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Started By
Message
My whole life snapshot...wondering if this is the best use of my money
Posted on 11/22/14 at 8:06 am
Posted on 11/22/14 at 8:06 am
37, married with 2 kids under 6. I own a dental practice. I'm not very savvy as far as investing goes.
So I've got a term policy for 2 million for $106/month, and a whole life policy for $500,000 for $500/month. Cash value increased to $14,979 this year from $9303 last year. Policy started 11/01/2009. I feel like I might be putting this $6000/year (in premiums) in the wrong place. I'm sure this topic has been visited many times before but any advice would be appreciated.
I own a small rental property that is basically just paying for itself without additional income, as well as a couple small Roth IRA's. What do you guys think?
--I realize my post count does not jive with my "member since" status--forgive me, I'm usually a reader/lurker
Many thanks
So I've got a term policy for 2 million for $106/month, and a whole life policy for $500,000 for $500/month. Cash value increased to $14,979 this year from $9303 last year. Policy started 11/01/2009. I feel like I might be putting this $6000/year (in premiums) in the wrong place. I'm sure this topic has been visited many times before but any advice would be appreciated.
I own a small rental property that is basically just paying for itself without additional income, as well as a couple small Roth IRA's. What do you guys think?
--I realize my post count does not jive with my "member since" status--forgive me, I'm usually a reader/lurker
Many thanks
Posted on 11/22/14 at 8:28 am to LSUDMD
Well, you need life insurance. You could probably bump up the rental fee at the new year and start making income on it. That's about as far as I'm going to go with it and let someone else take over the rest for you.
Have you talked with a financial advisor yet? Someone that's not going sit there and sell you cramp all day?
Have you talked with a financial advisor yet? Someone that's not going sit there and sell you cramp all day?
Posted on 11/22/14 at 9:01 am to LSUDMD
whole life is virtually always a terrible idea. they pay BIG commissions to the agent, which is the primary reason any are sold at all. the money would be very well invested in a whole market index/mutual fund like VTSMX.
you should first be maxing out your retirement accounts, but need to talk to your cpa to determine which is best for you
tax deferred retirement plans
good calculator showing how much you can put in plans
the big issue on some of these plans is having to contribute for all employees...again, your cpa will have to get you details
note: i'm sure i'll have agents telling you why whole or universal life are good policies, but do some research on your own and you'll quickly find virtually no unbiased adviser will agree with them (except in very special situations like estate planning or asset protection)
you should first be maxing out your retirement accounts, but need to talk to your cpa to determine which is best for you
tax deferred retirement plans
good calculator showing how much you can put in plans
the big issue on some of these plans is having to contribute for all employees...again, your cpa will have to get you details
note: i'm sure i'll have agents telling you why whole or universal life are good policies, but do some research on your own and you'll quickly find virtually no unbiased adviser will agree with them (except in very special situations like estate planning or asset protection)
Posted on 11/22/14 at 10:06 am to Ole War Skule
Kind of what I was thinking. So if I cancel the policy do I forfeit the cash balance? Is there any way to take advantage of the cash that's already accumulated?
Posted on 11/22/14 at 10:41 am to LSUDMD
The cash value should be paid to you upon canceling the policy.
Posted on 11/22/14 at 10:51 am to LSUDMD
quote:
So if I cancel the policy do I forfeit the cash balance?
depends on exactly how it works, but as above poster said, you should be able to get full cash value out and invest it in what you like. There a likely tax consequence of taking the cash out (above what you put into the policy), but you'd have to talk to a CPA about that.
Posted on 11/22/14 at 10:54 am to Huey Lewis
If you are self employed I would think about starting an individual 401(k) to where you can contribute more (up to 17,500) as the annual contribution or even some type of simple or sep ira( depending if you have employees under you).
The most you can contribute to that is 12k a year, but both of these options are a better growth strategy than permanent life insurance.
To make sure your income is protected in the case of death or disability you needed a ton of term insurance and more than likely some disability income insurance so it would pay you and your expenses in case you were hurt for a period of time. This all depends on your setup(sole prop., partnership, ltc, etc...)
If you are a partner cash value life insurance can make sense if it was structured properly.
I would look that way towards saving and planning with investments and your basics for insurance.
I work as a fin. Planner so let me know if you have any questions( no strings attached)
This is a meaty conversation , but the most I can type with my iPad . Good question
The most you can contribute to that is 12k a year, but both of these options are a better growth strategy than permanent life insurance.
To make sure your income is protected in the case of death or disability you needed a ton of term insurance and more than likely some disability income insurance so it would pay you and your expenses in case you were hurt for a period of time. This all depends on your setup(sole prop., partnership, ltc, etc...)
If you are a partner cash value life insurance can make sense if it was structured properly.
I would look that way towards saving and planning with investments and your basics for insurance.
I work as a fin. Planner so let me know if you have any questions( no strings attached)
This is a meaty conversation , but the most I can type with my iPad . Good question
Posted on 11/22/14 at 11:55 am to Sdento1
Part of what you need to figure out the answer is if worst case scenario happens today, my wife and family will need (?) dollars to pay off any debts, sell my business, etc and then live.
As you get older your business will be paid for, education loans, property etc. As your assets increase your need for insurance will decrease. This is one of the other reasons why term tends be a better plan.
As you get older your business will be paid for, education loans, property etc. As your assets increase your need for insurance will decrease. This is one of the other reasons why term tends be a better plan.
Posted on 11/22/14 at 12:24 pm to LSUDMD
1) you should add another million of life insurance. At your age, I would say you need 10 years of income, as a baseline. You can back this off as you age, but inflation will probably take care of that for you.
2) No disability insurance? Big risk. Get some tomorrow. If you lose your ability to be a dentist, you will be in a bind.
3) no retirement savings? You should be maxing out a traditional IRA every year. It is a good savings tool and will reduce your taxes a good bit.
4) Sell the rental property or increase the rent. Sounds like it's just a liability and a pain. You should be getting at least 1% of the value of the home per year in rental income.
2) No disability insurance? Big risk. Get some tomorrow. If you lose your ability to be a dentist, you will be in a bind.
3) no retirement savings? You should be maxing out a traditional IRA every year. It is a good savings tool and will reduce your taxes a good bit.
4) Sell the rental property or increase the rent. Sounds like it's just a liability and a pain. You should be getting at least 1% of the value of the home per year in rental income.
Posted on 11/22/14 at 12:29 pm to LSUDMD
What company issued the whole life policy? How many years are you scheduled to pay?
Posted on 11/22/14 at 1:10 pm to LSUDMD
quote:Is your brother-in-law an insurance salesman?
I've got a term policy for 2 million for $106/month, and a whole life policy for $500,000 for $500/month.
Seriously, whole life is almost never a good idea unless you believe at some point while you're still in your "working" days with children you will still be supporting you might have a health problem that would make you uninsurable.
quote:Think of it this way, you spent $6,000 to have the cash value increase $5,600. It's true you had $500,000 in life insurance, too, with the policy during that year, but just look at how little the $2M policy costs relative to your whole life policy.
Cash value increased to $14,979 this year from $9303 last year.
If you don't have a chronic disease or family history of such that might make you uninsurable for life insurance, you really should re-evaluate that part of your financial planning.
What many people fail to take into account is that at some point in your life (probably 20 years or so from now), you won't need any life insurance at all. When the kids are grown and gone and you've saved some money for retirement, if you die then, your spouse gets the retirement money and the kids won't need any.
Posted on 11/22/14 at 2:35 pm to LSURussian
Buy life insurance for life insurance, not an investment.
You need to be talking to a financial advisor more and an insurance salesman less.
You need to be talking to a financial advisor more and an insurance salesman less.
Posted on 11/22/14 at 4:54 pm to LSURussian
quote:
Is your brother-in-law an insurance salesman?
Harsh, comrade.
OP, you need a Financial Planner, ask amongst folks you respect and trust in your local area who they use. It's a leap of faith to trust a stranger with your fiscal picture but most of us are not equipped to navigate what we should do or avoid.
Ditto on getting out of the rental property too, it's dead money if all it's doing is carrying its own weight.
Posted on 11/22/14 at 5:14 pm to LSUDMD
How's dentistry going for you? Raking in some good income eh?
Posted on 11/23/14 at 3:45 pm to Dr. Shultz
Dr., I'm going to fill you in, you're going to have to drill down deeper to extract that answer.
Posted on 11/24/14 at 12:11 am to soccerfüt
2 mm is my limit mayne lol
Sometimes I wish people would just let out all their juicy details and give me some insight!
Sometimes I wish people would just let out all their juicy details and give me some insight!
Posted on 11/24/14 at 6:49 am to Dr. Shultz
Without current net worth, income, years to retirement, and details about your desired standard of living in retirement, answering questions like this is nearly impossible. I'd be hesitant to give that out on the interwebs too though.
Except for the don't buy whole life advice!
Except for the don't buy whole life advice!
Posted on 11/24/14 at 9:22 am to jglass3lsu
quote:
Except for the don't buy whole life advice!
+1. Somebody sold you a bum steer. Get outta that, and make sure you're maxing your retirement income in ways that have positive tax consequences (individ IRA maxed, or SEP/etc depending on your practice/partnership).
Posted on 11/24/14 at 11:27 am to LSUDMD
2 ways to fund a life policy...
1. Put in as little as you have to.
2. Put in the most you can to maximize tax-deferred growth and tax-free income.
At $500 per month for $500K, you're accomplishing neither.
1. Put in as little as you have to.
2. Put in the most you can to maximize tax-deferred growth and tax-free income.
At $500 per month for $500K, you're accomplishing neither.
Posted on 11/24/14 at 1:15 pm to LSUDMD
quote:
So I've got a term policy for 2 million for $106/month
+ the $500k in whole life is probably too little, but you might have been better served with all term when you bought in.
I mean, I assume you're in the $165k to $200k take home (or better - I don't want to insult you) - and $2.5 million is only going to generate, give or take, $100k per year, at least indefinitely - and maybe $125k to $140k per year for 30 years, assuming that's how long you'd be expected to work.
Now - this doesn't make any assumptions about your debts and expenses, just that your widow would be expected to approximate your income until you would have retired - presumabably the rest would be on her.
quote:
I own a small rental property that is basically just paying for itself without additional income
You mean on top of the debt service, correct?
Unless I way overstated your income, I think you need $3 to $4 million, term - no more than $100k whole (and, honestly, I would just cash it out at this point and use that money to pay your increased term premium for a while) - your net gain should be, give or take $300 a month, and I would add that to your ROTH unless you're tapped out. Otherwise, I would just add it to your mutual fund buy and buy the whole stock market.
You're got 25 to 30 years exposure to the market - that $300/month could be millions - in whole life, it will only be thousands (maybe tens of thousands.)
This post was edited on 11/24/14 at 1:18 pm
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