Whole Life Vs. 401k

I am a 35 yr old Female, married (husband 35). We have 2 kids: 12 and 5. In 2004 we opened a whole life policy for me in the amount of 150,000; $1,818 per year premium. At the time my employer did not offer a 401K and we were told this was the best choice for investment and life insurance. My current employer is offering a 401K with 50% match up to 6%. Keeping the existing policy and starting the 401K would be a little hard financially. Should we change the policy to a term life and put the remaining money into the 401k? Or should we invest the 6% to the 401K and keep the policy?

I am not sure if the whole life is really the way to go. It is a lot of money to put out. The insurance grows, but could the money grow more in the 401K?

Thanks for the advice-

If your health is okay. . .

1. cash in the whole life - surrender it to the company
2. put in the max that you can for your matching 401k - just what they match - any extra should go to a roth ira
3. take out the extra group life insurance @ work - it is usually term - if the price does not equal a term policy on the outside - take the best value policy

good luck to both of you
you deserve the best

I think you should certainly contribute enough to your 401K plan to get the maximum match from your employer. It's an immediate return on your investment that can't be beat.

What to do with your whole life policy is another matter. Since you bought it 2004, I'm guessing your cash value is still significantly less than the premiums you've paid in. Furthermore there might be some type of surrender fee if you try to walk away from it now. However it still may be worth it to take your lumps and buy a term policy instead -- using what cash value you have to pay for first year's premium. I have not checked insurance rates lately, but I would think a 35 year old female could buy $150K in term coverage for less than half what your whole life policy is costing.

Another consideration, if you are not already doing this. is to perhaps use monthly bank draft billing for the whole life policy. That may make it more manageable budget wise than paying a large annual premium.

Best of luck on this. Although it is something of delimma, it's better to be dealing with these types of choices than to have no options at all.

your money COULD grow much more in a 401K. you should also be maxing out your Roth IRAs ... are you?

this is not a BAD concept but it needs to be set up the right way. even set up the right way, i am unsure if the use of a life policy as an investment was the best choice based on what i am reading of your situation "between the lines". however, there are many of your personal aspects that MIGHT have made this a best choice for you, but the are complicated to address on a bulletin board like this.

just out of curiosity, what is the company that your life insurance is through? believe it or not, this answer will give us SOME insight into whether it was placed because it was best or because that is all the person knew how to do.

WARNING: anyone who is telling you to surrender or cancel the policy is doing you a HUGE disservice. they do not know what is right or wrong for you. to give you such bad (uninformed) advice is irresponsible in the extreme. shame on those who did!

Thanks for the advice.

I also have an IRA set up that I rolled 2 previous 401K's into. This was set up after the whole life. Looking back, I probilby should have set up a term life with the IRA at the same time. Paid my 15.00 per month for the term and the remaining into the IRA. But then again hind-sight is 20/20.

For now I am going to keep the whole life and invest in my 401K. I have a annual review at work this comming month and the raise I receive may cover the 6% I elect to put into the 401K. If not, I will reassess our money and see if we should keep the whole or change to a term. My husband has the term now. My main issue is that the term's premium will increase (it was fixed for 6 years). Potentially, the premium could be more than mine in 20 years.


Gaken-
I do have it set up currently for a monthly bank withdrawl. It is the easiest way to go.

1MO-
The policy is through Northwest Mutual.
Thank you again

i am NOT affiliated in any way with NWM. they are a very reputable company and their advisory staff is nicely trained. i am NOT speaking of your individual advisor as i dont know him or her, their qualifications, or their ethics.

however, the fact you were working with NWM leads me to believe they probably ran the numbers and scenarios for you quite nicely. on the face of it, and based ONLY on company reputation, they probably offered you good recommendations.

1MO-
Thank you. That makes me feel better. They did provide us with a full break down showing what the surviving spouse would need. They also outlined our retirement base on our goals and plans.

I felt confident when they worked it all out with us. I just worry after the fact.

Thanks again

Regardless of the insurance policy, I'd put all you can into that 401K. The match is FREE MONEY!!! - it's hard to pass up free money! It's foolish to pass up free money!!!!

I second 1MO. NorthwestERN Mutual is a top-notch firm and I highly recommend them.

-Joe

I work for a 3rd party company that reviews life insurance policies and investment products from all the major carriers and compare them to one another.

First of all you need to at least put 6% into your 401K, and it sounds like you are going to do this.

Second, and not many of you will like this, but after reviewing all of Northwestern Mutual's policies that they offer I have found them to be inferior and more expensive than other policies offered by other companies. I do not feel that the whole life policy was an appropriate policy for the agent to put you in, but he made much higher commission off of that policy. Their whole life policies yield an 8% dividend, but this number is gross of fees. After all of the fees are taken out and the agent is payed very well, you are only seeing a true internal rate of return in the policy of about 2 - 3%, which barely beats inflation.

I would recommend something that is called a 1035 exchange, which is a tax exempt way to transfer your money to a better insurance vehicle. One type of policy that I recommend is called a Variable Universal Life. One company that I have found to have a top notch VUL is AXA Equitable. It is less expensive per year and year for year will have more money in the policy than a NW Mutual whole life policy. I can say this with 100% confidence because I know how NW Mutual policies work and staying with them is actually doing you a huge disservice.

The last thing is regarding your term insurance. Why did they sell you a 6 year term at the age of 35? That makes no sense to me. As a 35 year old you should be locking in that low rate for 30 years. That way you will have th e policy until you retire. I will tell you why he did it though. He sold you that because than the probability of you converting the term into a whole life policy sky rockets, which means PAY DAY for your agent.

I hope this shed some life on NW Mutual, a company that has a good reputation, but doesn't really sell appropriate products to their clients.

Drew623,

You need to stop hawking AXA and their VULs on this site. You are attempting to create doubt where none should exist; a common sales tactic to say the least. Just for the record, VULs are not cheaper than whole life policies...ever. In fact, the only way to make one work properly and safely is to overfund them. In this case only, a VUL may be appropriate. A VUL has underlying annually increasing premium term insurance for the life component and they become more expensive every single year. Whole life has a stable cost of insurance (COI) with comparable returns and has guarantees that VULs do not. I have been in the business long enough to see the train wreck that a VUL can lead to, so your blanket statements that VULs are always better is misleading and a true disservice to readers.

Also, anyone who is with Northwestern is in good hands, as they are a superior company in the industry. I am not affiliated with them in any way, I just don't agree with your numerous posts putting other (and better) companies down, while recommending your own (AXA).

pricespector,

You really don't know what you are talking about do you. Have you ever looked at the side by side comparison between whole life and a VUL. You probably shouldn't because you would be in for a rude awakening. Here is a scenario for you comparing NW Mutual Adjustable CompLife and AXA Equitable Incentive Life '06 for a 24 year old female with a face amount of $250,000. Both have a premium of $2200 per year and we will assume that she will pay the premium until she is 65 and retires. In the NW Mutual Adjustable CompLife the Cash Value will be at $384,431, but in the Incentive Life '06 she would have $566,678. Now these are the facts, after 40 years she would have almost $200,000 more in her account. I do not in fact work for any financial institution, and do research comparing all of the reputable carriers. I just know for a fact that VUL are a better life insurance vehicle than whole life, and I don't care where you get it. Prudential, Met Life, and several other carriers offer good VUL products as well, but The Equitable invented VUL's in the 70's and theirs just happen to be the best. The fact is that in all of my research comparing life insurance products and carriers VUL's beat whole life and NW Mutual has inferior products. It's as simple as that.

You really don't know what you are talking about do you. Have you ever looked at the side by side comparison between whole life and a VUL. You probably shouldn't because you would be in for a rude awakening.
That's because you can't compare the two. It's apples to oranges. Of course a 10% or 12% hypothetical return in VUL will look favorable to a whole life. Only one of the two is guaranteed though and I've only witnessed one these vehicles collapsing due to poor funding (cheaper premium if you will) and/or performance.

drew, though price has already stated it i wanted to chime in too. it is ignorant to try to do a side by side comparison of a whole life (from any carrier) to a VUL (from any carrier). WL and VUL are to insurance as shoes and belts are to clothes.

so the ONLY thing you can accurately compare after you have boiled this down is the companies. while i will agree with you that The Equitable was a fine company ... AXA leaves much to be desired. i think they are an OK firm but they do not compare in quality (advisory staff and strength and stability) to NWM. nor to NYL (which has the HIGHEST ratings from EVERY SINGLE SOLITARY MAJOR RATINGS FIRM ... PERIOD).

finally, here are a few more of your points that make you sound a little "odd":

After all of the fees are taken out and the agent is payed very well, you are only seeing a true internal rate of return in the policy of about 2 - 3%, which barely beats inflation.

are you serious? first off i am not sure how you are measuring your "true internal rate of return" but you must really be stretching your math to get 2-3% return. this is going to be a bald faced lie. if it is accurate, post your numbers please ... then we can discuss your math. since you are a high-falutin analyzer that does this stuff for a living, it should be a piece of cake for you.

secondly, as i have stated before it is MORE LIKELY that the advisor at NWM got a LOWER commission by offering a NWM product. had he placed it through AXA as you suggest, how can you not understand that he would have been paid MORE!!! again, this statement of yours stuns me ... how can you be in the biz and NOT know this???

I can say this with 100% confidence because I know how NW Mutual policies work and staying with them is actually doing you a huge disservice. ... I would recommend something that is called a 1035 exchange, which is a tax exempt way to transfer your money to a better insurance vehicle.
if you were truly in the business (even if only for 6 years) then you SHOULD HAVE known a little concept called "know your client". stating that staying with a product is a "huge disservice" without knowing your client is ... well, a huge disservice. in fact, it would likely get you fired from NWM ... did it? you go on to say transfer it "to a better insurance vehicle" yet again you dont know the client so you are in a poor position to know what is better.

i would recommend that you click my link below. review my insurance products there and i am sure you will shortly become a major advocate for my products.

p.s. i am beginning to wonder, are you really a new agent at the AXA and just got your new life licence and are all fired up and trying to share your recently found insights on insurance while spamming this site with AXA this and AXA that products?

I Am A God!!!

I Am A God!!!
Whatever happened to this guy? :eek:

When people, financial advisors, tell you buy term and invest the difference.

Question One should ask is:
Where do you put the difference?

Buying these financial products is very similar to buying our everyday products. The difference is the company that makes it and will be there for the policy holder. The other factor is that the companies agent is working as your financial advisor. Yes, they are a financial advisor, so go ahead and ask them for more service or information. If the agent is not making themselves available to you, then what kind of an agent is that.


I have a great agent that will do what's best in my interest and I proudly will endorse my financial advisor, Dan Ang, an agent for New York Life.

Like, Mel1322, I was able to realize that life insurance can be used for income-tax free retirement.


Let's put some hard numbers in here, because a lot of people on forums are only concerned about percentages, whoa, take the free money crap. Hey, I'll take the free money, tax-free of course.

My company provides me a retirement plan in which they contribute 15% of my salary 100%. I don’t have to contribute. I do have vesting years, but who cares, I’m gonna be retiring with them anyway, or if the company folds, or if I die, whichever happens, happens.

My agent suggested to me why don’t I do the same for myself just in case. He designed a plan in which I put away 15% of my salary for 10 years, and I can choose to put away more if I want to. So I figure, I put away $150,000.

it’s similar to buying a motorhome or a Porshe 911 Turbo or any other exotic car. It’s kind of like buying another home without having to deal with the real estate market, or interest payments.

I don’t care too much about the death benefit, but if you ask, it’s a million dollar coverage. By the time I’m 67, the cash value from my policy will supplement my retirement with 67,000 income tax free monies, the company retirement will be about $900,000 and I can withdraw from that about $30,000 taxable money, so I’m planning on living on $97,000, and the best thing is : I’m only gonna be taxed on $30,000.
How's that for maxfunding my life insurance policy, it's a custom designed for my own financial purposes whole life policy.

Hey the 401k plan has it's purposes, but like I said not all financial products are made the same, plus the 401k benefits the company, not really the employee.

Take my company: You've got to be 6 years vested 0, 20%, 30%, 40%, 50%, 60 %, 100%, if you do leave before vested, you only get to keep a percentage of what's in the pot, what happens to the rest of the money? It gets redistributed to the other employees while all the time, the company gets the tax break. While we on the other hand, will get taxed later on, probably at a higher tax table.


I’ve also started my LTC insurance just in case. How’s that for planning?

I do have a great agent.

Feel free to contact me, if you want to get in touch with him.

dean_manning@yahoo.com

Although your insight is appreciated based on the relevent discussion, you shouldn't be plugging individuals.

I'm sure Dan is a great guy and good resource, but here are many good agents out there, many of them with a lot more than 9 months of experience.

It's great that you have a plan and are investing for your future.

You didn't mention your current age. If you are young (say 27 - 37) you'd have 30 to 40 yrs until you hit 67. The effect of 3% inflation on your assumed $97K will be a reduction in purchasing power to about $30 - 40K in today's dollars. Hopefully, your advisor has incorporated the highly erosive effect of inflation into your plan.