Comments on Life Insurance as an InvestmentTypePad2010-01-15T16:28:55ZNAhttps://www.freemoneyfinance.com/tag:typepad.com,2003:https://www.freemoneyfinance.com/2010/02/life-insurance-as-an-investment/comments/atom.xml/rxjohnk commented on 'Life Insurance as an Investment'tag:typepad.com,2003:6a00d83451bcbd69e201348057559f970c2010-05-03T14:45:30Z2010-05-03T14:45:30ZrxjohnkMany of you seem to be confusing the "vehicle" (Whole Life, in my case) and the "investment" (mostly real estate...<p>Many of you seem to be confusing the "vehicle" (Whole Life, in my case) and the "investment" (mostly real estate for me). The "vehicle" should ALWAYS be whole life if you are looking at building cash value, but the investment can be whatever you want it to be. The next venture that I am investing in is a new business start up.</p>
<p>I put the money into my whole life policy, but that is not "the investment". While long-term returns in a whole life policy might be equivalent to bonds, that is pretty meager in comparison to other options available... So I choose to invest mainly in real estate. This gives me the benefit of tax-free gains in my life insurance policy, since the policy is not taxed. Despite what "Clarifinancial" states, you can borrow out more than your basis - no loan of any kind is taxable - and owe no taxes unless your policy lapses. If you die with outstanding loans, you and your heirs STILL owe no taxes on the proceeds. </p>
<p>My policy doesn't rely on dividends, because I am the one paying the dividends - Yes, since I borrow the money out, I am also paying the interest that becomes the dividend at the end of the year. In effect, instead of letting the insurance company invest the money to pay dividends, I am doing it myself! </p>
<p>Here's how I do it: I borrow the cash value out of my policy and lend it to my rental company, usually at about an 8% interest rate. Then my rental company pays me back, and I pay my policy back. The rental company can deduct the interest paid to me personally as a business expense, and I show only a very small personal gain, as I can write off the interest paid to the policy against the interest I earned from my rental company. </p>
<p>Whole Life policies are not for everyone, but for anyone who spends significantly less than they make, they can be a viable tool for achieving real wealth.</p>
<p>John K.</p>Evolution Of Wealth commented on 'Life Insurance as an Investment'tag:typepad.com,2003:6a00d83451bcbd69e20128779fd305970c2010-02-14T20:59:11Z2010-02-14T20:59:11ZEvolution Of Wealthhttp://evolutionofwealth.comIt's been brought up that permanent life insurance is the prime funding vehicle for executive compensation plans and extra benefits....<p>It's been brought up that permanent life insurance is the prime funding vehicle for executive compensation plans and extra benefits. Why do they use life insurance for this? If it's as bad as everyone saying here, then why would companies, that have access to any and every investment vehicle, choose to use permanent life insurance?</p>Mr. A commented on 'Life Insurance as an Investment'tag:typepad.com,2003:6a00d83451bcbd69e20128779f8173970c2010-02-14T19:17:24Z2010-02-14T19:17:24ZMr. ANot everyone can convert to a ROTH in 2010. Some states will not allow it and charge exorbitant annual penalties...<p><br />
Not everyone can convert to a ROTH in 2010. Some states will not allow it and charge exorbitant annual penalties at the state level. Look at Wisconsin for starters. </p>
<p>There are policies out there that you can protect yourself from company changes. They are called overloan protection riders and will keep the policy inforce until death. Yes there is a cost, but there is a cost to everything. If you are concerned about the policy lapsing than pay for the rider.</p>
<p>One can make a case for anything, I think its best to research your opinion and then stay the course. There are far to many personal factors for each client/investor for someone to easily say one class of products is good or bad.<br />
</p>MasterPo commented on 'Life Insurance as an Investment'tag:typepad.com,2003:6a00d83451bcbd69e20120a86d34ed970b2010-02-07T05:02:55Z2010-02-07T05:02:55ZMasterPohttp://pofile.blogspot.comTo Mike's point: The reason for insurance is not for yourself but for whoever the beneficiary is. Except in the...<p>To Mike's point:</p>
<p>The reason for insurance is not for yourself but for whoever the beneficiary is. Except in the cases of using it as a non-qualified benefit to senior level business people, if you need a retirement tax-deferred savings vehicle than an IRA or annuity is better to go for at the start.</p>
<p>IOW, if you need temporary insurance now get term; If you need insurance for all your life get whole life; And if you need retirement savings get an IRA or annuity.</p>
<p>But don't try to mix apples and oranges.<br />
</p>Kirk Kinder commented on 'Life Insurance as an Investment'tag:typepad.com,2003:6a00d83451bcbd69e20128776edc26970c2010-02-07T00:57:22Z2010-02-07T00:57:22ZKirk Kinderhttp://www.swimupstreamtowealth.comThe biggest proponents of insurance as an investment are those selling the policies. Sure, there are situations where permanent policies...<p>The biggest proponents of insurance as an investment are those selling the policies. Sure, there are situations where permanent policies work: Irrevocable Life Insurance Trusts where the people want to leave their assets to charity and still provide for heirs; for key man or partnerships in business; to cover estate taxes; or where people want the permanent insurance (not for investment). </p>
<p>@JoeTaxpayer: the forced savings is a justification used by salesman all the time. The problem is folks who have trouble saving on their own usually have trouble saving for the premiums as well. The lapse rate in permanent policies is huge. I need to find the chart, but almost 70% lapse within five years. These are usually the people who were sold insurance as a forced savings plan.</p>Jclimber commented on 'Life Insurance as an Investment'tag:typepad.com,2003:6a00d83451bcbd69e20120a8662fa9970b2010-02-05T16:26:54Z2010-02-05T16:26:54ZJclimber@Mikegardner64 - Everybody can qualify for a Roth IRA now by contributing to a non-deductible traditional IRA and then immediately...<p>@Mikegardner64 - Everybody can qualify for a Roth IRA now by contributing to a non-deductible traditional IRA and then immediately converting it to a Roth IRA (conversions have no AGI limits as of 2010). </p>
<p>If you don't have any IRA's now then do as above. If you do then it's more complicated as gains on the converted amounts are considered taxable income. And your entire IRA pot is used in calculating the tax (401k's are excluded). Google "Roth IRA Conversion" for tons of info (or see IRS. Pub 590).<br />
</p>JoeTaxpayer commented on 'Life Insurance as an Investment'tag:typepad.com,2003:6a00d83451bcbd69e2012877684b37970c2010-02-05T15:35:53Z2010-02-05T15:35:53ZJoeTaxpayerhttp://www.joetaxpayer.comTo Mike's point, even if one can't Roth, and even if the low cap gain rates go away, the (call...<p>To Mike's point, even if one can't Roth, and even if the low cap gain rates go away, the (call it) 33% tax is still far less than the lifetime of fees these insurance policies cost. </p>
<p>I've always felt that insurance and investments should be separate, only combined at part of planning for a large estate or an equitable distribution of assets on the death of the holder. </p>
<p>On the other hand, there are those so irresponsible with money, the only way to get them to save is with a vehicle that bills them every month. The fees they pay over the years are the cost of their own character. </p>Aaron @ Clarifinancial commented on 'Life Insurance as an Investment'tag:typepad.com,2003:6a00d83451bcbd69e201287767bbb6970c2010-02-05T13:08:03Z2010-02-05T13:08:03ZAaron @ Clarifinancialhttp://www.clarifinancial.comThanks for the comments everybody. It's great to see the discussion. @Mikegardner64 some people do not qualify for Roth IRA's...<p>Thanks for the comments everybody. It's great to see the discussion. </p>
<p>@Mikegardner64 some people do not qualify for Roth IRA's and agents often compare the lower net returns of life insurance policies to things like bonds. This argument works well in a sales situation for some well-trained agents, however it ignores other risks that aren't so apparent, thus the article.</p>mikegardner64 commented on 'Life Insurance as an Investment'tag:typepad.com,2003:6a00d83451bcbd69e20120a864bb77970b2010-02-05T08:31:12Z2010-02-05T08:31:12Zmikegardner64How about non-term insurance has a lousy rate of return? Buying term and investing the difference in a Roth IRA...<p>How about non-term insurance has a lousy rate of return? Buying term and investing the difference in a Roth IRA will get you a tax-free return, something universal and whole life can't promise. The only people who think universal and whole life is a good thing are people who are selling it and make huge commissions off of it.<br />
</p>MasterPo commented on 'Life Insurance as an Investment'tag:typepad.com,2003:6a00d83451bcbd69e2012877664a4f970c2010-02-05T04:24:56Z2010-02-05T04:24:56ZMasterPohttp://pofile.blogspot.comThe premiums for a whole life or universal policy are staggering compared to term insurance of the same face value....<p>The premiums for a whole life or universal policy are staggering compared to term insurance of the same face value. And with interest rates and market returns so low now it won't be easy building cash value.</p>
<p>OTOH, whole life cash value insurance is the prime non-qualified vehicle businesses use as an incentive to execs and senior managers.</p>
<p>But it is expensive.<br />
</p>Evolution Of Wealth commented on 'Life Insurance as an Investment'tag:typepad.com,2003:6a00d83451bcbd69e2012877657f14970c2010-02-05T00:55:34Z2010-02-05T00:55:34ZEvolution Of Wealthhttp://evolutionofwealth.comThe biggest problems I see when using life insurance as a "investment" is the way people structure the funding of...<p>The biggest problems I see when using life insurance as a "investment" is the way people structure the funding of the policy. Unfortunately for the general public, there are too many miseducated insurance agents. They don't understand how the policies work and how to fund them correctly. There is a reason why banks and corporations use these policies all the time to for benefits purposes; they work when done properly. </p>MikeS commented on 'Life Insurance as an Investment'tag:typepad.com,2003:6a00d83451bcbd69e2012877656e66970c2010-02-05T00:35:58Z2010-02-05T00:35:58ZMikeSI used to sell life insurance. As the author says you can always pull your basis out tax-free. Above and...<p>I used to sell life insurance. As the author says you can always pull your basis out tax-free. Above and beyond that you have to loan yourself the money to avoid taxes. If the policy ever lapses, you will owe taxes on the money you loaned yourself. If you want life insurance the day you die, buy some form of permanent policy. If you simply want to cover your earnings while you work, buy term. There are many other ways to invest your money before I would consider a life insurance policy for investment. This is coming from someone who owns a permanent policy.</p>jim commented on 'Life Insurance as an Investment'tag:typepad.com,2003:6a00d83451bcbd69e20120a862cc4f970b2010-02-04T23:11:23Z2010-02-04T23:11:23Zjimhttp://www.freeby50.comLot of good points in this one.<p>Lot of good points in this one.</p>