Author Topic: Universal life insurance as retirement supplement?  (Read 3796 times)

MVal

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Universal life insurance as retirement supplement?
« on: June 24, 2015, 11:37:11 AM »
Does anyone know anything about universal life insurance as a form of retirement investing? I recently learned about this from a financial adviser and it is supposedly less volatile than other types of investing in that you can't ever lose money on it. If you can share any insight on this, I would appreciate it.

MDM

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Re: Universal life insurance as retirement supplement?
« Reply #1 on: June 24, 2015, 11:45:56 AM »
The rule is "insurance and investing are two different things - don't try to mix them."

E.g., see http://www.bogleheads.org/forum/viewtopic.php?f=2&t=57154.  It's one of a handful of sticky threads at that site, so you might infer you aren't the first who would otherwise be sucked in....

trailrated

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Re: Universal life insurance as retirement supplement?
« Reply #2 on: June 24, 2015, 12:05:44 PM »
Does anyone know anything about universal life insurance as a form of retirement investing? I recently learned about this from a financial adviser and it is supposedly less volatile than other types of investing in that you can't ever lose money on it. If you can share any insight on this, I would appreciate it.

NO, NO, NO, NO, NO! If you get the urge to do it, punch yourself in the face and re-read this.

You will be eaten alive in fees and what not, and if you ever try to move the money once you realize the error of your ways there will be crazy surrender fees as well. Stick with a term policy and invest the difference yourself.

ABSOLUTELY DO NOT DO THIS. If you want to make your financial adviser uncomfortable ask him about the compensation structure he gets for selling it.

Financial.Velociraptor

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Re: Universal life insurance as retirement supplement?
« Reply #3 on: June 24, 2015, 12:15:05 PM »
For most people I think this is a bad idea.  If you really need the life insurance component and are content to commit yourself to decades of paying high annual premiums, there can be benefits. 

Make sure:
1) Your insurer is a non-profit mutual company that pays you dividends on your policy amount
2) You use a PUA rider and maximize the cash component
3) You don't miss a premium payment
4) You are in it for the long term as you have a first year commission around 50% and it takes years to break even on that.

Overall what you are looking at is something sort of bond like.  Part of your payment is to life insurance.  And only part is like a tax exempt muni yielding around 5-6% (assuming you are with the mutuals and not for profits where your return will be lower).

Most people are better off just buying the munis for cash flow direct and buy their insurance term-life.

Before you do this, look for a book on Amazon.  There are dozens of titles along the lines of "live your life insurance" regarding the IRS section 770 option for whole life insurance.

arebelspy

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Re: Universal life insurance as retirement supplement?
« Reply #4 on: June 24, 2015, 01:23:25 PM »
It's a trap!



Run far, run fast.  Avoid that adviser in the future.

We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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MVal

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Re: Universal life insurance as retirement supplement?
« Reply #5 on: June 24, 2015, 01:37:34 PM »
Okay, it seems unanimous! Now, what about an old Whole Life policy that my parents started for me when I was a baby at State Farm? I think the cash value of it is only $1060. Should I keep that or "cash it out"? I was thinking previously that I would just sell/transfer the State Farm whole life policy to the universal policy, but perhaps that is not a good idea.

I don't have any children, am single and have term insurance through my work, I think, so not sure I really need this life insurance.

arebelspy

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Re: Universal life insurance as retirement supplement?
« Reply #6 on: June 24, 2015, 01:50:46 PM »
Need more details.  What's the death benefit?  What's the costs?
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

MVal

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Re: Universal life insurance as retirement supplement?
« Reply #7 on: June 24, 2015, 02:17:39 PM »
Not totally sure without calling the agent, but on my last payment notice it says:

Whole Life  $10,000
Paid up dividend additions  $10,368.58
Total: $20,368.58

The annual premium is $64.40.

What is whole life good for besides me dying and my parents getting cash, anyway?

MDM

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Re: Universal life insurance as retirement supplement?
« Reply #8 on: June 24, 2015, 02:19:57 PM »
What is whole life good for...?

I'm imagining Jackie Chan answering that....

...an old Whole Life policy

Should I keep that or "cash it out"?

See highlight above.  Unless, per ARS's implication, it has some unusually high guaranteed return.

yourusernamehere

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Re: Universal life insurance as retirement supplement?
« Reply #9 on: June 24, 2015, 02:29:46 PM »
Yep, I recently had a discussion with an insurance advisor salesman about a whole life policy my mom had on me, and at the end of it he agreed that his best argument against cancelling the old policy was "it's not hurting anything." Most of the time he was trying to sell me even more crap.

Goldielocks

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Re: Universal life insurance as retirement supplement?
« Reply #10 on: June 24, 2015, 10:34:31 PM »
I have term insurance, which we are phasing out over the next few years as our stache grows...   
I have investment accounts for my investments.

BUT-- I recently realized the value of Permanent, whole life insurance, and have been looking to buy single premium $25k of whole life.

Why would a smart woman go against current "wisdom" against life insurance?     Easy answer: VERY easy / fast access to the cash when I die, for the recipients.   

Especially if the joint bank accounts get locked up for a short while.  AND I would name my kids as recipients, so the other assets flow to spouse as designated beneficiary directly, but my kids will always get something no matter what.   It allows me to transfer $$ from my estate to my kids (or neices, or who ever) without the taxes.

It is not an investment, per se, at best it would be like a 2% GIC.  BUT -- there are other benefits that are unique to it, (ready cash on death without probate / tax) AND access to a (high cost) loan on the cash value while you live, with 24 hr notice, and an insurance agent who can help get money to you outside of the banking system. 

gReed Smith

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Re: Universal life insurance as retirement supplement?
« Reply #11 on: June 26, 2015, 12:21:02 PM »
That "financial advisor" is just an insurance salesman.  I highly doubt he advises anyone to do anything but buy whole life insurance.

There are occasions where it makes sense to keep the whole life policy once you have had it for a while.  Basically, there comes a point where you have already sunk your money and the benefit going forward is better than cashing it in.  I'm not sure when that happens, but the bogleheads have tons of threads on the issue, and whitecoatinvestor's blog has a lot of information as well.

a1smith

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Re: Universal life insurance as retirement supplement?
« Reply #12 on: June 27, 2015, 08:50:14 PM »
It's a trap!

Run far, run fast.  Avoid that adviser in the future.

That's a pretty cool trap!  :-D

dungoofed

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Re: Universal life insurance as retirement supplement?
« Reply #13 on: June 27, 2015, 09:40:17 PM »
Hey bro - looks like you've already decided where to tell the insurance salesman to shove his plan, but in case you needed more convincing you're welcome to read my own painful story of investing in the Royal London 360 Quantum insurance wrapper product here.