Anyone here listen to the Lab Coat Agents podcast? I was listening to one this morning (https://podcasts.apple.com/us/...) and the guy was talking about putting your money into whole life insurance company's general funds. He said they guarantee a 4% return and that you can borrow against it very easily. I actually heard something very similar recently from an agent in my area. This is news to me, but is this something anyone else is familiar with?
@Shaun R. be careful, whole life is 15-20x more expensive than term for the same pay out upon death (ie death benefit) but they are usually structured so the *Insurance Company Keeps* the savings component of the policy upon your death that you’ve been paying extra to build up. It’s not an efficient financial product imo especially when you can borrow against better performing investments (ie retirement accounts, taxable brokerage accounts, etc.) Buy term insurance, save the difference and invest in something else with a better return. 4%? No thanks. Is there anyone who recommends whole life insurance policies besides insurance salesmen? Maybe a Financial Planner on BP can weigh in? I’ve heard they can serve a purpose for a very small % of very wealthy individuals but can’t remember how exactly.
Hey Brian, here’s a little clarity on some of the things you brought up:
1) fair warning I am a degenerate life insurance agent.
2) Whole Life is more expensive than term (albeit not generally 15-20 times - usually more like 4 times) for 2 reasons:
- It is guaranteed to pay out. Traditional term policies don’t get issued out past the age of 85 for a reason. That’s when the average person passes away. Over 95% term policies will never pay out. It is not the most cost effective way to get lifetime protection. There is a product called a GUL that offers the long term protection with reduced cash values for a savings in cost.
- Building cash value. Cash value is beneficial. Why buy stocks when options are less expensive? They’re different products for different purposes. There’s value in the extra money a stock brings.
3) Is it really more expensive? I’ve done the math before. The average life insurance client takes out 7 life insurance policies over the course of their lives. Comparing the cost of one 20 year term policy to one whole life policy isn’t honest. If you insure yourself from age 20-80 that’s 4 20 year policies. Before you say you’ll be self insured, my average clients age 60 and that person is most often looking for another 10-20 year term policy (most are surprised they can’t get an off the shelf 30 year).
If you’re healthy and young you can get $500k for around $30/month. You can’t if you’re 60. Someone age 60 looking for a term policy in average health will pay $380/month (it can cost much more depending on health). If you average that cost over the course of 60 years it works out to around $147,600. That is just cost. For something over 95% of people will never see a return on.
4) 4% guaranteed interest for a dividend earning WL policy is the minimum amount a policy will pay. WL companies with dividends find ways to pay competitive ones.
5) Life insurance is not primarily an investment. I didn’t liquidate my rentals to buy more WL. I promise, I’m here for more than just following around Joe Splitrock. I’m here because I’m an active real estate investor. Permanent life insurance is a hedge. What if I die? What if I get sick? What if I need supplemental income when I retire? You can take out as many IRAs and brokerage accounts as you want. They won’t pay a death benefit. You die tomorrow and your family only has what’s in the account- hopefully it’s not a bad year. Hopefully I had enough money to feed it. If I have partners hopefully my wife can afford to pay them off if she doesn’t want to work with them.
6) Most financial planners collect a commission. Their commission (unlike an insurance agent) is based on your assets managed. They make way more off investment accounts than they do life insurance. I had another agent tell me that a financial planner hired him to find out how to liquidate a clients life insurance policy. The agent explained it wasn’t in the best interest of the client, the financial planner told him he didn’t care - he just wanted the funds under management. They have just as much bias as an insurance agent if not more (unless they’re fee only - they’re still just sales people). Keep in mind during your CFP there are no classes on real estate. If an agent properly structures your policy for cash value accumulation they’re actually taking a significant discount on commissions.
Which begs another question- who learns the ins and outs of the life insurance business for free? I’ve read a lot of articles and listened to a lot of podcasts about life insurance by people who are not agents and every single one has had factual errors.
Yes, life insurance agents as well as financial planners, auto mechanics, lawyers, bartenders, real estate agents, property managers, doctors, and the guy at Best Buy are all sales people. These are people that are compensated for being experts at what they do. We’re no different. It takes a lot of work to be good at what I do. You can’t buy a life insurance policy without someone earning a commission. If I get arrested I’m not going to google a legal blog, I’m going to hire a lawyer. We are legally responsible for our recommendations that we make.
7) I don’t recommend WL to all of my clients. This might be surprising. When a client comes to me with a need my recommendation is based on the best interest of the client, not my commission. Strangely Enough people talk about the commissions on WL policies. I make way more money from term policies. Term insurance is a cash cow for insurance companies because it rarely gets used. The profits from that go to paying WL dividends. For clients that do get WL policies we maximize them for growing cash value A WL policy off the shelf doesn’t do that.
8) Life insurance companies steal your cash value - not completely true. A WL policy has two parts. Cash value and an insurance component. The policy is designed for the insurance component to pay the difference between your cash value amount and the death benefit. The policy would be more expensive if you wanted both. Like I said before, if you simply want a death benefit until age 121, there’s cheaper ways to do it.
9) You didn’t ask about taxes, but you invoked rich people and retirement accounts. Retirement accounts and specifically RMDs (especially for beneficiaries after a death) can cause real tax problems- God forbid you have a kid trying to find college when you pass and they have to take RMDs. The tax-free nature of life insurance policies. Wealthy people- life insurance is an easy way to transfer wealth.
10) I almost forgot- borrowing from retirement accounts and brokerage accounts. Assuming you're not trying to suggest someone can borrow from an IRA- the process is much easier from a life insurance policy, no required payment schedules, and you don't have the 50% borrowing limit. Borrowing from IULs can be incredibly inexpensive as well. Suggesting that IULs or WL policies have low growth is just not true. Lower returns than market investing? Sometimes, not all the time. WL and IULs don't lose money. Once you get paid a dividend the company can't take it back because they had a bad year the following year. Speaking of 4% guaranteed- where else can you get that kind of interest (assuming you forget about the additional dividend payments) guaranteed?
Hope that was helpful despite the fact I’m a good-for-nothing sales person. 😉
Anyone here listen to the Lab Coat Agents podcast? I was listening to one this morning (https://podcasts.apple.com/us/...) and the guy was talking about putting your money into whole life insurance company's general funds. He said they guarantee a 4% return and that you can borrow against it very easily. I actually heard something very similar recently from an agent in my area. This is news to me, but is this something anyone else is familiar with?
You posted the magic words "whole life" and that is all it takes to let the insurance agent genies out of their bottles. Just be aware that "financial planners" are usually insurance agents who financially gain from you buying what they are selling. Seek out independent data on these policies, not marketing materials published by insurance companies.
I'm not looking at this for the insurance. And this guy was even saying that a whole life insurance policy is about the worst investment you can make. The benefit was that while you're collecting this small, guaranteed 4% return, you have access to the money. He says certain companies will let you borrow up to the amount that you have in the account very easily. I was curious if this is a viable strategy, or just a guy trying to sell another course.
I'm not looking at this for the insurance. And this guy was even saying that a whole life insurance policy is about the worst investment you can make. The benefit was that while you're collecting this small, guaranteed 4% return, you have access to the money. He says certain companies will let you borrow up to the amount that you have in the account very easily. I was curious if this is a viable strategy, or just a guy trying to sell another course.
You get the insurance and pay for it regardless of if you want it. The way it works is you borrow from the insurance company and use the cash value of the insurance as collateral. The investment is the cash value of the policy. To access the money, you either take a loan or surrender your policy (which leaves you open to surrender fees) or you die and the money goes to your beneficiaries.
Some life insurance agent probably pee'd in @Joe Splitrock's wheaties in a prior life. He hates life insurance and doesn't seem to understand the difference between a minimally-funded policy and one that is designed for maximum cash value for these types of private banking strategies. He'd rather hate life insurance than employ a strategy that actually results in building more wealth.
You're on the right track, just be careful, any agent touting the "guaranteed" rates, may not know his business. The Guaranteed Rate is a worst-case scenario. The dividend rate of most whole life companies is well in excess of the Guaranteed Rate. The cash value in a permanent life insurance policy truly represents the policy owner saving up the death benefit for the insured. As a result, you can see that the insurance company would have a vested interest in the cash value performing as well as possible. They use the Guaranteed Rate only for pricing out the policies. They don't expect to ever have to pay it.
This topic was beat to death on this thread: https://www.biggerpockets.com/forums/519/topics/245380-paradigm-life-infinite-banking-whole-life-insurance?page=3
If you want to network with people successfully utilizing "The Double Play", just let me know. I have a user's group with well over a hundred members.
I'm not looking at this for the insurance. And this guy was even saying that a whole life insurance policy is about the worst investment you can make. The benefit was that while you're collecting this small, guaranteed 4% return, you have access to the money. He says certain companies will let you borrow up to the amount that you have in the account very easily. I was curious if this is a viable strategy, or just a guy trying to sell another course.
Hey Shaun,
As has already been mentioned, there are lots of opinions here on BP about life insurance.
Rather than thinking of it as an investment, I encourage you to think of it as a place to store cash. Cash is the correct asset to which whole life insurance should be compared.
If you have a open mind to look at the math around whole life insurance *as a place to store cash*, it is a compelling story.
PM me if you ever want to have a chat and look at some math. Good luck!
I'm using the cash value IUL (Index Universal Life) Insurance to place my reserve requirement for my conventional loans. This way it is not sitting idle and it serve as a high performance saving account by being supercharge with a whole life insurance face value and my money grows tax free and I have access to use it during my life time if I need to do so. To me it serves as another vehicle to grow wealth parallel to investing in real estate. It's less costly and less work then real estate because it does not require the huge down payment as real estate. The legacy I would have built up to pass on to my beneficiary is going to out perform that of my real estate portfolio. I am able to grow this legacy starting with using money I was holding on to as a reserve requirement for my real estate investment. So for me, cash value life insurance is an enhancer to growing my wealth quicker. Where I stand today, my beneficiaries will receive more than twice of what they would received if I only do real estate investing. By investing both in real estate and cash value life insurance, I am able to build a larger legacy to leave behind to my beneficiaries by placing the reserve money I need to invest in real estate into an IUL policy. Conventional lenders allow for it use as reserve but some hard money lender won't.
@Shaun R. be careful, whole life is 15-20x more expensive than term for the same pay out upon death (ie death benefit) but they are usually structured so the *Insurance Company Keeps* the savings component of the policy upon your death that you’ve been paying extra to build up. It’s not an efficient financial product imo especially when you can borrow against better performing investments (ie retirement accounts, taxable brokerage accounts, etc.) Buy term insurance, save the difference and invest in something else with a better return. 4%? No thanks. Is there anyone who recommends whole life insurance policies besides insurance salesmen? Maybe a Financial Planner on BP can weigh in? I’ve heard they can serve a purpose for a very small % of very wealthy individuals but can’t remember how exactly.
@Shaun R. be careful, whole life is 15-20x more expensive than term for the same pay out upon death (ie death benefit) but they are usually structured so the *Insurance Company Keeps* the savings component of the policy upon your death that you’ve been paying extra to build up. It’s not an efficient financial product imo especially when you can borrow against better performing investments (ie retirement accounts, taxable brokerage accounts, etc.) Buy term insurance, save the difference and invest in something else with a better return. 4%? No thanks. Is there anyone who recommends whole life insurance policies besides insurance salesmen? Maybe a Financial Planner on BP can weigh in? I’ve heard they can serve a purpose for a very small % of very wealthy individuals but can’t remember how exactly.
Hey Brian, here’s a little clarity on some of the things you brought up:
1) fair warning I am a degenerate life insurance agent.
2) Whole Life is more expensive than term (albeit not generally 15-20 times - usually more like 4 times) for 2 reasons:
- It is guaranteed to pay out. Traditional term policies don’t get issued out past the age of 85 for a reason. That’s when the average person passes away. Over 95% term policies will never pay out. It is not the most cost effective way to get lifetime protection. There is a product called a GUL that offers the long term protection with reduced cash values for a savings in cost.
- Building cash value. Cash value is beneficial. Why buy stocks when options are less expensive? They’re different products for different purposes. There’s value in the extra money a stock brings.
3) Is it really more expensive? I’ve done the math before. The average life insurance client takes out 7 life insurance policies over the course of their lives. Comparing the cost of one 20 year term policy to one whole life policy isn’t honest. If you insure yourself from age 20-80 that’s 4 20 year policies. Before you say you’ll be self insured, my average clients age 60 and that person is most often looking for another 10-20 year term policy (most are surprised they can’t get an off the shelf 30 year).
If you’re healthy and young you can get $500k for around $30/month. You can’t if you’re 60. Someone age 60 looking for a term policy in average health will pay $380/month (it can cost much more depending on health). If you average that cost over the course of 60 years it works out to around $147,600. That is just cost. For something over 95% of people will never see a return on.
4) 4% guaranteed interest for a dividend earning WL policy is the minimum amount a policy will pay. WL companies with dividends find ways to pay competitive ones.
5) Life insurance is not primarily an investment. I didn’t liquidate my rentals to buy more WL. I promise, I’m here for more than just following around Joe Splitrock. I’m here because I’m an active real estate investor. Permanent life insurance is a hedge. What if I die? What if I get sick? What if I need supplemental income when I retire? You can take out as many IRAs and brokerage accounts as you want. They won’t pay a death benefit. You die tomorrow and your family only has what’s in the account- hopefully it’s not a bad year. Hopefully I had enough money to feed it. If I have partners hopefully my wife can afford to pay them off if she doesn’t want to work with them.
6) Most financial planners collect a commission. Their commission (unlike an insurance agent) is based on your assets managed. They make way more off investment accounts than they do life insurance. I had another agent tell me that a financial planner hired him to find out how to liquidate a clients life insurance policy. The agent explained it wasn’t in the best interest of the client, the financial planner told him he didn’t care - he just wanted the funds under management. They have just as much bias as an insurance agent if not more (unless they’re fee only - they’re still just sales people). Keep in mind during your CFP there are no classes on real estate. If an agent properly structures your policy for cash value accumulation they’re actually taking a significant discount on commissions.
Which begs another question- who learns the ins and outs of the life insurance business for free? I’ve read a lot of articles and listened to a lot of podcasts about life insurance by people who are not agents and every single one has had factual errors.
Yes, life insurance agents as well as financial planners, auto mechanics, lawyers, bartenders, real estate agents, property managers, doctors, and the guy at Best Buy are all sales people. These are people that are compensated for being experts at what they do. We’re no different. It takes a lot of work to be good at what I do. You can’t buy a life insurance policy without someone earning a commission. If I get arrested I’m not going to google a legal blog, I’m going to hire a lawyer. We are legally responsible for our recommendations that we make.
7) I don’t recommend WL to all of my clients. This might be surprising. When a client comes to me with a need my recommendation is based on the best interest of the client, not my commission. Strangely Enough people talk about the commissions on WL policies. I make way more money from term policies. Term insurance is a cash cow for insurance companies because it rarely gets used. The profits from that go to paying WL dividends. For clients that do get WL policies we maximize them for growing cash value A WL policy off the shelf doesn’t do that.
8) Life insurance companies steal your cash value - not completely true. A WL policy has two parts. Cash value and an insurance component. The policy is designed for the insurance component to pay the difference between your cash value amount and the death benefit. The policy would be more expensive if you wanted both. Like I said before, if you simply want a death benefit until age 121, there’s cheaper ways to do it.
9) You didn’t ask about taxes, but you invoked rich people and retirement accounts. Retirement accounts and specifically RMDs (especially for beneficiaries after a death) can cause real tax problems- God forbid you have a kid trying to find college when you pass and they have to take RMDs. The tax-free nature of life insurance policies. Wealthy people- life insurance is an easy way to transfer wealth.
10) I almost forgot- borrowing from retirement accounts and brokerage accounts. Assuming you're not trying to suggest someone can borrow from an IRA- the process is much easier from a life insurance policy, no required payment schedules, and you don't have the 50% borrowing limit. Borrowing from IULs can be incredibly inexpensive as well. Suggesting that IULs or WL policies have low growth is just not true. Lower returns than market investing? Sometimes, not all the time. WL and IULs don't lose money. Once you get paid a dividend the company can't take it back because they had a bad year the following year. Speaking of 4% guaranteed- where else can you get that kind of interest (assuming you forget about the additional dividend payments) guaranteed?
Hope that was helpful despite the fact I’m a good-for-nothing sales person. 😉
Anyone here listen to the Lab Coat Agents podcast? I was listening to one this morning (https://podcasts.apple.com/us/...) and the guy was talking about putting your money into whole life insurance company's general funds. He said they guarantee a 4% return and that you can borrow against it very easily. I actually heard something very similar recently from an agent in my area. This is news to me, but is this something anyone else is familiar with?
You posted the magic words "whole life" and that is all it takes to let the insurance agent genies out of their bottles. Just be aware that "financial planners" are usually insurance agents who financially gain from you buying what they are selling. Seek out independent data on these policies, not marketing materials published by insurance companies.
Joe, I’m an expert. Why do you comment on all of these posts?
Where do you find this independent data? I’d love to see it.
I'm using the cash value IUL (Index Universal Life) Insurance to place my reserve requirement for my conventional loans. This way it is not sitting idle and it serve as a high performance saving account by being supercharge with a whole life insurance face value and my money grows tax free and I have access to use it during my life time if I need to do so. To me it serves as another vehicle to grow wealth parallel to investing in real estate. It's less costly and less work then real estate because it does not require the huge down payment as real estate. The legacy I would have built up to pass on to my beneficiary is going to out perform that of my real estate portfolio. I am able to grow this legacy starting with using money I was holding on to as a reserve requirement for my real estate investment. So for me, cash value life insurance is an enhancer to growing my wealth quicker. Where I stand today, my beneficiaries will receive more than twice of what they would received if I only do real estate investing. By investing both in real estate and cash value life insurance, I am able to build a larger legacy to leave behind to my beneficiaries by placing the reserve money I need to invest in real estate into an IUL policy. Conventional lenders allow for it use as reserve but some hard money lender won't.
Christina, I’m sorry you got tricked into wasting your money 😉. Congrats! Way to maximize that investment!
@Shaun R. I also heard a podcast from Dave Ramsey yesterday about whole life, and he swears against it. He basically says it is the dumbest life insurance policy because it only benefits the agent who sells it.
@Shaun R. be careful, whole life is 15-20x more expensive than term for the same pay out upon death (ie death benefit) but they are usually structured so the *Insurance Company Keeps* the savings component of the policy upon your death that you’ve been paying extra to build up. It’s not an efficient financial product imo especially when you can borrow against better performing investments (ie retirement accounts, taxable brokerage accounts, etc.) Buy term insurance, save the difference and invest in something else with a better return. 4%? No thanks. Is there anyone who recommends whole life insurance policies besides insurance salesmen? Maybe a Financial Planner on BP can weigh in? I’ve heard they can serve a purpose for a very small % of very wealthy individuals but can’t remember how exactly.
To add on to the good info Zachary posted.
If a 45 yr old makes payments of $290/mo for 20yrs on a $1M 20yr term policy and your cost of money is 4%, unless you die in that 20 yr term, the net compound cost of that term policy is $107,772 or -4%. It is a pure cost.
If a 45 yr old makes payments of $1,465/mo for 20yrs on a $1M whole life policy, and your cost of money is 4%, the 20yr compound cost of those payments is $544,439. But you will have $480,131 in cash value at the end of those 20yrs. The 20yr *net* compound cost is $64,308.
The payment is 5x higher (not 15-20x), but it was a 40% reduction in cost. All because this person had a permanent, guaranteed death benefit.
If someone takes $1 from their checking account and puts that $1 in their savings account, is that an expensive transaction? The same thing is happening with cash value life insurance. It's just that this particular "savings account" earns upwards of 40x over that of a bank, has creditor protection, is tax-deferred, and comes with death and disability protection baked-in.
Payment ≠ Cost
@Shaun R. I also heard a podcast from Dave Ramsey yesterday about whole life, and he swears against it. He basically says it is the dumbest life insurance policy because it only benefits the agent who sells it.
The ol' tried-and-true "Dave Ramsey says it's dumb." If he understood payments vs. cost, the math says otherwise.
btw - Dave Ramsey also charges money.
@John Perrings to be honest I don’t know much about life insurance at all. I just shared a contradicting argument that I coincidentally heard on the same day. I will have to do some research.
And yes I know he does, I don’t really agree with his methods so I listen to him and Robert Kiyosaki to get both sides of the coin.
@Shaun R. I also heard a podcast from Dave Ramsey yesterday about whole life, and he swears against it. He basically says it is the dumbest life insurance policy because it only benefits the agent who sells it.
Dave Ramsey also says to not take a loan when buying a rental. He’s preaching to people who are struggling to get out of debt. I’d agree people trying to get out of debt should buy WL.
Thank you John and Zachary. I see the value of an IUL it can be use to enhance my real estate investing and pass on a much larger legacy to my beneficiary tax free.
@John Perrings to be honest I don’t know much about life insurance at all. I just shared a contradicting argument that I coincidentally heard on the same day. I will have to do some research.
And yes I know he does, I don’t really agree with his methods so I listen to him and Robert Kiyosaki to get both sides of the coin.
Yes, in general, I think Ramsey is good on the subject of getting out of high interest debt (but not great).
Happy to help point you in the right direction on life insurance if you ever want to discuss. Just PM me.
@Shaun R. be careful, whole life is 15-20x more expensive than term for the same pay out upon death (ie death benefit) but they are usually structured so the *Insurance Company Keeps* the savings component of the policy upon your death that you’ve been paying extra to build up. It’s not an efficient financial product imo especially when you can borrow against better performing investments (ie retirement accounts, taxable brokerage accounts, etc.) Buy term insurance, save the difference and invest in something else with a better return. 4%? No thanks. Is there anyone who recommends whole life insurance policies besides insurance salesmen? Maybe a Financial Planner on BP can weigh in? I’ve heard they can serve a purpose for a very small % of very wealthy individuals but can’t remember how exactly.
To add on to the good info Zachary posted.
If a 45 yr old makes payments of $290/mo for 20yrs on a $1M 20yr term policy and your cost of money is 4%, unless you die in that 20 yr term, the net compound cost of that term policy is $107,772 or -4%. It is a pure cost.
If a 45 yr old makes payments of $1,465/mo for 20yrs on a $1M whole life policy, and your cost of money is 4%, the 20yr compound cost of those payments is $544,439. But you will have $480,131 in cash value at the end of those 20yrs. The 20yr *net* compound cost is $64,308.
The payment is 5x higher (not 15-20x), but it was a 40% reduction in cost. All because this person had a permanent, guaranteed death benefit.
If someone takes $1 from their checking account and puts that $1 in their savings account, is that an expensive transaction? The same thing is happening with cash value life insurance. It's just that this particular "savings account" earns upwards of 40x over that of a bank, has creditor protection, is tax-deferred, and comes with death and disability protection baked-in.
Payment ≠ Cost
Hmmm...just pulled up a free quote from Zander Insurance on a 20 Year Term Life Insurance of $1M for a male age 45 and have multiple quotes for under $100/mo. Not sure why you used $290.
Pretty sure a simple investing calculator would tell me if I invested the difference of $1,365/mo ($1,465-$100 = $1,365) at a very reasonable rate of return I would have way more than $480k at the end of 20 years.
Setting that aside, I have a couple questions:
1) Is it true that whole life insurance policies are structured so that upon one's death, the death benefit is paid out but the cash value, ie "savings account" portion of the policy is forfeited by the deceased (kept by the insurance company)?
2) Are there other investing vehicles that also provide protection from creditors, are tax deferred and that you can borrow from/against?
3) Is this a product that you sell/recommend to all of your clients or just some of them and why?
Thanks for weighing in!
@Shaun R. be careful, whole life is 15-20x more expensive than term for the same pay out upon death (ie death benefit) but they are usually structured so the *Insurance Company Keeps* the savings component of the policy upon your death that you’ve been paying extra to build up. It’s not an efficient financial product imo especially when you can borrow against better performing investments (ie retirement accounts, taxable brokerage accounts, etc.) Buy term insurance, save the difference and invest in something else with a better return. 4%? No thanks. Is there anyone who recommends whole life insurance policies besides insurance salesmen? Maybe a Financial Planner on BP can weigh in? I’ve heard they can serve a purpose for a very small % of very wealthy individuals but can’t remember how exactly.
Hey Brian, here’s a little clarity on some of the things you brought up:
1) fair warning I am a degenerate life insurance agent.
2) Whole Life is more expensive than term (albeit not generally 15-20 times - usually more like 4 times) for 2 reasons:
- It is guaranteed to pay out. Traditional term policies don’t get issued out past the age of 85 for a reason. That’s when the average person passes away. Over 95% term policies will never pay out. It is not the most cost effective way to get lifetime protection. There is a product called a GUL that offers the long term protection with reduced cash values for a savings in cost.
- Building cash value. Cash value is beneficial. Why buy stocks when options are less expensive? They’re different products for different purposes. There’s value in the extra money a stock brings.
3) Is it really more expensive? I’ve done the math before. The average life insurance client takes out 7 life insurance policies over the course of their lives. Comparing the cost of one 20 year term policy to one whole life policy isn’t honest. If you insure yourself from age 20-80 that’s 4 20 year policies. Before you say you’ll be self insured, my average clients age 60 and that person is most often looking for another 10-20 year term policy (most are surprised they can’t get an off the shelf 30 year).
If you’re healthy and young you can get $500k for around $30/month. You can’t if you’re 60. Someone age 60 looking for a term policy in average health will pay $380/month (it can cost much more depending on health). If you average that cost over the course of 60 years it works out to around $147,600. That is just cost. For something over 95% of people will never see a return on.
4) 4% guaranteed interest for a dividend earning WL policy is the minimum amount a policy will pay. WL companies with dividends find ways to pay competitive ones.
5) Life insurance is not primarily an investment. I didn’t liquidate my rentals to buy more WL. I promise, I’m here for more than just following around Joe Splitrock. I’m here because I’m an active real estate investor. Permanent life insurance is a hedge. What if I die? What if I get sick? What if I need supplemental income when I retire? You can take out as many IRAs and brokerage accounts as you want. They won’t pay a death benefit. You die tomorrow and your family only has what’s in the account- hopefully it’s not a bad year. Hopefully I had enough money to feed it. If I have partners hopefully my wife can afford to pay them off if she doesn’t want to work with them.
6) Most financial planners collect a commission. Their commission (unlike an insurance agent) is based on your assets managed. They make way more off investment accounts than they do life insurance. I had another agent tell me that a financial planner hired him to find out how to liquidate a clients life insurance policy. The agent explained it wasn’t in the best interest of the client, the financial planner told him he didn’t care - he just wanted the funds under management. They have just as much bias as an insurance agent if not more (unless they’re fee only - they’re still just sales people). Keep in mind during your CFP there are no classes on real estate. If an agent properly structures your policy for cash value accumulation they’re actually taking a significant discount on commissions.
Which begs another question- who learns the ins and outs of the life insurance business for free? I’ve read a lot of articles and listened to a lot of podcasts about life insurance by people who are not agents and every single one has had factual errors.
Yes, life insurance agents as well as financial planners, auto mechanics, lawyers, bartenders, real estate agents, property managers, doctors, and the guy at Best Buy are all sales people. These are people that are compensated for being experts at what they do. We’re no different. It takes a lot of work to be good at what I do. You can’t buy a life insurance policy without someone earning a commission. If I get arrested I’m not going to google a legal blog, I’m going to hire a lawyer. We are legally responsible for our recommendations that we make.
7) I don’t recommend WL to all of my clients. This might be surprising. When a client comes to me with a need my recommendation is based on the best interest of the client, not my commission. Strangely Enough people talk about the commissions on WL policies. I make way more money from term policies. Term insurance is a cash cow for insurance companies because it rarely gets used. The profits from that go to paying WL dividends. For clients that do get WL policies we maximize them for growing cash value A WL policy off the shelf doesn’t do that.
8) Life insurance companies steal your cash value - not completely true. A WL policy has two parts. Cash value and an insurance component. The policy is designed for the insurance component to pay the difference between your cash value amount and the death benefit. The policy would be more expensive if you wanted both. Like I said before, if you simply want a death benefit until age 121, there’s cheaper ways to do it.
9) You didn’t ask about taxes, but you invoked rich people and retirement accounts. Retirement accounts and specifically RMDs (especially for beneficiaries after a death) can cause real tax problems- God forbid you have a kid trying to find college when you pass and they have to take RMDs. The tax-free nature of life insurance policies. Wealthy people- life insurance is an easy way to transfer wealth.
10) I almost forgot- borrowing from retirement accounts and brokerage accounts. Assuming you're not trying to suggest someone can borrow from an IRA- the process is much easier from a life insurance policy, no required payment schedules, and you don't have the 50% borrowing limit. Borrowing from IULs can be incredibly inexpensive as well. Suggesting that IULs or WL policies have low growth is just not true. Lower returns than market investing? Sometimes, not all the time. WL and IULs don't lose money. Once you get paid a dividend the company can't take it back because they had a bad year the following year. Speaking of 4% guaranteed- where else can you get that kind of interest (assuming you forget about the additional dividend payments) guaranteed?
Hope that was helpful despite the fact I’m a good-for-nothing sales person. 😉
Thank you very much for your thoughtful post. The whole area of Financial Planning is endlessly fascinating to me and I would guess to many here on this BP forum.
@Brian Gerlach great summary. As a CPA we often see people stuffing money in 401ks or IRAs and ignoring the tax STORM that may be coming in 30 years. Sure the growth could be 8% but what about a tax rate that could push 50% for the top bracket in 20 years according to the former Comptroller General. Who says they wont change qualified plan rules (they do it all the time).
A properly designed overfunded WH policy for business owners or RE investors is something we see all the time and I agree with. We dont view CF banking policies as an investment, rather a tool to keep your money in motion. Money velocity is a key to wealth in my opinion.
@Greg O'Brien thanks for weighing in. Isn't it possible though that the rules for WL policies could also conceivably change just as easy as a tax rate storm (increase) in the future or am I missing something?
@Brian Gerlach of course but the IRS has MEC limits in place that rarely if ever change (since the late 80s I think). There is more money sitting in 401ks to be taxed than WH policies and comments from former gov’t comptrollers such as David Walker have given me this viewpoint. However, if I could predict what the future held I’d be a billionaire!
Yes I have had one of these policies for about 5 years. I get a guaranteed 4% plus a 1% dividend for a 5% return and the money is fairly liquid. They will send a check within a few days just be careful some whole life policies will milk you dry so make sure you get the right one. Bank on yourself by Pam yellen I believe her name is will give you all the details and even give you financial planners that specialize in this type of policy.
I do this but it is for folks with 500k-1M+ net worth. If you are less than that you should invest every dollar you have to build your net worth. This is also known as infinite banking concept.
"Well over a hundred" so like 101 members?? haha...Shall we call them friends and family or suckers? You know good and well that whole life insurance is a complete and total ripoff. Term life insurance is the only way to go. Don't @ me, I'm good. :)