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Started By
Message
Is life insurance a good retirement vehicle?
Posted on 9/9/16 at 12:30 am
Posted on 9/9/16 at 12:30 am
I know nothing about life insurance other than what I get from my employer as part of my benefits. Can someone tell me the pros and cons of life insurance (group, term etc.) as a retirement vehicle vs 401(K), Roth etc.? Should it be a part of one's retirement plans for diversification purposes?
This post was edited on 9/9/16 at 12:31 am
5
Posted on 9/9/16 at 2:16 am to Street Hawk
This subject has been talked about / beat to death many many times here. My advise and most common response is not for most people. Buy term while you are young and it's cheap. Put the rest of your money in 401k. I spent 48 hours in a truck ( hunting trip out of state) with an older gentleman that was a very successful semi retired insurance salesman. That was the advise he gave me. He said "son insurance makes salesmen like me very wealthy, I am close to the end of my life and you seem like a nice kid. Make yourself wealthy, not a salesman".
Posted on 9/9/16 at 7:06 am to Street Hawk
Short answer: Life insurance is needed in case you die early and have dependents. It isn't a good retirement vehicle.
Long answer: Fifty years ago this was a much closer decision. Back then, Roth and 401 accounts didn't exist and most people had a defined benefit pension plan that was handled by the employer. If you had extra money left over, you could invest in a mutual fund that was sold on commission or a sales load, much like insurance.
Back in those days buying insurance wasn't that much different from buying a front-loaded mutual fund in a taxable account, so it was a tougher choice at the time. But today you can contribute to a tax-advantaged account like a Roth, IRA, 401, etc. and invest in cheap index funds that don't have a sales charge at all. That's generally significantly better for long-term investing.
Long answer: Fifty years ago this was a much closer decision. Back then, Roth and 401 accounts didn't exist and most people had a defined benefit pension plan that was handled by the employer. If you had extra money left over, you could invest in a mutual fund that was sold on commission or a sales load, much like insurance.
Back in those days buying insurance wasn't that much different from buying a front-loaded mutual fund in a taxable account, so it was a tougher choice at the time. But today you can contribute to a tax-advantaged account like a Roth, IRA, 401, etc. and invest in cheap index funds that don't have a sales charge at all. That's generally significantly better for long-term investing.
Posted on 9/9/16 at 8:23 am to Street Hawk
No, period. Insurance should never be used as an investment. It should be insurance and insurance only, invest separately. Combining the two only costs you a ton more and gives you worse returns.
Posted on 9/9/16 at 9:16 am to Street Hawk
Life insurance pays out when you die. If you are dead, you don't need to retire.
However, the life insurance proceeds can definetly help your family out, and help provide for them during the years you would have been retired.
Term insurance, though, gets very expensive, the older you get, and therefore, it's most commonly used as a tool to help out while you are still working.
Whole life insurance is very expensive when you are young, and insanely expensive when you are older. It does have a cash value feature, deferred, that can help with retirement. However, it is a very expensive form of retirement asset.
There are only two times I recommend whole life insurance:
1) When you have completely maxed out all other pre-tax and tax-deferred options, such as IRA, 401K, etc, as well as have a steady and solid savings account.
2) If you are entitled to some sort of major death benefit insurance-like coverage, and whole life insurance is a better deal. For example, military officers and survivor benefit plan. And this only works part of the time.
However, the life insurance proceeds can definetly help your family out, and help provide for them during the years you would have been retired.
Term insurance, though, gets very expensive, the older you get, and therefore, it's most commonly used as a tool to help out while you are still working.
Whole life insurance is very expensive when you are young, and insanely expensive when you are older. It does have a cash value feature, deferred, that can help with retirement. However, it is a very expensive form of retirement asset.
There are only two times I recommend whole life insurance:
1) When you have completely maxed out all other pre-tax and tax-deferred options, such as IRA, 401K, etc, as well as have a steady and solid savings account.
2) If you are entitled to some sort of major death benefit insurance-like coverage, and whole life insurance is a better deal. For example, military officers and survivor benefit plan. And this only works part of the time.
This post was edited on 9/9/16 at 9:18 am
Posted on 9/9/16 at 9:39 am to LSUFanHouston
whole life is terrible. Term life is good if you have a family or do not have enough assets to cover debts/and or a funeral.
I have term through work, b.c its too cheap not to. Its like $2/month for 250k, but if it ever stopped being that cheap I would drop it.
generally its much better to invest as much as you can, and build that nest egg up, vs. throwing money at premiums.
I have term through work, b.c its too cheap not to. Its like $2/month for 250k, but if it ever stopped being that cheap I would drop it.
generally its much better to invest as much as you can, and build that nest egg up, vs. throwing money at premiums.
Posted on 9/9/16 at 9:50 am to Hawkeye95
quote:
generally its much better to invest as much as you can, and build that nest egg up, vs. throwing money at premiums
Which is why I clearly said whole life is only appropriate if you run out of places to use tax advantaged vehicles to build up your nest egg.
quote:
whole life is terrible.
But I disagree with the absoluteness of this. Whole life is a bad choice for most people, and most whole life polices/companies are bad. But it can be a good product in very certain situations, using very certain companies.
Posted on 9/9/16 at 10:02 am to LSUFanHouston
i wasn't replying to you, but the last post.
I am sure there are situations where whole life might make sense, but they are few and far between.
I am sure there are situations where whole life might make sense, but they are few and far between.
Posted on 9/9/16 at 10:08 am to baldona
quote:
Insurance should never be used as an investment.
Not correct at all
Posted on 9/9/16 at 10:09 am to LSUFanHouston
Which companies are the good ones?
Posted on 9/9/16 at 10:37 am to b-rab2
Northwestern Mutual
Mass Mutual
New York Life
These are typically the only three I recommend. There may be a couple of others, but I don't have experience with them.
If someone is very healthy, NML is the way to go. If they are ok healthy, one of the other two is the way to go.
Mass Mutual
New York Life
These are typically the only three I recommend. There may be a couple of others, but I don't have experience with them.
If someone is very healthy, NML is the way to go. If they are ok healthy, one of the other two is the way to go.
Posted on 9/9/16 at 8:27 pm to LSUFanHouston
quote:
But it can be a good product in very certain situations
How can it be a good product versus investing in an index with a low expense ratio?
As I've said, it can be a windfall for your dependents if you die early. But this isn't a good retirement vehicle if you don't.
Posted on 9/9/16 at 8:36 pm to TheOcean
quote:
Insurance should never be used as an investment.
Not correct at all
With rare exceptions for individuals with very unique financial situations, it will be pretty hard to find a financial advisor or planner recommend insurance for an investment unless they are selling it.
Posted on 9/9/16 at 9:09 pm to foshizzle
quote:
How can it be a good product versus investing in an index with a low expense ratio
Tax deferral
Ability to borrow and pay yourself the interest
Posted on 9/9/16 at 10:15 pm to EA6B
He said "never." It is definitely not never. And it depends on the individual's portfolio/net worth.
Posted on 9/10/16 at 7:18 am to foshizzle
Tax free withdrawals are nice. Think a Roth with really high contribution limits.
Posted on 9/10/16 at 8:48 am to Janky
It's known in wealthy circles as the Rich Man's Roth.
Posted on 9/10/16 at 9:56 am to foshizzle
Also, it's another diversification vehicle. Sure, an index fund with low expenses should be part of your strategy as well.
When you are in the wealth bracket that whole life makes some sense, diversification is very important, and not just among stock and bond classes.
Most of the major companies have dividend rates on unborrowed cash value (not the same as premiums paid, obviously) of 5-6%. Those scales don't look so hot in the early going, but after some time, it's a solid, if not amazing, source of growth.
When you are in the wealth bracket that whole life makes some sense, diversification is very important, and not just among stock and bond classes.
Most of the major companies have dividend rates on unborrowed cash value (not the same as premiums paid, obviously) of 5-6%. Those scales don't look so hot in the early going, but after some time, it's a solid, if not amazing, source of growth.
Posted on 9/10/16 at 10:18 am to LSUFanHouston
What kind of leverage is available in WL? 2% easily in IUL.
Posted on 9/10/16 at 12:07 pm to iknowmorethanyou
quote:
What kind of leverage is available in WL? 2% easily in IUL.
I don't think I've ever heard of "leverage" and whole life used in the same sentence.
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