BBCWatcher
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It's unfortunate a CPF thread has devolved into a whole life insurance thread, but I'll make one comment since it's an underappreciated problem with all whole life policies: cash flow risks.
Let's suppose you're comparing a $250/month whole life policy with a $45/month term life policy. (The numbers don't necessarily need to be exact, but let's just go with this example.) "Buy Term, Invest the Rest" (BTIR) means you pay $45/month in premiums and save/invest $205/month.
OK, now there's a family emergency of some kind (practically any kind), and that $205/month of savings flow would be really, really nice to use for emergency purposes since you've got some cash flow issues. No problem, you can. The problem with a whole life policy, though, is that if you try to skip a premium you lose not only much, most, or even all of the high cost "investment," you also lose your insurance protection(s). It's a bundled product.
OK, so what do you do to keep paying your whole life premium? Well, you could take out a 12 month personal loan at 6.4+% interest, or incur credit card debt at 20+% interest. With some whole life policies you can even borrow against them at, say, 6% interest. (As one Prudential client did.) But these are all awful choices compared to just suspending your $205/month of savings/investment flow if you absolutely must.
That said, you have to be a "reasonably responsible" person for BTIR. If you're just going to blow that $205/month on, for example, blow, then maybe whole life insurance is the best you can do to force yourself to save something, even at a high cost. Some people need the power of a premium bill to help them save -- and the risk of losing their insurance protections if they don't.
What also seems to be happening in practice is that so many people are loading up on high cost whole life policies and then not buying insurance they really do need (notably Disability Income Insurance). That's because they've got a certain insurance budget available (they feel, which makes a certain amount of sense), and then when the premiums rise to fill that particular budget, they're done. That's bad, too, because it means they've got high cost "investing," inadequate insurance protections, and cash flow risks. Not good!
It's generally not a good idea to bundle what doesn't need to be bundled. Do you want your electricity service to end if you cannot pay your Netflix bill? No, of course not, so you probably shouldn't bundle your electric and Netflix bills if somebody's offering to do that unless there's a damn good reason (a really nice offer that you can safely afford).
Let's suppose you're comparing a $250/month whole life policy with a $45/month term life policy. (The numbers don't necessarily need to be exact, but let's just go with this example.) "Buy Term, Invest the Rest" (BTIR) means you pay $45/month in premiums and save/invest $205/month.
OK, now there's a family emergency of some kind (practically any kind), and that $205/month of savings flow would be really, really nice to use for emergency purposes since you've got some cash flow issues. No problem, you can. The problem with a whole life policy, though, is that if you try to skip a premium you lose not only much, most, or even all of the high cost "investment," you also lose your insurance protection(s). It's a bundled product.
OK, so what do you do to keep paying your whole life premium? Well, you could take out a 12 month personal loan at 6.4+% interest, or incur credit card debt at 20+% interest. With some whole life policies you can even borrow against them at, say, 6% interest. (As one Prudential client did.) But these are all awful choices compared to just suspending your $205/month of savings/investment flow if you absolutely must.
That said, you have to be a "reasonably responsible" person for BTIR. If you're just going to blow that $205/month on, for example, blow, then maybe whole life insurance is the best you can do to force yourself to save something, even at a high cost. Some people need the power of a premium bill to help them save -- and the risk of losing their insurance protections if they don't.
What also seems to be happening in practice is that so many people are loading up on high cost whole life policies and then not buying insurance they really do need (notably Disability Income Insurance). That's because they've got a certain insurance budget available (they feel, which makes a certain amount of sense), and then when the premiums rise to fill that particular budget, they're done. That's bad, too, because it means they've got high cost "investing," inadequate insurance protections, and cash flow risks. Not good!
It's generally not a good idea to bundle what doesn't need to be bundled. Do you want your electricity service to end if you cannot pay your Netflix bill? No, of course not, so you probably shouldn't bundle your electric and Netflix bills if somebody's offering to do that unless there's a damn good reason (a really nice offer that you can safely afford).
