Was listening to a podcast and the topic discussed was using dividend whole life insurance policies to pass on wealth to your heirs and be able to finance yourself with the premiums instead of traditional lending. It has piqued my interest but without looking into it in depth, I am getting the feeling there has to be a catch. Besides the fact the premiums are fairly steep it appears.

Anyone familiar with the concept?

This post was edited on 1/29/25 at 8:49 pm

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Posted by JL

Member since Aug 2006

3169 posts

Posted on 1/29/25 at 7:30 am to GREENHEAD22

Yes, steep, high front end commissions for the insurance folks. People I know use it to loan themselves money for real estate deals/flips. I took this approach.

Are you maxing out all tax advantaged accounts and 529?
Do you have a brokerage account and real estate mix that is good? Lots of money in the market and lots of money in rental houses or something similar?
Are you young (35 and under) and still have money to burn after lots of investments?

If so MAYBE whole life is for you but do lots of research. You really need to start young to take advantage of it building up to where you can use it properly as an investment vehicle and not just as a death benefit if that makes sense.

This post was edited on 1/29/25 at 7:37 am

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Posted by BestBanker

Member since Nov 2011

18283 posts

Posted on 1/29/25 at 7:53 am to GREENHEAD22

quote:
I am getting the feeling there has to be a catch

Feelings and catch. So many felt that taking an untested injection would save them from ruin. Sorry. That was an analogy. Set aside feelings when making financial decisions and you will succeed.

Life insurance is easy to understand, but made difficult by people. Premiums are at their lowest when you are younger and healthier. They're fixed and don't change in this type of policy you reference. The policy creates an equity cash position that eventually equals the death benefit at maturity, similar to a bond. That cash is usable by loan or withdrawal during your lifetime above ground.

Dividends are a return of unused premium, by tax law definition.

That's all I've got this morning.

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Posted by TDsngumbo

Member since Oct 2011

45633 posts

Posted on 1/29/25 at 1:48 pm to GREENHEAD22

quote:
using dividend whole life insurance policies to pass on wealth

You know what blows that strategy out of the water? Using your income to invest in an index fund for 30 years to pass on 10x the amount of wealth that a whole life policy will.

I've been an agent for 15 years. Please don't use permanent life insurance products to build "wealth". It's stupid and never works as well as actual investing does.

Keep life insurance and investing separate.

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Posted by Penn

Jax Beach

Member since Jan 2008

23561 posts

Posted on 1/29/25 at 2:50 pm to TDsngumbo

Agree with this

But know a few that subscribe to it unfortunately

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Posted by Cockopotamus