Life Insurance Solves Financial Needs far Better than Retirement Accounts

[evanburnside12]

@resjudicata If I'm being misleading then tell me what I'm wrong about.

 

[carolmariev11]

@evanburnside12 You’d have to put way more than 30K in two years in order to access 30k of cash value in a WL policy than you’re implying

 

[evanburnside12]

@carolmariev11 In 2 years sure, even with a PUA rider. In 5 years though?

 

[mahyrah]

@evanburnside12 I'm a huge fan of cash value whole life but you've dramatically misrepresented it here. With strong dividend performance it'll be 10 years before cash value even equals cost basis on most policies. Your analysis fails to take that into account and in fact begins afterwards.

There are significant benefits, but WL policies are way worse than retirement accounts for short term liquidity needs.

 

[evanburnside12]

@mahyrah

With strong dividend performance it'll be 10 years before cash value even equals cost basis on most policies. Your analysis fails to take that into account and in fact begins afterwards.

With a PUA and term rider your breakeven comes far earlier than 10 years.

WL policies are way worse than retirement accounts for short term liquidity needs.

How? IRAs are untouchable. You can only remove contributions from a Roth (no loans), and 401(k) loans are capped at 50%. Whole life outperforms all of this for short term needs.

 

[mahyrah]

@evanburnside12 Let's go through year by year with the equivalent of 10k after tax.

Year 1-

401k- $13k contribution, $13k +/- value, $6,500 loan available. (I'm saying plus minus but the fact you have the full $13k working for you in terms of growth is important)

WL- $10k premium, maybe 5k cash value if agent took massive commission hit and structured largely as PUA , less as a loan available. Also worth noting that loan balance can cause serious issues to the longevity of the policy if not handled correctly.

Year 2-

401k- $13k contribution, $26k +/- value, $13k loan available.

WL- $10k premium, maybe $10k total available, less as a loan.

And on and on. MEC limits (yes, even juiced with term), company overhead, and agent commissions destroy the story. By design.

I worked competitive intelligence at a major mutual for years and I understand the products inside and out. The short term story doesn't work against retirement accounts and it certainly doesn't beat a liquid emergency fund.

 

[texco]

@evanburnside12 I think what you're missing is that a prudent person won't invest 100% of their money in retirement accounts - nobody would suggest that. A financially savvy person would also have bank accounts and taxable investments (which still beat life insurance for returns after taxes), and paying for that car would be no issue. Someone who has set themselves up financially would have little need to borrow money apart from their house. They could finance a car at a cheap rate or pay for it in cash. No need to use life insurance to do that. I mean you could, but it's a lot more complicated and locks you in to low returns.

 

[evanburnside12]

@texco

A financially savvy person would also have bank accounts and taxable investments (which still beat life insurance for returns after taxes), and paying for that car would be no issue.

We both agree that a savings account is worse I hope.

So then the question is to compare to an individual investing account. You could withdraw the money. But then you're no longer earning interest. Or you can borrow. But margin rates are higher than a policy loan. And what if you have to borrow during a market crash?

 

[texco]

@evanburnside12 I actually don't agree that a whole life policy is necessarily better than a bank. Average actual returns on whole life are pretty similar to a high yield online savings account (though I will agree that they are a little higher when federal interest rates are low AND IF you stay with the policy for at least 15 years or so - less time than that and you're always better off at the bank). However to get the policy to where you can start borrowing your own money you need to get past the initial phase where so much of your premium is going to commission. With a bank you can switch to a new bank any time you want and you don't lose anything. With whole life you are stuck with that carrier until you die, and most whole life policies are surrendered before they make a dime for the purchaser (the seller still makes out ok). One of the reasons for this is lack of flexibility - you can stop investing any time if your situation changes but you can't stop paying your whole life premiums. Anyway a savvy person not doing the "infinite banking" route would have a combination of invested assets and cash on hand and in aggregate their returns will be much higher. Getting to the point to where you have enough money in a whole life policy to buy a car, you've spent a lot of opportunity cost in which that money could have grown for you and IMO that more than washes out the benefits of borrowing your own money.

 

[kim5398]

@evanburnside12 And it will most likely get taken down here. Not a platform for solicitation even if you aren’t an agent as you claim.

 

[evanburnside12]

@kim5398 How am I supposed to make the argument that I think that life insurance is better for most people than a retirement account without it being considered solicitation?

 

[lilmomma0727]

@evanburnside12 My posts were taken down from that sub left and right before they banned me. It’s very weird I’ve never experienced a sub where the mods are so biased

 

[kim5398]

@evanburnside12 Use a different platform. Comment on other posts and speak from experience and articulate your opinions.

 

[evanburnside12]

@kim5398 I don't see why this can't be a post on reddit. People trash talk life insurance in posts all the time. There's no reason why I can't make my case. In fact no one (as far as I've seen) has addressed the argument.

People compare life insurance to retirement accounts constantly and say that because retirement accounts get higher rates of return that they're better. I'm making the point that by including opportunity cost then life insurance is far more attractive. That's not solicitation. And soliciting in a life insurance sub which is mostly insurance agents, that doesn't make any sense.

 

[kim5398]

@evanburnside12 Consumers come on this subreddit all the time so it isn’t all agents. I fully support your efforts I am just giving you notice. I have gotten things taken down on other subreddits which I thought were innocent, especially given my intentions, but with this being an anonymous platform there really isn’t any way to prove you aren’t trying to sell life insurance.

 

[resjudicata]

@evanburnside12 There is so much that you are missing here and honestly is terrible advice!

 

[evanburnside12]

@resjudicata Maybe you could elaborate. What am I missing?

Are you rejecting the idea that people regularly are making large purchases? Between cars, appliances, home repair, and child expenses, how do you propose that people pay for these things?

Cash? Then you aren't making interest on that money anymore. Plus the interest on a savings account is terrible compared to WLI.

Bank loans? Too expensive.

And you can't access retirement accounts.

So what's the proposal? The other guy is saying that you just shouldn't have large purchases. I don't think that's realistic.

 

[resjudicata]

@evanburnside12 No I’m rejecting that WL provides needs better than retirement accounts. Retirement accounts are long term accounts. 20-30 years. But then you proceed to talk about short term problems. If you want to argue WL provides financially better than short term accounts then sure you have more of an argument. But that wasn’t your argument. You’re comparing apples to oranges really.

But let’s go there were you want to go…

How is whole life helping me save on taxes? My wife and I contribute the max amount to our 401k and SoloK. That saves us about $10k in taxes a year. Over 5 years that’s 50k in taxes saved. So instead of my tax deductible retirement account, since WL is better financially as you put, I put to a whole life policy which still creates a tax environment to me to pay more in taxes which leads me to having less money in my pocket which leads to when a big purchase comes about, I need to borrow more from my cash value policy. That WL not only would have to beat the interest I would pay, but also that $50k difference (in 5 years). So with even if I do have a lower interest from the WL, I have to borrow more from my policy than I would have at the bank. Rather than save the money from taxes and my other areas (even if I earn less interest) and save it away. So when that big purchase does come, even if the interest is a little lower, I borrow less than what I would have had to from paying in to the WL policy.

I agree that debt should be taken care of first. Once paid off. But many places should be taken care of. Retirement accounts as one should be taken care of.

You say you can’t access retirement accounts. That’s not totally true. Many 401ks offer loans. Roth IRAs you can withdraw the contributions. Both without hitting IRS penalty or taxation. You used houses as an example. First time home buyers can absolutely touch their retirement accounts without penalty. Ifs it’s a Roth and been established for 5 years, not only can they touch it for the house, they can touch it tax free.

You say a conventional bank loan is too expensive. Even in todays environment getting a loan from the bank, for say a car, is cheaper interest then what it would be to take out of cash value for me. And that’s assuming the cash isn’t there. But pay a car off and keep paying the note to yourself. Not saying don’t make big purchases. But be smart about big purchases. Will a car last 50 years? Not today’s cars. Will they last 10-15? Sure unless wrecked and then still that’s what we have auto insurance for. Home repair again what are we talking about? Washer goes out, not a major purchase really. Roof needs to be fixed. There’s grants and avenues also. I just had to have my AC replaced in my house. 11k just this December 2023. Again, was still lower interest on a loan for it than it would be to take out of my cash value. My interest is 0% for two years. If I did 2 years or more it would have been 2.86%

You say savings doesn’t pay enough. Thats true in low interest times. I’m earning 5.5 and 6% on my savings and checking right now. But the flexibility to move and make more money in favorable market times with my non qualified during low interest times also. 2022 I earned 3.61% moving out of the market including my 5.5 from my saving. Then dollar cost averaged back in in 2023 and earned 18.7% last year. I’m up over 14% YTD this year. Still with 30k sitting in cash earning 5.5% and 6% in two different accounts. Since beginning of 2022 I have a cumulative return of 22.6%. That’s with a bad market. Would WL have done that for me?

 

[evanburnside12]

@resjudicata

No I’m rejecting that WL provides needs better than retirement accounts. Retirement accounts are long term accounts. 20-30 years. But then you proceed to talk about short term problems. If you want to argue WL provides financially better than short term accounts then sure you have more of an argument. But that wasn’t your argument. You’re comparing apples to oranges really.

That was and still is my argument. The conventional advice is to have 3 months of expenses saved and put everything else into retirement accounts. I think you should do much more than 3 months. And having your emergency fund in a WL policy instead of a savings account makes way more sense.

So with even if I do have a lower interest from the WL, I have to borrow more from my policy than I would have at the bank.

This makes no sense. You're borrowing the same amount. Your retirement account is unaccessible so its current value doesn't matter to my present needs.

You say you can’t access retirement accounts. That’s not totally true. Many 401ks offer loans. Roth IRAs you can withdraw the contributions. Both without hitting IRS penalty or taxation.

401k loans allow you to borrow up to half at most. Roth IRA withdrawls are only for contributions, not earnings. And withdrawing is the worse option anyway since it means you no longer accumulate that interest.

You used houses as an example. First time home buyers can absolutely touch their retirement accounts without penalty. Ifs it’s a Roth and been established for 5 years, not only can they touch it for the house, they can touch it tax free.

Mortgages are the lowest rates of any loan, so I don't think they're a good use case for WLI.

Would WL have done that for me?

You can take out a loan to invest. Why not?

 

[resjudicata]

@evanburnside12 You ignored so much of my post there. Way to cherry pick rather than the picture as a whole. I agree. Mortgages aren’t good. I just used different examples of what you threw out there.