Originally posted by @Tony Kim:
Originally posted by @Mike S.:
Originally posted by @Account Closed:
Maybe. But I bet you I can find a better less complicated and cheaper way to get all the above benefits with a combination of term life (for actual insurance) and investing the rest in a brokerage in Roth IRAs and taxable accounts invested in simple index funds which you can also borrow tax free against. In general the more complex the contract the less benefit you as a consumer will gain. Term life is a simple contract. You pay a premium and if you die your beneficiaries get paid. It is no different than your car insurance or homeowners insurance. Offloading risk. Anything else is not insurance.
On the short term, cheaper probably as term life insurance is cheap when you are young. However on the long term, not only will you not be able to find cheap term insurance when you are getting older, but also a permanent life insurance will give you more money back than a term life. So with permanent life insurance you get free insurance as it is paid for by the increasing return.
A Roth IRA has a low limit of $6k premium per year, and if you are a high income earner you can't even pay into it.
A brokerage account is not tax free, and historically the S&P500 returns on the long term has been in the 7%-9% range pre tax. Depending on your tax bracket that could be equivalent to a 4 to 5% post tax. And it is with all the volatility, including correction time when it can drop more than 30%. It takes decade to recover from such a correction, and if you need money during that time you are in a very bad position. In a permanent overfunded life insurance you will not have corrections. Only positive gains.
Margin loans are very risky and subject to margin calls. Of course if you only borrow 20% of the value of your portfolio, you are safer, but in no way can you borrow 90% of it like in a permanent life insurance.
I do have a brokerage account, a Roth IRA, a 401k but I also have an IUL where I put all my cash flow. One is not exclusive to the other, and a wise investor should diversify his assets.
So I currently have a TL policy that will pay out a set benefit to my wife should I die prematurely.
For PL policies, what's the interplay between the cash value and death benefit? If I have a PL policy with a death benefit of $500k, what happens to the cash value that has accumulated when I die? Do the beneficiaries receive both the DB and the CV?
The cash value is part of the death benefit. Its quite literally the policy owner saving up the death benefit for the insured over the insured's lifetime. This cash can be accessed via policy loans secured by the cash value. At the time the insured dies, the death benefit pays off any outstanding loans and the rest of the death benefit goes to the beneficiary.
As an example, a policy with a $1M death benefit and $400,000 of cash value will still only pay $1M to the beneficiary. $400K comes from the cash value and the insurance company kicks in the other $600K from their risk pools.
