When to buy whole life insurance

[Shane Barrows]

Ok so I grasp how whole life works. But in order to use it correctly should I have a lump some ready to put in on first payment. Example 50k policy 4% return 2k first payment required monthly after that is $35 So why I'm asking is do If i start out with less then what the percentage yields of the policy, will it make any money at all? I know this probably opened up a lot of questions this is my first post so I'm still learning how this all works.

[Tom Parris]

Quick disclosure, I am not a licensed insurance agent. I used to be, and sharing what I know as a customer. 

What are you trying to achieve using this product?

Whole life is not an investment. It's a protection product with tons of benefits. (guaranteed growth, creditor protected, can borrow against it, growing coverage, can convert to an annuity) It's designed like a mortgage, your first payments are paying for your insurance (interest for mortgages), and after 10 years, you break even. If you're paying $50k as your initial payment into the policy, you'd be paying for the insurance costs up front, and you'd begin to grow afterwards. I think 4% is a little high right at the beginning, I used to see that return after 20 years. I think right away, expect around 2%, maybe 3%.

Have you ever heard of an Index Universal Life (IUL)? That is a similar permanent insurance product that instead of your premiums being invested in the Insurance Company's portfolio, it is invested in an index fund of the S&P 500, or something similar. The policy guarantees you a return of 1% a year, but it caps your growth. That cap can go up and down, but I believe it's around 11% now. If the S&P does 15% return this year, you earn 11%, but if it bombs and goes negative, you're floor is 1%. 

For whole life, I recommend you get your policy through a mutual company. Mutual companies are owned by the policy owners, and any surplus goes back to the policy owners via dividends. 

If you'd like a contact for a CFP, I know the very best in the business.