All Forum Posts by: John Perrings

@John Perrings

Agreed John. While the article does make some great points the author is coming at it from the wrong angle... and is a bit extreme in his beliefs (if you read the comments thread).

I certainly don’t view it as an investment, but a place to store cash that can be leveraged while still gaining interest. It’s basically a tax deferred savings account with some death benefits - of course the insurance company will profit on you, but if you are smart it won’t outweigh your gains.

I think another benefit in the real estate space is a scenario like COVID. If you have tenants who can’t pay rent, but have a WL policy with cash value, you can leverage it to pay your mortgage so you don’t have to sell the property in a down economy.

@Tom Jensen terrible idea. There is a reason WLI can be popular in insurance circles, but it has nothing to do with the performance of the policy, but the commission on the plan. Take a look over what smarter people that I have to share:

80%+ failure rates? Lower returns than market? Lack of fee transparency? No guarantee on funds invested?

https://www.whitecoatinvestor....

@Brian G. I have met those who use it. Whole life itself is not what you become wealthy on but you can use it for other things that you do. Just like tax strategies and other things like that you normally use it for once you have money not to get money. 

@Account Closed

A little surprised at your answer considering I have read a lot of your stuff and you are normally fairly sophisticated.  I am not going to argue for or against insurance. Its situational just like legal or tax items. However, some of the things you are pointing out are way off base. Its a gigantic industry so of course there is a lot of bad acting and bad reps. The same can be said about equities, derivatives, etc. etc. Most of those by the way are also complicated, come with bad reps and are not generally understood by many. 

As for transparency, there are very clear disclosure rules. Yes it's very complicated and yes many agents try and make it more complicated to hide what is in it for them. 

You are also not wrong (and this is just an opinion I know many might disagree) that on its own merits whole life might not be worth it if all you want is insurance, esp if you are not high income or have a lot of liability exposure. Term is easier to understand and many times it is cheaper. 

What you are missing though, in my opinion, is that insurance, for whatever reason, has some very unique advantages in what you can do with it. This has nothing to do with insurance. Yes you will end up paying the piper (the salesperson, the insurance company etc.). The insurance company I don't think is too complicated its basically risk-based pricing. Insurance companies are some of the most sophisticated companies in the world on risk pricing. Most also reinsure it so there is a cost there but also protection if there is a disaster. 

The commission structure can be more complicated and is more opaque. However, if say you have a tax rate of 40% to 50% (in CA or NY fairly typical) it can be very advantageous and outstrip the costs. Not saying run out and get it, I think there are other strategies that work too esp for RE, but it is definitely more interesting than you give it credit for, at least for those who are high net worth or high income. I would also note that most of those RE tax strategies are at least as complicated and fraught with fees, middlemen, etc. in some of the structures used like DST, etc.

There are also liability advantages. 

To me, insurance is just a contract you can put some interesting stuff into. It has a cost and that cost is sometimes worth it, sometimes not. It is a lot more interesting than you imply though in my opinion. 

@Shaun R.

Shaun, I would be very careful to buy any whole life insurance at all. Whole life insurance is a financial product where the insurance agent ( aka financial advisor) gets thousands of dollars if you sign up. 4% is a terrible return long term. My advise to you is to buy index funds from Vanguard or fidelity. As an example, I used to have a financial advisor (even this fiduciary financial advisor wouldn’t dare offer me whole life- just as FYI about how poorly seen this is in certain circles). I realized that I was being charged too much for investing my money- they really don’t do much at all, just put money in an account and buy funds. I ditched them and opened an account at vanguard. Even with my very conservative portfolio my rate of return is about 7%. I told my husband to put all his retirement from previous job at vanguard in VTSAX index fund US stocks since he is more risk prone and he still has 30 years to retirement. His return is so far 12%. On average I would say 9% is adequate. Thus please do not buy whole life. If you want to invest buy index funds and then get term life insurance. Term life insurance is very cheap va whole life. So, buy cheap term life insurance and invest the rest in index funds. You will thank me I’m a few years.

I've never personally met a RE investor who has a Whole Life Insurance as an integral part of there investment strategy nor have I met one who has said that's how they became wealthy or rich, ie by investing in WL. Perhaps it is the Big Boys, ie the Uber Wealthy that utilize this strategy? I'm not your customer but I really do appreciate your thoughts and the other FAs who have weighed in. And while I absolutely appreciate the need for risk transfer in different areas of life, ie insurance, I've had way too many experiences with insurance companies to believe that they have my financial best interest at heart. I have trust issues.  

But then what's in it for the Insurance company? They are not a charitable organization right? And they didn't get those big fancy buildings by giving away their control and money! This is the problem. I like deals where I can see how it all works out for everyone, with transparency. Whole life is the antithesis of that. And again, if it is really such a magical wonderful thing, why then does it have such a shady reputation along with those who sell it? Why do Life insurance agents call themselves Financial Advisor, not Insurance Agent. Do they really do holistic financial advice? Are they RIA? Do they have fiduciary responsibility to their clients? Too many red flags. Maybe I am wrong and missing out the deal of the century by not putting a million dollars cash into a whole life policy. I guess I will just have to live with it..

Real estate transactions are simple. You don't need mentors or training or anything to buy a house. You choose a house, get a mortgage and buy it. Yes there is a ton of paperwork and CYA forms thrown at you by the agent but in reality it makes no difference to the transaction. You still get title to the house and can sell it as well. Sure you pay the commissions. I don't like them and I think agents have an unhealthy lock on the system but I can very simply calculate the cost of the fees into my transaction. Compare that to life insurance with a hundred moving variables. Guaranteed rate, term, death benefit, dividend, tax deferral etc etc etc. all of which are controlled by the company. Essentially the idea is that I give up control of my money to the company so I get the "benefit' of being able to borrow some of it back. But that money comes out of the death benefit anyway. In addition to that I have to pay for the insurance part at a rate much higher than term and high fees.  Why not just keep control of my money, accumulate wealth, self insure and have a shorter term life policy to cover the gaps? Im sure there are worse investments than Whole Life but there are sure as hell a lot better ones too.

Yes, here no one complains about the 6% commission for Realtor who were only there to open the door for a visit :-)