Using Whole Life (Permanent) Insurance to Supplement Retirement

[term2u]

OK, so I've literally heard and been presented with every sales tool (Wealth Building Cornerstones, Circle of Wealth, LEAP, etc.) trying to pitch Whole Life insurance as a supplemental retirement plan.

I am personally not a CFP and mostly work in the term life/DI/LTC space. Anyway, I was recently presented with the attached article and would love to get some other people's perspective, who are qualified with Financial Planning.

I find that oftentimes, agents will try to present themselves as a Financial Planner, when in actuality, they should not be doling out financial advice.. Just my 2 cents, and would be interested in hearing others thoughts.

 

[DHK]

1. A 7% withdrawal rate in retirement is a sure-fire way to guarantee that you'll run out of money. ($70,000 out of $1 million).

2. I wouldn't base my financial plan on the past returns from the 70's and 80's as outlined in the article. Everything changes, particularly demographic spending, economic policy, political agendas... everything, and it has an effect on the investment markets.

3. 1% inflation assumption???

Otherwise, it's sound. Look up reverse dollar cost averaging and sequence of returns risk. Using life insurance cash values in a properly structured policy (or a reverse mortgage line of credit that can be offset with a non-lapse GUL) can help to preserve portfolio values when markets are down, rather than selling out and permanently decimating a portfolio.


Btw, this article was in "Wealth Channel magazine" a publication of The American College - where financial advisors can get their CLU, ChFC, RICP and other designations.

 

[Robert Barney]

I own two permanent policies which will be used to pay my wife (or family) a death benefit WHEN I die. That is what permanent insurance is for.

I used to teach consumers that buying a whole life policy for retirement, to cash it out, was like buying an airplane ticket from NY to LA, and using a parachute to jump out over Phoenix which is where you really wanted to go in the first place.

If you want to fly to Phoenix, buy a ticket to Phoenix.

Translation, most people don't need permanent insurance, they need insurance until they stop working. After that they need a source of income for retirement. Buy insurance to cover you until retirement, and save and invest so you have money to retire with.

Mixing the two things in one policy is never cost effective and it is too darn confusing for the vast majority of consumers.

Permanent life insurance is the most cost effective when it is used to deliver a tax free death benefit at death - period.

If life insurance companies paid commissions on face amount, instead of premiums, there would be more of the right kinds of coverage sold.

 

[scagnt83]

If life insurance companies paid commissions on face amount, instead of premiums, there would be more of the right kinds of coverage sold.

Actually, that is exactly how life insurance companies pay commissions, based on Death Benefit.

The "Base Premium", which is what the majority of first-year commissions are based on, is dictated by the Death Benefit. Any commissions above the Base Premium pay only around 4%, not the normal 50%-60% that the Base Premium receives.

 

[jboussea]

I own two permanent policies which will be used to pay my wife (or family) a death benefit WHEN I die. That is what permanent insurance is for.

I used to teach consumers that buying a whole life policy for retirement, to cash it out, was like buying an airplane ticket from NY to LA, and using a parachute to jump out over Phoenix which is where you really wanted to go in the first place.

If you want to fly to Phoenix, buy a ticket to Phoenix.

Translation, most people don't need permanent insurance, they need insurance until they stop working. After that they need a source of income for retirement. Buy insurance to cover you until retirement, and save and invest so you have money to retire with.

Mixing the two things in one policy is never cost effective and it is too darn confusing for the vast majority of consumers.

Permanent life insurance is the most cost effective when it is used to deliver a tax free death benefit at death - period.

If life insurance companies paid commissions on face amount, instead of premiums, there would be more of the right kinds of coverage sold.

by that logic.. no one should invest in the market because it's too damn complicated.. vast majority don't understand

sequence of returns
rebalancing
expense ratios
A, b and C shares ..

I can go on .. there are a lot of layers to investing .. that people are just starting to learn about and that's just because of the internet... the truth is the par to f the masses who undertand the stock market somewhat . that's due to the info being readily availabe in the past 20 years... not because it's less complicated than life insurance

I do agree that people should buy things they understand.

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OK, so I've literally heard and been presented with every sales tool (Wealth Building Cornerstones, Circle of Wealth, LEAP, etc.) trying to pitch Whole Life insurance as a supplemental retirement plan.

I am personally not a CFP and mostly work in the term life/DI/LTC space. Anyway, I was recently presented with the attached article and would love to get some other people's perspective, who are qualified with Financial Planning.

I find that oftentimes, agents will try to present themselves as a FiI nancial Planner, when in actuality, they should not be doling out financial advice.. Just my 2 cents, and would be interested in hearing others thoughts.

When you're giving your client advice on DI, LTC and term life.. you're giving financial advice.. now the good thing you make it clear that these things are your specialty so your client is not assuming you know all things finance..

You can be a CFP if you want as well. .. I guarantee you, you will not konw all things finance.. but the problem is that Most CFP's are investment advisors .. who pose as they know all things finance..

So I don't think Life Insurance agents who are not well versed in investments should give out investment advice.. I don't think investment advisors posing as CFP's should be giving "financial advice" either .. they "might" know one product really well .. and they know enough about other things to see where their one product fits.

 

[DHK]

So I don't think Life Insurance agents who are not well versed in investments should give out investment advice.. I don't think investment advisors posing as CFP's should be giving "financial advice" either .. they "might" know one product really well .. and they know enough about other things to see where their one product fits.

Slight correction - life agents who are not licensed and registered with either a broker/dealer or registered investment advisor firm should NOT be giving any advice about securities portfolios of any kind, specifically: buying, selling, holding, or any analysis of securities.

Life agents can present annuities as an alternative to securities, but that's it.

 

[jboussea]

Slight correction - life agents who are not licensed and registered with either a broker/dealer or registered investment advisor firm should NOT be giving any advice about securities portfolios of any kind, specifically: buying, selling, holding, or any analysis of securities.

Life agents can present annuities as an alternative to securities, but that's it.

yes I know.. i shoudl have added this in parentheses (..not that they could anyway)

 

[LostDollar]

I own two permanent policies which will be used to pay my wife (or family) a death benefit WHEN I die. That is what permanent insurance is for.

I used to teach consumers that buying a whole life policy for retirement, to cash it out, was like buying an airplane ticket from NY to LA, and using a parachute to jump out over Phoenix which is where you really wanted to go in the first place.

If you want to fly to Phoenix, buy a ticket to Phoenix.

Translation, most people don't need permanent insurance, they need insurance until they stop working. After that they need a source of income for retirement. Buy insurance to cover you until retirement, and save and invest so you have money to retire with.

Mixing the two things in one policy is never cost effective and it is too darn confusing for the vast majority of consumers.

Permanent life insurance is the most cost effective when it is used to deliver a tax free death benefit at death - period.

If life insurance companies paid commissions on face amount, instead of premiums, there would be more of the right kinds of coverage sold.

I think these statements contain a lot of generalizations which may not hold true in specific situations.

I don't think a need for permanent insurance necessarily stops at retirement.

I don't see a problem with using permanent life insurance as a retirement cash source.

 

[Tahoe Ray]

Actually, that is exactly how life insurance companies pay commissions, based on Death Benefit.

The "Base Premium", which is what the majority of first-year commissions are based on, is dictated by the Death Benefit. Any commissions above the Base Premium pay only around 4%, not the normal 50%-60% that the Base Premium receives.

You mean that you're not getting 95% on those mec'd IULs...lol?

 

[scagnt83]

You mean that you're not getting 95% on those mec'd IULs...lol?

Ha. I could retire after 2 years if that were the case!

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