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Old 2012-05-15, 13:18   #1
Zeta-Flux
 
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Default Universal Life Policies

Do any of you guys know anything about universal life insurance policies?
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Old 2012-05-15, 15:31   #2
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They are the single most promoted form of life insurance because they are the single most profitable instrument sold by insurance companies. Translate that to mean that I have never seen anyone benefit from having a universal life policy but the insurance companies profit big time. They are touted as a good way to "save money". You would almost be better off putting your money in a jar and burying it in the woods.

Term life insurance makes more sense.

DarJones

Last fiddled with by Fusion_power on 2012-05-15 at 15:32
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Old 2012-05-15, 20:31   #3
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Quote:
Originally Posted by Fusion_power View Post
They are the single most promoted form of life insurance because they are the single most profitable instrument sold by insurance companies. Translate that to mean that I have never seen anyone benefit from having a universal life policy but the insurance companies profit big time. They are touted as a good way to "save money". You would almost be better off putting your money in a jar and burying it in the woods.
... except that that leaves you with no insurance coverage, so slightly better would be to purchase term life insurance for what you need (i.e., your dependents, if you should unexpectedly die) if you actually need it, and put the rest of your money in that jar in the woods.

- - -

There are some folks who can't make, or have a very difficult time making, themselves set aside any savings. For them, universal life insurance would provide one way to automatically accumulate some set-aside money.

The insurance company's charges diminish the amount of such savings. Better, financially, would be to sign up for some automatic deduction from paycheck or checking account to be sent to some savings account that is not convenient to access for withdrawal, but that is more vulnerable to being raided for some near-term whim than the insurance policy. So, the insurance policy has the advantage of being less easy to raid, and that could be the most important factor for some folks.

Last fiddled with by cheesehead on 2012-05-15 at 20:40
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Old 2012-05-16, 01:54   #4
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Some valid points Cheesehead, but I'm one of those people who does not have a problem saving money. I have an IRA, a 401K, a retirement account from work, some money tied up into silver and gold, a healthy bank balance for emergencies, and a "jar buried in the woods". I might be saving too much money. For me, term life makes the most sense. My kids are all over 21 so I don't have to worry about providing for anyone but myself so I have significantly reduced the amount of insurance I carry.

DarJones
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Old 2012-05-16, 03:05   #5
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So I'm a young(ish) guy with lots of kids. I already have quite a bit of insurance, and my health is really good, so I'm not really looking for more insurance. But what I am looking for is another way to save some money. I make enough that I could put away quite a bit each month just for retirement. A 1% savings account is my "bury my money in the woods" and I'd like to branch out. Any suggestions? (I'm the type who doesn't want to take giant risks with my money. Slow and steady, and all that.)
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Old 2012-05-16, 05:34   #6
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Then balance things out a bit. The very first thing you should consider is a "rainy day" fund. Current wisdom says it should be enough for you to live on comfortably for at least 6 months. For me, that works out to about $8000, but I am a bit cheap and I grow a lot of my own food. Just add up all of your monthly expenses including food, clothing, place to live, gas, communications, insurance, etc. and make sure you have enough packed back to manage for 6 months.

When your rainy day fund is in place, look for ways to pay off all debts. This especially means credit cards! I currently have zero payments of any sort with the single exception of a yearly payment I make on 130 acres of land. I will have it paid off within 3 years. My intent is to spread out the risk of market investments by holding some real estate that will increase in value. It also will make a nice retirement home when I am ready to build a house. Please note that I have monthly expenses like power, phone, gas, and insurance, but these are not debts on which I have to pay interest.

Once your rainy day fund is in place and your debts are wiped out, consider how to retire comfortably. A safe bet is to start saving 6% of your income to a retirement fund from the first day you start work at your first job. As you can afford to increase the amount, do so until it is at least 20% of your income. I am currently putting 16% of my income into a 401k plan and still put $2k/year into an IRA. Over a period of 30 years, that adds up.

Then consider if you want to plan for your kids to go to college. There are tax advantaged ways to save for college expenses. Do some due diligence and see what is available.

Once you have Rainy Day, Debts, Retirement, and College covered, consider saving money for an enjoyable trip. I've visited Grand Canyon, Carlsbad Caverns, Yellowstone, Smoky mountains, and went to Florida to watch the last space shuttle launch. You won't always be able to go so make a point of doing some traveling while you can. My next goal is Canada and then Mexico.

If you still have some money left, put some aside to do something special for your SO. This might include an evening out at a very nice restaurant, or a trip to a good hair dresser. Money can't buy love, but it can stoke up old flames very nicely if properly applied.

Let me guess. You want to know how to invest your money so it will grow over time. Well, that would take much longer to address than I have available for now. It would perhaps help to say that a good balance between income generating investments and more risky stocks can be very lucrative if your time horizon is long enough.

DarJones
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Old 2012-05-16, 15:56   #7
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Quote:
Originally Posted by Fusion_power View Post
Then balance things out a bit. The very first thing you should consider is a "rainy day" fund. Current wisdom says it should be enough for you to live on comfortably for at least 6 months. For me, that works out to about $8000, but I am a bit cheap and I grow a lot of my own food. Just add up all of your monthly expenses including food, clothing, place to live, gas, communications, insurance, etc. and make sure you have enough packed back to manage for 6 months.
Done.

Quote:
When your rainy day fund is in place, look for ways to pay off all debts. This especially means credit cards! I currently have zero payments of any sort with the single exception of a yearly payment I make on 130 acres of land. I will have it paid off within 3 years. My intent is to spread out the risk of market investments by holding some real estate that will increase in value. It also will make a nice retirement home when I am ready to build a house. Please note that I have monthly expenses like power, phone, gas, and insurance, but these are not debts on which I have to pay interest.
Nearly done. The only debt we have is on our house. We just refinanced a 15 year fixed rate mortgage at 3.625%. Only 14 more years and it will be paid off. :-)

Quote:
Once your rainy day fund is in place and your debts are wiped out, consider how to retire comfortably. A safe bet is to start saving 6% of your income to a retirement fund from the first day you start work at your first job. As you can afford to increase the amount, do so until it is at least 20% of your income. I am currently putting 16% of my income into a 401k plan and still put $2k/year into an IRA. Over a period of 30 years, that adds up.
Okay, this is the place I wanted advice. I currently pay in 5% of my income to a 401k, and the university matches with 4% (which is their max). What it sounds like you are saying is that I should increase the percent I am paying in each month. My only question is: Is that the best place to put the money? I am happy with the performance of my 401k. Since I started it 3 years ago we have averaged 9%, not counting the matching by my job. [I don't expect the average to stay up at 9%.] I was thinking of maybe doing a ROTH 401k. If I do, any suggestions there?
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Old 2012-05-16, 17:23   #8
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There are endless arguments about where the best place is to invest your money. If you have extra cash per month that you can invest then a 401K is a good place to put it, depending on the investments that are available.

You claim to be conservative, but 9% per year for the last three years means your 401K (or your university equivalent) is all in stocks, which means in 2008 that figure would have been -40%. That's not conservative; depending on who you ask, 9% per year might be the best you will ever do.

The more exotic forms of insurance are really only a good idea for people that have a lot of money tied up somewhere, whose family would need supporting if they die (i.e. you net worth is all in a business and you need some way to get at it without having to sell the business). Whole life and universal life are a losing proposition for just about everyone else.

If you want more background, I'd recommend checking out the bogleheads forum. Not everyone here likes them, but I find them a very good, level-headed resource on anything to do with investing.

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Old 2012-05-16, 17:51   #9
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Originally Posted by Zeta-Flux View Post
My only question is: Is that the best place to put the money? I am happy with the performance of my 401k.
You need to educate yourself. There's a lot to learn.

You have three main goals:
1) Diversification. Decide what your risk level is and what percentage of your assets you want to allocate to each asset class: Stocks, bonds, real estate or REITs, precious metals / commodities. Within each asset class you'll need to break it down further. For example, in stocks: large cap vs. small cap, value vs. growth, international vs. domestic. The more diversified you are the less likely you'll suffer a heart wrenching big drop in one year -- you also won't hit it out of the park in any year. The "standard" recommendation is: your age (as a %) in bonds, the rest in stocks. That is a decent starting point.
As part of this plan, rebalance every year. This means you'll be selling winners and buying losers, which seems counter-intuitive but is required to keep your percentage allocations correct and thus your risk low.

2) Costs. Keep them low. If your mutual fund is charging 1% or 1.5% that's money you won't be getting and compounding each year. Sure, they'd like you to think their skillful management will offset the fees. In the long run, it probably won't. Look at Vanguard index mutual funds (there are others) with costs as low as 0.1%.

3) Tax advantage. IRAs, 401Ks, college education, etc. Take advantage of as many of these as makes sense. Some mutual fund companies offer "tax-advantaged funds" that try to minimize capital gains distributions. Try to put assets in your tax sheltered accounts that spin off a lot of taxable income.


While you are learning and deciding on your risk tolerance, stick your money in a target retirement fund. If you plan to retire in 2045, buy the Vanguard 2045 retirement fund. Such a fund is diversified between stocks and bonds, allocating more to bonds and less to stocks as time marches on.

Last fiddled with by Prime95 on 2012-05-16 at 23:26
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Old 2012-05-16, 17:52   #10
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You claim to be conservative, but 9% per year for the last three years means your 401K (or your university equivalent) is all in stocks, which means in 2008 that figure would have been -40%. That's not conservative; depending on who you ask, 9% per year might be the best you will ever do.
Yeah, I really don't expect it to stay at 9% (I think we just had a few really good years). It isn't all in stocks--there is a little pie chart showing where things are (and I imagine if I cared I could delve further into where things are).
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Old 2012-05-16, 18:13   #11
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George has some sound advice above.

Raise the amount going into your 401k as much as you feel comfortable with but not more than 20% of your income.

Start an IRA or Roth IRA and put in the max possible each year. This depends on your taxable income and most likely the Roth will make the most sense. There is also an age exclusion where 55 and older can put in more per year. I suggest talking to an accountant for 30 minutes to figure out what will work best for you.

Diversify as much as you can while maintaining low maintenance fees. This is one reason I bought the 130 acres as mentioned above. It gives me an investment that tends to go opposite the stock market.

Your investment options could include:
stocks (dividend paying, good for tax advantaged accounts)
stocks (growth, good for investment accounts)
bonds (income, there are a range of options, some don't make sense in tax advantaged accounts)
Real Estate (diversification, growth)
precious metals (a hedge against economic chaos, I would keep this less than 10% of your retirement savings)

DarJones
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