[Editor's Note: “Should you buy whole life insurance”? The short answer is, “Probably not.” If you're interested in the long answer, keep reading!]
In this post, I'm going to present an easy to use checklist you can go down when considering the purchase of any type of “permanent” or “cash-value” life insurance such as whole life, index universal life, or variable universal life insurance. Each of these types of insurance combines a death benefit that pays out whenever you die with an investment account of some type that acquires cash value. You can borrow the cash value tax-free but not interest-free throughout your life, and then when you die, whatever death benefit wasn't already borrowed out goes to your heirs.
These policies tend to be plagued with high fees, commissions, and insurance costs which reduce the return to investors. They are also dramatically oversold. For instance, ~80% of those who purchase whole life insurance policies surrender them prior to death. This is mostly because agents are highly motivated by big commissions to sell these policies inappropriately based on a number of myths.
Any time I talk about whole life insurance policies, I'm always very careful to qualify my statements, using terms such as “probably,” “almost surely,” “most people including doctors,” and similar. The careful reader notices that wiggle room, and then wonders if he may be one of the exceptions who might benefit from one of these policies. This checklist demonstrates those rare exceptions.
Questions to Ask Yourself Before Purchasing a Whole Life Policy
#1 Do You Have a NEED for a Permanent Death Benefit?
One example of this need is a particularly illiquid estate where a large percentage of the estate is tied up in small businesses, a family farm, or real estate that cannot be readily liquidated at death to pay any estate taxes due (be sure they're actually due, most doctors won't owe any federal estate taxes) or to be split up amongst the heirs.
Another example might be somebody who will never be financially independent but has a special needs child depending on his income. There are also a few business uses where it makes sense, such as insuring the lives of partners so that the other partners have the money to buy out their heirs upon the death of a partner.
Basically, you are asking yourself if you have some insurance need that can be covered with term life insurance at a reasonable cost. If so, you have no need for a permanent death benefit, and ought to really think twice before buying a permanent insurance policy.
#2 Do You Prefer Leaving Heirs a Guaranteed Amount Rather Than What Will Probably Be a Larger, But Not Guaranteed Amount?
As a general rule, and especially with whole life insurance and index universal life, there will be more money left to heirs simply by investing the money in tax-efficient stock index funds and real estate. Thanks to the step-up in basis at death, these investments are passed income tax-free to heirs just like life insurance. But if you die well before your life expectancy, the heirs would have received more with the life insurance. There is also the possibility that your investments will underperform the life insurance, but over long periods of time, this is very unlikely unless you die early.
#3 Do You Place a High Value on One of the “Side-Benefits” of Life Insurance?
Just like the death benefit isn't a free lunch, neither are any of the side benefits of cash value life insurance. These include pretty good asset protection in many states and the ability to “bank on yourself” (borrowing frequently from the policy to buy consumer items or investments.) But if you highly value them, it may be worth accepting the high costs and low returns of permanent life insurance.
#4 Can You Pay the Premium Annually?
Usually, you get a discount for purchasing a whole life insurance policy on an annual, rather than a monthly basis. However, even if you don't, this is still a good question to ask yourself. If coming up with the money to pay the premium annually is a big deal to you, then you are probably buying too large of a policy and ought to rethink it. For a typical doctor in mid-career who has decided he likes whole life insurance, coming up with a $10K annual premium should not be a big deal. However, coming up with a $100K annual premium is. That should be a tip-off that you're buying too much of this product.
#5 Do You Have Any Doubt Whatsoever That You Will Be Able to Make the Required Premiums?
Premium payments are due every year for decades, and sometimes until the day you die. Agents will often show rosy projections where the dividends from the policy may cover those payments after just a decade or two, but those dividends aren't free. If you're using dividends to pay premiums, the cash value and death benefit aren't growing as quickly as they otherwise would. Too many doctors discover after just a few years of making large premium payments that they no longer can or want to pay them. Then they are stuck with a difficult decision about what to do with the policy.
#6 Have You Consulted with a Professional Who Does Not Sell Insurance About Whether or Not You Should Buy This Policy?
Most of the purchasers of whole life insurance never talk to anyone about it other than the guy selling the insurance. A second opinion seems prudent before purchasing something that will cost you hundreds of thousands of dollars, no? Be sure there is no financial relationship between the two people advising you on this purchase.
#7 Have You Reviewed at Least 5 Policies of the Type You Are Interested in Purchasing?
How many houses did you look at before purchasing your residence? You will likely spend more on this policy than that house, so why are you only looking at one policy? Looking at multiple policies (preferably from multiple agents) will help you to see the downsides of each policy. They'll be very quick to point out the problems with “the other guy's policy.”
#8 If Purchasing Variable Universal Life Insurance, Are You Able to Purchase the Same Investments You Would Purchase Without the VUL?
Variable Universal Life insurance (VUL) policies basically put mutual funds inside a life insurance wrapper. If you would not purchase the equivalent of those funds outside the wrapper, don't purchase them inside the wrapper. Most VULs are filled with lousy investments. Combine that with the costs and commissions of insurance, and most of these policies end up being serious losers.
#9 If Purchasing Variable Universal Life Insurance, Are You Confident That Your Tax Savings Will Be More Than the Insurance Costs?
The reason most docs purchase VULs is as another retirement account. If they can get a VUL with solid investments, the real question to ask prior to purchase is whether the insurance costs or the tax costs will be higher. If you are not sophisticated enough to run the numbers on this decision yourself (or at the very least with the assistance of a trusted advisor with no financial conflict of interest,) you probably should not be purchasing the policy. Taxable accounts are a reasonable or even superior alternative most of the time.
#10 Have You Read the Entire Debunking the Myths of Whole Life Insurance Series?
The insurance agents who sell whole life are master salesmen. They receive a lot of training in sales and surprisingly little in finance. When considering a life insurance purchase, you should have a very different mindset from when you sit down with your CPA to review your taxes. It should be a bit more like the mindset you have when you are going to purchase a car at a dealership. The “Myths” series will demonstrate the arguments the agent will use to try to sell this policy to you. Understanding why they are myths will ensure that if you choose to buy a policy, you will buy the right policy for the right reason.
#11 Have You Maxed Out Your Tax-Advantaged Accounts?
Purchasing permanent life insurance prior to maximizing all of your tax-advantaged savings accounts is almost always a mistake. Most doctors (and even their advisors) aren't even aware of some of these accounts. It is idiotic to fund a VUL (and pay the associated insurance costs) as an extra “tax-free” retirement account when you haven't even maxed out a personal and spousal Roth IRA (which has no insurance costs.) These accounts definitely include the following:
- 401(k)
- 403(b)
- Profit-sharing plans
- Individual 401(k)
- Backdoor Roth IRAs
- HSA
- 457 Plans
- Defined Benefit/Cash Balance Plans
- 529 Plans or Education Savings Accounts
- UTMA/UGMA Accounts
If your insurance agent is suggesting you should purchase whole life insurance INSTEAD of using most or all of these accounts, that should raise a huge red flag in your mind.
#12 Is the Whole Life Insurance Policy Set Up in the Best Way to Reach Your Goals for the Policy?
These policies can be set up in many different ways. Policies set up to maximize the death benefit, to maximize the return on the cash value, or to facilitate frequent borrowing from the policy are all designed differently. While you can use any policy for all of these needs, it is going to be less than ideal unless used for its intended purpose. Unfortunately, most policies are set up to maximize the commission to the agent, rather than to maximize ANY benefit to you.
I decided to put together a flow chart to help you with your decision. It ended up being pretty complicated, just like these policies. Click on it to enlarge.
What do you think? Do you think this decision is this complicated? Agree with my reasoning? Disagree? Did you buy a whole life insurance policy? Are you happy you did? Sound off in the comments section!
Bad deal if you ask me. If one invested the money in a tax efficient index fund like the vanguard total stock then at little over 7% rate this would be near 1.2 million dollars in 30 years (about the time someone might say is appropriate to expect death). Round down to 1 million which ALSO would be INCOME tax free. Neither is free of estate taxes if that applied. If one believes we will be in a low interest rate environment indefinitely then you might want to see what happened in Japan to insurance companies and how “risk free” that really is. Then you have to also consider you could have accessed this money any time before death if wanted. Your kids dont have to hope you die soon to get their money. No lapse gUL typically has low cash surrender values.
Agreed. Yes that GUL illustration has almost no cash value. I guess it could serve the purpose for someone with a low life-expectancy (family history).
They change the rate in that case. They are pretty good at predicting those things and become more and more strict on criteria the older you get. If for some strange reason you had very strong suspicion that they rated you much better than what you really are (without lying/fraud) then maybe worth the gamble.
The surrender value is usually zero.
Keep in mind that cash values are a cash alternative (CDs & money market accounts are also considered cash alternatives). If you are considering these as alternative assets to equities, please don’t. Cash values and their growth rate is only to be compared to cash. Don’t compare cash values to bonds either. It’s not the same. It would be like comparing the flu and strep throat. They both suck but they aren’t the same thing and the comparison is meaningless. It’s in this way that White Coat Investor is so fundamentally flawed in his logic.
If you are the type of person who likes to keep $500k – $2M in cash – and are unwilling to invest in equities – you are categorically better off in a heavily overfunded life insurance contract every day of every week. Don’t buy an all base contract, the commissions are too high. (I’m a CFP who mostly deals in fee-based accounts composed of individual securities and index funds so don’t scoff at this…you docs are the most scared demo in the market…there’s a lot of cash on your balance sheets and it’s doing nothing to earn interest since the financial crisis)
Listening to this ‘White Coat Investor’ may be a bit silly. Banks, hedge funds, endowments and large corporations invest heavily in whole life insurance because they like to keep cash on their balance sheets and cash in a life insurance contract grows faster than cash in a checking account, money market account, CD, etc. White Coat Investor is to financial planning what chiropractors are to the practice of curing cancer. Tangential knowledge and a few clever anecdotes don’t represent the knowledge needed to give comprehensive advice.
Just remember, your equities are your equities. Your cash is your cash. If you like to keep a lot of cash on hand, a heavily overfunded life insurance contract is great place to position cash.
Finally, I will agree that a passively managed ETF/index fund driven portfolio with rigorous rebalancing is the most appropriate place for the majority of your investable assets. However, if you are that guy sitting on $500k of cash for the last 10 years, and you are looking smuggly at this article, you are that patient who thinks that vaccines cause autism.
That is the most bizarre set of medical analogies yet from a whole life fan. Congratulations.
At any rate, I agree that the returns of cash value life insurance do not compare favorably to equities. I also agree that if your alternative for millions of dollars is to leave it in cash for decades that you may very well come out ahead using whole life insurance.
I also agree that if you’re going to buy one, you should use PUA to improve returns.
The argument about banks/hedge funds/corporations/endowments etc is a classic one I’ve debunked in the myths series.
The issue with the “this is better than cash” argument is I don’t think you should hold long-term money in cash. Both doing that and buying WLI are likely mistakes for your long-term money.
Regarding your myths series, you don’t quite address the issue I brought up. The Tier One capital info you give is only partially accurate. You ask why banks don’t put all their Tier One capital into whole life insurance. There is a regulatory framework for how much of the Tier One capital can be allocated to insurance and they typically max out the allowable amount.
Hedge funds, endowments, etc. do use permanent life insurance as a repository for cash due to the higher rate of return on cash and the tax advantages.
I’m not a bank, a hedge fund, or an endowment. Are you?
WCI,
I like buy term and invest the difference, it seems to work for most people and as a new resident that’s where I plan to begin. After a colleague told me about this website it seems more like a marketing website for term insurance with all the “sponsors” on the right side.
Good luck to everyone and let’s hope all this advice works in the long run.
That’s the first time I’ve been accused of being a marketing engine for term, but if that’s the biggest complaint about the site I’ll take it! Obviously, it would have paid a lot better to be a marketing machine for permanent insurance.
WCI,
I don’t know, Term is what most people seem to buy so i’m assuming it’s pretty good to be a marketing engine for that.
All the best!
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my comment is very specific. I am a owner of whole life and am very happy. I have a life insurance policy called high yield early cash value. My advisor is dropping off all the riders in a 7 year span to continue the internal rate of growth. so my 2 million dollar policy today will only be 1.2 million in 7 years. In fact, I am using it as one of my 7 sources of permanent income. I put money into the account for 7 years and then stop. it has a minimum growth rate for the last 30 years of 6.5% tax free. That is equivalent to 9.5% growth rate on my 401K before I have to pay taxes. I am not making 9.5 % growth on my 401K year in and year out. In fact, in todays volatility of the stock market I am doing rather poorly. There is predicted at least a 20% correction in 2019. We have had one of the longest bull markets in 100 year history.
I am in the highest tax bracket and fully intend on being in the highest tax bracket when I retire. That brings me to #2. It provides me tax free income in retirement to try to hold down my taxable income. I plan on tapping into the the growth income 17 years after starting the policy.
While I agree that there are many types of whole life policies, this one provides income and leaves a small amount for my heirs. Like your other commentors, many bankers, trust fund baby’s, etc… use this type of vehicle as part of their income strategy to avoid taxation. It is going to do as well as the stock market average of 8%. Where am I going wrong in this thinking?
I’m sorry. While I’m very happy that you like your policy, you’re mistaken if you think that 6.5% tax-free is the equivalent of 9.5% in a 401(k). You see, you’ve forgotten to include the value of the tax deduction when you put the money in the 401(k), not to mention the arbitrage between putting money in during your peak earnings years and taking it out, filling the brackets as you go, in retirement years. The tax advantages of whole life pale in comparison to those available in a tax-deferred retirement account.
Maybe the best way to think about this is to run the numbers. Let’s say your marginal tax rate is 50%. So you can either have $100K to put in a 401(k), or $50K in a whole life policy. Now, let’s actually assume you get 6.5% on that whole policy. That’s a little too optimistic honestly, but I’ll give it to you to demonstrate my point. So your $100K 401(k) grows at 9.5% for 30 years and your $50K whole life policy grows at 6.5% for 30 years. After 30 years, the 401(k) is worth $1,522,031 and your whole life policy is worth $330,718. Even if you now pay 50% on that 401(k) (which means you have enough other taxable income, AFTER all your deductions such that ALL of your 401(k) withdrawals are taken out in the top bracket), you still have twice as much money AND you don’t have to pay interest to access it.
Also, your “tax-free income” may be tax-free, but it isn’t interest free.
That said, if you’re in the highest bracket now and will be in the highest bracket later, and you actually want whole life insurance, knock yourself out. You can certainly afford it. And it sounds like you probably bought a decent policy rather than the type typically sold to doctors. But it’s not quite as good as you think it is. Sorry to be the bearer of bad news. And if your “advisor” sold it to you, he’s not an advisor, but a commissioned salesman. You probably ought to seek a second opinion about the advice you’re getting there.
Hope that helps.
I am not here to joust but am here definitely to point out that a multiprong approach is best in retirement. I bought my whole life policy at 48 years old. I will hold the policy for 17 years while not contributing a dime to it after 7 years. It is a Mass Mutual policy which if you actually look at ALL historical data has NEVER made less than 6.5% if done properly.
Your assumption that you earn 9.5% in the market (401K) annually is also living in fair tale land. I have invested in the market (401K) since the year 2000. And from 2000 to 2015 my 401k averaged 5%( there was a mighty crash in 2008). Your other assumption which is wrong is that I pay interest on the money I take back out of the WL. I do not.
I don’t think it is fair to take such a hard line against this investment vehicle given real world numbers versus mathematical computations. I have maxed out my 401K for the last 10 years. This is a opportunity to gain perpetual tax free money in retirement allowing me to take less of the 401k there by allowing me to lower my tax bracket in retirement.
I never said that whole life should be your first line of retirement money. But it is certainly safer than watching your 401k go up 20% in 1 year and watching it dip 60% the next year. The closer to retirement I get, the more anxious I feel about the wallstreet casino. It hasn’t stopped me from maximizing the 401k but I am also looking for safer investments that will produce. BTW, I don’t pay interest on the withdrawals like you suggested. I suggest you take a deeper dive into the specific policy I am referring to. You may like what you see.
The patient needs surgery and there is more than one surgery that can be done. if we all believe is that there is only one right answer, many patients will be harmed. I learned that not from residency but after working our beloved profession for the last 20 years at 60-70 hours a week.
What your was your return your first year? What did you pay in premiums and what was the cash value? I’ll bet it wasn’t 6.5% greater than what you paid. You are misunderstanding the differences between the dividend and the return. They’re not the same. The fact that you don’t know that basically tells me you don’t understand what you bought. That doesn’t mean it isn’t fine. That doesn’t mean once you understand it you won’t still want it. But it does mean that nobody should take your advice on the matter.
As noted earlier, you’re going to be fine either way. You’ve done such a good job earning and saving that it doesn’t matter that part of your portfolio is invested in a low return asset you don’t seem to understand well. Certainly the return on it is better than a corvette and a new pool.
I don’t view it as a “hard line.” If you understand how whole life works and still want it, buy all you like. I don’t get paid more if you buy or don’t buy. I don’t have a horse in the race. But I am sick of hearing from doctors who bought it without realizing what they own and now realize it was a costly mistake for them. So I try to teach them what they own. Your comments demonstrate well why this is so important. Two key points that you seem to have missed:
1) The dividend rate is not the rate of return
2) You can borrow against anything tax free- your house, your car, your investment portfolio, and your whole life policy. None of it is interest free. There’s nothing special there about whole life in that regard.
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Preparing for your future is best when all avenues of revenue are taken into account. After risk free cash, there are other ways to create risk free income streams for later in life. Think of all investing as a tool belt. There are all kinds of tools on that belt. Annuities (which I don’t like but I certainly see the value in them) and High Cash Value WL are two of a select few ways to fund this part of your future.
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I agree that WL is not appropriate for those who havent maxed out their savings vehicles (401, etc), have trouble affording the premiums and not being in it for basically life, etc. That said, I have owned my WL policy thru Guardian (a mutual company) since 2001. I aggressively overfunded it with PUAs the first 4-5 years and it has done well for me. I dont think it would have without doing that. By the time I plan on retiring/slowing down and stopping premium payments (I could stop now as it could be self funding), I should be able to fund the policy, have it still grow cash value, and pay me about $100K per yr. I am fortunate and have done well in my career so have other investments in stocks/bonds and we own our valuable medical office space.
I think it is a good place for long term cash for those of us who are more risk averse. Assumptions of the stock market are dicey with todays high frequency trading, algos and a generally rigged system. Real estate always sounds great on paper but can be very risky and fraught with headaches especially if you are an idiot doctor who thinks it should be much easier than medicine.
Thus I look at my policy as a (solid) piece of the retirement puzzle to include my home, my office, stocks/bonds. PUAs are essential. The caveats outlined in this thread here are valid.
Super happy to see someone who knew what they were buying before buying it and are happy with it.
My question for Antonio is regarding his comment about perpetual tax free income from his policy. My understanding with WL is that your policy cash grows tax deferred but once withdrawals start, those withdrawals are tax free up to the policy holders cost basis. Thus if you paid $1M in premium over the life of the policy, you can withdraw up to that amount. Anything over that I believe is taxed as ordinary income. Perhaps I am wrong but I don’t know if that mass mutual policy is somehow different.
What’s typically done is borrow against the policy, but yes, gains are taxed at ordinary income rates.
Not quite true. If you take gains over cost basis without adjusting down the underlying amount of base life insurance then there are taxes generated but nobody does this. Agent that structured it makes sure that the corresponding withdrawal is done to achieve that. If he doesn’t then he is the wrong agent and you can sub in a new agent that will do it right.
It has to be structured right while you fund it AND done right when you take money out.
And this is the whole purpose of it .. to take money out. So if the LISR and the ALIR riders added enough term-to-permanent insurance then if you do exceed your cost basis you have a lot of insurance there to gradually reduce.
Mike
In full disclosure, I asked my evil friend who also is my financial advisor. his response is below.
Realize from one of my original posts, retiring is a “multi prong approach” at least for me. I know that I cannot survive on my 401K contributions alone. I am looking for multiple streams of income and hopefully some tax free to be able to lower my tax rate in retirement. My WL policy was never for its death benefit.
With a Non-MEC policy, disbursements can occur in two methods, a withdrawal to basis or policy loan. Both will be tax free.
The short answer is the disbursements on both methods will be tax free as long as 1) the policy is not a MEC and 2) it never lapse
In your question, apparently you are describing a withdrawal to basis and that is accurate for that method.
The policy loan method is a loan on the policy that ultimately will be paid back from the death benefit, unless you choose to repay it. Because the death benefit is always income tax free, the disbursement will be tax free.
When you choose to take a disbursement, you can select which method will work best for you at that time in your life.
This comment is more for those reading yours than for you.
You’re presenting a bit of a false dichotomy. “I can’t retire on a 401(k) alone so I had to buy whole life.” No, you could have bought index funds in a taxable account, real estate, funded a Backdoor Roth IRA etc.
Now if you understand how whole life insurance works (which it sounds like you do) and you are okay with the downsides and still want it (which it sounds like you do), knock yourself out. But “I can’t retire on just my 401(k)” isn’t a good reason to buy it.
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Your hard line against WL saved me early on. I was duped by a well-spoken salesman just out of fellowship. It took only 3 months (and finding your website) to cancel the plan, as I was spending way too much and it was completely the wrong investment. I still had school loans to pay!
Fast forward 5 years where all my loans were gone and I was maxing out all of my other investments. My real financial planner (not a salesman this time) recommended adding a smaller VUL policy as a liability-protected tax-free withdrawal supplement to my retirement vehicles. For an ob/gyn, the liability protection is key.
So I think that permanent policies may have a role to play for physicians with terrible liability exposure who are several years out and already maxing out all other investment options. But certainly most of us are approached with inappropriate policies too early on for the wrong reasons.
If you’re buying it for the asset protection benefit, make sure your state actually protects the cash value from creditors and be good with trading a lower return for that benefit.
This is a great and well thought out post, however I believe it over looked a major feature that a policy such as whole life offers people.
Rather than writing a long drawn out post, for those who are interested you can find the answer in my book. Don’t worry, it is available at no cost at [my website]
Be great!
I am always surprised how much heat these insurance posts can generate. Good thing is sheds so much light!
I would just have condensed this article into one line. Don’t buy it.
That’s good enough for some people, but others want a more full explanation.
If you get through this article and still wish to purchase some whole life insurance (NOT a course of action I am advocating), take a look at a policy with a limited period of payments – one type might be referred to as a “10 Pay”. Such a policy, will be completely paid up after 10 years of payments. This might be a way to “stick your toe in the water”, and if your circumstances change or the purchase turns out to be a mistake after all, then at least there is an endpoint that might be more palatable than outright cancellation.
https://www.whitecoatinvestor.com/friday-qa-what-about-10-pay-whole-life-insurance/
Fascinating heated debate about life insurance.
A few points:
The fact that many term policies lapse does not even mean that the owners no longer needed insurance. It certainly does not mean that they still needed insurance but stopped paying and left their loved ones at risk. During the time when I needed life insurance I let term policies lapse regularly. Mortality experience for life insurance companies had been improving for decades and premiums on new policies were dropping. I would buy a term policy, then shop again after a few years. I found that I could buy a new policy, same death benefit, at several years older and still pay a lower premium. So of course I went with the cheaper policy, letting the older higher cost policy lapse.
I bought annual renewable term. Although the insurance companies could have raised premiums above the illustrated rates, they never did. I suppose the dropping prices on new policies restrained them from upping the cost on existing policies. Do that and those customers who were still insurable would jump ship. In effect I was betting that the risk of rate increases was worth taking versus overpaying for the early years using a 20 year level product. Since I was not expecting to hold the policy for anything like 20 years, I would never benefit from the level premiums in the later years.
Bank on yourself:
It can make perfect sense to borrow money rather than make taxable liquidations of assets to support spending.
But you don’t need an insurance company to do this. Put the extra cost of the whole life policy in a taxable account and years later you have assets on which your broker would be happy to issue margin loans. Yes, you have to pay the interest, but this is economically the same thing as telling the insurance company to lend you the interest payments. You just increase your borrowing to cover the interest. You can keep this up as long as your assets are enough to meet margin requirements.
Invest conservatively and keep your total borrowing limited compared to assets and you minimize the risk of margin calls. Loans are of course tax free. Doing this you continue to bank on yourself, but you escape the drag of mortality costs and other expenses for life insurance.
Asset protection. The brokerage account would not have asset protection unless you live in an asset protection state and create a domestic asset protection trust. Doing that costs some money, one would have to compare to the cost of the life insurance.
Even if your life insurance cash value is protected in the sense that the court could not simply take it like a brokerage account in your name, that does not mean it is safe. If the jury issues a judgment above malpractice policy limits that you cannot meet from your exposed assets, you may have limited options. You could borrow the money from somewhere else, take on another mortgage (assuming they did not get your house) or use the “exempt” assets in the life insurance cash value. I assume this would be part of the negotiations to try to get the plaintiff to accept the policy limits or something not too much greater.
If you need permanent life insurance for estate planning or to fund buy sell agreements, it is worth comparing plain vanilla universal life to whole life. They can be made to function quite similarly but the UL remains more flexible as circumstances change.
I’m not even sure where to begin. There are so many inaccurate statements. I will just address a few of them.
The industry has never had a death benefit check returned. So apparently the benefit is of value. Additionally less then 2% of term policies ever pay a death benefit. In my opinion term is the expensive choice.
Legacy…often people over consume during their lives. Evrn at older ages debt still exists.
Thjs country has long had a terrible savings rate. A tax free legacy isn’t a bad thing.
If you can’t pay monthly or annually the premium is too much. The mode isn’t the issue.
Unless the applicant is a sick old smoker…the ultimate tax savings are less then insurance costs (VUL).
Often high income clients have maxed out the ability to contribute to qualified plans.
There are policies that excelarate the cash build up.
Many really successful people are taking advantage of the advantages of cash value permanent life insurance.
I assure you they’ve been smiling alot lately
Interesting when I type your name up Google autocompletes it as “Ron Dickstein New York Life.”
I don’t expect you to agree with me about the problems with whole life. You see, you’re not the target audience of this blog, you’re its subject.
That’s a silly argument. “Term usually doesn’t pay out so don’t buy it.” Give me a break. You’d think an agent would understand this concept but apparently not. Guess what? It costs a lot more to provide a benefit that pays out to everyone than one that only pays out to 2% of people. That’s why term is so much cheaper. Since insurance is on average a losing proposition, you shouldn’t buy more than you need. Since almost no one needs a death benefit when they keel over at 95, you shouldn’t buy a policy that provides that.
People that can’t save money don’t magically change when they are sold an ill-advised whole life policy. They’re the folks who cash it out before death anyway. There’s still no legacy and what is left behind may not even cover their debts.
You can always save in taxable and it’s entirely possible to invest VERY tax efficiently there. No need to buy a dumb insurance policy just because you maxed out your retirement accounts. Somehow I seem to be able to invest 7 figures every year without any whole life policy. Weird huh?
Yes, there are better designed policies, but they’re still not great and surprisingly infrequently sold.
Many people are sold policies they don’t actually want once they find out how they work. If they do understand them and still want them, I’m all for it.
Other than “life” insurance there is no other insurance coverage that provides a cash value benefit. Why? It’s cost prohibitive. Property/Casualty insurance is purchased only to cover a need—when the need is no longer present the insurance is cancelled—“life” insurance should be bought the same way—when a young couple is first married they should have lots of life insurance and the type they should have is Term not WL. Why? They do not need WL because they are growing their investments (retirement accounts, etc.). Moreover, they cannot afford the needed amount of WL—and even if they could afford the premium it would be a very, very poor substitute to buying Term and investing the difference. As the couple ages and their investments grow they are in a position to reduce their Term coverage to zero.
I did exactly this and when I formally retired at age 58 I cancelled by Term Life Insurance—–I have never looked back.