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how much should i get as an anesthesiologist? what are mistakes people have made when they were young and naive? help me avoid them...
how much should i get as an anesthesiologist? what are mistakes people have made when they were young and naive? help me avoid them...
Buy a solid term policy. Level 20 or 30. At your age you can get a cheap level 20 with a million or 2 million and another policy level 30 with $500k or a million.
If I could do it again I would have purchased a million dollar level 30 policy on top of my 2 million level 20 policy. Instead of the level 30 I have a whole life policy.
Agree. For a new residency graduate, $3 million 25-30yr level term. You should be self insured by then if you don't make any mistakes. Make sure that it is a highly rated insurance company.
At the risk of stating the obvious, term life insurance is for the people who aren't dead, so somewhere in the "how much" equation there ought to be consideration given to whether or not you're married, if your spouse works, if there are kids, or plans for kids ...
An anesthesiologist with a stay @ home wife and 3 kids needs something very different than the anesthesiologist with a vasectomy and another anesthesiologist for a wife.
Thanks everyone for their input. Are their any advantages at all to a whole life policy? Why is the guy I'm talking to suggesting it to me (I have my suspicions)? He mentioned something about being useful as a "tax-free" potential source of college tuition, etc...should I mention that I would be paying premiums with after-tax dollars?
I don't know. This guy actually seems well-intentioned, but I'm so sceptical of everyone I find it hard to trust anyone. On the other hand, I'm inexperienced and really haven't had the time to start 'dabbling.' I think I'll start with a term policy as suggested above...
anyone seen this website before: http://whitecoatinvestor.com
He recommends essentially the same as our savvy senior SDN'ers...
Again, thanks for opinions and input. I am in the uncomfortable position of needing to get some coverage for obvious reasons, but not having the understanding or experience to appreciate the subtleties. I am at least skeptical enough and practical enough to realize I don't know enough, do that should be protective to find degree.
Anyway, so I talked done more today and asked him to explain to me why he thinks this is good idea for high income earners (his words) when everyone else thinks its such a bad idea. As I understand it, his arguments were (1) as an income tax deduction (which 401k would also be as I pointed out) and (2) as non-taxable to the beneficiaries in the event of a payment. He claimed that the benefit would be tax-free to my family, whereas any 401k investment would be taxed either annually (added to annual income of benifificiary) or as a lump sum payout (he claimed nearly 50% tax). I don't have the experience or understanding to present counter-arguments to his claims--I was hoping to solicit any here...
I can see how 'complexity' of financial instruments is such an assets to a salesman. The more letters and numbers you can sling together as an acronym for done financial misfortune to avoid, the more money you will get from your clients.
The only thing I could conceivably see using cash value life inusrance with the whole life is for estate planning to avoid taxes.
Can you expand on how this works? My "financial planner" buddy (who lost all his money in real estate and now sells himself as a financial planner but is really just an insurance salesman) tried to talk me into this. I was a bit insulted because he wasn't even interested in looking at my financial situation to see if it was an appropriate instrument for me or not, he just thought it would be the cats meow for me since I am a high wage earner. I haven't talked to him since, but maybe I should reconsider (although I would be unlikely to purchase from him).
- pod
I highly recommend this blog. It is by a physician (ER Doc) with a passion for finance and investing. I agree with 99% of his views. The link goes to the section on cash value insurance.
http://whitecoatinvestor.com/tag/whole-life-insurance/
Can you expand on how this works? My "financial planner" buddy (who lost all his money in real estate and now sells himself as a financial planner but is really just an insurance salesman) tried to talk me into this. I was a bit insulted because he wasn't even interested in looking at my financial situation to see if it was an appropriate instrument for me or not, he just thought it would be the cats meow for me since I am a high wage earner. I haven't talked to him since, but maybe I should reconsider (although I would be unlikely to purchase from him).
- pod
I am specifically interested in the statements "whole life is for estate planning to avoid taxes" and " dump a bunch of cash into the life insurance as a way of gifting over 5 million without a tax consequence". This is exactly what my buddy tried to tell me, and I would like to know how WHOLE LIFE enables one to avoid estate taxes.
Hint, my insurance salesman buddy couldn't give me an satisfactory answer.
Another on The White Coat Investor... it is one of my bookmarks.
- pod
Life insurance (term or whole) does not avoid estate taxes. Structuring the ownership of the policy properly is what avoids the taxes. But this is true for othe types of assets. In 2012, federal estate taxes are only an issue if your estate is greater than $5 million. $10 million if married and assets titled properly. Whole life insurance is useful to pay estate taxes on valuable but illiquid assets that one wishes to pass on to heirs, i.e. family business.
Yup, I agree with everything you say. Luckily, most of us here don't have over $5 million in illiquid assets so using permanent life insurance as an investment would turn out to be a waste of money compared to buy term and invest the rest. I'm amazed we haven't had life insurance agents hitting this board yet.
I think if you strip the fees that the agents initially get from these products, they may be worthwhile as an investment, but one would have to do the homework and see what the fees are.
I've never understood people who blindly buy these permanent life insurance policies as an investment and then get upset when they see the cash value is much less than what they put into the policy. I mean, do people do homework on things before they buy them.
Yup, I agree with everything you say. Luckily, most of us here don't have over $5 million in illiquid assets so using permanent life insurance as an investment would turn out to be a waste of money compared to buy term and invest the rest. I'm amazed we haven't had life insurance agents hitting this board yet.
I think if you strip the fees that the agents initially get from these products, they may be worthwhile as an investment, but one would have to do the homework and see what the fees are.
I've never understood people who blindly buy these permanent life insurance policies as an investment and then get upset when they see the cash value is much less than what they put into the policy. I mean, do people do homework on things before they buy them.
Yup. One sales technique that cash value insurance salesmen do is to show you their own personal policy and say,"I bought this for myself". They don't tell you the break on commission that they get. Or they pay the fees to themselves.
Another thumbs up for the "boglehead" website. The author of the white coat investor blog posts there as "emergdoc". He is on SDN as "activedutymd"
So what are some highly rated companies? I used the term4sale site and did 30 year term guaranteed at 5 mil and came up with Pruco Life and Banner Life as my first two choices. They are rated A+ so I am guessing they are not going to tank soon? BTW, the 5 mil is coming out around $250ish
I'm assuming you have only looked at whole life. Have you ever wondered what would happen if the life insurance company became insolvent like AIG did a few years ago. I don't think it would be a pretty picture.
If the salesperson will cut the commission in "half" and apply it towards year 1 of the whole life policy then, only then, is whle life a decent deal PROVIDED you buy from a TOP company like Northwestern Mutual Life, etc....
Commission is only part of the cost. Don't forget ongoing management fees. Frequently these are buried deep in the details of the plan and can consume a large portion of your gains. As with any investment, get your agent to outline the ENTIRE cost.
- pod
I am just playing dumb to see if you know something that I don't know.
Whole life (and other varieties of permanent insurance) is frequently marketed as an instrument for avoiding estate taxation. This is incorrect. In point of fact, the instrument that allows one to avoid estate tax on life insurance proceeds is the Irrevocable Life Insurance Trust (ILIT) and it can be funded with any type of life insurance policy.
The reason for funding the ILIT with a permanent policy is that you can build a huge policy that does not completely disappear in the manner that term life insurance does when the policy term expires (say at age 70 or so). Historically the cash value of a permanent policy could exceed the death benefit and the super rich would set up a policy with minimal death benefit and huge cash value to pass on to their heirs estate tax free. Congress put the kibosh on this so that now if the payout exceeds the death benefit, estate taxes apply to the amount that exceeds the death benefit.
I believe that there are certain situations where permanent insurance tied to an ILIT can make sense... If you have maxed out all other tax advantaged and creditor exempt vehicles (homestead, retirement plans, 529 plans, HSA etc), and you still have a large amount of throw away money, you THEN can turn to a well structured (as in low fee) permanent policy to let your investments grow on a tax deferred and creditor exempt basis to pass on to your heirs. This is a VERY expensive way to shelter wealth, but if you believe (like I do) that the estate tax exemption will return to 1 million and the gift tax rate will be greater than 50% prior to my death, even an expensive vehicle can make financial sense. But a lot of things have to line up for you to come out ahead on this arrangement, including you living a long life.
Of course, you have pointed out the biggest risk of all... you are concentrating a large portion of your wealth into an account that has no protection if the company goes under.
Keep in mind that payout on any life insurance can take time and so the value of having the liquidity will not kick in immediately. It is a good idea to also have an insured cash account that can be used to fund the expenses of running and settling the estate until the value of the insurance can be tapped.
An attorney who is well versed in wealth management is an invaluable asset when sorting this stuff out.
- pod
IMHO, the dynasty trust is a much better vehicle for protecting the value of your estate from taxation.
- pod
The big mutual companies, such as Guardian, MassMutual, New York Life and Northwestern Mutual, specialize in whole life insurance and have top credit ratings.
Here are Blease's rankings of national companies over the past 20 years, with the annual rates of return for a policy sold in 1991 to a man who was 55 years old that year:
--Northwestern Mutual, 4.44%
--New York Life, 3.37%
--Thrivent, 3.20%
--MassMutual, 3.01%
--The Guardian, 2.62%
Read more: http://www.kiplinger.com/columns/kiptips/archives/best-bets-for-whole-life-insurance.html#ixzz1u6n0BwJq
Returns for Vanguard intermediate and Long term tax exempt bond funds. 1,3,5,10 years and since 1977. Buy term and invest wins. Vanguard municipal Bond funds are very high credit quality.
Average annual returns—updated monthly as of 04/30/2012
1 Year
3 Year
5 Year
10 Year Since Inception
09/01/1977
Inter-Term Tax-Exempt Inv 9.82% 6.39% 5.26% 4.65% 5.82%
Average annual returns—updated monthly as of 04/30/2012
1 Year
3 Year
5 Year
10 Year Since Inception
09/01/1977
Long-Term Tax-Exempt Inv 12.36% 7.51% 5.07% 5.07% 6.20%
Barclays Municipal Bond Index* 11.36% 7.40% 5.60% 5.38%
Irrevocable life insurance trust-the trust owns the policy. Key word is irrevocable.
"estate tax exemption will go back to $1 million".- I highly doubt this one. Although nothing is impossible.
These are for SUPER Money. think top 0.5%-0.1% in net worth. Not too many doc qualify
I knew you were going to quote those funds. Predictable. Yes, investing in an intermediate term bond fund (tax free) would easily have beaten the returns from my Whole Life policy or any insurance policy. A good whole Life returns 4.4% while Vanguard Tax exempt fund easily beats that return by 1.5%.
Whole Life is insurance as well so there is value in paying that 1.5% cost for a good policy.
Remember, there are tax advantageous to the whole life policy compared to the Vanguard funds when you cash out. I considered all of those factors and the peace of mind a good whole life policy brings to the table.
For me a Whole Life Policy was part of my financial plan; for others, Term Only is the way to go. But, unless you have looked at the GOLD STANDARD in Whole Life, Northwestern Mutual, you haven't looked at whole life at all.
In the end those commissions upfront eat away at your returns. Slash those commissions and whole life looks much better.
I knew you were going to quote those funds. Predictable. Yes, investing in an intermediate term bond fund (tax free) would easily have beaten the returns from my Whole Life policy or any insurance policy. A good whole Life returns 4.4% while Vanguard Tax exempt fund easily beats that return by 1.5%.
Whole Life is insurance as well so there is value in paying that 1.5% cost for a good policy.
Remember, there are tax advantageous to the whole life policy compared to the Vanguard funds when you cash out. I considered all of those factors and the peace of mind a good whole life policy brings to the table.
For me a Whole Life Policy was part of my financial plan; for others, Term Only is the way to go. But, unless you have looked at the GOLD STANDARD in Whole Life, Northwestern Mutual, you haven't looked at whole life at all.
In the end those commissions upfront eat away at your returns. Slash those commissions and whole life looks much better.