Life Insurance/ investment suggestions for my wife

If the dividends are paying the premiums I would let it sit.

Some people hate Whole Life, some people love it. You can borrow against the cash value if you want.

I have one as part of my portfolio but I'm self employed, mid 50's and max out my tax deferred accounts. It's not for everybody, trust me. Mine is pretty complex and includes short term, long term disabilities along with some other riders. Took a while to set up.

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You can borrow against the cash value if you want.

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And it ain’t for free. Salesman love to push this idea of “infinite banking” and then never explain what the interest rates would be once you borrow and how it’ll start killing the policy.

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Because more than likely you won't have taxes

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He will pay taxes on the interest. He will have taxes.

OP should take any advice he gets with a grain of salt. No one has enough information about him to give advice.

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What was the single premium if you don't mind me asking?

That would give you information on the tax liability if you surrender the policy.

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I would also ask who took out the policy on his wife. Was it aparent?

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Im sure it was a parent or grandparent.

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If that is the case and I am thinking it is then the entire amount is taxable.

Everything over the initial single payment.
Yes.

We just cashed in 2 whole life contracts after about 25 years. I figured we were earning about 1% maybe a year. At the time in the early part of our marriage we thought we needed it for helping the surviving spouse with mortgage etc
25 years later we don’t need it and I’d rather invest the cash and use the premium amount we were paying to apply it to the mortgage

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Salesman love to push this idea of “infinite banking” and then never explain what the interest rates would be once you borrow and how it’ll start killing the policy.

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100% this

I’ll have to look more into IBC, the policy is with Northwestern Mutual so I’m assuming it would fit the requirements.

I was telling him I can’t wrap my head around having say $800,000 in her 70s and holding onto it for just $1.2 mil death benefit. That’s when he brought up the ability to ‘loan’ the money and at death it would be paid off and the remaining balance tax free.

I guess it makes sense when the interest rate ‘to yourself’ is lower than an interest rate outside of the loan. But if you are risking less cash/ capital growth, I just don’t see how that is ever worth it.

Interesting, learned some new. I appreciate that. So this is what the Google said:

“Direct recognition is a method where a mutual insurance company has separate dividend rates for borrowed and unborrowed cash value. Non-Direct Recognition is a method where an insurance company credits all Whole Life policies with an equal dividend rate regardless if there is a loan outstanding.“

Yeah no way it ever makes sense to “loan money” from yourself if you are losing your dividend.

I’m not saying that $1.2 mil isn’t a lot, I’m saying that my wife is worth considerably more than that already and will continue to do so hopefully.

My thought process here is to do the following with the cash value of her insurance:
1.) ladder some extra term
2.) possibly buy a very small whole life policy of say $250,000 for nostalgia reasons for her grandfather
3.) invest the rest


By the time her term insurance is falls off each step of the ladder the invested portion should be worth more. At the end of the 30 years it’ll be worth more than the current policy ever would have been.

So unless there’s a good financial reason to keep the single premium policy (like IBC mentioned above (potentially)) I can’t see any reason to do so.