What type of life insurance should I get that I can take money out after 20 years if I don't die?

Question

I'm 32 years old and in excellent health. I want to have at least $500,000 life insurance for my family. What type of life insurance should I choose.

Answer 1

Whole life.  But expect to pay a lot more in premiums than you would for term.  Its often better to buy cheaper term insurance and invest the cost difference.  The primary purpose of life insurance is protection for your family, not an investment.

Answer 2

I have to agree with the others.  (1) Purchase a term life policy (either 20 or 30 year; you could choose a $250k with each term, depending upon expected college age of children). (2) Use mutual funds, 401k, Roth/IRA investments for the investment portion.  I have never seen any indication that Whole Life Insurance plans are competitive when compared to other options.

Answer 3

It's called a "return of premium term" life policy.  If you don't die, you get your premiums back.

It's a policy for people who are bad at math.  Because with how much more it costs than straight term, if you invested the difference, after 20 years you'd have about 4X that amount sitting in the bank.  But this way, the insurance gives you 1X and keeps the 3X as profit.

Answer 4

I'm a financial representative and providing life insurance is one of the things I do for clients. God forbids if the breadwinner dies, where would the family be without life insurance? Life insurance can't protect you against harm or death, but it can replace your income. The problem is that many families that own life insurance don't have adequate coverage, but they pay lots of premiums for it. That's because they own the wrong type of life insurance. Take a look at the facts and you decide which product is the best:

Whole life insurance

1) Its level term to around age 100 that builds cash value.

2) Since it builds cash value, premiums are higher than term insurance that doesn't build cash value.

3) There is no cash value growth in the first 2 years because premiums are used to pay for the insurance and commissions to the agent.

4) After first 2 years, you are guarantee a rate of anywhere between 1-4% (varies between companies)

5) If you wish to take money out from the cash value, you have to borrow it and pay loan interest of 6% to 8%.

6) If you die someday, the insurance company keeps your cash value, but pays the death benefit. Death benefit will be reduced by any loans you taken from the cash value.

Universal life insurance

1) Annual renewable term until around the age of 100 that builds cash value.

2) Flexible premiums as long as there's enough cash value to pay for the insurance.

3) While premiums may remain level in the beginning, the internal cost of the insurance goes up every year. That means less and less of your premiums goes into the cash value. Eventually, the premiums you pay will be insufficient in the future to pay for the cost. What would happen is that you would either have to pay more premiums or a portion of your cash value will be used to pay for it.

4) Same cash value features as whole life.

Term insurance

1) Various of level term products to choose from (from 1 year to 35 years).

2) It does not build cash value, so premiums are initially lower than whole life and universal life.

3) Most term insurance are guaranteed renewable to around the age of 95 to 100 without providing a proof of insurability. If your health was to decline because of old age, you can renew your policy without any hassle.

4) When you renew, premiums will be based on your current age. So premiums will go up after the initial level term.

Those are the facts.

Personally, I have sold term insurance 100% of the time. Why? Its because my clients can get lots of coverage for low amount of premiums. Since premiums are low, I help setup investment accounts for my clients so that they can build wealth. If you had lots of money saved right now, would you still need life insurance? Probably not. But you probably don't have lots of money saved right now and if something were to happen to you, would your family be financially ok? As you get older and continue to invest, you may or may not need life insurance when it is time to renew the term insurance. If you were to invest $200/month for the next 30 years and the average rate of return in your portfolio was 12%, you would have about $700k saved for retirement. That's probably not enough to live on, but at least its better than having money sitting in a life insurance policy. If you were to die during the term, your family gets the death benefit and all your savings and investments. If you die after the term, at least you will leave money behind to your family. With the cash value life insurance, in most policies, your beneficiary will only get the death benefit, but the insurance company keeps the cash value.

Answer 5

Don't do that.  It is not a bad idea, but it is not the best one.  Insurance Agents are good guys, but are not cheap. Buy "graduated term" insurance for a 20 year period.  A lot cheaper. Then, bump up your retirement plan deductions.  You may get better returns and not have to pay a commission on savings.