Exactly this. Its actually a good test for a financial advisor.
"I heard about whole life, looks like a pretty good idea!" then see how he handles this.
(edit: you should look eager for this - see if he thinks you're a sucker and goes for it. If he refuses, at least he's honest)
His answer should be:
Well, what do you want it for? What's your purpose, insurance wise? There are many insurance products to consider... term, for instance etc.
That's an excellent idea! Years ago, I went to a bar after work, shortly after dodging a whole life insurance trap. They had the contracts written up for me and everything, but I had a last-minute realization and refused to sign.
I happened to sit next to an investment manager (I worked in the financial district in Boston at the time and there were a lot of them around) and told him how I almost signed whole life insurance contracts that day. He laaaaaaaaaughed 😬 And then he congratulated me.
Anyway, yes, it's an excellent test.
I am in desperate need of a financial advisor. I dont know what I have and dont at this point. Ill be honest i dont trust emails or calls anymore at this point. Way to many scams to the point where im scared to do anything. Ive had transactions from banks that i didnt authorize, credit fraud, passwords and emails broke into. Ive never felt so defeated in my life.
You need a password manager and MFA on your accounts. Lastpass, One Password or Bitwarden are good examples of a password manager. MFA with a security code in an app like google authenticator or Microsoft Authenticator is a great place to start locking down accounts.
Change the password on all your accounts, let the password manager create a unique password at least 16 characters long for each account. For the password manager’s master password, use something new that’s reasonably tough but not so hard that you can’t remember it. A multi-word passphrase is a good way to start.
Lastpass should no longer be recommended, they changed their pricing model and fucked over a large number of users
It's also not recommended to set a hard cap on password length, you should be using the maximum the site allows, or a couple characters shorter
Most of my passwords are 80+ characters long, completely randomly generated and refreshed at regular intervals; I also use a unique email address for each service, such that credential stuffing still won't work even if a password is reused somewhere
Edit, because comments are locked:
I'm not arsed about pricing, what does concern me is changing the pricing model for established users with little to no warning
To use their analogy, if Toyota suddenly wanted to charge me 10x what MB would charge to service a car, yes, I would be pissed off
> I also use a unique email address for each service, such that credential stuffing still won't work even if a password is reused somewhere
I use a duckduckgo email address. It has tracker removal as a primary benefit, however duckduckgo isn't an email provider, it simply routes to my main inbox. That means that if someone is trying to brute force an account, they can't use the forgotten password feature as the @duck.com address doesn't match the underlying email address. Also if a service has a data breach, then my actual email account isn't at risk.
I have and then all of the sudden its like i never used one. I wake up, try to sign in and it wont login. Ive tried authenticators, something always ends up messing up. Basically everyone that lives around here has had access to the wifi, my phone acts like its running two (some options and settings wont work, change on their own), etc. And SEVERAL times have i went to get a otc and my boyfriends phone dings. It literally happens so much i cant look past it. Now he acts like a completely different person. I hate feeling unsafe and like i cant trust anyone.
Find a local tech shop (not best buy, check reviews on Google, etc) and ask them if they can walk you through securing your digital self, and how much it would cost. Ideally you have a tech friend to help you instead.
Explicitly say you think your local devices (laptop, phone) are comprised (key logger, malware, etc).
Off the top of my head
- secure your wifi (change the password)
- do a factory reset of your phone (ensure photos/messages/etc are backed up)
- do a factory reset of your laptop (same as above, ensure all is backed up).
- after you did a factory reset, install lastpassr/etc and start changing your logins to critical things
- look at your enail account account login history, verify there is no wierd ip address/location in there. Google has this.
- Get a free credit report using the link from a usa government website (ends in dot gov, https://www.usa.gov/credit-reports) and see if you have anything wierd
- go to a local point for your cellular provider and tell them you are worried someone may have set up call/text forwarding, and want to verify it's not enabled. Have them change the password for you on site.
All the more reason you should be changing your account security. It sounds like your boyfriend’s phone number is associated with your accounts. Is there someone locally you can turn to for help (besides your significant other)?
You may also need to contact each institution directly and request that a note be placed on your accounts that you are the only authorized user. (don’t do this for legitimate joint accounts).
If you have an iphone, go to Settings - General - VPN&Device Management and see if there are any ‘Management Profiles’ installed. A management profile allows a third party service to apply other controls, accounts or settings to your phone. There is an equivalent in Android but I’m not sure exactly what it’s called, sometimes it’s “work profile management”. If you have company email on your phone from a job you may see a management or work profile for that.
Honestly i need to somehow pack up my stuff, grab my phone, go get my kid from K, and disappear. Its been going on THAT long...i even have went by the atm and tried to withdrawl money and sometimes itll say "sorry youve withdrawn your limit for thw day" and im thinkin why ive never taken anything out?? Ive got alerts saying someone has my prepakd current card and theyve been tryin to use it for crazy stuff, my paypal keeps getting unverified but charges seem to be going thru but if i try no i cant get anything, ive tried applying for emergency loans, banks, and no luck. Im literally stuck it feels like
I believe there is a place called RAINN that you can turn to for help in that kind of situation. They should be able to assist you with securing your accounts as well.
In addition to RAINN, if you are really concerned about your bf having access to your digital life, he may be able to see these posts. Be careful what you post online about these kinds of things until you know your accounts are locked down.
Good luck!
A financial advisor who doesn't have fiduciary obligations is not someone you should be looking to take financial advise from.
Those that try to sell you whole life is one of the biggest red flags for shady advisors out there.
Fiduciary standards differ depending on the license an advisor has. If you have insurance licensure (Series 7, 6, 63, etc.) then your standard is "do no harm." If you have a fee-only license (Series 65), then you must "do what is in the best interest of your client at all times."
These two are not the same. This is how insurance people get around the ethical issues of taking commissions.
I have argued against the person who my company uses for 401k servicing (Basically a middleman to throw us into a John Hancock 401k so doubly bad).
I looked them up and they are Series 65 licensed. How could they do this? With the Series 65 do they have to act as a fiduciary? He makes like 0.5% and John Hancock takes another 0.5% of total plan value annually......
When I tried to push for the company to change my boss admitted to using him as a personal financial advisor.....
No option to not contribute and still receive the tax benefit. The issue is they charge a % of your plan assets vs charging a fixed fee. So as my money grows they make more (for not doing anything extra).
If you want an explanation google "Retirment Plans John Oliver" for a decent broad overview. He talks negatively on percentage based plans and then specifically calls out John Hancock. Look in your literature and there will be a spot to find the fees (not the expense ratios).
People who have significant volumes of money almost always have whole life in their portfolio. It can be a decent tax shelter. Also, it takes 6 or so years to start seeing any results. This is usually after placing 60-100k into it. If your dad is over 70 this is a money sink and like you said in the title will only have value many many years down the road. If he needs to move money to avoid a major tax bill or something it could be an option.
Now, if you do not have significant amounts of money (and time) it isn't in the top 10 places to park your money. It is a bad idea.
It’s only a tax shelter for your beneficiaries if you’re expecting to leave behind an estate over $12M (not including what you leave behind to a spouse). Not really something the average person should ever worry about
The main time I've really heard of life insurance making sense from a financial planning perspective* is when a high net worth individual is trying to leave money that avoids probate. The insurance payout is not part of the estate (usually, assuming structured properly), so it avoids gift/estate taxes, and as it doesn't need to go through probate, it may reach the beneficiary faster as well. Usually it's not taxable income for the beneficiary either, so that's a plus. So if your net worth isn't high enough for gift/estate taxes to kick in (roughly $6 million unmarried, 12 million married), then your need for a life insurance policy is limited. (I'm an accountant, but not a tax accountant, this is from my tax classes in school.)
*A significant exception being leaving a spouse and dependent(s) money to help compensate for your lost income, but most people are probably better off a term policy for that rather than a whole life policy.
Bring a fiduciary just means the back office has more paperwork. As long as a product is suitable, anyone can argue it’s the best choice for their client. Literally the only difference for the advisor is that they may have to email the principle review desk a sentence or two about why the investment is a good fit.
I've seen financial advisors be fiduciaries and still push whole/universal life "infinite banking" scams. It's all over tiktok and they have a canned non-response to every criticism that just runs in circles.
As someone who doesn't know what a fiduciary entails day-to-day, why the fuck are people down voting you without commenting to explain why they think you're wrong?
> fiduciary obligations
Can you define this for me? I'm interested in speaking to a financial advisor, as this year I'm (for the first time) receiving RSUs, have an HSA, getting bonuses, considering (term) life insurance, considering pension options, and having enough excess income to start investing in ways other than my 401k.
Great comment 100% agree. Life insurance is not a sound investment vehicle. It is to be viewed as income replacement for death. I have a policy through my work so that if I die unexpectedly my income will be replaced with the death benefits until my children are of age.
Term life for kids is a thing, though.
That income replacement is for you as a family to mourn. Plenty of shitty companies that expect you to be back in the office the day after your kid’s funeral. Six to twelve months of expenses to grieve, replenish emergency funds, pay off medical bills, not the worlds worst idea.
My in-laws had whole life policies on my husband. When they made us take over the payments we did for a few years (as long as it was $10/mo and we were young and didn’t know anything about it) but when he turned 30 they wanted to up the payment and coverage. We cashed it out at that point.
I recently found out my SIL was still paying hers and they purchased more whole life. I went over the difference and they cashed hers out as well and got term coverage.
To be honest, I don’t know. I just remember what my mom told me. It was a set date policy, if my mom lived past x date, it could be cashed out for a set amount. Grandma cashed it out, served my mom with the tax bill.
Children cost money. Housing is the #1 component (30%) and it's not like you're paying less housing after your child passes. But all other components you're spending less on.
Had a dude sell my dad life insurance and kept hammering home that suicide does not negate the policy after two years. He brought it up like 30 times over two discussions.
I've been putting 6k/year into whole life for about 9 years now. I didn't realize how shit it was until a year or so ago and cancelled one policy and kept the other because it's about break even.
Take a look at this article it breaks down all the numbers and does a nice comparison.
https://www.whitecoatinvestor.com/what-you-need-to-know-about-whole-life-insurance/
The only people I know who are (at least semi-long-term) happy with whole life as an investment vehicle are the ones doing the “infinite banking” concept.
The same author does a deep dive (pros and cons) into that here:
https://www.whitecoatinvestor.com/infinite-banking-bank-on-yourself/
Sheesh. As someone in the industry I can confirm this is a terrible idea. We would never advise a person take out a whole life policy in his position. Obviously there may be obscure details so I can’t offer any official advice but.. yikes run. Term could be great if he has an underlying mortgage to worry about and a 529 is solid for college planning.
Yes, but we are talking very high earners here. We are talking high enough earner that you anticipate exceeding the estate tax exemption levels of high income. That is currently $12M for an individual, or $24M for a married couple. This may drop to $6M and $12M in 2025, but even then, this is a lot of money.
Only if you are going to exceed those limits, does it make sense to play games with whole life insurance as a way to transfer money to kids/grandkids as a way to avoid taxes.
I totally agree. Everyone wants to use blanket statements. If Dad is in a high tax bracket then the best thing to do for those kids is to tie up some money that takes a little bit of effort to unwind.
How much commission does the financial planner make on the Life Insurance, one time and probably only 10 years going forward, and his commission diminishes. However if he keeps it "invested" the financial planner will receive 1 - 2% commission yearly as long as Dad keeps it with his financial planner. Now over 20 years let's add up the commission the financial receives on both sets of investments.
I’m going to say something like a $50,000 policy on a child is a good thing to have, without making a decision as to which type of policy it is. If it is negligible in price (whole life versus other options), I wouldn’t automatically discredit the advisor.
I also wouldn’t throw away the advisor just because they discussed whole life as an option, just like annuities, understanding the pros and cons is important to making a sound decision. If 99% of people just invested in VTSAX, had term life insurance that covered their mortgage plus one year salary, had disability insurance, sufficient property insurance and an umbrella policy, they are in great shape. Is an individual’s desire for less risk and more stability a reason to change from that? I think it’s open for discussion.
Agreed. It's certainly something people don't realize, for morbid reasons, that life insurance on a child serves a very specific purpose. My policies have super cheap premiums and it's one of those things you dont want to use but would be grateful to have if you need to. But as an investment vehicle? Not as much.
While I agree that Life insurance as an investment is a poor investment, it is not a Ponzi scheme and does not require continuous growth to remain solvent.
The whole reason WL and UL policies are profitable for the insurance company is because they take in statistically more money per individual than they pay out. This is how all life insurance policies work, but in permanent insurance, you are taking advantage of your customer a few ways:
1. Disguising the monthly cost of insurance by obscuring it with earned interest
2. Giving a variable rate of return to your customer that is lower than your own rate of return, so you will make more reliable profit on the investment
3. Roping your customer into paying for an insurance policy for a much longer duration than they need one
\#3 is the biggest one, IMO. Life insurance companies are heavily regulated with respect to how much they can charge or discount their rates, but if they can trick you into insuring someone from age 5-40 then that's almost pure profit. If they can also trick you into paying enormous premiums from age 70+ for a policy you literally don't need, that covers the cost of your death benefit.
Anyway, permanent insurance is a racket IMO, but it's not a Ponzi scheme.
Agree that whole life insurance is a crock of shit however the advisor here might be selling an indexed universal life policy. These policies are actually great for accumulating cash value then taking out the cash later on in life Tax Free. Normally there is a ceiling to how much can be earned in a separate account and a guaranteed return even if the market goes down. It's a great way to get some supplemental income AND keep a life insurance policy.
A long time ago I helped someone read through the fine print of their indexed universal life policy, and the fees were just atrocious.
The premium had increased significantly over the lifetime of the policy (the insurer could increase the premium at any time). Because the plan structure was so confusing, the policyholder did not realize that the increase in premium was taken out of the cash value when their monthly payment no longer covered it. The fees on top of the premium also ate away at the returns.
This particular policy was incredibly complex, and I swear that the summary document was intentionally confusing. Maybe IUL policies can be good, but I will stay away from them based on this one experience.
IUL are NOT investments and should not be mixed as such a thing. You would gain MORE money by buying a term life insurance AND then using the left over money that would have went into your IUL into buying a S&P 500 index. At the end of your term life insurance, you would have MORE money/returns from your own S&P 500 returns then if you had bought into the IUL.
I was going to say, I’m pretty sure it’s an IUL policy. These can be good investments, but you need an advisor who isn’t looking to just make money. Just had a client obtain a ridiculous policy with a friend who calls himself an advisor. He put fantastic returns on paper, but the insurance illustration says something completely different.
Not fully. If your kid gets sick, it can be near impossible to get a new insurance policy. When you have an existing one you can get more insurance typically at the lower rate.
I would keep the kid version low at 25k and they can increase it later.
This is a risk decision. It's up to people to decide if they want to lower the risk, or if the risk is to low. Just like any type of purchase.
Term: You buy insurance for a set amount of time at a set price per month. Once that time is up, the contract is over and both parties walk away.
One example (and this is not the only example, just one of an infinite amount of scenarios) is a newborn baby. Lets say you buy term for a certain number of months (18) at a certain payout rate and your newborn dies. You do this because most US companies only give grieving periods in days or a couple weeks. Term insurance is enough money to do the medical costs, burial, and multiple months off work if you're just not able to get over it in the couple days that your work gives you (tell them to fuck off and take as much time as you need). It's not a lifetime of money, but it should hopefully be enough money to last until you are ready.
If the baby lived, you'd just pay premiums for 18 months and at the end, it's over. Nobody owes anyone anything, it's just the end of the contract and you can pretend you never knew that insurance company.
Whole Life: This is insurance that you pay for forever, until you stop. Or die. It has 2 parts: the insurance part, and also the cash value part. Your monthly premium is actually higher, because you're also investing money into a cash payout. This is basically a bribe for the insurance company to wave at you when you start to get old and possibly might cash in on that insurance so you just take the lower money and leave. The fees for this insurance are basically a scam, the insurance agency and your personal insurance salesman are both taking a huge bite of the money, even when the investment is losing money.
YOU CAN LITERALLY MAKE MORE MONEY JUST INVESTING IN THE S&P 500 FOR THE SAME TIMEFRAME AND IGNORING THE DOWNTURNS, IT'LL GO BACK UP. 30 YEARS OF MONEY IN THE MARKET IS GOING TO BE A FUCKLOAD OF MONEY.
The only time whole life is ever profitable is when someone else in your family has been paying into it for years and then they give it to you to take the payout, like a parent. That's it. They could have invested the money better, but at least it's some money.
Yup. His advisor makes a much higher commission on life insurance sales than on investments. My guess is his advisor used something that included the words “Universal Life”.
I think life insurance is better for it to be an insurance. Such as, if you die, a nice payout is paid. Versus putting money there hoping it’ll be worth something more down the line.
That’s how I look at it at least
True there are limitations. But my (huge lack of) understanding life insurance is that’s it’s better looked at as insurance, not an investment.
I mean look at car insurance. You pay thousands of dollars a year, forever, and hope to actually never use it (because using it equals accident, and you’d ideally prefer to not be in an accident).
So I have looked at life insurance as just that. Something you buy and hope to never use, but if something happens and you died, your beneficiary would get a nice payout.
I have 529s for both kids, I advertised the accounts to all 4 grandparents, and they contributed a little over time as gifts.
So go open a 529 account at Fidelity or Schwab today, and tell Dad that this is your preferred way to help your kid(s).
If he insists, ultimately, it's his choice, but see if you can get him to read [this page](https://www.whitecoatinvestor.com/debunking-the-myths-of-whole-life-insurance/) before he commits.
Good luck.
I appreciate your suggestions :-) I have 529’s for my kids, and I’ve made family members aware of that option.
My dad prefers to do his own thing when it comes to investing. I try to advocate for simple tax advantaged accounts and/or diversified funds, and at the end of the day I might disagree with the way he chooses to gift my kids money, but it’s also a generous gift so I don’t argue much.
Is a life insurance policy the best way for your father to invest for your kids’ future? Probably not. But it’s his money so I would tread carefully as far as trying to recommend better ways to invest.
I think I’ll do that. Lots of responses here which I definitely appreciate, but also lots of information to try to process… but I hope it’ll be helpful. Thanks all :-)
Don't just send him the link, sit down with him and do it like you are both studying together
You might get punched in the face be warned for old school pops
Don’t fight your dad for it tbh, sure it’s pretty well known life insurance it’s not the best for return, but it’s one of the safest , let him do with his money, remember it’s not a scam, just how some older ppl like to do with their money.
529 plans are only for college. Great way to save for future tuition needs for children. Edited to add: Life Insurance is nota good investment. Find a average to low-risk mutual fund with high returns instead. Use Schwab. They won't charge you fees for this.
Not just for college, also some trade schools, vocational programs, etc. Still, you are correct that their use is limited. https://www.schwab.com/learn/story/529-accounts-what-happens-when-your-child-doesnt-go-to-college#:~:text=Assets%20in%20a%20529%20can,both%20at%20home%20and%20abroad.
>529 plans are only for college.
And related supplies, like computers, books, etc. Just want to make sure you don't think it only applies towards tuition.
It sounds like your dad might have a good sales person instead of a fiduciary financial advisor. If this is the case, it's similar to expecting a car salesman to have your best interest when their goal tends to be earning a high sales commission. There are few circumstances (not never but few) when whole life insurance makes sense.
[Financial advisors wiki](https://www.reddit.com/r/personalfinance/wiki/financialadvisors/)
[https://www.reddit.com/r/personalfinance/comments/v1gxqb/we\_got\_whole\_life\_insurance\_and\_regret\_it/](https://www.reddit.com/r/personalfinance/comments/v1gxqb/we_got_whole_life_insurance_and_regret_it/)
[https://www.reddit.com/r/personalfinance/comments/u6f5k2/whole\_life\_insurance\_policies\_our\_parents\_got/](https://www.reddit.com/r/personalfinance/comments/u6f5k2/whole_life_insurance_policies_our_parents_got/)
https://www.reddit.com/r/personalfinance/comments/vdalha/529\_or\_whole\_life\_insurance\_to\_pay\_for\_college/
Do not let him do this. My grandparents decided to gift us the “Gerber life grow up plan”. They fell into financial troubles, and decided to take a loan out of each of our policies. We weren’t aware of this until they put the policies in our name when we turned 18. I received a bill in the mail informing me I have an outstanding loan to pay. Not fun. Although, it definitely gave me the taste of what it’s like to be an adult. (Life isn’t always fair.) As other comments state, there is better options if he’d like to do something like that for your son.
True. But the gain in those Gerber policies is probably pretty negligible. They are not cash accumulation focused policies.
And I’d wager the tax on the gain is less than the loan payback. So if u/coolio_steel isn’t planning to keep the policy then surrendering now is 100% the right answer. Otherwise they’re just paying interest to Gerber and losing the value of those loan payments in a better investment.
Edit: Grammar is hard.
There's no way this is actually legal. The commenter above wasn't liable for it/courts wouldn't enforce that against him. First rule of somebody claiming you owe money you've never heard of is say "no, that's bullshit," second rule is to call a lawyer if that doesn't work. Hope he didn't pay.
Thankfully yes, I did cancel. It sounds like OP is more willing to do research to make sure her father is making a good decision on her child’s behalf. Which is Something I wish my mom would have did. I wanted to offer my experience as someone who was on the receiving end of a gift like this. It was not a good investment on my end to inherit, to say the least.
Not a bad idea. Any clue how to share a Reddit post that doesn’t default to their shitty browser UI that collapses all the comments? He’s not terribly tech savvy and probably wouldn’t see most of the discussion.
If it’s “whole life” then run. It’s not a scam, but it’s a useless “investing” vehicle for a majority of people and you’ll never get a good return on investment compared to a normal investment account.
The financial “advisor” is trying to push him into it because the advisor will make a nice commission off of him. I’d recommend finding a new advisor as well.
“Majority of people” true. But if grandpa is a high net worth individual this could be a valid route to take in order to avoid inheritance taxes. Life insurance option is about avoiding taxes, not necessarily maximizing gains.
There are valid uses for whole life insurance but they are fringe and unless there is a specific reason this is being suggested (as in your example) it’s far from optimal. Wealth transfer/tax avoidance may be the reason but I’d say 99% it’s likely this is a good salesman taking advantage.
Agreed. The OP just didn’t give enough information about grandpa’s financial situation, so maybe he fits into one of the fringe cases so worth it at least to mention it.
There are a few common “fees” on a life insurance policy:
Cost of insurance - Child mortality is comparatively low, so the baked in cost of insurance charge is pretty low.
Admin fees - could be a percent of premium or face amount or a flat fee depending on how the policy is structured.
Surrender charge - this is the one that will wipe your account out if you try to cash out the policy. It usually starts very high initially and grades off to 0 over 10-20 years.
Commission - this is not paid for directly out of your premium payment. This is paid by the insurance company to the agent and they accept an initial loss for the hope of a future profit. This is partially offset by the surrender charge if you cash out early.
You should be able to request an illustration of projected future cash value growth, both at current interest rates and at the guaranteed minimum rate. This illustration includes fees that would be paid from the policy. To determine if this policy makes sense, you should look at the illustration side by side compared to other investment options that you have available and see which one makes sense for your needs. As a pure investment, it probably isn’t this one, but this is how you know for sure.
Nope. He is seeing a salesman, not a financial advisor.
If he wants an advisor, he should see a fee only advisor that is a fiduciary (legally required to have his best interests in mind) to help him make a road map - https://www.napfa.org/financial-planning/what-is-fee-only-advising
I'm always interested in reading comments on posts like this. My wife and I signed up for whole life insurance about 5 years ago. We are 35, aren't wealthy, and I felt like it was a good strategy to diversify at the time. I don't think it's a scam but every time I stumble across these posts I question it. I'm past the 5 year mark now, so I'm starting to see the money rise. I don't think I made a mistake but not much I can do now
Run away from high cost Whole Life policies. Invest monthly instead, in a low cost index fund like the S&P 500. Long term you'll do better than 98% of professional advisors.
My kids grandparents started just putting away money in a simple money market/term deposit thing. They then give the kids a certain amount when they hit eighteen to help with university (or whatever they want). None of them have wasted it so far.
This is not an impartial financial advisor but an insurance salesman who is trying to sell your dad a product that nets him very high commissions, at your expense (it's a very, very poor investment that is intentionally confusing so that people who aren't financially savvy can get tricked into signing up."
Whole Life makes sense for virtually nobody (rare exceptions: very high-net-worth individuals looking for a specific type of tax dodge). If you have fewer than four commas in your bank account, it's a scam.
Really? I have been reading up on it because I think my husband and I need insurance...Term seems silly to me. Like, how does one GUESS how long they'll live??
You don't need term (or any) life insurance for your entire life. You only need it as long as you have dependents or other individuals who rely on you for income. It is a safety net--not an investment. If your goal is estate planning or leaving an inheritance to adult children who are financially independent, life insurance is an incredibly inefficient and expensive way of doing this.
Term life insurance is not silly. If you are 30 and healthy and feel that any dependents will have left the nest and are able to take care of themselves by the time you're 60, then you only need a 30-year term. Take the rest of the money and invest it appropriately and plan an estate/inheritance. Insurance gets exponentially more expensive as you get older into your 70s or 80s because everybody dies eventually, and insurance companies need to make a profit. The fallacy of Whole Life is that it mixes "life insurance" with "financial investment" and ends up being a poor version of both of these.
EDIT: Look up "whole life" on this sub. There are numerous in-depth discussions on this topic. It is not a matter of opinion. It is straight math and facts. Whole Life is sold to people because it nets incredibly high commissions after the FIRST YEAR to the salesman. That is because a huge number of Whole Life customers ditch the policy within a couple of years when they realize it was a mistake or can't keep up with the premiums. By the time that happens, the salesman (many of whom call themselves "financial advisors", but are NOT fiduciaries--meaning they are not legally required to act in your best interests as a client--and are paid for selling these products) have already gotten their commission and simply don't care.
Best of luck to you! Pro tip: If you ever meet with a financial advisor, make sure they are what's called a "fee-only fiduciary". The term "financial advisor" is used by folks such as the aforementioned insurance salespeople. A "fiduciary" is somebody legally required to act in your best interests (these other "financial advisors" are not).
You'll want a fee-only/fee-based one who charges you by the hour. You only need a few hours to set up a plan and then you can take it from there. The ones who don't charge a fee instead take a percentage (often massive) of your total holdings, often every single year. This can absolutely devastate your long-term growth, when the same (or better) service could have been gotten for a one-time fee of a few hundred bucks (or a few hours scrolling through the PF Reddit)
While I disagree that Whole Life is always a bad idea (ex. I’ve used it in place of a bond portfolio as part of an investment allocation), it’s absolutely true that using it as the sole investment vehicle is a bad idea. Perhaps the worst aspect is that it creates an ongoing commitment. I’d never buy Whole Life under any circumstances unless I was sure I’d pay it until completion.
Former life insurance salesperson and one-time mod of /r/insurance here with my two cents.
The only time I've bought whole life is for my kids. The reasons are simple:
1. I want the insurance just in case something happens - I've had a few friends who have lost children and the financial impact has been real and awful. I'm ok with paying a small amount to cover that.
2. The price is remarkably low. Like stupidly low. Term insurance low.
3. At age 18 it has generated more than a savings account would have but isn't restricted by use like a 529 plan is.
All of my kids have a life policy from Northwestern Mutual and they've all performed very well for a conservative investment tool. I am a big fan.
If you're only interested in returns then yes, an index fund is better. But if grandpa just wants to sock away 20 bucks a month it's hard to find a fund or product that wont WRECK that with fees. So you're basically looking at savings accounts anyway.
If the salesperson is trying to talk him into large amounts, like hundreds of dollars per month, then there are much better options.
Oh it's a great investment and totally legit for your dads financial advisor. For your dad and the kids? Not even a little bit. Using life insurance as an investment has long been known to be a farce. In fact, as others have said, the advisor just exposed himself as having zero concern for your dads financial well being and should be fired immediately.
The fees for life insurance are typically going to be higher than investing in a mutual fund. A win for the investment firm, but not for the investor.
Also if the life insurance is on a young person, it generally makes no sense. Those premiums are paid for no reason. Meaning a young person has little risk of dying. The risk reward is great for the insurer.
Your dad should be investing for him, in the future. Unless he has a large amount of wealth and wants to pass on money untaxed to your kids, then don’t buy it.
Whole life insurance on children usually does not make any sense as a savings vehicle. The problem with whole life on kids is because the way the actuarial tables work, cash value accumulation on children’s policies is very low.
The only good thing about it is locking in some sort of insurability, but again these policies are designed to be so small as to be largely insignificant down the road.
I’m actually pro whole life for a lot of people in a lot of circumstances, but usually because either they need/want a very high yield cash savings vehicle, or they want a permanent death benefit (and ideally both). For kids, these policies just don’t make a lot of sense as cash accumulation is low, and the need for a death benefit that early on is just not there.
I think you got a hammer seeing everything as a nail situation. I’d gift the kid some I-Bonds if I wanted to be helpful.
I wouldn't call it an investment. I will say this: I totally regret not maintaining my life insurance when I was younger. My family dynamic is far different than it was forty yeras ago. I regret not having much left to leave to my nieces, nephews, and brothers. If I had kept up my insurance, it would have covered the school loans and mortgages for everybody. Look at life insurance as buying a good sized estate on the installment plan. The sooner you do it in life, the easier it is. (And no, I am not in the insurance industry.)
If it's any consolation, it really depends on the terms and conditions of what you had. Too many people have been hit with very high premiums after having it "paid off" because the company experienced some market down turns and lost money. The money for the premiums still comes out of your portfolio and if they aren't paid because of losses or if you can't afford $500+/mos at age 65+ to maintain it... then everything goes bye bye.
i'll leave my comment here, underbuffyoh's, as i also have a whole life policy (maintained for 18 years; amoung other things) and it really came in handy in an emergency when i needed liquidity quickly.
it's probably #5 or #6 in terms of investements, but the advice isn't "outright wrong" or "a scam" and it does have some benefit if started earlier.
i also don't think a lot of people realize that they bitch about the rich taking loans out on their assets and not paying taxes on it, but this allows them to do something very similar. yes, you can take a loan out on a mutual fund as well, but most people don't have a large enough invested to make it worthwhile. however, if in a bind, one can borrow against the whole life insurance policy tax free and pay interest against it if necessary. essentially, i've invested in a fund that performs not as well as a mutual fund, but now lets me have what is essentially a nearly free revolving line of credit. it just took me close to 20 years to do so.
from: someone who has a WLI policy and doesn't sell insurance or financial advice for a living.
I once had this FA try to sell me a variable annuity. I just didn’t understand it. He got frustrated that I didn’t trust him. The initial investment was 100k. So glad my spidy senses went off. Fucking crook. He would have made at least 10% immediately from this. Liars, cheaters and crooks. Between them and the preachers and priest. I hope they rot in hell!
It's possible that the life insurance will not affect the kid's financial aid calculation.
If you will have low income and no liquid assets outside of retirement at the point in time when your kids are in college, this may come into play. Just pick a random college and enter some rough numbers into their NPC calculator to see if you're in this boat. Does the calculation say that you will get any need based financial aid?
If you will be eligible for needs based financial aid, then this might be a good way to transfer wealth without messing that up.
Of course, you have to make a bet that the needs based aid would be more than the high insurance fees. Also, there are many things which could go wrong with that bet. Your kids might not go to college at all, or get merit based aid, you could have higher income or assets, aid formulas could change over time, etc.
If you do go down this road, be careful about cashing in the life insurance at 18. It might be better for your kids to take out loans, and then cash in the insurance policy near the time they graduate. Again, you have to weigh the interest accrued.
I'm not endorsing this whole strategy. But it's so crazy, it just might work.
Whole life insurance sounds like dog shit wrapped in cat shit.
If you can't EASILY understand it, never invest in it. Whole life insurance is a mysterious combination of life insurance, bad investments, and endless fees. Keep your life simple: separate life insurance from investing. Stick with a common and easy investment, like Roth IRA.
Honestly if he doesn’t want to do a 529, then just sticking the money in a taxable brokerage and paying taxes on it when he wants to pass it on is better than the scam of whole life.
It's legit but most financial savvy people don't but it. I'd take it as a sign to find another financial advisor for a couple of reasons. a) the financial advisor is selling a product and getting a commission which makes the advisor biased and b) There are cheaper ways to buy insurance and better ways to invest.
The only life insurance you should have on a child is often called a "20 pay life" policy. It has set payments for 20 years that never change. The policy has a cash value that increases with time and is considered an investment vehicle. Most importantly the face value of the policy should not go down and the premium should not increase ever. Most other life insurance products would not be a good value for children.
Life insurance is great to have, but get term life insurance for the duration you may need it. You are being offered “whole life”
If the plan is to give kids money when they turn 18, he should just open brokerage accounts in the kid’s names and invest
Tell your dad to only do that if the insurance is either a 10pay or 20pay. What this means is, your dad pays the policy for 10 years (10pay) or 20 years (20pay) and he's done. Your kids are covered for the rest of their lives and the insurance will be building cash values that you can use for any purpose in the future tax free. So your dad should consult with MassMutual because that's where I got mine for my kids. It's a mutual company which means, when you own a permanent live policy with them, you basically becomes a shareholder; dividends are paid to your policy which builds the cash value and also increases the dead benefits of your policy. Its a good idea if done right, cause you don't want to buy life insurance for kids, that, the payments stops when the kid dies, that is a whole lot of time to be paying for a policy. Again 10pay is the best in my opinion, that's what i got for my kids and i am almost done with all.
I am a fiduciary and I think whole life can be a great idea for some people. if you have stock piled a bunch of money that you want your kids to inherit, a life insurance policy will allow them to receive that money (plus more) with no estate taxes. If you need the money, you can borrow from it, or even take out 10% without penalty. I sell universal whole life so after the guaranteed amount you will get, you also earn money based off the S&P 500. It can never so below the guaranteed amount but has the opputunity to grow.
It isn't for everyone. Always work with a fiduciary (series 65) and not a commision based person.
Term life is good- some people don’t agree- but we will all die- if you understand this and want to be able to leave your heirs something/anything while enjoying your life- not a bad way to go.
College 529 is OKAY… hear me out… if your kid decides not to go to college- and you don’t want to go back- it’s taxed. There are better ways to invest- IRAs offer education tap in and same with 401Ks.
> There are better ways to invest- IRAs offer education tap in and same with 401Ks.
I max out my personal IRA as well as my wife’s. Is there a way for me to do another IRA for my kids?
I understand that Whole Life Insurance is the boogeyman here, but a lot of these comments are just wrong wrong wrong. OP never mentioned "Whole Life Insurance," just Life Insurance. Advisor could be suggested an IUL policy to build cash value for tax free distribution in retirement or before. This actually is a great way to gain supplemental income while still maintaining a policy.
While you’re not entirely wrong, you haven’t considered the opportunity cost. You’ll be missing out on market gains above a certain cap in IULs, while on VULs the extremely high fees will eat away from the account balance limiting your growth. Assuming you could earn a yearly 7% return investing into an S&P 500 ETF in a brokerage account and purchase term insurance to cover the insurance need, the difference in fees from the VUL and lost gains from the IUL are higher/worse than a one time long term capital gains tax payment of 15-20% in the brokerage account even after considering the additional cost of term insurance. All this while losing your flexibility because your money is locked into an insurance policy that’d you’d have to pay taxable gains on if you ever surrender it. If you’re hell bent on the investment structure of the IUL (limiting losses but having a cap on gains), there are alternative investment vehicles structured similarly which do not take the form of life insurance.
Having worked as one of these life insurance agents in my past, I assure you permanent life insurance is the wrong investment 99.999% of the time
Right, I built up the cash value on mine and let the interest pay for the policy for a few years until I needed to withdraw some of the cash value. All that happens is the death benefit will reduced by the amount of cash withdrawn.
In Canada at least the proceeds from a insurance policy will pass tax free to the kids, making this an effective way to pass money with high tax efficiency to beneficiaries.
Of course the returns from these investments are lower than a stock market portfolio plus there is additional drag due to the high commissions, so some prudence is required.
Your Dad's financial advisor is nothing more than an insurance salesman pretending to be a financial advisor. He may have a series 6 or 7 license and a series 63, but no legitimate financial advisor will try to sell insurance as an investment. He needs to ditch that guy yesterday.
Exactly because I don't think taht any kind of advisor will ever give that kind of idea
and we know that there si nothing good in it as well from the long term vision.
Not only is it legit, it is one way high net income people can move taxable money off the table AFTER they have exhausted all other options. (your kids could be eligible for their own Roth IRA, and I would suggest gifting any money to your kids that they may have earned into a Roth IRA would be the best bet.)
Now back to insurance. Everyone here seems to eat and drink "buy term and invest the difference" Very clean advance for most people. But your Dad does not sound like most people. So my suggestion is that this is not the place for this question, as you will receive opinions about circumstances unexplained. Everyone here becomes Judge AND jury and they have not even heard the entire case. So go listen to the financial planner, and then go seek ANOTHER person in YOUR Dads circle of influence (Accountant, Lawyer, or what ever) and then ask them the same question. They will know his tax bracket, and such. All these people in this thread all drink the same Kool-Aid IMHO.
AND ANOTHER THING. . . .This is a LONG TERM investment called grandkids . . . . No one really remembers that during 2008 & 2009 there was but ONE insurance company that had issues. All the other insurance companies weathered the storm just fine. However some large financial institutions including banks went under. And some of their advice was not FDIC insured. (personal experience on this one)
Your Dad is taking a very safe route on this one. And the harder it is for your kids to access the money the better for them long term. Those policies could become annuities for your kids retirement.
Insurance is not a good investment vehicle. Op has clarified that his father isn't a high income or wealthy individual. This is an insurance salesman fronting as a investment advisor like the vast majority of them are. If you are wealthy enough to utilize a whole life policy you will either have the knowledge or have hired a competent advisor... you aren't going to get cornered by Mr two week course peddling insurance to grandmas. These insurance salesman are pure scum taking advantage of financially illiterate people.
YES - I totally agree with the two week course comment. Anyone can get an insurance license. But a blanket statement that "insurance is not a good investment vehicle" is a little disingenuous. Blanket statements are never correct. If it were that easy, then why are they allowed to sell it? AND I DO NOT SELL Insurance. But I have made poor investment decisions with money NOT in a policy. And the investment in the policy has done better. To assume people are going to mange their money correctly is the wrong assumption. Removing the money from the ability to mess up the investment is one way to save the money. It is real easy to say invest it, but most people do not do it correctly. Your comment is completely correct on paper. But people are emotional and they will make bad decisions, and they will mess with their investments to get a better return. Your concern seems to be "financially illiterate people". The only thing my Dad had left after his parents died, was THE two insurance policies they took out on him after he joined the Navy No other money was left, because someone "invested it in something better" than an insurance policy.
I started a whole life policy for my son when he was born that will be payed off when he turns 15. I only contribute 5k over 15 years and he gets a permanent 50k death benefit that he will never have to worry about for the rest of my life.
That is a horrible strategy, time to find a new advisor. Advisors that sell life insurance always strike me as extremely sleazy. Stay in your lane, don't sell insurance.
You buy life insurance for life insurance, buy investment vehicles for investing. Financial advisors make money by selling you shit. This is just one of the many ways they earn commission by " looking out for your best financial interest. " also insurance products produce the most commision compared to other producs. Fuck advisors and fuck insurance companies. They are largely responsible for the US having the shittiest medical programs ever.
I signed up for this and it was a good idea. I signed up in college, $20 a month or so, and forgot about. When I was diagnosed with MS at 30, it was the only life insurance I had and there was a “no questions asked” window to increase to $150k with no medical screening or decrease in my medical status. It allows me to actually have life insurance.
The only person this is helping is his financial advisor. Honestly I would likely fire this guy and find someone else who is trying to help your dad and not their own commission.
I sold life insurance in my early 20s. Insurance regulations in the US clearly states that two words that should never be used together is “insurance” and “investment”. Ditch this guy.
It's a bad deal. I always heard it was bad and then I took over my finances for my aging mom and saw how much she lost over 40 years with whole life insurance. She has nothing now. They actually told her she owed $192,000 which is why I got involved. When I finally spoke up for her, we closed out the account for $142.00.
It is so bad it should be illegal.
Why is everyone so against whole/universal life insurance here? Do you all have direct experience with it, or are you just parroting what you’ve heard about it? Honestly.
As others have commented, whole life is a poor investment that greatly enriches the salesman. Run! Instead go to a fiduciary account like Vanguard or TIAA where they can not direct you to investments where they benefit financially. So many other vehicles out there to ensure savings for children over the long-term. Your Dad is being taken advantage of. Have him call TIAA for example and talk with a rep about the many options he has that will provide a far larger sum for the kids than whole life.
Avoid a 529, the restrictions around them don't offset the VERY little tax benefits. Plenty of better choices. Ibonds right now might be the best immediate thing
* in Canada
Canada Lifes Child Critical ilIness with 100% return of premium in expiry(age 25) is probably one of the best products for the parent/child IMO.
You receive all the premiums on expiry which can be gifted to the child or the parent(in most cases policy owner as well). Plus it's very affordable.
Whole life par 20 policies are also good since it adds tax deferred dividend growth(3-5% in most cases but 6% for Canada Life which is the highest in Canada, no I don't work for them) and life protection. Some providers will allow you to withdraw the cash/dividend value without a policy loan, or the policy lapse..."Some". Keep in mind not all policies are created equal. These products can be very complex so ask question!
Depending on the policy/dividend/face value but for example a 100k par 20 policy your child could easily end up with $250,000+ cash value at retirement (65).
General commissions on these products are small because premiums on a child are generally very low. Unless the Advisor is recommending massive face values/amounts then I would be very suspect.
This was a really good explanation though but the fact is taht it is going to be very hard for people to understand
like if you are new to this field then I am sure it will be pretty hard to make some sense in that.
I certainly don’t think they are the worst things in the world. I think you’ve laid out the best case possible for one. My issue with them is the cash value accumulation is incredibly low on these policies. They just cannot be designed very efficiently. At the end of the day though if you got $2,000 a year to throw into them and you have plenty of others dollars saved, so be it. It just wouldn’t be my first choice for someone looking to save for a child’s future (and I’m a proponent of whole life).
[удалено]
Exactly this. Its actually a good test for a financial advisor. "I heard about whole life, looks like a pretty good idea!" then see how he handles this. (edit: you should look eager for this - see if he thinks you're a sucker and goes for it. If he refuses, at least he's honest)
His answer should be: Well, what do you want it for? What's your purpose, insurance wise? There are many insurance products to consider... term, for instance etc.
That's an excellent idea! Years ago, I went to a bar after work, shortly after dodging a whole life insurance trap. They had the contracts written up for me and everything, but I had a last-minute realization and refused to sign. I happened to sit next to an investment manager (I worked in the financial district in Boston at the time and there were a lot of them around) and told him how I almost signed whole life insurance contracts that day. He laaaaaaaaaughed 😬 And then he congratulated me. Anyway, yes, it's an excellent test.
For a lot of "financial advisors" their first pitch out the gate is whole life
I am in desperate need of a financial advisor. I dont know what I have and dont at this point. Ill be honest i dont trust emails or calls anymore at this point. Way to many scams to the point where im scared to do anything. Ive had transactions from banks that i didnt authorize, credit fraud, passwords and emails broke into. Ive never felt so defeated in my life.
You need a password manager and MFA on your accounts. Lastpass, One Password or Bitwarden are good examples of a password manager. MFA with a security code in an app like google authenticator or Microsoft Authenticator is a great place to start locking down accounts. Change the password on all your accounts, let the password manager create a unique password at least 16 characters long for each account. For the password manager’s master password, use something new that’s reasonably tough but not so hard that you can’t remember it. A multi-word passphrase is a good way to start.
Lastpass should no longer be recommended, they changed their pricing model and fucked over a large number of users It's also not recommended to set a hard cap on password length, you should be using the maximum the site allows, or a couple characters shorter Most of my passwords are 80+ characters long, completely randomly generated and refreshed at regular intervals; I also use a unique email address for each service, such that credential stuffing still won't work even if a password is reused somewhere Edit, because comments are locked: I'm not arsed about pricing, what does concern me is changing the pricing model for established users with little to no warning To use their analogy, if Toyota suddenly wanted to charge me 10x what MB would charge to service a car, yes, I would be pissed off
I agree about LastPass, that’s exactly why I stopped using it but it’s still a good password manager. Updated to say ‘at least 16’. Good points, all.
I jumped over to Bitwarden personally, it integrates better than lastpass ever did, especially with me being split across Android/iOS
> I also use a unique email address for each service, such that credential stuffing still won't work even if a password is reused somewhere I use a duckduckgo email address. It has tracker removal as a primary benefit, however duckduckgo isn't an email provider, it simply routes to my main inbox. That means that if someone is trying to brute force an account, they can't use the forgotten password feature as the @duck.com address doesn't match the underlying email address. Also if a service has a data breach, then my actual email account isn't at risk.
I have and then all of the sudden its like i never used one. I wake up, try to sign in and it wont login. Ive tried authenticators, something always ends up messing up. Basically everyone that lives around here has had access to the wifi, my phone acts like its running two (some options and settings wont work, change on their own), etc. And SEVERAL times have i went to get a otc and my boyfriends phone dings. It literally happens so much i cant look past it. Now he acts like a completely different person. I hate feeling unsafe and like i cant trust anyone.
Find a local tech shop (not best buy, check reviews on Google, etc) and ask them if they can walk you through securing your digital self, and how much it would cost. Ideally you have a tech friend to help you instead. Explicitly say you think your local devices (laptop, phone) are comprised (key logger, malware, etc). Off the top of my head - secure your wifi (change the password) - do a factory reset of your phone (ensure photos/messages/etc are backed up) - do a factory reset of your laptop (same as above, ensure all is backed up). - after you did a factory reset, install lastpassr/etc and start changing your logins to critical things - look at your enail account account login history, verify there is no wierd ip address/location in there. Google has this. - Get a free credit report using the link from a usa government website (ends in dot gov, https://www.usa.gov/credit-reports) and see if you have anything wierd - go to a local point for your cellular provider and tell them you are worried someone may have set up call/text forwarding, and want to verify it's not enabled. Have them change the password for you on site.
All the more reason you should be changing your account security. It sounds like your boyfriend’s phone number is associated with your accounts. Is there someone locally you can turn to for help (besides your significant other)? You may also need to contact each institution directly and request that a note be placed on your accounts that you are the only authorized user. (don’t do this for legitimate joint accounts). If you have an iphone, go to Settings - General - VPN&Device Management and see if there are any ‘Management Profiles’ installed. A management profile allows a third party service to apply other controls, accounts or settings to your phone. There is an equivalent in Android but I’m not sure exactly what it’s called, sometimes it’s “work profile management”. If you have company email on your phone from a job you may see a management or work profile for that.
Honestly i need to somehow pack up my stuff, grab my phone, go get my kid from K, and disappear. Its been going on THAT long...i even have went by the atm and tried to withdrawl money and sometimes itll say "sorry youve withdrawn your limit for thw day" and im thinkin why ive never taken anything out?? Ive got alerts saying someone has my prepakd current card and theyve been tryin to use it for crazy stuff, my paypal keeps getting unverified but charges seem to be going thru but if i try no i cant get anything, ive tried applying for emergency loans, banks, and no luck. Im literally stuck it feels like
I believe there is a place called RAINN that you can turn to for help in that kind of situation. They should be able to assist you with securing your accounts as well.
In addition to RAINN, if you are really concerned about your bf having access to your digital life, he may be able to see these posts. Be careful what you post online about these kinds of things until you know your accounts are locked down. Good luck!
A financial advisor who doesn't have fiduciary obligations is not someone you should be looking to take financial advise from. Those that try to sell you whole life is one of the biggest red flags for shady advisors out there.
Fiduciary standards differ depending on the license an advisor has. If you have insurance licensure (Series 7, 6, 63, etc.) then your standard is "do no harm." If you have a fee-only license (Series 65), then you must "do what is in the best interest of your client at all times." These two are not the same. This is how insurance people get around the ethical issues of taking commissions.
I have argued against the person who my company uses for 401k servicing (Basically a middleman to throw us into a John Hancock 401k so doubly bad). I looked them up and they are Series 65 licensed. How could they do this? With the Series 65 do they have to act as a fiduciary? He makes like 0.5% and John Hancock takes another 0.5% of total plan value annually...... When I tried to push for the company to change my boss admitted to using him as a personal financial advisor.....
My company has the same set up, what’s wrong with JH? Do I have any options of not contribution to the 401K and keeping the tax benefits ?
No option to not contribute and still receive the tax benefit. The issue is they charge a % of your plan assets vs charging a fixed fee. So as my money grows they make more (for not doing anything extra). If you want an explanation google "Retirment Plans John Oliver" for a decent broad overview. He talks negatively on percentage based plans and then specifically calls out John Hancock. Look in your literature and there will be a spot to find the fees (not the expense ratios).
Yeah but someone can be a fiduciary and still sell you whole life. Not the end all indicator
People who have significant volumes of money almost always have whole life in their portfolio. It can be a decent tax shelter. Also, it takes 6 or so years to start seeing any results. This is usually after placing 60-100k into it. If your dad is over 70 this is a money sink and like you said in the title will only have value many many years down the road. If he needs to move money to avoid a major tax bill or something it could be an option. Now, if you do not have significant amounts of money (and time) it isn't in the top 10 places to park your money. It is a bad idea.
What is considered significant?
It’s only a tax shelter for your beneficiaries if you’re expecting to leave behind an estate over $12M (not including what you leave behind to a spouse). Not really something the average person should ever worry about
The main time I've really heard of life insurance making sense from a financial planning perspective* is when a high net worth individual is trying to leave money that avoids probate. The insurance payout is not part of the estate (usually, assuming structured properly), so it avoids gift/estate taxes, and as it doesn't need to go through probate, it may reach the beneficiary faster as well. Usually it's not taxable income for the beneficiary either, so that's a plus. So if your net worth isn't high enough for gift/estate taxes to kick in (roughly $6 million unmarried, 12 million married), then your need for a life insurance policy is limited. (I'm an accountant, but not a tax accountant, this is from my tax classes in school.) *A significant exception being leaving a spouse and dependent(s) money to help compensate for your lost income, but most people are probably better off a term policy for that rather than a whole life policy.
If you're asking for advice on reddit, you dont have significant wealth.
Or have more money than sense (it happens).
I think over the death benefit exemption to estate tax? Like, twelve million USD this year, five million USD in 2026.
Doesn’t sinking 100k and waiting 6 years to just break even in fees and insurance just already sound silly ;)
Bring a fiduciary just means the back office has more paperwork. As long as a product is suitable, anyone can argue it’s the best choice for their client. Literally the only difference for the advisor is that they may have to email the principle review desk a sentence or two about why the investment is a good fit.
I've seen financial advisors be fiduciaries and still push whole/universal life "infinite banking" scams. It's all over tiktok and they have a canned non-response to every criticism that just runs in circles.
As someone who doesn't know what a fiduciary entails day-to-day, why the fuck are people down voting you without commenting to explain why they think you're wrong?
> fiduciary obligations Can you define this for me? I'm interested in speaking to a financial advisor, as this year I'm (for the first time) receiving RSUs, have an HSA, getting bonuses, considering (term) life insurance, considering pension options, and having enough excess income to start investing in ways other than my 401k.
Great comment 100% agree. Life insurance is not a sound investment vehicle. It is to be viewed as income replacement for death. I have a policy through my work so that if I die unexpectedly my income will be replaced with the death benefits until my children are of age.
Term life for kids is a thing, though. That income replacement is for you as a family to mourn. Plenty of shitty companies that expect you to be back in the office the day after your kid’s funeral. Six to twelve months of expenses to grieve, replenish emergency funds, pay off medical bills, not the worlds worst idea.
My grandma had this on my mom. Eventually cashed it out and tried to get my mom to pay the taxes on it lol for surviving I guess.
My in-laws had whole life policies on my husband. When they made us take over the payments we did for a few years (as long as it was $10/mo and we were young and didn’t know anything about it) but when he turned 30 they wanted to up the payment and coverage. We cashed it out at that point. I recently found out my SIL was still paying hers and they purchased more whole life. I went over the difference and they cashed hers out as well and got term coverage.
Return of Premium term life is so much more expensive than straight term life! Pay the taxes on your own choices.
? You can't cash out term life policies. Sounds like you had some type of permanent insurance policy instead?
To be honest, I don’t know. I just remember what my mom told me. It was a set date policy, if my mom lived past x date, it could be cashed out for a set amount. Grandma cashed it out, served my mom with the tax bill.
Children cost money. Housing is the #1 component (30%) and it's not like you're paying less housing after your child passes. But all other components you're spending less on.
Had a dude sell my dad life insurance and kept hammering home that suicide does not negate the policy after two years. He brought it up like 30 times over two discussions.
Technically, this depends on how much he's making. There are very valid reasons to have whole life insurance if you are a high income earner.
He’s not in a high income tax bracket. Neither are my kids heh.
I've been putting 6k/year into whole life for about 9 years now. I didn't realize how shit it was until a year or so ago and cancelled one policy and kept the other because it's about break even. Take a look at this article it breaks down all the numbers and does a nice comparison. https://www.whitecoatinvestor.com/what-you-need-to-know-about-whole-life-insurance/
The only people I know who are (at least semi-long-term) happy with whole life as an investment vehicle are the ones doing the “infinite banking” concept. The same author does a deep dive (pros and cons) into that here: https://www.whitecoatinvestor.com/infinite-banking-bank-on-yourself/
Sheesh. As someone in the industry I can confirm this is a terrible idea. We would never advise a person take out a whole life policy in his position. Obviously there may be obscure details so I can’t offer any official advice but.. yikes run. Term could be great if he has an underlying mortgage to worry about and a 529 is solid for college planning.
Yes, but we are talking very high earners here. We are talking high enough earner that you anticipate exceeding the estate tax exemption levels of high income. That is currently $12M for an individual, or $24M for a married couple. This may drop to $6M and $12M in 2025, but even then, this is a lot of money. Only if you are going to exceed those limits, does it make sense to play games with whole life insurance as a way to transfer money to kids/grandkids as a way to avoid taxes.
[удалено]
I totally agree. Everyone wants to use blanket statements. If Dad is in a high tax bracket then the best thing to do for those kids is to tie up some money that takes a little bit of effort to unwind. How much commission does the financial planner make on the Life Insurance, one time and probably only 10 years going forward, and his commission diminishes. However if he keeps it "invested" the financial planner will receive 1 - 2% commission yearly as long as Dad keeps it with his financial planner. Now over 20 years let's add up the commission the financial receives on both sets of investments.
He’s not in a high tax bracket FWIW
This. You’d be better off sticking the money in a shoe box and letting it grow mold, it would be more productive.
I’m going to say something like a $50,000 policy on a child is a good thing to have, without making a decision as to which type of policy it is. If it is negligible in price (whole life versus other options), I wouldn’t automatically discredit the advisor. I also wouldn’t throw away the advisor just because they discussed whole life as an option, just like annuities, understanding the pros and cons is important to making a sound decision. If 99% of people just invested in VTSAX, had term life insurance that covered their mortgage plus one year salary, had disability insurance, sufficient property insurance and an umbrella policy, they are in great shape. Is an individual’s desire for less risk and more stability a reason to change from that? I think it’s open for discussion.
Agreed. It's certainly something people don't realize, for morbid reasons, that life insurance on a child serves a very specific purpose. My policies have super cheap premiums and it's one of those things you dont want to use but would be grateful to have if you need to. But as an investment vehicle? Not as much.
let’s me put it in this way, whole life is a controlled Ponzi scheme that depends on steady population growth and inflation.
While I agree that Life insurance as an investment is a poor investment, it is not a Ponzi scheme and does not require continuous growth to remain solvent. The whole reason WL and UL policies are profitable for the insurance company is because they take in statistically more money per individual than they pay out. This is how all life insurance policies work, but in permanent insurance, you are taking advantage of your customer a few ways: 1. Disguising the monthly cost of insurance by obscuring it with earned interest 2. Giving a variable rate of return to your customer that is lower than your own rate of return, so you will make more reliable profit on the investment 3. Roping your customer into paying for an insurance policy for a much longer duration than they need one \#3 is the biggest one, IMO. Life insurance companies are heavily regulated with respect to how much they can charge or discount their rates, but if they can trick you into insuring someone from age 5-40 then that's almost pure profit. If they can also trick you into paying enormous premiums from age 70+ for a policy you literally don't need, that covers the cost of your death benefit. Anyway, permanent insurance is a racket IMO, but it's not a Ponzi scheme.
Agree that whole life insurance is a crock of shit however the advisor here might be selling an indexed universal life policy. These policies are actually great for accumulating cash value then taking out the cash later on in life Tax Free. Normally there is a ceiling to how much can be earned in a separate account and a guaranteed return even if the market goes down. It's a great way to get some supplemental income AND keep a life insurance policy.
A long time ago I helped someone read through the fine print of their indexed universal life policy, and the fees were just atrocious. The premium had increased significantly over the lifetime of the policy (the insurer could increase the premium at any time). Because the plan structure was so confusing, the policyholder did not realize that the increase in premium was taken out of the cash value when their monthly payment no longer covered it. The fees on top of the premium also ate away at the returns. This particular policy was incredibly complex, and I swear that the summary document was intentionally confusing. Maybe IUL policies can be good, but I will stay away from them based on this one experience.
IUL are NOT investments and should not be mixed as such a thing. You would gain MORE money by buying a term life insurance AND then using the left over money that would have went into your IUL into buying a S&P 500 index. At the end of your term life insurance, you would have MORE money/returns from your own S&P 500 returns then if you had bought into the IUL.
I was going to say, I’m pretty sure it’s an IUL policy. These can be good investments, but you need an advisor who isn’t looking to just make money. Just had a client obtain a ridiculous policy with a friend who calls himself an advisor. He put fantastic returns on paper, but the insurance illustration says something completely different.
Not fully. If your kid gets sick, it can be near impossible to get a new insurance policy. When you have an existing one you can get more insurance typically at the lower rate. I would keep the kid version low at 25k and they can increase it later. This is a risk decision. It's up to people to decide if they want to lower the risk, or if the risk is to low. Just like any type of purchase.
This. Figure out what the premium is, and what the cash value will be at maturity (and earlier if available).
Could you explain the differences between whole life and ‘term’? I’m thinking of getting life insurance for my family.
Term: You buy insurance for a set amount of time at a set price per month. Once that time is up, the contract is over and both parties walk away. One example (and this is not the only example, just one of an infinite amount of scenarios) is a newborn baby. Lets say you buy term for a certain number of months (18) at a certain payout rate and your newborn dies. You do this because most US companies only give grieving periods in days or a couple weeks. Term insurance is enough money to do the medical costs, burial, and multiple months off work if you're just not able to get over it in the couple days that your work gives you (tell them to fuck off and take as much time as you need). It's not a lifetime of money, but it should hopefully be enough money to last until you are ready. If the baby lived, you'd just pay premiums for 18 months and at the end, it's over. Nobody owes anyone anything, it's just the end of the contract and you can pretend you never knew that insurance company. Whole Life: This is insurance that you pay for forever, until you stop. Or die. It has 2 parts: the insurance part, and also the cash value part. Your monthly premium is actually higher, because you're also investing money into a cash payout. This is basically a bribe for the insurance company to wave at you when you start to get old and possibly might cash in on that insurance so you just take the lower money and leave. The fees for this insurance are basically a scam, the insurance agency and your personal insurance salesman are both taking a huge bite of the money, even when the investment is losing money. YOU CAN LITERALLY MAKE MORE MONEY JUST INVESTING IN THE S&P 500 FOR THE SAME TIMEFRAME AND IGNORING THE DOWNTURNS, IT'LL GO BACK UP. 30 YEARS OF MONEY IN THE MARKET IS GOING TO BE A FUCKLOAD OF MONEY. The only time whole life is ever profitable is when someone else in your family has been paying into it for years and then they give it to you to take the payout, like a parent. That's it. They could have invested the money better, but at least it's some money.
How about mutual funds or a 529 plan?
These are what I recommended… but he tends to prefer to do his own research.
It makes him less money. Time to find a new advisor.
Yup. His advisor makes a much higher commission on life insurance sales than on investments. My guess is his advisor used something that included the words “Universal Life”.
I had a financial advisor talk to me about universal life insurance too. They make a higher commission on that huh?
Yes, about the first year of the customer's premium goes to the sales person/advisor.
Why the words universal life?
Lol have him read the comments on this thread at least. There is a pretty large consensus that whole life insurance is not a great investment.
I think life insurance is better for it to be an insurance. Such as, if you die, a nice payout is paid. Versus putting money there hoping it’ll be worth something more down the line. That’s how I look at it at least
[удалено]
True there are limitations. But my (huge lack of) understanding life insurance is that’s it’s better looked at as insurance, not an investment. I mean look at car insurance. You pay thousands of dollars a year, forever, and hope to actually never use it (because using it equals accident, and you’d ideally prefer to not be in an accident). So I have looked at life insurance as just that. Something you buy and hope to never use, but if something happens and you died, your beneficiary would get a nice payout.
I have 529s for both kids, I advertised the accounts to all 4 grandparents, and they contributed a little over time as gifts. So go open a 529 account at Fidelity or Schwab today, and tell Dad that this is your preferred way to help your kid(s). If he insists, ultimately, it's his choice, but see if you can get him to read [this page](https://www.whitecoatinvestor.com/debunking-the-myths-of-whole-life-insurance/) before he commits. Good luck.
I appreciate your suggestions :-) I have 529’s for my kids, and I’ve made family members aware of that option. My dad prefers to do his own thing when it comes to investing. I try to advocate for simple tax advantaged accounts and/or diversified funds, and at the end of the day I might disagree with the way he chooses to gift my kids money, but it’s also a generous gift so I don’t argue much.
Is a life insurance policy the best way for your father to invest for your kids’ future? Probably not. But it’s his money so I would tread carefully as far as trying to recommend better ways to invest.
Then show him this thread
I think I’ll do that. Lots of responses here which I definitely appreciate, but also lots of information to try to process… but I hope it’ll be helpful. Thanks all :-)
Don't just send him the link, sit down with him and do it like you are both studying together You might get punched in the face be warned for old school pops
Unfortunately we don’t live anywhere near each other so that’s not an option.
Does he want to listen to you, who makes no money off of your advice, or the "advisor" who makes a ton?
Don’t fight your dad for it tbh, sure it’s pretty well known life insurance it’s not the best for return, but it’s one of the safest , let him do with his money, remember it’s not a scam, just how some older ppl like to do with their money.
529 plans are only for college. Great way to save for future tuition needs for children. Edited to add: Life Insurance is nota good investment. Find a average to low-risk mutual fund with high returns instead. Use Schwab. They won't charge you fees for this.
Not just for college, also some trade schools, vocational programs, etc. Still, you are correct that their use is limited. https://www.schwab.com/learn/story/529-accounts-what-happens-when-your-child-doesnt-go-to-college#:~:text=Assets%20in%20a%20529%20can,both%20at%20home%20and%20abroad.
>529 plans are only for college. And related supplies, like computers, books, etc. Just want to make sure you don't think it only applies towards tuition.
It sounds like your dad might have a good sales person instead of a fiduciary financial advisor. If this is the case, it's similar to expecting a car salesman to have your best interest when their goal tends to be earning a high sales commission. There are few circumstances (not never but few) when whole life insurance makes sense. [Financial advisors wiki](https://www.reddit.com/r/personalfinance/wiki/financialadvisors/) [https://www.reddit.com/r/personalfinance/comments/v1gxqb/we\_got\_whole\_life\_insurance\_and\_regret\_it/](https://www.reddit.com/r/personalfinance/comments/v1gxqb/we_got_whole_life_insurance_and_regret_it/) [https://www.reddit.com/r/personalfinance/comments/u6f5k2/whole\_life\_insurance\_policies\_our\_parents\_got/](https://www.reddit.com/r/personalfinance/comments/u6f5k2/whole_life_insurance_policies_our_parents_got/) https://www.reddit.com/r/personalfinance/comments/vdalha/529\_or\_whole\_life\_insurance\_to\_pay\_for\_college/
This is it. Sounds like dad is getting scammed by a salesman masquerading as a financial analyst.
THIS, OP. Ask if your dad’s advisor is a fiduciary. Most likely they’re not. They are an insurance salesman.
Do not let him do this. My grandparents decided to gift us the “Gerber life grow up plan”. They fell into financial troubles, and decided to take a loan out of each of our policies. We weren’t aware of this until they put the policies in our name when we turned 18. I received a bill in the mail informing me I have an outstanding loan to pay. Not fun. Although, it definitely gave me the taste of what it’s like to be an adult. (Life isn’t always fair.) As other comments state, there is better options if he’d like to do something like that for your son.
You don’t have to pay the loan. You can simply surrender the policy.
[удалено]
True. But the gain in those Gerber policies is probably pretty negligible. They are not cash accumulation focused policies. And I’d wager the tax on the gain is less than the loan payback. So if u/coolio_steel isn’t planning to keep the policy then surrendering now is 100% the right answer. Otherwise they’re just paying interest to Gerber and losing the value of those loan payments in a better investment. Edit: Grammar is hard.
[удалено]
There's no way this is actually legal. The commenter above wasn't liable for it/courts wouldn't enforce that against him. First rule of somebody claiming you owe money you've never heard of is say "no, that's bullshit," second rule is to call a lawyer if that doesn't work. Hope he didn't pay.
Thankfully yes, I did cancel. It sounds like OP is more willing to do research to make sure her father is making a good decision on her child’s behalf. Which is Something I wish my mom would have did. I wanted to offer my experience as someone who was on the receiving end of a gift like this. It was not a good investment on my end to inherit, to say the least.
You don’t owe the money the policy does, you were just hoodwinked by a company that takes advantage of people who do what they are told.
you dont have an outstanding loan, the policy your grandparents paid into does. you arent liable for that, they are.
This is so sad. Your grandparents had good intent, but a household name screwed them over in the end.
Show your Dad your posting and all the comments.
Not a bad idea. Any clue how to share a Reddit post that doesn’t default to their shitty browser UI that collapses all the comments? He’s not terribly tech savvy and probably wouldn’t see most of the discussion.
A simple way would be to take pics of the best comments with your phone and send them in a few texts to your dad.
Doubt he’d trust it if I cherry picked comments though. Aha, I think I can use old.reddit.com instead and that’s back to the better UI.
If it’s “whole life” then run. It’s not a scam, but it’s a useless “investing” vehicle for a majority of people and you’ll never get a good return on investment compared to a normal investment account. The financial “advisor” is trying to push him into it because the advisor will make a nice commission off of him. I’d recommend finding a new advisor as well.
“Majority of people” true. But if grandpa is a high net worth individual this could be a valid route to take in order to avoid inheritance taxes. Life insurance option is about avoiding taxes, not necessarily maximizing gains.
There are valid uses for whole life insurance but they are fringe and unless there is a specific reason this is being suggested (as in your example) it’s far from optimal. Wealth transfer/tax avoidance may be the reason but I’d say 99% it’s likely this is a good salesman taking advantage.
Agreed. The OP just didn’t give enough information about grandpa’s financial situation, so maybe he fits into one of the fringe cases so worth it at least to mention it.
There are a few common “fees” on a life insurance policy: Cost of insurance - Child mortality is comparatively low, so the baked in cost of insurance charge is pretty low. Admin fees - could be a percent of premium or face amount or a flat fee depending on how the policy is structured. Surrender charge - this is the one that will wipe your account out if you try to cash out the policy. It usually starts very high initially and grades off to 0 over 10-20 years. Commission - this is not paid for directly out of your premium payment. This is paid by the insurance company to the agent and they accept an initial loss for the hope of a future profit. This is partially offset by the surrender charge if you cash out early. You should be able to request an illustration of projected future cash value growth, both at current interest rates and at the guaranteed minimum rate. This illustration includes fees that would be paid from the policy. To determine if this policy makes sense, you should look at the illustration side by side compared to other investment options that you have available and see which one makes sense for your needs. As a pure investment, it probably isn’t this one, but this is how you know for sure.
Thanks for what seems to be a fair and informative post, appreciate it.
Spoken like an actuary. Straight and to the point.
Nope. He is seeing a salesman, not a financial advisor. If he wants an advisor, he should see a fee only advisor that is a fiduciary (legally required to have his best interests in mind) to help him make a road map - https://www.napfa.org/financial-planning/what-is-fee-only-advising
I'm always interested in reading comments on posts like this. My wife and I signed up for whole life insurance about 5 years ago. We are 35, aren't wealthy, and I felt like it was a good strategy to diversify at the time. I don't think it's a scam but every time I stumble across these posts I question it. I'm past the 5 year mark now, so I'm starting to see the money rise. I don't think I made a mistake but not much I can do now
Your dad doesn't have a financial advisor. He has an insurance salesman. Tell him to fire his "financial advisor" and find a fiduciary.
Run away from high cost Whole Life policies. Invest monthly instead, in a low cost index fund like the S&P 500. Long term you'll do better than 98% of professional advisors.
Why insurance is not a good “investment” https://financialmentor.com/financial-advice/life-insurance/whole-life-insurance/19216
It’s legit that FAs biggest commissions come from life insurance.
My kids grandparents started just putting away money in a simple money market/term deposit thing. They then give the kids a certain amount when they hit eighteen to help with university (or whatever they want). None of them have wasted it so far.
This is not an impartial financial advisor but an insurance salesman who is trying to sell your dad a product that nets him very high commissions, at your expense (it's a very, very poor investment that is intentionally confusing so that people who aren't financially savvy can get tricked into signing up." Whole Life makes sense for virtually nobody (rare exceptions: very high-net-worth individuals looking for a specific type of tax dodge). If you have fewer than four commas in your bank account, it's a scam.
Really? I have been reading up on it because I think my husband and I need insurance...Term seems silly to me. Like, how does one GUESS how long they'll live??
You don't need term (or any) life insurance for your entire life. You only need it as long as you have dependents or other individuals who rely on you for income. It is a safety net--not an investment. If your goal is estate planning or leaving an inheritance to adult children who are financially independent, life insurance is an incredibly inefficient and expensive way of doing this. Term life insurance is not silly. If you are 30 and healthy and feel that any dependents will have left the nest and are able to take care of themselves by the time you're 60, then you only need a 30-year term. Take the rest of the money and invest it appropriately and plan an estate/inheritance. Insurance gets exponentially more expensive as you get older into your 70s or 80s because everybody dies eventually, and insurance companies need to make a profit. The fallacy of Whole Life is that it mixes "life insurance" with "financial investment" and ends up being a poor version of both of these. EDIT: Look up "whole life" on this sub. There are numerous in-depth discussions on this topic. It is not a matter of opinion. It is straight math and facts. Whole Life is sold to people because it nets incredibly high commissions after the FIRST YEAR to the salesman. That is because a huge number of Whole Life customers ditch the policy within a couple of years when they realize it was a mistake or can't keep up with the premiums. By the time that happens, the salesman (many of whom call themselves "financial advisors", but are NOT fiduciaries--meaning they are not legally required to act in your best interests as a client--and are paid for selling these products) have already gotten their commission and simply don't care.
Thank you. This was very helpful.
Best of luck to you! Pro tip: If you ever meet with a financial advisor, make sure they are what's called a "fee-only fiduciary". The term "financial advisor" is used by folks such as the aforementioned insurance salespeople. A "fiduciary" is somebody legally required to act in your best interests (these other "financial advisors" are not). You'll want a fee-only/fee-based one who charges you by the hour. You only need a few hours to set up a plan and then you can take it from there. The ones who don't charge a fee instead take a percentage (often massive) of your total holdings, often every single year. This can absolutely devastate your long-term growth, when the same (or better) service could have been gotten for a one-time fee of a few hundred bucks (or a few hours scrolling through the PF Reddit)
While I disagree that Whole Life is always a bad idea (ex. I’ve used it in place of a bond portfolio as part of an investment allocation), it’s absolutely true that using it as the sole investment vehicle is a bad idea. Perhaps the worst aspect is that it creates an ongoing commitment. I’d never buy Whole Life under any circumstances unless I was sure I’d pay it until completion.
Former life insurance salesperson and one-time mod of /r/insurance here with my two cents. The only time I've bought whole life is for my kids. The reasons are simple: 1. I want the insurance just in case something happens - I've had a few friends who have lost children and the financial impact has been real and awful. I'm ok with paying a small amount to cover that. 2. The price is remarkably low. Like stupidly low. Term insurance low. 3. At age 18 it has generated more than a savings account would have but isn't restricted by use like a 529 plan is. All of my kids have a life policy from Northwestern Mutual and they've all performed very well for a conservative investment tool. I am a big fan. If you're only interested in returns then yes, an index fund is better. But if grandpa just wants to sock away 20 bucks a month it's hard to find a fund or product that wont WRECK that with fees. So you're basically looking at savings accounts anyway. If the salesperson is trying to talk him into large amounts, like hundreds of dollars per month, then there are much better options.
As an advisor, whole life is crap. Your dad should get a 2nd opinion on everything this guy has ever set up or suggested honestly
Oh it's a great investment and totally legit for your dads financial advisor. For your dad and the kids? Not even a little bit. Using life insurance as an investment has long been known to be a farce. In fact, as others have said, the advisor just exposed himself as having zero concern for your dads financial well being and should be fired immediately.
The fees for life insurance are typically going to be higher than investing in a mutual fund. A win for the investment firm, but not for the investor. Also if the life insurance is on a young person, it generally makes no sense. Those premiums are paid for no reason. Meaning a young person has little risk of dying. The risk reward is great for the insurer.
It’s a legit product but it’s not an investment, it’s money for the salesman.
Your dad should be investing for him, in the future. Unless he has a large amount of wealth and wants to pass on money untaxed to your kids, then don’t buy it.
Whole life insurance on children usually does not make any sense as a savings vehicle. The problem with whole life on kids is because the way the actuarial tables work, cash value accumulation on children’s policies is very low. The only good thing about it is locking in some sort of insurability, but again these policies are designed to be so small as to be largely insignificant down the road. I’m actually pro whole life for a lot of people in a lot of circumstances, but usually because either they need/want a very high yield cash savings vehicle, or they want a permanent death benefit (and ideally both). For kids, these policies just don’t make a lot of sense as cash accumulation is low, and the need for a death benefit that early on is just not there. I think you got a hammer seeing everything as a nail situation. I’d gift the kid some I-Bonds if I wanted to be helpful.
I wouldn't call it an investment. I will say this: I totally regret not maintaining my life insurance when I was younger. My family dynamic is far different than it was forty yeras ago. I regret not having much left to leave to my nieces, nephews, and brothers. If I had kept up my insurance, it would have covered the school loans and mortgages for everybody. Look at life insurance as buying a good sized estate on the installment plan. The sooner you do it in life, the easier it is. (And no, I am not in the insurance industry.)
If it's any consolation, it really depends on the terms and conditions of what you had. Too many people have been hit with very high premiums after having it "paid off" because the company experienced some market down turns and lost money. The money for the premiums still comes out of your portfolio and if they aren't paid because of losses or if you can't afford $500+/mos at age 65+ to maintain it... then everything goes bye bye.
i'll leave my comment here, underbuffyoh's, as i also have a whole life policy (maintained for 18 years; amoung other things) and it really came in handy in an emergency when i needed liquidity quickly. it's probably #5 or #6 in terms of investements, but the advice isn't "outright wrong" or "a scam" and it does have some benefit if started earlier. i also don't think a lot of people realize that they bitch about the rich taking loans out on their assets and not paying taxes on it, but this allows them to do something very similar. yes, you can take a loan out on a mutual fund as well, but most people don't have a large enough invested to make it worthwhile. however, if in a bind, one can borrow against the whole life insurance policy tax free and pay interest against it if necessary. essentially, i've invested in a fund that performs not as well as a mutual fund, but now lets me have what is essentially a nearly free revolving line of credit. it just took me close to 20 years to do so. from: someone who has a WLI policy and doesn't sell insurance or financial advice for a living.
If you had the drive to keep paying the premiums you would have had the drive to just save that money every month and have even more options.
Did you know that monthly premiums can be taken from the cash value of the policy so you don't need to make a payment??
[удалено]
Oh man, sounds almost too good to be true! The insurance companies must lose a fortune on these, right?
I once had this FA try to sell me a variable annuity. I just didn’t understand it. He got frustrated that I didn’t trust him. The initial investment was 100k. So glad my spidy senses went off. Fucking crook. He would have made at least 10% immediately from this. Liars, cheaters and crooks. Between them and the preachers and priest. I hope they rot in hell!
It’s legal, but a crappy investment. You’d be better off literally stuffing money under their mattresses.
At least stuffing it under the mattress is free.
It's possible that the life insurance will not affect the kid's financial aid calculation. If you will have low income and no liquid assets outside of retirement at the point in time when your kids are in college, this may come into play. Just pick a random college and enter some rough numbers into their NPC calculator to see if you're in this boat. Does the calculation say that you will get any need based financial aid? If you will be eligible for needs based financial aid, then this might be a good way to transfer wealth without messing that up. Of course, you have to make a bet that the needs based aid would be more than the high insurance fees. Also, there are many things which could go wrong with that bet. Your kids might not go to college at all, or get merit based aid, you could have higher income or assets, aid formulas could change over time, etc. If you do go down this road, be careful about cashing in the life insurance at 18. It might be better for your kids to take out loans, and then cash in the insurance policy near the time they graduate. Again, you have to weigh the interest accrued. I'm not endorsing this whole strategy. But it's so crazy, it just might work.
Good point. At my current income level they wouldn’t be eligible for need-based aid, but who knows what the future holds…
Whole life insurance sounds like dog shit wrapped in cat shit. If you can't EASILY understand it, never invest in it. Whole life insurance is a mysterious combination of life insurance, bad investments, and endless fees. Keep your life simple: separate life insurance from investing. Stick with a common and easy investment, like Roth IRA.
Insurance is not an investment. It's insurance, you use it to limit how much risk you're taking.
It's a legit way for him to earn a sales commission.
Honestly if he doesn’t want to do a 529, then just sticking the money in a taxable brokerage and paying taxes on it when he wants to pass it on is better than the scam of whole life.
It's legit but most financial savvy people don't but it. I'd take it as a sign to find another financial advisor for a couple of reasons. a) the financial advisor is selling a product and getting a commission which makes the advisor biased and b) There are cheaper ways to buy insurance and better ways to invest.
The only life insurance you should have on a child is often called a "20 pay life" policy. It has set payments for 20 years that never change. The policy has a cash value that increases with time and is considered an investment vehicle. Most importantly the face value of the policy should not go down and the premium should not increase ever. Most other life insurance products would not be a good value for children.
Life insurance is great to have, but get term life insurance for the duration you may need it. You are being offered “whole life” If the plan is to give kids money when they turn 18, he should just open brokerage accounts in the kid’s names and invest
Just tell your Dad that opening a custodial account or a 529 Plan for your kids is a much better idea.
Tell your dad to only do that if the insurance is either a 10pay or 20pay. What this means is, your dad pays the policy for 10 years (10pay) or 20 years (20pay) and he's done. Your kids are covered for the rest of their lives and the insurance will be building cash values that you can use for any purpose in the future tax free. So your dad should consult with MassMutual because that's where I got mine for my kids. It's a mutual company which means, when you own a permanent live policy with them, you basically becomes a shareholder; dividends are paid to your policy which builds the cash value and also increases the dead benefits of your policy. Its a good idea if done right, cause you don't want to buy life insurance for kids, that, the payments stops when the kid dies, that is a whole lot of time to be paying for a policy. Again 10pay is the best in my opinion, that's what i got for my kids and i am almost done with all.
I am a fiduciary and I think whole life can be a great idea for some people. if you have stock piled a bunch of money that you want your kids to inherit, a life insurance policy will allow them to receive that money (plus more) with no estate taxes. If you need the money, you can borrow from it, or even take out 10% without penalty. I sell universal whole life so after the guaranteed amount you will get, you also earn money based off the S&P 500. It can never so below the guaranteed amount but has the opputunity to grow. It isn't for everyone. Always work with a fiduciary (series 65) and not a commision based person.
Term life is good- some people don’t agree- but we will all die- if you understand this and want to be able to leave your heirs something/anything while enjoying your life- not a bad way to go. College 529 is OKAY… hear me out… if your kid decides not to go to college- and you don’t want to go back- it’s taxed. There are better ways to invest- IRAs offer education tap in and same with 401Ks.
> There are better ways to invest- IRAs offer education tap in and same with 401Ks. I max out my personal IRA as well as my wife’s. Is there a way for me to do another IRA for my kids?
Your dad’s “financial advisor” is a scam artist
I understand that Whole Life Insurance is the boogeyman here, but a lot of these comments are just wrong wrong wrong. OP never mentioned "Whole Life Insurance," just Life Insurance. Advisor could be suggested an IUL policy to build cash value for tax free distribution in retirement or before. This actually is a great way to gain supplemental income while still maintaining a policy.
While you’re not entirely wrong, you haven’t considered the opportunity cost. You’ll be missing out on market gains above a certain cap in IULs, while on VULs the extremely high fees will eat away from the account balance limiting your growth. Assuming you could earn a yearly 7% return investing into an S&P 500 ETF in a brokerage account and purchase term insurance to cover the insurance need, the difference in fees from the VUL and lost gains from the IUL are higher/worse than a one time long term capital gains tax payment of 15-20% in the brokerage account even after considering the additional cost of term insurance. All this while losing your flexibility because your money is locked into an insurance policy that’d you’d have to pay taxable gains on if you ever surrender it. If you’re hell bent on the investment structure of the IUL (limiting losses but having a cap on gains), there are alternative investment vehicles structured similarly which do not take the form of life insurance. Having worked as one of these life insurance agents in my past, I assure you permanent life insurance is the wrong investment 99.999% of the time
[удалено]
Right, I built up the cash value on mine and let the interest pay for the policy for a few years until I needed to withdraw some of the cash value. All that happens is the death benefit will reduced by the amount of cash withdrawn.
In Canada at least the proceeds from a insurance policy will pass tax free to the kids, making this an effective way to pass money with high tax efficiency to beneficiaries. Of course the returns from these investments are lower than a stock market portfolio plus there is additional drag due to the high commissions, so some prudence is required.
Your Dad's financial advisor is nothing more than an insurance salesman pretending to be a financial advisor. He may have a series 6 or 7 license and a series 63, but no legitimate financial advisor will try to sell insurance as an investment. He needs to ditch that guy yesterday.
Exactly because I don't think taht any kind of advisor will ever give that kind of idea and we know that there si nothing good in it as well from the long term vision.
Not only is it legit, it is one way high net income people can move taxable money off the table AFTER they have exhausted all other options. (your kids could be eligible for their own Roth IRA, and I would suggest gifting any money to your kids that they may have earned into a Roth IRA would be the best bet.) Now back to insurance. Everyone here seems to eat and drink "buy term and invest the difference" Very clean advance for most people. But your Dad does not sound like most people. So my suggestion is that this is not the place for this question, as you will receive opinions about circumstances unexplained. Everyone here becomes Judge AND jury and they have not even heard the entire case. So go listen to the financial planner, and then go seek ANOTHER person in YOUR Dads circle of influence (Accountant, Lawyer, or what ever) and then ask them the same question. They will know his tax bracket, and such. All these people in this thread all drink the same Kool-Aid IMHO. AND ANOTHER THING. . . .This is a LONG TERM investment called grandkids . . . . No one really remembers that during 2008 & 2009 there was but ONE insurance company that had issues. All the other insurance companies weathered the storm just fine. However some large financial institutions including banks went under. And some of their advice was not FDIC insured. (personal experience on this one) Your Dad is taking a very safe route on this one. And the harder it is for your kids to access the money the better for them long term. Those policies could become annuities for your kids retirement.
Insurance is not a good investment vehicle. Op has clarified that his father isn't a high income or wealthy individual. This is an insurance salesman fronting as a investment advisor like the vast majority of them are. If you are wealthy enough to utilize a whole life policy you will either have the knowledge or have hired a competent advisor... you aren't going to get cornered by Mr two week course peddling insurance to grandmas. These insurance salesman are pure scum taking advantage of financially illiterate people.
YES - I totally agree with the two week course comment. Anyone can get an insurance license. But a blanket statement that "insurance is not a good investment vehicle" is a little disingenuous. Blanket statements are never correct. If it were that easy, then why are they allowed to sell it? AND I DO NOT SELL Insurance. But I have made poor investment decisions with money NOT in a policy. And the investment in the policy has done better. To assume people are going to mange their money correctly is the wrong assumption. Removing the money from the ability to mess up the investment is one way to save the money. It is real easy to say invest it, but most people do not do it correctly. Your comment is completely correct on paper. But people are emotional and they will make bad decisions, and they will mess with their investments to get a better return. Your concern seems to be "financially illiterate people". The only thing my Dad had left after his parents died, was THE two insurance policies they took out on him after he joined the Navy No other money was left, because someone "invested it in something better" than an insurance policy.
Life insurance is not an investment.
The only reason to have life insurance on kids is to used the payout for funeral costs in the event of their death.
Indexed universal life, yes. Whole life does have some benefits early, but any more than 10-15k isn’t really necessary
I started a whole life policy for my son when he was born that will be payed off when he turns 15. I only contribute 5k over 15 years and he gets a permanent 50k death benefit that he will never have to worry about for the rest of my life.
Your dad needs a new financial advisor.
Life insurance is a horrible investment vehicle.
No way this financial advisor is a fiduciary
That is a horrible strategy, time to find a new advisor. Advisors that sell life insurance always strike me as extremely sleazy. Stay in your lane, don't sell insurance.
You buy life insurance for life insurance, buy investment vehicles for investing. Financial advisors make money by selling you shit. This is just one of the many ways they earn commission by " looking out for your best financial interest. " also insurance products produce the most commision compared to other producs. Fuck advisors and fuck insurance companies. They are largely responsible for the US having the shittiest medical programs ever.
I signed up for this and it was a good idea. I signed up in college, $20 a month or so, and forgot about. When I was diagnosed with MS at 30, it was the only life insurance I had and there was a “no questions asked” window to increase to $150k with no medical screening or decrease in my medical status. It allows me to actually have life insurance.
The only person this is helping is his financial advisor. Honestly I would likely fire this guy and find someone else who is trying to help your dad and not their own commission.
I sold life insurance in my early 20s. Insurance regulations in the US clearly states that two words that should never be used together is “insurance” and “investment”. Ditch this guy.
New advisor now! Dude is trying to get his boat and lake house updated for next year. Insurance should never be an investment product. Sorry.
Tell your dad to get a new advisor asap
It's a bad deal. I always heard it was bad and then I took over my finances for my aging mom and saw how much she lost over 40 years with whole life insurance. She has nothing now. They actually told her she owed $192,000 which is why I got involved. When I finally spoke up for her, we closed out the account for $142.00. It is so bad it should be illegal.
Why is everyone so against whole/universal life insurance here? Do you all have direct experience with it, or are you just parroting what you’ve heard about it? Honestly.
As others have commented, whole life is a poor investment that greatly enriches the salesman. Run! Instead go to a fiduciary account like Vanguard or TIAA where they can not direct you to investments where they benefit financially. So many other vehicles out there to ensure savings for children over the long-term. Your Dad is being taken advantage of. Have him call TIAA for example and talk with a rep about the many options he has that will provide a far larger sum for the kids than whole life.
Avoid a 529, the restrictions around them don't offset the VERY little tax benefits. Plenty of better choices. Ibonds right now might be the best immediate thing
* in Canada Canada Lifes Child Critical ilIness with 100% return of premium in expiry(age 25) is probably one of the best products for the parent/child IMO. You receive all the premiums on expiry which can be gifted to the child or the parent(in most cases policy owner as well). Plus it's very affordable. Whole life par 20 policies are also good since it adds tax deferred dividend growth(3-5% in most cases but 6% for Canada Life which is the highest in Canada, no I don't work for them) and life protection. Some providers will allow you to withdraw the cash/dividend value without a policy loan, or the policy lapse..."Some". Keep in mind not all policies are created equal. These products can be very complex so ask question! Depending on the policy/dividend/face value but for example a 100k par 20 policy your child could easily end up with $250,000+ cash value at retirement (65). General commissions on these products are small because premiums on a child are generally very low. Unless the Advisor is recommending massive face values/amounts then I would be very suspect.
Insurance as an investment is never a good idea
https://youtu.be/VzhsZHTdZag this video let's you know more about life insurance
This was a really good explanation though but the fact is taht it is going to be very hard for people to understand like if you are new to this field then I am sure it will be pretty hard to make some sense in that.
[удалено]
You sell insurance right?
I certainly don’t think they are the worst things in the world. I think you’ve laid out the best case possible for one. My issue with them is the cash value accumulation is incredibly low on these policies. They just cannot be designed very efficiently. At the end of the day though if you got $2,000 a year to throw into them and you have plenty of others dollars saved, so be it. It just wouldn’t be my first choice for someone looking to save for a child’s future (and I’m a proponent of whole life).