Whole Life Insurance during Covid and Inflation

[Anique Akhtar]

Hello,

I don't want this thread to become another WLI vs REI. I have gone through the previous post and I understand why some people like WLI and why some people despise it. My question was whether it is specifically worth it for me during current times.

I am 32 years old. Starting a bit late in life. Just moved and settled in the US, and getting a steady income. Don't have much savings or investments at the moment. I could personally save up to $3k per month after filling out the retirement plans. I was thinking of putting $1k in WLI, $1k in emergency savings, and $1k in other investments. I want WLI with maximum cash value and probably minimum death benefits. So when there is time for me to buy my first property (1-3 years down the line). I can take money out of WLI and make my downpayment. Then use it again years later for other investments. However, I am not sure how inflation and Covid are going to affect WLI.

So I have two questions:

1) Would putting the amount I am trying to put in WLI be a good idea, or is that too much?

2) How do Inflation and Covid affect WLI? I get it that my premiums would stay the same even with inflation, but probably my returns/dividends would remain the same at 4%. Is it a good idea to open a WLI during these times?

Thank you for your help.

[Thomas Rutkowski]

@Anique Akhtar

The important thing to understand is that you are not "taking money out of WLI to make a down payment". You are leveraging the cash value of the life insurance policy. This means that your cash value remains in the policy and continues to earn dividends. A policy loan is a loan from the insurance company with your cash value serving as collateral.

When you fully understand that this allows you to literally put your money to work in two places at one time, you need to ask yourself, "how much do I want to devote to this?" Only you can answer that question.

Regarding your #2:

Inflation will ultimately manifest itself in higher interest rates. Interest rates are being kept artificially low right now because the fed knows that raising rates will crash the economy. But I don't see any choice. Since insurance companies invest in debt instruments (bonds, treasuries, mortgage-backed securities), they will earn more on their general fund. This will lead to an increase in dividend rates.

Covid has been a media creation. Mortality hasn't significantly changed year over year. Vaccination deaths are on the rise, however. 

It sounds like you think that the guaranteed rate is the actual dividend rate. That is not the case. The guarantee is simply the minimum rate that the insurance company needs to achieve for the contracts to be fully funded to meet their liabilities. Its for actuarial and pricing purposes. Anything that they earn in excess of the guarantee is paid out as part of the dividend. Actual dividends are usually much higher than the guaranteed rate. And, BTW, guaranteed rates are now 2%, not 4%.