Hi all, We met with our financial advisor last night and he brought up whole life insurance. I have a trust fund from when my father passed away, and he thinks it will help diversify our portfolio. The return on the account is 6-8 percent. I know generally whole life isn't seen as a good idea here- but when is it a good idea? TY
Hi all, We met with our financial advisor last night and he brought up whole life insurance. I have a trust fund from when my father passed away, and he thinks it will help diversify our portfolio. The return on the account is 6-8 percent. I know generally whole life isn't seen as a good idea here- but when is it a good idea? TY
I think age, tax bracket, other retirement account balances would help determine if it's a good investment in your case.
Eta. CJ just asked about the fees in my post. Do you know that info in your case?
It kind of bugs me that people think that all agents/ estate planners only suggest Whole Life to make "a killing" on commission. Any agent with integrity who knows what they are doing won't sell you something just to line their own pockets; it has to work with your overall goals. That's why choosing the right one is so important. But they're not all snake oil salesmen.
Post by sunshinedaydreams on Jul 9, 2014 21:45:32 GMT -5
I think this depends on your particular situation and what your financial goals are. Our advisor recently recommended whole life for us as well based on our particular situation. He recommended it for us because:
1 - It's a low-risk investment vehicle. We have a sum of money also invested in the market and wanted something that would be low-risk, accessible investment as well.
2 - I recently changed jobs and lost the life insurance coverage I'd previously had and was looking for another policy.
3 - We plan to have the money in there long-term. Within 5 years, assuming a modest return, our earnings will pay for our premiums and then some.
4 - The policy can be withdrawn from tax-free. So if we find ourselves in a bind and need money, we can pull money from our policy without paying taxes (have the ability to pull the principle out before the earnings to avoid taxes). If we had to pull from our money market accounts, we would have to pay taxes.
I think this depends on your particular situation and what your financial goals are. Our advisor recently recommended whole life for us as well based on our particular situation. He recommended it for us because:
1 - It's a low-risk investment vehicle. We have a sum of money also invested in the market and wanted something that would be low-risk, accessible investment as well.
2 - I recently changed jobs and lost the life insurance coverage I'd previously had and was looking for another policy.
3 - We plan to have the money in there long-term. Within 5 years, assuming a modest return, our earnings will pay for our premiums and then some.
4 - The policy can be withdrawn from tax-free. So if we find ourselves in a bind and need money, we can pull money from our policy without paying taxes (have the ability to pull the principle out before the earnings to avoid taxes). If we had to pull from our money market accounts, we would have to pay taxes.
5 - The money can be passed on tax-free.
Low risk also means possibly will not beat monetary inflation. Monetary inflation in 2013 was close to 5%.
Are you maxing all tax-advantaged vehicles including a back-door Roth if you are phased out income-wise and an HSA if you have an eligible health plan?
It kind of bugs me that people think that all agents/ estate planners only suggest Whole Life to make "a killing" on commission. Any agent with integrity who knows what they are doing won't sell you something just to line their own pockets; it has to work with your overall goals. That's why choosing the right one is so important. But they're not all snake oil salesmen.
Ok, stepping off my soapbox now.
I get what you're saying but...how many times have people come on MM asking about it after it was suggested by a Financial Advisor? I can't think of one example where MM felt that it was a good financial choice for the poster.
It kind of bugs me that people think that all agents/ estate planners only suggest Whole Life to make "a killing" on commission. Any agent with integrity who knows what they are doing won't sell you something just to line their own pockets; it has to work with your overall goals. That's why choosing the right one is so important. But they're not all snake oil salesmen.
Ok, stepping off my soapbox now.
I get what you're saying but...how many times have people come on MM asking about it after it was suggested by a Financial Advisor? I can't think of one example where MM felt that it was a good financial choice for the poster.
I'll admit that I'm biased because I work for an advisor who occasionally recommends whole life and I've seen firsthand clients who get into a financial bind due to liquidity issues and these policies have given them the cash they need within days. I've also seen the death benefits used to pay taxes so property didn't need to be sold and the profits divided. It's not a "bad" product- it just depends on the situation. I also think agents should make you aware of all of your options and let you make an informed decision, so simply presenting it as one of a range of products is appropriate.
Eta: I've also seen clients who bought term instead of whole life and when the get to the end of the level premium term period, they are no longer insurable so they are left with zero coverage, which doesn't happen with whole life.
If they purchased the term insurance correctly in the first place, they'd have gotten something convertible to permanent insurance if need be (though the need is not often there). Also, many people are self-insured by the time the term runs out, or should be if they were saving adequately outside of the LI policy.
I sell insurance and in 4 years I have not yet had one potential client that came to me that actually had a *need* for anything other than term, and I am talking young, older, and everything in between. I am honest in that I believe that life insurance is to protect you and your family until you are at or close to retirement age. After that, and barring a catastrophe, a good estate plan allows for payment of burial and related expenses. Life insurance isn't a tool to make your heirs rich, IMO.
Also, you say advisor, as in financial advisor, I presume. I would never recommend someone that is looking for life insurance seek advice from their financial advisor, especially one that is commission-, rather than fee-based. Insurance and investments should be kept separate.
I have many peers who are inferior agents because they push whole life for the wrong reasons, and to the wrong people. It infuriates me.
There are a few people on this board who have been burned by whole life policies as well, because they/a family member were not properly educated (which IMO is the agent's primary job) on the product. These are regular posters who I would consider to be smart, financially-savvy people, not randoms.
I have said before that I can think of a handful of posters on this board for whom whole life is appropriate, namely high earners who are maxing all available tax-advantaged vehicles and still not saving 15% of their gross to retirement.
If they purchased the term insurance correctly in the first place, they'd have gotten something convertible to permanent insurance if need be (though the need is not often there). Also, many people are self-insured by the time the term runs out, or should be if they were saving adequately outside of the LI policy.
I sell insurance and in 4 years I have not yet had one potential client that came to me that actually had a *need* for anything other than term, and I am talking young, older, and everything in between. I am honest in that I believe that life insurance is to protect you and your family until you are at or close to retirement age. After that, and barring a catastrophe, a good estate plan allows for payment of burial and related expenses. Life insurance isn't a tool to make your heirs rich, IMO.
Also, you say advisor, as in financial advisor, I presume. I would never recommend someone that is looking for life insurance seek advice from their financial advisor, especially one that is commission-, rather than fee-based. Insurance and investments should be kept separate.
I have many peers who are inferior agents because they push whole life for the wrong reasons, and to the wrong people. It infuriates me.
There are a few people on this board who have been burned by whole life policies as well, because they/a family member were not properly educated (which IMO is the agent's primary job) on the product. These are regular posters who I would consider to be smart, financially-savvy people, not randoms.
I have said before that I can think of a handful of posters on this board for whom whole life is appropriate, namely high earners who are maxing all available tax-advantaged vehicles and still not saving 15% of their gross to retirement.
I agree with you that people should purchase convertible policies, but they choose to save a few bucks and buy a Banner policy rather than one with MassMutual for instance. I find if they aren't "bought" into the idea of WL to begin with. they don't care about paying extra for that option.
As far as self insuring later on down the road, it's very easy to say "I'll buy term and invest the difference" but most people don't have the discipline to do so.
The guy I work for has been a successful agent with the same company for 30 years and as the wealth of his clients has grown, they have become more interested and able to purchase WL.
I also think part of education is presenting all the options.
Congrats on 4 years in the business! Its not an easy industry. That's impressive. It's why I just work for an agent, I don't have the skill set to be one.
I think this depends on your particular situation and what your financial goals are. Our advisor recently recommended whole life for us as well based on our particular situation. He recommended it for us because:
1 - It's a low-risk investment vehicle. We have a sum of money also invested in the market and wanted something that would be low-risk, accessible investment as well.
2 - I recently changed jobs and lost the life insurance coverage I'd previously had and was looking for another policy.
3 - We plan to have the money in there long-term. Within 5 years, assuming a modest return, our earnings will pay for our premiums and then some.
4 - The policy can be withdrawn from tax-free. So if we find ourselves in a bind and need money, we can pull money from our policy without paying taxes (have the ability to pull the principle out before the earnings to avoid taxes). If we had to pull from our money market accounts, we would have to pay taxes.
5 - The money can be passed on tax-free.
Low risk also means possibly will not beat monetary inflation. Monetary inflation in 2013 was close to 5%.
Are you maxing all tax-advantaged vehicles including a back-door Roth if you are phased out income-wise and an HSA if you have an eligible health plan?
Do you have adequate term insurance?
I'm super late coming back to this, but yes to all of the above. We both max out 401(k)s, fully fund Roth IRAs and have a significant amount of money in the market. My H maxes out his HSA and I don't have the option. This was a means of helping to diversify and giving us a plan that will grow more than the savings account it was previously sitting in, isn't as risky as the market, gives us the option to pull money tax-free if we need it and doesn't have the time constraints of a CD.