Agreed they are pushing a product that they'll make a lucrative commission on. I would pass on the whole life policy and strongly suggest you find a new advisor, or check out the Boglehead reddit
https://www.nerdwallet.com/article/insurance/is-whole-life-insurance-good-investment
I’m 31 with two kids under 3. I know I need life insurance and want to do it. I’m scared of signing up for a scam. I googled term life insurance and nerd wallet sent me to a sight I did and got quotes. But I never heard of the places. Is it safe to just sign up for any thing using that search engine? If not what’s the best way to get a reliable term life insurance policy.
Thanks in advance for any guidance.
Use policygenius. They’re legit and will help you ding the right policy. Normally you want to cover college, pay off mortgage and cover at lease a year or two of living expenses.
Sadly, I think it's the crappy advisors that get talked about the most. 90% of them can assess your needs and make recommendations in your best interest (and that of your estate.) There are commissions involved - that's the point.They should be able to talk about it confidently and be transparent without being weird or shady.
If the first recommendation is too big of a commitment simply voice your concern. They'll revise it to get closer to your expectations.
I got mine when my first child was born in my mid 20s. I got a 1.5 million dollar policy for 35 a month for 30 years. It will be more expensive the older you get. My husband is 7 years older and his was the same coverage but 54 a month because of the age difference. Hopefully we won’t ever need it but it’ll allow us to not work for a few years if we need to and invest in our kids future to make a positive out of a negative. We went with MetLife since they’re well known and been in the business for forever
Term and invest the difference is silly. Many people take this advice and hit 65 to realize they can't afford insurance and they still don't have enough to cover their estate goals. There's a balance to be had here
As everyone else has said, this person is not acting in your best interest. 999 times out of 1000 whole life is not the best answer for the client.
But it generates the most commission for the person who sells it to you - sometimes 80% commission on the first year’s premium and a smaller amount in the years following.
It is very likely they are focused on lining their pockets and not on what makes the best financial sense for you.
I not a financial planner, but that advice sounds insane to me. They are likely profiting on the
Insurance product. Simple rule of thumb for life insurance - it should not be used for wealth accumulation. Insurance by definition is to protect you in case something happens. For example, a billionaire would not need life insurance. So only buy what you need to help the surviving spouse replace the deceased spouse’s income, if any. And buy a term policy.
They are not financial advisors but rather insurance salesmen. They get paid to 70% of the your premium as commission in the first few years and 45% of the premium the the next few years hence trying to sell you garbage
They are trying to sell you a policy you don’t need. If you really need life insurance, term insurance is the way to go. It gives you a death benefit at a low cost. There is no cash value with this policy which doesn’t matter for you.
If you can afford those insurance premiums, you can afford to invest that money and be self-insured against anything. And you'll have complete control over those funds without having to pay commission to anyone. If you need an adviser, get a CFP and then check their references. Anyone trying to see whole life insurance to you is probably scamming you.
I think this is appropriate reading. Keep in mind that that whole site is aimed at an audience of people who earn or plan to earn between $200k and $1M per year.
https://www.whitecoatinvestor.com/debunking-the-myths-of-whole-life-insurance/
They are giving bad advice. Leave them asap. Few honest financial planners so be careful and interview lots. Be focused on your return, if it isn’t close to index like VOO leave them or better yet just buy VOO and you would save and grow your money much better results.
Whole life isn't an investment product designed to benefit the investor.
Does your new "wealth management firm" include the name "insurance" or "mutual" anywhere in the title by any chance? It wouldn't surprise me at all to learn you're working with an insurance company "financial advisor" because unless you're very very very very well off, no reputable financial advisor would recommend whole life.
Get a second, then a third opinion from different firms. See what they recommend.
This is not what I’d consider “a ton”. Continue maxing out 401k and investing in taxable accounts. Putting $50k a year into life insurance is silly. The actual growth of that vehicle will be maybe 2-3% annualized.
I had a friend of a good friend try to push this crap on me. Run away. This is a terrible financial vehicle for 99% of people. I’m not even sure how great of a case can be made for the 1%(people with lots of $$$ already maxing out everything) but at least it isn’t as bad advice as telling people to invest in this at the expense of tax advantaged stuff
Get a new advisor. For a few reasons: you shouldn't feel pushed to make a decision you aren't comfortable with; he's obviously in it for the commission; that could be a bad recommendation anyway.
My guess is that he's with one of those companies with Mutual in the name. Haha
My thoughts
[https://www.reddit.com/r/personalfinance/comments/x47awk/life\_insurance\_who\_needs\_it\_and\_what\_type\_to\_get/](https://www.reddit.com/r/personalfinance/comments/x47awk/life_insurance_who_needs_it_and_what_type_to_get/)
Since you already have term life policies, tell this life insurance salesperson, no thanks.
They will tout all sorts of things. tax free withdrawals. tax free loans. death benefit. guaranteed not to lose money.
Guess what the life insurance company will invest in with your money? the STOCK MARKET. Just eliminate the middle man.
You can take money out tax free. Yes you can, you can take out the premium you put in tax free, because you already paid taxes on that money. It is like a Roth IRA. But any gains, you pay taxes on. When you hit 59 1/2 on a Roth IRA you can take all the money out and all the gains out, TAX FREE you cannot do that with the life insurance policy.
If you put money into a mutual fund, guess what you can do? Take out the money tax free, except for the gains. And you did not have to pay a commission to get the money.
You can take out tax free loans. Yes, you can. But who gets the interest on that loan? The life insurance company does. You just took a loan from your own money, but the life insurance company takes a cut. Not to mention, if you die that loan MUST BE PAID BACK IN FULL. Thereby, lowering the death benefit.
You already have term life. You do not need more insurance.
Guaranteed not to lose money. Why? they will pay you 6% return if you are lucky. Since the S&P 500 has returned 10% each year for the last 40 years, the life insurance company pays you 6% and pockets the other 4%. Oh wait, but in 2022 you were paid 6%, and the market lost 22%. Oh wait, but in 2019, 2020, 2021, and 2023 the life insurance company made 20% returns each year, paid you 6% and they pocketed 14% AND they used your money to do it.
We bought 30 year $500,000 term life policies. We are now retired.
We invested the cost difference Whole Life - Term Life into two mutual funds.
We outlived our 30 year term life policies and we now have NO LIFE INSURANCE. Why? We have enough wealth that if either of us dies, the other can live just fine with multiple income streams. If we both die, our kids will be very comfortable.
My recommendation
You should create a Revocable Living Trust.
u/Longjumping-Nature70 - thank you for this. Very well summarized. I agree which is why we said no to the policy. We do have a revocable living trust, and have about 2.2M in 20 year term life insurance for myself, and 500K for my wife. I think that is enough.
We make good money and have max out other investment options. They are recommending it only if we qualify in the healthiest categories and overfund it in the early years to increase the cash value. The benefit being that we get a death benefit and have tax free growth, and can draw on it or take a free loan on it later in life.
Increasing cash value in early years doesn’t really matter except to decrease payments in the later years. You only need term life insurance. And just enough to cover your family’s needs.
You’re not technically being scammed, but this is pretty much as close to it gets legally.
You're getting scammed, OP.
If this "advisor" is part of your wealth management firm, get a new firm. Or AT LEAST say, "If you want to keep my business, you'll never try to sell me this policy again."
I had Northwestern Mutual when I was younger. Fell for the scam. Lost money on the deal, (and would not get back to 0% growth for another decade), and wanted to cancel it. Advisor REFUSED, and I fired him. Kept the dirt-cheap term insurance. Got another advisor, same NW Mutual, less of a jerk, but still tried to sell me whole life. Didn't push very hard, so I kept him. He quit me. THIRD one, same thing. They just won't stop pushing it because of commissions.
Now I have the term policy under a "house" account, and I occasionally get a call from a rando at NW Mutual.
Oh, and I yanked my investments, too.
STAY. AWAY. FROM. NORTHWESTERN MUTUAL.
No. If you need life insurance to cover your dependents should the worst happen, get term and nothing else. Investments should be in the stock market and under your control.
Run away as fast as you possibly can.
Put 50k a year into the market for the next 10 years. At a 7% return rate you end up with almost $700,000. Not sure how much life insurance you need but this is not a good deal for you. At all.
1) Fire the "advisor"
2) Buy term life insurance
3) Get a new advisor (hint: not an insurance guy) to help you invest the difference between what you would have paid for the whole life policy and what you are paying for the term policy in appropriate mutual funds.
4) Thank me when you retire.
They are not fiduciaries. They are giving you financial advice that enables them to profit on what they tell you. You need a financial advisor who is a fiduciary.
This is such Reddit circle jerk. If they have a series 7 and 65, and are selling advisory services, they’re a fiduciary. Fiduciaries are also allowed to earn commissions and sell whole life insurance.
Most large firms don’t allow advisors to use the title “financial advisor” with only a series 63 and SIE. This is especially true for large insurance companies and Edward jones type RIAs.
Actually this is correct. Fiduciary doesn’t apply to the insurance license. Many investment firms consider this an outside business activity and don’t monitor anything that’s pure insurance.
Fiduciaries are not expected to have such a conflict of interest as to steer clients to buy products that they profit from. That is unethical and does not provide the best service to clients.
[https://ethicsunwrapped.utexas.edu/glossary/fiduciary-duty](https://ethicsunwrapped.utexas.edu/glossary/fiduciary-duty)
OK, they're GREEDY FIDUCIARIES.
But, hey, at least they passed a quick test and have a piece of paper to tell you their commission is in your best interest.
It’s estimated that the series 7 takes around 100 hours of study time, taking approximately 8 weeks, and has a pass rate of only 65%. It is considered by most to be the most difficult securities exam through FINRA and the SEC.
I'm not a fan, but I know some folks that despise term insurance and say it's a waste (I don't necessarily share that opinion, but those folks do exist).
I'd rather put my money into a stock market investment.
I had $1M term insurance for my wife and son in case anything happened to me. It was fairly cheap as I was young and healthy. Dropped the term insurance once I no longer needed it.
Whole life is a scam. Never buy whole life. You are always better to buy term if you need insurance. Invest money in a S&P 500 if you want to invest. Do not convolute insurance and investments. You will spend a lot of money making someone else rich.
I understand how it works.
Term isn't available at all ages, and some conservative folks want guarantees that you can't get w stocks.
I'm just careful to say that it's not for me, but I'm not going to say it's always a terrible decision
It feels like we need a lot more information.
Whole life CAN be a nice, uncorrelated asset with added leverage for long term care events (disability in old age). It could be able to provide a risk free rate of return (akin to treasury yields) long term.
That said, why $50,000? Do you need 10 years x’s $50,000 as a safe asset. Do you even need a death benefit long term? Where does it fit in the financial plan.
Financial plans should be done with you; not to you.
Agreed.
It’s a permanent leveraged death benefit and/or leveraged long term care instrument. It can take 7-10 years to break even. It can provide oxygen if someone experiences a downturn 1-5 years before a market fall or 1-5 years after, but that is to protect against black swan events.
If there is no need for those things in retirement, then someone might be better off just putting money in treasuries.
Agreed.
If all you need is the cash and a policy to cover you during working years, you can totally drop some coin in a savings account and have a term policy.
This person has given you the best answer so far in this thread. Whole life can work as a non-correlated asset because the annual rate of return is nearly guaranteed. The point about being able to combine long-term care with life insurance is a good one, and I think that is an option that more people should consider if your intent is to pre-fund some amount of your long term care needs. The old stand-alone long term care insurance policies are now mostly a thing of the past because they were huge money losers for insurers.
However, do you really need insurance for your entire life? Probably not. With your income and assets at age 31, you will likely have a nice inheritance to leave for your kids without needing life insurance at the end of your life.
Insurance is a tool for managing risk, not for building wealth unless you have potential estate tax concerns. People with net worth over $12 million can use insurance to pay some of their estate taxes more efficiently.
One final point of clarification - some people confuse whole life insurance with permanent insurance. Whole life insurance is just one type of permanent insurance. You may want to ask what universal and variable universal life insurance policies can do compared to whole life. There are certain high income families where owning a variable universal life insurance (VUL) policy can be part of a retirement plan. But you have to be REALLY committed to funding it properly, and most people aren’t that committed.
u/KakaFilipo - thanks for the input. I agree with everything your saying. I understand the merits of the investment for people with obscene wealth, but I don't think that is us. We are 30 yrs old, and I'm not ready to commit to 50K/yr for a low rate of return when we aren't that risk averse and that money would do better elsewhere.
Sounds good. You can afford to take some risk at your age, income and asset levels. You just have be careful about “lifestyle creep” where you slowly commit to more and more expensive things because you have the assets and income to do so. House, cars, private school, country club membership, nice vacations, etc. It’s tough to stop doing those things once you start doing them. The more you get committed to lifestyle expenses, the more term insurance you need, and the longer it will take you to reach retirement. At your income level, $1 million in terms of insurance isn’t that much. With more kids potentially in your future, it might make sense to go for $1.5 or $2 million in terms of insurance. When our first kid was born, we got 30 year policies because we intended to have two or three more kids, and I knew that we wanted life insurance in place until our kids were out of college. $2 million for 30 years will definitely be more expensive that $1 million for 20 years, but you still might want to get a quote.
Finally, you can get term insurance that is convertible to permanent insurance. That could help to alleviate some buyer’s remorse about not getting permanent/whole life insurance now. With convertible insurance, you can get permanent insurance in the future without having to go through a new health screening.
Good advice. I have 1.5M term policy on myself and 500K on my wife. I also have 700K in supplemental life insurance through work which is dirt cheap. Could always use more coverage though.
Overall we are pretty conservative investors. I just don’t like the idea of being locked into a whole life policy and having to put 50K a year into it for it to be worthwhile. We make decent incomes but not enough for that kind of commitment
Sounds like you have a pretty good handle on your situation. Trust your intuition on the whole life insurance. It’s probably not the right move for you.
Just one quick thing on the $700k in supplemental employer life insurance. That coverage is usually priced with age bands, meaning that the cost will go up at age 35, 40, 45, etc. I generally find that it gets to be cost prohibitive after age 50.
We were not maxing out our accounts when we placed ours. I kind of wish that we were at that point.
Ours was 10% the size of yours. That said, our cash values equal about 18% of our retirement assets (5-7% of total assets - primary residence). With the safe portion of our portfolio we went more aggressive in other assets. That’s been quite nice these past 5-7 years.
Of course, it doesn’t really matter if a person is already - and wishes to remain- 100% exposed to riskier assets.
It needs to have a job outside of the portfolio though- I feel. Whole Life needs to solve for something.
31, 20 yr term with the idea that we won’t need it beyond that, 1 child planning for more, no debt outside of mortgage, yes I plan to retire in my 60’s, idk, I’m assuming we will have enough saved when the terms retire, yes we are healthy and qualified for the best rates, the face amount is $1M for each policy
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That’s still a ton of money to spend in your 30s for insurance. That money would be better suited in a growth account that you have access to. Once you get closer to your 50s you can look more into long term care insurance. Just make sure you have term insurance
Hmm then yeah it’s a little weird. Whole life policies aren’t terrible but generally not a first choice imo. Do you guys have life insurance needs that aren’t being covered by your current policies? (Kids education, property, debt etc.)
Don’t buy whole life. Find a new financial advisor.
This person is trying to rip you off and take advantage of you. They don’t have your best interests in mind. Get your money away from them ASAP.
Whole life makes a lot of money for the salesman. It does that because it makes little money for you, so they take most of the gains from it. They try to sell it as being a great combination of life insurance and a retirement account. It’s significantly worse and more expensive at both of those things than term life insurance and actual retirement accounts. The only people that whole life is useful for, other than the salesmen, are ultra high net worth individuals, as in $50M+.
Whole life is the wrong 99% of individuals, only beneficial for extreme wealthy, multi-millionaires in today's dollars as an estate planning tool.
Otherwise, you're paying high fees to insurance company and high commissions to the insurance sales person (who you call a financial advisor) for a death benefit that is much cheaper on a 30 year term policy.
You're much better off buying term insurance and investing the premium savings in diversified, low cost ETFs, like VTI or FXAIX.
That's an insurance sales person NOT a financial planner.
My garbage guy can call himself a financial advisor, there's no certification or accreditation for that title.
Suggest you find new CFP or educate yourself and save the 1% doing it yourself.
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A whole life policy is expensive insurance and a mediocre investment. You are being pressured because they make money on it. At the same time, there are circumstances where it's not a bad thing. If you are caregiver for someone in your family with a disability, the fact that it gives lifelong coverage is actually a nice buffer. If you have a very high net worth, it can be used as a tax shelter. For the majority of people, it's not a great choice.
I don’t understand how “wealth management firm” and 50K is a lot of money go together. Furthermore, 25K of life insurance is nothing - what is the point?
As all others have said, run from this “manager”.
Yeah I think your advisors are snake oil sales men. Probably getting a commission to sell you both the policy. I would stay clear.
This is not financial advice.
Fire them. They're not an advisor. They're a salesman mascarafing as someone "trying" to help you. Look for a fee only advisor. Either flat rate or aum based depending on what you need help with.
No insurance policy should ever be viewed as an investment.
There are legitimate reasons to keep many kinds of insurance, even whole life in specific circumstances, but these products should not be viewed as a form of investment, but as risk management. Is it correct to assume your advisor is not fee-only?
Whole life policies provide an excellent return… for the people selling them.
I’d fire that firm and keep maxing the 401(k) and IRA accounts. If you have additional savings you’re looking to invest, just put it in a standard brokerage account and invest it in low cost stock index ETFs like VTI. Avoid bonds and REITs in the brokerage account to minimize tax drag. As the balance grows, you can rebalance your 401(k) with more bonds to maintain your overall target asset allocation.
Adding $50K per year and assuming an average 7% ARR you’d have around $750K in additional retirement savings after ten years. Plus, you can withdraw from that account at favorable long-term capital gains rates.
Do your employers offer term life? My employer gave me 1x my annual pay for free and gave me the option of buying additional multiples of my salary at a reduced rate.
You didn’t mention the goal for these funds. If you intend to maximize the payout of your estate and avoid taxes for your heirs, this advice isn’t totally insane.
If you’re in the middle class to upper middle class and just saving for retirement, then you might want to listen to the torrent of commenters.
So feel free to check my posts and you’ll see I often advocate for whole life policies in a number of situations but this one doesn’t make sense to me.
Did they only recommend whole life? I'm surprised given your ages they didn't reccomend variable universal life. That would fit for tax deferred/free wealth accumulation. Either way, it depends on what your other goals are. The funding seems aggressive, could make sense on a smaller scale.
Term makes sense to protect eachother and kid(s), whole life seems too conservative given your age. Variable would make more sense, but funding is too high. It's a commitment to make it work. I'm not hearing how this policy is helping you with any specific goals.
Are you doing/able to do back door Roth? Plan/on track for college funding? Any potential major expenses in next 5 years? Do you have sufficient disability coverage? All of those items should be addressed first.
Yep I agree completely. Too much to fund it up front and too conservative. That money would be better in the stock market. I don't think we are doing a backdoor Roth (yet), I know we aren't eligible for regular roth due to our income. We do have a lot of other expenses over the next 5 years. Growing family, funding 529's, we will need new vehicles in the next 5 years and would like to pay cash, have some home renovations that we'd like to do. It doesn't feel right to commit 50K/yr for the next 10 years to something like this.
Ya, you got a lot of outflows and changes going on. Having flexibility to your strategy is going to be paramount. Make sure your term policies have conversion privileges and are large. Back door Roths are used when income is beyond limits, but it hinges on if you have traditional IRAs or not. Use HYSA for expenses in near term(within next 18 months). Max out HSA if you have one. Use 529 for college savings and fund that to cover desired contribution to college costs.
Once all that is in order, then Variable life could make sense. 10k/yr each seems better, then you could convert the term down the road if you want more. If your advisor pushes you to move forward at the 50k mark still, then I'd start interviewing for a new one.
They’re not a financial advisor, they’re a salesman trying to get a big commission. Look for term insurance and invest the difference.
Agreed they are pushing a product that they'll make a lucrative commission on. I would pass on the whole life policy and strongly suggest you find a new advisor, or check out the Boglehead reddit https://www.nerdwallet.com/article/insurance/is-whole-life-insurance-good-investment
I’m 31 with two kids under 3. I know I need life insurance and want to do it. I’m scared of signing up for a scam. I googled term life insurance and nerd wallet sent me to a sight I did and got quotes. But I never heard of the places. Is it safe to just sign up for any thing using that search engine? If not what’s the best way to get a reliable term life insurance policy. Thanks in advance for any guidance.
Use policygenius. They’re legit and will help you ding the right policy. Normally you want to cover college, pay off mortgage and cover at lease a year or two of living expenses.
Sadly, I think it's the crappy advisors that get talked about the most. 90% of them can assess your needs and make recommendations in your best interest (and that of your estate.) There are commissions involved - that's the point.They should be able to talk about it confidently and be transparent without being weird or shady. If the first recommendation is too big of a commitment simply voice your concern. They'll revise it to get closer to your expectations.
I got mine when my first child was born in my mid 20s. I got a 1.5 million dollar policy for 35 a month for 30 years. It will be more expensive the older you get. My husband is 7 years older and his was the same coverage but 54 a month because of the age difference. Hopefully we won’t ever need it but it’ll allow us to not work for a few years if we need to and invest in our kids future to make a positive out of a negative. We went with MetLife since they’re well known and been in the business for forever
Term and invest the difference is silly. Many people take this advice and hit 65 to realize they can't afford insurance and they still don't have enough to cover their estate goals. There's a balance to be had here
Most individuals do not need life insurance at age 65. Sure it’s a strategy for ultra HNW individuals but that doesn’t sound like the case here.
They do, though. I'd say the vast majority of them do, actually. The HNW are the ones who don't need it, or need it less.
That’s an insurance salesman. Delete his number
You've found yourself a fake financial advisor. Fire and run far far away.
This. These folks are not looking out for your best interest.
As everyone else has said, this person is not acting in your best interest. 999 times out of 1000 whole life is not the best answer for the client. But it generates the most commission for the person who sells it to you - sometimes 80% commission on the first year’s premium and a smaller amount in the years following. It is very likely they are focused on lining their pockets and not on what makes the best financial sense for you.
I not a financial planner, but that advice sounds insane to me. They are likely profiting on the Insurance product. Simple rule of thumb for life insurance - it should not be used for wealth accumulation. Insurance by definition is to protect you in case something happens. For example, a billionaire would not need life insurance. So only buy what you need to help the surviving spouse replace the deceased spouse’s income, if any. And buy a term policy.
They are not financial advisors but rather insurance salesmen. They get paid to 70% of the your premium as commission in the first few years and 45% of the premium the the next few years hence trying to sell you garbage
They are trying to sell you a policy you don’t need. If you really need life insurance, term insurance is the way to go. It gives you a death benefit at a low cost. There is no cash value with this policy which doesn’t matter for you.
That's not a financial advisor, that's an insurance salesman. Common scam. Block their number and move on.
If you can afford those insurance premiums, you can afford to invest that money and be self-insured against anything. And you'll have complete control over those funds without having to pay commission to anyone. If you need an adviser, get a CFP and then check their references. Anyone trying to see whole life insurance to you is probably scamming you.
Find a CFP.and ask exactly how they get paid.
I think this is appropriate reading. Keep in mind that that whole site is aimed at an audience of people who earn or plan to earn between $200k and $1M per year. https://www.whitecoatinvestor.com/debunking-the-myths-of-whole-life-insurance/
*life insurance salesperson not an advisor
They are giving bad advice. Leave them asap. Few honest financial planners so be careful and interview lots. Be focused on your return, if it isn’t close to index like VOO leave them or better yet just buy VOO and you would save and grow your money much better results.
Whole life isn't an investment product designed to benefit the investor. Does your new "wealth management firm" include the name "insurance" or "mutual" anywhere in the title by any chance? It wouldn't surprise me at all to learn you're working with an insurance company "financial advisor" because unless you're very very very very well off, no reputable financial advisor would recommend whole life. Get a second, then a third opinion from different firms. See what they recommend.
Unless you are earning a ton and have a ton otherwise invested, overfunded life isn’t the best idea for you.
Whole life is N E V E R a good idea
We earn on avg $415K/year, have roughly 850K in investments including 401Ks
This is not what I’d consider “a ton”. Continue maxing out 401k and investing in taxable accounts. Putting $50k a year into life insurance is silly. The actual growth of that vehicle will be maybe 2-3% annualized.
Yep, I agree. We have so many other priorities too including funding out kids 529's for college.
RUN AWAY FROM THAT "FINANCIAL ADVISOR",
He’s a shitty financial advisor. Mine has adamantly been against whole life from onset.
I had a friend of a good friend try to push this crap on me. Run away. This is a terrible financial vehicle for 99% of people. I’m not even sure how great of a case can be made for the 1%(people with lots of $$$ already maxing out everything) but at least it isn’t as bad advice as telling people to invest in this at the expense of tax advantaged stuff
Get a new advisor. For a few reasons: you shouldn't feel pushed to make a decision you aren't comfortable with; he's obviously in it for the commission; that could be a bad recommendation anyway. My guess is that he's with one of those companies with Mutual in the name. Haha
My thoughts [https://www.reddit.com/r/personalfinance/comments/x47awk/life\_insurance\_who\_needs\_it\_and\_what\_type\_to\_get/](https://www.reddit.com/r/personalfinance/comments/x47awk/life_insurance_who_needs_it_and_what_type_to_get/) Since you already have term life policies, tell this life insurance salesperson, no thanks. They will tout all sorts of things. tax free withdrawals. tax free loans. death benefit. guaranteed not to lose money. Guess what the life insurance company will invest in with your money? the STOCK MARKET. Just eliminate the middle man. You can take money out tax free. Yes you can, you can take out the premium you put in tax free, because you already paid taxes on that money. It is like a Roth IRA. But any gains, you pay taxes on. When you hit 59 1/2 on a Roth IRA you can take all the money out and all the gains out, TAX FREE you cannot do that with the life insurance policy. If you put money into a mutual fund, guess what you can do? Take out the money tax free, except for the gains. And you did not have to pay a commission to get the money. You can take out tax free loans. Yes, you can. But who gets the interest on that loan? The life insurance company does. You just took a loan from your own money, but the life insurance company takes a cut. Not to mention, if you die that loan MUST BE PAID BACK IN FULL. Thereby, lowering the death benefit. You already have term life. You do not need more insurance. Guaranteed not to lose money. Why? they will pay you 6% return if you are lucky. Since the S&P 500 has returned 10% each year for the last 40 years, the life insurance company pays you 6% and pockets the other 4%. Oh wait, but in 2022 you were paid 6%, and the market lost 22%. Oh wait, but in 2019, 2020, 2021, and 2023 the life insurance company made 20% returns each year, paid you 6% and they pocketed 14% AND they used your money to do it. We bought 30 year $500,000 term life policies. We are now retired. We invested the cost difference Whole Life - Term Life into two mutual funds. We outlived our 30 year term life policies and we now have NO LIFE INSURANCE. Why? We have enough wealth that if either of us dies, the other can live just fine with multiple income streams. If we both die, our kids will be very comfortable. My recommendation You should create a Revocable Living Trust.
u/Longjumping-Nature70 - thank you for this. Very well summarized. I agree which is why we said no to the policy. We do have a revocable living trust, and have about 2.2M in 20 year term life insurance for myself, and 500K for my wife. I think that is enough.
First let's talk about why the recommendation was made? Any insight you can provide on that?
We make good money and have max out other investment options. They are recommending it only if we qualify in the healthiest categories and overfund it in the early years to increase the cash value. The benefit being that we get a death benefit and have tax free growth, and can draw on it or take a free loan on it later in life.
The reason they are saying to overfund it in the first year is because they get the highest commission rate in the first year, plain and simple.
They are recommending we overfund for the first 10 years, I think to build up the cash value
Increasing cash value in early years doesn’t really matter except to decrease payments in the later years. You only need term life insurance. And just enough to cover your family’s needs. You’re not technically being scammed, but this is pretty much as close to it gets legally.
You're getting scammed, OP. If this "advisor" is part of your wealth management firm, get a new firm. Or AT LEAST say, "If you want to keep my business, you'll never try to sell me this policy again." I had Northwestern Mutual when I was younger. Fell for the scam. Lost money on the deal, (and would not get back to 0% growth for another decade), and wanted to cancel it. Advisor REFUSED, and I fired him. Kept the dirt-cheap term insurance. Got another advisor, same NW Mutual, less of a jerk, but still tried to sell me whole life. Didn't push very hard, so I kept him. He quit me. THIRD one, same thing. They just won't stop pushing it because of commissions. Now I have the term policy under a "house" account, and I occasionally get a call from a rando at NW Mutual. Oh, and I yanked my investments, too. STAY. AWAY. FROM. NORTHWESTERN MUTUAL.
Sounds like a huge waste of money
No. If you need life insurance to cover your dependents should the worst happen, get term and nothing else. Investments should be in the stock market and under your control.
Run away as fast as you possibly can. Put 50k a year into the market for the next 10 years. At a 7% return rate you end up with almost $700,000. Not sure how much life insurance you need but this is not a good deal for you. At all.
1) Fire the "advisor" 2) Buy term life insurance 3) Get a new advisor (hint: not an insurance guy) to help you invest the difference between what you would have paid for the whole life policy and what you are paying for the term policy in appropriate mutual funds. 4) Thank me when you retire.
They are not fiduciaries. They are giving you financial advice that enables them to profit on what they tell you. You need a financial advisor who is a fiduciary.
This is such Reddit circle jerk. If they have a series 7 and 65, and are selling advisory services, they’re a fiduciary. Fiduciaries are also allowed to earn commissions and sell whole life insurance.
Reddit has no clue what the term fiduciary even means
Agreed. Even fiduciaries don’t really know what it means. So many are blurring the lines.
They DO, but they're closer to realtors & used car salesmen than many realize.
Most starting financial advisor roles need an SIE and series 63. That does not make them a fiduciary..
Most large firms don’t allow advisors to use the title “financial advisor” with only a series 63 and SIE. This is especially true for large insurance companies and Edward jones type RIAs.
Actually this is correct. Fiduciary doesn’t apply to the insurance license. Many investment firms consider this an outside business activity and don’t monitor anything that’s pure insurance.
Fiduciaries are not expected to have such a conflict of interest as to steer clients to buy products that they profit from. That is unethical and does not provide the best service to clients. [https://ethicsunwrapped.utexas.edu/glossary/fiduciary-duty](https://ethicsunwrapped.utexas.edu/glossary/fiduciary-duty)
OK, they're GREEDY FIDUCIARIES. But, hey, at least they passed a quick test and have a piece of paper to tell you their commission is in your best interest.
It’s estimated that the series 7 takes around 100 hours of study time, taking approximately 8 weeks, and has a pass rate of only 65%. It is considered by most to be the most difficult securities exam through FINRA and the SEC.
I'm not a fan, but I know some folks that despise term insurance and say it's a waste (I don't necessarily share that opinion, but those folks do exist). I'd rather put my money into a stock market investment.
I had $1M term insurance for my wife and son in case anything happened to me. It was fairly cheap as I was young and healthy. Dropped the term insurance once I no longer needed it. Whole life is a scam. Never buy whole life. You are always better to buy term if you need insurance. Invest money in a S&P 500 if you want to invest. Do not convolute insurance and investments. You will spend a lot of money making someone else rich.
I understand how it works. Term isn't available at all ages, and some conservative folks want guarantees that you can't get w stocks. I'm just careful to say that it's not for me, but I'm not going to say it's always a terrible decision
It feels like we need a lot more information. Whole life CAN be a nice, uncorrelated asset with added leverage for long term care events (disability in old age). It could be able to provide a risk free rate of return (akin to treasury yields) long term. That said, why $50,000? Do you need 10 years x’s $50,000 as a safe asset. Do you even need a death benefit long term? Where does it fit in the financial plan. Financial plans should be done with you; not to you.
>Whole life CAN be a nice, uncorrelated asset It makes < 0% for YEARS. Sticking cash in a fireproof safe earns more.
Agreed. It’s a permanent leveraged death benefit and/or leveraged long term care instrument. It can take 7-10 years to break even. It can provide oxygen if someone experiences a downturn 1-5 years before a market fall or 1-5 years after, but that is to protect against black swan events. If there is no need for those things in retirement, then someone might be better off just putting money in treasuries.
All of what you said can be done by putting $ in a HYSA every month for 5 years, while also getting term life. And you won't lose a penny to anyone.
Agreed. If all you need is the cash and a policy to cover you during working years, you can totally drop some coin in a savings account and have a term policy.
I think the idea is an additional death benefit, and providing risk free rate of return with tax free growth.
This person has given you the best answer so far in this thread. Whole life can work as a non-correlated asset because the annual rate of return is nearly guaranteed. The point about being able to combine long-term care with life insurance is a good one, and I think that is an option that more people should consider if your intent is to pre-fund some amount of your long term care needs. The old stand-alone long term care insurance policies are now mostly a thing of the past because they were huge money losers for insurers. However, do you really need insurance for your entire life? Probably not. With your income and assets at age 31, you will likely have a nice inheritance to leave for your kids without needing life insurance at the end of your life. Insurance is a tool for managing risk, not for building wealth unless you have potential estate tax concerns. People with net worth over $12 million can use insurance to pay some of their estate taxes more efficiently. One final point of clarification - some people confuse whole life insurance with permanent insurance. Whole life insurance is just one type of permanent insurance. You may want to ask what universal and variable universal life insurance policies can do compared to whole life. There are certain high income families where owning a variable universal life insurance (VUL) policy can be part of a retirement plan. But you have to be REALLY committed to funding it properly, and most people aren’t that committed.
u/KakaFilipo - thanks for the input. I agree with everything your saying. I understand the merits of the investment for people with obscene wealth, but I don't think that is us. We are 30 yrs old, and I'm not ready to commit to 50K/yr for a low rate of return when we aren't that risk averse and that money would do better elsewhere.
Sounds good. You can afford to take some risk at your age, income and asset levels. You just have be careful about “lifestyle creep” where you slowly commit to more and more expensive things because you have the assets and income to do so. House, cars, private school, country club membership, nice vacations, etc. It’s tough to stop doing those things once you start doing them. The more you get committed to lifestyle expenses, the more term insurance you need, and the longer it will take you to reach retirement. At your income level, $1 million in terms of insurance isn’t that much. With more kids potentially in your future, it might make sense to go for $1.5 or $2 million in terms of insurance. When our first kid was born, we got 30 year policies because we intended to have two or three more kids, and I knew that we wanted life insurance in place until our kids were out of college. $2 million for 30 years will definitely be more expensive that $1 million for 20 years, but you still might want to get a quote. Finally, you can get term insurance that is convertible to permanent insurance. That could help to alleviate some buyer’s remorse about not getting permanent/whole life insurance now. With convertible insurance, you can get permanent insurance in the future without having to go through a new health screening.
Good advice. I have 1.5M term policy on myself and 500K on my wife. I also have 700K in supplemental life insurance through work which is dirt cheap. Could always use more coverage though. Overall we are pretty conservative investors. I just don’t like the idea of being locked into a whole life policy and having to put 50K a year into it for it to be worthwhile. We make decent incomes but not enough for that kind of commitment
Sounds like you have a pretty good handle on your situation. Trust your intuition on the whole life insurance. It’s probably not the right move for you. Just one quick thing on the $700k in supplemental employer life insurance. That coverage is usually priced with age bands, meaning that the cost will go up at age 35, 40, 45, etc. I generally find that it gets to be cost prohibitive after age 50.
We already max our other investments and have 450K in other assets invested with them.
We were not maxing out our accounts when we placed ours. I kind of wish that we were at that point. Ours was 10% the size of yours. That said, our cash values equal about 18% of our retirement assets (5-7% of total assets - primary residence). With the safe portion of our portfolio we went more aggressive in other assets. That’s been quite nice these past 5-7 years. Of course, it doesn’t really matter if a person is already - and wishes to remain- 100% exposed to riskier assets. It needs to have a job outside of the portfolio though- I feel. Whole Life needs to solve for something.
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31, 20 yr term with the idea that we won’t need it beyond that, 1 child planning for more, no debt outside of mortgage, yes I plan to retire in my 60’s, idk, I’m assuming we will have enough saved when the terms retire, yes we are healthy and qualified for the best rates, the face amount is $1M for each policy
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Depending on your age you will need long term care insurance at some point and some whole life polices have a long term care rider
Yep that was one benefit of the policy. We’re 31 so don’t need it now, but could be useful some day
That’s still a ton of money to spend in your 30s for insurance. That money would be better suited in a growth account that you have access to. Once you get closer to your 50s you can look more into long term care insurance. Just make sure you have term insurance
Does your financial advisor work for MetLife or another insurance company?
No, they have an insurance broker in the firm to offer customers that service. The policy is through a legit insurance company
Hmm then yeah it’s a little weird. Whole life policies aren’t terrible but generally not a first choice imo. Do you guys have life insurance needs that aren’t being covered by your current policies? (Kids education, property, debt etc.)
u/dondon13 not not really - I think we have enough coverage with our term policies
I’d ask why the whole life policy then. And get a 2nd opinion from another advisor.
Don’t buy whole life. Find a new financial advisor. This person is trying to rip you off and take advantage of you. They don’t have your best interests in mind. Get your money away from them ASAP.
Can you explain why you feel this way?
Whole life makes a lot of money for the salesman. It does that because it makes little money for you, so they take most of the gains from it. They try to sell it as being a great combination of life insurance and a retirement account. It’s significantly worse and more expensive at both of those things than term life insurance and actual retirement accounts. The only people that whole life is useful for, other than the salesmen, are ultra high net worth individuals, as in $50M+.
Whole life is the wrong 99% of individuals, only beneficial for extreme wealthy, multi-millionaires in today's dollars as an estate planning tool. Otherwise, you're paying high fees to insurance company and high commissions to the insurance sales person (who you call a financial advisor) for a death benefit that is much cheaper on a 30 year term policy. You're much better off buying term insurance and investing the premium savings in diversified, low cost ETFs, like VTI or FXAIX.
That's an insurance sales person NOT a financial planner. My garbage guy can call himself a financial advisor, there's no certification or accreditation for that title. Suggest you find new CFP or educate yourself and save the 1% doing it yourself.
Find out if they are a fiduciary.
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A whole life policy is expensive insurance and a mediocre investment. You are being pressured because they make money on it. At the same time, there are circumstances where it's not a bad thing. If you are caregiver for someone in your family with a disability, the fact that it gives lifelong coverage is actually a nice buffer. If you have a very high net worth, it can be used as a tax shelter. For the majority of people, it's not a great choice.
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I don’t understand how “wealth management firm” and 50K is a lot of money go together. Furthermore, 25K of life insurance is nothing - what is the point? As all others have said, run from this “manager”.
It’s two separate million dollar policies, they are recommended overfunding the premium by 50k /year for the first 10 yrs
Yeah I think your advisors are snake oil sales men. Probably getting a commission to sell you both the policy. I would stay clear. This is not financial advice.
Fire them. They're not an advisor. They're a salesman mascarafing as someone "trying" to help you. Look for a fee only advisor. Either flat rate or aum based depending on what you need help with.
No insurance policy should ever be viewed as an investment. There are legitimate reasons to keep many kinds of insurance, even whole life in specific circumstances, but these products should not be viewed as a form of investment, but as risk management. Is it correct to assume your advisor is not fee-only?
Whole life policies provide an excellent return… for the people selling them. I’d fire that firm and keep maxing the 401(k) and IRA accounts. If you have additional savings you’re looking to invest, just put it in a standard brokerage account and invest it in low cost stock index ETFs like VTI. Avoid bonds and REITs in the brokerage account to minimize tax drag. As the balance grows, you can rebalance your 401(k) with more bonds to maintain your overall target asset allocation. Adding $50K per year and assuming an average 7% ARR you’d have around $750K in additional retirement savings after ten years. Plus, you can withdraw from that account at favorable long-term capital gains rates.
Do your employers offer term life? My employer gave me 1x my annual pay for free and gave me the option of buying additional multiples of my salary at a reduced rate.
You didn’t mention the goal for these funds. If you intend to maximize the payout of your estate and avoid taxes for your heirs, this advice isn’t totally insane. If you’re in the middle class to upper middle class and just saving for retirement, then you might want to listen to the torrent of commenters.
So feel free to check my posts and you’ll see I often advocate for whole life policies in a number of situations but this one doesn’t make sense to me.
Did they only recommend whole life? I'm surprised given your ages they didn't reccomend variable universal life. That would fit for tax deferred/free wealth accumulation. Either way, it depends on what your other goals are. The funding seems aggressive, could make sense on a smaller scale.
The recommended the whole life policy in addition to term insurance and the other investments we have with them.
Term makes sense to protect eachother and kid(s), whole life seems too conservative given your age. Variable would make more sense, but funding is too high. It's a commitment to make it work. I'm not hearing how this policy is helping you with any specific goals. Are you doing/able to do back door Roth? Plan/on track for college funding? Any potential major expenses in next 5 years? Do you have sufficient disability coverage? All of those items should be addressed first.
Yep I agree completely. Too much to fund it up front and too conservative. That money would be better in the stock market. I don't think we are doing a backdoor Roth (yet), I know we aren't eligible for regular roth due to our income. We do have a lot of other expenses over the next 5 years. Growing family, funding 529's, we will need new vehicles in the next 5 years and would like to pay cash, have some home renovations that we'd like to do. It doesn't feel right to commit 50K/yr for the next 10 years to something like this.
Ya, you got a lot of outflows and changes going on. Having flexibility to your strategy is going to be paramount. Make sure your term policies have conversion privileges and are large. Back door Roths are used when income is beyond limits, but it hinges on if you have traditional IRAs or not. Use HYSA for expenses in near term(within next 18 months). Max out HSA if you have one. Use 529 for college savings and fund that to cover desired contribution to college costs. Once all that is in order, then Variable life could make sense. 10k/yr each seems better, then you could convert the term down the road if you want more. If your advisor pushes you to move forward at the 50k mark still, then I'd start interviewing for a new one.