Author Topic: Thoughts on Cash Value Life Insurance  (Read 2152 times)

hm13hm13

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Thoughts on Cash Value Life Insurance
« on: August 18, 2016, 04:21:17 PM »
This post is likely premature, as I haven't done any research on the topic in question: Cash Value Life Insurance. We had a retirement brief at work for young professionals, put on by Northwestern Mutual. One guy in the audience asked where could someone get the best returns on money they don't want to risk: CDs? The financial advisor rep said interest rates are too low on CDs and that he personally uses Cash Value Life Insurance as a short term, low risk option that solidly returns ~6% interest. I don't even know what cash value life insurance is and wouldn't trust a financial advisor's face value comment without running it by seasoned Mustachians. What is cash value life insurance and what's your take on it?

forummm

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Re: Thoughts on Cash Value Life Insurance
« Reply #1 on: August 18, 2016, 05:40:58 PM »
Someone is trying to sell you a high fee product.

Most mustachians don't need life insurance after awhile because they get rich so fast. You only really need it if you have young kids and your stash is smaller than a few hundred grand.

Bajadoc

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Re: Thoughts on Cash Value Life Insurance
« Reply #2 on: August 18, 2016, 05:56:36 PM »
It's a sales pitch. Keep and invest what you earn for the benefit of you and your family. If , and only if, you need life insurance, get term insurance.  Do the research.

Drifterrider

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Re: Thoughts on Cash Value Life Insurance
« Reply #3 on: August 19, 2016, 05:49:53 AM »
Someone is trying to sell you a high fee product.

Most mustachians don't need life insurance after awhile because they get rich so fast. You only really need it if you have young kids and your stash is smaller than a few hundred grand.

You only need death insurance if you need to provide for others.  Remember, the dead don't get the money; the living do.

2Birds1Stone

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Re: Thoughts on Cash Value Life Insurance
« Reply #4 on: August 19, 2016, 06:04:00 AM »
Stay the heck away from those policies, if you need life insurance for your kids/spouse. Term life insurance is the way to go.

Interest Compound

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Re: Thoughts on Cash Value Life Insurance
« Reply #5 on: August 19, 2016, 06:43:50 AM »
Here's the quick and dirty run-down of how "Life Insurance as an investment" works.

This is what they do with your example $100 monthly payment:

1. Subtract X% off the top for their fee.
2. Subtract $X for Life Insurance.
3. Invest the rest in bonds.

So sure, whatever you have left over after #1 and #2 will grow in value...sometimes it's even guaranteed, but that might only apply to a tiny percentage of your payment. Here's an real-life illustration:



This was purchased in 1999, with a $523 yearly payment. In 2016, after 17 years of payments ($8891 total invested), the "guaranteed cash value" is... $1400. "But look!" they'll say, "your guaranteed cash value increased 14%! Try getting THAT from a bank!"

If you want bonds, invest in bonds. Skip the middle-man.

MoonLiteNite

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Re: Thoughts on Cash Value Life Insurance
« Reply #6 on: August 19, 2016, 06:58:58 PM »
They seem like one of the worst investments you can do... you better off throwing darts at a stock chart with your own cash forever

Justin1911

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Re: Thoughts on Cash Value Life Insurance
« Reply #7 on: August 19, 2016, 08:28:47 PM »
As an army officer I know NW Mutual preys on junior officers. They pitch a shitty whole life policy and sing the praise of cash value. For 458 dollars/mo you can self fund your insurance. Steer clear of Whole Life.

 
« Last Edit: August 21, 2016, 07:35:28 AM by Justin1911 »

chasesfish

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Re: Thoughts on Cash Value Life Insurance
« Reply #8 on: August 21, 2016, 06:10:02 AM »
The only people it makes sense for are folks with estate tax liabilities or a closely held business with multiple owners that have to fund buy/sell arrangements.   Its a high fee product, the only reason it works in those situations is the cost is "less bad" than what the IRS charges if you don't have it.

For the average working person, buy term and invest the difference.

Metric Mouse

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Re: Thoughts on Cash Value Life Insurance
« Reply #9 on: August 21, 2016, 05:43:38 PM »
The only people it makes sense for are folks with estate tax liabilities or a closely held business with multiple owners that have to fund buy/sell arrangements.   Its a high fee product, the only reason it works in those situations is the cost is "less bad" than what the IRS charges if you don't have it.

For the average working person, buy term and invest the difference.

Many large corporations and banks use these policies to fun retirement accounts for their upper management. I have a book my insurance guy gave me on the subject. Haven't been real impressed though.

BuzzardsBay

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Re: Thoughts on Cash Value Life Insurance
« Reply #10 on: August 23, 2016, 09:19:38 AM »
1.  If you want the money from the savings account part of the plan you need to borrow it and pay them interest (to get at your own money) or cancel the policy and cash it out.

2.  If you die, the beneficiary gets the face value of the insurance policy and the insurance company keeps any cash that was in the saving account portion. 

So you can't get at your money, and if you die they keep it.  Sounds like a horrible plan to me.

Kakashi

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Re: Thoughts on Cash Value Life Insurance
« Reply #11 on: August 24, 2016, 04:02:42 AM »
There are specific groups of people that Cash Value Life Insurance is highly recommended for.  Some off the top of my head:
- Those earning high incomes that have already maxed out other tax-advantaged accounts
- Principles in businesses
- Disabled children that need care long after you are gone
- Asset protection and shielding

For most Americans, the whole buy term and invest the difference philosophy works better.