Whole life insurance - capped earnings
"The question that I walk away with is ""What is the cost of the downside protection?"" Disclaimer - I don't sell anything. I am not a fan of insurance as an investment, with rare exceptions. (I'll stop there, all else is a tangent) There's an appeal to looking at the distribution of stock returns. It looks a bit like a bell curve, with a median at 10% or so, and a standard deviation of 15 or so. This implies that there are some number of years on average that the market will be down, and others, about 2/3, up. Now, you wish to purchase a way of avoiding that negative return, and need to ask yourself what it's worth to do so.  The insurance company tells you (a) 2% off the top, i.e. no dividends and (b) we will clip the high end, over 9.5%.  I then am compelled to look at the numbers. Knowing that your product can't be bought and sold every year, it's appropriate to look at 10-yr rolling returns. The annual returns I see, and the return you'd have in any period. I start with 1900-2012. I see an average 9.8% with STD of 5.3%. Remember, the 10 year rolling will do a good job pushing the STD down. The return the Insurance would give you is an average 5.4%, with STD of .01. You've bought your way out of all risk, but at what cost?  From 1900-2012, my dollar grows to $30080, yours, to $406. For much of the time, treasuries were higher than your return. Much higher.  It's interesting to see how often the market is over 10% for the year, clip too many of those and you really lose out.  From 1900-2012, I count 31 negative years (ouch) but 64 years over 9.5%. The 31 averaged -13.5%, the 64, 25.3%.  The illusion of ""market gains"" is how this product is sold. Long term, they lag safe treasuries." Pretty simple: When is Cash Value Life Insurance a good or bad idea? It is never a good idea. How can life insurance possibly work as investment? It can't.  Just as car, home, or health insurance is not an investment.  Note for counter example providers:  intent to commit insurance fraud is not an investment. Why not live your life so in 15 or 20 years you are debt free, have a nice emergency fund built and have a few 100 thousand in investments?  Then you can self-insure.  If you die with a paid off home, no debt, 20K in a money market, and 550,000 in retirement accounts would your spouse and children be taken care of? I need to see the policy you are referring to give a more accurate answer. However what could be happening, it’s again the way these instruments are structured; For example if the insurance premium is say 11,000 of which 1000 is toward expenses and Term insurance amount. The Balance 10,000 is invested in growth. The promise is that this will grow max of 9.5% and never below zero. IE say if we are talking only about a year, you can get anything between 10,000 to 10,950.  The S & P long-term average return is in the range of 12 -15% [i don't remember correctly] So the company by capping it at 9.5% is on average basis making a profit of 2.5% to 5.5%. IE in a good year say the S & P return is around 18%, the company has pocketed close to 9% more money;   On a bad year say the Index gave a -ve return of say 5% ... The Insurance company would take this loss out of the good years. If say when your policy at the S & P for that year has given poor returns, you would automatically get less returns.  Typically one enters into Life Insurance on a long term horizon and hence the long term averages should be used as a better reference, and going by that, one would make more money just by investing this in an Index directly. As you whether you want to invest in such a scheme, should be your judgment, in my opinion I prefer to stay away from things that are not transparent.
Something to consider is how broad is Yahoo! Finance taking in their data for making some comparisons.  For example, did you look at the other companies in the same industry?  On the Industry page, the Top Life Insurance Companies by Market Cap are mostly British companies which could make things a bit different than you'd think. Another point is how this is just for one quarter which may be an anomaly as the data could get a bit awkward if some companies are just coming back to being profitable and could have what appears to be great growth but this is because their earnings grow from $.01/share to $1/share which is a growth of $10,000 percent as this is an increase of 100 times but really this may just be from various accounting charges the company had that hit its reserves and caused its earnings to dip temporarily. Let's look at some numbers.  These are just example rates that I found online.  You can substitute your own quotes and compare yourself.  I'm not going to name the company, but these advertised rates are all from one nationally-known company for a 25-year old female. If you went with the whole life option, you would be paying $937.56 per year.  The policy builds a cash value; the amount this grows can vary greatly, and you'll need to look at the fine print to see how it will grow, but let's pretend that after 30 years, the cash value of the policy is $50,000 (a reasonable guess, in my opinion).  Let's look at what this means: You can cash out your policy, but at that point, you'll stop paying payments, and your heirs won't get your $100,000 death benefit.  You can borrow against it, but you'll have to pay it back.  You could use it to pay your premium, in which case you'll stop paying payments.  However, keep in mind that if you do pass away, you lose the cash value you've built up; your beneficiaries only get the $100,000 death benefit. Now let's look at the term insurance option.  We'll go with the 30-year term.  It will only cost you $242.76 per year, and the death benefit is more than double the whole life coverage.  If you were to take the difference between the two premiums ($58 per month) and invest it in a mutual fund growing at 8% per year, you would have $86,441 in your account after 30 years.  This money is yours (or your heirs), whether or not you pass away before your term is up.  After the 30 years is up, your insurance is over, but you are now almost all the way up to the death benefit of the whole life policy anyway. In my opinion, term life insurance is better than whole life for just about everybody. I don't want to be morbid here, but the earlier someone dies, the more benefit they get with term insurance vs whole life.  If someone does have reason to believe that his life expectancy is shorter than average, term insurance makes even more sense, as he is more likely to get the death benefit for much less money in premiums than he would in whole life. "The short answer is ""No"". There a 2 ways to get cash from a life insurance policy.  If the policy has cash value greater than the surrender value, then the difference can be borrowed, but will generally increase premiums in the future.   The other method, available on many term policies allows the owner to receive part of the death benefit if the insured has a physician willing to certify that he/she will probably pass away within a 12 month period.  Several carriers also offer cash benefits for critical care." Term life insurance is just that - life insurance that pays out if you die, just like car insurance pays out if you have an accident. Like car insurance, it's easy to compare amongst term life insurance policies - you can even compare quotes online.  Whole life insurance is life insurance plus an investment component. The money that you pay goes to pay for your life insurance and it also is invested by the insurance company. Insurance companies love whole life because it is not a commodity; they can come up with a large variety of variants, and that fact plus the fact that it combines insurance and investment means that is very difficult to compare policies. Not to mention that fact that none of the companies - as far as I can tell - publish their whole life insurance rates, so it is very difficult to shop around. "Short answer: google finance's market cap calculation is nonstandard (a.k.a. wrong). The standard way of computing the market capitalization of a firm is to take the price of its common stock and multiply by the number of outstanding common stock shares.  If you do this using the numbers from google's site you get around $13.4B.  This can be verified by going to other sites like yahoo finance and bloomberg, which have the correct market capitalization already computed. The Whole Foods acquisition appears to be very cut-and-dry.  Investors will be compensated with $42 cash per share. Why are google finance's numbers wrong for market cap?  Sometimes people will add other things to ""market capitalization,"" like the value of the firm's debt and other debt-like securities.  My guess is that google has done something like this.  Whole Foods has just over $3B in total liabilities, which is around the size of the discrepancy you have found." It's hard to say for smaller cap firms because they are all so different. Take a look at SandP or other rating agencies at about the BB range. Then decide how much of a buffer you'd like. If all goes to hell, do you want to be able to cover all you salaries, debt etc for three months? Six? What kind of seasonal volatility does your industry face? Do you plan on any significant investment or FTE uplift any time soon? This will all play into how much retained earnings you will chose to have. "I would refer you to this question and answers. Here in the US we have two basic types of life insurance: term and whole life.  Universal life is a marketing response to whole life being such a bad deal, and is whole life just not quite as bad. I am not familiar with the products in India, but given the acronym (ULIP), it is probably universal life, and as you describe is variable universal life.   Likely Description ""Under the hood"", or in effect, you are purchasing a term life policy and investing excess premiums in a collection of stock mutual funds.  This is a bad deal for a few reasons: A much better option is to buy ""level term insurance"" and invest on your own. You won't necessarily lose money, but you can make better financial decisions.  It is good to invest, it is good to have life.  A better decision would not to combine the two into a single product." "There are a lot of false claims around the internet about this concept - the fact of the matter is you are giving yourself the ability to have money in a tax favored environment with consistent, steady growth as well as the ability to access it whenever you want.  Compare this to a 401k plan for example....money is completely at risk, you can't touch it, and you're penalized if you don't follow the government's rules. As far as commissions to the agent - an agent will cut his commission in half by selling you an ""infinite banking"" style policy as opposed to a traditional whole life policy. @duffbeer703 clearly doesn't understand life insurance in the slightest when he says that the first three years of your premium payements will go to the agents pocket.  And as usual offers no alternative except ""pick some high yielding dividen stocks and MLPs"" - Someone needs to wake up from the Dave Ramsey coma and realize that there is no such thing as a 12% mutual fund....do your research on the stock market (crestmont research).  don't just listen to dave ramseys disciples who still thinking getting 12-15% year in and year out is possible. It's frustrating to listen to people who are so uneducated on the subject - remember the internet has turned everyone into ""experts"" if you want real advice talk to a legitimate expert that understands life insurance and how it actually works." There's a cool calculator at Money Chimp that lets you plug in a start and end year and see what the compound annual growth rate of the S&P 500.  The default date range of 1871 through 2010 gives a rate of 8.92% for example. Something you need to take into account when comparing returns to a whole life policy is what happens to the cash value in your policy when you die.  Many of these policies are written so that your beneficiaries only get the face value of the policy, and the insurance company keeps the cash value. There are a lot of moving parts, individual premiums and annual increases have little to do with employer premiums and annual increases and vice versa.  Most people think of XYZ insurer as a single company with a single pool of insured folks.  This common knowledge isn't accurate.  Insurers pool their business segments separately.  This means that Individual, small business, mid-size business, and large business are all different operating segments from the viewpoint of the insurer.    It's possible to argue that because so many people are covered by employer plans that individual plans have a hard time accumulating the required critical mass of subscribers to keep increases reasonable.   Age banded rating: Individual coverage and small group coverage is age rated, meaning every year you get older.  In addition to your age increase, the premium table for your plan also receives an increase.  Employers with 100+ eligible employees are composite rated (in general), meaning every employee costs the same amount.  The 18 year old employee costs $500 per month, the 64 year old costs $500 per month.  Generally, the contributions an employee pays to participate in the plan are also common among all ages.  This means that on a micro level increases can be more incremental because the employer is abstracting the gross premium.  Composite rating generally benefits older folks while age rating generally benefits younger folks. Employer Morale Incentive: Generally the cost to an employee covered by an employer plan isn't directly correlated to the gross premium, and increases to the contribution(s) aren't necessarily correlated to the increases the employer receives.  Employers are incentivised by employee morale.  It's pretty common for employers to shoulder a disproportionate amount of an increase to keep everyone happy.  Employers may offset the increase by shopping some ancillary benefit like group life insurance, or bundling the dental program with the medical carrier.  Remember, employees don't pay premiums they pay contributions and some employers are more generous than others.  Employers are also better at budgeting for planned increases than individuals are. Regulators: In many of the states that are making the news because of their healthcare premium increases there simply isn't a regulator scrutinizing increases.  California requires all individual and small group premiums to be filed with the state and increases must be justified with some sort of math and approved by a regulator.  Without this kind of oversight insurers have only the risk of subscriber flight to adjust plan provisions and press harder during provider contract negotiations. Expiring Transitional Reinsurance Fee and Funds: One of the fees introduced by healthcare reform paid by insurers and self-insured employers established a pot of money that individual plans could tap to cope with the new costs of the previously uninsurable folks.  This fee and corresponding pot of money is set to expire and can no longer be taken in to account by underwriters. Increased Treatment Availability: It's important that as new facilities go online, insurer costs will increase.  If a little town gets a new cancer clinic, that pool will see more cancer treatment costs simply as a result of increased treatment availability.  Consider that medical care inflation is running at about 4.9% annually as of the most recent CPI table, the rest of the increases will result from the performance of that specific risk pool.  If that risk pool had a lot of cancer diagnoses, you're looking at a big increase.  If that risk pool was under priced the prior year you will see an above average increase, etc. This depends. Quite a few stock exchanges / country report total capitalisation in terms of free float. I.E total shares that can be traded, ignoring the promoters shares. The market cap reported by company takes all shares. "Real target of commisions is providing ""risk shelter"". It is kind of ""insurance"", which is actually last step for external risks to delete all your money. In part it cuts some of risks which you provide, brokers track history of all your actions for you (nobody else does). When brokerage firm fails, all your money is zero. It depends from case to case if whole account goes zero, but I wouldn't count on that." The issue is the time frame. With a one year investment horizon the only way for a fund manager to be confident that they are not going to lose their shirt is to invest your money in ultra conservative low volatility investments. Otherwise a year like 2008 in the US stock market would break them. Note if you are willing to expand your payback time period to multiple years then you are essentially looking at an annuity and it's market loss rider. Of course those contacts are always structured such that the insurance company is extremely confident that they will be able to make more in the market than they are promising to pay back (multiple decade time horizons). "If I read your figures correctly, then the cost difference is negligible. ($1.84 difference) The main determining factor, I'd think, would be the coverage.  Do you get more, or less, coverage now than you would if you went together on the same plan?  You'd both be covered, but what is the cap? Plans, and employer contributions, change all the time.  How is business in both of your companies?  Are you likely to get cut? Are you able to get back into a plan at each of your employers if you quit the plan for a while?  These rules may be unpleasant surprises if, say, your wife cancels her plan, goes on yours, and you lose your job.  She may not be able to get back into her insurance immediately, or possibly not at all.  A spouse losing a job isn't a ""qualifying life event"" the way marriage, birth of a child, divorce, etc., is." The problem you'll have is that premium income is a vague term so you have to figure out what they mean by a) premium and b) income. Gross or net of reinsurance and acquisition  costs? Written or earned basis?  Combined ratios are also a pig, very commonly they are loss ratio + expense ratio --- but of course loss ratio is losses incurred / premium earned while expense ratio is expenses paid / premium written so it's a self-inconsistent measure. And then there's investment income, and then there's reserve releases...