The debate about universal life insurance

Coaches use it because their employers fund it as part of their comp plan.

I’m not a fan for the average person. Buy level term and invest the difference is my mindset.

Retirement is before you die..

Realize that you either get your cash value or your death benefit- not both. So if you die with the policy intact, you get the death benefit and forfeit the cash value.

A 40 year old person wanting a 30 year term policy would need to achieve a after tax return of 6-7% on the “Investment the rest” to equal their death benefit. This, the pretax is somewhere between 6-9% depending on the effective rate.

Note: this is just to match the death benefit after thirty years. The longer this person lives, the lower the break even return.

Therefore, if you get the required hurtle rate of 6-9%, you’ll have money in the bank instead of having to die. Thus, you have more flexibility, etc.

The cash value is pitched as an alternative to a savings account. No one thinks it’s a good return.

As with all insurance products, it is for a specific clientele.

I personally think it is better than a bond portfolio in a long range investment portfolio (tax deferred).

But how much should a young person have in bonds? Honestly? I'm in my 40s and I don't see any need for bonds right now.

I do have 2 universal life insurance policies right now. 1 without cash value and 1 with. I am presently not over funding the cash value one. The opportunity is in the market. Not in a safer vehicle (i.e. cash universal life). In a different circumstance, I will over fund the policy (probably when inflation rears its head). But until then, I can accomplish my goals better with a Roth.

ALWAYS BUY TERM. (Ops, may Universal Life isn't so bad.)

Good question Prop

I"m looking at it this way: the Bottom line is, whole life insurance is not the most efficient “investment” when you only consider the return on the investment. In the book I read SMART money it says its a better place to store cash than any other financial instrument I've found after maxing out the normal tax free vehicles the IRS has created.

It is protected from the prying eyes of the IRS, tax hikes, lawsuits, the next Wall Street scandal, even massive bank failures. I also notice big banks use it as well......

If I'm storing cash in a low interest savings account...why wouldn't it benefit me to move some into a location with a better long term return. I'm being quoted 80K a year tax free on a 10 pay plan. The calculators are quite interesting.

The only way a UL works to your advantage is if you continuously over find it each year. This means increasing your contributions more and more each year.

OR

If you are able to make enormous one-time contributions while avoiding a MEC.

Otherwise, I advise 99% of my clients to avoid UL’s like the plague. They result in most who buy them losing money while having the impression that they’re not and actually have a permanent life insurance policy (it’s not permanent unless you over find it each year and you will likely lose money).

As an agent, I don’t like them. You don’t buy a permanent life policy for the cash value component - you buy a permanent life policy to lock the rate in while you can and have something there for when your term runs out later in life and you only need enough to bury you with.

For someone over 50, I advise having around $10,000-$15,000 of whole life insurance for a basic funeral. Anyone under 40 should probably have $25,000 due to the cost of funerals going up over time. Personally, my wife and I each have $50,000 of whole life coverage in addition to $1M of term each. When our term runs out in 30 years, we still have the $50k to bury the other with and by then, the house and other debts will be paid off.

Any kind of permanent insurance is garbage unless you are gonna have a massive estate. A munibond fund would likely achieve your tax avoidance goal better if that is your plan.

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Just read a retirement book about cash paying life insurance policies. I see a majority of ceos and football coaches use this as a retirement vehicle.

Anybody here against this idea. Assume all retirement options are being matched out. Hsa 401k plus match. It’s a tax free vehicle from everything I read.

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Having UL or WL isn't going to make you a CEO or a football coach (or have their amount of wealth).

If you already have a lot of wealth, it's a way to cause some of the growth to be tax-deferred.

The benefits come from the amount you can over-fund it, in excess of the insurance charge. But you can't over-fund it too much, or else the IRS sees it for the scam it is and removes a lot of the benefits.

Not a bad option for the situation you're describing. Stick with a WL policy from a mutual insurer here

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So then my question to everyone is....if I’m maxing out all my retirement options. I have a strong emergency fund. Where should my cash go? Let’s shoot for 15k per year. What can beat the tax free option at 68?

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How old are you / how healthy are you?

15K a year in my experience isn't nearly enough to go here. I have a client, business owner, 52 yrs old, and his investment guy, who also sells insurance, is trying to push him into a 10-pay policy with a premium of 85K a year for 10 years, and it's giving me a lot of heartburn.