SECOND THOUGHTS on Whole Life Insurance 1 Year in - ADVICE???

[Golfnut2112]

Goldnut?

For me before I start laying out the opinion, I like to know more about the purchase and the company. If not having more information isn't necessary for you to put your opinion out there, well good for you.

Since the OP isn't an agent, they could have all sorts of products from all sorts of companies that call their product whole life or permanent insurance. I just find before I speak in absolutes that I know what I am supposed to be giving an absolute opinion on.

Cheers.

Based on what he said the premium is $6500 and a rider for $3500 which tells me it's not any type of UL policy. He said it was whole life so it's really not that complicated. Since this is a general message board all we can do is provide general help.

Once again I am not opposed to whole life I just don't like it being used when there are better options out there.

I still not heard why whole life would be an ideal funding choice for college in this instance.

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You don't. Income is the biggest factor in the FAFSA, but we've been talking about the asset, not their income. A 529 plan is treated WORSE than life insurance in the overall calculation. In my opinion, every little bit helps.

Oh, and restructuring assets ONLY for FAFSA purposes... is not a good enough reason to do it. It must be a coordinated and integrated strategy that takes someone through their retirement years and "hiding assets from FAFSA" is a side-benefit, not a sole reason to do it.

Financial Aid Strategies With a Catch

One caveat in favor OF 529 plans - if your state plan offers a tax-deductible contribution, that can skew the recommendation in favor of those plans. California has no such deduction for their state


I might trust my kids at age 8 when I start (it is a good idea to start early, right?), but if they start up the habits of theft and drugs at age 16 and keeps it going until they land in jail at age 22... I just might change my mind. What happens to the asset then? *I* would be penalized for withdrawing the money for non-qualified tuition expenses. (Yes, I could 'gift' it to another child or family member... but that was MY money and to do that just to avoid a penalty... would cost me 100% of the funds, over just paying a 10% penalty.)

Life and circumstances can change. I've found that life insurance can be the most adaptable product out there for multiple various reasons.

With an income of $240,000 it really does not matter where his assets are. If he uses life insurance he is going to get either a negative or a very low rate or return on his money, then if decides to use it he gets to pay loan interest year and year after year!

How does paying loan interest help their retirement?

Why not just use a very conservative bond fund or maybe a floating income fund and be able to withdrawal the money and not pay the interest?
Maybe the guy is not security licensed and cannot offer the 529 so life insurance is all he's got to offer.

 

[DHK]

At this point, it's about the VOLUME, not necessarily the RATE.

If you have $500,000 (for example) earning 4% = $20,000 of interest gains.

If you take out a 5% distribution loan of $25,000 paying 4% (to keep the math simple) = $1,000 loan cost... each year.

The next year, you pay the $1,000 loan cost + another $1,000 for taking another loan... but you'll gain another $20,000+ as it compounds.

And this is assuming that, in retirement, the loan interest is NEVER repaid.


Oh, and since life insurance loans are not considered income by the IRS or Social Security, you can avoid having this "income" (or more accurately CASH FLOW) not be subject to income taxation or affect the taxation of social security retirement benefits (that have not been inflation adjusted since 1993 and I doubt that will ever change).

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As far as economics are concerned, I'm more 'bearish' and that can be subject to more interpretation based on what you read.

Why take on more risk, if you don't have to, to earn a consistent return?

Considering how many companies in the S&P 500 (75%) are reporting earnings that are non-GAAP reported (generally acceptable accounting practices)... that concerns me. I wonder when that's going to 'hit the fan'?

https://seekingalpha.com/article/3972299-sec-starting-worry-non-gaap-earnings
https://www.sec.gov/news/speech/chair-white-icgn-speech.html

Considering the demographics, GDP, and population growth:
https://www.crestmontresearch.com/docs/Economy-Population-By-Decade.pdf

Considering the increasing costs of healthcare:
https://www.forbes.com/sites/danmun...for-family-of-four-now-at-25826/#a33f0681f523


Avoiding the losses, to me, is a far better strategy than trying to chase gains.

I admit, this is based on one's perspective of the economy. And, of course, past performance is not an indication nor a guarantee of future results.

No matter what Trump is promising, I can't necessarily get past the math of it all - but I do like government reducing regulations and getting out of the way.

 

[Golfnut2112]

At this point, it's about the VOLUME, not necessarily the RATE.

If you have $500,000 (for example) earning 4% = $20,000 of interest gains.

If you take out a 5% distribution loan of $25,000 paying 4% (to keep the math simple) = $1,000 loan cost... each year.

The next year, you pay the $1,000 loan cost + another $1,000 for taking another loan... but you'll gain another $20,000+ as it compounds.

And this is assuming that, in retirement, the loan interest is NEVER repaid.


Oh, and since life insurance loans are not considered income by the IRS or Social Security, you can avoid having this "income" (or more accurately CASH FLOW) not be subject to income taxation or affect the taxation of social security retirement benefits (that have not been inflation adjusted since 1993 and I doubt that will ever change).

If he is funding college he may be loaning out over $100,000 and say 5% that is at least $5,000 per year over 10 years that is a minimum $50,000 in loan interest, I rather just pay the income tax. If he was looking at retirement a IUL may work since he does not qualify for a Roth.

Buying a floating rate fund or a short to intermidiate bond fund is hardly chasing returns.

 

[DHK]

Part of that also depends on your parenting style.

Personally, I would recommend financially underwriting the chosen degree program (Bureau of Labor Statistics Occupational Outlook handbook) and setting up a favorable repayment strategy with the child to teach fiscal responsibility. While the interest would not be deductible by the child (unlike student loan interest), the repayment terms can be FAR more favorable and flexible than traditional student loans.

This way the child is fully responsible for financing their education and repaying parents.

Even if not, parents paying interest back to their policies is far better than co-signing for other non-forgivable loans should the child pass away with outstanding private loan debt.

Lenders Refuse to Forgive Dead Woman's $200K Student Loan Debt | Fox News Insider

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Btw, most parents, according to this study, place a higher priority on college savings than retirement. Yet, with properly structured life insurance, you can do both.

http://www.fa-mag.com/news/paying-for-tuition-trumps-retirement-savings--survey-finds-21245.html

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That particular article has a lot of half-truths and outright lies, so I had posted comments on it 2 years ago... but the statistics are still interesting to me.


That loan interest... and I've already posted... is NOT lost! It is credited back to your policy. If you're going to pay interest, you might as well keep it.

 

[jboussea]

The name of the whole life policy he bought and company is not important, my criticism is to do with suitability. The OP said he has ample term insurance with a combined income of $240,000, for someone to recommend a whole life policy over a 529 does not make sense, why would someone put $10,000 a year towards a college fund only to have to loan it out and pay yearly interest payments year after year when they can get that money out tax free? The money they are paying in interest can go to their own retirement.

The only advantage with the whole life is the waiver of premium which can be solved by buying a small disability policy that pays out $6,500 a year, which he may or not need. Bottom line when you factor in the negative or very low rate of return in the first 15 to 20 years on a whole life policy then factor in the interest you are going to pay he would be better off using a safety deposit box.

My question is this, if this were to go in front of a judge how would someone justify using a whole life over a 529. Once again I own two large whole life products one with Pru and the other NYL and I have absolutely no problem with whole life and sell it today.

what do you think about this article..

College Funding Part II

i really just want your opinion...

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on a separate note.. as far as suitability goes.. I know I PERSONALLY would rather have WL if I were in the circumstances presented.. so if I would do it for myself ..how would that not be SUITABLE ... now you might have an opinion about 529 being better ... but that's an opinion... it doesn't mean that the WL is not suitable.
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[Golfnut2112]

what do you think about this article..

College Funding Part II

i really just want your opinion...

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on a separate note.. as far as suitability goes.. I know I PERSONALLY would rather have WL if I were in the circumstances presented.. so if I would do it for myself ..how would that not be SUITABLE ... now you might have an opinion about 529 being better ... but that's an opinion... it doesn't mean that the WL is not suitable.
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I think an IUL would definitely be better than a whole life for college funding because of the flexibility,withdrawal features and wash loans.

Why would you prefer a whole life over a 529 assuming you have adequate term insurance? I personally had both and funded my daughters educations from the 529 and current income. I could not imagine getting a $7000 to $9000 interest bill each year. I have a wedding I am paying for in October and the loan interest I would have paid to an insurance company over the last 6 years is paying for the wedding

 

[jboussea]

I think an IUL would definitely be better than a whole life for college funding because of the withdrawal features and sometimes the wash loans.

If I had the choice between 529 .. and WL .. I would chose WL for myself..

but if I had a choice of WL and IUL .. i would pick IUL as well..

however there are advantages of a WL .. mainly the fact that whole life has dividend rate ever year (though not guranteed) that is announced every year.. so I can see someone preferring WL over IUL

at the end of the day.. it doesn't have to be one way or the other .. there are many financial tools out there and the more open you are to all of them .. the more options you have.. I just disagree with the part that WL is not suitable.. if that were the case GERBER would have been sued over and over again

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Why would you prefer a whole life over a 529 assuming you have adequate term insurance? I personally had both and funded my daughters educations from the 529 and current income. I could not imagine getting a $7000 to $9000 interest bill each year. I have a wedding I am paying for in October and the loan interest I would have paid to an insurance company over the last 6 years is paying for the wedding

the 2 major reasons why I would rather have a WL
- I want a college SAVINGs plan.. .18 years is a rather short time to have a dependable return on the stock market.. yes I can change my allocation but that can greatly diminish my return .. meanwhile I'm still exposed to more risks on a whole life..
what if my daugher is in college her freshman year.. I pay for the tuition .. and then there is a major market correction for her sophomore year.. I can't rely on the funds like I can do with WL.. WL is more predictable .. yes 4% is not mind blowing but it's dependable and way better than bank rates.. again it's a college SAVINGS plan


- Flexibility ... What if my daughter decides not to go to college.. or what if she gets scholarships... guess what I have to take money out of the 529 .. get taxed and pay a 10% penalty ..with WL .. I can pay for off campus housing .and a lto of other things that a 529 withdrawal does not qualify for...

 

[DHK]

My problem with IUL is that it may not be in place over the age of 75. I have concerns about managing the policy long-term and increasing policy costs year over year.

If one does not believe they will have a need for the death benefit past age 75, then IUL can be a great fit.

Yes, there may be over-loan protection to help avoid the phantom income tax, but I want a plan that will guarantee the long-term results... not just guarantee that if you run out of money, you won't be taxed.

Also, not every agent would structure their IULs as Scagnt83 does. It's not just a 'product' conversation, but a policy structure analysis as well.

 

[jboussea]

My problem with IUL is that it may not be in place over the age of 75. I have concerns about managing the policy long-term and increasing policy costs year over year.

If one does not believe they will have a need for the death benefit past age 75, then IUL can be a great fit.

Yes, there may be over-loan protection to help avoid the phantom income tax, but I want a plan that will guarantee the long-term results... not just guarantee that if you run out of money, you won't be taxed.

Also, not every agent would structure their IULs as Scagnt83 does. It's not just a 'product' conversation, but a policy structure analysis as well.

as far as structuring the IUL properly .. the same can be said with WL ... and from what I've seen with IMO's they do talk about structuring IUL's properly ... where as I rarely see training on structuring WL properly. it's also a lot simpler to structure an IUL properly ... and yes it needs more maintenance in the later years.. which is why agents need to educate their clients about the products they have.

 

[DHK]

Almost. WL has the bulk of its costs up front with a base policy. That's why there's very little cash value in the first 1-2 years, then it slowly builds... with a base WL policy.

But even with a base WL policy, you can do a reduced paid-up after 7 years and never owe another payments. With IUL, while you can "simulate" the same thing, you can't guarantee it. It's a small difference, but I prefer to guarantee things, rather than "essentially guarantee". It's just not the same thing.

Other than that, I agree with your post.