Whole Life Insurance

[iris lily]

OK, OK I know it’s bad and I certainly don’t have it. (Actually, we have never had life insurance of any kind because we don’t have dependents  and either one of us can earn a full living and support ourselves if  one of us died.)

But— I’m interested in your response to this one reason why I can see whole  life insurance POSSIBLY being a reasonable choice for a segment of the population because it happened to my friend.

My friend’s  mother had dementia and strokes, and lived for several years in a nursing home which of course wiped out all of her assets.

When she died my friend was able to get a bit of cash from his mother’s whole life insurance policy.

So, for people who don’t have much money and who are hell bent on leaving money to their children, is there something better than whole life insurance? I want to emphasize, simple people, not a lot of money, but regular in meeting bills.

Or maybe just regular term life accomplishes the same thing.

Discuss, please.

[tj]

You'll end up with more money if you invest it vs. life insurance premiums.

If this person had dementia, I'm assuming she was old and paid premiums for many years.

[iris lily]

You'll end up with more money if you invest it vs. life insurance premiums.

If this person had dementia, I'm assuming she was old and paid premiums for many years.

yes she paid premiums.

See, I think a particular demographic won’t make an IRA or 401k or etc but they will respond to a monthly bill for “insurance.”

I’ve been watching enough Dave Ramsey  and Ramit Sethi to know financial management is a huge percentage of values and psychology, and much less about making optimal investment decisions objectively.

For instance,  Dave Ramsey‘s financial plan is to tackle every debt from smallest to larges regardless  of interest rate. And don’t start investing until you eliminate all debt.

That is not necessarily the financially astute decision, but it’s a psychological approach that works for a great many people. Many!

[solon]

In theory the plan would work, but whole life insurance is much more expensive than term, which means someone with a low income probably won't be able to buy much of it, and so won't be leaving much to the heirs anyway.

[Wolfpack Mustachian]

I mean, it is better than blowing all of your money in a casino or spending on new tech gadgets...sure. I have close family that have some sort of "investment" similar to this. Is it as good as VTSAX? Definitely not. Is it better than putting it in a checking account earning zero percent interest.... maybe?

I advised her to do it the way that would make her more money. She refused. This way is probably better than the alternative of saving just the money with no increase. I still don't like giving it validity because of people's irrationality.

[iris lily]

I mean, it is better than blowing all of your money in a casino or spending on new tech gadgets...sure. I have close family that have some sort of "investment" similar to this. Is it as good as VTSAX? Definitely not. Is it better than putting it in a checking account earning zero percent interest.... maybe?

I advised her to do it the way that would make her more money. She refused. This way is probably better than the alternative of saving just the money with no increase. I still don't like giving it validity because of people's irrationality.

OK, but your example of keeping it in a checking account and not growing isn’t good for my scenario because nanny government would confiscate any money in a checking account to pay for the nursing home.

And is whole life insurance really expensive? I don’t know. Is there a time when one has paid up and can stop paying? Again, thinking about the little old lady in the nursing home who wants to leave a little something to her children. Once she stops paying on the whole life policy at some point does she still have an active policy?

[YttriumNitrate]

Due to the tax benefits, whole life insurance can actually be pretty good for very high net worth individuals who want to use it as part of their estate planning. But, it is mainly be sold to low net worth individuals who aren't very good with numbers.

[Wolfpack Mustachian]

I mean, it is better than blowing all of your money in a casino or spending on new tech gadgets...sure. I have close family that have some sort of "investment" similar to this. Is it as good as VTSAX? Definitely not. Is it better than putting it in a checking account earning zero percent interest.... maybe?

I advised her to do it the way that would make her more money. She refused. This way is probably better than the alternative of saving just the money with no increase. I still don't like giving it validity because of people's irrationality.

OK, but your example of keeping it in a checking account and not growing isn’t good for my scenario because nanny government would confiscate any money in a checking account to pay for the nursing home.

And is whole life insurance really expensive? I don’t know. Is there a time when one has paid up and can stop paying? Again, thinking about the little old lady in the nursing home who wants to leave a little something to her children. Once she stops paying on the whole life policy at some point does she still have an active policy?

Those are great questions. I am not sure about the answers, but I am curious as well. I would also be curious if whole life provides any more protection of assets over simple retirement accounts, which I would recommend over whole life.

[iris lily]

I mean, it is better than blowing all of your money in a casino or spending on new tech gadgets...sure. I have close family that have some sort of "investment" similar to this. Is it as good as VTSAX? Definitely not. Is it better than putting it in a checking account earning zero percent interest.... maybe?

I advised her to do it the way that would make her more money. She refused. This way is probably better than the alternative of saving just the money with no increase. I still don't like giving it validity because of people's irrationality.

OK, but your example of keeping it in a checking account and not growing isn’t good for my scenario because nanny government would confiscate any money in a checking account to pay for the nursing home.

And is whole life insurance really expensive? I don’t know. Is there a time when one has paid up and can stop paying? Again, thinking about the little old lady in the nursing home who wants to leave a little something to her children. Once she stops paying on the whole life policy at some point does she still have an active policy?

Those are great questions. I am not sure about the answers, but I am curious as well. I would also be curious if whole life provides any more protection of assets over simple retirement accounts, which I would recommend over whole life.

 How do you think a retirement account even exists when Grandma is in the nursing home at $100,000 a year and all of her assets must be liquidated to pay for that before Nanny Government/taxpayers step in to pick up the bill?

See there are no assets in Granny’s name anymore in this scenario because she had to spend them down.


And I answered my own question about how term life would fit in this scenario. Term life insurance would not work because Grandma in the nursing home wouldn’t have any money to pay monthly premiums for term insurance because all of her income goes to,the nursing home, and once you stop paying term life insurance policy you have no active policy.

[iris lily]

I mean, it is better than blowing all of your money in a casino or spending on new tech gadgets...sure. I have close family that have some sort of "investment" similar to this. Is it as good as VTSAX? Definitely not. Is it better than putting it in a checking account earning zero percent interest.... maybe?

I advised her to do it the way that would make her more money. She refused. This way is probably better than the alternative of saving just the money with no increase. I still don't like giving it validity because of people's irrationality.

Could Grandma open a checking account entirely in her child’s  name and pay  into it over many years voluntarily? I guess that would keep a small amount of money out of the hands of nanny government, but the thing is, people I am thinking of probably would not voluntarily put money into an account, but they might pay a bill that comes to their doorstep every month.

Also, the people I’m thinking of wouldn’t open a brokerage account at Vanguard. That’s just not what they do.

[Catbert]

Due to the tax benefits, whole life insurance can actually be pretty good for very high net worth individuals who want to use it as part of their estate planning. But, it is mainly be sold to low net worth individuals who aren't very good with numbers.

This is exactly it.  If you have very high income, already max all IRA/TSP/401k/etc options and can commit to over funding the whole life policy it's worth considering.  The little old lady in tennis shoes should never get whole life insurance.  High fees and commissions.

[YttriumNitrate]

Due to the tax benefits, whole life insurance can actually be pretty good for very high net worth individuals who want to use it as part of their estate planning. But, it is mainly be sold to low net worth individuals who aren't very good with numbers.

This is exactly it.  If you have very high income, already max all IRA/TSP/401k/etc options and can commit to over funding the whole life policy it's worth considering.  The little old lady in tennis shoes should never get whole life insurance.  High fees and commissions.

I would put the threshold for considering whole life insurance at when you are about to pass the $13 million estate tax exemption.

[slappy]

 If she depleted her assets and had to go on medicaid, they likely wouldn't allow her to keep the policy, as the cash value would be considered an asset. Maybe if someone else owned it? I'm not super familiar with all the nuances there.

[iris lily]

If she depleted her assets and had to go on medicaid, they likely wouldn't allow her to keep the policy, as the cash value would be considered an asset. Maybe if someone else owned it? I'm not super familiar with all the nuances there.

Interesting. Yes,I didn’t figure it would be counted, but not true. Here is the chart showing what each state expects with most of them allowing only $1,500 in life insurance cash value.But some states allow up to $10,000.

https://www.medicaidlongtermcare.org/eligibility/impact-of-life-insurance/#:~:text=Whole%20life%20insurance%20policies%20will,state's%20life%20insurance%20exemption%20amount.

[Alternatepriorities]

It seems like the right answer to accomplish what granny wants to do is to give the assets to the kids in advance of going to the nursing home by whatever amount of time is required to avoid possible claw-back provisions. Of course that would require a degree of trust between family that the beneficiaries would return the money if granny ever needs it.

[AccidentialMustache]

I would put the threshold for considering whole life insurance at when you are about to pass the $13 million estate tax exemption.

I've also heard of it having a place for, eg, farmers. You can't pay off estate taxes with the farm without... selling the farm.

[AMandM]

And I answered my own question about how term life would fit in this scenario. Term life insurance would not work because Grandma in the nursing home wouldn’t have any money to pay monthly premiums for term insurance because all of her income goes to,the nursing home, and once you stop paying term life insurance policy you have no active policy.

If she has had the policy for a long time, she may not have to pay any premiums anymore. My in-laws took out a whole life policy on my husband when he was a baby and now the assets generate enough income to cover the premiums and increase the death benefit.

[YttriumNitrate]

I would put the threshold for considering whole life insurance at when you are about to pass the $13 million estate tax exemption.

I've also heard of it having a place for, eg, farmers. You can't pay off estate taxes with the farm without... selling the farm.

Perhaps . . . if they are one of the roughly fifty (five-zero) farms per year that pay federal estate taxes (or are in one of the states with estate taxes [1]).

ERS estimated that approximately 31,000 principal farm operators died in 2020. Of those estates, an estimated 189 (0.6 percent) will be required to file an estate tax return, and only 50 (0.16 percent) will owe Federal estate taxes.

https://www.ers.usda.gov/amber-waves/2021/april/less-than-1-percent-of-farm-estates-owed-federal-estate-taxes-in-2020/

[blueberrybushes]

Not meaning to side-track this post.  However, if your goal is to retain assets when someone goes into assisted living or a nursing home that Medicaid is paying for, you may want to investigate a Medicaid Annuity:  https://www.medicaidplanningassistance.org/eligibility-by-annuity/.