A friend of mine was recently asked to invest in some life insurance. He was told that if he would pay $250 for 30 years and if him or his wife died during that time that they would receive $300,000. However, if neither of them passed away then they would get there money back at the end of the 30 years, dollar for dollar, without interest, $90,000. He came to me for some advice, and I told him it sounded like a bad idea. Why not put the money into a Roth IRA? Now that you can put $5000 into each year might as well max it out. And you can avoid taxes, while making interest and not letting someone else earn it. Plus, considering the time value of money, how much is $90,000 really going to be worth in 30 years. And by the way, my friend is only 27, and in great health, how much life insurance does he need. Just looking for some suggestions. A buddy of mine told me about this site and thought I would check it out. Thanks.

Roth IRA invested fairly conservatively in an index fund.

That sounds like a great deal for the insurance company and not so good a deal for your friend.

Friend can buy term insurance dirt cheap.

What happens if the insurance company goes BK?

(Insurance is insurance, investments are investments. Buy term life if you need it and invest the rest on your own; if you're self-employed you can use a SEP, otherwise a traditional IRA works great)

RUN FOREST RUN!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! (away from any BULL**** whole/universal life policy). GO strictly TERM ONLY if you really need it.

Life insurance is a bet. Therefore, buy only term insurance. I would buy term and invest the rest in a Roth, if eligible.

I believe the universal life policies are just a hybrid blend of term insurance and mediocre investments with high commissions. This particular one sounds like an exceptionally bad deal.

Here's some numbers to mull over with your friend: Assuming good health for about $80 per month they could both get probably close to 500K (not 300K) in term insurance. Take the remaining 170.00/month and even if invested at a lowly 5% they will get back 142K in thirty years. If they average 8% they will get back over 250K. If either dies prior to policy expiration the surviving spouse gets the life insurance proceeds PLUS gets to keep the money in the bank.

There are lots of places online to get term quotes. They just have to have the discipline to invest the money they saves, and they will be way ahead.

BAD, IDEA, DON'T LET HIM DO IT.

Actually, the insurance inside a universal life policy is the worst kind of term insurance, it is annually renewable term; the cost of insurance will go up every year; the longer you have the insurance policy, the more you pay in insurance cost.

By a level term life insurance policy with a 30 year guarantee and invest the difference. I don't like or trust tax-sheltered investments, either. They come with many strings attached, and are subject to the old "psyche" from .gov in the future.

Which is better, Orange Juice or Scissors?

Whole life is a lousy investment. Term life serves a function (income replacement for your dependents if you croak) only for so long as you lack assets for your mourning dependents to live on until they can do without.

If your friend invested the same $250/month over the next 30 years, a modest 5% annual return compounded monthly would yield ~$208,000. A 7% annual return would yield ~$305,000. The amount would be higher if he makes $416/month ($5K per year) contribution instead.

The agent probably wouldn’t have offered your friend this deal if actuarial tables did not predict he and his wife would live for at least another 30 years + 1 day. Insurance companies try to stack the odds in their favor.

Just to reiterate what everyone has said here: whole life is a horrible investment. It plays on people's fear of dying prematurely, which is fortunately much less likely than most people think it is.

Insurance is not an investment, it's a hedge against something catastrophic happening.

If your buddy is not married or have any dependents, he doesn't even need term insurance. But locking in the 30 year guarantee that Godot suggests might be prudent for the future.

You buy term life insurance - level term, 20 or 30 year - before you conceive your first child - assuming you will need it (which for most W2 earners is a given)

That's the only life insurance you need, as it provides for your spouse if you die while there is a child in the household.

Beyond that manage your money as a couple.

The agent can make no guaranty on a policy performance unless it is explicitly stated in the policy. Buy term and invest the difference is always the safest bet.

Insurance companies pay their agents the highest commissions on selling cash value policies up to 150% on first years premium and as low as 30% commission on term. Follow the money...... the policy he is selling is good for someone.

Genesis, good advice. To add a twist, before your first kid is born, get a 30 year term life policy for $500k and a 10 year term life policy for $500k (amount varies with region/salary). The 10 year will cost you literally peanuts (we're talking about $10 per month) and the ladder fits well with when you'll need the money.

If something happens to you in the first 10 years of your kids life, they need more money than if something happens to you 10 years of expensses and saving later.

The amount depends on your salary.

The general rule is that you need 10x your salary in level term to maintain your lifestyle if your croak. This is actually a bit over real requirements, as there is one less mouth to feed in the household.

Quote:

Which is better, Orange Juice or Scissors?

Scissors, you can cut up your fraudulent documents if the shredder breaks.

I like BBQ lighters and gasoline for that purpose. It leaves less evidence.

Do not forget to get insurance on a spouse, even a non working one if you have a child, you will need to pay for child care

TERM ONLY for your insurance, be adequately insured for an emergency because **** happens. If hes 27 and single he doesn't need life insurance. Keeps your insurance separate from your investments.

While we are on the topic, if I croke, does my wife pay taxes on the insurance payout?

Nope.

10x salary!? Holy ****. I'm woefully underinsured then. Of course, it's probably reasonable that a person that makes $20k per year needs $200k of life insurance.

But someone that makes $200k per year probably doesn't need $2M worth of life insurance especially if they spend like they make $100k per year.

Just to agree with keewaydin - life insurance payments are tax-free. If you have $1M in coverage and you croak, your wife gets a check for $1M given to her.