A few days ago I met with my financial adviser. I am looking into a business venture with a partner, and my question to her was how much can I afford to loose. Bit of background on myself, I'm 22, single, no kids, no debt besides mortgage, I have emergency savings, 401k, roth ira, etc... The adviser asked me if I had any whole life insurance. My answer was no. She recommended that I buy some whole life insurance, it was basically the only thing missing from my portfolio. She said that I can borrow against the ACV of the policy in case I get in a bind, and I can always borrow against it, even when traditional sources of lending may have dried up. She then gave me an example of how she was able to purchase a distressed apartment complex a few months ago. She needed $2xx,000 to close on the property, she didn't have the cash, but she was able to borrow against her whole life insurance. Basically I told her that I'd do some reading on the whole life insurance before I make a decision.
Now my question is this. Does it really make sense for someone in my situation to be buying whole life insurance? Wouldn't I be farther ahead if I were to invest that money each month in something else? Based on my reading, whole life insurance has one of the worst ROI.
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I would definitely contrast it against term life in your situation. Generally there are more suitable investment vehicles if that is your overall goal; given your current situation, your term premiums should be CHEAP.
The best advice I've gotten on it is, buy insurance because you need insurance, not as an investment. As you said, compared to other options, the ROI is poor.
When selecting the advisor, did you ask her to produce her Schedule D for as long as you have been an investor as well as information on her other investments? If not, you should do that as soon as possible and compare your performance with hers. Should she be outperforming you, there may be a reason for you to listen to her. I'm going to make an educated guess she's broke.
You should do it. Also you should spend the money on a gold coffin once it pays out. This is honestly the best use I can think of for life insurance on a single person with no dependents.
Having to borrow against a whole life policy should tell you that you're getting in over your head and putting yourself at high risk of going broke.
Thanks for the advice. This post was more of a sanity check. Lucky for me the meeting didn't cost me anything, but I will most likely stay away from this financial adviser in the future.
This has been discussed a ton in the past, most recently here. uutxs said:Read this thread
As you'll see in this thread, user InsuranceExpert! can provide a lot of great information. Whole life insurance has it place depending on what you are looking for in your portfolio. A good financial adviser will know when it's appropriate for your specific situation.
Read some more on the pros and cons of the plan before making this type of decision.
lgyeresi said:A few days ago I met with my financial adviser. I am looking into a business venture with a partner, and my question to her was how much can I afford to loose. Bit of background on myself, I'm 22, single, no kids, no debt besides mortgage, I have emergency savings, 401k, roth ira, etc... The adviser asked me if I had any whole life insurance. My answer was no. She recommended that I buy some whole life insurance, it was basically the only thing missing from my portfolio. She said that I can borrow against the ACV of the policy in case I get in a bind, and I can always borrow against it, even when traditional sources of lending may have dried up. She then gave me an example of how she was able to purchase a distressed apartment complex a few months ago. She needed $2xx,000 to close on the property, she didn't have the cash, but she was able to borrow against her whole life insurance. Basically I told her that I'd do some reading on the whole life insurance before I make a decision.
Now my question is this. Does it really make sense for someone in my situation to be buying whole life insurance? Wouldn't I be farther ahead if I were to invest that money each month in something else? Based on my reading, whole life insurance has one of the worst ROI.
Why did your financial advisor ask if you had whole life insurance? As your advisor, she should have known. Recommending whole life insurance without understanding your financial goals is idiotic. One doesn't buy it because it is missing from their portfolio. One should buy it if it helps them to accomplish their financial goals. Based upon this post, I'm GUESSING that she was looking to sell whole life insurance instead of looking to help you accomplish your financial goals.
Did you tell her that one of your financial goals was to leave money behind at death regardless of when death occurs? If you didn't tell her this, WL definitely doesn't make sense.
Do you health insurance, disability insurance (above what's given through work, and term insurance based upon your future need? If no, WL definitely doesn't make sense.
My GUESS is that having some WL might make sense for you, but this "advisor" doesn't have a clue as to whether it does or not and the recommendation is based upon her wallet and not yours.
Message edited by: InsuranceExpert on 2009-11-03 14:50:57 CST
rmmgt said:I would definitely contrast it against term life in your situation. Generally there are more suitable investment vehicles if that is your overall goal; given your current situation, your term premiums should be CHEAP.
The best advice I've gotten on it is, buy insurance because you need insurance, not as an investment. As you said, compared to other options, the ROI is poor.
Life insurance should be purchased for the insurance aspect. However, that does not equate with not buying whole life insurance. A death benefit that never goes away is very valuable.
By chance is your financial adviser also an insurance agent, or a close friend of an insurance agent, or affiliated in any way with an insurance company?
EvilCapitalist said:When selecting the advisor, did you ask her to produce her Schedule D for as long as you have been an investor as well as information on her other investments? If not, you should do that as soon as possible and compare your performance with hers. Should she be outperforming you, there may be a reason for you to listen to her. I'm going to make an educated guess she's broke.
I would 2nd your guess that she's broke.
Your advice, though, doesn't make any sense. A good advisor will help people invest according to their tolerance for risk and their goals and their time horizon. My money is invested differently than my client from 10:00 this morning and his money is invested differently from my 11:00 client.
SuperMxyz said:You should do it. Also you should spend the money on a gold coffin once it pays out. This is honestly the best use I can think of for life insurance on a single person with no dependents.
Having to borrow against a whole life policy should tell you that you're getting in over your head and putting yourself at high risk of going broke.
If one has to borrow, then then they may have gotten in over their head. However, borrowing from a policy often makes very smart financial sense. One shouldn't buy a policy just so that they have a source to borrow funds, but it is a very nice feature.
katx said:Who will be the beneficiary? If no one depends on you financially, you do not need life ins.
Just because it's not needed today doesn't mean that it shouldn't be purchased today. Life insurance, unlike investments, is purchased more with one's health than with one's dollars. That's an argument for young, single people to buy life insurance and has nothing to do with type.
swandown said:By chance is your financial adviser also an insurance agent, or a close friend of an insurance agent, or affiliated in any way with an insurance company?
Almost all financial advisors are insurance agents. In fact, in most states, it is very important that your financial advisor be licensed as an insurance agent. This is because if one is looking for a financial advisor as opposed to just an investment advisor, insurance is obviously an important part of this. In the majority of states, one can't give insurance advise without being licensed.
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