How can I benefit from Life Insurance?
Based on a response by @Manatee Outlaw to a question in the finance channel
TLDR here's the concept:
1) You buy a permanent life insurance policy; this could be whole life (grows at a set % every year, contractually obligated, agnostic towards any market conditions, potential dividends if you're in a mutual insurance company policy) or variable universal life insurance (same thing but different.). Since we're all gambling Oe 150J's behind the denny's people here, we're gonna go with the 🅱️ased option and talk variable. But the concept is the same.
2) You pay for your insurance. The higher the face value, the more you will pay. You will pay at least 10x-50x what you would get for term insurance. This seems like a scam, except the excess premiums that you're paying go into a separate account. If it's whole life, it goes into the company account and they credit you money and that interest rate. If it's variable then it goes into a stock account. And you put it in the market.
3) Your money grows tax-deferred.
4) You want to withdraw your money. This is a good thing, fuck them kids pepaw needs to go back to vegas. If you take a loan out against your growing cash value, you pay no taxes because a loan isn't income.
5) You die. :Noot_gun: Possibly by my own hands. I'm sorry sensei, I can't... I can't let this go on.
6) The life insurance pays out to your family, minus any outstanding loans, and that money is all tax-free as well (death benefits)
Hence you grow money inside a life insurance policy at market rates, paying no taxes as it grows, and take out a loan against it once you need the money.
Now.
Why life insurance?
A few things.
(1) Life insurance isn't considered income. It's not considered an asset. It does not show up on FASFA forms for your kids, and, well. It technically has no value, so if you get sued it's not like they can go after your policy... it only pays out on death. :cooldude: so if you want to basically protect a bucket of dosh against lawsuits, divorce, income tax, alimony, hail, lightning and the like, you pop it in there and walk away.
(2) If you do not pay your premiums every year, your policy lapses. All this goes away. All your cash is immediately pulled out. All loans are paid. You get hit with a massive fucking tax bill. 99.99999999% of the time, policies will automatically take a premium loan from your cash value if you refuse to pay, but why do that? You're losing more money that way to internal interest.
(3) Since it is insurance, you still have to be insurable. You cannot be 900lbs on your 5th pig heart transplant on 80 medications. Sorry fam, uninsurable, doesn't matter how much you make. You also have to look at other conditions that may not give you as favorable as a table rating - diabetes, heart conditions, etc - in addition to BMI, age, etc.
Final point: ANY life insurance you get will be the cheapest it could ever possibly be today. You're not getting any younger.
https://discord.com/channels/1181304501999784027/1181322035373297684/1217887380384776332
59 Replies
Shall we discuss the merits of whole life being a trash investment product or a trash life insurance product, cause why not both!
optimistic-gold•8mo ago
oh shit
the premiums are ridiculous, the investment is terrible, the cash value is ludicrious versus premiums...
optimistic-gold•8mo ago
#changemymind
this is anectodal, but I'm sure I can find more public examples, but I've definitely had multiple friends over the past 10 years buy into these products as "an investment, and I need life insurance anyway", and the premiums have been ridiculously high, and when they look at the cash value to pull out, it's like 10% of the premium cost even after 10 years, and your "investment advisor" is laughing his fees and commissions all the way to the bank.
like, high 5 figures in premiums and the cash value is like 10K bad.
unwilling-turquoise•8mo ago
That depends on the insurance company.
optimistic-gold•8mo ago
I want to see this discussion played out in full.
unwilling-turquoise•8mo ago
I definitely recommend mutual insurance companies over corporate, because you get the option for dividends.
You're not going to get market rates, absolutely not. That's not the point. Growth (2-3%) + Divs (1-2%) is weak in comparison
separate your investments and life insurance. You have more control and life insurance premiums are not that expensive if you're insurable.
unwilling-turquoise•8mo ago
But they grow tax deferred, compound, and can be loaned against tax-free.
Again, if you're going for wild cash-value growth, no, I wouldn't suggest whole life; variable is where you want to be
But if you want a steady, boring money pool that can grow protected but (most importantly) is agnostic to the markets, there you go.
It shouldn't be your main
it should be like your tertiary or quadrinary.
You end up paying thousands in premiums for an "investment" that's cash value is 10% of what you put into it.. Sure, you get life insurance, but you can get life insurance a hell of a lot cheaper.
I remember when Whole Life came out, people were so excited. Then they did the math, or tried it themselves and kicked themselves for how much they spent on premiums versus when they decided to switch and "cash out"
I have no anecdotal stories of anyone I know who ever got Whole Life talk about it in a positive light. I mean, the idea is great, it's just insurance companies/sales people are greedy assholes.
they use FOMO of the money you've already sunk as a motivator to keep it going as your "financial advisor" keeps raking in commission checks.
https://www.whitecoatinvestor.com/suckered-into-whole-life-insurance/ It's always a "friend" who sells you on it. Greedy assholes.
every story I know of someone who has been suckered into whole life has always been "this friend of mine told me he could hook me up with this amazing investment opportunity"
another excellent write-up: https://www.whitecoatinvestor.com/debunking-the-myths-of-whole-life-insurance/
there are very specific times where Whole Life is okay at best.... but it's not a good investment.
and I wouldn't ever treat it as an investment.
Nice sum up at the end of that second article:
The ideal purchaser of whole life insurance should:
Need or desire a guaranteed, but possibly slowly increasing, life-long death benefit,
Understand that the guarantee/contract essentially relies on the insurance company staying in business for as long as he lives for any policy of reasonable size,
Live in a state that protects 100% of the cash value from creditors,
Have some estate planning liquidity issues,
Be in excellent health,
Pursue no dangerous hobbies,
Not mind having low returns on his investment despite holding it for decades,
Have serious philosophical aversion to using traditional financing resources such as banks and credit unions (or simply just saving up for what you want to buy),
Have already maxed out all available retirement accounts including backdoor Roth IRAs and HSAs, and
Be willing to hold on to the policy until death no matter what changes in his financial life in the future.
unwilling-turquoise•8mo ago
Well, it's honestly not ever supposed to be sold as an investment - that's illegal, unless you're a registered rep.
The primary point of it is insurance. It's just insurance with benefits - much more benefits than term.
Yet they all do. That's a huge part of their pitch.
"IT GROWS IT HAS CASH VALUE ITS AN INVESTMENT* gargle gargle
unwilling-turquoise•8mo ago
Okay, I mean, I can't really debate against the ghosts of christmas past here.
"They all do thing!"
ok
¯\_(ツ)_/¯
At what cost, though, versus just normal life insurance? 😛
unwilling-turquoise•8mo ago
If you want to talk about the merits of the insurance contract, we can do that
but if you want to just paint everyone with a broad brush and ignore any comment to the contrary, there's nowhere to go
I already said. 10-50x.
like. That's already in something I said earlir.
right, sure it's insurance with benefits.
But would you rather A) spend $100 a month for life insurance that gives me $10 cash value a month, or B) spend $10 a month for life insurance and put the other $90 into VTSTX or something?
That's the argument.
simplified example, but the ratios aren't that far off in my experience.
unwilling-turquoise•8mo ago
So what is your experience, if you don't mind me asking? Is it all anecdotal?
yes, it is 100% anecdotal.
which is an argument against listening to me.
100%
I started ignoring Whole Life a long time ago after hearing a lot of friends bitch about getting it.
so my info is definitely dated to some extent.
unwilling-turquoise•8mo ago
Oh I understand, because we're not even talking about whole life.
You buy a permanent life insurance policy; this could be whole lifeUh. literal first sentence of the post.
unwilling-turquoise•8mo ago
. Since we're all gambling Oe 150J's behind the denny's people here, we're gonna go with the 🅱️ased option and talk variable. But the concept is the same.
literal first paragraph
Oh, well, shit, egg on my face. I think I missed that due to the big ass red B.
yes, I was 100% talking about whole life. I have no idea wht variable life is. So, ignore everything I said on this topic.
unwilling-turquoise•8mo ago
:tired: bro just literally read what I wrote.
"the merits of whole life being a trash investment product"
is how I started, heh
definitely looks like it acts like whole life, but yeah, I'll have to research before making any other judgments.
you can see how I could conflate the two.
they act very similar.
according to dude's writeup
unwilling-turquoise•8mo ago
:headpat_doggo:
you're just a goofy lil goober
I can also go on the internet and admit when I'm wrong. A rare skill!
😄
correct-apricot•8mo ago
I have to dig into this more on my end
but I remember watching some videos that debunked this whole thing, unless I'm thinking of a different life insurance concept
This was my issue. I was thinking Whole Life, OP is talking about Variable life
which is a diff product, 100%
correct-apricot•8mo ago
ah I wonder if that's the key factor then
acts similar, but it is def different.
unwilling-turquoise•8mo ago
Everyone says "buy term and invest the difference" and yes, that does have it's place. But human nature is such that you never invest the difference, firstly, and secondly if you're investing why not wrap it in a legal contract that gives you additional protections.
Yes. Variable takes your excess premiums and buys securities
So you are "overpaying", but the overpayment goes into the stonk market
optimistic-gold•8mo ago
Great discussion!
The only thing I'll add is that when there is a "complicated" product offering out there, it usually means it's NOT for everyone.
I usually approach these situations with "What client profile is this product made for?" Afterward, I compare my own personal situation to that profile and if there's enough overlap, I move onto the next step in the research process.
Lastly, in addition to the financial considerations for a product, it's also important to layer in all other factors that go into the decision 1. Timeframe 2. Behavioral 3. Risk Transfer 4. Financial Goals.
One of the benefits of a good advisor is that they look at your particular profile and are able to do the "matching" step for you and explain the pros/cons. Obviously, anytime you add another human into the process things get more expensive, but can't really get around that without technology improvements.
unwilling-turquoise•8mo ago
Correct
Always a helpful dead body, @Corpse is
Good write up, now that I realize it's a different product! 😛
optimistic-gold•8mo ago
Credit goes to @Manatee Outlaw for the write up.
unwilling-turquoise•8mo ago
:tinysparkling:
fascinating-indigo•8mo ago
Pushing me to buy Whole Life insurance is why I pull all my investments out from my financial advisor. It's not for my best interest and they're so called "fiduciary"
oh, lol. My reading comprehension is apparently low today
optimistic-gold•8mo ago
oh shit
fascinating-indigo•8mo ago
I kept telling them no Whole Life and I rather give them XX for liquid investment but they were not having it
lol
cause they make huge commissions off Whole Life
fascinating-indigo•8mo ago
I know how selling life insurance works
optimistic-gold•8mo ago
yeah, once you learn that compensation scheme of advisors is a built in conflict of interest and only there because there's not a good alternative, it can really sour people on the whole industry.
my sister sells insurance for Country and she won't touch whole life.
cause she has ethics, heh
optimistic-gold•8mo ago
in my experience, compensation was 100% on 1st year premium and 0% afterward. The ongoing servicing was built as an expense line item.
fascinating-indigo•8mo ago
It's not a bad thing as outlined above, but I'm not at that point to need that meagre 1-2% growth just to withdraw at 67 when my taxes are probably minimal. I could easily get 7-10% growth now, liquid, and plan out my taxes when I need to withdraw. If anything, I rather do MBDR or Roth 401k
optimistic-gold•8mo ago
Well, people that actually do MBDR have already self-selected to be at the winners table.
Forced saving vehicles like hedge fund lock ups, primary real estate, work well because it addresses behavioral risks many, many people have.
fascinating-indigo•8mo ago
None of my Js have MBDR 😭
But seriously tho, unless you already maxed out all your tax-deferred options, life insurance is just not great
How many of those insurance buyer have ACTUALLY maxed out all their options? Probably 1%
So the fact that my financial advisor gave us no option, and show a sour face when we constantly decline, is major 🚩 so we decided to just do it ourselves.
optimistic-gold•8mo ago
Yep. It's a real paradigm shift once you realize some financial advisors are limited to only selling insurance products and forced to pitch in house ETFs and Mutual Funds.
Same deal with doctors who can have their license revoked if they give nutritional advice.
fascinating-indigo•8mo ago
Seriously just putting XX into VTI have done so much better than whatever those financial advisors have been doing. I tracked VTI performance against them and VTI beat them by 2-3%
optimistic-gold•8mo ago
If you ever do find a trustworthy AND skillful financial advisor, hang on to them for dear life. They are a rare breed.
fascinating-indigo•8mo ago
I need a real comprehensive one, but we're probably derailing from this topic here 🥲
optimistic-gold•8mo ago
Yeah, you need to chat more in the channels. longest convo's has always been these posts. 😆
unwilling-turquoise•8mo ago
bro what the fuck comm schedule was this
:tired: It's tru, and this is why you always ask for a rate sheet.
I literally tell everyone I work with "yo this is how much I'll make, is that alright with you" and we go from there.
optimistic-gold•8mo ago
in-house life conversions. but heard that in-house sales had the same commission.
advisors have different biz models so yeah, would expect a difference.
unwilling-turquoise•8mo ago
I'm dual licensed, I offer both
even when I offer whole life or term or variable, I explain the fees and my compensation
100% FYC? Holy shit
optimistic-gold•8mo ago
Yes
it was a while ago and my memory is fuzzy, but I think the retail side got 100% commissions and then passed off the policy to the in-house people.
it was a berkshire backed company.
not anymore though.
fascinating-indigo•8mo ago
It depends on the insurance company… I’ve seen % comp over 5 years whereas it’s the highest the first year and then go down to 0 by year 6