Life Insurance Naysayers - How Do You Deal With Them?

Question

I know several BPers use some form of permanent life insurance to help their investing.  I'm just looking into it and getting a lot of negative feedback from non-investors.

My brother has said things along the lines of he and his wife never hearing anything good about whole life insurance; that I'm single with no kids so I don't even have a reason to get life insurance, etc.  My friend then tells me that she inherited the policy her father got on her 30 years ago and it was only worth $100.  That sounds really shady to me, but shady perfectly describes her father so I suspect he did something underhanded with that policy to ruin it.  Everyone thinks term life is the best option, while I think that it is the real scam.  On and on....

I'm working with an advisor/agent who works extensively with people who want high cash value policies to use for their business.  She knows that I'm interested in real estate investing and plan to take out loans against my policy.

I guess I'm just looking for some reassurance that I'm not making a huge mistake.  How do you handle the naysayers?  I know they're genuinely concerned and don't want to see me get burned.  I feel like any response I have for them sounds like I drank the kool-aid and why wouldn't I want to hand over my life savings to this nice religious conman over here.

Thanks for any feedback and discussion!

Steve Vaughan · Answer

The math will come out ahead for folks that get term and actually invest the difference in cost vs whole life.  If someone isn't going to invest the difference, at least they have a forced savings plan.

I can't wrap my head around borrowing my own money.  I also don't know why the insurance co's keep the savings you've built up when you die.  I'd rather invest and let my heirs receive the money.

Steve Vaughan · Answer

@Mindy Zimmerman- ask the agent what happens to your cash value when you die.  That's all I needed to find out.

Wayne Brooks · Answer

It is Not a business tool.  If you buy term insurance, and don't even invest the difference of what whole life would costs, do the math.  You'll have more in savings, than the "cash value you could Borrow against".  Simple math once you have the numbers.

Scott Carder · Answer

Its a crappy product, and agents love to sell it because they take a bunch of your money. Just get a term policy 15 or 20 years, and invest the difference. There is no magic or special way to prosper, as these policies are sold to you. I think once you put emotion aside and actually do the math, its impossible for any person to think these policies are a good deal, except for the person selling them.

Thomas Rutkowski · Answer

Wendy - Most of the people posting here do not understand how life insurance works. You WILL make more in your real estate investing by learning how to leverage the cash value. Insurance cash value is not your "Investment". Its just a tool to allow you to make more with your true "Investment": Real estate. Think about it:

If you can put your money into a savings vehicle that earns 7% and you can borrow AGAINST IT at 5%, any return greater than 5% with those loan proceeds will be value created on top of what the cash value is earning.

Do you think you can make more than 5% in real estate investing?

You'll see lots of "infinite bankers" and "be your own bankers" here on bigger pockets. They'll write entire books that don't put it as simply as I did in that one sentence. Once you understand that you are not borrowing "From" your cash value, but "Against" it, the light bulb should go on in your mind.

Now that you know the mechanics of it, your next questions should simply be: How do I get a policy that 1. builds high cash value right from the start, and 2. allows early access to the cash value.

This is like a having a “Magic Checking Account” where your bank account balance continues to grow and earn interest even after you write a check. In essence, it's like having a credit line equal to the amount of money you keep in the bank. It works because the interest credited to the cash value securing the loan is the same or more than the interest on the loan. Try that with a real bank!

Don't get hung up on the rates I used in my example. Those are real rates available today, but even if the rates were lower or even equal, this works because of the tax advantage. The cash value grows tax free and the loan is a business expense.

Scott Carder · Answer

You also need to run the numbers yourself, and not listen to the best possible outcome the agent gives. I actually couldn't think of a worse idea than using life insurance as a "business tool". I know lots of investors, and none of them have ever done what you are considering. I sat in a sales pitch of "bank on yourself" one time, I couldn't wait to leave.

Mindy Zimmerman · Answer

@Steve Vaughan and @Scott Carder I appreciate the counter views.  Truly.  I'm honestly still a little on the fence but everyone I've talked to up to this point only had vague "it's bad" responses without much fact behind that reaction.  None of the people I've talked with are investors either so they wouldn't be looking at life insurance as a business tool.  I want to see the numbers the agent comes up with for me before making a final decision.

I don't think I would even bother with term.

Mindy Zimmerman · Answer

@Brian Gibbons thanks for that information!  I'll definitely look into those  designations and see if the advisor I've been talking to has them.

Brian Gibbons · Answer

Look for a CLU ChFC designation with whole life advisors, they are well trained in whole life

I sold life instance for federal estate tax planning

@Mindy Zimmerman

Life Insurance Naysayers - How Do You Deal With Them?

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