How can I benefit from Life Insurance?
Based on a response by @Manatee Outlaw to a question in the finance channel
TLDR here's the concept:
1) You buy a permanent life insurance policy; this could be whole life (grows at a set % every year, contractually obligated, agnostic towards any market conditions, potential dividends if you're in a mutual insurance company policy) or variable universal life insurance (same thing but different.). Since we're all gambling Oe 150J's behind the denny's people here, we're gonna go with the 🅱️ased option and talk variable. But the concept is the same.
2) You pay for your insurance. The higher the face value, the more you will pay. You will pay at least 10x-50x what you would get for term insurance. This seems like a scam, except the excess premiums that you're paying go into a separate account. If it's whole life, it goes into the company account and they credit you money and that interest rate. If it's variable then it goes into a stock account. And you put it in the market.
3) Your money grows tax-deferred.
4) You want to withdraw your money. This is a good thing, fuck them kids pepaw needs to go back to vegas. If you take a loan out against your growing cash value, you pay no taxes because a loan isn't income.
5) You die. :Noot_gun: Possibly by my own hands. I'm sorry sensei, I can't... I can't let this go on.
6) The life insurance pays out to your family, minus any outstanding loans, and that money is all tax-free as well (death benefits)
Hence you grow money inside a life insurance policy at market rates, paying no taxes as it grows, and take out a loan against it once you need the money.
Now.
Why life insurance?
A few things.
(1) Life insurance isn't considered income. It's not considered an asset. It does not show up on FASFA forms for your kids, and, well. It technically has no value, so if you get sued it's not like they can go after your policy... it only pays out on death. :cooldude: so if you want to basically protect a bucket of dosh against lawsuits, divorce, income tax, alimony, hail, lightning and the like, you pop it in there and walk away.
(2) If you do not pay your premiums every year, your policy lapses. All this goes away. All your cash is immediately pulled out. All loans are paid. You get hit with a massive fucking tax bill. 99.99999999% of the time, policies will automatically take a premium loan from your cash value if you refuse to pay, but why do that? You're losing more money that way to internal interest.
(3) Since it is insurance, you still have to be insurable. You cannot be 900lbs on your 5th pig heart transplant on 80 medications. Sorry fam, uninsurable, doesn't matter how much you make. You also have to look at other conditions that may not give you as favorable as a table rating - diabetes, heart conditions, etc - in addition to BMI, age, etc.
Final point: ANY life insurance you get will be the cheapest it could ever possibly be today. You're not getting any younger.
https://discord.com/channels/1181304501999784027/1181322035373297684/1217887380384776332
59 Replies
Shall we discuss the merits of whole life being a trash investment product or a trash life insurance product, cause why not both!
hilarious-sapphire•6mo ago
oh shit
the premiums are ridiculous, the investment is terrible, the cash value is ludicrious versus premiums...
hilarious-sapphire•6mo ago
#changemymind
this is anectodal, but I'm sure I can find more public examples, but I've definitely had multiple friends over the past 10 years buy into these products as "an investment, and I need life insurance anyway", and the premiums have been ridiculously high, and when they look at the cash value to pull out, it's like 10% of the premium cost even after 10 years, and your "investment advisor" is laughing his fees and commissions all the way to the bank.
like, high 5 figures in premiums and the cash value is like 10K bad.
absent-sapphire•6mo ago
That depends on the insurance company.
hilarious-sapphire•6mo ago
I want to see this discussion played out in full.
absent-sapphire•6mo ago
I definitely recommend mutual insurance companies over corporate, because you get the option for dividends.
You're not going to get market rates, absolutely not. That's not the point. Growth (2-3%) + Divs (1-2%) is weak in comparison
separate your investments and life insurance. You have more control and life insurance premiums are not that expensive if you're insurable.
absent-sapphire•6mo ago
But they grow tax deferred, compound, and can be loaned against tax-free.
Again, if you're going for wild cash-value growth, no, I wouldn't suggest whole life; variable is where you want to be
But if you want a steady, boring money pool that can grow protected but (most importantly) is agnostic to the markets, there you go.
It shouldn't be your main
it should be like your tertiary or quadrinary.
You end up paying thousands in premiums for an "investment" that's cash value is 10% of what you put into it.. Sure, you get life insurance, but you can get life insurance a hell of a lot cheaper.
I remember when Whole Life came out, people were so excited. Then they did the math, or tried it themselves and kicked themselves for how much they spent on premiums versus when they decided to switch and "cash out"
I have no anecdotal stories of anyone I know who ever got Whole Life talk about it in a positive light. I mean, the idea is great, it's just insurance companies/sales people are greedy assholes.
they use FOMO of the money you've already sunk as a motivator to keep it going as your "financial advisor" keeps raking in commission checks.
https://www.whitecoatinvestor.com/suckered-into-whole-life-insurance/ It's always a "friend" who sells you on it. Greedy assholes.
every story I know of someone who has been suckered into whole life has always been "this friend of mine told me he could hook me up with this amazing investment opportunity"
another excellent write-up: https://www.whitecoatinvestor.com/debunking-the-myths-of-whole-life-insurance/
there are very specific times where Whole Life is okay at best.... but it's not a good investment.
and I wouldn't ever treat it as an investment.
Nice sum up at the end of that second article:
The ideal purchaser of whole life insurance should:
Need or desire a guaranteed, but possibly slowly increasing, life-long death benefit,
Understand that the guarantee/contract essentially relies on the insurance company staying in business for as long as he lives for any policy of reasonable size,
Live in a state that protects 100% of the cash value from creditors,
Have some estate planning liquidity issues,
Be in excellent health,
Pursue no dangerous hobbies,
Not mind having low returns on his investment despite holding it for decades,
Have serious philosophical aversion to using traditional financing resources such as banks and credit unions (or simply just saving up for what you want to buy),
Have already maxed out all available retirement accounts including backdoor Roth IRAs and HSAs, and
Be willing to hold on to the policy until death no matter what changes in his financial life in the future.
absent-sapphire•6mo ago
Well, it's honestly not ever supposed to be sold as an investment - that's illegal, unless you're a registered rep.
The primary point of it is insurance. It's just insurance with benefits - much more benefits than term.
Yet they all do. That's a huge part of their pitch.
"IT GROWS IT HAS CASH VALUE ITS AN INVESTMENT* gargle gargle
absent-sapphire•6mo ago
Okay, I mean, I can't really debate against the ghosts of christmas past here.
"They all do thing!"
ok
¯\_(ツ)_/¯
At what cost, though, versus just normal life insurance? 😛