- May 3, 2024
- Posted by: legaleseblogger
- Category: Related News
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## The Situation
My financial advisor is recommending that I invest in permanent insurance with high cash value and around a 500k death benefit for nearly $15k per year for 10 years. I currently do not have any insurance. I am considering whether this is a good idea as the tax-free cash value can be used for my kids’ college expenses. However, I am not an expert in investing and would appreciate any suggestions or advice on the matter.
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****** just grabbed a
NEVER. You are talking to a life insurance salesperson, not a financial advisor.
We purchased $500,000 30 year term life policies for ourselves.
Invest the difference of Permanent Insurance – term life insurance into a S&P 500 Index Mutual Fund.
You already know the cost for one year $15,000
BTW, the cash value that is tax free is the $150,000 you put in because you already paid taxes on that money, The gains in the permanent life policy after the $150,000 is TAXED. one of the many secrets the life insurance salesperson neglects to tell you.
You could accomplish the same thing by doing a Roth IRA. At age 59 1/2(which is less than 10 years away for you) you cash out the entire ROTH IRA TAX FREE, even the gains.
At age 50 you can place $7000 into a Roth IRA, plus the catch up of $1000 for a total of $8000.
Buy the TERM LIFE policy + $8000 into a Roth IRA + whatever is left over of the ($15000 – Term Life cost – $8000) = $$$$ that you place in a taxable S&P 500 mutual fund. You will be much better off.
So, absolutely not. I’m a CFP and I do this for a living.
Permanent insurance is only a good idea if you are maxing out all other accounts, including 401k, HSA and possibly Roth IRA. If you want tax free growth for your kids college, contribute to 529 plans. You should buy some term insurance that covers your family until all your children are adults, and save the amounts in tax-deferred accounts. Ask this advisor what the commission is on the policy he thinks you need so badly, I guarantee it will make you sick.
So we have a policy because we are in that unique group that has maxed everything else. It is considered a cash account in our portfolio and not an investment. Primary goal is for our death but it has a secondary goal that we could pull the initial investment during an off year in the market and not sell investments at a loss. It is a small percentage of our life ins. The bulk of our life ins is term.
So yes it can serve a need but only if you’ve done everything else.
Tax advantaged plans maxed
Post tax maxed
Brokerage
College funds
Term life ins
Disability ins
Then you can consider whole
Ignore most of the Reddit advice. It comes from non professionals who are generally young and generally high risk investors. We don’t have nearly enough information to make a reasonable recommendation about appropriate financial vehicles.
Just as an example for the hive mind, if you told your advisor that you have a very low risk tolerance, a pension plan that will provide adequate retirement income, and your main goal is leaving a legacy for your family, then permanent life insurance is far and aware the best option.
Remember that every situation is different and reducing it to “whole life bad” is a clear indication that the person giving advice isn’t a professional.
Term or nothing.
Do you need life insurance?
Of course your FA suggested that.
This kind of thing is why I tell people to not get a financial advisor. Let me guess. He works for the company that sells the policy and gets a big commission of you buy it. That would be greedy and manipulative, but at least it isn’t just pure charitable incompetence as it is if he doesn’t make money from the sale. Don’t buy that crap. Invest your money in low cost index funds. Fire your advisor and invest the money you were paying him. Think of it this way. Why would an insurance company sell you a policy you like this if it were a good investment for you? They know it isn’t, and they analyze the data all day every day. They would rather have your premiums and owe you later, which is a big clue as to how this equation works out in the end.
No they want it to get a kickback. You are working with a salesperson not a financial advisor. Fire them now.
Good luck getting any unbiased advice on this here. Reddit can not stand permanent life insurance.
What is the interest rate you would have to pay to use the cash value for college? Compare that with investing in a 529, and I think you will find investing in a 529 is a better way to pay for college than permanent life cash value.
You need a new financial advisor. This is horrible financial advice.