life insurance
Started by Robert Loblaw
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.
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deleted126335
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.
Absolutely only buy a long term policy from a highly rated insurance policy. What's the point of buying "cheap" insurance for a 30 year policy from a company that may not be in business down the road?
I prefer two separate policies because you may be able to save money by getting a 20 year policy and another 30 year policy. The theory is that in 20 years you don't need as much life insurance as you have money/savings. The second policy is there for that extra million of insurance for an additional ten years.
Price out 2 policies (one at 20-25 and another at 30) vs one large level 30 policy.
That's what I did, 2M 20 + 1M 30. Added another 500k 20 a few years ago.
Term is cheap, and if I die unexpectedly, as a couple of my friends have, I want my family to be secure without having to use what we have put together already.
Term is cheap, and if I die unexpectedly, as a couple of my friends have, I want my family to be secure without having to use what we have put together already.
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.
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.
Of course you are correct. Another big question is just how well off you want to leave your wife after your demise😉
I know docs with $5 million policies and others with just $500K. It's up to you to decide how much if any coverage to buy. Agents will try to sell you 5-6 times your annual income.
http://www.intelliquote.com/resources/life/how-much-life-insurance-do-i-need.asp
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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...
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...
I have whole life policies.
I ended up buying a whole life policy from a highly rated company. . Still, the commissions eat up the entire first year of premiums. These commissions and fees are why more whole life polices aren't sold. If these commissions/fees could be cut by 50 percent then whole life looks like a reasonsble investment.
Whole life isn't a terrible deal over 25 years but it isn't a great one either. Salespersons make huge commissions from whole life policies. Buy term and invest the difference.
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anyone seen this website before: http://whitecoatinvestor.com
He recommends essentially the same as our savvy senior SDN'ers...
He recommends essentially the same as our savvy senior SDN'ers...
Is the idea that if you haven't died by the time you retire, you can start taking money out of the whole life policy as retirement income?
So here is the deal with your life insurance agent. He only cares about making money off of you, just like a carsalesman.
All you really need to do is buy a 30 year term life insurance and then invest the rest.
Sure he talked about cash value. But what he didn't tell you is if you policy doesn't perform, you will have to cough up more money to keep the policy from lapsing. When it lapses and if you already took out a bunch of loans, you are gonna have a really bad tax bill.
INVESTING is for INVESTING, and INSURANCE is for INSURANCE.
The only thing I could conceivably see using cash value life inusrance with the whole life is for estate planning to avoid taxes. That is it. Inusrance is NOT an investment!
All you really need to do is buy a 30 year term life insurance and then invest the rest.
Sure he talked about cash value. But what he didn't tell you is if you policy doesn't perform, you will have to cough up more money to keep the policy from lapsing. When it lapses and if you already took out a bunch of loans, you are gonna have a really bad tax bill.
INVESTING is for INVESTING, and INSURANCE is for INSURANCE.
The only thing I could conceivably see using cash value life inusrance with the whole life is for estate planning to avoid taxes. That is it. Inusrance is NOT an investment!
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.
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.
Life insurance is NOT a financial instrument, it is LIFE INSURANCE. I actually did the math comparing a universal life insurance policy assuming an 8% return and comparing it to the s and p 500 making 8% a year and only paying capitol gains tax of 15%. And you know what I figured out, because of the expensive fees of that universal life insurance policy, I would need to pay an effective tax rate of 70% for the life insurance to work as an instrument for investing. You can use this a counter argument. Have him show you the worst case scenarios. They are DISASTERS in life insurance because after taking out loans on the policy if the investments don't perform, you can lapse the policy and end up paying taxes. That is a DISASTER.
The best thing to do is buy a 30 year term, with a 2 million payout costing you about 2k or so for the year and invest the rest. Kind of like the term buy term and invest the rest. There is nothing else to do. And have the agent show you the worst case scenario, it'll open your eyes. I'lve never met one person who was so happy with their life insurance policy as an investment.
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
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deleted126335
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/
I love this guy. A must read are his Stupid Doctor Tricks parts 1-4. I really do feel for him as I have made plenty of mistakes myself.
http://whitecoatinvestor.com/stupid-doctor-tricks-biggest-financial-mistakes/
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For estate planning I think the max one can give to an heir is 5 million. So what you do is dump a bunch of cash into the life insurance as a way of gifting over 5 million without a tax consequence. Pm me with your number if you want to know why life insurance is not an investment.
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
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
Unfortunately, I don't sell insurance, I only practice Anesthesia on the side. What I would recommend is to google the bogleheads forum[these are the followers of Vanguard and Jack Bogle] on the internet and ask your specific questions there. Someone there might be able to give you a better answer. The one thing I would suggest you ask "your friend, maybe she is hot, give us pictures" is to show you an illustration of the worst case scenario for the whole life insurance. Remember, there are 3 types of insurance, term, universal, and whole life. 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.
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deleted126335
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.
This is the best thread in months. Thanks.
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.
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deleted126335
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"
this doesn't pertain to life insurance directly, but as part of the two-month sub-fellowship in personal finance that i seem to be starting over the last week, i found myself at the IRS website section on 401k plans. i know BLADE will get a kick out of this attachment...
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deleted126335
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.
In the grand scheme of things my whole life policy was not my worst investment; but, neither was it my best one. It has outperformed certain investment classes over the past ten years.😱
In summary, if your agent is hungry enough ask for half the commission on your policy towards year 1 and then consider a $250K policy. I doubt any of the agents will accept your proposal so DECLINE the whole life. (Yes, they do apply the sales commission towards their own policy).
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very thankful for the input. helped keep me out of trouble. this FP made a big mistake by offering this to me. he'snot going to get any of my insurance or personal finance business now...
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
Each company has its own internal rating scale in terms of classification. Thus, one company may consider you their best class (lowest rate) while others consider you their second best class. You will still need an agent to help get you the best price on the policy so find ONE agent who sells several different insurance companies (independent agent).
"A" rated or better life insurance companies are fine. $5 million? You need that much? $3 million won't do?
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
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
IMHO, the dynasty trust is a much better vehicle for protecting the value of your estate from taxation.
- pod
- pod
POD,
Northwestern Mutual Life is the BEST in this messy business. I would have gladly purchased a HUGE WHOLE LIFE POLICY from them if the salesperson would have given me half the commission. No dice. If you haven't looked at Northwestern Mutual whole life then you haven't really looked at whole life at all.😉 Northwestern is the GOLD STANDARD in Whole life in the insurance business. I'm sure there are others who can beat them but nobody has a better track record of being fair to policy holders than Northwestern.
Now, I don't sell insurance or even have an insurance salesperson in my family. I hate insurance. But, we need it to protect our families. I don't recommend whole life insurance to anyone but I never lose sleep at night about having purchased whole life plus Term life. If it wasn't for that huge upfront commission I would have purchased more.
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
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
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deleted126335
Irrevocable life insurance trust-the trust owns the policy. Key word is irrevocable. You can't change your mind. One way around this is to fund the ILIT with term insurance and stop paying the premiums. You have just revoked an irrevocable trust. Downside is you need a new inusrance policy. You are now older and maybe less insurable. Also if a level term policy you overpay during early policy years relative to late policy years.
"A very expensive way to shelter wealth and defer taxes"-yup.
"estate tax exemption will go back to $1 million".- I highly doubt this one. Although nothing is impossible.
"I believe that there are certain situations where permanent life insurance tied to an ILIT make sense.." True. But for a very small percentage of physicians.
Assuming as I do that the estate tax exemption won't revert to $1 million. The 60 year old married physician on the cusp of retirement has $3-10 million in net worth: home equity, stocks, bonds, personal property. Kids out of college, mortgage paid up. This person has no need of life insurance of any type. He is more likely to get that high net worth by buying term insurance and investing the difference if it is done so wisely and thoughtfully.
Even if his and spouse's net worth is above $10 million, gifting is very effective at reducing estate size. In 2012 He and his spouse can each give $13,000 to each child. He and his spouse can each give $13,000 to his sons or daughters-in-law. He and his spouse can each give $13,000 to each grand child. He and his spouse can spend an unlimited amount on tuition for his children or grand children without reducing the $5million lifetime exemption.
There are other ways of passsing on substantial net worth via real estate trusts and partnerships with children that don't require life insurance.
First, he signed up for as much as he could afford of whole life insurance ($1.5 million from Northwestern Mutual), since it basically acts like a tax-free savings account and has a cash value.
Heres how this insurance works for him: He pays $40,000 into it annually and that cash, plus the dividends earned on it, grows tax-fee and adds to the tax-free death benefit his family would get if anything happened to him. Currently, he said, the policy has accrued about half a million dollars worth of cash, and he estimates it will be about $3 million when he dies if he lives a normal life expectancy.
Plus, with the whole insurance policy, he said, he could take out the cash he put in if he wanted, with no tax or other consequences. He, with his agent, also devised it to have minimum commissions. How? Technically, its a blended whole life-term insurance policy, in which cash additions gradually reduce the term insurance component over time. He said he picked Northwestern Mutual because of its high ratings from the four main life insurance rating services and because it pays dividends.
http://bucks.blogs.nytimes.com/2010/08/19/how-a-life-insurance-consultant-set-up-his-own-policies/
Heres how this insurance works for him: He pays $40,000 into it annually and that cash, plus the dividends earned on it, grows tax-fee and adds to the tax-free death benefit his family would get if anything happened to him. Currently, he said, the policy has accrued about half a million dollars worth of cash, and he estimates it will be about $3 million when he dies if he lives a normal life expectancy.
Plus, with the whole insurance policy, he said, he could take out the cash he put in if he wanted, with no tax or other consequences. He, with his agent, also devised it to have minimum commissions. How? Technically, its a blended whole life-term insurance policy, in which cash additions gradually reduce the term insurance component over time. He said he picked Northwestern Mutual because of its high ratings from the four main life insurance rating services and because it pays dividends.
http://bucks.blogs.nytimes.com/2010/08/19/how-a-life-insurance-consultant-set-up-his-own-policies/
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deleted126335
These are for SUPER Money. think top 0.5%-0.1% in net worth. Not too many doc qualify🙁
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deleted126335
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%
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.
Doze is absolutely correct that a Vanguard Tax Exempt fund offers superior returns to a Whole Life policy even factoring in the cost of insurance and tax consequences. But, if Vanguard Tax exempt Bond funds are an "A" investment then Northwestern Mutual Whole Life is a "B" investment. Maybe, if you wheel and deal with the commission it can be B+.
Doze will counter with why settle for a "B" when "A" is available. Fair enough. But, Whole life from Northwestern Mutual is anything but a poor investment over 30 years (again it is those fees which hurt this product).
Doze will counter with why settle for a "B" when "A" is available. Fair enough. But, Whole life from Northwestern Mutual is anything but a poor investment over 30 years (again it is those fees which hurt this product).
There are mechanisms to delay the irrevocable aspect until later in life, however if you want to skip the estate tax, it will have to be irrevocable at some point. That is the biggest drawback to the whole idea.
Scheduled to happen in 2013 (1 million/ 55%) unless congress acts to extend the current 5 million/ 35% level for an additional term like they did for 2012. Given the financial straits facing the country, 1 million/ 55% is pretty much inevitable.
Disagree, they are useful for the moderately wealthy as well, the same individuals for whom the ILIT makes sense. If your estate is large enough to benefit from the ILIT then it will almost certainly be large enough to benefit from the dynasty trust. Of course there are other mechanisms, but you frequently lose control over how the money is disbursed to and spent by your heirs.
- pod
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deleted126335
Yup. I don't see a reason to leave anything on the table. Why do you? Also in addition to the absolute returns, there is a liquidity issue. You can withdraw your money from a mutual fund any day the market is open. Getting money out of a cash value policy takes time and costs you interest and frequently other fees. To borrow your own money. Today's paper:
http://www.latimes.com/la-insure101-story8,0,4046745.story
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You know what would be a good idea for a company? You could have agents make bids to see who is willing to take the least amount for the whole life policy. Then maybe the whole life would be a good investment if you strip out as much of the fees and commisions as possible. I'll be honest, I haven't looked at a whole life policy, only variable and equity indexed universal life. The problem with those is the ever increasing cost of the life insurance.
Someone was talking about a whole life from SBLI where you actually end up having positive cash value after one year with a 10 year pay period. What were your thoughts on this?
Permanent-life policies, in contrast, generally need to be held for at least two decades for the savings component to beat a bond-based buy-term-and-invest-the-difference strategy. That's because the savings account expands so slowly in many of the policies pitched to consumers—thanks largely to big upfront commissions.
http://online.wsj.com/article/SB10001424052702303654804576341310992666504.html
http://online.wsj.com/article/SB10001424052702303654804576341310992666504.html
http://evaluatelifeinsurance.org/
Don't buy any permanent life insurance without getting this guy to run an analysis. Well worth the money.
Don't buy any permanent life insurance without getting this guy to run an analysis. Well worth the money.
I know this is another issue but lots of doc's I know have their assets (real estate) in trusts. Whst is the benefit there?
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