Life insurance vs 401k

Yeah I've pretty much put off buying a house for a couple years unless I get married.

 

That's what I did.

 

Sorry I misread the $16 and $100 in the first post. It seems like you're considering all the right options, but how much more could $100/month do for you in an IRA or 401k or Roth? Also, consider if that $100k really makes a difference after the $400k payout to your benefactors.

I am not saying do one or the other, just really weigh the options and talk with your family/ benefactors about it.

 

I think that is my whole dilemma. If I stick with the whole life its 40k plus in premiums by the time I turn 65. I really need to look at the projections but again they are just projections.

Plusses:

1. Tax free withdrawal. (after has some cash value)
2. Death benefit (although I can get that with term)
3. Another source of savings (Yes I know it has crappy returns but its savings still)
3a. You actually get cash value for the premiums instead of just losing it like term.


Minuses:

1. Premiums are high and for the first many years fees take a lot of the savings.
2. Could probably invest the premiums and make more in the stock market/401k, eventually earning the residual death benefit the permanent insurance provides.


I am really new to this and just beginning to research this. The main reasons for having this is I am basically the "bread winner" in my immediate family so if I die Id like them to be comfortable. Secondly I plan to eventually have a family and thirdly I participate in many activities that at any one point could very well take me out of this game.

I think I need to look at long term premiums for the term insurance and how high they get when I am older. 100 bucks for whole isn't too expensive for me and it is fixed whereas term premiums will increase as I understand. I am okay with taking a hit on that to begin with but may perhaps need to lower my term insurance later down the road when the premiums become higher. My work has its own life insurance policy which is 2 times my salary so I can do that.

Thanks for all the recommendations and info. It has very much helped me weigh the options in this crazy game of retirement planning.

 

Another thing is I want a few places of where my money is at. My father invested a lot of money in stocks and his 401k only to lose close to a half million when the stock market dropped in the late 2000's.

 

don't plan on withdrawing any from a whole life policy, when you build up enough cash value, most policies offer paid up insurance. for instance, my wife and I both have 75000 in whole life, in roughly 17 years, the cash value will be enough for a policy payout of about half the face value if I take PUI. so I wouldn't have to pay another dime and both policies would be worth ~37000 when death occurred. liberty nation is who I have mine thru but I think this is a common practice among most companies, this is kinda how life insurance use to work. you would pay X number of dollars every month for 20 years and then you wouldn't pay anymore (if you died while paying you got the face value and retained the face value after the 20 years were up) get term thru work since you get a group rate and its cheap. life insurance is needed on a bell curve, a little when someone is young and has no real responsibilities, a lot thru the middle of life when debt and responsibilities are higher, and a little in old age when debt and responsibilities are at a minimum again. whole life should be that "minimum" that you keep the whole time and term should supplement the higher needs area.


I said in roughly 17 years but I meant 17 years from the purchase date and I've had the policy for 5 years so really in 12 years, but at that time I wont be able to get a whole life policy of 37000 for what I'm paying for it so I will most likely just pay it till I retire or close to it, but its nice to have that option none-the-less.

 

Whole life is stupid. You might as well put your money in a money market account. When you die the insurance company pays your face value and keeps the cash value. If that sounds good keep wasting your money guys.

 

IUL and VUL are great products. Both are life policy but can do the same as a IRA,401k...etc. added plus is, if you get sued, they can't touch the money. Just my .02 cents

 

Because they make sooo much money paying out $100,000 and keeping the $20,000 (if ur lucky) in cash. They make money on term policies, 97% of term policies dont pay out (thats as close to free money a company can get) and after 65 most only offee annual renewabilty, and it goes up dramitically each year till (if you live ling enough) you cant afford it and they pay you (more accurately ur benificiaries) nothing after collecting years of premiums. Where whole life never goes up so premiums are relatively low if u get it qhen ur young and healthy. Term thru work is great but if thats all u have, when u retire u will have none. Ask a 70 year old (even in good health) how much a $25,000 term policy is at non group rates. I would say men would average over $150 a month and women over $100. And that will go up about 10% every year.

 

If you build wealth now you won't need insurance when you die of old age (or some other age related cause/ illness), you will have assets to be sold to pay for the cost of your burial etc, (at an average cost of $6-10,000 [or so the daytime commercials say]).

 

Insurance is not an investment. Say that until it sinks in. The idea behind term insurance is to remove the risk of lost income so that you can afford to invest. As I was suggesting to the op he doesn't need insurance. If he would pay off his bills and invest while he was young in investments that actually make a return he would not need insurance in his 50's and beyond because the retirement accounts would be more than he would receive from life insurance. Ok one more time in case you didn't hear me. Insurance is not an investment.

 

Why can't I like this twice?

 

Thanks. As I said Dave Ramsey has taught me well

 

Dave Ramsey methodology is very sound from what I hear. I personally do not use his method, but I have know lots of people who do.

 

If you enjoy podcasts he has an Iheart radio channel that loops his show

 

If you have a five figure income none of your traditional IRA contributions will be tax free (unless that has changed in the last few years).

 

Contributions are not the issue. Once you collect the growth on a traditional are taxable whereas a Roth there are no taxes.

 

Good for you! To be asking these questions & thinking about your financial future at your age. Wish I had been that smart.
1) you currently have no dependents- there is no need for insurance of any kind. If your life changes and you have kids, then term life makes sense.
2) pay off your credit cards! You ask about "return on investments"..well the credit card companies are making a great ROI...at your expense. There is probably no investment vehicle you will find that pays better than not paying credit card interest. Pay them off now.
3) you probably still qualify for a Roth, though a traditional IRA might make sense too (due to current vs future tax bracket). Nothing complex, buy low cost index funds. Like your parents I "lost" a lot in equity value during the recession, however if you didn't sell you lost nothing and if you simply held you are way up today.
4) the advice to "diversify" makes sense. Think: what will provide a stream of cash when you stop working? Dividends on equities, real estate, bonds...consider all those options.
The very good news is you are young, mistakes won't hurt too much and you have time on your side.

 

IMHO, drop the whole life. You only need insurance when you have dependents relying on your income, should you die. And then, you should buy at least 10 times your annual earnings. That should be term. At your age, the Roth is the way to go. Invest in the 401k up to the match. Some plans offer 401k Roth, so check that out. My only concerns about the Roth is political. Show me ONE politician that understands the meaning of "tax free" and "forever". But, based on what we know now, Roth is the best way. After maxing out your 401k match, use an outside investment house to invest up to the legal max. Look for low cost providers, i.e. Vanguard. You will have many more investment options to choose from. My luck with individual stocks has been mixed. By far, my best performance has been mutual funds. The most important thing is to start young and be consistent. TIME is your best friend and trust me. It goes fast.

 

But if he didn't cash out he has far more today than he did before the crash. This is why people close to or in retirement hold more bonds and less stocks. Ride the market, buy consistently no matter what the market is doing and you will get better returns than you can anywhere else.