Life Insurance as Investment

[Allstinite]

There is this old book Becoming Your Own Banker by Nelson Nash among another few about using whole-life insurance as an investment vehicle.
The idea is to put as much as possible in a policy to let it grow tax-free and take loans from it instead of draining your savings. Most books are outdated and do not cover specifics or give enough, or even good examples.

Is there anybody here with knowledge about the subject that could help? My case:


I got a raise and now I'm making $105k/year before taxes from salary (W-2). Almost 25% is deferred. Another $3k/year from a money market account (savings). I file as single, no kids and use the standard deduction. In sum, I pay around $20k in taxes per year. I am 40yo by the way, living in a State without income tax.
I live below my means, spending a 1/3 of my wage and saving the rest.

I like to keep my savings growing in a money market account and having the money available in case of a crash so I can buy assets at a more affordable price. Be it stocks or even real estate if the opportunity arises.


Can I put +50% of my wages in a policy to make my taxable income lower and have it as a "savings account" that I can borrow against if needed for purchases (like a car or house)?
With interest rates at normal levels today (5%), can I expect the money going to the policy to grow at similar rate or better? Where can I find recent numbers? And what If I need to borrow, how much would the rate be?

What happens if you lose your job and can't make a payment?

And for safety of your life savings, how to sleep knowing the insurance company could go bankrupt the next day and lose all your money? Is the money insured somehow? How many companies to choose from have a good track record of many decades (or even +100 years)?


I know those are a lot of questions but I'm not sure where to find an agent who could know those answers.

 

[Allstinite]

* I meant 25% of my W-2 income is withhold.

 

[DHK]

Can I put +50% of my wages in a policy to make my taxable income lower

No. Flat out no. And the reason is that there are very few ways to deduct your premiums from your income taxes.

What happens if you lose your job and can't make a payment?

I would always have APL (Automatic Premium Loan) selected so that the policy premiums would be borrowed against the existing cash values to keep the policy in-force. Without it, your policy can have a cash value, but still lapse without a new premium coming in. The remaining cash values would be refunded to you (after loan repayment), but you still lose the policy.

And for safety of your life savings, how to sleep knowing the insurance company could go bankrupt the next day and lose all your money? Is the money insured somehow? How many companies to choose from have a good track record of many decades (or even +100 years)?

The money is NOT insured by any government entity. It's better. It's an insurance company itself.

 

[DHK]

How safe are insurance companies?

 

[marindependent]

Oh Boy - Life Insurance as an Investment posed as question on this forum - Here we go again.

 

[walthamny]

It is not possible to grow your savings by putting in money market funds. SInce the early 80's I don't think there has been a year money markets have returned a net positive return. Right now if you find a top money market fund paying at 5% on new money and inflation running around 5% your net earnings are zero. However Uncle Sam also loves you extra so you will also pay about 20% income tax on that generous 5%. So right now money market funds are basically netting you minus 1% a year. Thats pretty typical by the way. As for the market timing, good luck.

 

[marindependent]

However Uncle Sam also loves you extra so you will also pay about 20% income tax on that generous 5%. So right now money market funds are basically netting you minus 1% a year. Thats pretty typical by the way. As for the market timing, good luck.

Yeah your numbers are too round to be helpful.
Current Inflation - Citation - about 3.2%
Current Money Market Rates - Really Depends on where you invest, but seeing them from 3.87% to 5.05% - Citation

As for tax rates - 20% might be a good guess for some, but... that is totally dependent on the individual. Tons of americans pay essentially no income tax: "about 47.1 percent of U.S. households with an income between 40,000 and 50,000 U.S. dollars paid no individual income taxes." Source. And CNBC - "More than 40% of Americans Will Owe No Federal Income Tax..."

I do not disagree that you would not likely get rich putting money on Money Market Accounts.

 

[fed up]

Find stocks that pay dividends. Buy stocks that pay dividends. Invest dividends into stocks that pay dividends. Rinse and repeat

 

[walthamny]

Yeah your numbers are too round to be helpful.
Current Inflation - Citation - about 3.2%
Current Money Market Rates - Really Depends on where you invest, but seeing them from 3.87% to 5.05% - Citation

As for tax rates - 20% might be a good guess for some, but... that is totally dependent on the individual. Tons of americans pay essentially no income tax: "about 47.1 percent of U.S. households with an income between 40,000 and 50,000 U.S. dollars paid no individual income taxes." Source. And CNBC - "More than 40% of Americans Will Owe No Federal Income Tax..."

I do not disagree that you would not likely get rich putting money on Money Market Accounts.

He gives his income so his Federal tax bracket is 22%. Also your analysis on lower income brackets is incorrect because Earned income credit plays an equal factor when your income is below 50k for most families. If you have too much interest income you will loose the earned income tax credit at lower income levels. As for the inflation you would never use one year inflation number for financial analysis. Most financial advisors either use 4.5% or 5% in their projections, some use 4%. While the average inflation rate is slightly over 4% over the last 100 years, the basket used has changed a lot over the100 years and it is likely underestimating the amount of inflation. Rents, prescription drug costs or school tuition have much higher inflation rate over the last 20 years not showing up in our tilted basket we use for measuring inflation. With the general public, it is best to use round numbers, something as an Investment Advisor you learn over the years.

 

[Allstinite]

Oh Boy - Life Insurance as an Investment posed as question on this forum - Here we go again.

If it wasn’t for insurance-advertising books disguised as a great investment tool…