By Dr. Jim Dahle, WCI Founder
I recently wrote about how whole life insurance is a crappy way to get a permanent death benefit or decent investment returns. In recent years, there has been a push to use a whole life insurance policy for a different reason- for “banking.” It has been popularized as the “Infinite Banking Concept” or “Bank On Yourself.” There is a great deal of marketing and hype involved, and even some scams, but the basic scheme itself is pretty interesting.
Bank On Yourself by Using Life Insurance Policy
Instead of borrowing money from a bank to buy your next car or other large expense, you borrow it from your life insurance policy. You can pay it back whenever you like. But you actually never have to pay it back if you don't want to. Even for those, like me, who say “I don't borrow to buy cars, I just save up the money,” advocates like to point out that you may be able to save up the money more profitably inside the life insurance policy than inside the bank account (especially given current interest rates.) They say it's like getting interest free loans with an added death benefit.
Non-Direct Recognition
The key to making this all work is to get a “non-direct recognition” whole life policy. With a “direct recognition” policy, when you borrow money from your policy the insurance company first subtracts the amount of the loan from the cash value, then calculates the dividend on the lesser amount. With an “indirect-recognition” policy, the insurance company doesn't. Cool huh. If you have $100K in there, they'll let you borrow about $90K, but still pay you dividends as though there were $100K in the policy.
Paid Up Additions
The problem with most whole life insurance policies is that it takes forever to get any decent cash value in there. For example, a policy provided to me by a WCI life insurance agent as the “best” $1 Million non-recognition policy he could find [MassMutual Whole Life Legacy 100] for a healthy 30 year old male in New York, demonstrates that the cash value doesn't equal the premiums paid until year 12. I'll need another car before then! That's a pretty lousy way to “bank.” So we have to figure out a way to get the cash into the policy sooner.The way you do this is with Paid Up Additions, meaning you dump more than you have to into the policy, ostensibly because you want a higher death benefit, but in reality because you want more cash growing in the policy so you can “bank” with it.
Borrowing Money from Life Insurance Policy
After 3 or 4 years of paying premiums and buying healthy paid up additions, you've got a tidy sum of money in the contract. Now you can borrow it tax-free at a certain interest rate, say 5%. Now that 5% doesn't go toward your cash value, it goes to the insurance company, but since this is a non-direct recognition policy, the insurance company is still paying dividends, say 5%, on the money you borrowed, so it's a wash to you. You've got yourself an interest free loan. Kind of cool huh. Of course, borrowing money from your bank account is also an interest free loan, but proponents of Bank on Yourself like to point out your bank account isn't paying 5% interest. If you kick the bucket during this process, your heirs still get the death benefit (minus the loan amount of course). The insurance company doesn't guarantee death benefit increases each year, but they generally do.
Tax and Asset Protection Benefits
Insurance policies have four main tax benefits. First, you can borrow from the policy tax-free. You have to pay interest on it, but you don't have to pay taxes on it. That's of course no different than “borrowing” from your bank account or from the bank itself, but it is different from cashing out of an investment with capital gains. Second, money compounds in a tax-free manner within the policy; there's no annual capital gains or dividend taxes on growth. Third, the death benefit is income tax-free to your heirs. Fourth, if you cash out, your basis is determined by the entire premiums paid, not just the portion that went to “the investment part.”
In many states, cash value in your insurance policy is protected from creditors up to a certain amount. Those of us constantly concerned about being sued see that as a benefit. The money isn't FDIC insured like a bank account, but states generally guarantee up to a certain amount from insurance company insolvency.
The Downsides of Using Life Insurance to Bank On Yourself
You can understand why at this point people are often pretty excited about this whole concept. Higher banking returns and tax-free growth all combined with a “free” death benefit. There's got to be a catch, right? Of course there is. Let's talk about catches.
The “Load”
When you put $10K into your bank account, the next morning there's $10K there. When you pay a premium into a life insurance policy or buy a PUA, the whole premium doesn't go into the policy. Like with a loaded mutual fund, a small percentage of that money goes toward the costs of the policy and toward the commission of the salesman. If the policy is paying 5% a year, and the “load” is 10%, it'll take 2 years just to break even.
Loan Rate vs Interest Rate on Whole Life Insurance
In my scenario above, I used 5% for both the loan rate and the interest rate. It's quite possible that the dividend rate can be higher than the loan rate or vice versa. Obviously borrowing at 5% and earning 2% is a losing proposition. In the policy discussed above the loan rate is variable, currently set at 4%. The current dividend rate is below 6%. It's easy to envision a scenario where those numbers reverse.
You Still Have to Pay the Life Insurance Premiums
MEC Calculations Are Complicated
The point at which the contract becomes an MEC is influenced by the amount borrowed and the current dividend rate. With all these moving parts, it's not that hard to accidentally make the proceeds of your policy taxable. The insurance company and agent are supposed to ensure this doesn't happen, but there may be times when you may be required to unexpectedly pay back a loan or contribute more money into the policy to prevent it.
Source of Funds
You have to take the money from somewhere in order to dump it into a life insurance policy. Proponents often recommend pulling it out of your 401K, IRA, house (via refinancing or a home equity loan) etc. When it's pointed out that there are serious opportunity costs, interest costs, or tax costs to doing this, they finally settle down to “put your emergency fund and/or short term savings in it.” But for a doctor, how much money is that really? $10-50K? Maybe $100K if you're doing really well? Making an extra 4% on $20K is only $800 a year. Not exactly the difference between poverty and financial bliss for a doctor. It especially bothers me to see people recommending you stop contributing to a retirement account that provides tax protection, asset protection, and solid returns in order to buy more life insurance, that has nowhere near the same tax benefits, asset protection, or estate planning benefits. Risking your house to invest in life insurance seems even more stupid.
Takes Time to Get Money from Life Insurance Policy
Loans from an insurance policy are a bit less liquid than what I think an emergency fund should be. I've never borrowed from one, but I understand it's a matter of days to weeks to get your money from the company. That's not the place for an emergency fund. Perhaps if you know a big purchase is coming a few weeks early it could work.
Additional Complexity Borrowing from Life Insurance Policy
Everywhere else in the financial world additional layers of complexity favor salesmen and the companies they represent. Why would this be any different? In fact, as you search the internet, you quickly realize that any discussion of these comments quickly breaks down into the proponents who suggest you need their expertise to understand it, and the detractors, who don't seem to completely understand it. I couldn't find anything anywhere that seemed to be a straightforward, unbiased analysis. The sales methods and opaque nature all screams “SCAM” to me. That doesn't necessarily mean it is, but as a general rule good financial products are bought, not sold. If an extensive sales process is required, or if I can't explain it to my wife in less than 2 minutes, I try not to have anything to do with it. There's a lot of people in this world smarter than the average insurance agent and it doesn't seem to me that very many of them are banking on themselves. I can't believe it's simply a matter of bias or the word simply “not getting out.” Good ideas don't stay hidden long.
Purpose
The books and websites that most push this concept like to talk about buying cars, as if saving up to buy a car vs taking out a car loan is the biggest financial concern in the world. Most doctors can buy a decent used car out of last month's paycheck. Maybe save up for 3 months if you want a new one. You've got to think about what you're actually going to borrow money for. If you're going to borrow it to pay off credit cards, don't you think it might be smarter to pay off credit cards at a guaranteed “investment” rate of 15-30% than to buy a whole life policy? When is the last time you went car shopping? All the signs and ads I see are advertising 0% APR car loans. Why bother dealing with an insurance policy when the car dealer will give you 0% right now? A mortgage? Why pay “myself” 5% when I can pay a bank a tax-deductible 2.75%? It just doesn't pass the sniff test. I don't really finance much anyway, why do I need a “new, innovative” way to do so?
Ongoing Interest Payments on Life Insurance Loan
Let's say you want to take some money out of the policy and NOT pay it back. You still have to make the interest payments each year. My goal is to minimize my fixed expenses, especially the closer I get to retirement. If you don't make enough payments, not only does the policy risk collapsing, but that death benefit starts decreasing too.
I'm obviously not running down to the local whole life salesman to start banking on myself. I don't think you'll benefit much from it either. In my opinion, the downsides outweigh some significant positives. You're better off not mixing investing and insurance.
What do you think? Do you have a whole life policy you use for “banking?” Do you still feel like it's a good idea? Comment below.
It’s my 5 year anniversary on my policy. I commented last year at message #104, on July 5, 2015. I figured it is a good time to see where we are in terms of premiums put in versus cash value accumulated to see where this is from an “investment” perspective. Also, I think it helps for people to see a “real-world” policy in action and what has been happening versus theoretical. I am sharing this for educational purposes. Let me put this in perspective as I have said in other comments: This is not my only investment. I have used this for diversification purposes, the fixed income portion of my portfolio. I think of it as a supercharged savings bond – one that has a much higher guaranteed interest rate, a variable dividend kicker, and the ability to take policy loans out via non-direct recognition (which I have not needed to do but plan on doing for cash flow consumption later in life).
What I will provide is not the exact numbers of my policies, but percentages. For example, if the maximum premium of my base WL policy + Term Rider + PUAs is $10,000 and I only put in $3500 that year, I will say 35% invested. So, let’s what the numbers show and I’ll throw some comments in after:
Year 1 – 100% invested – 81.52% cash value available (CVA)
Year 2 – 100% invested – 90.875% CVA
Year 3 – 100% invested – 95.09% CVA
Year 4 – 50% invested – 98.46% CVA
Year 5 – 90% invested – 101.39% CVA
So I have hit the sweet point. The point where money put into the policy now hits the cash available to take as a policy loan. The question is: What will I do moving forward? A couple of scattered thoughts.
I have joined a business networking group. One of the insurance agents asked if I had any life insurance and I mentioned I have term and a WL policy that is maximizing cash value. He asked which company and I told him. His response was that although it is not one of the big 3, it is a well-respected, conservative company to be with. (+1) I told him I would show him the policy if he was interested, knowing I was not going to change course, but for my own curiosity to see if I got a fair deal.
When I saw him 2 days later, his exact words were this is “solid.” He has never seen a policy written like this before, but it was well-designed with the customer in mind for maximum cash value and maximum flexibility for the customer. He would not change a thing, had great respect for the agent that did write the policy for me, and would continue to fund this up to the MEC line if this were his policy (another +1).
Last year, I mentioned I was going to decrease year by year my amount invested. Seeing that the markets are so hot and I can’t find value anywhere (even with the Brexit drama), I will be putting 90% again in for Year 6. The reason goes back to the compounding aspect. With the dividend/crediting rate being around 5%, I don’t have anywhere else to go with that guarantee. Maybe it feels too much of a safe haven, but right now, the market has been fully valued, bordering on overvalued for a good 18 months. And forget about real estate around me – that has been on a tear worse than the market.
The other reason I have for still putting in more than I was expecting to last year at this time is because the insurance company has changed the rules. I spoke with MY insurance agent about various issues around the policy and the company itself. As for the company itself, the government (IRS) came in and pretty much told them that each insurance company is allowed to interpret the rules around MEC as they want. However, you have been interpreting the rules so aggressively that you are the outlier from the rest of the industry. Come back to the pack so we don’t have to slap your hand. So they did. Even if my agent wanted to write another policy exactly like mine for anyone, he can’t. The computers won’t allow him to do it the exact same way. It is still one of 3 companies he likes doing WL policies with, but it can’t be as forgiving as it is now. So my thought is to invest up to the MEC line, whatever that may be, because I may have literally tapped out the policy, and then have a compounding machine I don’t touch again.
The other thing I asked my agent about was IULs. It is a totally different engine to the policy (a WL base vs an annual renewable term), but if you were to do a policy on your child, which would you do? My thought is the IUL because the extra 1-2% risk premium (anticipated 7% growth of the market over 60-70 years vs the 5% current dividend rate for WL) would more than make up for the renewable term aspect of that policy because the start of the insurance at this age for a minor is so little. He understood where I was going with the thought process, but would still have a WL policy as a hedge, as that guarantee. The fear is that future policy loans with the high cost of term insurance in later years could collapse the policy versus the more “known premium” of WL.
So that’s where I’m at. I hope this was helpful again and I plan on giving the annual update. And as I state again – this works for me and my estate plan. I know why I purchased it and where it fits into my life. If you want to understand where the thrust of my investing focus is, I am the co-creator of an investing podcast. It’s called the Dividend Health Checkup. You can find it on iTunes and Soundcloud. No ads or sponsors (yet, maybe one day).
5 years to break even is very good for a whole life policy. But keep in mind that when you account for inflation, or heaven forbid the time value of money if you had invested it in something riskier like stocks or real estate, you’re still behind after half a decade. But it does look better from here than the last five years.
And WCI, that’s the point. You mention “something riskier.” I wanted something “safer” that could grow. If it grows with inflation, that’s fine because taken out as policy loans, it will be a tax-free income stream for me. Being credited at 5% right now is huge and way beyond my expectations. I was hoping over my life that this would compound around 4%, 4.5% if I’m lucky. For this to be my fixed allocation and grow anywhere in that 4-5% is exactly what I expected this policy to do, to offset the riskier side of stock investing or real estate or starting other businesses.
I’m glad you’re happy with it.
Remember you’re still not at a 4% return overall and will not be for some time yet, even if it keeps crediting at 5%.
WCI:
Totally agree, but the obvious sunken costs are out of the way. Glad we could have the open discussion and just banter about the positive and negative.
There was one other thing. I was speaking to a different agent that does work for one the Big 3 and mentioned to him it’s the black box of expenses that drives someone like me nuts because I want to have at least a rough idea of what the annual expenses are. He said, if it’s designed well, a WL policy will end up having expenses about 1.7-1.8% per year over the lifetime costs. It’s obviously weighted heavier at the beginning, but when held for life, under 2%, which is what I was guessing. I know it’s not Vanguard, but there are a large handful of mutual funds that are worse than that.
I’ve seen estimates as low as 1% when spread out over 50-60 years. That might have been a VUL, and not sure if those are cheaper or not. I would guess not.
The other issue is very few people have done what you have done-i.e. buy a reasonably well-designed policy that they actually want. Most people just have one sold to them that they didn’t actually want or need.
I’ve seen some IULs get down to that over their lifetime. I personally wouldn’t do a VUL or a UL because you have all the downside risk in the market. No cap either way.
We are digressing here. I just wanted the info out there so people can be informed.
Most of the time I would argue “savings/investing is not about how much you earn, but about how much you get to keep,” but I pose this question: If we all agree the net return over the life of a whole-life contract is 2% and the lifetime return from the Dow is around 9% (which in reality does not equate to a 9% dollar for dollar increase each year but we can discuss at another time), why not have your assets grow at 11% by combining the two vehicles?
I think you’re struggling with how the math works. If you borrow on a policy that pays 5% dividends and it costs you 5%, that’s a net zero. If you use that borrowed money in an investment paying 9%, that’s 9%, not 14%.
My example used “net” interest rates. If you borrow on a policy that pays 6% dividends and it costs you 4%, that’s a net 2%. If you use that borrowed money in an investment paying 9%, that’s 11%.
I suppose if you had a non-direct recognition policy that allowed you to borrow at a rate lower than the dividend rate on the policy, then you could add the returns, at least before fees and taxes. The ones I’ve seen are generally no better than a wash rate, and often worse. In fact, one of the worst places for many WL policy holders to borrow is their policy! They can get a mortgage at 3%, a HELOC at 4%, a car loan at 2%, or a WL loan at 8%! WTH?
You agree that a participating nondirect recognition policy with an interest rate of 4.4% and a dividend rate of 5.4%, that allows access to CV(~50% of premium) Day 1, guarantees to return to you every dollar you contribute, provides tax-free income, income tax mitigation, creditor protection, no market exposure and the ability to earn interest on your living expenses mitigating the opportunity cost of living is a good deal?
Seems like a decent explanation but, if it does take more than two minutes to read the above statement, I can offer another.
You’re obfuscating the rate of return by tossing out “interest rates” and “dividend rates.” Send me the illustration, I’ll calculate the return for you since that seems hard for you to do, and then a fair comparison can be made.
In addition “income tax mitigation” is one of those terms that, while technically accurate, isn’t as impressive as someone who doesn’t really understand how this works thinks it is.
As I’ve said, if you understand how it works and want it, buy as much as you like. But the devil is in the details.
Interest and dividend rates are the current rates of our Ohio National policies. Public information you can gather on their website. However, rate of return is not what this is about. Does a 401(k) offer greater potential returns than IBC? Yes. Will a qualified plan accumulate more money than IBC? Yes. The point you seem to continue to miss is the opportunity cost of losing access to qualified funds and deferring taxes nullifies the perceived benefit of a potentially greater rate of return.
Here are the details.
Male, 34 and Female 32
Household income: $275,000 (increase at 2% per annum)
Child: male age 5 (college savings: $300/month)
Mortgage: $600,000 @ 4.5% in perpetuity (rollover every 30 years)
Quarterly taxes: $8,000
2017 Effective tax rate: 12.7%
Inflation: 2%
Life insurance premium: $64,000/year
Male: $2,500,000 death benefit
Female: $2,000,000 death benefit
$0 contributed to any tax deferred plan
Access to one 403(b) and one SEP IRA
We do not qualify to contribute to a Roth IRA due to income
We will start to take income from savings at female age 60. We want the same standard of living we have in our pre-retirement years to continue into our retirement years.
With these details do you feel comfortable stating we should maximize our qualified plan contributions, buy insurance other than whole life and pay down our debt sooner rather than later? Can you prove the market rates of return (including sequence of returns risk) and tax deferral within our qualified plans will provide more income than using non-qualified plans(any taxable option)? This is what your article is saying.
I have already compared the options. I have the mathematical computations to prove a qualified plan is the last place to put money for the future and I will be happy to compare notes.
I challenge you to actually do the math. You owe it to yourself and to your readers.
The problem I have with your advice – and that is what this website provides, unregulated advice – is, as much as you “know,” you really do not know enough about how wealth building really works. Your advice follows, to the note, the tune from those with the biggest pulpit. Brokerages. wirehouses, banks, insurance companies and the U.S. Government all make their money preaching the same advice you espouse. How, then, do they have my best interest in mind?
If you prefer those benefits to a higher rate of return, then buy as much as you like. Seriously. It doesn’t bother me a bit if someone loves whole life insurance.
My problem with whole life is the way it is sold. If you’re not familiar with the way it is sold to most doctors, read this thread. It provides dozens of examples:
https://www.whitecoatinvestor.com/forums/topic/inappropriate-whole-life-policy-of-the-week/
I think if you are advising a couple making $275K a year to pay $64K of that as a whole life insurance premium that you are just as bad as the advisors in that thread. In fact, I’m not sure you should be working in the industry at all given that you don’t seem to know about the Backdoor Roth IRA. You should actually be really embarrassed to be here on this site criticizing what I have written.
I also find a $600K mortgage on a $275K income unadvisable.
And yes, I’ve done the math and still don’t plan to buy whole life insurance. In fact, I probably won’t have life insurance at all soon. If I die young, my wife will have to be consoled by the millions left behind. I find whole life an unattractive investment, an unattractive insurance option, and an unattractive banking option (although better than an investment and insurance option.)
No attempt to compute any numbers? Let me help.
That backdoor Roth you suggest would net me a cool $750,000 after 28 years (N=28, I/Y=6%(generous), PV=0, PMT=$11,000). If we maxed our qualified plans, $2.5MM with the same inputs.
At retirement, we could take our $3.25MM and withdraw the recommended 2.5% per year and have a 90% chance of not running out of money by age 90. However, that withdrawal rate only allows for $63,375 in today’s dollars after taxes (22% 2018) on the 401k withdrawals – by the way, only ~5% of current 401k accounts are worth $1MM, even though these accounts have been around for 38 years. Where’s the rub? We’d take a serious cut to our current cash flow with the backdoor Roth’s and qualified plan and leave $0 for our posterity.
Or, we could utilize our current plan. $64,000/year into certain whole life policies and have a guaranteed $2.5MM at retirement(N=28, I/Y=2.5%(conservative), PV=$0, PMT=$64,000). Creating $63,775 of tax-free income in retirement at the 2.5% withdrawal rate. But why stop here?
Lets access $32,000 per year of the cash value (CV) and invest in something or use the funds as a savings for things like taxes, mortgage, car payment, etc thereby, mitigating the opportunity cost of spending money.
For simple comparison, lets put the $32,000/yr into the market like the qualified plans and the Roth’s. Now, that CV has earned an additional $1.7MM, of which $831,000 is pure interest (N=28, I/Y=4.5%TEY(very conservative), PV=0, PMT= $32,000). Take our new earnings and add them to our guaranteed $2.5MM for a new total savings of $3.33MM. Now we have $83,275/yr tax-free income in today’s dollars. $19,900/year difference between your plan and mine!
What happens when our whole life contributions increase in a few years because our savings capacity increases? Will our CV not also increase and allow more money to be invested elsewhere? What if I invest in a non-market correlated strategy that returns 8%? 12%? How will future tax law changes for qualified plans affect my plan? Yours? Not to mention the millions of dollars my plan leaves when we die which, I purposely left out as a benefit.
I know whole life is one of the least understood investment vehicles out there. I also know that most policies are structured terribly. Another issue is the salesman who do not understand what they are selling. Now, this happens in every walk of life. There are bad white coats, too.
I perused the link above and the first few examples I read are policies that could have been very good for the individuals but they were not being used properly. Comparisons were made between products that are not comparable. Investing in the market and a whole life policy is not mutually exclusive.
I implore you, to continue to say all whole life insurance is bad compared to other options is ignorant on your part. You would literally be taking the same position as mom’s on Facebook against vaccinations. You bought a crap NML whole life product, have seen other crap whole life products and therefore, everyone who buys a whole life policy will also buy crap. Just like vaccinations, this is not true and the readers of your website deserve to know the truth.
I believe that your calculation are flowed because you are calculating future cash value and applying rate of withdrawal and coming up with today’s dollar value of $83,275. That would be future dollars not today’s dollars in withdrawal. If you want to calculate current values, then you need to net present value calculation of future dollars to the withdrawn amount and at 2% inflation rate, NPV comes to $47,142
Instead of numbers being presented this way, why do not give the in force life insurance illustration so we can see where things stand. No one will be able to remain in business without adjustments and offsets somewhere by paying more than getting back. Likely that means that cash value accumulation is slower or dividend rate is lower than what would have been if they were to loan CV funds to other businesses than the policy holders. Dividend rate is not fixed or guaranteed than bare minimum, so insurance company has a lot of ways to fudge the numbers besides the Mortality and Administrative expenses that has to be accounted for.
Jani,
Yes, if you include inflation as a variable the end numbers will be different. The point is the 401k/IRA is going to provide less income than the WL/Investing option.
Also, if you can instruct me how to post an image of my in-force illustration, I’d be happy to oblige. The Current Values add an additional $1MM to overall value but I prefer to use what is contractually obligated.
Regarding the interest rate arbitrage, mutual insurance companies would not be able to sustain 30% of policyholders taking CV on loan. However, the average annual percentage is less than 5% across the industry. I need you to not tell anyone else.
Nondirect recognition by the company does reduce the dividend rate compared to direct recognition by another company. Each company sees their position as a competitive advantage over the other. Ultimately, choosing between the two depends on how the Owner wants to use the CV. Both types of recognition will outperform a qualified plan.
I failed to mention the biggest factor helping the WL policy outperform the qualified plan is the fact you can put more money into the WL policy. Growth of 2% on $60,000 is going to be more than 8% growth on $18,500 every day. Considering dividend rates are historically higher than 2%, it really is a no-brainer once you understand.
Feel free to email any illustration you want to me. Just realize that we’re >560 comments into this thread. There are only a handful of people reading this and they’ve all made their minds up already as to what they think of whole life insurance, one way or another.
You are insane if you think a whole life policy is going to outperform a reasonable asset allocation in a qualified plan. You’re doing well to outperform a very conservative asset allocation in a fully taxable account.
The no-brainer is to avoid permanent life insurance if you have no need for permanent life insurance. There is no magic elixir that occurs by inserting an insurance company between you and your investments.
Your comparison of investing $60K into whole life vs $18,500 into a 401(k) is so stupid it’s not even worth addressing. Seriously. It’s idiotic. It’s the ultimate apples to oranges comparison. It’s like you’ve never heard of investing in a taxable/non-qualified account. You know about those, right? Here’s a link if you need to learn about it:
https://www.whitecoatinvestor.com/retirement-accounts/the-taxable-investment-account-2/
So apples to apples if for some crazy reason a reader of this site were limited to just $18,500 in retirement plans, would be $60K into whole life vs $18.5K into a 401(k) + $41.5K into a taxable account.
The only thing to understand here is you’re desperately trying to either sell something or convince yourself that your life’s work hasn’t been counterproductive to your clients. Neither makes you look good.
You don’t know when to walk away, do you? All right, let’s get into this. Again. Like the other hundreds of times this has been done on this website in the last 8 years.
First, what do you do for a living? If it involves selling insurance, just leave. Seriously. I have long ago given up on convincing anyone who sells life insurance that it’s not the world’s greatest invention. Those people don’t realize they’re not the target audience of this blog, they’re the subject.
Second, if you feel like readers of my website deserve to know the truth, why don’t you tell them the truth? You’ve now posted 9 comments totaling 1729 words on a post that was only 2000 words long in the first place. If you feel like writing so much, why not start a blog and tell the world the truth about whole life insurance? Surely if the truth is as obvious as you seem to think it is then everyone will run to your blog, read it every day, and tell you what an awesome job you’re doing and how much money you made/saved them. If that doesn’t happen, maybe you ought to question whether what you’re saying is true.
Third, I agree that most policies are structured terribly and that many of those who sell it don’t understand what they are selling. I also agree I bought a crap NML whole life product and have seen other crap whole life products. However, I don’t recall ever saying that everyone who buys a whole life policy will also buy crap. As you’ll recall, I told you something to the effect of “if you understand how your policy works and are happy with it, then buy as much as you like.”
Fourth, you want to talk about some numbers? Let’s talk about some numbers. Now that you’ve gone and educated yourself about a Backdoor Roth IRA and a Future Value Function (I’m very proud of you by the way and glad you learned something from this site that spends so much time hiding the truth), let’s see what we can correct. For some reason, you’re running an example about a Roth IRA. I think your return assumption is pretty weak at 6%. Why do I think that? Well, because my own returns are so much better over my investing career and historical returns are so much better. But if you like 6%, I guess that’s your right to use that. But if you really want to prove whole life is awesome, why not use 3%? That would make it look even better. Garbage in, garbage out. Let’s bump that up to the 9% I’ve seen in my Roth IRAs over the last 15 years shall we and see what that does to your little comparison? And while we’re picking apart your stupid assumptions, let’s go to the 2.5% withdrawal rate. Anyone who thinks that’s an appropriate withdrawal rate is not only stupid, but probably selling something. Which are you?
More info on that here: https://www.whitecoatinvestor.com/six-reasons-i-dont-care-that-3-is-the-new-4/
Let’s bump that up to 4% while we’re fixing your crummy assumptions and see what that does to your little comparison.
Now, you’ve also pulled some sort of odd number out for “qualified plans.” It ends up at $2.5 Million, so using your assumptions and working backwards, I’m going to assume you used $37K for that. Given that my 401(k) + DBP contributions this year add up to $215K, that seems a little low for me but hey, it varies. I’d say most of my readers have something between $50K and $100K available to their family, so we’ll call that a cool $75K.
And I love how you compare a plan where you’re putting in $11K + $37K = $48K to a plan where you’re putting in $64K. Really apples to apples there eh? Seriously, did you think I’d miss that? Or maybe you missed it. Once more, I’m left trying to decide whether you’re ignorant or trying to pull a fast one and neither looks good for you.
I don’t know that 2.5% is necessarily conservative for a mere 28 years given how many policies I’ve shown you that hadn’t even broken even by 10 years, but I fully acknowledge that usually isn’t that hard for a properly designed policy, so I’ll give that to you.
Now let’s run the numbers again. $86K per year into qualified plans/Roth IRAs earning 9% and a 4% withdrawal rate or $86K into a whole life insurance plan earning 2.5%. I’ll even let you take 4% a year out of that.
I get an annual withdrawal of $388K vs $137K in favor of the retirement plans.
I implore to quit selling crap to doctors who don’t need it. You’re supposed to be a professional and you didn’t even know about a Backdoor Roth IRA. You’re peddling an insurance policy almost no one needs as an investment despite the fact that it is a crummy investment and actually illegal to sell as an investment.
[Ad hominem attack deleted. And it ends like it always does. Thanks for stopping by. Please quit selling whole life insurance inappropriately to physicians. We’re sick of it.-ed]
The Golden Rule: those with the gold make the rules.
The posts you have done on whole life & the infinite banking concept are absolutely fantastic. I have read quite a few of your comments, and cannot argue with the math. However, if one believes, that rather than using 8% as an average return for investments, but rather 5-6% as an average, do you feel that the concept or whole life make more sense?
Well, the lower your expected stock market return the more lots of things make sense- like just planning to work forever, just sticking money in the mattress, investing in real estate etc.
One thing to keep in mind though is that the insurance companies have to invest in the same stuff you do. Most of their portfolio is bonds, so that’s why the long-term return on whole life insurance is a lot more like bonds than anything else.
https://www.whitecoatinvestor.com/making-different-choices-due-to-low-expected-returns/
It would be helpful if there was a clear cut list of what to look for in these policies to make them as good as possible and how they should be managed to get the greatest benefit. It is not helpful to compare their returns to stocks when in reality they should be compared to bonds. This is as misleading as some of the sales tactics the unsavory agents use. So how well do these work if they are structured and used by the purchaser to their best potential? ie. They are bought as a replacement to a bond portfolio (not stocks), the max PUA is purchased each year and they are held until death. Meanwhile you can borrow in a pinch versus selling as with bonds, the money you borrow is not taxed so you can use it to top off cash needed in a given year without going into a higher tax bracket and you leave a significant death benefit to your heirs. You mention above that very few people buy a reasonably designed policy that they actually want. So what is a reasonably designed policy and what do these policies do that people should analyze when they consider buying them? It might be better to understand what you consider to be the rare circumstances these might be acceptable and pointing out that if they do not apply to you then stay away than the ongoing and confusing back and forth of those who think these circumstances apply to them or their customers.
If you were going to invest in something for 50 years, what should it be? A stock like product or a bond like product? That’s why I frequently compare them to stocks. If you’re okay with bond-like returns for a 50+ year investment, then go buy some whole life insurance. It really doesn’t bother me that you buy it if you like it and understand how it works.
You can borrow against bonds just as easily as against whole life insurance. You can borrow against your house, your car title, you name it- all tax-free.
Here is the post that discusses when whole life might be appropriate:
https://www.whitecoatinvestor.com/appropriate-uses-of-permanent-life-insurance/
Question for any/all of you regarding using a universal life policy for student loan repayment. I received an offer from a potential employer where they would loan me the amount of my student loans (spread over a few years) to overfund a universal life policy so that I could then borrow that amount out of the policy to pay off my student loans. I see the upside for the employer (they collect at my death and can keep this on their accounts receivable). For me, it would mean not paying a large sum in taxes on student loan reimbursement funds. What are the pitfalls of this arrangement?
None if you pay it back on time. You don’t own the policy, the company does so they take on any risk of the policy changing as well as the non guarantees a universal life policy has. Basically they’re loaning you money at a lower interest rate and nothing more. Win for you.
So they’re not actually giving you anything? They’re loaning you money so you can buy an insurance policy which you will then borrow against to pay off your student loans? You don’t pay off debt by moving it around. You go from owing the government to owing your employer to owing an insurance company. Seems like a better deal would be to just refinance the debt and pay it off.
Am I missing something? Are they forgiving their loan to you or something?
I could be mistaken but it sounds like the company would buy it, not her, and give her a loan at a lower interest rate. Or is paying less interest on a loan bad in your book?
Win for her, win for the company besides the fact they were sold the wrong product for this application. The internal costs on Universal Life makes it the worst for Banking as they are using it.
Sarah. Can I ask what company or if you’re not comfortable with that please let me know the size of the company. It’s my understanding that every Fortune 500 company as well as every major US bank practice Infinite Banking. Whether you buy it personally or not, it’s fool proof for major corporations. They build a policy around cash growth and whether you die during your employment there or at 120 years old, the company owns that money and gets a major windfall.
Via email:
If you are being given loan, then it is not student loan reimbursement and should not be taxable event unless you are not paying market rate interest. Any loan below the market rate interest would need to include the the difference in income. Benefit for employer is that loan becomes guaranteed in case of death only if they own the policy. I believe there is a limit of $50,000 max for such policy. As long as you are taking a loan from your universal life insurance, you end up with interest cost. Making it complicated, with you taking the risk of life insurance not performing as expected and if ends up with not enough equity, could cost you with ultimate employer loan that you will be on the hook for.
Incorrect. First there is no max of $50,000 or any number for that matter. The cap is more likely to be based on what she qualifies for based on her income. Otherwise they could fund it as high as they please provided they take MEC into consideration.
Again, large companies use this method ALL the time. If she left that employer they would charge her the remainder of the loan at the same interest rate agreed upon unless they have her sign something saying differently.
You might not like these policies for doctors or small practices for but large companies guaranteed to bring around for generations, it’s genius.
It’s my 6 year anniversary on my policy. I commented on on July 5, 2015, message #104, and June 27, 2016, message #151. I figured it is a good time to see where we are in terms of premiums put in versus cash value accumulated to see where this is from an “investment” perspective. Also, I think it helps for people to see a “real-world” policy in action and what has been happening versus theoretical. I am sharing this for educational purposes.
Let me put this in perspective as I have said in other comments: This is not my only investment. I have used this for diversification purposes, the fixed income portion of my portfolio. I think of it as a supercharged savings bond – one that has a much higher guaranteed interest rate, a variable dividend kicker, and the ability to take policy loans out via non-direct recognition (which I have not needed to do but plan on doing for cash flow consumption later in life).
What I will provide is not the exact numbers of my policies, but percentages. For example, if the maximum premium of my base WL policy + Term Rider + PUAs is $10,000 and I only put in $3500 that year, I will say 35% invested. So, let’s what the numbers show and I’ll throw some comments in after:
Year 1 – 100% invested – 81.52% cash value available (CVA)
Year 2 – 100% invested – 90.875% CVA
Year 3 – 100% invested – 95.09% CVA
Year 4 – 50% invested – 98.46% CVA
Year 5 – 90% invested – 101.39% CVA
Year 6 – 90% invested – 104.97% CVA
Last year, I mentioned I was going to decrease year by year my amount invested. Moving forward, I will be putting in less. Starting Year 7, I am only putting in 10% of what I am capable of doing. I bought a residence which has shifted my focus for where to put the money. I still see the stock market being way too hot for its own good, but there are select opportunities coming near my price points. I also invested in 2 private companies and the CVA was good for those opportunities until I got funds shifted around to pay off those WL loans. If I figured it out correctly, with an IRR of 0.8%, was this a smart “investment” over the last 6 years? No. Investing in BND would have generated an IRR of 2.2%, and that’s what this “investment” should be compared to – a bond fund. Why? Because the insurance company is investing in bonds to generate its return, so one needs to compare as close as possible apples to apples. But as I stated before, and will continue to do so, this works for me and my estate plan. I know why I purchased it and where it fits into my life. I am now a little to skewed for my age towards the fixed income portion so it’s back to focusing on equities and being selective on price points.
Thanks for sharing. A policy that broke even in 6 years is probably pretty well designed.
I think readers should note that what happened to you (that you see another, better use for your money) happens A LOT with stuff like this. Buying a cash value policy is a life-long commitment and some times (a lot of times) things change.
WCI:
If you go back to message 104, I mentioned the CVA in Year 1 was less than the guarantee because the agent didn’t know they changed the dividend policy and hence, I didn’t know. If I put in the 100% on Day 1 and did even 75% in year 4, I would have probably been at 100%+ after 4 years. But yes, financial circumstances changed and what you may see as a negative, I see as a positive as I had flexibility to keep this alive and growing and get my hands on a decent amount of cash for a short-term loan in a matter of days without selling stock or paperwork from a bank. The 10% that I will continue to put in moving forward will still give me the opportunity to put more money in if I don’t know where else to go. Yes, there is a cost, but long term, I still think it is another tool in the tool belt.
To be effective, it needs to be well designed for the end user, funded early, funded to the max, and committed for at least the first 5-7 years to get the most benefit. Otherwise, it is not a wise option. And that’s from someone who has this.
Howard:
You miss the bigger picture by only comparing the the IRR of the CV within the policy. What happened when you took a loan to invest in the two companies? You probably created an interest rate arbitrage where the nondirect recognition dividend credit exceeded the interest rate charged to access the funds. The insurance company paid you to use the funds within the policy.
Also, how much would it have cost you to access the funds elsewhere? Qualified plans? At least 10% with the penalty and taxes but probably more with penalty, taxes and opportunity cost. How about a loan from a bank? Easily 10%. How does this impact IRR of the CV?
Take the loaned amount and apply a 10% cost for the loan (conservative). Add this dollar amount, that you were able to spend elsewhere or at least keep in your checking, to the CV within the policy. Now compute IRR of the CV. I bet the IRR of the whole life policy will increase and probably exceed the BND return.
Thank you for the article, I’ve been trying to research whole life insurance for the last few months and it’s been a challenge to find good sources of information. I’ve read the books by Nash and Yellen. The Bank on Yourself Website is so cringe-worthy, I can’t take it seriously.
I appreciate someone finally putting their policy out as a data point. I’ve been going back and forth on the idea of getting a plan. The selling points that make me in favor of it are the cash value, policy loans, and death benefit. I’m viewing the insurance as base of operation for deploying money into other ventures, while it maintains it’s growth. Also, it gives my wife the security that if something happened to me, she would have her financial needs met.
Howard, what kind of growth and dividends are you seeing on your account each year?
Again, thank you the post White Coat Investor. I’m not a doctor, but it’s been the best place I’ve found for a point and counter-point argument.
Jordon:
Glad you are finding my posts useful. Let me start with the easy question: The growth on the cash value has been right around 5%. 5.0, 5.1%. Can’t remember the exact percentage. Loans have been around 5.0 to 5.25%. So it’s almost a net break-even in that regards.
I’ll give some guidance now that I am in this and take my thoughts for as much as you paid for it:
– Unless you are making at least $250K per year, I wouldn’t consider it.
– If I put no more money in this and start taking policy loans against it when I’m 65, it is acting like a deferred annuity that will pay out for 30 years at a yield of close to 14%. Yes, there is time value and inflation, etc, etc., but that’s one way of looking at this.
– I can take out margin loans at Interactive Brokers for almost half the cost of a policy loan, which is exactrly what I did (2.66% vs 5%)
-If you must do a policy like this, would the extra risk of a properly structured IUL outperform a BYOB WL? Yes. My guess, by 1-2% CAGR over the life of the policy. Which could be a large difference in the CV accrued, if we are talking decades.
-Can you do a policy on your child? I would definitely do an IUL then over WL. The term insurance would be super duper cheap, but you still have the control over the money.
Long story short, if I had the hindsight that this stock market tear would continue, I would be way ahead in my portfolio value. But it was a hedge that I now have for its/my lifetime value. And yes, circumstances changed – from marriage to divorce to the ups and downs of small business ownership. You have to be firm for the first 5 to 7 years as I’ve said to have the flexibility later on. If you can’t do that initial commitment, don’t bother.
Hope that helps.
Hundreds of comments on a years old thread and people still have it wrong.
First an IUL , or any UL for that matter, should never be used for infinite banking . Yes in the earlier years the cost of death benefit is low but in your later years it is incredibly expensive and will cannibalize your policy.
I was introduced to this concept 4 years ago and the first 3 policies I bought are already profitable. If you have someone trying to pitch you a policy that doesn’t have cash growth by year 3, run. I now own 8 policies with 2 being on my children . Until last year I was personally uninsurable and I wanted to ensure that was never a problem for my children so we bought policies for them. The cash value attached to the policies is just an additional benefit after guaranteeing their insurability.
On the 5th year of my first policies I will net 8.6%. I accept that it took 3 years for my policies to become profitable but after comparing the cost of 60 years of term insurance to the cost if insurance in 3 years of whole life, that was an extremely easy decision to make. Knowing the Whole Life will be there if I live past 75 is also a huge advantage over term.
At the end of the day I will teach my children about fiscal responsibility and how to use their inheritance. If I can’t do that then I have failed as a father. I don’t want my kids, grandkids, or their grandkids to struggle the way I did growing up so leaving them a tax free inheritance makes sense for me.
Arguments listed saying “you shouldn’t need life insurance in retirement” are ridiculous at best . No one knows the future or what your business or assets will do in 20, 30, or 50 years. We can look to the past for an average but that is no guarantee of what it will do in the future. The market could tank again ad you’re ready to retire. You could become disabled and not able to work. You and your spouse could both pass and leave your young children with nothing and making family raise them. I’ll take the guarantee of a policy over any speculation any day. I risk enough money in my business, I don’t need to do it with my kids future.
Thank you Howard. I appreciate the thoughts on how your portfolio would have performed, if you would have invested elsewhere. I’ve never heard of Interactive Brokers, before I’ll give it a look over.
Jason, you mention your policy broke even in the first 3 years, how were you able to do that? It looks like most people are breaking even, in 7-10 years. Would you be willing to share, what it is you did specifically? I’m interested in hearing your experiences, before I decide to sit down with an agent. We can communicate in e-mail, if that’s better for you.
My pleasure Jordan. To specify my 3rd year it was cash positive for the year. By year 6 I was positive considering the first 2 years mostly went to death benefit.
My latest policy should be a little better as I had 15k to start the cash value with and the total premium is split 60/40 insurance/ cash rider. If you’re not starting the policy with cash it should be closer to 50/50 but with the 15k it would have become a MEC. (Taxable)
Sadly there are a lot of bad insurance agents selling a lot of garbage. Just like anything else make sure you shop around and interview your agent. My understanding is that they make less off each policy by designing them this way but if this is all they do, they will write many more policy than your normal agent selling normal garbage .
I also had my agent run different scenarios on their financial calculator. Infinite Banking, Mutual Funds, stock market, cash in the mattress, and so forth. I own a medical marijuana companies in CA, CO, and NV and take plenty of risk in my business already, I do have some money in the market but I lost 55% in 2008 and don’t want to walk that road again. So guarantees were important to me.
Jason, just to outline here is my plan, I’ve been rounding out. I just sold a rental property and profited 56k. Now, I’m looking to put that into a place with growth and liquidity. The death benefit is appealing, because I would hate to have my investments adversely impact my wife, as she’s not as much into real estate as I am.
Any advice on what I should look for in a policy, if I decide to go that route?
Do You have something else you want to buy with the money or just put it away?
If you wanted to self finance something IBC is a great way to do it, if not you still can put it in a policy and earn 4.5-5% guaranteed . You could put it back in the market but to keep it safe you’d earn less or you can put it at risk and earn 10-12.
If you don’t have life insurance at all, even more reason to buy a policy. Put the 56k in it, ask your agent to run an illustration and figure out where the MEC line is and stay right under it. Maximum non MEC. It will sit and earn 5% and be safe. Worst case scenario you need it and you can borrow it out at 5% and it’s a wash but you don’t have to pay taxes and penalties like you would with a 401k or other interest deferred account.
What state are you in, I can ask my agent if he recommends someone honest to you. Even then do your homework and make them run the figures. Not everything works for everyone and not every agent is honest unfortunately.
Jason:
I would never do or suggest a UL – I think the amount of companies that offer that is minimal these days because it is the worst of both worlds.
For extra risk compared to WL, an IUL MAY be appropriate. Doing it on young kids could be wise – all those extra years of compound growth with low insurance costs. The long term average of the large cap stock market is 7% when you exclude dividends. That 1 to 2% over a safe 4.5-5% from a WL policy makes a tremendous difference over decades. That’s just math. If you want the safety, like I wanted on myself, then a WL policy can provide that.
To have a second data point, can you use one of your policies and do it in the same way I did? If I understand you correctly, the max you can put into your policy is about 35K – 20 K goes to the base WL plus term rider. The other 15 K is PUA. So, if you invested the 100% possible of 35K, 15/35 = 43% is available for Cash Value. The way my policy was set up, after Year 1 I would have had roughly $28k in CV using your numbers. The idea is to help people without giving precise numbers so they know it can be done.
You mean the first two year’s premiums mostly went to fees and commissions. It’s not like you get the cash value and the death benefit. It’s one or the other.
I bought a product, I expect to pay for it. 60% of the first years premium went to commission, underwriting , exams , and to buy the insurance . I’m perfectly ok with that . Second year 52% went to the same things. Again, I’m ok with that . Do people not pay doctors for their services? I pay my Dr $50 to fill out my wife’s FMLA paperwork. He pays an assistant $12/hr and it takes her 15 minutes at most right? So essentially I paid $200/hr for him to pay $12. You run a website , why not let people advertise for free? Why not give away all my product for free? We all work, we all have fees, sales commission, salaries , etc. If I like the product I’ll happily pay for it.
The way you get it to break even sooner is by paying less in commissions. That generally means “paid up additions” which cost less in commission than regular policy premiums.
Thank you for the reply WCI. I’ve read about the PUARs in some Life Insurance books. I’ve read about 5 different books on the topic to try to educate myself. Although, you’re article and comments provide a valuable counter argument that I appreciate.
Howard: Honestly, that sounds a little shocking to only have 43% of my cash value available, that wouldn’t be how I would want to structure a policy.
Jason: My plan is to continue purchasing real estate, I’m viewing the whole life policy as a financing tool to allow me to jump on a deals a bit quicker than other investors. At the same time, it hedges my bet and gives my a family security. I’m currently in the state of Washington, but I’ll be moving to Texas relatively soon.
I’m just trying to find a way to design a policy that has as early a break even point as possible to compare the projections versus my wants. I’ve read you should blend a whole life policy with term to lower the premiums, and add in PUARs to bump up the cash value.
I apologize for continuing the discussion, but this is the best discussion I’ve seen about the subject.
For example on my son’s policy. It is $250 a month with $100 going to life insurance and $150 to PUA. Year 1 I have $2150 cash, Year 2 I have $4661, Year 3 $7689. By year 3 every cent I put into the policy I have available in cash and he has a $375,000 life insurance policy that grows as he gets older.
Essentially that means in 3 years I paid ~$1350 to ensure my son never has to worry about purchasing life insurance. If he were to buy a term policy later in life that could easily be one years premium for a small policy. Now that I am insurable I pay almost $400 a month for a million in term and I have a small whole life policy as well. I’ve found health can dictate your rates more than anything and it can get very expensive very fast.
Is this a get rich quick scheme? No. Can you do better in the market? Of course. You can also do much worse. The selling points to me were guaranteeing insurability and guaranteeing a very conservative return. I guess that’s also why some of these terrible agents use UL for banking, they can illustrate much higher returns and 4-5% on a whole life isn’t very exciting .
Not sure a $375K policy ensures a child will never have to worry about purchasing life insurance. $375K isn’t much insurance now for a breadwinner, and certainly won’t be much in 20-50 years.
WCI , it starts out as a $294,000 benefit. By age 10 it’s $538,000. Age 20 $668,000 and so on until age 90 when it’s 2.2 million. I believe all whole life policies set up this way always have a growing benefit. At least mine all do, can one of the agents here confirm? Because we’ve done so well on his policy I plan to buy more on him.
Howard , thank you.
Jason:
So giving some numbers publicly on your son’s policy let’s you see how I am doing the percentages.
You are saying $250/month = $3000/yr (my 100% invested)
Year 1, if 100% invested = 2150/3000 = 71.67% Cash Value Available (CVA)
Year 2, if 100% invested = 4661/6000 = 77.68% CVA
Year 3, if 100% invested = 7689/9000 = 85.43% CVA
So it will take roughly 6-7 years where premiums in = CVA. The percentages are less than mine because it’s a smaller policy. You need the engine of the WL policy to make this work. You can only make the engine so small. If this was more like a $10,000 premium policy, I am guessing Year 1 CVA would be closer to 7700-7800 because you could have a higher percentage towards PUAs.
Hope that makes sense.
That’s really kind of a weird stat to care about, don’t you think. I mean, sure, it makes you feel better to know your cash value went up by more than your premium that year, but I’m not sure it’s really all that meaningful. The stat that matters is your total IRR and IRR for the last year, which can still be pretty darn low even once you get to your point as well as the point where cash value = total premiums paid.
Just using your numbers, the total IRR and the yearly IRR is easily calculated and isn’t exactly heartwarming.
Overall, I calculate an annualized return of -7.66% over 3 years. That’s actually pretty good for WL policy, but it’s not great by any means.
3000 1/1/2010 -7.66%
3000 1/1/2011
3000 1/1/2012
-7689 1/1/2013
For year three, I calculate 0.37%
7661 1/1/2010 0.37%
-7689 1/1/2011
Again, pretty good for a WL policy in that it is already positive in year three. But your overall return is still quite negative, and it looks like it will be for at least 2-4 more years, no? And we’re ignoring both inflation and opportunity cost for that money. You’ve got to really want to “bank on yourself” to put up with returns like that for years.
Ah, there’s the jaded in depth response I’ve seen throughout this thread. What about in year 15 when It pays me 27.6%? Or year 30 when It pays 101%? Or even in year 36 when the annual dividend is high ebough to pay all of the premium and the policy never needs another payment? Unlike many others that were sold WL as a short term investment I did my research and knew it was a long term play. This is NOT the investment for you if you want to double your money in 5-10 years. It is however an investment I chose because of its guarantees, because I needed life insurance anyway, and because I wanted to guarantee my children’s insurability. I’m creating a legacy for my great great grandchildren with the intent that no future generation ever has to borrow money from anyone else again.
Families have to start somewhere and passing down an 8 figure inheritance to my children tax free is amazing. If I have to pay for that in the first 3 years of a policy (less then a life time of term insurance) I’ll gladly do it.
I also understand why you’re so skeptical of this concept. I talked to my Farmers and Allstate agents who tell me what I’m doing is impossible. They don’t know about it and instead tried to sell me universal life products that were absolute garbage. Or worse yet they do know about it and wanted to make a bigger buck of me. I doubt that but I’m sure those agents are out there.
I also wouldn’t recommend something like this for your average family making 50k a year. Maybe a small policy for their kids in lieu of a college fund but surely nothing more.
I appreciate and respect that you’re a voice for higher net worth white collar families and I happen to agree with most of the advice on your site. I just think you’ve ran across too many bad agents or don’t happen to fully understand the concept. At least you can admit that my specific case is “Not bad for WL”. Hopefully more people can and will learn about it but do so with the full knowledge of what the product is and what it’s purpose is.
It never pays 27.6% in a year. Give me a break. You can’t possibly be calculating that return correctly. If it did it is the only investment any of us would ever buy. Feel free to email me the illustration if you’re not sure how to calculate the return correctly.
Happily, send me your email. It’s on the non guaranteed side but I had them run the current % instead of some magical projected number . Even on the guaranteed side it hits above 27% , just 2 or 3 years later.
Jordan , feel free to email me and I’ll send you copies of my policies if you want. Just keep in mind this works for me and my families concerns and it also works in my state. I’m no financial advisor and don’t know the laws in Texas (or any state but my own for that matter) lol.
[email protected]
WCI , it starts out as a $294,000 benefit. By age 10 it’s $538,000. Age 20 $668,000 and so on until age 90 when it’s 2.2 million. I believe all whole life policies set up this way always have a growing benefit. At least mine all do, can one of the agents here confirm? Because we’ve done so well on his policy I plan to buy more on him.
Howard , thank you.
Jason, what insurance company are your policies with? Do they all have the same percentage split between insurance and pua? Are you going up to the mec line for each of them? Can you at least do the premiums with any issue every year?
Howard , each of them are right below the MEC line. For companies I just want what produces best. I have policies with Penn Mutual. Lafayette, and Ameritas . Penn has my newest policies , my agent said they changed some of their policies and guarantees to benefit the client.
If I put cash in them to start the % is slightly lower. If I’m just paying annual premium (or monthly on a few) the cash value % is higher . It also seems to depend on age and health for the cost of the insurance.
We started our first policies with “hey we need 500k in life insurance” and were given a monthly payment. Now we tell our agent how much extra cash we have to save and a policy is built around that amount.
Our highest premium is through the business and funds a buy sell between my brother and I. It is $38,000 a year. I believe just over 60% goes to cash but I’d have to double check. I’m getting copies of my policies together now for Jordan .
Happily, send me your email. It’s on the non guaranteed side but I had them run the current % instead of some magical projected number . Even on the guaranteed side it hits above 27% , just 2 or 3 years later.
editor (at) whitecoatinvestor.com
27% is a magical number.
Forgive me if I’m mistaken but if I pay $3000 one year and the policy grows by $3800 , is that not 27% growth? Send me your email and I’ll send you the policy.
No, you’re not accounting for the fact that there is already money in there. If there is $300K in there, that’s not very impressive growth. If there is only $300 in there, that’s very impressive growth. Does that make sense? You’ve got to calculate the IRR.
Typical for a good WL policy in year 15 might be 5-6% growth on the cash value. The rate of return will never exceed the dividend rate, but is often much lower than the dividend rate. They’re not the same thing, which is a mistake many make.
But 27%. That’s magical. Imagine if you could get your money to compound reliably at 27%. That turns $100K into $12M in 20 years without any additional contributions.
I was speaking to that year in particular. If you want to do it over the lifespan of the policy that’s fine too.
At year 60, I’ve paid in $142,005 And the cash value is $535,818. I have it planned to drop the PUA off when he turns 18. I can keep it and it will be higher or I can leave it as
What if he passes at 80, we’ve paid $126,600 and the cash value is $1,260,664 with a death benefit of 1.6m? Both of those numbers would be considerably higher if he uses it to finance purchases and pays the loans back the way I’ll teach him at 8%.
My first policy is 10k a year split 55/45 and had positive growth it’s second year. Year 1 cash is $5733, year 2 it’s $15,751. Hardly anything but i didn’t lose money. I paid $4300 for a 500k whole life insurance policy. Instead of wasting thousands of dollars on term over many years I bit the bullet the first year to ensure that if I outlived the term that it would still pay out. Knowing that I bought a product I’m perfectly ok with that. I’m also good knowing that each year after it gets stronger and better. Year 4 I make 4% but year 10 I make $3254 on that single year.
I think where you get caught up is on the first year or 2 where there is a loss. It’s the same in any business really. It cost me 78k to open my first dispensary. The grow house I’m opening this year will be in excess of 1.5m. Could I have left the 78k in investments and let it compound? Of course but I wouldn’t have the business I do today. I could buy term and not be out the $4300 up front but i wouldn’t have a life insurance policy for 500k that’s guaranteed to pay out no matter what age I pass.
Long periods of time can make even a low rate of return look impressive. But if you actually calculate it, not so impressive. Let’s take your example of 60 years, $142K paid in and $536K of cash value. What is the annualized return there? Well, that’s easy to see using a simple spreadsheet function- rate.
=rate(60,-142000/60,0,536000,1) = 3.78% per year. Barely ahead of inflation despite holding this “investment” for 6 decades. You’d better really like the “bank on yourself” feature and the insurance feature because the investment feature sucks.
My mistake, reading the dividend column. Year 60 we’ve paid $102,600. Year 80 is $126,600.
That would increase it to 4.58%. Beats 3.78%, but still pretty hard to get excited about for something I had to hold for 6 decades and especially when you consider the return for the first decade is so bad.
WCI:
Remember what Jason is looking for. He is looking for safety, for a guarantee. It’s not going to get the same returns as putting the money in a large cap index. This is the caveat I put on why I purchased the policy for me:
I have used this for diversification purposes, the fixed income portion of my portfolio. I think of it as a supercharged savings bond – one that has a much higher guaranteed interest rate, a variable dividend kicker.
Here’s an average of stocks, ST Bonds and LT bonds, for what it’s worth. https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html
That’s fine as logn as one is making that decision consciously with all the information. But Jason was thinking at on point he’d be making 27%. With those sorts of expectations, he’s going to run into disappointment, even with the best WL policy in the world. I’m not anti-whole life (okay, maybe a little) but I’m anti-buying a life long product without completely understanding how it works. If you get it and still want it, go buy as much as you like.
Ah, another night owl, good to see.
So please tell me what other product guarantees the same return with zero risk, does it tax free, and leaves a sizeable inheritance to my children. This is without utilizing the banking concept at all. It increases exponentially if you pay yourself the way Nash describes. I will get a spreadsheet to send you with those numbers as well. Still need an email address though .
I pay 400 a month for a million in term. Say for round figures a 500k policy would cost 200. The amount I pay for term in 2 years already exceeds the cost of the whole life policy after 2 years. Everyone says that less than 1% of term policies pay out . So over 20 years I would pay 48k into a term policy with a 99% chance of outliving it. There isn’t a bookie in hell that would take those odds yet I need protection for my family and for my business in the event I’m not around to provide for them. That savings has to be factored into the return as well to have an apples to apples comparison. When this new location is opened I am projected to move my existing term into whole life in 2 batches to eliminate burning money.
I’ve seen you say that people shouldn’t need life insurance into retirement. So buy a policy at 20, and another at 40, or 50, depending on the term, at a higher rate. Does 50-60 years of payments for nothing not upset you? I’d really like to know where you stand on the subject. I’d also like to know why all these multi millionaires, banks, and Fortune 500 companies use whole life if it’s such a terrible return. Do they have an obligation to their investors to be conservative? Not being in the financial world I honestly don’t know the answer to that and no one can give me a suitable explanation .
I keep about 10% of my money in stocks, all blue chip and some bitcoin. That’s all I’m comfortable risking after losing more than half in 2008. I own some real estate and buy all my commercial properties. If one of those stocks doubles, great I’m a little better off but if one crumbles, it doesn’t kill me either .
What else would you suggest for guaranteed returns?
Not a night owl. I was working in an ER and it wasn’t very busy.
I’ve already given you my email address, but here it is again: editor (at) whitecoatinvestor.com
A lot of your comments suggest you either sell this stuff, or have bought into an agent’s sales techniques hook, line and sinker. I’ve discussed most of these techniques in this series:
https://www.whitecoatinvestor.com/debunking-the-myths-of-whole-life-insurance/
I suggest you read it, but I’ll give the quick version for the points you bring up below.
# 1 There is no other product that is whole life insurance. If what you want is whole life insurance, then buy whole life insurance. There is no other product that offers high commissions, a negative return for 5-10 years, a low return after that, a life-long death benefit, guaranteed annual premiums, and the ability to borrow against the policy. If that’s what you want, and you really understand how it works, then buy whole life insurance and be happy with your decision.
# 2 Term insurance isn’t throwing money away any more than renting a house is. With rent, you exchange money for a place to live. With term, you exchange money for insurance. i.e. if you die, your heirs get a ton of money. Since the odds of you dying are low (at least when you’re young and healthy) that insurance is very cheap. That’s a good thing, not a bad thing. No, that doesn’t upset me a bit. Most of my readers will reach financial independence in their 50s, so a 20-30 year policy bought at 25-35 will be all they ever need. I agree if you want a true apples to apples comparison, you need to include the value/cost of that term insurance, but that cost is so low for most of my readers that it can be safely ignored in the calculation.
# 3 You’re not a multi-millionaire, bank, or a Fortune 500 company. So what they do with their money should have no effect on what you do with yours. You don’t issue stock do you? You don’t offer savings accounts and mortgages to your friends do you? These people/organizations have a different risk:return profile than you do, so there may be instances where they find a whole life policy meets their needs, but that shouldn’t have anything to do with what you do with your life. Agents trot this argument out to try to make whole life seem legitimate rather than “the pay day loan of the middle class.” For most people, you need your money to grow. Really grow. Not at 2-3%. Certainly not at a negative rate for a decade and maybe 4-5% overall. There are real, legitimate consequences to your money growing that slowly. They are saving a massive percentage of your income (like 50%+), working a very long time, or spending much less than you can in retirement. That’s just math. There are no two ways around it. Run the numbers and you’ll see I’m right. But what I worry about is when I see someone who thinks they’re going to get 27% out of a whole life policy. That person doesn’t understand how they work and is likely to be very disappointed like all these folks:
https://www.whitecoatinvestor.com/forums/topic/inappropriate-whole-life-policy-of-the-week/
But if you really understand how whole life works and still want it, buy all you like. I really don’t care. I’m not anti-whole life (okay maybe a little.) I’m anti-people buying something that requires them to hold it for their entire life for even a reasonable outcome when they don’t understand how it works.
Holding 10% of your portfolio in high-return investments like stock and real estate isn’t going to cut it for most people. They simply won’t reach their goals. They’ve got to get that number into the 50-75% range. Regarding your risk tolerance as demonstrated in 2008, consider the words of Phil Demuth:
In short, if you require an investment with guaranteed returns to meet your goals, you’re unlikely to reach your goals if your goals are similar to those of most of my readers.
Good luck with your decision. If you’re saving 30% of your income and only putting 10% of your savings into whole life insurance, you’re going to be fine. If you’re saving 5% of your income and putting 50% of it into whole life insurance, you’re not going to be fine. The magic returns fairy isn’t going to show up and fix your errors.
Via email:
Jason, you are stating that you are not paying anything when dividends exceed the premium but there is inbuilt cost to insurance that you do not see. All PUA purchases have insurance cost of 9% at least. Your original WL policy does not become paid up until age 85 or nowadays to age 110 and you are paying for it from your dividends (although you can change it to paid up policy once overall cash value exceeds face value or at any time before that by accepting reduced paid up insurance value).That is why your insurance amount go up if you keep it going. You can take dividends in cash and at some point you will pay tax or will earn no more than fixed income bond return minus their expenses if you keep It inside the policy without PUA purchases. If you look at dividend calculations, current rate is about 5% (on cash value-mortality expense reserve build up-administrative expenses) on 20 year old policies. It might go up about a point at max. Guarantees are not to this level though and dividends are not guaranteed ever although are generally higher than bare minimum guarantees. If you have a longer investing horizon, past history not guaranteed but 30 year level term life with invest the difference pays handsomely over your plan. Rule of 72 would give close to 50% more value over WL and even more over the lifetime of children if you start really early. 8 figure inheritance would require six figure premiums. If you are going by illustrations, read the bottom footnotes and would state that they are based on the dividends and dividends are not guaranteed.
WCI, my brother!
It’s been too long, like 2 years long!
I’m very impressed by your ability to continue to reach people via the web. I received another message today asking me to explain why you and I don’t see eye-2-eye on IBC. Impressive! I’m working as hard as I can with our podcast where hopefully one day the reverse happens;)
I pray you are well
Dr. White Coat,
Financially you may be correct about the importance of insuring a child, but there is another aspect of insurance on a child. I don’t know if you have kids or not and maybe I wouldn’t have thought about this until I had my own kids.
But if something happened to one of my kids I don’t know how I would react, but I don’t know how soon I could go back to work. No amount of money would ever replace them, so I think I would need some time to pull things back together. If I could.
If that is a need that someone feels they need to insure against, and they can’t afford to self-insure it, then sure, go ahead and buy insurance. I am a multi-millionaire with a 7 figure business that would run itself for at least 6 months in the event I became completely incapacitated. Even if I couldn’t work ever again after my child died, we’d be okay financially. So I don’t feel a need to insure against the death of my children for that reason. While it would be a tragedy, it would not be a financial catastrophe.
I think most people probably don’t need to insure against that sort of a catastrophe with anything but a 3-6 months worth of expenses emergency fund.
And I agree with you that money wouldn’t replace the kids. So life insurance doesn’t somehow “protect” them. It replaces them with money I don’t even need. In fact, I think it would even bother me a little that I was “betting” on their untimely death.
Via email, not sure in reply to what or where in this 560 comment thread:
2% average annual cash return in form of dividend or capital gains even if taxed at 40%, would only cost 0.8% in taxed per year. With average market gain including dividend and capital appreciation, 8%-0.8%=7.2%, taxed at 40% would leave 4.32% if withdrawn (whole 7.2% if left to heirs), that is more than 2% however you divvy it up between tax deferred or taxable account. By my calculation, $64000 @2.12% for 28 year is 2.41 million and for 56 years, is 6.75 million ( that you are accumulating less with life insurance). If you start withdrawing your dividends, then your accumulation will not reach your stated guaranteed values for leaving assets to your heirs (unless you are counting withdrawal amounts after deducting premium amounts). This is simplified as the tax deferred are not taxed at 40% and taxable capital gains tax rate is not 40%. We all know that this does not count the benefits of life insurance in form of peace of mind for the unpredictable premature death or disability. Ideally, a term life while you build the assets is a necessity as is the disability insurance during that time frame. However, once your assets are built up, reducing the insurance to paid up with reduced face value if you already have WL is a good option that I would consider.
I do not see how whether qualified or non qualified investment is outperformed by life insurance.
As for the illustration, all we need is the policy year 1,2,3,4,5, 10, 15,20,25,30. age 65, paid up line and maturity lines and if you can include the year the policy was issued, that would be helpful.
Dear Dr. Dahle,
Thank you for the financial education you have provided me. I cannot imagine a world without this website.
I have been following the thread in the comments of the whole life article for many years. I have a draft policy for a 24 year old non-smoking male including guaranteed values + values with dividends forecasted. As I understand it, you have not been provided one so far. If I can humbly request it, a comparison as discussed in the thread using the numbers in my policy offer would be greatly appreciated. If it is simple as being me fooled by marketing, I will be happy to say I’m human and have fallen for something. Thus far, I understand that these policies were actually the main form of savings for the population before the stock market was easily accessible to the public. This lends a great amount of credibility to the durability of the institution.
Summary image: https://i.imgur.com/zZQYhBZ.jpg
The math as I see it:
After putting away $3,000 x 20 years in a policy designed to just bump up against the MEC limit, my guaranteed minimum cash value (when I am 43) is guaranteed to be $70K and assuming dividends as they are today it could be as high as $100K. That same monthly addition of $3,000*20yr*7% APY compounded is 130K. This creates our bounds.
At the worst with full IBC @60K/20yr: $70K to best at $100K vs at best with full Roth IRA (to maintain parity re:taxes) at 7%: $130K.
$60K is a significant gap. Will the peace of mind of at worst -$60K make the end user happy with guaranteed numbers vs. market fluctuation?
Consideration: Profits are trapped in the Roth IRA, but are accessible through the policy loan. Roth IRA has a $5,500/yr limit, this doesn’t exist with whole life.
Most believe the wise decision is to grab the imaginary $60K so I did not sign this policy.
However…the practitioners argue this is a substitute for a savings acccount, not the checking or investment accounts…and so I remain keenly patient for further discussion.
Bob, you’re not wrong. There is a 60k gap If your IRA earned an average of 7%. While your policy eventually breaks even and then is in the positive it takes a long time to do so. I aim for all the policies I design for my clients to be profitable by year 5 at the most. Typically they are profitabke after year 3 or 4. Essentially you’re paying 40% of your premiums for 2-3 years to buy the insurance portion of the policy. On a $3000/yr policy you’re buying $300,000+ in death benefit for $2400-3600. An amazing trade even if I have to say so myself. After that everything you put into the policy you get back with interest and the good possibility of an annual dividend. I also dont ever place business with any companies that haven’t paid a dividend for at least the last 100 years. Chances are if they can pay it through the great depression, they will be paying it in the future.
Going into an IBC concept there are two things you have to be willing to accept. First and foremost they are very conservative. Can you earn 12% in the market? Of course but you can also lose 50% or more like most of us did in 2008. I’ll gladly take a guaranteed 5% plus dividends tax free to avoid the risk in the market. To net a similar number in the market most would need to average ~8% to make up for taxes or capital gains.
Second it’s a long term play. Yes you will benefit from the policy. Some argue you benefit right away because you purchased life insurance, some would argue you benefit when the policy breaks even, some would argue it takes 20+ years when you’re dividends are paying for ALL of your premiums. That’s for you to decide. Either way if you’re truly banking with the policy and controlling the money in and out of your household it will yield even greater returns. The basic math on financing a car through your policy shows us that even on a $25,000 car purchased every 5 years for your lifetime adds up to over $550,000. If you dont understand lost opportunity cost or still believe cash is the best way to purchase a car go meet with an IBC practitioner and have them show you.
My first policy was purchased with Penn Mutual. $6000/yr for the 1st 20 years and $4000 after so it didn’t MEC. It bought me $760,000 in life insurance and was profitable year 4. By year 10 it had $66,154 in it. Nothing great but I wanted safe and thats what I purchased. Fast forward to year 95. I’ve paid in $288,000 and have $912,000 in life insurance with a guaranteed cash value of $609,000. If my policy continues the way it has in the last 9 years and dividends continue to pay I have $2.5m in life insurance and 2.4m in cash. Split it somewhere in between and I’m still a happy camper.
And again, this is cash available to you with no fees or penalties for withdrawals. Cant say that about any qualified plan.
Oh, and then there’s the death benefit that no one here even likes to talk about. If I can leave my heirs, charities, and church $10 million tax free, why wouldnt I?
We could talk about taxes too. 21 trillion in debt and 401k plans are the largest holders of wealth for Americans. I can all but guarantee the day will come that those plans are taxed even more heavily than they are now.
For some of us it’s a no brainer. I was looking for something to invest in after being burned in the housing market when I found IBC. I liked it so much I became an agent and now teach others what I found. Others are skeptical and think they can earn a better rate gambling their money in the market. If they lose, that’s on them. If they come out ahead, awesome! I’ll still take the huge inheritance to pass down for my great great grandchildren and ensure they never have the financial struggles I did.
Just my $0.02
Wow. That was a pretty impressive sales pitch. You’re getting good at this. I bet you sell a lot of these policies like that. 🙂
If you understand how the policy works and that is what you want (and you’re very sure your financial circumstances won’t change in the future in a way that would make you regret the purchase) then go ahead and get it.
Running the numbers in your illustration is relatively easy to do. I’ll run them for the guaranteed scale and the projected scale for the first 5 years and for the full 62 years and you can adjust as needed to run any more scenarios yourself.
5 years guaranteed
=RATE(5,-3000,0,11387,1) = -9.05% (yes, that’s per year)
5 years projected
=RATE(5,-3000,0,12562,1) = -5.86%
62 years guaranteed
=RATE(62,-3000,0,326749,1) = 1.67%
62 years projected
=RATE(62,-3000,0,1444463,1) = 5.36%
If getting a return somewhere between the guaranteed and the projected is attractive to you, then go for it, especially if you place a high value on some other aspect of the policy such as the ability to borrow against it, asset protection (be sure to check your state laws as some states don’t provide much asset protection for life insurance cash value), or the death benefit.
Personally, tying my money up for 6 decades to earn something between 1.67% and 5.36% isn’t a very attractive proposition, especially when I don’t need the death benefit and especially when there is an ongoing commitment to pay premiums each year. But it’s your call. Just go in fully informed.
And I agree with Jennifer, this isn’t a particularly attractive policy as they go. It’s not like a really good one provides dramatically better returns, but I would be very surprised if you couldn’t find one better than this. Shop around, it’s a big decision. Kind of like marriage. Til death do you part or it’s going to cost you a lot of money to get out!
On my very worst coverage I even have a wreck even factor of 2 years and 8 months. For the ultimate 7 years I even have financed 4 automobiles thru my own financial institution and have recently moved over the loan on my primary residence. For you to bash all of Infinite Banking due to the fact a few aren’t doing it right is similar to profiling a race based totally on a few terrible apples. Same concept. I made positive I did my homework and found a company that works very well for me. I’ll even plug it for him [not here you won’t] Look him up, if you may locate any awful opinions on whatever he’s finished, I’ll mail you a take a look at.
One of my buddies is selling these WL policies, but I don’t want to buy life insurance. What’s the difference if I just put all my money in a strategic fund in an M1 acct and borrow from it at 2% interest if I need it? I reckon money in WL is protected if I get sued, but I still don’t want to buy insurance when my company provides life insurance.
If you don’t want insurance, don’t buy insurance. I don’t borrow to buy anything so I wouldn’t borrow against invested assets any more than against a whole life insurance policy, but you can certainly get margin loans at a lower rate than you can borrow against a policy and you don’t have to buy unnecessary/unwanted insurance.
Be sure to check the asset protection laws in your state. They vary.
Are you sure your company provides you enough term life insurance? Most people need more than their employer will provide.
I’m scrolling through some of these pro-insurance posts, and the one thing I just don’t get is why does it have to be insurance? The basic premise is that the advantages of this concept are:
1. Reduce opportunity cost by financing and losing less interest than you end up forking over by financing
2. Low risk
Why on earth do you need life insurance to be the vehicle to do these things? You basically have the opportunity cost of your money sitting worse than idle for 7 years. Even with a higher return than CDs, money market, bonds, treasuries, etc, you still have those years to make up for. Your real break even point is when the money in your life insurance policy catches up to what you would have made in low risk investments over that 7 year span. We’re probably talking about 10-15 years. Also why can’t you just take loans against your other assets? If you want a loan for a house, why not just get a loan on the house instead of getting a loan on your insurance policy then buying a house?
At the end of the day I just don’t want this big of a pile of cash in such safe assets locked up for so long. I’d rather invest in equities, come away in year 7 with almost double, and then just sell assets from there. I don’t see how that isn’t a better play for everyone unless you’re just so risk averse you’re willing to have your lunch eaten for 7 years.
You’re right that if you’re not otherwise going to leave money in cash or cash like investments at all, there’s no point to earning more on that cash which is what BOY/IB is all about.
I’ve since fallen back on this concept and have decided to go for it. As a business owner, I carry enough risk and volatility in my business. I decided against a stock market approach and instead a high-cash value WL policy.
While not ‘sexy’ by any means – I consider it my low-risk portion of my investments. Majority of my funds get re-invested into my business where I know I can earn more than stock market returns.
Premium initially is 12k per annum, and will be increasing to nearly $50k per annum with new policies in next 12 months.
I don’t sell insurance. I don’t think this is right for everyone. I do, however, think it is a good asset class for business owners to have.
Glad you’re happy with your investment.
Thanks! Appreciate the response and continued acceptance of comments on this post. Both for and against.
I can only imagine the intense sigh you have whenever you see the email/notification come in regarding this article haha.
I don’t get emails, but I do check the comments most days. There’s a better post on this subject on the blog IMHO:
https://www.whitecoatinvestor.com/infinite-banking-bank-on-yourself/