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Oct 16, 2008 1:43 pm

gvf, what are the estate characteristics that make WL seem inappropriate to you?  

Oct 16, 2008 3:59 pm

“buy term and invest the difference”

  You need to drop that phrase from your vocabulary.  It makes absolutely no sense on so many levels.   1) They insure different things.  Term insurance is insuring against a possibility.  Whole Life insures against a certainty.   2) Over a long period of time, WL is actually cheaper than term.  Therefore, a better saying would be "Buy WL and invest the difference".   3) Why assume that money that goes into WL is money that would otherwise be invested?  It's a mistaken assumption.  To be clear, I am not saying that BTID won't work because people won't follow through and invest the money.  Rather, I am saying that money that goes into WL isn't money that would otherwise be going towards equity investments.  Therefore, BTID makes as much sense as saying, "Don't take your wife out to Ruth's Chris for your anniversary.  Stay home and make Hamburger Helper and invest the difference."  The point here is that the purchase of WL should be done in such a way that it doesn't cause the person to invest less money, thus there is no "difference" to invest.   4)It makes no sense to compare WL to an equity investment because of vastly difference risk characteristics.   "Can you give a few specific reasons why you'd recommend the whole life on the beni IRA, rather than buy term and invest the difference?"   Now that you know that I think that BTID is a silly concept, I can answer your question.  Let me rephrase it so that it makes sense.  "Can you give a few specific reasons why you'd recommend the whole life on the beni IRA, rather than term insurance"     Term insurance is great and I sell tons of it.  Term insurance is great for a temporary insurance need or temporary insurance want.  It doesn't solve the problem of someone who can benefit from having insurance at death regardless of when death occurs.  My client can benefit from having insurance in force at death regardless of when death occurs.   He does not need insurance.  If he died today, his wife would be ok.  We have to look at his goals.  They are 1)Live comfortably for the rest of his life.  2)Leave as much money behind as possible at death.  They are very risk adverse.   Without going into their entire situation, let's look at what a single life SPIA combined with a 10 pay WL will do for them.  Can we agree that he will either die within the next 10 years or after the next 10 years?   The SPIA is going to be used to pay the WL premiums and to pay taxes on the distribution.  If he dies during the next 10 years, the SPIA will stop.  However, his wife will get a tax free benefit that should be in the neighborhood of what they started with.  In other words, they would be exchanging $500,000 taxable for $500,000 + growth tax free.   If he is still alive after 10 years, he will be getting an income of over $30,000 a year for the rest of his life.  Additionally, at death, his wife will be getting $500,000 + growth tax free.   This is with zero investment risk.  He also has access to cash in his policy if he so desires.   Try to make this work with a "BTID" strategy.    
Oct 16, 2008 6:15 pm

Well put.