From: jeffcop@i88.isc.com (Jeff Copeland)
Subject: Re: Mutual Life Insurance
Organization: INTERACTIVE Systems Corporation, Naperville, IL
Distribution: usa
Date: Tue, 28 Jul 1992 20:18:41 GMT

In article <1992Jul24.054441.6247@ncsa.uiuc.edu> acheng@ncsa.uiuc.edu (Albert Cheng) writes:
>In article <BruuuI.EqF@hsi.com> siperas@hsi.com (Steve Siperas) writes:
>>Hi
>>
>>I have been approached to buy life insurance from Minnesota Mutual.
>>The deal is you are to get a set price for the life insurance then
>>you get part of the premium into the MIMLIC mutual fund family. Also
>>you can add extra money directly to the fund. The selling point is
>>that the money is tax-free as long as the policy is active and you can
>>borrow against the policy. I'm trying to start saving for my kids
>>education and this is one option.
>>
>>The other option is to invest in mutual funds and get taxed yearly
>>and have term insurance which increases every year or 5 years.
>>
>>Any thoughts or experiences with this would be appreciated
>
>
>Sounds like whole-life or universal life insurance to me.  Before you
>jump into this, couple points you need to know to differentiate life
>insurance from others.
>
>1) everyone dies; So, insurance company has to calculate in profit on
>top of must-pay benefit.  So, one does not use mere premium for
>investment purpose.
>
>2) Life insurance is for the coverage of people you care and
>responsible, such as your spouse and the young kids, and maybe your
>parents.  When you are young, you don't have much asset.  So you need
>big life insurance coverage to make sure the spouse can continue to
>raise the kids with the benefit, and the kids can finish college (if
>you so desire).  But as you grow old, you cummulate more asset and the
>kids may have finished college and out the nest, you have less need for
>life insurance coverage.  Therefore, it is rational to have about 13
>times of your annual income as your coverage when you are young.  But
>when you get old, your life saving gradually takes over the coverage
>and you don't need life insurance.
>
>The whole-life and universal-life combine life-insurance coverage
>together with investment and get things rather muddy up.  They run you
>all these fancy tables of comparisons you show you the big bucks you
>are culmulating.  But if you look closer, you will realize you "lose"
>the first year of premium, i.e. your policy-value at the end of year 1
>could be about zero.  That is a lot of bucks upfront.  With some
>average investment effort, you can do better than their return.
>
>About the Tax-free part, it delays tax on the dividend earned.  You
>still have to pay tax on the premium you put in this year.  You would
>be better off to contribute to a 401(k) or 403(b) or IRA if you can.
>You see, whole-life provides tax-defer benefit on the interest earned
>(maybe 8% of the premium), but 401/403/IRA defer tax on the "premium"
>(equal to your tax bracket which could be 28%) and the dividend.  That
>is much better.
>
>In a nutshell, most people should go shop a good term-insurance when
>young, invest the difference between term-premium and whole-life
>premium.  But we know no one is perfect.  Many people don't have the
>discipline or interest to invest regularly.  (Which would you read, the
>Wall Street Journal or the Sports Illustrated?)  And then some people
>will spend every single penny he has (why save when Uncle Sam has got
>each of us into $16,000 debt already?)  So, whole-life could be a good
>saving plan.
>
>This is just my opinion.  My final suggestion would be "go buy some
>term insurance for now " to get your loved ones covered.  Then check
>out some books about insurance from your local library to get more
>information.  (Can someone suggest couple good ones?)  It is quite a
>big amount of investment (is the agent asking you to sign a check of
>$600 a month?)  Good luck.


The points to be made about life insurance is that you go to a life
insurance company to buy life insurance, not to invest money.  Be wary
of whole life insurance policies.  My best suggestion is to pick up a
copy of the book, "What's Wrong with Your Life Insurance."  There is a
very eye-opening chapter in there about how the insurance company is
assuming no risk when you buy a whole life insurance policy as an
investment.  I do not have time to go into it right now, but wanted to
post this in case it could help.  The book I mentioned is very easy to
understand, it's a simpleton's book but I'll bet it makes you think of a
few things you didn't before.

The bottom line is this: why do you think the insurance salesmen are
always trying to push whole life?  Less risk for their company, more pay
for them.  Life insurance sales people rank right up there with used car
sales people and extended warranty sales people as far as I'm concerned.
Hope I've offended someone.

Finally:

	What do you do when you are on an airplane sitting next to
	someone who insists on talking to you as you are trying to
	ignore him or her?  Smile and introduce yourself as a life
	insurance salesman :)

Jeff Copeland
jeffcop@i88.isc.com

--
Jeff Copeland
jeffcop@i88.isc.com          708-505-9100   x330
Newsgroups: misc.invest