Author Topic: Permanent Life Insurance as an investment?  (Read 3451 times)

Vitai Slade

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Permanent Life Insurance as an investment?
« on: March 04, 2015, 01:01:17 PM »
So... as wary as I am of anything with a 'Guarantee', I've heard many people trying to sell me on the idea of permanent life insurance as an investment vehicle.

https://www.youtube.com/watch?v=t3eHZT9Erxo&feature=youtu.be

Is it really all it is cracked up to be? Or just another ploy to separate my money from me?

trailrated

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Re: Permanent Life Insurance as an investment?
« Reply #1 on: March 04, 2015, 01:05:49 PM »
NO NO NO NO NO NO NO NO NO NO NO NO, do not do it. If you think about doing it, facepunch yourself.

The only life policy you would need is a term policy until you have enough money to "self insure" if and only if someone else is dependent on your income (a wife that is not working, or you have small children.)

Anything else will just suck the money out in crazy amounts of fees and hidden costs with withdrawal penalties.

Another Reader

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Re: Permanent Life Insurance as an investment?
« Reply #2 on: March 04, 2015, 01:53:20 PM »
Recently had a stock clerk at the local grocery store try to pitch me a "7702 plan".... 

Told me I would lose over 60 percent of my 401k to taxes if I did not take advantage of this little known way to avoid taxes!  Yep, I get my tax advice from grocery store shelf stockers, don't you?

What is a "7702 plan"?  Another way to sell you overpriced, fee ridden, low performing life insurance!  Life insurance is NOT an investment.  Buy the death benefit through term life and invest the difference.

Numbers Man

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Re: Permanent Life Insurance as an investment?
« Reply #3 on: March 04, 2015, 02:14:15 PM »
The word convoluted comes to mind after watching that video.

Financial.Velociraptor

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Re: Permanent Life Insurance as an investment?
« Reply #4 on: March 04, 2015, 02:55:41 PM »
Recently had a stock clerk at the local grocery store try to pitch me a "7702 plan".... 

Told me I would lose over 60 percent of my 401k to taxes if I did not take advantage of this little known way to avoid taxes!  Yep, I get my tax advice from grocery store shelf stockers, don't you?

What is a "7702 plan"?  Another way to sell you overpriced, fee ridden, low performing life insurance!  Life insurance is NOT an investment.  Buy the death benefit through term life and invest the difference.

That should be a 770 plan (no "2").  As in section 770 of the IRS Code.  Permanent life insurance is tax free due to this quirk of the code.  It can be handy for people who need lots of insurance and want a very low risk, yet reliable, income investment.  The key is that you MUST choose a "mutual" insurance company.  The for profit permanent/whole insurance companies will not pay you a dividend while mutual will.

The 770 fan boys minimize the insurance component of their policy and maximize the cash value portion.  Which sounds insane but it has its perks.  You earn 5-6% a year tax free on the cash value portion, can take a loan against it at any time without even needing your credit run (you are borrowing your own money) and the yield is paid on the gross not net balance when you take a policy loan.  Handy way to finance a car, or vacation, or real estate, or kids college or whatever.  It is NEVER income even though it earns a cash on cash return.

Downsides are you may purchase more life insurance than you need this way and it doesn't pay unless you do it for at least a decade, otherwise the upfront load wipes out all gains.

Upsides are you can build up enough cash value to pay the annual premium and maintain both a cash hoard you can borrow against and permanent life insurance coverage without additional cash out of pocket, tax treatment, and privacy as the government gets no statement from the insurer.

It seems crazy but 770 plans are popular with the superwealthy and with mega-corporations.  The major banks almost all have millions in 770 insurance (on their key employees) on the balance sheet.  Wells Fargo is very aggressive in this regard.

For my money?  I need zero life insurance and prefer municipal bonds for my tax-free income portion of investing.  YMMV.

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Re: Permanent Life Insurance as an investment?
« Reply #5 on: March 04, 2015, 06:32:10 PM »
NO NO NO NO NO NO NO NO NO NO NO NO, do not do it. If you think about doing it, facepunch yourself.

The only life policy you would need is a term policy until you have enough money to "self insure" if and only if someone else is dependent on your income (a wife that is not working, or you have small children.)

Anything else will just suck the money out in crazy amounts of fees and hidden costs with withdrawal penalties.


THIS!!! Please!  Stay the hell away from anything termed permanent life or whole life.  Trailrated's comment is spot on.

hodedofome

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Re: Permanent Life Insurance as an investment?
« Reply #6 on: March 04, 2015, 06:39:59 PM »
Think about what life insurance does after you buy the policy. They take out horrendous fees, then invest your money in stocks and bonds....

The same stocks and bonds you can buy on your own, without the fees! You'll come out ahead 99% of the time just investing the money on your own. Until you need to avoid passing along inheritance taxes to your kids, don't pay any attention to the permanent life/whole life/infinite banking people.

Indexer

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Re: Permanent Life Insurance as an investment?
« Reply #7 on: March 04, 2015, 06:56:17 PM »
There is a good use for whole life insurance.  It is called estate planning.

It is not an investment.  If you put $100 into VTSAX $99.95 goes towards investments, $0.05 goes to Vanguard.  (If you have access to the institutional version this turns into $99.98 and $0.02.)

If you put $100 into a whole life policy in the first year.... in many cases $85 goes to the guy who sold it to it you.  $15 goes to everything else.  $0 goes towards your future.  This isn't speculation.  I interviewed with a life insurance company once.  The commissions were 85% of the first year's premium!

In the following years after they put aside funds to cover you actually dying, and then they cover admin fees then maybe a few pennies will start to build up in your cash value.  That cash value will then grow at about the rate of inflation if you are lucky.  Or you could do a variable whole life policy, but honestly.... even the guys who sell the things have no clue how they work. 

Managed assets on a scale of 1-10, 10 being super awesome, 1 being trash.
10:  Vanguard Index Institutional Shares
9: Vanguard Index admiral shares, maybe some Schwab & ishares ETFs
8: Vanguard index investor shares, Schwab & ishares ETFs.
7:  no load funds in general.
6:  crappy no load funds
5:  loaded funds... puke.... (American Funds)
4:  crappy load funds (those guys that make American funds look awesome!)
3:  Variable annuities
2:  Hedge Funds
1:  Indexed annuities
0.00000001:  Whole life insurance policies.
« Last Edit: March 04, 2015, 06:59:48 PM by Indexer »

Dodge

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Re: Permanent Life Insurance as an investment?
« Reply #8 on: March 04, 2015, 08:40:38 PM »
So... as wary as I am of anything with a 'Guarantee', I've heard many people trying to sell me on the idea of permanent life insurance as an investment vehicle.