insurance bought at age 26 with $350k in coverage and pay about $33/month. If this was whole life, I guarantee you it will cost at least $60-$90/month.

At the end of the term, you typically have these options available to you. You may choose to cancel it and lose coverage. You may choose to convert it to whole life or universal life. You may be able to exchange it into another term policy. Or you can renew it every 1 to 5 years and pay higher premiums. But you shouldn't worry about what will happen when the term expires since its going to be a very long time until you need to make a decision. If the financial advisor does a good job, he or she may say that you might not need life insurance in 20 or 30 years since you built enough savings to cover you and your family. If you do need life insurance in 20 or 30 years, you probably won't need as much coverage as you do now. I mean, your kids will be adults and hopefully you have very small debts to pay off.

If you die during the term, your beneficiary will get the face amount. As with all your savings, hopefully you have designated beneficiary with those accounts. If not, get a Will done (which Primerica can also do through their Prepaid Legal Service). I use their Prepaid Legal and pay $20/month for it. If I ever needed legal assistance, I have access to thousands of lawyers and attorneys across the country. I got my Will done and it didn't cost me anything.

If you outlive the term policy and someday you die, your designated beneficiary will get your savings and assets.

Hope this education about whole life and term insurance helps. At least you are making an effort to get life insurance. Its good that you are researching about it because most people that own life insurance

Ted Said:

i got another quote from allstate(for life insurance)?

We Answered:

First of all, I would question how adequate $100000 really is in your situation. It's just not a lot of money to raise a kid.

I can't tell very much about the Allstate quote from here. Please keep in mind with universal life that the interest rate usually could change, but so could the internal costs. If a company raises these internal costs, it is not always because of financial strength.

As far as I know, both Allstate and Primerica are captive companies. That means they do not have access to the open market. If you're really interested to know if this is a good deal, talk with a few different independent insurance brokers.