Author Topic: Using Whole-Life Insurance Policys for early retirement.  (Read 1175 times)

Awitte58

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Using Whole-Life Insurance Policys for early retirement.
« on: April 16, 2018, 03:45:11 AM »
So I have been doing a lot of reading lately around the concept of becoming your own banker by using whole life or universal life insurance policy's. Permanent life insurance which has cash value, pays dividends, etc.

The idea is you can take a loan against the cash value you have in a policy to use it for whatever... and you 'pay yourself' principal+interest back into the policy.

My understanding is these policy's have a guaranteed minimum growth rate and can also pay dividends. Most companies have the disclaimer that the dividends are not guaranteed, but over the 100 years or whatever they have been in business they have always paid dividends.

My question is how do you use this for early retirement? It seems the concept is largely based on you taking loans and still needing to earn an income to pay back those loans plus interest into the policy...

Can you simply save up enough "cash value" within these policy's and live off of the dividends?
IE: if the 4% rule says that I need $800,000 in principal to live off of the interest created...will these policy's pay out similar to a vanguard account with $800,000 in it?

Probably a loaded question but I am debating on using this vessel.. it seems powerful from what I have read and watched on Youtube.
This video does a good job showing the power of it within the real estate world.
https://www.youtube.com/watch?v=MKWleNEtuM0&t=871s

I am almost done reading "Becoming your own banker" by R Nelson Nash
« Last Edit: April 16, 2018, 03:46:59 AM by Awitte58 »

macoconut

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Re: Using Whole-Life Insurance Policys for early retirement.
« Reply #1 on: April 16, 2018, 04:24:30 AM »
Whole life policies have been discussed quite a bit on these forums. Click here to see the threads: http://lmgtfy.com/?q=site%3Aforum.mrmoneymustache.com+%22whole+life%22

sokoloff

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Re: Using Whole-Life Insurance Policys for early retirement.
« Reply #2 on: April 16, 2018, 05:01:06 AM »
Summary of my thoughts: whole life is a poor choice for most everyone except insurance salespeople.

Buy term insurance for your life insurance needs and investments for your investment needs. Mixing the two isn’t particularly “more powerful” except for the salesperson who receives outsized commissions by selling it.

jlcnuke

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Re: Using Whole-Life Insurance Policys for early retirement.
« Reply #3 on: April 16, 2018, 10:01:05 AM »
If you're debating on using a whole life policy, and it isn't because you are seeking tax shelters for your massive wealth, know that it's probably not a good idea.

frugaliknowit

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Re: Using Whole-Life Insurance Policys for early retirement.
« Reply #4 on: April 16, 2018, 10:26:45 AM »
Anything (well ALMOST) would be BETTER.

Acastus

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Re: Using Whole-Life Insurance Policys for early retirement.
« Reply #5 on: April 16, 2018, 10:53:41 AM »
That was the pitch the insurance guy made looong ago and got me to buy some whole life. Take a loan, it is tax free, then let dividends pay the loan, at least the interest.

In practice, it is different. What I have seen, now that I am managing my Mom's finances, is that the interest on the loan does not get covered by the dividend. The loan balance grows until it eats the whole policy. At that point the policy is cashed in, and you pay taxes on the lifetime increased value. You only get to spend say 70% of the cash value, the interest takes the rest, and then you pay some taxes.

Awitte58

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Re: Using Whole-Life Insurance Policys for early retirement.
« Reply #6 on: April 17, 2018, 05:38:02 AM »
Thank you everyone who responded here!

I had a thought that it was too good to be true....otherwise more FIRE people would have been doing it.
It was at least worth the 30 min phone call to understand the concept though.

you don't know what you don't know!

Thanks again! I guess I will keep shoveling money into my vanguard index funds. lol

Rubic

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Re: Using Whole-Life Insurance Policys for early retirement.
« Reply #7 on: April 17, 2018, 07:11:26 AM »
I can't believe whole life policies continue to be pushed as
viable products when they were thoroughly debunked about
40 years ago.

sokoloff

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Re: Using Whole-Life Insurance Policys for early retirement.
« Reply #8 on: April 17, 2018, 07:46:12 AM »
The higher the commission, the longer-lived the product is likely to be in the market...

Catbert

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Re: Using Whole-Life Insurance Policys for early retirement.
« Reply #9 on: April 17, 2018, 12:00:31 PM »
The only people who should even consider whole-life insurance are:

*very high earners
*already maxed out all tax advantaged accounts
*can way over fund the policy for the long run (20+ years)
*need permanent life insurance

If that's not you, no need to consider further. 

I'm always leary of any product that tries to obscure what it is.  Whole life insurance marketed as "be your own banker" or avoiding the word insurance by citing the IRS code section.

Acastus

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Re: Using Whole-Life Insurance Policys for early retirement.
« Reply #10 on: April 20, 2018, 08:32:45 AM »
I can't believe whole life policies continue to be pushed as
viable products when they were thoroughly debunked about
40 years ago.

The salesperson typically makes the first 2 years of premiums as commission.