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Life Insurance - Tax Free Investment?
Posted on 10/11/16 at 9:07 pm
Posted on 10/11/16 at 9:07 pm
Guys - being pitched some life insurance options as a means to invest and grow tax free similar to a Roth IRA. My situation is I max out my 401k and have extra money available to save. I also have some money tied up in a regular brokerage account with Fidelity, mainly in mutual funds and stocks.
This is with Northwestern Mutual. They are proposing a whole life policy to act as a liquid cash reserve and a variable universal life policy as a tax deferred investment.
Thoughts?
This is with Northwestern Mutual. They are proposing a whole life policy to act as a liquid cash reserve and a variable universal life policy as a tax deferred investment.
Thoughts?
6
Posted on 10/11/16 at 9:27 pm to MikeD
I would rather have money in an indexed ETF to act as a liquid cash reserve and I'm not personally interested in tax deferred accounts. If I was, I doubt I would use variable universal life for it.
Posted on 10/11/16 at 11:33 pm to MikeD
I often say that whole life is a tool in the toolbox that is not appropriate for most people, but it can be helpful in certain situations where you are looking to find additional tax-deferred buckets.
There are three ways to get money out of a whole life policy.
1) Die and/or have a benefit that lets a bit out when you are terminally ill
2) Cash it in
3) Borrow from it at a low interest rate that gets paid back into the policy (not unlike a 401K loan)
I don't like the language your agent is using - whole life as a liquid cash reserve. To me, a liquid cash reserve doesn't take any cut of the money you put in. A whole life policy is going to have an insurance charge and it's going to take some time for the cash value to build above total premiums paid. You will get to that liquidity place eventually, but it will take time. Ask your agent for two illustrations - one at the guaranteed rate, and one at the average rate of the last 5 years.
A whole life poicy is somewhat forced savings. A universal life policy has flexibility - but that can haunt you. A VUL is simply a UL policy with a variable growth rate, based on underlying investments, instead of what you get with whole - a rate that changes each year but is set by the insurer.
I assume you have a good emergency fund and some good term life insurance and some good disability insurance, and you have no consumer debt (or debt at a rate less than inflation). Mortgage is not consumer debt - I'm talking credit cards balances being financed and the like.
If you are going to go with it... NM is the best company you can choose. You may fall in that small group where this can make some sense. Just remember to look at this as a part of your total strategy.
There are three ways to get money out of a whole life policy.
1) Die and/or have a benefit that lets a bit out when you are terminally ill
2) Cash it in
3) Borrow from it at a low interest rate that gets paid back into the policy (not unlike a 401K loan)
I don't like the language your agent is using - whole life as a liquid cash reserve. To me, a liquid cash reserve doesn't take any cut of the money you put in. A whole life policy is going to have an insurance charge and it's going to take some time for the cash value to build above total premiums paid. You will get to that liquidity place eventually, but it will take time. Ask your agent for two illustrations - one at the guaranteed rate, and one at the average rate of the last 5 years.
A whole life poicy is somewhat forced savings. A universal life policy has flexibility - but that can haunt you. A VUL is simply a UL policy with a variable growth rate, based on underlying investments, instead of what you get with whole - a rate that changes each year but is set by the insurer.
I assume you have a good emergency fund and some good term life insurance and some good disability insurance, and you have no consumer debt (or debt at a rate less than inflation). Mortgage is not consumer debt - I'm talking credit cards balances being financed and the like.
If you are going to go with it... NM is the best company you can choose. You may fall in that small group where this can make some sense. Just remember to look at this as a part of your total strategy.
Posted on 10/12/16 at 12:18 am to MikeD
(I have my Life license) Keep in mind, Whole Life nets the agents the highest amount of commission and generally it is not the best option unless you have a good bit of money for a policy as it can be expensive. It's a good policy if you want the cash value that it can build.
Posted on 10/12/16 at 7:56 am to MikeD
I wouldn't do it. Get a fat Term policy and invest the rest. If you buy growth ETF's and Mutual Funds that you never sell the taxes are extremely minimal. I mean a couple percentage points a year, not worth putting the money into a Life Insurance policy for that.
This post was edited on 10/12/16 at 8:18 am
Posted on 10/12/16 at 8:51 am to MikeD
We've been pulling money out of a family LLC life insurance policy to pay for flood damage. Seems like a pretty solid way to invest your money.
Posted on 10/12/16 at 10:33 am to MikeD
I prefer to let my investments be my investments and my insurance be a transfer of risk.
In very rare circumstances life insurance may be part of an estate planning strategy, but for the vast majority that will not apply.
In very rare circumstances life insurance may be part of an estate planning strategy, but for the vast majority that will not apply.
Posted on 10/12/16 at 11:19 am to Bmath
quote:
We've been pulling money out of a family LLC life insurance policy to pay for flood damage. Seems like a pretty solid way to invest your money.
What was the annual rate of return on the investment?
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