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First, we asked why was she sold a whole of life rather than a term policy. The next thing you need to consider about cash value is that this cash value growth of 4-6% is tax free growth. This is a retirement based investment vehicle that gives reliable returns year over year, will never "zero out" and gives a longevity credit for each year your parents stay alive. So you would have access to the cash value. Provided you pay your premiums, year in and year out, whole life policies never expire. If they already have some aggressive investments then cash value life insurance can be a good and safe investment to balance their portfolio. They have the option to roll that over into a whole life policy. So, whole life insurance is not an investment in the same way stocks, bond and mutual funds are investments. So rather than BTID, buy whole life insurance and invest your cash value — a different way to think than the tired old recommendations offered by Wall Street. Whole Life Insurance. The $500k that would come into your balance sheet at their passing would not be income and would not be taxable. In short the cash value is very liquid and has a history of being safe and growing at conservative rates. So if potentially passing away after one month, a huge ROI - but if living for 20 more years, then closer to 7% return. However, as a part of my practice I sell whole life insurance to my clients. So on it's face, you wouldn't really compare this to the SP500 which grows by 8-10% per year. Considering surrendering the policy after it’s only been a few months, but I know it would hurt a lot less now rather than years down the line. This is a place for discussions or questions specific to life insurance. You also have to consider the time value of money. Whole Life Insurance commissions after 20 years: $2,800 The result may be surprising, but the effect of compounding interest also happens in commissions. Pros and Cons of Whole Life Insurance Life insurance offers options as part of an investment portfolio. You're looking for a schedule which will lay out the premium you will pay each year given your parents respective ages. I would recommend a 10-15 year term policy. Some people believe that whole life insurance is the best way to grow your money, others believe that Level Term Life Insurance paired with additional savings is ideal. Well, Whole Life Insurance is the base form of life insurance. Due to inflation, you pay 2-3% less each year in real dollars. Now let's get to you. The company offers dividends? We get life insurance to protect our loved ones, our business partners, etc. Which I am now leaning towards doing. 4. So if your parent died and the loan is still outstanding, you would only get $480k because the loan would be forgiven. Feel like I could be using that money ($340/mo) towards something better/more financially smart. Whole life insurance coverage has proved to be an unreliable investment product for doubling any invested capital. If you don't have roths, I would consider investing in them. This depends on what kind of policy it is. If you are not in that type of situation (like most Americans), whole life insurance is most likely a 'scam'. They have the option to roll that over into a whole life policy. $10.4k X 15 = a total out of pocket real dollar cost of $156k. No one enjoys investing in their death. Cheapest and they can invest the difference in higher returning investments, More posts from the LifeInsurance community. The death benefit is tax free and will have a lower ROI as they get older. Life insurance offers options as part of an investment portfolio. Whole life insurance often finds itself on the list of financial don’ts, in large part because of its opacity. Arrive at the best car insurance quote The difference between term and whole life insurance Get term life insurance quotes Understanding homeowners insurance All about insurance. But the conversion would be for us, not them. Press question mark to learn the rest of the keyboard shortcuts. Thoughts? Assuming the federal and state icome taxes are 30% and you have an 8% your after tax return would be right in that 4-6% range. TERM policies are cheaper when compared to WL though. This is a very bad idea. This may seem to be the better investment, but it can be more expensive than the first option. So that would be one benefit of that I see. Life insurance policies are not investments and should not be purchased as an investment. Is it some flavor of universal life? Cool, that’s a bonus. wow. This will increase the death benefit and cash value. First, we asked why was she sold a whole of life rather than a term policy. If you honestly think they will not live 20 years, you should convert. Whole Life This is a permanent insurance contract. If you don't have a spouse or kids, just invest your money in a real investment. Since they have a term policy that they can convert, the company is using the health rating of your parent from 20 years ago. But to sum up life insurance – you buy Whole Life insurance for just that: your life. Just like a term insurance plan, a whole life insurance policy also compensates your nominee on your passing. Whole life insurance is often sold as a kind of cure-all investment, with built-in tax advantages and flexibility to help you handle just about any need. This is different than term insurance that covers you for a defined period of time. Yet another example why no normal retail person needs financial advisors. I don't know how advisors are able to sell them. Life insurance of any sort isn't really an investment - it's something you get because you need to protect your loved ones if you leave them. I’m just not sure yet. whole life insurance is a scam as an investment. You get it to lock in rates. 638798.4.0 Mutual Funds You've basically hit it. So, they probably woudn't want to invest in something aggressive. Posted by 2 hours ago. However, if they die later, you will still get 100% of your money back, plus you have access to the cash value if you need it. However, a peek under the hood will reveal that both ILPs and Whole-life Policies are very different products, and should not be used interchangeably. Term is better because the investment portion of whole life is not liquid (you are locked in) and typically underperforms competing investments over similar timeframes. Quick tip- pay yearly to maximize ROR (at least in the beginning). Whole life is much more expensive than term life insurance, which expires after a certain number of years. in this case, think of the cash value as a super high interest savings account that pays 5% apr instead of the peanuts that a regular bank pays. After paying in for 3+ years, my wife and I have just over $50k in cash value. If they can roll over the term policy to a WL policy I would definitely do it. Mutual companies provide the maximum value to the policy owner, and are an obvious choice to those looking at whole life insurance as an investment. This is where your parent's portfolio comes in. Depending on the company (stock or mutual) will determine if you earn dividends. Now this is very basic. Term life insurance Your beneficiaries receive a tax-free, lump-sum benefit after your death with Manulife’s term insurance solutions. So in about year 4-6 you will pay $12k in premiums and your cash value will increase by at least $12k. To add to the complexity, an ILP is classified as a type of whole-life insurance plan. If you need a permanent policy, your assets exceed the estate tax, or you’ve exhausted other investing options, then you may benefit from investing with your life insurance . If you are married with no kids and both you and your spouse have similar incomes, you need little or no life insurance. Buy cheaper term insurance and invest the rest, the conventional wisdom goes. Supposedly cheaper than if they were to just go out and find a whole life policy now. Just think that if you had a savings account at your bank and you deposit $12k and the account grows by $12.5k. and excess going to taxable brokerage.. Whole life insurance is truly non-correlated and creates a more efficient portfolio mix when viewed in the context of being another asset, rather than a “have to” expense. It is designed to be there for your whole life. This allows them to qualify for a policy without having to answer health questions OR get a physical. So, if you and your spouse already have roths and are investing $6k each per year, any other money you invest will be subject to some form of tax at some point. My question is.. would this be a potentially good investment? Because whole life insurance is complicated and expensive, it isn’t a good investment option for most people. It is a higher outlay than term life insurance, but with whole life there is a savings component. If you are single, you don't need life insurance. Term life insurance can be an important piece of your financial puzzle, however, if you have people who rely on you for financial support. I mean, your parent is 60 and probably retired or nearing retirement. Life insurance is not an investment. Whole Life Policy as Investment. A physical pocketbook before yours at 9:00 a.m. is whole life insurance for isn! 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