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Started By
Message
re: Whole Life Insurance, etc
Posted on 4/17/24 at 9:45 pm to Hopeful Doc
Posted on 4/17/24 at 9:45 pm to Hopeful Doc
The "beauty" of whole life insurance and cash value life insurance policies appears in a 30 year window.
The examples in the illustration "sell" what the life insurance companies want to sell.
The problem is that you should treat the plan like a marriage. Because she (the plan) is a bitch if you break up early. She (the plan) leaves no flexibility for success without staying true for the full 30 years.
What kind of "plan" is it if it only has merit if you stick to it for a full 30 years?
Everyone selling whole life insurance knows this to be true.
It isn't a coincidence that the individual was 35 years old with a retirement date 30 years later.
It is funny seeing people get excited about a 360 month "plan" that has a chance to outperform the market.
The examples in the illustration "sell" what the life insurance companies want to sell.
The problem is that you should treat the plan like a marriage. Because she (the plan) is a bitch if you break up early. She (the plan) leaves no flexibility for success without staying true for the full 30 years.
What kind of "plan" is it if it only has merit if you stick to it for a full 30 years?
Everyone selling whole life insurance knows this to be true.
It isn't a coincidence that the individual was 35 years old with a retirement date 30 years later.
It is funny seeing people get excited about a 360 month "plan" that has a chance to outperform the market.
1
Posted on 4/18/24 at 10:37 am to meansonny
You really have to do your homework to understand how whole life will work as a part of your personal finance strategy, not just as an investment. My wife and I have exhausted all our tax advantaged investment accounts. As soon as our first kid was born I took out a whole life policy on my wife (better premium). As long as we pay the premiums, it will give us lots of flexibility in the future. Every year when I pay the premium I always have buyers remorse, but always have to remember it's not an "investment".
In retirement, if we want a loan and rates are through the roof, borrow against the policy. If something happens to one of our kids in the future and they need care beyond our lifetime, policy is in place. If right at retirement the market is crappy and it will hurt to draw on our 401k, we have the policy as a volatility buffer to draw from. As we approach retirement, if our kids are healthy and the market is cruising we don't have to move money into bonds because we have the whole life policy and don't need as conservative of a split. If my wife and I manage to reach a point where we are leaving our kids a sizable amount of money at death, it helps there.
In retirement, if we want a loan and rates are through the roof, borrow against the policy. If something happens to one of our kids in the future and they need care beyond our lifetime, policy is in place. If right at retirement the market is crappy and it will hurt to draw on our 401k, we have the policy as a volatility buffer to draw from. As we approach retirement, if our kids are healthy and the market is cruising we don't have to move money into bonds because we have the whole life policy and don't need as conservative of a split. If my wife and I manage to reach a point where we are leaving our kids a sizable amount of money at death, it helps there.
Posted on 4/18/24 at 1:15 pm to JL
quote:
If right at retirement the market is crappy and it will hurt to draw on our 401k,
I understand that a whole life policy can be used as a volatility buffer.
But just about any account can be moved into that status when the time is right.
To imply a unique status to whole life is a little disingenuous. It can't help but to be a volatility buffer because the lack of options that come with such a policy.
I can admit that a whole life policy (and other permanent cash value products) can have competitive returns at 30 years.
But the lack of variability and extremely expensive opportunity cost if the policy is cancelled early (or death benefit used) gives me a long, long pause before anyone should consider this.
It really is as serious as a marriage. Because if another better opportunity comes along 5, 10, 15, and 20 years in... it is a super-expensive divorce.
Posted on 4/18/24 at 1:42 pm to meansonny
I mean you cash it out and you lose money, just like a divorce up to a point. I would have to look, but my guaranteed money without any dividend influence breaks even with my investment at like 17 yrs. At 10 yrs I would get back like 75% of my investment. My policy has never missed a dividend payment and puts a multiplier on the dividend payment tied to that years S&P 500 performance up to 2x so I would imagine my break even will be closer to 12 yrs. I'm sure if I closed my policy early I would be pissed for not investing in something else, but I knew what I was getting and how I planned to use it when I signed up. I doubt I will ever touch it, probably just use it for my kids wedding, first house downpayments, etc. then they get a pretty generous gift tax free when we pass.
This post was edited on 4/18/24 at 2:02 pm
Posted on 4/18/24 at 4:20 pm to JL
quote:
My policy has never missed a dividend payment
Lol.
If you saw the fees associated with producing and managing the policy, you'd laugh too.
quote:
I'm sure if I closed my policy early I would be pissed for not investing in something else, but I knew what I was getting and how I planned to use it when I signed up
That's my only point.
You close off ALL OTHER opportunities when you take on that marriage to your life insurance policy. 30 years is a long time to pretend that other opportunities won't come by.
quote:
At 10 yrs I would get back like 75% of my investment. My policy has never missed a dividend payment and puts a multiplier on the dividend payment tied to that years S&P 500 performance up to 2x so I would imagine my break even will be closer to 12 yrs.
It sounds like you are bragging that you break even at 12 years. I hate to break it to you, but the best ones set you up at neutral at 7 years. Maybe you have more benefits in the long term than those 7 year options (or maybe it wasn't structured to maximize your return).
quote:
I doubt I will ever touch it,
You come off like you are bragging that you don't need the policy at all. It is just something to do with your cash.
I wouldn't enter a marriage with such a cavalier attitude. But we don't have to agree on this one.
Posted on 4/18/24 at 5:09 pm to meansonny
If you think this is bad, I also invest in startups.
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