All Forum Posts by: Zachary Paschke

 You're absolutely right Josh. It does make more sense to buy term and invest the difference. The average person doesn't do that. The average age of the person that I sell coverage to is 50-70 (they'll often repeat to me that they're still in the process of buying term and investing the difference). You're paying $85/ month because you're  young and healthy. The chances are the insurance company will never pay out on your claim. It's good money for them that's $20k if it's a 20 year policy with little chance you'll collect. What people find as they get older is that the need for life insurance doesn't really go away. Your reasons for needing coverage just change. Insurance offers people who otherwise are not looking to establish a trust a way to handle simple money transfers (often people with trusts as well).

I would never try to sell someone a whole life policy (especially with payments until age 100) unless it is what meets their financial goals. Loans against a whole life policy are similar to a line of credit without the fees, the application, the structured re-payment or the taxes. This is not meant to be borrowing other peoples money, it's the ability to store your money in a place where it can continue to grow tax free if you're using it or not. For some people, it makes no sense. But, to the person with a savings account earning 1-2% it's a compelling alternative.

No one here is arguing that this is an alternative to investing in the the market or real estate. I didn't cash in my houses to buy whole life. It's a hedge to balance your portfolio.

Tony, yes, guaranteed interest and the declared dividend are two separate things. I wouldn't say you're making 10% aggregate because it's not an investment. It's a dividend issued on a policy based on your cash value. You will have the expense of insurance (I'm a by the letter kind a guy here). I'm not talking about more money for insurance, I'm just talking about the same money being spent in a way that it provides more tax free money to your beneficiaries.

The guaranteed interest is a commitment from the insurance company that your policy will grow by that amount. For example. When I take out a $100,000 policy on my 2 year old daughter and I pay that policy off in 20  years, it will cost me $700/ year (or $14k after 20 years). Once she's 22 years old, I never have to pay into the policy again. The guaranteed interest will grow that cash value to $100k by her age 121 and until that time her life will be covered for $100k. That growth from $14k to $100k is achieved through the 4% guaranteed interest lest the cost of coverage. This is the kind of reason I think buying insurance at a young age can be beneficial. If paid monthly, that policy would be $61/ month. I just quoted a $100k policy for a $100k policy for a 53 year old man at a standard rating. The quote was $49/ month paid for 20 years. At the end of that he has no coverage. This policy when my daughter is 53 will probably have a death benefit of $200k-$250k after all the paid up additions from the insurance company. Probably around $80k in cash value. She will still have that policy even if she can't afford it (because it won't cost anything if I pay it off), or if she gets sick. It will still be there.  She never has to worry about the term running out.

My recommendation with whole life is to always pay it up early. That way the company does all the work for you. You don't have to worry about it. Especially for kids. All of my friends who were given whole life policies that still had a payment due, try to get rid of them. They don't see the value. 

In addition she will get a dividend every year. It adds to the tax-free cash value by purchasing paid-up coverage (that is the most tax advantaged thing you can do with a dividend payment). The company i most often used has declared a dividend over 6% 11 of the past 14 years. The other 3 years the dividend was 5.98% (2011), 5.6% (2010) and 5.6% (2009). The most recent divided for 2019 (they're declared the end of the year before the dividend goes into force) was 6.23%. Once you get a dividend payment in your policy, it can't go down. That is your money in your policy. The only question is how much will you get next year? These rates are not guaranteed. The reason they are tax advantaged is because they are considered a return of premium.

My point was just that sometimes to understand how a policy will preform compared to another one, you need to consider more that guaranteed interest. You can buy a whole life policy from your Farmer's agent, but that doesn't mean it will pay a dividend. There's more to loose settling just for the guaranteed number.

I never tell people to do this for the investment aspect. It's not a strong investment. It's is a cautious one though. That's the main concern. The example I gave with my daughter, that's no where close to trying to tweak the numbers. I show what that can look like in the video I posted. All the same though, it's not a bad place to toss a few dollars until you need them. 

 You’re right a policy that becomes a Modified Endowment Contract can become taxable if you access the money. People putting these policies together do need to know what they’re doing.  The rules around MECs are pretty simple. Illustrations will tell you if the anticipated policy will MEC. Insurance company (maybe not in the past, but as of now) will reach out if a payment will cause a MEC to make sure you still wish to deposit it. There are many safety measures in place. Today no one accidentally creates a MEC. 

Loans do not cause a policy to MEC, payments cause a MEC. Life insurance loans are the easiest and lowest fee money you can access. Many policies will let you net a profit while the money is being borrowed. 

I'm sorry you went through that. What you're describing does not sound like whole life (having to catch up payments). It sounds like Indexed Universal Life or Variable Universal Life. These policies allow you to mitigate most of your risk, but can often depend on market growth to stay in force. You need someone like @Thomas Rutkowski who really knows what they're doing with IULs to structure them properly. This happened to a lot of policies from around the 1990's. They anticipated market growth that they never saw.

I'm more of a whole life guy myself. It's personal preference. Each policy type is good for different goals. IULs are great for income. Just not the kind of business I get into.

If there is no dividend, then yes, A guaranteed 5% return is what you will see. Not every advisor is as smart as you @Thomas Rutkowski. Some of them are out there slinging terrible policies. There are certain agents with a nameless company that still try to sell people using 8 year old Blease Research data.

Just a couples things to point out: if your whole life insurance policy is only earning 4%, you have the wrong policy. If you’re setting up a pool icy right now you should be hitting 5-6% without even trying. I’ve got a company right now with guaranteed interest of 4% and a dividend that has been running about 6% the past 10 years or so. Make sure your policy earns a dividend.

@Account Closedis kinda right. There are easy paid-up options, but find someone who will customize a plan for you and your needs to keep the cost of coverage as low as possible. You should be funding the policy in less than 10 years at your age. You do have to be careful. An agent shouldn’t try to sell you a policy that will pay up around age 100, but that doesn’t mean they won’t try. Get it paid up sooner. 

Like the others said, this is a hedge against investments. Are you building money for retirement? What if it doesn’t grow the way you expected? A steady guaranteed growth of 5% makes life insurance an incredible back up to retirement.

Every day I talk to 60 year olds that were convinced they would buy term and invest the difference and now they’re looking for more coverage because they either never tried or the investment didn’t work out. Your financial planner is making the right recommendation. 

This is an interesting statement. I did choose to not carry my securities license. It's something I considered. These were business decisions I made. I would never suggest that life insurance can replace well rounded financial planning and investments. Life insurance is much like the healthy balance to investments (I don't consider life insurance an investment. I consider it insurance - can you build a policy that can grow some interest, of course, but it doesn't replace other forms of investment).

With that said, many people haven't been properly taught how to fit life insurance into their financial world. One of the reasons I got into this line of business is because I got questionable life insurance advice from a financial planner. I wanted to specialize in something that is not well understood in the financial world.

No one would think that investing in an IRA is some kind of scam thought up by financial planners to stick it to the common man, but sometimes life insurance can get that rap.

I would take you back to your original post where you encourage young people to really consider their future. I talk with many people every day. Quite often when I get to the topic of whole life, they reiterate what they've heard from a talking head on TV. "Buy term and invest the difference." They'll usually preface it with, "What do you think, I'm stupid?" The answer is no. We've been told that term coverage is the answer when the truth is term coverage, just like all financial products is a tool. No one product is bad all of the time, you just have to know how to use them.

When you're young term is great! Right now $500k for 20 years for a 20 year old female with the best health class is $16/ month (the commercials always quote for women because they're cheaper). Maybe she chooses to buy a GUL (guaranteed universal life policy - offers long term coverage and most often does not build cash value) for $500k until age 121 and pays $110/ month. Maybe she buys a dividend earning whole life policy for a whopping $400/ month for 20 years (nothing fancy, just a 20 pay whole life) and will have guaranteed $500k for life in death benefit. If she does that she'll pay $96k total. after 20 years the estimated death benefit rises to $700k and she has an estimated $150k in cash value after dividends that you can borrow from. Can you make more money faster? Yes. Is it sweet that you have more coverage than the average person ever will? I think so. 

Even better, let's say my friend's parents buy her a $500k policy at age 2. Pay it off in 20 years (less than $300/ month or $70k total). At age 20 nothing else is owed into the policy. By age 40 she has an estimated $1 million policy with a $200k cash value. At age 60 an estimated $1.4 million death benefit and $600k in cash. Paying this same policy over the course of 100 years (instead of 20) means a $200 monthly premium. For an extra $24k (over the course of 20 years - $1,200/ year) you give your child a gift instead of a monthly payment. That's not even true over-funding. That's just paying a policy off in 20 years. Still, it's a huge savings. Same is more so true of truly over-funding your account.

Now, let's say our friend buys a 30 year term policy at age 20 for $25/ month (that's $9k lost). Let's say she hasn't saved and is age 50 looking for more coverage. Maybe she's gained some weight has a thyroid problem, or anxiety because she never saved money. Now her new 30 year term policy carrying her to age 80 (good enough the average person passes around age 82). At standard rates her coverage is $190/ month (this round will cost $68,400 total). She spends $77,400 with nothing to show for it. Of course, she retains the ability to invest the difference, but she spent it on quarter pounders and a Mazda lease. She dies at age 79 (conveniently enough) leaving $500k to her family tax free. Our whole life friend dies at the same age leaving $1.8 million tax free to family spending an extra $20k.

This is going to surprise you, but my average client is aged 60. The mode is around 65. Do you know how much a 30 year $500k term policy for a 65 year old in standard health is? You can't buy one (well, by traditional means). A 20 year policy? around $500/ month. Strangely enough, I still get people in their 60's calling me to buy coverage who still say to me that whole life is for suckers. It may be.

I don't care how you make your money for the future, just consider it. If you need help, there are worse things than participating whole life. I get people calling me in their 70's and 80's every single day who have not saved $10k to take care of their final expenses. Just know what your options are and do something. I know this was a long response. I hope it spoke to the heart of your question. Life insurance is about so much more than making money. It is one of the most basic forms of protection.

Not all of these examples are practical, but life insurance is scalable no matter where you enter. 

 * rates / accumulations in this example are realistic, but are not actual penny-for penny rates.

You did say before you were working with an agent. He should be able to explain all of those options on your policy. 

@Angelique F.

You’re right the payment is a lot like a mortgage payment. Part goes to the insurance payment, part goes to the cash value you’re building up. Where the illustration breakdown is here: if you pay your mortgage principal early, it just lowers your future interest. If you overfund your insurance policy the interest in the policy starts paying the itself  off.

The death benefit is directly tied to the amount of cash in the policy and the payment, so as you put more cash in the policy you need less to be paid for the death benefit. With a universal life policy the amount you pay is completely flexible. If you have enough cash in the policy that it will self fund you don’t have to pay anymore. Essentially the interest paying in to the account covers enough the payment of the death benefit.

As you fill the cash value you get closer to self-funding the account and paying off your death benefit just like you might pay off the principal in a house.

This policy is completely customizable. 

I hope that helps! If you’d like you can send me a message and I’ll walk you through a policy via screen share to help explain. I’m currently working on a video about this as we speak. 

You’re right, life insurance is a great vehicle! I personally prefer participating  whole life, but they both have benefits. The goal is to try to overfund the account so the cash starts growing as quickly as possible. My co-workers and I enjoy this work and like trying to fit the most cash you can into the account  

It sounds like you have good advice, but feel free to reach out if you run into any questions.

For anyone else looking into this, understand the investment, over fund the policy (pay more than the minimum needed for coverage), and understand the terms of borrowing the money.

Congrats!