By Dr. Jim Dahle, WCI FounderQ: My wife and I are both emergency physicians who max out our available retirement plans including backdoor Roth IRAs and are already putting as much into 529s as we would like. My advisor, a CFA, recently showed me an illustration for a 10-pay whole life policy illustration. In researching it I found lots on your site about whole life, but nothing specifically on 10-pay or 20-pay policies and would like to know your thoughts on them specifically. This illustration shows that I would make 10 payments of $20,000 and then at age 70 would have guaranteed cash value of $437,000 and a guaranteed death benefit of $800,000. The projected cash value is $1 Million with a $1.8 Million death benefit. Our actual life insurance needs are already covered with term policies. This is money I expect to leave to the children, but like the idea of being able to access it if necessary. What do you think? Does making a policy “10-pay” change your usual recommendation against whole life insurance for most doctors?
What Is 10-Pay Life Insurance?
The returns of whole life insurance can be improved slightly in several different ways. Paying annually, maximizing “paid-up additions,” and paying the policy up in as little time as possible without becoming an MEC by using a 7-pay, 10-pay, or 20-pay (meaning you only pay premiums for 7-20 years instead of your whole life) are all ways to improve the expected return. So yes, buying a 10 pay policy not only avoids life long payments but also improves the internal rate of return of the policy. You simply get to even a little faster. But it is still a whole life policy.
I usually recommend against whole life as an investment or “another retirement account” primarily due to low returns. Since you don't have any need for permanent insurance, you really should be evaluating it as an investment. This is money you want to leave to the kids, but would like to have it available to you “just in case.” So an alternative in this case would be something like very tax-efficient stock index funds in a taxable account. Your kids would get the step-up in basis at death, so the only real tax cost would be the drag from distributions. If we assume you are 35 and will invest $20,000 per year for 10 years and then let it ride for 25 more until age 70, all at an overall return of 8% reduced by 23.8% taxes on the 2% yield, your money would grow to about $1,866,000, tax-free, at age 70.
Let's compare that to the insurance contract. At age 70, the insurance contract is guaranteed to have a cash value of $437,000 (2.59% annualized return) and projected to have a cash value of $1 Million (5.38% annualized return.) Although it wouldn't surprise me if you actually achieved that 5.38% return, I would plan on something about midway between those, about 4%, or $665,000 at age 70. That's about 1/3 of what you would have in the taxable account. If you decided to raid the stash, you could borrow tax-free from the policy but would have to pay taxes if you wanted to spend from your investment. But even after taxes, you would be way ahead with the traditional investment. The death benefit and asset protection features are nice, but certainly wouldn't be worth over a million bucks in opportunity cost to me.
Should You Buy 10-Pay Life Insurance?
I like the fact that the return is a little higher with a 10 pay policy (perhaps 0.5-0.75% higher than a traditional policy), and I like the fact that you don't have to make payments for the rest of your life. But you've still got all the other downsides of investing in a life insurance contract. As I frequently tell people, this isn't the dumbest thing to do with your money, but be realistic about what it is really going to do for you. Good luck with your decision.
[EDITOR'S NOTE: Like most who really examine whole life insurance as an investment carefully, this reader decided to pass on the policy.]
Have more questions about life insurance and what kind of policies would be best for you? Hire a WCI-vetted professional to help you sort it out.
What do you think? Do you have a 7-pay, 10-pay, or 20-pay whole life policy? Why or why not? Are you happy with your purchase?
The White Coat Investor may receive compensation from White Coat Insurance Services, LLC; licensed in all states including MA and DC; CA license #6009217; NY license #1758759 (exp. 6/2025); Registered address: 10610 S. Jordan Gateway, #200 South Jordan, UT 84095. This does not affect the cost or coverage of insurance.
Mr.Tony, you crack me up man! ha ha ha
Hello all! Thank you whitecoat investor for all the knowledge you and fellow bloggers have imparted. Ive been racking my brain for a while and initially decided against WL and now moving again toward it. I read a few articles and such on how to make it eficient. The first policies that were designed for me were so inefficient, and knowingly that more than 100% goes toward commission and expenses, I decided to abort. I deliberately pounded one particular agent until he finally showed me a blended policy with greater accumulation in cash value. Yes, there are other things I could do with the money, but if all other investment pots are filled, then WL counld conceiveably be the last pot. I havent signed the dotted line yet and I’m STILL on the fence. I need your help desperately. I currently have in front of me a 20k/ year policy blended that is paid up at 65 years. I’m now 39 and already completed the biomedical exam and passed with flying colors. at 10 years there is guaranteed 211K AND NONGUARANTEED 253k with death benefit of 1.2M. AT 20 YEARS 490k, 723kand 1.9M RESPECTIVELY. at 65 years 690K, 1.16M AND 2.3M RESPECTIVELY. Do you consider this a better policy. I break even in year 3. I plan to use this to cover my expired term at 65 and use as a withdrawal to suppliment 529 plan or any other surprises in the future. tHANKS IN ADVANCE anda Happy New Year and may it bring you lost of productivity.
I’m glad you’re taking the time to properly evaluate this policy. That makes it far more likely that you’ll be happy with what you end up with. Keep in mind that a taxable account is a totally reasonable investment option and never fills up. So you never HAVE to go to cash value life insurance as a “last pot.” More on a taxable account here: https://www.whitecoatinvestor.com/retirement-accounts/the-taxable-investment-account-2/
Since it seems you’re buying this thing mostly as an investment (although you mention needing/wanting the insurance after age 65 for some reason) then I’d take a look at the guaranteed and expected IRRs and if those are acceptable to you, then go for it. The IRR calculation is quite easy. We can use Excel’s Rate function to calculate it. It gets a little tricky because you’ve blended some term insurance into it. My calculations are going to ignore that, which will have the effect of slightly lowering the returns you’ll see.
Guaranteed Return after 10 years =RATE(10,-20000,0,211000,1) = 0.97%
Projected Return after 10 years =RATE(10,-20000,0,235000,1) = 2.91%
Guaranteed Return after 20 years =RATE(20,-20000,0,490000,1) = 1.89%
Projected Return after 20 years =RATE(20,-20000,0,723000,1) = 5.35%
Guaranteed Return after 26 years (Age 65) =RATE(26,-20000,0,690000,1) = 2.03%
Projected Return after 26 years (Age 65) =RATE(26,-20000,0,1160000,1) = 5.50%
If those returns are acceptable to you, then go for it. If they’re not then use something else instead. Personally, I find a long-term guaranteed return of 2% pathetic when I can buy a 30 year treasury yielding 3%, guaranteed, and expect 7-8% out of my portfolio long-term. Obviously 5.5% gets a lot closer to 7-8%, but I figure if I’m going to invest in something that isn’t guaranteed, I want a little better return on it than that.
I have been studying financial advice from various books concerning the topic. Why a CFA would recommend a whole life policy is a question that from my studies I am certain I can answer. It is because he is a true CFA. He is truly maximizing his clients gain and minimizing his risk by guaranteeing an investment. Guarantees cannot be given in actuality in the CFA world and since most CFAs make a living by BASHING WHole life insurance it is rare that you will find one who would guide his client into unfamiliar and in most cases forbidden terrain for his clients benefit in spite of his own. What investment can beat the 7-10 Pay return guaranteed projection especially at a young age? I have yet to find one. An intelligent investor would always have permanent life insurance as Ben Stein suggests.Ben Stein is a highly analytic intellectual and if one would take advice from anyone concerning a topic such as finance I’m sure Stein vs Ramsey has an obvious winner.
Both Stein and Ramsey recommend buying life insurance. Here’s Stein’s recommendation:
https://www.newsmax.com/BenStein/Ben-Stein-lifeinsurance-family/2010/10/25/id/374784/
He basically says buy it for the death benefit. If that need is temporary, meet it with term. If permanent, then a permanent policy would be more appropriate.
If your goal is the highest guaranteed return investment, you’ve got to use the guaranteed scale on the whole life. That’s generally in the 2% range. Shoot, a 30 year TIPS is going to beat that. It’s yielding 0.6% real today. Add on 2% inflation and that’s 2.6%, and if inflation spikes, it’s even more guaranteed than whole life.
But if you find whole life insurance to be an awesome investment that meets your needs, knock yourself out. There are plenty of people out there who will sell it to you.
But rather than presenting yourself as an unbiased reader who has just been “studying financial advice from various books” you probably ought to mention to the casual reader that your LinkedIn profile states you’re a “Captive Agent at American Income Life Insurance Company.” Kind of relevant to the discussion, don’t you think? Or do you suppose that is a different Brandon Eason and it’s just a coincidence?
Yes You are correct about the account however I havent logged into my account to update the profile. I am an independent insurance agent. I am currently studying wealth management. based on my studies one should never recommend permanent insurance as a lucrative investment, but to use permanent insurance as a financial safety net and investment would be the most logical thing to do. Ben Stein says to use Permanent Life Insurance for its advantages. Life insurance is only as good as its intentions execution. If you can receive $4 dollars after an investment of $1 and a guaranteed death benefit of $5 dollars can any Financial adviser guarantee that? legally? Why buy term when you could get a 10 Pay Life? If I invest in a term over a 30 year period at $25/month that would be -$9,000 so I would have to make $18,000 just to make that money back.(not including inflation which would probably put it around $21,000 in good times. Unless you do a return of premium term in which you only have to make back the inflation that you lost but at that price it may have been wiser to invest that money in a small cap index fund. You never want to lose money unless you have to lose money. Term always loses money.
I disagree as you might imagine. I’m not sure why the buy term and invest the difference numbers are hard to understand. I’m perfectly fine “losing money” on term insurance. I don’t see it as lost money. It bought me insurance in case something bad happened. Something bad didn’t happen, but I still had the insurance I needed/wanted.
The insurance costs are lost in whole life just as they are in term life.
The whole $4/$1/$5 argument is silly because it doesn’t discuss a length of time. If I can receive $4 for a $1 investment in ten years, that’s a great deal. In 50 years, not so much. Long-term returns of whole life insurance are 2% guaranteed with 5% projected on a policy bought today. If you find that attractive, then buy all you like. I don’t find that to be an attractive rate of return for long-term money, so I don’t own a policy. I don’t find it logical at all to buy this completely optional product.
Haha! My favorite part of this infomercial for whole life is this line:
“…for his clients benefit in spite of his own…”
Hilarious — given that the sale of a whole life policy is one of the most lucrative paydays of a “financial advisor’s” life.
10 Pay 250K for a total of $44,000. Let’s see. U spend less than 1/5 of the actual worth of the policy and the cash value triples and even eventually quadruples the amount of time initial investment. Taxfree. Now that sounds silly right. See if you know your rivals products you know the ones that you cannot beat. Sometimes you must submit to the superior product before you submit to your ego
If you want to discuss an individual life insurance policy, please do me the favor of emailing the illustration.
As I mentioned earlier, quadrupling your money means nothing unless you include the time frame. Quadrupling your money in 10 years is a 15% return. Doing it in 40 years is a 4% return. Doing it in 60 years is a 2% return. A typical whole life policy projects to quadruple my money in 35-40 years. The guarantee is that it will quadruple in 60 years. Frankly, I need my retirement stash to grow faster than that.
It’s not an ego thing, it’s a math thing. Returns that low require savings rates higher than most can tolerate.
Disclosure: I worked for 2 insurance companies in the sales/wholesale side to brokers. One company that sells Par Whole Life, and another that does not. I am a CFP, and I rarely recommend WL for anyone other than juveniles. Why?
– Those high yield bonds from the 80s and 90s are maturing and being replaced by low yielding bonds, then the carrier is stuck with it for the next 10-20-30 years. In 2015, Gov bonds are around 1.5% to 2%, and corporate bonds are around 4%.
– Older richer policies drag down the yields of newer policies. New clients subsidize your older clients.
– Just because the company declares a 7% dividend, it doesn’t mean your clients policy is actually getting 7%. They get a lot less, but that will never be disclosed to you. Ask the Actuary was the asset share is for a policy in a given year, and they won’t tell you. Black box. That assetshare is not equally distributed to all policyholders.
– Overpaid – dividends in the beginning of the policy is really a refund of premiums. Its not until much later when you get to get a real return.
– The net single premium to buy PUA is determined by the company, along with the dividend, and the asset share. Would you buy a non-guaranteed YRT contract that the company can change every year without disclosing to you?
– 0% dividends. It does happen. Especially closed PAR blocks that don’t get enough premiums vs its liabilities
I’m not an actuary or CFA. Just a CFP with background working for insurance companies, full access to actuaries that tell me the truth. They love the product because they can levers to pull to help manage profitability. Good for them…not for consumers. When I buy insurance, I want to transfer risk to an insurance company. With whole life, the risk is transferred back to the client.
Why do you sell life insurance to juveniles who presumably have no need for a death benefit?
Juveniles benefit from the life insurance product as an investment and use the cash value when they go to college or can let it grow as long as they want – retirement for example
As I’ve written elsewhere, I think a life insurance policy is a lousy way to pay for college and for retirement.
I am using a 10 Pay as a burial policy but an IUL is the best life product to use for investment or tax-free retirement. Read the book entitled “Tax Free Retirement”
If you need a life insurance policy to pay for your burial, I’m certainly not taking investment and retirement advice for you. My burial can be paid for from my checking account. I agree with NVMD about the quality of the “book” Tax Free Retirement. The reviews are pretty concerning, such as this one:
“Tax Free Retirement” isn’t a book. It is a sales pamphlet masquerading as a book. The only people who buy it are insurance agents masquerading as investment advisors, so they can give copies to unwitting clients.
I like the math you did here: “If we assume you are 35 and will invest $20,000 per year for 10 years and then let it ride for 25 more until age 70, all at an overall return of 8% reduced by 23.8% taxes on the 2% yield, your money would grow to about $1,866,000, tax-free, at age 70.”
While I’ve seen online investment calculators that let you calculate compound interest and subtract taxes, I haven’t found one that has a “let it ride” field or considers dividend yield. Could you please either point me to an online calculator that will let me do this, or share your equation? Thank you!
It’s been a while since I wrote this, but I’m sure I just used two separate Excel functions, one for the first 10 years and the other for last 25. Very simple.
First 10 years
=FV(7.52%,10,-20000,0,1) = $304,507.29
Next 25 years
=FV(7.52%,25,0,-304507.29,1) = $1,865,645.34
Hope that helps with the math.
And in case it isn’t clear where the 7.52% came from, it’s 8% – 2%* 23.8%.
WCI, I am wondering if I fall into that 5% of people that you could concede a WL policy is a good idea.
I am 45, married, and have 2 young kids under 5. I am set to earn approximately $500k per year for the next decade or so. After taxes I should be able to invest $200k per year. After 3 times resisting the salesman on a 5-pay whole life policy, I am now leaning towards it being a good idea.
The company offering the WL policy is New York Life which they tell me is very credible. I looked it up and it has an “A-” rating with the BBB. they claim to have paid dividends for 163 years straight and they have been in existence for 172 years. So needless to say, a pretty solid company.
The policy on offer is a 5-Pay. $43,523 per year for 5 years, for a total contribution of $217,613. The death benefit is $1M. They project that after 20 years, I can withdraw $33,540 per year for 20 years, then still have $288,249 as the death benefit, or I can surrender the policy for $108,336 instead of keeping the death benefit option.
These all seem like decent safe numbers to me… If I actually receive these numbers they project, I think I would be happy. I would have invested $217k in the first 5 years and would receive $670k in draws from years 21-40 and would still then be able to take out $108k. So my $217k investment would pay in total $778k back on average 30 years later. That would be about 4.25% return I think tax free. Comparing that with putting all of my money in the stock market with a CPA charging 1% and being taxed, that 4.25% is about equivalent to around a 6.5% return would you say? (Hope my thinking is correct)
So, I understand that investing this money with a good CPA instead could yield a bigger return and it should. I wouldn’t have the death benefit however, which is a perk for me with the young kids.
But since I am looking to invest about $200k per year, this WL policy would only be 20-25% of my portfolio. Can I look at this as the safe portion of my investments and put the other $150k in the hands of a good CPA and let him handle the mid risk and high risk portions of my portfolio? (Assuming I want to do 25% safe, 50% moderate, and 25% High Risk).
I do understand that their projections are simply that, projections. Even though they tell me most likely the returns will be higher, I wasn’t born yesterday and know they will probably be lower, but hopefully not drastically lower.
What do you think? a good idea or not?
Many thanks,
Paul
Would you be happy with the guaranteed numbers, or just the projected numbers? That’s the question you need to ask yourself. It also doesn’t sound like you’ve actually run the numbers on the projections. Check out this post to learn how to do that:
https://www.whitecoatinvestor.com/how-to-evaluate-your-own-whole-life-policy/
And for what it’s worth, the number of people for whom one of these policies is a good idea is much lower than 5%. Maybe 1% of docs.
In assessing the return, what do you mean by ” reduced by 23.8% taxes on the 2% yield”? Let’s say I’m investing $200,000 via the 10-pay in a S&P 500 index, and it achieves 8% annual return. Where does the 2% yield come in to play? Thanks in advance!
Taxes would apply in a taxable account that you would compare the returns of a cash value life insurance policy to, not in the policy itself. The yield of an S&P 500 index fund is about 2%. Hope that helps.
Taxes are the real invisible enemy.
Whole life with paid up riders is a very low/zero volatility way to “save” with better than bond returns. It is protected from taxation, bankruptcy, lawsuits and has an added benefit of leverage, liquidity, compound growth and life insurance (LTC and Disability Riders also).
As a father, husband, investor and business owner who has been through BK, divorce, audits, lawsuits etc… I have learned to be prepared for a bumpy ride and changes or deviations that occur in life. it “costs” me more than term, but I win on the long game with preserved opportunity cost, no individual disability / ltc policy premiums and perpetuity of the policy + compounding of the cash value, growth of dividend income (tax free income), and growth of the death benefit over time for my children, their future children, (my unborn grandkids) hence my estate.
Tax free on both sides.
I’m not saying whole life is perfect or to put all your eggs in one basket and I wouldn’t even call whole life an investment. For me it is more of hedging strategy with zero beta, with low-alpha irregardless of stock market performance, with added upside coming from excellent tax savings and compound saving benefits.
The world is not black and white, its gray and risk is often overlooked by investors exactly like ourselves. Even pros are succeptible to missing a changing risk curve.
It does not replace any existing retirement strategies I have. It is just another spoke in my anti-tax “wealth wheel” I also own a Roth IRA, Real Estate, Notes, Royalties etc.
The IRR of my Whole Life policy beats inflation handily and contributions and withdrawls (loans to self) are tax free because I am a business owner. Taxes are my real enemy here!
It’s unusual for the IRR of whole life “to beat inflation handily.” Would you mind sharing your numbers to allow readers to see how yours has done? i.e. what year you bought the policy, the annual premiums, and the current cash value?
Bullseye, Rich Dad! I think that’s exactly the way to think about whole life… Has one spoke in the wheel, a long-term savings spoke that provides all the benefits you mention. WL DOES typically outperform bonds in the long-haul (especially considering tax benefits and the ability to leverage), yet people continue to seek the magic stocks/bonds ratio without considering that there may be better alternatives to that safe, stable, non-correlated portion of the portfolio.
*As, not “has” one spoke…
That’s not true that WL outperforms bonds in the long run. In fact, it is easy to demonstrate that it CANNOT be true. Because whole life companies invest primarily in bonds, yet have their own expenses and profits, the investor cannot then have a HIGHER return than the underlying asset. There’s no magic there.
Particularly in the first decade, when most whole life policies don’t even have a positive return, but even if held until death this holds true. Occasionally I have someone whip out a policy they bought in the 80s and say, “See! I got 7%. That’s more than bonds pay now.” But what they ignore is that you could buy bonds with 10-15% yields in the 1980s.
Buying a policy today and holding it for 5 decades, over that time period I would expect to see a guaranteed return of 2% and a projected return of 5%. If you’re willing to accept returns like that for committing to something for decades in order to get whatever other benefits of the policy that you value, then knock yourself out. I’m not willing to do that. I just see so many better alternatives.
It would be interesting to see the math on a whole life policy based on CURRENT dividend rates in this low interest environment analyzed by some financial software, wouldn’t it? (And of course, there would have to be allowance made for the cost of a term policy when comparing cash value life insurance to a financial product that has no death benefit, and adjustment should be made for tax treatment as well.)
I know someone who could do that… not someone who sells life insurance, but who is in the financial software business. You might be surprised. No doubt, looking at cash only, you’re better off with bonds the first decade, but it wouldn’t take anywhere near 50 years for a policy to outperform 2%.
Anyways, if you’re after facts and not just affirming an existing bias, I’ll see if I can get an analysis for you based on current returns. Bonds are definitely not the only thing that Insurance companies invest in, so yes, they can and do get better returns than what you are claiming.
What’s the point of remaking the wheel? Every whole life insurance illustration does that. If you hold it for 50 years, it guarantees a return of about 2%. At current dividend levels and insurance costs, the typical projected return on a good policy is about 5%. But if your friend wants to recreate the insurance company’s software, he or she could do that. But I don’t see any reason not to trust their ability to do math. What I don’t trust is their sales pitches about the appropriateness of this product for my audience.
I think all stock sales people drink from the same cool aid. here’s an example of your average rate of return on a real world investment. John invests 10k$ leaves it in for 1 year makes 100% return =20k, the second year he loses 50% down to 10 k, the third year he makes 100% again =20k, the fourth year he loses 50% = 10k after four years. 100%-50%+100%-50% divided by 4= 25% average return and he only has 10k in his account with 25% average returns. Sounds like average returns are deceptive. I can buy a ten pay whole life policy with a guaranteed 2.5% min return tied to the S&P 500 index locking in returns monthly on my basis and never have a loss. Increasing life coverage chronic care rider and disability rider to pay my premiums for whole term. All payments after maturity are tax free and continue for life with reduction in life ins each year. I will get 100% of basis back in six years and collect in perpetuity @ 95yrs old family gets 100k. Try that with a 401K.
Whole life policies aren’t tied to the S&P 500 index. Those are IULs. Want to see what deception looks like, take a look at this thread of unhappy whole life insurance purchasers:
https://www.whitecoatinvestor.com/forums/topic/inappropriate-whole-life-policy-of-the-week/
But any rate, yes, you should look at annualized returns instead of average returns. The problem with using insurance products is that despite their lower volatility, their returns, even over long time periods, are disappointing. IUL returns tend to be very similar to whole life returns in the long run- negative for 5-15 years, then a little less than bond-like for decades afterward.
Simply put, a short-pay WL contract funded correctly (and on a younger 20s-40s and healthier individual) from one of the four big “Mutuals” will yield a cumulative IRR of 4.3-4.8% on the cash surrender value. It will do so tax-free.
And it won’t take close to 50 years to happen. More like 20 years.
The taxable equivalent of 5.5-6.5%, depending on your tax bracket and/or the current capital gains rate, which is phenomenal for the safer portion of your portfolio.
A company with a track record of >100 consecutive years of paying dividends is one of the best bets you can make.
Send the illustration. They certainly DO NOT guarantee a 4.8% return on the cash value in 20 years. In fact, they usually don’t even project that over 20 years. You usually have to get out to 30+ years to get there on the illustration.
And give me a break on the “taxable equivalent” non-sense. It might be tax free to borrow against your assets, but it isn’t interest free. That’s like saying “my home appreciated at 4%, but I’m calling it 6% after-tax since I can borrow against it tax-free.”
I absolutely disagree that buying whole life insurance is one of the best bets you can make. Maybe if for some reason you have a lowered life expectancy for a reason the insurance company can’t see…but even then you’re likely better off with a much larger term insurance policy for the same price.
You should do a bit more research as to how money comes out of permanent life insurance, especially from the Big 4 Mutuals. FIFO from a NDR dividends-paying company is a very powerful financial tool.
The first withdrawals at retirement are cost basis (no interest accrued), and it typically takes several years before loans are then taken.
By that time, the annually compounded dividends and asset share are greater than the interest rate accumulating on the loan. This is especially true with non-direct recognition mutual insurance companies, which is a devastatingly powerful tool for income streams.
Essentially, the interest rate on the loan can’t keep up with the NDR dividends being earned so the policy STILL has significant cash value (and death benefit) remaining in the contract after even decades of receiving income from the CSV. At the end of the “insured’s” life, there is STILL death benefit to leave to heirs as a legacy even after a portion is used to pay off the “loan balance”.
But again, this isn’t being done with contracts issued by “Bob’s Life Insurance Company”.
As far as what is “guaranteed”, no financial institution or advisor can “guarantee returns” when dividends are involved. However, the Big 4 (especially NWM and NYL) have 150-160+ CONSECUTIVE years of paying dividends… even though NWM is a direct-recognition Company). That’s including wars, depressions, recessions, 9/11, 2008, etc.
All the “guaranteed” portion of the illustration (from a high-caliber company) tells you is what would happen if a situation arose where the insurance company not only didn’t pay a dividend for the first time in CENTURIES, but what would happen if it stopped paying dividends for every year thereafter. And these are companies with tens of BILLIONS sitting in surplus, to be able to pay dividends regardless of the current financial climate, as well as owning some of the largest federally-backed bonds portfolios in the world.
On top of all that, income from a life insurance contract allows clients to significantly reduce their AGI at retirement, which then enables them to keep a larger portion (if not all) of their Social Security benefit completely tax-free. Basically double-dipping in the tax-advantaged arena without coming out of pocket for MORE savings.
Not all financial products and institutions are created equally, my friend.
[Ad hominem attack deleted.]
FAinTN, What other companies are there in the Big 4? What about Penn Mutual? Is it good? It’s illustrations are too good.
Big 4 Mutuals:
*Northwestern Mutual
*New York Life
Guardian
MassMutual
*=Triple A-rated; highest possible financial strength ratings available to private institutions, according to 4 major credit ratings agencies (Standard & Poors, Fitch, Moodys, AM Best).
I’m very much aware of the option of a partial surrender and FIFO treatment of cash value up to the total contribution.
I also agree that if you plan to borrow against a policy, you are usually better off with a non-direct recognition policy.
Unfortunately, I keep meeting doctors with policies, primarily from the our companies you list, which are not designed this way. To make matters worse, they have been sold a policy when they have an obviously better use of money, such as paying off 8% student loans, getting a match from an employer, maxing out a Roth IRA etc.
I don’t agree with your use of the word “income,” however. Borrowing against your house isn’t exactly income and neither is borrowing against your life insurance policy. Of course it should be tax-free either way. And spending your principal (which is what you are doing with a partial surrender/FIFO) in a life insurance policy is no different than spending the principal of a mutual fund. Neither is really income and thus neither should be taxable.
Would you care to explain why these “great” companies sell such crummy policies if they’re supposed to be owned by the policy holders?
Sorry to butt in, It’s all depends on how you look at it. I would want my money to come back to me in a few years and I still want to hold on to real estate or whole life and pull money from it(dividends) without paying income tax. If it means paying a small interest on it, sure why not?
I think agents are to blame here. They like to design policies only with guaranteed column because it pays higher commissions(100% on yearly premiums) while they should be using Paid Up Additions Rider more which pays only 2%.
About 10 agents I talked to, showed illustrations without PUA rider. only one took the time to design it correctly. it’s not the whole life policies or the life insurance companies, it’s the unethical agents.
I agree paid up additions improve a policy. Just like paying annually. Just like non-direct recognition. Just like 7-10 pay.
By the way, I sent you an email connecting you with your new friend, but I don’t think you submitted a valid email address.
I agree that I have much less of a problem with whole life insurance than the way it is sold. If someone knows how it works, and wants what is offered, they can knock themselves out. But I keep running into doctors sold crummy policies while they aren’t even maxing out retirement accounts and while they’re carrying around 8% student loans. That’s just financial malpractice.
If you go by that logic and say nobody should invest in 401k until they have paid off all their credit cards, then most of America will never invest. lol!
Whole life policies are a way of forced savings with some guarantees and permanent protection. They have to be designed correctly, bought as part of overall portfolio. To say, they are all bad and nobody needs them is another form of financial malpractice imho.
Yeah, I was gonna say… no prudent financial advisor is gonna recommend someone even max 401k contributions (above the employer match) before paying down high-interest debt, especially something upwards of 8%.
They’ll likely be better off paying off their credit cards than investing while carrying 20% interest debt.
I don’t buy the “forced savings” argument either. Those who need to be forced to save are the same folks who surrender early, borrow all the cash value out of their whole life insurance policies, and use their homes as an ATM.
I don’t recall ever saying they are “all bad”, but I think they’re only appropriate for a tiny percentage of people. Even most who purchase them agree! 75% of doctors in the FB group who have bought them regret their decision and 80% of purchasers surrender their policies within 30 years of buying them.
It seems you’ve had a different experience with clientele and perhaps it was a substandard company, agent or product.
All my clients who have purchased short-pay contracts for cash value and tax-advantaged purposes have loved what all it can do for their portfolio.
If it is designed properly (with a very strong Mutual), explained thoroughly, and positioned as a long-term safe vehicle for mitigating taxes and overall volatility, while providing an asset that can be borrowed against without taxes or penalties throughout life, there’s really nothing that compares to it.
FAinTN, would you be interested in designing something for me, 1m DB? I can contact you if you post your contact info. If you are not interested, that’s fine. Thanks for the discussion to you both.
I already CCed you both in an email. Use your real email address next time and stop begging people to post their contact info publicly. If he wanted to do so, he would have already done so.
I don’t have clientele. I have readers. Here are their experiences, take a look yourself:
https://www.whitecoatinvestor.com/forums/topic/inappropriate-whole-life-policy-of-the-week/
[Ad hominem attack deleted.]
Real email? It’s obvious you can see everything and you use it to your advantage to promote this site. No thanks!
Who’s begging? If he is an expert and is posting here to convince people to buy WL, he should post his name and contact info. Nobody asked you to CC anyone. Have a good one!
btw, those stats you mentioned. It’s because of you they are cancelling their policies:) jeez you built a whole religion on this. lol
you gonna delete this post and ban me and go back to your bubble? ooook
No good deed goes unpunished…
Have a nice life. I don’t know why I didn’t block you after the first time you went ad hominem.