Life Insurance as Retirement Savings Vehicle.

[RustedFox]

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Anyone have any thoughts on this ? (ActiveDuty: I'm looking at you.)

For particulars sake, its "Whole Life" at 4% a year. I'll be online all day and night today to supply more info, but I wanted to start this thread now for some kneejerk reactions.

 

[Cooperd0g]

Knee jerk: absolutely not. There is virtually no reason to mix insurance and investing.

The jist: The "service" of the "investment" comes at a cost of very high fees. You would pay much less in fees for the same term life insurance coverage and fees to Vanguard for an actual mutual fund in your preferred retirement account and/or taxable accounts. You would also most likely yield a higher rate of return off of your traditional investment by sticking with index funds long term than by going with the "managed" investments that the insurance company chooses.

The biggest correlation in return on investments is actually the fees associated with it - higher fees = lower returns and whole/universal life type policies have about the most expensive fees you can find. ADMD's blog as a plethora of articles on it.

 

[cincincyreds]

Anyone have any thoughts on this ? (ActiveDuty: I'm looking at you.)

For particulars sake, its "Whole Life" at 4% a year. I'll be online all day and night today to supply more info, but I wanted to start this thread now for some kneejerk reactions.

Life insurance is for life insurance. The stock market is for investing. The kitchen is where you eat, and the bathroom is where you ****. I don't eat where I ****, and I don't use life insurance as an investment. Just buy term life insurance and invest the rest. The fees are too high for the strategy you propose to work.

Please read the blog www.whitecoatinvestor.com who talks extensively about this. He is an ER physician, I am not.

 

[JacobMcCandles]

Whole life insurance is terrible for about 99% of people (including you). Get term for life insurance and max out other retirement vehicles.

 

[yossarian444]

Whatever you do, don't listen to any financial advisors on this topic. They mean well, but they tend to only know what their company tells them. And as others have said, almost all of the time, Whole Life is a terrible idea. However, as a financial product it does tend to pay financial advisers a good commission, so they will push it on you and make it sound like a good idea.

Stick with term.

 

[DocRGR]

Here's all the stuff he has tagged for "whole life insurance"....

http://whitecoatinvestor.com/tag/whole-life-insurance/

Huge fan.

 

[RustedFox]

I see what you guys are saying. My original position is/was: "I want a zero risk, tax-free investment; I want my money to be my money, and eff the rest of everybody" and this is what was suggested to me.

Personal info: Will most likely be engaged/married in one year's time. Never having any kids, ever

 

[Old_Mil]

"I want a zero risk, tax-free investment;

Unfortunately there is no such thing today. Muni bonds are seeing bondholders claims rejected in bankruptcy court as public employee pensions are being protected. Time ran a magazine cover in 2009 (http://www.time.com/time/magazine/article/0,9171,1929233,00.html) about getting rid of 401k plans. Ask someone from Cyprus what they think about their banks, by the way.

Personal info: Will most likely be engaged/married in one year's time. Never having any kids, ever

Basically, you need a term life policy that will cover you for 20 years or so. This will enable your wife to pay off the house, neutralize any debt that you may have, cover funeral expenses, and stabilize life for a few decades until you've managed to earn enough to do that with the assets you've saved up. Policies like that are pretty cheap.

Equally important is disability and long term care insurance, as there are fates worse than death.

 

[Daiphon]

Whole life insurance is terrible for about 99% of people (including you). Get term for life insurance and max out other retirement vehicles.

Agree... but it's a good "buy" if you're continuing a policy you've already had it for a while (my parents took one out on me when I was born).

Sent from my DROID BIONIC using Tapatalk

 

[It'sElectric]

Read ActiveDuty's blog www.whitecoatinvestor.com. You can even directly search for such topics. He covered whole life insurance before. The abbreviated answer is, it's a bad idea.

 

[The White Coat Investor]

What else can I say? There are hours of reading on whole life available on the blog. The short answer is that you don't need it and shouldn't buy it. Buy term and invest the difference. There are some uses for it and it isn't "bad" or anything, but it doesn't work out well for the vast majority of people to whom it is sold. It is poorly understood by most of its buyers and the alternatives are generally poorly understood by those who sell it. This post is probably the best place to start:

http://whitecoatinvestor.com/8-reasons-to-avoid-whole-life-insurance-and-4-reasons-to-consider-it/

 

[FSU2013]

What else can I say? There are hours of reading on whole life available on the blog. The short answer is that you don't need it and shouldn't buy it. Buy term and invest the difference. There are some uses for it and it isn't "bad" or anything, but it doesn't work out well for the vast majority of people to whom it is sold. It is poorly understood by most of its buyers and the alternatives are generally poorly understood by those who sell it. This post is probably the best place to start:

http://whitecoatinvestor.com/8-reasons-to-avoid-whole-life-insurance-and-4-reasons-to-consider-it/

I was wondering how long before the apparent SDN celebrity would make a guest appearance, lol.

 

[RustedFox]

I was wondering how long before the apparent SDN celebrity would make a guest appearance, lol.

🙂

I asked for him in my first post.

Thanks for the link AD. Gives me a good place to "start", which is exactly what I needed.

 

[GeneralVeers]

I've been referred by my colleagues to some "Financial Planners" who specialize in helping physicians. In most cases they're just trying to sell a whole life or variable annuity product that I don't need. I'd rather learn by myself, make a few errors, but at least keep control of my money.

 

[Deuce Doc]

Ooooh, I've got a related question.

I agree with the efficient market and "investment advisers are crooks" advice. I know that the fees are a negative, but I thought that I had heard of some sort of whole-life that worked as a tax shelter. This sounded like it might be useful once you are maxing IRA/401K-type opportunities, and might overcome the major disadvantage of an insurance company taking their cut. Any truth to that?

 

[The White Coat Investor]

Ooooh, I've got a related question.

I agree with the efficient market and "investment advisers are crooks" advice. I know that the fees are a negative, but I thought that I had heard of some sort of whole-life that worked as a tax shelter. This sounded like it might be useful once you are maxing IRA/401K-type opportunities, and might overcome the major disadvantage of an insurance company taking their cut. Any truth to that?

There are tax advantages to a whole life policy, but they usually don't outweigh the downsides.

You put after-tax money into a life insurance policy. It grows in a tax-deferred manner. If you cancel the policy, the amount of cash value above and beyond your basis is fully taxable. If you don't cancel it, you can borrow from it later in life and the loans are tax-free (but not interest free). When you die, the death benefit minus whatever you borrowed is paid to your heirs tax-free. So it could be termed a tax shelter of a sort.

Anyone who tells you there are no tax benefits to a whole life policy doesn't understand them. The problem is that the costs and low returns available don't make up for the tax benefits. If you're going to tie money up for 50+ years, you really want to get more than the 2-5% you can expect over the long run with a whole life policy. Remember that the dividend rates ARE NOT the same as your rate of return.

 

[FSU2013]

🙂

I asked for him in my first post.

Thanks for the link AD. Gives me a good place to "start", which is exactly what I needed.

I saw that, but apparently the 3 or 4 others that referenced the blog didn't catch it. I was just wondering how many more people would chime in and tell you to "read whitecoatinvestor" after you explicitly asked his opinion.

 

[It'sElectric]

I referenced his website as an answer to his question because it not only answers the whole life insurance, it also answers a hundred other questions that should inevitably come up in relation to finances. It's a wonderful resource that AD has gone through the trouble of creating at zero cost to you.

 

[RustedFox]

I referenced his website as an answer to his question because it not only answers the whole life insurance, it also answers a hundred other questions that should inevitably come up in relation to finances. It's a wonderful resource that AD has gone through the trouble of creating at zero cost to you.

Yeah, after doing the once-over, I agree. I really needed a "jumping-off point", and since markets and opinions change with time, I wanted to get the zeitgeist of fellow forum denizens.

 

[sazerac]

Agree... but it's a good "buy" if you're continuing a policy you've already had it for a while (my parents took one out on me when I was born).

Why on earth were your parents insuring a non-income-producing asset like a child? That makes no sense.

And if you or somebody else has cash sunk into an "asset" like whole life, it is still better to cancel the policy and meet any insurance or investment needs in a more appropriate low-cost vehicle. The only person for whom continuing an existing whole life policy is a "good buy" for is the insurance salesman.

 

[EctopicFetus]

Why on earth were your parents insuring a non-income-producing asset like a child? That makes no sense.

And if you or somebody else has cash sunk into an "asset" like whole life, it is still better to cancel the policy and meet any insurance or investment needs in a more appropriate low-cost vehicle. The only person for whom continuing an existing whole life policy is a "good buy" for is the insurance salesman.

Some parents do this to cover costs of a funeral, time off for grieving etc. Also seems like a cute gift to give a kid. policies are usually tiny (for life insurance15-50k)

Some get it as a "gift"

 

[Cooperd0g]

Probably for the reasons that EctopicFetus said, but my fiancé's father told us about a policy he has been paying on. Once we get married he will turn it over to us. She is 27 now so I will need to look at the paperwork for the best way to cancel it and cash it out.

 

[Arcan57]

Some parents do this to cover costs of a funeral, time off for grieving etc. Also seems like a cute gift to give a kid. policies are usually tiny (for life insurance15-50k)

Some get it as a "gift"

I have a policy from my parents for whole life they got when I was born. They said they did it because they wanted me to have something in case I was uninsurable due to some undiagnosed medical condition. The interest now pays the premium so I guess I'm going to sit on it.

 

[The White Coat Investor]

It's not necessarily a good idea to cancel a policy that has been in place for a long time. After 20 years or so, it's probably a good idea to keep it. Tiny policies, especially paid monthly, may still not be worth it.

This idea of buying a policy on a kid in case he becomes uninsurable later is stupid. First you're not going to buy a big enough policy that it would make any serious financial difference. A doc in his early career may need $1-3 M in life insurance. How far do you think that $10-20K policy is going to go? That's a month's worth of expenses for most docs.

Second, if burying your kid is something you need to insure for it's time to get a bigger emergency fund.

 

[45408]

Some parents do this to cover costs of a funeral, time off for grieving etc. Also seems like a cute gift to give a kid. policies are usually tiny (for life insurance15-50k)

Some get it as a "gift"

Parents took one out for me at age 20. I just canceled it, put the money in it toward my mortgage, and took out a much larger term policy for 1/8 of the cost. By the time that policy expires, I'll have more money saved to take care of my wife than the whole life was worth.