Anyone buy a custom whole life policy as an investment?
So my insurance agent trying to me a life insurance policy for $1.5M and I basically contribute like $30K each year for the next 10 years and then never make a single payment after that. At the age of 58 I am can withdraw the $300K and get my basis out or let it sit and grow my cash value. Grows to like $320k the next year and at like 65 I can withdraw like $500k out. However no matter what I decide I am insured for $1.5M, which would be helpful for my kids. Its another form of investment, but seems like a great strategy.
Wrong
I’ve seen this used to get around the estate tax but otherwise you’re better off buying index funds and a term life insurance.
Admittedly I don't think those are the reasons many people are pitched this. It always seems two fold - deferred tax treatment, similar to a ROTH IRA, on investments and then the ability to effectively loan yourself money out of it, tax free as long as you keep it current. If you were wealthy and/or high income, you could theoretically end up with lots of gains or paid in money and the ability to borrow against that, pulling it out without tax consequences.
To be clear - that's my very limited, most likely not entirely correct thought about it.
you might as well just give him a new rolex, same result but cheaper on your part
term + diversified liquid investments is way better, only value permanent life insurance has is estate tax chicanery/long term care health events
Any thoughts on benefits as a PE professional that is able to invest in funds / deals where you might be able to leverage the ability to borrow against your principal at cheap rates? Obviously not going to be something you want a significant portion of your savings going to and there are other alternatives (i.e., personal line of credit), but seems like maybe an okay way to diversify into something less correlated to the market with some ancillary benefits
Why couldn't you put money into a diversified portfolio of muni bonds, blue chips, ETF's and get a securities based line of credit to fund capital calls? Exact same concept without the m&e expense
not recommending it as I'm allergic to leverage but my whole thing is that term + diversified liquid investments is almost always superior
Makes sense, I think the counter would be that your underlying securities used for the line of credit in that instance would be correlated to the market so you’d be at greater risk if there was a downturn. I’m not sure how interest rates would compare either.
My overall impression is the term life + liquid securities are a better approach, but I had a financial advisor (not some clown from Northwestern Mutual) pitch me pretty hard on the whole life policy citing these additional benefits
if PE marked to market daily then it'd be pretty correlated to S&P 500
if the permanent whole life has S&P exposure (therefore giving it the growth they're purporting), regardless of the guarantee, it's correlated
if the advisor didn't have data to back up their assumptions, I'd question it, otherwise it's just sales gobbledygook that they're trained to say
also look at the incentives, he makes a shitton of money from selling whole life (3-8%) and makes peanuts on the securities based LOC. if someone's pitching you hard, then the product doesn't stand on its own merits, and you should be immediately skeptical.
a good rebuttal is "ok, sounds good, tell me about the whole life policies you have for yourself"
So I asked the agent this same question that why not just buy term. The problem with term is that the money is basically wasted. When you hit your 50s, your term policy will start costin you like $15k-$20k a year, in the your 60s you are at $35K+ a year. All this money your just paying to get a $1M payout on death. However, with whole life I pay about $30K each year for 10 years, but that money is mine to keep plus i get the death benefit. I can withdraw and take it as a loan at anytime too. So with term if I live until 65, id be better of just getting whole life.
and my question is why do you need life insurance past that age? you likely don't, but your agent doesn't want to tell you this.
hopefully you've accumulated enough assets outside so your family's taken care of in the event of your untimely passing. the only reason could be payment of estate taxes, in which case an ILIT/2nd to die is the way to go.
my point is this - your goal should be to never need insurance beyond what you're forced to have (healthcare, car, home), life insurance just buys you time while you're in the accumulation stage.
if you've already got your mind made up, that's fine, but there's not a single example I've seen where someone's net of cost, after tax CAGR is superior with a permanent insurance product instead of a term + liquid investments approach. the other thing he's not telling you is what return the policy must get to be fully paid up in 10y. I've seen policies assuming a 12% IRR meaning if you get 8% IRR (historical average for S&P), that 10y of premium turns into 20y REAL QUICK.
finally, if you're trying to do a forced savings approach, do some estate tax planning if you have a taxable estate, fine, it has its purpose there. but too often I see insurance agents acting like permanent life policies are the best investment vehicle, when really it just pays them 3-6% commissions and locks you into something for a long time and they don't have any skin in the game after that.
I wouldn't recommend permanent life policies as an investment vehicle for any of my clients, and I have access to insurance products from dozens of carriers. it's an inferior solution nearly 100% of the time.
Does he work at Northwestern Mutual?
I have a small whole life policy, it basically works as a forced savings. Also, who has a savings account of more than 50k-100k I also have it so I can borrow from it to prove myself liquidity in a downturn, when I wouldn't want to liquidate assets to cover emergencies or purchase all the stocks.
and for anyone who doubts why life insurance agents love selling this shit, have a look here
https://www.nerdwallet.com/article/insurance/life-insurance-agent-commi…
so basically the first $30k premium check goes directly into the agent's next paycheck, does anyone still think he has your best interests in mind?
if he owns the policy personally, and if he's recommended it to his closest friends and family, maybe I'll bite, but this screams being sold something you may not need.
On a separate note, I don't trust insurance policies that have long-term obligations to the insurer (and benefits, of course, to the insured). You see this right now with long-term care insurance. A good many of the companies are unable to payout the obligations of their long-term care policies. I just wouldn't trust any entity--not even the U.S. federal gov't--with a 30+ year obligation.
spot on. this is the main issue I have with bill perkins' die with zero idea, assuming insurance companies will do their job. I'm currently on the receiving end of LTC premium increases that retiring advisors' clients bought 20y ago and your options are basically get fucked in the ass with a steel mace or get bit in the dick by a cobra
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