Whole Life Insurance for Wealth Building

24 Replies

Does anyone in the bigger pockets community have personal experience with a Whole Life Insurance policy or Wealth Maximization Account to help build their wealth and real-estate portfolio.

@Dustin Somers

I am using maximum overfunded Index Universal Life insurance instead of Whole Life, but the principle is the same.

It’s a long term game as you have to absorb the front loaded fee and it takes 5 to 8 years to make it worth it. But if you are consistent with it, on the long run you’ll be way ahead.

Thank you for the response I will do some research on the maximum overfunded Index Universal Life insurance,   

When funding such a product is it recommended to fund in larger lump sum all at the start or is it wiser to take the small monthly contributions approach. 

The most efficient way to fund it is to put the same amount of money each year for a minimum of 5 years. By doing so you can optimize your life insurance setup to minimize the fee.

I would suggest that you look at @Thomas Rutkowski web site and Youtube channel that have a lot of good info on how to use these kind of policies in combination with real estate investment.

@Dustin Somers

You definitely do not want to fund your policy with a lump sum at the beginning. This will increase the fees and expenses in the policy because the death benefit will be higher. Then those higher fees will continue after your premiums resume at a lower amount.

Life insurance builds wealth for your family after you die. If you want to access that money before death, you are borrowing money from the insurance company that is secured against the cash value in your policy. There is a false message out there that says "be your own banker" using these policies. This is a half truth, because you are not borrowing from yourself or paying the interest to yourself, so you are not "being the banker." The insurance company is the banker and your cash value is just collateral securing the loan.

The other problem is you can't even borrow money until you have cash value built up, which takes years. Even after 5 years of paying in money, the policy usually has less accumulated than you paid in. The reason is because you are paying fees, sales commissions and premature death premiums. 

It is true that your cash value increases through investment over time. It just takes 5 to 10 years to gain momentum. The insurance company invests your money, but ironically they just put it into common investments such as the stock market, mortgage backed securities of even use investment firms to buy real estate. This leaves me questioning, why wouldn't you just invest in those things yourself, but without the fees?

The only way to actually get your money out is to either die (not ideal) or surrender the policy, which usually comes with penalties and taxes. 

No doubt these policies have their place, but more for high net worth people or estate planning (in my opinion). For an investor starting out, the policy cost can heavily burden your monthly expense. This makes it hard to save up for down payments or invest your money. 

Be aware the people who make the most money from these policies are insurance salesman or "financial advisors" as they have been rebranded. These people giving financial advice are heavily compensated to push these products, which means you are receiving biased advice. It is like going to a Ford dealership and asking the sales advisor if Toyota or Ford is a better vehicle or asking them if the warranty is a good investment. 

Get educated, but look for neutral sources instead of people selling insurance. People who profit from selling insurance will present information as educational advertisements. It is a sales person acting like a teacher, relaying their bias opinion as facts. 

Insurance is big money. The insurance lobby is second only to medical/drug lobbyist in the amount of money they spend. This buys influence to protect their industry and the massive profits they rake in. 

Originally posted by @Joe Splitrock :

Life insurance builds wealth for your family after you die. If you want to access that money before death, you are borrowing money from the insurance company that is secured against the cash value in your policy. There is a false message out there that says "be your own banker" using these policies. This is a half truth, because you are not borrowing from yourself or paying the interest to yourself, so you are not "being the banker." The insurance company is the banker and your cash value is just collateral securing the loan.

The other problem is you can't even borrow money until you have cash value built up, which takes years. Even after 5 years of paying in money, the policy usually has less accumulated than you paid in. The reason is because you are paying fees, sales commissions and premature death premiums. 

It is true that your cash value increases through investment over time. It just takes 5 to 10 years to gain momentum. The insurance company invests your money, but ironically they just put it into common investments such as the stock market, mortgage backed securities of even use investment firms to buy real estate. This leaves me questioning, why wouldn't you just invest in those things yourself, but without the fees?

The only way to actually get your money out is to either die (not ideal) or surrender the policy, which usually comes with penalties and taxes. 

No doubt these policies have their place, but more for high net worth people or estate planning (in my opinion). For an investor starting out, the policy cost can heavily burden your monthly expense. This makes it hard to save up for down payments or invest your money. 

Be aware the people who make the most money from these policies are insurance salesman or "financial advisors" as they have been rebranded. These people giving financial advice are heavily compensated to push these products, which means you are receiving biased advice. It is like going to a Ford dealership and asking the sales advisor if Toyota or Ford is a better vehicle or asking them if the warranty is a good investment. 

Get educated, but look for neutral sources instead of people selling insurance. People who profit from selling insurance will present information as educational advertisements. It is a sales person acting like a teacher, relaying their bias opinion as facts. 

Insurance is big money. The insurance lobby is second only to medical/drug lobbyist in the amount of money they spend. This buys influence to protect their industry and the massive profits they rake in.

Few years back I had a rather unpleasant experience in Buckhead Atl.  Nice restaurant  I was treating about 10 or 12 financial advisors to dinner to talk about what I do and how we could work together.. these were independents who can sell away.

by about the 8 or 9th bottle of wine they were feeling no pain and you should have heard them how they talked about their clients and selling them annuities and other products.. basically   well you get the drift.. these were 30 something year old dudes knocking down 200 to 500k year and well just not a nice group.. I paid the tab and never followed up with those guys.  basically disgusting is the term for it.

Originally posted by Jay Hinrichs:
Originally posted by @Joe Splitrock :

Life insurance builds wealth for your family after you die. If you want to access that money before death, you are borrowing money from the insurance company that is secured against the cash value in your policy. There is a false message out there that says "be your own banker" using these policies. This is a half truth, because you are not borrowing from yourself or paying the interest to yourself, so you are not "being the banker." The insurance company is the banker and your cash value is just collateral securing the loan.

The other problem is you can't even borrow money until you have cash value built up, which takes years. Even after 5 years of paying in money, the policy usually has less accumulated than you paid in. The reason is because you are paying fees, sales commissions and premature death premiums. 

It is true that your cash value increases through investment over time. It just takes 5 to 10 years to gain momentum. The insurance company invests your money, but ironically they just put it into common investments such as the stock market, mortgage backed securities of even use investment firms to buy real estate. This leaves me questioning, why wouldn't you just invest in those things yourself, but without the fees?

The only way to actually get your money out is to either die (not ideal) or surrender the policy, which usually comes with penalties and taxes. 

No doubt these policies have their place, but more for high net worth people or estate planning (in my opinion). For an investor starting out, the policy cost can heavily burden your monthly expense. This makes it hard to save up for down payments or invest your money. 

Be aware the people who make the most money from these policies are insurance salesman or "financial advisors" as they have been rebranded. These people giving financial advice are heavily compensated to push these products, which means you are receiving biased advice. It is like going to a Ford dealership and asking the sales advisor if Toyota or Ford is a better vehicle or asking them if the warranty is a good investment. 

Get educated, but look for neutral sources instead of people selling insurance. People who profit from selling insurance will present information as educational advertisements. It is a sales person acting like a teacher, relaying their bias opinion as facts. 

Insurance is big money. The insurance lobby is second only to medical/drug lobbyist in the amount of money they spend. This buys influence to protect their industry and the massive profits they rake in.

Few years back I had a rather unpleasant experience in Buckhead Atl.  Nice restaurant  I was treating about 10 or 12 financial advisors to dinner to talk about what I do and how we could work together.. these were independents who can sell away.

by about the 8 or 9th bottle of wine they were feeling no pain and you should have heard them how they talked about their clients and selling them annuities and other products.. basically   well you get the drift.. these were 30 something year old dudes knocking down 200 to 500k year and well just not a nice group.. I paid the tab and never followed up with those guys.  basically disgusting is the term for it.

The only thing worse than a room full of financial planners is going to an Amway or any other MLM party, haha. When I was younger a buddy said, "come over for drinks" and before you know it, I am in the middle of sales pitch. Awkward...

Originally posted by @Joe Splitrock :

Life insurance builds wealth for your family after you die. If you want to access that money before death, you are borrowing money from the insurance company that is secured against the cash value in your policy. There is a false message out there that says "be your own banker" using these policies. This is a half truth, because you are not borrowing from yourself or paying the interest to yourself, so you are not "being the banker." The insurance company is the banker and your cash value is just collateral securing the loan.

The other problem is you can't even borrow money until you have cash value built up, which takes years. Even after 5 years of paying in money, the policy usually has less accumulated than you paid in. The reason is because you are paying fees, sales commissions and premature death premiums. 

It is true that your cash value increases through investment over time. It just takes 5 to 10 years to gain momentum. The insurance company invests your money, but ironically they just put it into common investments such as the stock market, mortgage backed securities of even use investment firms to buy real estate. This leaves me questioning, why wouldn't you just invest in those things yourself, but without the fees?

The only way to actually get your money out is to either die (not ideal) or surrender the policy, which usually comes with penalties and taxes. 

No doubt these policies have their place, but more for high net worth people or estate planning (in my opinion). For an investor starting out, the policy cost can heavily burden your monthly expense. This makes it hard to save up for down payments or invest your money. 

Be aware the people who make the most money from these policies are insurance salesman or "financial advisors" as they have been rebranded. These people giving financial advice are heavily compensated to push these products, which means you are receiving biased advice. It is like going to a Ford dealership and asking the sales advisor if Toyota or Ford is a better vehicle or asking them if the warranty is a good investment. 

Get educated, but look for neutral sources instead of people selling insurance. People who profit from selling insurance will present information as educational advertisements. It is a sales person acting like a teacher, relaying their bias opinion as facts. 

Insurance is big money. The insurance lobby is second only to medical/drug lobbyist in the amount of money they spend. This buys influence to protect their industry and the massive profits they rake in. 

Life insurance can absolutely build wealth for you while you are alive. Your response is full of untruths. 

1. The fact that an insurance company or any other bank will give you a line of credit secured by your cash value is a beautiful thing. This truly allows for a policy owner to put their money to work in two places at one time.

2. It is not true that you have to wait to access the cash value. The cash value in a properly-designed, maximum over-funded policy is available immediately. 

3. In a properly designed, maximum over-funded policy, the death benefit, fees and commissions are as low as they can legally get and still meet the statutory definition of life insurance.

Originally posted by @Joe Splitrock :

The only thing worse than a room full of financial planners is going to an Amway or any other MLM party, haha. When I was younger a buddy said, "come over for drinks" and before you know it, I am in the middle of sales pitch. Awkward...

MLM and AMway is how REAL estate guru's are modeled same set up same up sells same selling the dreams 

@Dustin Somers life insurance is NOT an investment vehicle. There may be an annuity tied to the whole life policy but if you read the "guaranteed" page, you typically see 5-8 years of $0 in your cash value. Imagine investing for 5 years and nothing to show. Them each year it starts to build at a VERY low rate. Then, typically somewhere in half of the 30 years (its whole life but you're going to pay a ton after 30 years) the cash value tops out then starts to go down. What's happening is you're overpaying for life insurance and they set a little aside for you in a cash value account. Then as you age, the cost of your insurance goes up but your payment stays the same. They take that extra money from the cash value account. After 30 years (more or less), your policy is out of cash reserves and you're so old you can't afford to pay for the policy as it could be several thousand a month. The insurance company then doesn't have to pay a death benefit because you can no longer pay the premium. Their ONLY risk is if you die prematurely, and your beneficiary receives the check. That's NOT how investing works.

I really appreciate all the great input received today,  My goal in starting this post was to gather input from those of you with first hand experience,   I am not selling this product nor do I have any personal experience in the use of it, I have done a fair amount of reading on the subject I do believe that a permanent life insurance policy set up correctly can offer great benefits when it comes to over all wealth and the ability to borrow for outside investments.   I see the apprehensiveness of some due to many of the notes mentioned above but I also believe for every negative there is a positive also many items mentioned above.   

A few questions remain 

1- If I chose to sell a policy after say 25 years and $1,000,000 invested (actual deposits)  what would that sell look like ? to whom do I sell? are the terms negotiable ? could I actually get my invested back out or more ? 

2- what if I had a substantial loan against my policy at the time of death, knowing my cash value is held as collateral would the effect the pay out to my heirs? 

3- I have herd 0f people investing their money into a policy like this rather than their 401k or other traditional retirement plan as their primary source of retirement income ?   How does a monthly withdraw like this work ?   or is this even accurate ?

I have been and will continue to do the research on my own but I am impatient and have burning questions I just don't want to wait and find for myself,  so I figured why not leverage the masterminds of the bigger pockets community  

DS

@Dustin Somers if you want the truth hire a fee only financial advisor. They can give you the real scoop as they have nothing to gain in selling you a product. But why would someone want negative cash flow for 25 or 30 years. Insurance companies are made of money and it comes from profits. They simply invest your money and scrape off some for themselves. They have it figured out where they do not lose, you do. It is death insurance, nothing to do with life. Get run over by a bus and your family collects. 

I have a whole life policy. I use it to store my cash and borrow against when needed. In my opinion, a better vehicle then a 401k which I get taxed when I need to use it or amortized loan amounts at 5 year terms if I need to borrow.

@Dustin Somers

1) don’t buy it if you haven’t maximize other products

2) max out 401k, Roth IRA, HSA, before exploring annuities and whole life

3) save money for a rental first

4) then if you must have a conservative vehicle…. Buy whole life

I own whole life but i have a diversified portfolio…. Money everywhere. Whole life not the best single product IMO. Agents are paid commissions and over sell it. I used to be a whole life salesman…. Sleezy for sure.

My view on the key points of properly setup maximum overfunded life insurance policies (whole life or Index Universal Life) is:

- The cash that you put in the policy grows at approximately 4-6% IRR in a Whole Life, or 5-8% IRR in a IUL, but it takes at least 7 to 15 years to reach these IRR as the first year you start with a negative IRR.

- The cash value available in your policy will be approximately 75 to 85% of your total premium the first year and it will take 5 to 7 years to have a cash value higher than your total premium.

- You can use the cash value as a collateral for a loan (either from the insurance company or from a third party lender). Depending on the lender you can get loan from 2.75% to 6% APR. But as you never touched your cash value, the full amount continues to grow while you are using the money for other investment at the same time. So even with the cost of the loan, your investments are making more money due to the fact that the same money grows at two places at the same time. If you use a third party lender you may also deduct the interest paid as investment expense.

- You can also withdraw money from the policy, but then your cash value will shrink and this vehicle become no better than a 401k. If you withdraw more than your premium paid your gain is taxed. It is better to take a loan from the policy tax free, at a rate that is the same or lower than the cash value growth. During retirement that is a great strategy. A maximum overfunded life insurance policy growth is probably a little bit lower than a Roth 401k or IRA, but during the disbursement phase in retirement, you can take money, in form of a loan, from your insurance policy at a yearly rate of 7 to 8% up to age 120, while in a IRA or 401k you do not want to withdraw more than 4% a year to make it last 30 years.

- When you die, the death benefit will pay back all your outstanding loans and the rest will go to your heirs tax free. If you die young or very old, your heirs will get a lot more money than if you were using other vehicles.

- In a maximum overfunded life policy, there is no risk of the policy imploding due to the overfunding.

- To minimize the cost of the policy, you want to pay the same amount of premium every year for at least 5 years. By doing so, your policy can be set up to buy the minimum amount of death benefit while getting the maximum cash value. It does not mean than in case of hardship one year, if you don't pay the full premium your policy will implode. The minimum premium that you need to pay may be only a few percent of your planned premium, but you would want to catch up the following year as it will hurt your growth.

- Some people will argue that by having only access to 75 to 85% of your money the first year, it is better to invest directly in other vehicles instead of using a maximum overfunded life insurance. It is true than during the first 7 to 15 years you will be ahead doing so
due to the "cost of money", however after that time, the use of a properly setup maximum overfunded life insurance is way ahead. Also, you gain a life insurance that will give your family a death benefit if you die early, protecting them from hardship.

- Life insurance usually is not an asset counted for financial aid.

- Life insurance is an asset protected against creditor.

Originally posted by @Dustin Somers :

I really appreciate all the great input received today,  My goal in starting this post was to gather input from those of you with first hand experience,   I am not selling this product nor do I have any personal experience in the use of it, I have done a fair amount of reading on the subject I do believe that a permanent life insurance policy set up correctly can offer great benefits when it comes to over all wealth and the ability to borrow for outside investments.   I see the apprehensiveness of some due to many of the notes mentioned above but I also believe for every negative there is a positive also many items mentioned above.   

A few questions remain 

1- If I chose to sell a policy after say 25 years and $1,000,000 invested (actual deposits)  what would that sell look like ? to whom do I sell? are the terms negotiable ? could I actually get my invested back out or more ? 

2- what if I had a substantial loan against my policy at the time of death, knowing my cash value is held as collateral would the effect the pay out to my heirs? 

3- I have herd 0f people investing their money into a policy like this rather than their 401k or other traditional retirement plan as their primary source of retirement income ?   How does a monthly withdraw like this work ?   or is this even accurate ?

I have been and will continue to do the research on my own but I am impatient and have burning questions I just don't want to wait and find for myself,  so I figured why not leverage the masterminds of the bigger pockets community  

DS

 1) There’s 0 incentive to sell a policy. Taking out any money (not including loans on a properly structured policy) generally is taxable. If you needed the money and no longer wanted the tax benefits you can surrender it to the company. There are often penalties doing this early on.

2) The loan and any outstanding interest is paid from the death benefit before your beneficiary is paid the balance. 

3) You would take a loan against the policy. At that point you can withdraw a safe amount.  The policy will continue to grow faster than your withdrawals and interest. Using life insurance for retirement has benefits no other retirement vehicle does. If you take money from a retirement account you still have to report it on your taxes at the end of the year. If you take it as a loan from your life insurance, there’s nothing to even report. 

Originally posted by @Frank Posluszny :

@Dustin Somers life insurance is NOT an investment vehicle. There may be an annuity tied to the whole life policy but if you read the "guaranteed" page, you typically see 5-8 years of $0 in your cash value. Imagine investing for 5 years and nothing to show. Them each year it starts to build at a VERY low rate. Then, typically somewhere in half of the 30 years (its whole life but you're going to pay a ton after 30 years) the cash value tops out then starts to go down. What's happening is you're overpaying for life insurance and they set a little aside for you in a cash value account. Then as you age, the cost of your insurance goes up but your payment stays the same. They take that extra money from the cash value account. After 30 years (more or less), your policy is out of cash reserves and you're so old you can't afford to pay for the policy as it could be several thousand a month. The insurance company then doesn't have to pay a death benefit because you can no longer pay the premium. Their ONLY risk is if you die prematurely, and your beneficiary receives the check. That's NOT how investing works.

 A few mistakes here:

1) I’ve never seen a whole life policy with $0 in cash values by year 5. The strategies they’re describing involve significant amounts of cash going into the cash value from day 1. Most whole life policies that are not overfunded do take a while to grow and are more expensive in the long run. That’s what we’re trying to avoid. 

2) The cost of insurance never goes up in a whole life policy. Most universal life policy reserve the right to up the cost of insurance, but there’s always a maximum. The difference is much like a fixed rate loan and variable rate loan. You’ll pay more for a fixed rate because they assume the worst. With a whole life policy the underlying contract is fixed. If you pay the level premium your cash value will never be lowered. As you stated the numbers are in the “guaranteed” column. A carrier can’t divert from that unless you stop paying premium. We’re talking about over funding policies, the point of that is to put enough cash value in the account that the premium is not necessary and the account will grow on its own. Because the underlying costs are fixed in whole life this is incredibly predictable. 

3) The problem you’re describing about the cost of premium going up is more so  associated with term insurance. I’m not saying that’s bad, term is an absolute necessity for everyone. I’m more than happy to offer it. That’s most of my business. The problem is people often want insurance to pay out for the rest of their lives. We’ll, not in their 30’s. Then they don’t care. They get mad when they hit 60 and realize between age, the 3 stents they picked up, and falling interest rates that the cost of insurance is significantly higher.

4) I’ve heard this story a lot! I can guess what happened here. Your idiot brother-in-law got his life insurance license, because … why not? Some marketer in the early 90’s / late 80’s told him that interest rates can never go down and the guarantees from whole life are for dumb people. He bought it and sold you a universal life policy that was built on the assumption that interest rates would stay high, cost of insurance would stay low, and Billy Ray Cyrus would live forever! He has a new product that is a ‘discount whole life policy’. “Take advantage of the discount bro! Don’t pay it off early,” he says. And, because you trust your idiot brother-in-law and can’t by yourself understand the pages of paperwork he pawned off on you (don’t feel bad, most can’t). Because he let his license lapse along with the rest of his life, you’re left alone with your policy and no one to turn to for help. That’s fine though, because he would never hurt you. After 30 years you get a notice in the mail saying that the cost of the coverage went up (since this UL is a variable product and not a whole life policy) but you never raised your premium in line with the increases. The increases weren’t even that bad at first, but since you didn’t pay them they escalated now and for the past 20 years they’ve taken money from the cash value to make up for the premium you didn’t pay. Now, not only do you owe the increased premium, but you owe more premium because The assumptions in the policy assume that you have more than a tootsie roll wrapper left in your cash value account. 

Then you call me cursing out your brother-in-law asking me to fix it or offer you a term policy, whatever is cheaper and get mad when your new term policy is more than the permanent policy you couldn’t spend an extra $25/ month to keep cash flow positive. 

I’ve had this conversation a lot! It happens. It doesn’t make you a bad person, but it also doesn’t make you an insurance expert. That’s quite alright, but please don’t assume all professionals are at the same level and all products act like the one you (or your friend) got and didn’t keep up with. 

@Dustin Somers a great question I like to ask Financial Advisors is "What do you with your money?"

I've been surprised (shocked!) at how often the answer is "index".

Don't listen to anybody that won't buy what they are selling. It can still be a bad idea even if they are but a massive red flag if they don't.

Originally posted by @Frank Posluszny :

@Dustin Somers life insurance is NOT an investment vehicle. There may be an annuity tied to the whole life policy but if you read the "guaranteed" page, you typically see 5-8 years of $0 in your cash value. Imagine investing for 5 years and nothing to show. Them each year it starts to build at a VERY low rate. Then, typically somewhere in half of the 30 years (its whole life but you're going to pay a ton after 30 years) the cash value tops out then starts to go down. What's happening is you're overpaying for life insurance and they set a little aside for you in a cash value account. Then as you age, the cost of your insurance goes up but your payment stays the same. They take that extra money from the cash value account. After 30 years (more or less), your policy is out of cash reserves and you're so old you can't afford to pay for the policy as it could be several thousand a month. The insurance company then doesn't have to pay a death benefit because you can no longer pay the premium. Their ONLY risk is if you die prematurely, and your beneficiary receives the check. That's NOT how investing works.

You are thinking of a "normal" life insurance policy. One where the client's goal is to get as much death benefit as possible for their money. A properly designed maximum over-funded life insurance policy is a completely different animal. In a policy like this, the goal is to maximize the cash value and minimize the death benefit. Approximately 85% of the premium goes to the cash value and it is liquid immediately.

While the cost of insurance increases each year, the amount at risk decrease each year as the cash value increases. In a minimally-funded policy, the kind most people buy, the cost of insurance is more significant. However, in a maximum over-funded policy, the net amount at risk is held to the absolute legal minimum at all times. The cost of insurance is usually less than 0.25% of the cash value  once the policy owner stops funding the policy and reduces the death benefit to the legal minimum. Since this policy is maximum OVER-funded, there is no risk of the policy lapsing due to rising mortality costs. That would be the case in an UNDER-funded policy.

Originally posted by @Zachary Paschke :
Originally posted by @Frank Posluszny:

@Dustin Somers life insurance is NOT an investment vehicle. There may be an annuity tied to the whole life policy but if you read the "guaranteed" page, you typically see 5-8 years of $0 in your cash value. Imagine investing for 5 years and nothing to show. Them each year it starts to build at a VERY low rate. Then, typically somewhere in half of the 30 years (its whole life but you're going to pay a ton after 30 years) the cash value tops out then starts to go down. What's happening is you're overpaying for life insurance and they set a little aside for you in a cash value account. Then as you age, the cost of your insurance goes up but your payment stays the same. They take that extra money from the cash value account. After 30 years (more or less), your policy is out of cash reserves and you're so old you can't afford to pay for the policy as it could be several thousand a month. The insurance company then doesn't have to pay a death benefit because you can no longer pay the premium. Their ONLY risk is if you die prematurely, and your beneficiary receives the check. That's NOT how investing works.

 A few mistakes here:

1) I’ve never seen a whole life policy with $0 in cash values by year 5. The strategies they’re describing involve significant amounts of cash going into the cash value from day 1. Most whole life policies that are not overfunded do take a while to grow and are more expensive in the long run. That’s what we’re trying to avoid. 

2) The cost of insurance never goes up in a whole life policy. Most universal life policy reserve the right to up the cost of insurance, but there’s always a maximum. The difference is much like a fixed rate loan and variable rate loan. You’ll pay more for a fixed rate because they assume the worst. With a whole life policy the underlying contract is fixed. If you pay the level premium your cash value will never be lowered. As you stated the numbers are in the “guaranteed” column. A carrier can’t divert from that unless you stop paying premium. We’re talking about over funding policies, the point of that is to put enough cash value in the account that the premium is not necessary and the account will grow on its own. Because the underlying costs are fixed in whole life this is incredibly predictable. 

3) The problem you’re describing about the cost of premium going up is more so  associated with term insurance. I’m not saying that’s bad, term is an absolute necessity for everyone. I’m more than happy to offer it. That’s most of my business. The problem is people often want insurance to pay out for the rest of their lives. We’ll, not in their 30’s. Then they don’t care. They get mad when they hit 60 and realize between age, the 3 stents they picked up, and falling interest rates that the cost of insurance is significantly higher.

4) I’ve heard this story a lot! I can guess what happened here. Your idiot brother-in-law got his life insurance license, because … why not? Some marketer in the early 90’s / late 80’s told him that interest rates can never go down and the guarantees from whole life are for dumb people. He bought it and sold you a universal life policy that was built on the assumption that interest rates would stay high, cost of insurance would stay low, and Billy Ray Cyrus would live forever! He has a new product that is a ‘discount whole life policy’. “Take advantage of the discount bro! Don’t pay it off early,” he says. And, because you trust your idiot brother-in-law and can’t by yourself understand the pages of paperwork he pawned off on you (don’t feel bad, most can’t). Because he let his license lapse along with the rest of his life, you’re left alone with your policy and no one to turn to for help. That’s fine though, because he would never hurt you. After 30 years you get a notice in the mail saying that the cost of the coverage went up (since this UL is a variable product and not a whole life policy) but you never raised your premium in line with the increases. The increases weren’t even that bad at first, but since you didn’t pay them they escalated now and for the past 20 years they’ve taken money from the cash value to make up for the premium you didn’t pay. Now, not only do you owe the increased premium, but you owe more premium because The assumptions in the policy assume that you have more than a tootsie roll wrapper left in your cash value account. 

Then you call me cursing out your brother-in-law asking me to fix it or offer you a term policy, whatever is cheaper and get mad when your new term policy is more than the permanent policy you couldn’t spend an extra $25/ month to keep cash flow positive. 

I’ve had this conversation a lot! It happens. It doesn’t make you a bad person, but it also doesn’t make you an insurance expert. That’s quite alright, but please don’t assume all professionals are at the same level and all products act like the one you (or your friend) got and didn’t keep up with. 

LOL, There's a few mistakes here in your reply.

You need to understand that there is most definitely a cost of insurance in a whole life. Just because it is lot listed on the illustration, as it is in a universal life, does not mean that it is not there under the hood. Just try to trace out the numbers on an illustration. You can see that the costs are being subtracted from the cash value. 

"Guarantees" are really just the actuarial growth rates that must be maintained to make sure that the policy is adequately funded to cover the liabilities. Usually its a rate that is much less than where the market is actually at Its a worst-case that will hopefully never happen. This is why insurance companies had to lobby congress to lower the guaranteed rate from 4% to 2% last year. At anything less than 4%, their reserves were dropping. 

Whether you call it Annual Renewable Term or mortality costs, its the same thing. The company must set aside money each year to cover the cost of all those 45 year olds who aren't going to make it to 46. All of that money is pooled and, if their mortality tables are accurate, most of it is paid out in claims. That process is repeated over and over each and every year. The cash value must maintain that actuarial rate of growth in order for the policy to have the funds to cover the rising mortality costs. 

The issue that gave Universal Life a bad rap is that back in the 80s, the real rates of interest were far higher than the guaranteed rate of interest. This meant that policy owners could under-fund their policies counting on the cash value growth to make up for the lower amount of premium. However, interest rates began coming down and policy owners didn't make up for the lower growth with more premium. As a result, the policies never achieved the cash value growth necessary to cover their own costs. 

That problem is unique to Minimally-funded policies. Not maximum over-funded policies. Yet uneducated whole life salesmen, who don't even know how their own products work under the hood, continue to try to equate the problems of those minimally-funded policies with the maximum over-funded policies we are talking about here. Apples and oranges.

A Universal Life is really nothing more than an un-bundled whole life. The two major pieces of any permanent policy, the savings mechanism and the mortality costs, were simply broken out and explicitly shown.

Originally posted by @Thomas Rutkowski :
Originally posted by @Zachary Paschke:
Originally posted by @Frank Posluszny:

@Dustin Somers life insurance is NOT an investment vehicle. There may be an annuity tied to the whole life policy but if you read the "guaranteed" page, you typically see 5-8 years of $0 in your cash value. Imagine investing for 5 years and nothing to show. Them each year it starts to build at a VERY low rate. Then, typically somewhere in half of the 30 years (its whole life but you're going to pay a ton after 30 years) the cash value tops out then starts to go down. What's happening is you're overpaying for life insurance and they set a little aside for you in a cash value account. Then as you age, the cost of your insurance goes up but your payment stays the same. They take that extra money from the cash value account. After 30 years (more or less), your policy is out of cash reserves and you're so old you can't afford to pay for the policy as it could be several thousand a month. The insurance company then doesn't have to pay a death benefit because you can no longer pay the premium. Their ONLY risk is if you die prematurely, and your beneficiary receives the check. That's NOT how investing works.

 A few mistakes here:

1) I’ve never seen a whole life policy with $0 in cash values by year 5. The strategies they’re describing involve significant amounts of cash going into the cash value from day 1. Most whole life policies that are not overfunded do take a while to grow and are more expensive in the long run. That’s what we’re trying to avoid. 

2) The cost of insurance never goes up in a whole life policy. Most universal life policy reserve the right to up the cost of insurance, but there’s always a maximum. The difference is much like a fixed rate loan and variable rate loan. You’ll pay more for a fixed rate because they assume the worst. With a whole life policy the underlying contract is fixed. If you pay the level premium your cash value will never be lowered. As you stated the numbers are in the “guaranteed” column. A carrier can’t divert from that unless you stop paying premium. We’re talking about over funding policies, the point of that is to put enough cash value in the account that the premium is not necessary and the account will grow on its own. Because the underlying costs are fixed in whole life this is incredibly predictable. 

3) The problem you’re describing about the cost of premium going up is more so  associated with term insurance. I’m not saying that’s bad, term is an absolute necessity for everyone. I’m more than happy to offer it. That’s most of my business. The problem is people often want insurance to pay out for the rest of their lives. We’ll, not in their 30’s. Then they don’t care. They get mad when they hit 60 and realize between age, the 3 stents they picked up, and falling interest rates that the cost of insurance is significantly higher.

4) I’ve heard this story a lot! I can guess what happened here. Your idiot brother-in-law got his life insurance license, because … why not? Some marketer in the early 90’s / late 80’s told him that interest rates can never go down and the guarantees from whole life are for dumb people. He bought it and sold you a universal life policy that was built on the assumption that interest rates would stay high, cost of insurance would stay low, and Billy Ray Cyrus would live forever! He has a new product that is a ‘discount whole life policy’. “Take advantage of the discount bro! Don’t pay it off early,” he says. And, because you trust your idiot brother-in-law and can’t by yourself understand the pages of paperwork he pawned off on you (don’t feel bad, most can’t). Because he let his license lapse along with the rest of his life, you’re left alone with your policy and no one to turn to for help. That’s fine though, because he would never hurt you. After 30 years you get a notice in the mail saying that the cost of the coverage went up (since this UL is a variable product and not a whole life policy) but you never raised your premium in line with the increases. The increases weren’t even that bad at first, but since you didn’t pay them they escalated now and for the past 20 years they’ve taken money from the cash value to make up for the premium you didn’t pay. Now, not only do you owe the increased premium, but you owe more premium because The assumptions in the policy assume that you have more than a tootsie roll wrapper left in your cash value account. 

Then you call me cursing out your brother-in-law asking me to fix it or offer you a term policy, whatever is cheaper and get mad when your new term policy is more than the permanent policy you couldn’t spend an extra $25/ month to keep cash flow positive. 

I’ve had this conversation a lot! It happens. It doesn’t make you a bad person, but it also doesn’t make you an insurance expert. That’s quite alright, but please don’t assume all professionals are at the same level and all products act like the one you (or your friend) got and didn’t keep up with. 

LOL, There's a few mistakes here in your reply.

You need to understand that there is most definitely a cost of insurance in a whole life. Just because it is lot listed on the illustration, as it is in a universal life, does not mean that it is not there under the hood. Just try to trace out the numbers on an illustration. You can see that the costs are being subtracted from the cash value. 

"Guarantees" are really just the actuarial growth rates that must be maintained to make sure that the policy is adequately funded to cover the liabilities. Usually its a rate that is much less than where the market is actually at Its a worst-case that will hopefully never happen. This is why insurance companies had to lobby congress to lower the guaranteed rate from 4% to 2% last year. At anything less than 4%, their reserves were dropping. 

Whether you call it Annual Renewable Term or mortality costs, its the same thing. The company must set aside money each year to cover the cost of all those 45 year olds who aren't going to make it to 46. All of that money is pooled and, if their mortality tables are accurate, most of it is paid out in claims. That process is repeated over and over each and every year. The cash value must maintain that actuarial rate of growth in order for the policy to have the funds to cover the rising mortality costs. 

The issue that gave Universal Life a bad rap is that back in the 80s, the real rates of interest were far higher than the guaranteed rate of interest. This meant that policy owners could under-fund their policies counting on the cash value growth to make up for the lower amount of premium. However, interest rates began coming down and policy owners didn't make up for the lower growth with more premium. As a result, the policies never achieved the cash value growth necessary to cover their own costs. 

That problem is unique to Minimally-funded policies. Not maximum over-funded policies. Yet uneducated whole life salesmen, who don't even know how their own products work under the hood, continue to try to equate the problems of those minimally-funded policies with the maximum over-funded policies we are talking about here. Apples and oranges.

A Universal Life is really nothing more than an un-bundled whole life. The two major pieces of any permanent policy, the savings mechanism and the mortality costs, were simply broken out and explicitly shown.

 Everything I stated is factual. Most of what you just posted was almost word for word in my post. 

I like IUL and current assumption UL.  My only point is when you get a product like that you need to watch it or have someone as talented as yourself to help you monitor the performance. I specifically pointed that out. You’re right people got statements that said, “minimum premium.” And paid it. Who’s fault is that? 

I am not making a case for Whole Life over UL products. Personally I prefer working with term - as you can tell from the name of my company. 

I never stated that “guarantees” are subject to interest rates. 

Unlike you I don’t limit myself to one product. I offer the product that’s right for the clients needs and risk tolerance. That’s not bad. I think it’s great you specialize in a specialty product. You likely know IUL better than I do. That’s fine it’s not a competition and you don’t have to bring me down to make yourself look good.

Next time I’d hope if you feel like being so critical of a post that you would actually read what I said and ask your self the following question before replying:

“Is this untrue, or do I dislike what I interpret as the implied sentiment?” 

If you simply dislike what you interpret as my implied sentiment… maybe don’t attack me professionally in a public setting. Thanks. 

Isn't it just easier to invest the money with a brokerage in stocks or index funds and then just take a margin loan against it? Its exactly the same logic, your investment continues to grow, you dont need to make any payments, including interest as long as you have enough collateral, if you die the loan gets paid off from your portfolio and your heirs get the rest with a stepped up tax basis. Without the exorbitant fees and "insurance" component of it. 

Originally posted by @Anish Tolia :

Isn't it just easier to invest the money with a brokerage in stocks or index funds and then just take a margin loan against it? Its exactly the same logic, your investment continues to grow, you dont need to make any payments, including interest as long as you have enough collateral, if you die the loan gets paid off from your portfolio and your heirs get the rest with a stepped up tax basis. Without the exorbitant fees and "insurance" component of it. 

There are some differences:

A brokerage account can go lower and then you get a margin call and you need to liquidate everything and lose your shirt. So many people have been bankrupted with margin loans.

In a Whole Life or an Universal Index Life, your cash value can not go lower (except for the insurance fee portion that is known). In a Whole Life it will go up every year by at least the guaranteed rate plus some variable dividend. In an Index Universal Life, some year you will get no growth (when the underlying index is negative), or you will get a growth that can be up to the cap of your underlying indexing.


A margin loan will only give you up to 25 to 60% of your brokerage account value.

As there is no risk of loss, you can get a loan up to more than 90% of your life insurance cash value. It is a very secure collateral for the lender and they can give you better rate too.

A better and safer comparison would be a mortgage refinance. You get equity out of your home while the value of the house continue to grow. But again, as we have seen with the real estate market crash, when the value goes down, you may get in trouble.

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