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I've gotten a lot of good 403b info from you folks. Thanks so much. Can anyone recommend a 403bwise -style site or group out there for the topic of insurance, especially life? I figured if anyone knew of a no-, smart answers resource it would be y'all. Thanks in advance!

 

chris

 

p.s. sorry this is technically off-topic

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Hi Chris,

Thanks for the compliments. Yes we tend to s from the hip sometimes and sometimes we stick our foot in our mouth, but all the time we are looking out for our colleagues' best interests.

No, your topic is not an off topic because so much of the TSA sales pitch involves terms such as "guarantees against loses" or "we protect your assets for your children" etc. The only problems are the rip-off insurance fees that are implicitly attached to 403b plans.

We advocate:

1. Do you need life insurance? For example if you are young with no dependents, you really don't need it. Besides, much of the time your employer has a policy, albeit small, for you.

2. When you purchase life insurance, the general rule of thumb is to buy "term" life insurance. Stay away from whole life insurance.

3. When you purchase term life insurance, the premiums only purchase the dollar amount coverage and nothing else.

4. In the end, keep your 403b retirement planning and your insurance needs absolutely and totally separate.

 

I have lots of insurance, life, car, house, earthquake and umbrella policies, but none of it involves my 403b.

Hope this hopes,

Steve

 

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Hello, I'm a first time poster, but I hope I am able to help.

 

When it comes to life insurance, I would disagree that term is the best way to go. Term is good because of the low premiums, but you are missing out on a great investment vehicle, and the premiums get higher as you age...in fact a lot of people don't renew when they're older because the higher premiums come as a surprise.

 

I would recommend Variable Universal Life Insurance. VUL works similar to Whole Life, where you would pay a level premium throughout your life and a cash value would build inside of the policy. However, Whole Life will only return about 3-4%, whereas VUL actually allows you to design a portfolio within the policy which allows you to participate in the gains and losses of the market...which can be significantly higher the longer you keep the investment going (10+ years is ideal). The money goes in after tax, grows tax deferred, and can be withdrawn tax free.

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Guest Joel

TX,

 

VUL was designed as an alternative to those that were subscribing to the principle of "buying term and investing the difference". IT WAS A LONG LONG TIME IN COMING TO MARKET!

 

The life insurance industry in essence was saying "sure, buying term and investing the difference does work" but did not want to make a profit just on the protection or insurance side but also on the investment side; so they designed a product to help you reach your goal of providing adequate coverage on your life and at the same time allowing you to invest the cash value buildup (the difference) in a variety of investment options.

 

Like all financial products you should acquire VUL at low cost...shop around... make sure to check the expense ratios of the investment funds...and then THE KEY is to invest wisely!!

 

Peace,

Joel

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Guest Chuck Yanikoski

Speaking as someone who spent 18 years of his life in the insurance industry before getting out of it about 10 years ago, I would emphasize that there is no single answer that is correct for everyone. If you need life insurance for only a limited number of years (say, until your children are grown or until you retire), then term life insurance can be an excellent choice. If you need life insurance for your entire life (which I do, for example, because I have an autistic son for whom I have to provide long after my wife and I are gone), term insurance is clearly not the right choice -- it gets way too expensive when you get old, and at some age cannot be purchased or renewed at all.

 

You should think of life insurance primarily as a mechanism to insure against the adverse financial effects of death, and only secondarily as an investment. Life insurance is, in fact, one of the few tax shelters that is available to almost anyone in almost any amount -- if properly structured and used, it has essentially the same tax characteristics as a Roth IRA, but with no contribution limits or income-testing for eligibility. The down-side is that the insurance component is pretty expensive -- the more so, the older you are. So the tax advantages may not be worth it, unless you actually do need the insurance.

 

So first figure out what your insurance needs are, and then figure out whether term or permanent insurance is better suited. If you need permanent insurance, you can choose among old fashioned insurance where the cash values are not clearly tied to external investment performance (probably the least risky), a "universal life" product that has explicit charges for the insurance component plus a separate balance that earns interest at a rate that usually floats around (this is also a product that allows more flexibility in premium payments), and a "variable life" product that allows you to have the asset balance invested in equity or other funds ("variable universal life" offers the best features of both products).

 

An experienced life insurance agent can help explain your options in detail, and can also provide suitable analytical tools for determining what your insurance needs really are, if any.

 

If you prefer to avoid an agent to start with, your state insurance commission is likely to offer some kind of free booklet on life insurance basics, and how to figure some of this stuff out. I don't happen to know whether there is a good web site, though.

 

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I agree that one should definitely buy what suits their individual needs, and should also shop around for the best prices and product. Just a couple of thoughts on term vs. VUL:

 

1.) "Buy term and invest the difference" sounds great, but a lot of people end up spending instead of investing.

 

2.) The cash value can be used to pay for a college education without making the child ineligible for scholarships or loans.

 

3.) Unlike an IRA or a 403(b), the money can be taken out at anytime, generally after the first 10 years.

 

I favor VUL more so than term because term premiums are almost pure profit to the insurance companies. The numbers are staggering for the number of people that die without their policies in place because the premiums are out the roof in their later years.

 

However, as with all investments, one investment will not always suit every investor.

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Chuck and TX,

As a consumer who is not profiting from these plans, I prefer term insurance over anything else. Of course, the insurance company is profiting from term, but I shutter to think what the fees are for the VUL you are promoting. My auto, earthquake (which is outrageous here in California) and umbrella insurance companies are making huge profits because I have not made any claims, but so what? The point is that insurance is a necessary and expensive evil. I keep my premiums low by raising my deductibles to the maximum and cover only what I really need. Insurance is a pain in the neck when you don't need it, but if something happens, you are glad you have it. As far as the premiums increasing as one gets older, that can be addressed by lowering the benefit because people needs change with age…mortgage paid off and the kids are gone. If you taken care of your total financial picture, you don’t need life insurance in retirement. I have a hunch that the good folks who come and read the information on this site will be in good financial shape in retirement.

To think that VUL is a good investment is preposterous. VUL or whole life or whatever you call it is a very profitable plan for the BOTH the agent who sells it and the insurance company. At least with term life, the consumer does not have a middle person to pay along with the insurance company. A good investment is an low cost index fund in Vanguard or TIAA CREF, but that’s another topic.

 

Chris: For disclosure purposes, I have never been a seller of these plans just a knowledgeable consumer. Most knowledgeable investors and consumers will advise you to use term life insurance. Most agents will advise you to buy the more expensive coverage under some kind of investment wrapper. Pay attention to the long-term fees and the financial motivation of the person giving you information. It’s your money. Chuck told you he used to sell these plans and since TX has not disclosed himself or herself, you can only wonder…..

Good luck and you asked a good question.

Steve

 

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Guest PatPAWI

"When it comes to life insurance, I would disagree that term is the best way to go. Term is good because of the low premiums, but you are missing out on a great investment vehicle, and the premiums get higher as you age...in fact a lot of people don't renew when they're older because the higher premiums come as a surprise."

 

It is the way to go for the insurance agent selling you the plan! Variable life insurance is expensive and almost never sees the returns in it's investment vehicles to justify the expense. It is ALWAYS better to keep your investments and your insurance separate. Only salesman will tell you different. Term insurance is meant to be BOUGHT, by people who need insurance. VUL and whole life policies are meant to be SOLD by agents who profit from the high fees. That said, if one truly cannot invest on their own and needs this as a means to keep them invested, than it can have a role. Otherwise, it does not. This is just the opinion from a consumer who believes that costs and asset allocation are the only thing that matters to long term returns. You can get lower costs and returns outside of high cost insurance vehicles. Also, NEVER buy a variable annuity or the like. Good luck.

Pat

 

 

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Guest Chuck Yanikoski

The marketing and financial practices of insurance companies are all over the lot, and for any given company are likely to change from time to time. Therefore, it is undoubtedly correct in some cases that a company will make a disproportionate amount of money off of term or permanent insurance, but in general this is NOT the case. ALL policies are supposed to make a modest contribution to profit, and a good actuary will generally price products so that this is the case.

 

Term policies seem like a big money-maker because most people outlive the term of the policy, or surrender it early, and never make a death claim. But these supposed profits are mostly eaten up by the occasional claim that is made, where someone pays a few hundred or a few thousand dollars in premiums and his beneficiaries collect hundreds of thousands in death benefits. Insurance companies actually LOSE money on people who pay for a few years, then drop the coverage, because they have costs for marketing and underwriting that take them quite a few years to recover. A big reason insurance companies like permanent insurance is that the higher premiums make it easier for them to recover their underwriting costs. Another reason, of course, is that they (like any other financial firm) want to manage your assets.

 

It is simply not true that it is always better to keep insurance and investments separate. As I mentioned before, insurance cash values get tax treatment that is very similar to a Roth IRA. If you happen to need both insurance and investment, permanent life insurance can easily outperform buy-term-and-invest-the-difference on an AFTER-tax basis in many, many situations.

 

It surprises me that on this site, where most of the contributors are educators, everyone is looking for black-and-white answers. Is that what kids are being taught these days: that the world is full of easy answers? Financial questions are like most others in life: the answers are mostly grey. Sometimes one answer is best, but in another situation that answer may be the worst.

 

Steve: I have never sold an insurance policy in my life, and have never been a licensed agent. I said I worked for an insurance company, but I didn't sell products for them.

 

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Chuck,

Of course, insurance companies are competitive and sometime lose money in insuring their clients. I was just making a point that over my lifetime, I have paid a hell of a lot of insurance premiums simply because, I could not afford not too. Of course, my premiums went to pay somebody else's loses. That’s the nature of the game. I am fortunate that I have not had any major loses. I am not complaining, I was explaining the fact that insurance coverage is a necessary and important financial EXPENSE. Just like transportation, cars are not just a terrible investment but a NON investment, but they are a necessary expense and should never be thought as an investment. Cars and insurance are necessary expenses.

 

Real Investments grow over time, such as real estate, bonds, savings, stocks and mutual funds. Variable annuities mixed with tax deferred 403b and 401k plans with large insurance companies are a loser’s game and everybody knows this. They are not an investment because if there is any growth, it will go to the insurance company, not the investor. Whole life is a VA and that is also a loser’s game because you are attempting the impossible, mixing together a necessary expense with a losing investment. You lose all the way around because of the fees, expenses and lucrative commissions that could amount to ten of thousands of dollars over many years.

 

The answer is simple and yes, Chuck, this is an absolute. Until the reform of 403b is complete, a few good absolutes will rule. Yes, I agree the world is grey. In the 403b world, the grey is reinforced by the secrecy of agents selling ripoff products that costs educators money. I don't believe that "everybody" wants "Black and white" answers; we just want the fees and expenses of all products on the up and up and we want our school districts to publicize their plans, not leave it up to the agents to tell the employees. If that’s what you call black and white answers, then bring it on!

 

Absolute number 1 is to keep your insurance expenses totally separate from savings, investments and especially the 403b.

Steve

 

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Chris,

 

I think everyone on this Board is still trying to answer your question.

 

Your question was: Do we know any no-bs websites in the mold of 403bwise about life insurance.

 

Try doing a google search.

 

Right now, it seems the answer is: NO.

 

Ted

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Guest Kerry

It seems like alot of people have been confused on the life insurance issue even those that have some experience. First, let me say this is due to the marketing efforts of insurance companies to out-do each other. They have confused the public, just look at what everyone wrote. Which kind is better: It depends!

 

Term and permanent each has it's place. But let me ask the one thing that everyone misses as teachers when it comes to life insurance. What is pension Maximization?

 

If you have a state pension and are married, term insurance won't properly leverage your death benefit like permanent Life insurance will!

 

 

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Guest Joel

Kerry: You are right on target..pension maximization only works with a permanent policy. Do or did you sell "pension max" or have you bought it?

 

 

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Again, what is "right" or "wrong" will depend on your own unique situation.

 

Here's a few absolutes however:

 

Wrong: buying a "403(b) plan". The term 403(b) is an IRS tax code...if your "advisor" sells a "plan" chances are it's a ripoff. Look for retirement plans that allow you to participate in the market.

 

Right: VUL is a suitable investment. Besides the Roth IRA, it's one of the only investments that grows tax-deferred and can be withdrawn tax-free. Diversification does not only relate to portfolios, it relates to retirement strategies as well. A good mix of fully taxable, partially taxable, and tax-free investments is a sound way of planning for retirement.

 

Just my 2 cents...

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