Basic Questions Regarding Whole Life

[mx_599]

to OP

you should go look up the thread I started beck in Oct/Nov as one of my first posts.

might help you
Reputable? Whole Life with Northwestern Mutual...

 

[VolAgent]

If you are looking to build your retirement account, then I suggest you run as fast as you can from this forum before someone sells you the idea that a whole life policy will do a better job meeting your goals then say, ummm, a retirement investment account. The truth is, most insurance agents care more about their commission check then they do about your life goals. Read this:

Money101 Lesson 20: Life Insurance

PS: Family and friends are not always the best financial advisors....

Perhaps you should learn to read before dispensing advice. The original poster stated he was maxing out his 401k, and he specifically asked about whole life. If he is maxing out his 401k and IRA, or is uneligible for an IRA then he needs to look at other options.

1. Stick the money mutual funds/brokerage account/managed money, etc. The problem with this is poor tax treatment, you are taxed as you go, and sometimes you get a tax bill even when you suffered a loss.

2. Put it in an annuity. Similiar chance for growth, and slightly better tax treatment. Now he gets tax deferral, but all that capital gains turns into ordinary income and thus income tax is owed as he starts to withdraw the money.

3. Put it in a life insurance contract. Good tax treatment. Tax deferred, and properly done, no taxes when withdrawn from the contract. WL is just one option. Something else to look at is a VUL. Similiar to a UL, but the money goes into mutual fund like subaccounts.

4. Spend the money. Not what he is looking for.

So, that is the guy's four basic options. Which one looks best to you?

 

[scagnt83]

Perhaps you should learn to read before dispensing advice. The original poster stated he was maxing out his 401k, and he specifically asked about whole life. If he is maxing out his 401k and IRA, or is uneligible for an IRA then he needs to look at other options.

1. Stick the money mutual funds/brokerage account/managed money, etc. The problem with this is poor tax treatment, you are taxed as you go, and sometimes you get a tax bill even when you suffered a loss.

2. Put it in an annuity. Similiar chance for growth, and slightly better tax treatment. Now he gets tax deferral, but all that capital gains turns into ordinary income and thus income tax is owed as he starts to withdraw the money.

3. Put it in a life insurance contract. Good tax treatment. Tax deferred, and properly done, no taxes when withdrawn from the contract. WL is just one option. Something else to look at is a VUL. Similiar to a UL, but the money goes into mutual fund like subaccounts.

4. Spend the money. Not what he is looking for.

So, that is the guy's four basic options. Which one looks best to you?

Exactly.

This is an instance when PI makes perfect sense.
Most people who say that PI is not a good option, dont fully understand the other options available to a person in this situation.

It still amazes me that people turn their nose up at a tax free 4%-6% with PI, but they are all over Annuities, Bonds, and CDs that give lower returns and expose your assets to taxes....

 

[BNTRS]

Plenty of high networth people employ this option. Of course a lot if people here crap on this idea because the commissions collected on an overfunded whole life policy doesn't make the yatch payment like some of the other products do. And the companies that offer whole life insurance don't offer the free televisions and carribean cruises that some of the other companies offer.

 

[LGilmore]

Whole life is a PART of a good financial plan. It should not be the only thing. It is a conservative choice as it usually does not experience market risk and can't slide backwards in poor economic periods.

For me personally, here are some advantages.

I locked in my policies years ago as a young healthy rugby stud. Now 20 years later, I am basically a table 8-10 to outright decline healthwise. Yet my policy premium is based on a super prefered status I enjoyed before my body broke down. I don't have to worry about getting more coverage because this is lifetime coverage at the best possible price for my lifetime. While we'd all like to think we'll be as healthy as we are today in our youth, that is rarely the case.

Having had WL for more than 20 years, these policies have built up a solid cash value, that with a phone call can be drawn upon without three years of tax returns or an explaination to a loan officer for his/her "consideration". While this may not bother some, it has irritated the hell out of me in the past.

FASFA.... If you don't know what that is, well you don't have kids at college age. Everybody is expected to use FASFA to help determine what the government says you can afford to pay for your child's education. It determines work study, grants and additional federal funding for schools. You list just about everything under the sun except, cash values in your policies. The Feds (for now) consider it OK to apply your retirement accounts towards the ability to pay for college but for some reason (and I'm not going to ask) they don't include life insurance cash values.


There are more reasons I could list. Financial planning is a personal decision. What I did may not be right for somebody else. We do not all wear a size 9 pennyloafer. Every choice has an unforeseen opportunity cost to it. The goal is to make the "harm" done by your choices as minimal as possible. If you go through life and all your "choices" are right all the time, hey ya got life d icked, don't you?

Think about it from the perspective of "what if I am wrong"?
What did it cost me?

I've done this with my life insurance choice and I might have done better slightly elsewhere (based on comparable risk factors) had everything gone "perfect" in my life, but not enough to regret my choice as you see, everything hasn't been perfect in these last two decades and gone as planned.

The funny thing about planning is most do it from the best possible outcome if everything works exactly as planned. What happens if you're plan F's up?

 

[dadkins131]

Perhaps you should learn to read before dispensing advice. The original poster stated he was maxing out his 401k, and he specifically asked about whole life. If he is maxing out his 401k and IRA, or is uneligible for an IRA then he needs to look at other options.

1. Stick the money mutual funds/brokerage account/managed money, etc. The problem with this is poor tax treatment, you are taxed as you go, and sometimes you get a tax bill even when you suffered a loss.

2. Put it in an annuity. Similiar chance for growth, and slightly better tax treatment. Now he gets tax deferral, but all that capital gains turns into ordinary income and thus income tax is owed as he starts to withdraw the money.

3. Put it in a life insurance contract. Good tax treatment. Tax deferred, and properly done, no taxes when withdrawn from the contract. WL is just one option. Something else to look at is a VUL. Similiar to a UL, but the money goes into mutual fund like subaccounts.

4. Spend the money. Not what he is looking for.

So, that is the guy's four basic options. Which one looks best to you?

Being taxed now instead of later in most cases will benefit him, because the chances that he will be paying much higher taxes in his 60's than he is currently, are pretty damn high.

Also, a brokerage/mutual account will have much more competitive returns, when you factor in the fact that he has plenty of time to invest aggressively, and he will be buying in to a down market. Also, if he needs liquidity during an unforeseen expense or emergency, he has that, penalty free..... all without bloated commissions.

 

[Death Cab For Tootie]

Being taxed now instead of later in most cases will benefit him, because the chances that he will be paying much higher taxes in his 60's than he is currently, are pretty damn high.

Have you ever looked at the history of the marginal tax rate? I'm not predicting this, but there is more than a fair chance we all will be in a higher tax bracket than we are today.

Also, a brokerage/mutual account will have much more competitive returns, when you factor in the fact that he has plenty of time to invest aggressively, and he will be buying in to a down market. Also, if he needs liquidity during an unforeseen expense or emergency, he has that, penalty free..... all without bloated commissions.

WL = No investment risk
Stocks/Funds = investment risk

Not to say one is better than the other, but I believe a person should have both.

WL can be accessed penalty-free. And in the event it has to be accessed when the market's down, he won't be in a position of "buying high and selling low". Regarding 'bloated commissions': if what an agent made is directly correlated to the worthiness of a strategy, why are hedge funds, REITS, UITs, etc. not singled out, but WL is?

Frankly, your opinions are based on assumptions that have a good chance of not coming true. He may do better in the market, but given he's taking a lot of risk on in his 401k, I think it makes sense to have tax-advantaged, guaranteed monies. WL could fit the bill here. However, there's too much information missing before I could make a definitive recommendation.

 

[VolAgent]

Being taxed now instead of later in most cases will benefit him, because the chances that he will be paying much higher taxes in his 60's than he is currently, are pretty damn high.

With a brokerage account he'll be taxed now, taxed ongoing, and taxed in the end. Doesn't sound so hot if you think tax rates are going up. Also, it is subject to creditors. Life insurance and annuities are creditor sheltered in some states. While he should consider a brokerage account for some money, I doubt it is a good idea for all his money.

Also, a brokerage/mutual account will have much more competitive returns, when you factor in the fact that he has plenty of time to invest aggressively, and he will be buying in to a down market. Also, if he needs liquidity during an unforeseen expense or emergency, he has that, penalty free..... all without bloated commissions.

Bloated commissions... Shows that you really don't know all that much about how permanent insurance works. When you max fund a policy, which is what the OP should do, it really drives down the commission.

Also, what do those bloated commissions get you:
1. Income tax free money should the insured die.
2. Risk free growth that tends to exceed other fixed instruments.
3. In some states, creditor proof assets in the event of a judgement.

I'm sure others will think of even more. And let's be honest, after you get done churning his account, or taking your management fee every year, just how bloated was that insurance commission? Because let's be honest, registered reps are just as honest as life insurance agents.

 

[scagnt83]

Being taxed now instead of later in most cases will benefit him, because the chances that he will be paying much higher taxes in his 60's than he is currently, are pretty damn high.

I agree.
But in Permanent Insurance you are taxed NEVER! Its not just deferred.
So would you rather be taxed now, later, or never???

Obviously you dont realize how this product works, so why are you giving out advice about it??
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Also, a brokerage/mutual account will have much more competitive returns, when you factor in the fact that he has plenty of time to invest aggressively, and he will be buying in to a down market. Also, if he needs liquidity during an unforeseen expense or emergency, he has that, penalty free..... all without bloated commissions.

Oh really? What about an IUL or a VUL?
For that matter, even a traditional WL or UL thats overfunded can rival mutual funds after fees and taxes.

PI will average 4%-6%. (5%-10% if IUL or VUL)
This is equal to a taxable mutual fund return of 7%-9%.
And the PI return is constant, stocks are not.
Oh, and by the way, the average 401K from 2002-2007 only returned a yearly average of 6.5%.... and thats before fees
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Also, a brokerage/mutual account will have much more competitive returns, when you factor in the fact that he has plenty of time to invest aggressively, and he will be buying in to a down market. Also, if he needs liquidity during an unforeseen expense or emergency, he has that, penalty free..... all without bloated commissions.

It shows that you know very little about this subject.

It takes a lump sum of money to open a brokerage account. Unless the OP used etrade or some other self managed platform (which does not come with any advice or guidance) they would need at the very least $10K for any decent broker to take them as a client.... in reality they will need more like $50K for anyone to want to take them on... at least anyone decent...

So unless the OP has a lump sum of money to invest, then his options are even more limited; especially if he wants the guidance of an advisor.

This is why PI fits nicely in these situations...

 

[Zac]

Is there a website that compares and lists the past dividend payouts of various mutual companies.

Regards