9 reasons to consider whole life insurance

By Wealth Without Stocks

Just a few short years ago, I was staunchly opposed to whole life insurance, because that's what I was taught by national "gurus" 25 years ago. I wholeheartedly believed (as many people still do) that if you need life insurance, you should buy a term policy, then take the difference in premiums between whole life and term and invest it in mutual funds.

So when a good friend of mine sat me down and tried to show me a whole life insurance plan, I nearly refused to listen. Many of you reading this will feel the same way, and nothing I say will change your minds. That's fine — you're entitled to your opinion just as I was entitled to mine.

Thankfully, my friend showed me how a properly designed whole life insurance policy works. I soon realized that the gurus in my early years and the gurus of today were correct — based on the information they'd been given. The problem was their information was incomplete.

Whenever I hear a financial consultant (or anyone, for that matter) talk about less expensive premiums for term, I know they really don't understand how this animal of properly designed whole life insurance really works.

With a properly designed whole life insurance policy, you get:

1. Principal protection guarantees of your money.Your cash value isn't subject to market losses, as it is with mutual funds and other programs. When the stock market tanks again (and it's never a question of if butwhen), you won't lose a dime.

2. Guaranteed growth of your money every year. This will be interest-rate-driven based on the economy, but your account will move forward every year regardless of what the market does. This is compound tax-free growth and not the "average rate of return" you get with mutual funds. To be fair, in our current low-interest-rate environment, the growth rates are only in the 2 percent to 4 percent range but as you study further you start to realize the real wealth is not in the growth rate even when rates go higher.

Many financial advisers will tell you that your money would do better in a good mutual fund. But remember: When someone shows you an "average rate of return," they can start taking that average from any time that benefits their example. This is not compounded growth but rather a factor of timing as to when you enter and exit the market. The stock market has wild swings; if that is acceptable to you, you should have much of your money in stocks. If not, maybe it's time to consider a different way to think about investing. (Remember the period from March 2000 to October 2002, when the Nasdaq lost 78 percent of its value? It's been 14 years since the dot-com bubble started to pop, and the tech-heavy index still hasn't quite recovered to that level. If you like guarantees and stability then you have no business putting most of your money in the stock market.)

3. Dividends paid to policy owners are not taxable. Dividends aren't guaranteed, but many reputable life insurance companies have been in business for more than 100 years and they've paid out dividends every year. The amount of that dividend will depend on several factors, but it boils down to how much profit the insurance carrier made. When properly paid to the policy owner, those dividends are not taxable.

4. A high starting cash value amount, based on what you contribute to the policy. Whole life policies that aren't properly designed will have very little cash value in the early years.

But a properly structured life insurance policy will have high cash value percentages, even in its first year, and they increase every year. This becomes an important fact when you realize that access to your cash will help you grow wealth systematically regardless of market conditions

5. Access to your cash value at any age, at any time, for any reason — without taxes or penalty. This is a huge benefit of whole life policies compared to 401(k)s and IRAs, which impose multiple obstacles if you want to access your cash before retirement, and penalize you if the funds you borrow from them are not paid back by a certain time and at a certain interest rate. No such obstacles exist with a whole-life policy. So leave your cash in the policy if you wish, or borrow it back out and use it, the choice is yours.

6. The ability to use your account's cash value to recapture lost depreciation on major purchases and interest and fees paid to banks. If you treat this pool of money inside the life policy like your own personal bank, you can loan it out to yourself and others to create wealth. (More on this in future articles, but suffice it to say for now that banking has been around in some fashion for thousands of years. Any business model that lasts that long is worth understanding and using to your advantage.)

7. Guaranteed insurance. Once the policy is in place, your insurance is guaranteed for the rest of your life. Many people assume they'll be able to buy new insurance at any point in their life. But nothing is further from the truth — especially for those who've been diagnosed with chronic or terminal diseases. If you become seriously ill, don't expect to be able to buy a new policy.

With many whole-life policies, you can add an "accelerated death benefit rider" for little to no cost, which will give you access to a large portion of your death benefit during your lifetime if you have a terminal or chronic illness. I just had a colleague with a client who was diagnosed with Lou Gehrig's disease, or ALS, and was sent a check from his insurer for more than 70 percent of the eventual death benefit. He'll be able to enjoy his remaining time without worrying how he will pay his bills.

8. The ability to combine your life policy with the worlds of real estate, private lending and auto financing to accelerate your wealth, both inside and outside of the policy. Just remember that any funds inside the policy are tax-free for life.

9. Death benefits. In addition to all the benefits you can make use of while you're still here, at heart, this investment is still a life insurance policy, so when you eventually die, there will be a sum of money left behind to your beneficiaries — tax-free.

There's a reason family dynasties have been using life insurance for generations to grow and protect their wealth. Even when subject to estate limits, these death payouts go a long way toward promoting the tax-free, inter-generational transfer of wealth.

Of course, insurance company policies and riders will vary by state due to state regulations and depending on the actual insurance carrier. But you won't find another type of account or investment that has all these benefits in one investment — not 401(k)s, IRAs, mutual funds, stocks, bonds, precious metals, real estate, nor any other account.

The post 9 Reasons You Should Take a Look at Whole Life Insurance appeared first on Wealth Without Stocks.

RELATED: 11 things we spend way too much money on

11 things we spend way too much money on
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11 things we spend way too much money on

1. Funerals

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According to the National Funeral Directors Association, the average cost of a funeral with viewing and burial was $7,181 in 2014, the last year for which statistics are available. With a vault (which is typically required by a cemetery) the median cost was $8,508. The cost does not take into account cemetery plot, monument or marker costs or miscellaneous cash-advance charges, such as for flowers or an obituary. That's a lot of cash.

The worst time to shop for a funeral is after a loved one dies, when grief can affect judgment. The single best way to avoid unnecessary costs is to be clear on your funeral wishes — or better still, make arrangements for your funeral — well in advance so your loved ones don't have to worry (which tends to lead to overspending). Either way, the costs can be far less than that average if you follow some tips:

  • Know your rights as a consumer: The Federal Trade Commission regulates "funeral providers" under The FTC Funeral Rule. The requirements mandate that funeral homes provide a list of prices, and that customers are not required to buy all funeral-related products from the home that is coordinating the funeral.
  • Shop around. Because the law allows you to BYOC (bring your own casket), shop around. Where? Try Costco. While the NFDA says a casket averages $2,395, you can get a casket from Costco for $950 — delivery to the funeral home included. But there are many other discount options online.
  • Get cremated. In 2015, 49 percent of deceased were cremated in the United States, compared with 45 percent who received traditional burials. (The other 6 percent were not accounted for.) That's up from a cremation rate of under 10 percent in 1980. The NFDA puts the average cost of a funeral with viewing and cremation at just over $6,000. But in reality, opting for cremation makes it possible to avoid many costs — including embalming, viewing and burial — as Everplans, an online service that helps people make estate and end-of-life arrangements, explains here. Moreover, the site points out, cremation makes it easy to hold the memorial at a later date, in a way that is affordable and convenient for family to come together.

For more, check out: "How to Manage the Cost of a Funeral." 

Photo credit: Getty

2. Weddings

It's madness: The average American wedding cost $31,213 in 2014, according to a survey by wedding website The Knot.

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Many people set out to be frugal, but fail once the planning gets underway — and the wedding industry gets its tentacles into them. So the first and single most important step to preventing overspending is to stop and think: What will make the occasion fun, memorable and meaningful for you and your guests — versus what is just a costly tradition or expectation? Then have a conversation about where you could better spend the thousands of dollars you save. Travel? Downpayment on a house? Or — if you're a parent who is ponying up the wedding costs for the couple — retirement? Setting aside the option of eloping, there are any number of ways to save:

  • Buy a second-hand wedding dress: Go to sites like Preownedweddingdresses,com to see the vast array of hardly worn finery.
  • Limit the floral arrangements: Flowers are nice, but they can run up a huge bill, and then they die.
  • Trim the guest list: Remember, the costs of food, decorations, drinks, table arrangements goes up as you add guests. So keep the wedding numbers down. You can always throw a huge barbecue for everyone you know later.
  • DIY DJ: The Knot survey says a reception band will cost about $3,000, while a disc jockey will run almost $1,000. You can simply program your favorite music on an iPods and then hire someone (or even asking a friend) to push the right buttons at the right time. Search online for "DJing your wedding," and you'll find all kinds of detailed advice.
  • Cut the cake. Specialty cakes can run into the hundreds of dollars. But really, how many weddings have you been to where everyone raved about the cake? Skip the specialty baker and buy your cake from your local grocery chain.

Want more ideas? Check out: "15 Ways to Save on Your Dream Wedding." 

Photo credit: Getty

3. Diamond rings

You'll notice we didn't mention engagement and wedding rings in the Weddings section. That's because jewelry is an overspending category unto itself — and diamonds may be the most marked-up item on this list. But like funerals and weddings, buying diamonds is fraught with danger because it's yet another emotional purchase. If we try too hard to save money, we feel like we're being cheap.

But here's a secret: Diamond prices are often negotiable, even at major chains like Zales and Kay Jewelers. So while it's important to know the four C's of diamonds — carat, color, clarity and cut — the biggest lesson you can learn is to haggle. If your local jeweler or national retailer won't come down on price, they'll often be willing to upgrade the setting for a discount or even free.

By the way, there are no wedding police: You could decide to get an opal, a ruby — or an agate — in your engagement ring. But if you go with expensive, first read: "8 Tips to Tackle the Terrifying Task of Buying Jewelry for Your Love." 

Photo credit: Getty

4. New cars

Money Talks News founder Stacy Johnson lives in a beautiful house on the water, and there's a 30-foot boat docked out back. But he's never, ever bought a new car. This is what he says:

When it comes to buying cars, the vast majority of people I've known over the years approach the subject with no imagination at all. They simply do what the commercials tell them to and what their friends do: trudge down to the nearest dealer and buy a new car.

Instead, he's bought used cars for as little as $5,000. How? He avoids car lots. "A few years ago I bought a 1994 Cadillac Fleetwood Brougham from a 91-year-old lady," he recalls. He suggests asking around — friends of friends seem to value a fair price and honesty. He also consults websites like Kelley Blue Book or Edmunds to establish a value. And finally, he gets the car inspected by a local mechanic. It might cost $50, but it can "save a ton of headaches and bills down the road," he says.

But if you're dead-set on a new car, consider more than the price. Also take into account resale value, fuel efficiency, repair record and the cost of insurance. 

Photo credit: Getty

5. Food

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So you don't cook much or well, and you don't have the time or space to grow your own fruits and vegetables. You can still save money on food. Here are three quick and easy suggestions:

  • Eat smart when eating out. Of course, the unhealthiest food is often the cheapest. So if you're both healthy and price-conscious, skip the soup and salad — they're not only expensive for what you get, they're not nearly as good for you as you think.
  • Buy smart when eating in. If you don't like to cook, at least make meals with healthy ingredients that are easy to handle. Here are 11 ideas, from beans to brown rice to frozen whole turkey.
  • Don't be bored/scared of cooking. You can save big and still eat well. If you can read, you can cook.

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6. Clothes

Kanye West made headlines a few years ago, not for releasing a new album, but also for selling his own clothing line that featured a $120 white T-shirt. Guess what? He sold a lot of them. The fact is that we've all overpaid for clothes because we liked the label. So there's a good starting point for saving on clothes: Don't buy brands, unless you're absolutely certain you're getting the quality you're paying for. For more, check out: "10 Tips for Saving on Clothes." 

Photo credit: Getty

7. Private school

Of all the items on this list, none is harder for scoring a deal than private schools for your K-12 kids. First, you need to find one close to home. Then you need to figure out the best way to compare prices and services. Finally, you want to pursue financial aid. Here are three good places to start:

  • The National Association of Independent Schools. It represents 1,700 institutions nationwide — including religious and boarding schools — and it has a Parents' Guide with tips for everything from visiting the school to landing financial aid.
  • PrivateSchools.com. This website is about financial aid, plus details on scholarships, loans and vouchers. It also has a search function for nearly 30,000 schools.
  • Time magazine and The Week. In 2007, Time published a controversial story about a study that disputed whether private schools are really any better than pubic schools. In 2013, The Week did the same. Read them before you decide to spend thousands a year in tuition for something you can get free. 

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8. College

While experts offer all kinds of conflicting college advice, they seem to agree on one thing: Spending more than you can afford to attend a big-name school isn't smart. Like buying clothes, you need to look beyond the pricey labels. Start by checking out the U.S. Department of Education's College Affordability and Transparency Center and the College Scorecard, tools introduced by President Barack Obama in 2015. 

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9. Workout gear

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You can easily spend $100 on a pair of name-brand leggings to wear at the gym. And it's possible that the hype is correct — they make your butt look cute. But you could instead buy a very similar pair of leggings at Ross Dress for Less, Kohl's or other discount clothing stores for a fraction of the price. (I just got a very nice pair for ten bucks at the discount Grocery Outlet in my neighborhood.) And, really, at the end of the day, it's the workout that will make your butt look cute. You won't need a pair of overpriced pants to do that. 

Photo credit: Getty

10. Insurance and warranties

We've all heard the expression "Better safe than sorry." But you can spend a lot of money insuring yourself against any possibility, and insurers prey on fear. But many things that can go wrong can be fixed for less than the premiums. For example, cellphone insurance: There are often cheaper alternatives.

The same goes for extended warranties. Consumer Reports has always been skeptical of them, pointing out that your credit card may already provide an extended warranty.

For more, read: "7 Forms of Insurance That Are a Waste of Money." 

Photo credit: Getty

11. Credit cards

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This item has the potential to rack up big savings with just a few minutes of your time. But too many of us sign up for a few credit cards and never look back, paying high interest on a balance or a large annual fee. Or we cut them up because we think those pieces of plastic got us mired in debt.

But credit cards, wisely used, can help you claw your way out of debt. Reward points are like free money, and balance transfer offers can reduce your interest rate to zero for many months. The problem is finding the right card. A good place to start comparing rates and benefits is the Credit Card section of our Solutions Center.

Have you overspent in one of these areas because tradition or emotion or other people's expectations got the best of you? Share your experiences on our Facebook page or in our cool new Forums

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