Oregon, IL · Member since 2016 · 104 posts · 32 votes
Alright, so I've done some research into Whole Life Insurance and I think it has some awesome benefits. In my research though it seems to be pretty equal between the people who strongly advise against it and for it. One thing I like about it as that after you've built up some cash value in the policy you can take out a loan on the cash value at rates generally lower than the banks. I'm just curious how many of you out there have thoughts on this type of investment vehicle and whether anyone has good or bad experiences associated with it?
@Brian Nordman While permanent insurance (Whole Life, Universal Life, Variable Life, etc.) products do have some interesting possibilities, I am in the camp that believes insurance products and investment products should not be combined. So, I am a term insurance guy.
The exception in this regard is for people who have high net worth and are trying to manage their estate tax issues. Insurance products can be quite useful in those situations.
@Brian Nordman While permanent insurance (Whole Life, Universal Life, Variable Life, etc.) products do have some interesting possibilities, I am in the camp that believes insurance products and investment products should not be combined. So, I am a term insurance guy.
The exception in this regard is for people who have high net worth and are trying to manage their estate tax issues. Insurance products can be quite useful in those situations.
@Paul Allen that is certainly one of the arguments I have read against using permanent insurance. Clearly, I don't have a very high Net Worth right now. But say 15 or 20 years from now if I have been successful and have a higher net worth would it make sense to jump into it at that point? Or would you say that it would be too late in the game to make it worth while?
Oh man you are about to light a firestorm here. I am in the camp that certain insurance products do provide a unique and innovative way to diversify your investments. I will defer to @Thomas Rutkowski to explain some of the ways that is true and battle the haters, though. For what it is worth, I am a believer in what he is peddling, but I have not pulled the trigger yet due to current financial circumstances. And I use the term "peddling" not to demean what he does, but sarcastically because this is such a contentious issue. Insurance is incredibly complex but there is definitely opportunity there for the savvy. Not unlike, oh I don't know, say real estate.
@Rob Golob Don't really understand your comment about the whole consumer education thing? But I think one major benefit is that the insurance covers you for your whole life. Compared to term insurance I could die the day after my term is up and every penny I've spent in the past 20-30 years would be wasted because my beneficiaries wouldn't get a dime. Where as in whole life insurance they would be guaranteed a death benefit.
I also understand I could invest that money elsewhere and get a better return. But like I said the benefit to borrowing against the cash value is that it would be at a lower rate and I essentially don't have to pay it back either. It would just be netted against the cash value at the date of death.
If youre going to go to permanent life insurance I would take Indexed universal life a shot. permanent life insurance that is tied to stock index for performance. Find a company that has low interest on the loan side. When it gets built up, you can draw on it tax free to supplement retirement. if you die early, you leave it to your family.
@Edward B. I guess I didn't realize how touchy of a subject this was! By no means do I have the intentions of buying some random policy. I would very carefully lay out the options and see where it would put me come retirement time compared to investing that same money into real estate. I want to diversify the best I can because I'm a firm believer in not putting all of your eggs into one basket. My goal in this post is to see if there is anyone out there who has used something like this and has been successful at doing so!
@Alex Shaughnessy I have a close friend who has used something similar to that. He has a minimum guaranteed return of roughly 3% and a max return of roughly 13% based off the S&P. I think something like what you mentioned draws more interest more than a simple whole life policy.
@Brian Nordman, well I will say this. Insurance is just a contract with a specific company, which means two things. 1) It's worth is greatly dependent on the ongoing viability of that company and 2) you can write pretty much anything you want into a contract so they are incredibly diverse and flexible. In terms of 1) as long as you stick with a big name you are most likely fine. Most have been around for decades and the reality is that if one goes belly up, their portfolio will get bought out by other companies. For 2), I would say that you need to know what you want to accomplish with the policy. If it is for retirement purposes you will want something different than if the death benefit is truly important to you. And of course there are products that do both well but not great. I have been looking into this for over a year and it is still dizzying so good luck.
@Brian Nordman exactly. That is what I have. The company I have it though has different indexes. Some w/ higher caps (or no caps at all), and after 5 or 7 years the interest on withdrawal is actually free. Permanent insurance is definitely more expensive to own but if it is PROPERLY funded, this product can do amazing things.
@Edward B. I think you made a very good point here that I essentially need to know my end game or my "why" that is talked about so much on here. It's no different than building a strategy for getting involved in real estate. So I think that's a great point an appreciate that comment. I think that we are both kind of in the same boat that we think they can provide value if used for the right reasons and effectively. I honestly wouldn't mind staying in contact and continuing to pick your brain on this topic as it appears it's something you've been pondering for quite some time.
One thing you want to consider with whole life coverage is, who do you need to be a beneficiary when your 80 years old. If your children are 40 or 50 do they need the payout?
@Alex Shaughnessy wow that is great! If you don't mind me asking, what kind of returns are you able to generate annually? My thought process is that if you're able to generate similar or slightly lower returns as other vehicles, the fact that much of the return would be tax free it more than makes up for the difference of other vehicles that generate better returns that don't have the same tax advantages.
@Michael Bracken I agree. At that age they may not need the payout financially. But it could be used as a tool to leave my estate to my beneficiaries in a way that provides better tax advantages.
@Michael Bracken I understand your thought process! If the tax savings I would receive would outweigh the dollar amount in the increased return I would certainly consider it. Just have to weigh the options!
@Rob Golob Compared to term insurance I could die the day after my term is up and every penny I've spent in the past 20-30 years would be wasted because my beneficiaries wouldn't get a dime.
That's the nature of insurance, though. You assume a known, fixed financial loss (the cost of the premium) to mitigate your risk from an unknown and potentially catastrophic financial loss.
I've never once purchased an insurance product I was anxious to get to use. I paid for car insurance throughout all of 2016 and I never had a single incident that prompted me to use it. Was my money wasted?
@Paul Allen That's not necessarily the way that I am viewing this though. My take is that with term life insurance, if I die a day after the term is up all the premiums I paid for 20 years were wasted. So if you stopped paying for auto insurance (which I know is illegal) and you got in an accident the next day, all the premiums you paid in previous years were wasted. Whereas with the whole life insurance, you don't necessarily run that risk. When you end the policy or die, whichever happens first, you will get to recover the cash value of the policy. I'm comparing it as there is less risk involved with whole life compared to term.
OK, one last thought on the topic and then I am out.
Every major metropolitan area I visit I see the names of insurance companies on many of the tall buildings downtown. It wasn't selling term life insurance policies that enabled those companies to purchase that premium real estate. :-)
@Alex Shaughnessy@Brian Nordman The key word here is the policy would need to be properly funded. If you are funding for retirement purposes and cash value then you want as little death benefit as possible for as much cash as you can put in. The only issue with that is insurance advisers that sell indexed universal life get paid off of the amount of death benefit and not the amount of premium going into the policy. So if you are going to invest in an IUL make sure it is of proper structure for your goal and not your insurance agents goal.
@Paul Allen Fair point and I know they make their money on policies such as these! I do know that if you withdraw from the policy in the first ten years you tend to lose money on it. This would be where they are gaining on the deal. Whereas if you stick with it and hold onto it long term you will more than likely come out on top!
By not over-paying to build up 'cash value' that the insurance company keeps when I die anyway, I am now self-insured. Whether I have a policy or not wouldn't really move the needle in my estate.
I'd get 20-yr term. By then, if you invest wisely, nobody will need the policy money anyway. My wife has one of these and it's $214/yr for $250k. I won't tell you her age, but she's over 40. Compare that to $250+/mo to maybe borrow your money back later. Invest the difference. Peace!