farrell102608
On the homepage
Vikings
Out There
Pardon Board
Petters
Continued: Whole life policies work for some, but not for Farrell
Print this story
E-mail this story
Save to del.icio.us
Share on Facebook
Share on Digg
Minnesota business by the numbers
See Minnesota's top earning companies, CEOs and non-profits
More from Chris Farrell
Q I am wondering if your position on whole life insurance has changed at all in light of the current credit crisis and ensuing market meltdown. Over the years, I have heard you and other financial experts discourage whole life and cash-value life insurance, and I generally would have to agree that it is a fairly bad investment. My wife and I own whole life policies, and we have close to $40,000 available to us that we can either leverage as a low-interest loan or take as straight cash value. I guess I'm feeling pretty good about having those whole life policies right now, glad that I've got some diversification there and access to money at a relatively low interest rate, considering the difficult lending market. Thoughts?
BRAD
A The whole life insurance policies you own are part of your financial safety net. That's good. And, while I'm not a big fan of whole life, it's a product that makes sense or at least works for some people.
Insurance is complicated, and whole life can be a critical component in an overall financial plan. That said, my overall opinion or starting point in evaluating life insurance hasn't changed.
For one thing, I think you're right when you say: "I generally would have to agree that it is a fairly bad investment." These insurance policies that include a savings vehicle are an expensive way to salt away money, with steep fees and commission costs. You could have taken your savings (the premium payments) and put it into a variety of other investments instead -- from certificates of deposit to equity index funds. You would have access to the savings, too.
For another, there's really only one truly important reason for buying life insurance: To protect your loved ones from your untimely death. For most people, that means term life insurance. It's a pure death benefit. The market is highly competitive, so premiums are cheap if you're in good health. It's a simple product that allows for extensive comparison shopping. So, yes, I still sing the "buy term and invest the difference" chorus.
Chris Farrell is economics editor for American Public Media's "Marketplace Money." Send questions to cfarrell@mpr.org, or to kaching@startribune.com. Put "Your Money" in the subject line.
Previous pageRecent Business stories
Oklahoma unemployment rate hits more than 20-year high, climbs to 7.1 percent in October - October 25, 2008
Oklahoma unemployment rate hits more than 20-year high, climbs to 7.1 percent in October - Oklahoma's unemployment rate climbed to 7.1 percent in October, the state's highest rate in more than 20 years, officials reported. More
Blog: Patent Pending
Lights out at U energy conference. Irony police notified.
Just as Lawrence Kazmerski, a top official at the National Renewable Energy Laboratory, was about to give the keynote address at the University of Minnesota's annual E3 conference at the RiverCentre in St. Paul, the lights went out, bathing the audience in darkness and a deep sense of irony.
Comment on this story | Read all 2 comments | Hide reader comments