Cashing out early on life insurance ?

Question

I am not sure if I read it here on BP or somewhere else but I remember reading somewhere that people would get life Insurance and wait 1-2 years and then cash out $250-500k in one shot.

Anyone heard anything about this

James Whitney · Answer

@Thomas Rutkowski I'm not going to argue I do understand my products. I also understand insurance policies are very poor investments. There are much better options out there. Have a good day.

Zachary Paschke · Answer

@James Whitney, I would have to agree with @Thomas Rutkowski. To say cash value never makes sense means you fundamentally don’t understand the product. That’s ok. You don’t have to. It’s not your main gig. Obviously, cash value doesn’t make sense all the time, but the buy term value invest the difference has been disproven so many times. You don’t have to engage in the debate, but don’t scare people away from hedging their investments and protecting income from taxes. My generation is really struggling with the concern of running out of retirement income.

@Ashish Acharya, you’re right that insurance companies are starting to give people more opportunities to access their money before they pass. This actually is an industry response to people selling their policies (insurance companies really don’t like people selling their policies). These are called “accelerated death benefit riders,” or, “living benefits riders,” more commonly. Most companies have a terminal illness rider included at no additional cost. Many companies are offering products that include critical or chronic illness riders (sometimes at no additional cost). Chronic illness is typically achieved when you need long term assisted care (not necessary a terminal illness). One of my whole life companies even offers interest free loans to people who are terminally ill so the cash value can continue to grow unencumbered and their family can have more money left when they pass.

@Arty Fresh, Thomas is right. What you’re probably hearing is people borrowing against the cash value in their policies. Cash value policies can be structured to continue earning money even when you’ve borrowed against them. A properly set up policy has several exit plans - or ways to get money out of the policy.

Thomas Rutkowski · Answer

@Arty Fresh

I think you are confusing the cash value with the death benefit. You can certainly over fund a life insurance policy to build up cash value that can be leverage immediately. Just understand that the cash value is not the death benefit.

In order to have $250,000 of cash value, you would have had to pay a premium of about $295K. Or $50K of annual premium for 5 years. or $25K of annual premium for about 8 years...The death benefit associated with that much premium would be much higher (>$10M, depending on age).

Here is a good tutorial on life insurance...

https://www.biggerpockets.com/...

The concept of leveraging cash value to invest in real estate is thoroughly examined in this thread...

https://www.biggerpockets.com/forums/519/topics/245380-paradigm-life-infinite-banking-whole-life-insurance?page=3

Hope this helps!

Thomas Rutkowski · Answer

@James Whitney

That is total nonsense. You are doing your clients a disservice because you don't understand the products you sell.

https://www.biggerpockets.com/member-blogs/7595/86513-should-you-buy-term-and-invest-the-difference

James Whitney · Answer

@Ashish Acharya I totally agree. I sell health and life insurance and I will not sell someone universal or any other whole life that has the separate cash value attached to it. You are much better off buying a term policy and investing the difference in some other way.

Ashish Acharya · Answer

Wish it was true, then everyone would be doing it.

If you have a cash surrender value, lets say universal life insurance, you can surrender the policy and take the money out. But that is your contribution money plus your earning, it’s not free money.

If you are chronically ill, you can do early “cash out”, but you must be dying. OR you can also sell it if you are about to die and want the money before you die. Let’s hope thats not the case. :)

Cashing out early on life insurance ?

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