Are There Any Situations Where Whole Life Insurance is a Good Idea?

Are There Any Situations Where Whole Life Insurance is a Good Idea?

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[cuz]

Is always fun when there is real chemistry on a video or podcast, where there is mutual respect and affection. Plus Clark Howard, you can't get any cooler than Clark! Always enjoy you guys.

[michaelswami]

Clark Howard and the Money Guys are national treasures.

[gtsuby]

As part of our estate plan, my wife and I have a Whole life policy with second survivor. This tax-free income will fund a 3rd party special needs trust for our ASD son when we pass.

[LooseArrowBoy]

I'm getting out of my whole life insurance. My parents convinced me to get it when I was 18.

After 11 years this is what happened.

My total cost was 1.2k yearly with 100k coverage. My cash value was 11k, death benefit 130k.

Now if I just invested $79 in the same period with a $21 term plan I would have 20k cash instead with 250k death benefit.

Looking at the projected earnings accounting for the entire yearly 1.2k cost I would be seeing about 2.9-4% APY on the whole life plan.

If I invested $79 monthly at 7%apy by age 65 my cash value alone would beat the death benefit and cash value of the whole life. If only 4-5% APY you come closer to breaking even.

Whole life can be used for diversification, but at a great opportunity cost.

Invest and grow when you're young. As you close in on retirement allocate to more cash and less volatile assets. Have 3 years of savings. If you do this the security of the whole life is un needed.

Whole life is for the extremely rich or the financially ignorant who can't manage money. There are few select cases where whole life works and is needed, but know these are very unique.

[fun]

I had a scenario that I had to buy whole life., but I considered it for a short duration. I was unable to qualify for term due to being type 1 diabetes. I needed to fund enough life insurance to fund the basics (kids education, setting my wife up to replace my salary etc).

I got out of the whole life when I left jobs and was able to ‘port’ my term policies from the companies upon exit. I kept whole life about 6 years until I was able to replace the whole life with term.

This approach allowed me to protect my family until I was able to access enough term to cover my families needs.

[Ben-ywbe]

99% of the time, term insurance is the best life insurance product for the average family. I would just start a separate account for investments not tie it to a life insurance product.

[schema]

Love your show guys! Make sure to be clear on the discrepancy between term vs. permanent vs. whole life for your audience. Whole life is a type of permanent insurance, just as universal life is different type of permanent insurance. Permanent UL makes a ton of sense for estate planning, business planning, and Long-Term Care. The IRR on estate planning permanent policies is often 12-15% after factoring all the tax components. Tough to beat that. In my opinion whole life literally never makes sense for anything, maybe capital preservation at best. If you’re in the middle class, and you’re not looking for LTC coverage, term all the way. Life insurance with LTC riders have completely taken over the stand alone LTC policy market.

[patrickmcconnon]

Off the rip if you asked me and I am just somebody who is studying for my series 7 right now I would say somebody bad with money would be a decent candidate for whole life insurance

[benstephenson]

Perm insurance isn’t right for most. But for those in high tax brackets, who are phased out of Roth’s, it can be a good tax diversifier to offset much of the ordinary income tax one would pay on distributions throughout retirement or even prior such as college tuition or a new home, kid’s wedding, etc. Also creates a tax-free estate for beneficiaries when the insured dies. Last benefit, is that most newer policies offer long-term care riders which cover the costs of nursing homes and around the clock nursing care which is quite expensive. Like I said, it’s not for about 95% of people, but certainly a value addition for those top earners.

[johnenslin]

So I assume you guys have a different opinion on permanent insurance if the family has a large estate and knowingly will have an estate tax issue? I work with Midwest farmers with $25k an acre dirt and 1000s of acres. If I’m wrong, please explain why, and if I’m right, then make sure to add that in. Because, those farmers listen to you then don’t understand why we are leveraging insurance to cover the estate tax.

[simsing]

You can use Whole life insurance to balance out your portfolio
to put it in perspective you can keep your whole money in the s&p and when the market goes down you stop withdrawing from it you just take out from the whole life insurance policy

[DVFinancial]

I would recommend you guys read Ernst and Young article of using life insurance as a volatility buffer. Wade Pfau has a white paper on this exact topic. My question is. If someone is all in on investments, term has expired and market is tanking…kind of like now and they retired this year. Where do they pull from to avoid sequence of return risk? Do they stay invested or annuitize their retirement assets with other products?

[tylerrobinson]

I agree to what they are preaching in regards the un guaranteed indexed universal life policies. But for those interested in infinite banking on your self a tradition whole life insurance policy can work very well and be a great addition to a diversified portfolio. My policy is optimized for cash value and I will break even around year 5 in the policy. This means after year five I have money growing for me tax free like having a money printer inside of a Roth IRA. This policy keeps my family Insured and protected while making me a nice return for the rest of my life after that. Day one if I want to collateralize the cash value of the insurance asset I can at some of the best rates out there. This means I can grow the same dollar twice inside tax free and use it outside at the same time.

[ELIRAXPRT]

No mention of long term care riders, estate planning and wealth transfer of older folks. If I’m a senior citizen with an insurance need I’m not buying term. This video is all geared towards young people. Personally I hope to be self insured in my retirement years but not everyone put enough away or have unique needs such as second marriage and loss of pension income

[philipliu]

Statistically, you would never use your term insurance. Smart people design term life insurance such that you will lose your money. You will always have DB with whole life.

[July..]

Listened to Clark for years. He is a wise man. Yes 10 times is an excellent choice in two twenty year terms from 20 to 40 and again from 40 to 60. At 60 you should not need any life insurance if everything is paid off.

[jeffalleninvestor]

I wish these folks would be totally transparent about both sides of the issue. It is probably more like 35% to 40% should use properly structured permanent life insurance. Properly structured is the key as many are not and the brokers make high fees as indicated. Properly structured they do not, but these guys only ever set up a straw man argument without the real details.

[phattonez]

You complain about whole life because you say that it just makes money for the insurance company. But then you recommend term insurance, and insurance companies get higher margins on term because they usually don't pay out and they don't pay out a dividend on term. It really doesn't make sense.

Buy whole, overfund it to get early access to cash value, and reinvest the dividends. That way you can finance your big purchases with the money you're saving for retirement, all while growing a tax free pool of cash that you have full access to.

[kaohsiung]

It's called "whole Life" insurance because the company rips you off for your WHOLE LIFE. Does that make it clear?

[jackjia]

I would say you guys being Dave Ramsey here a little. Instead of teach people what whole life insurance is and what it protects you from, you basically just say no. For most people, whole life insurance does not make sense. That’s true. But that’s because most people don’t have what that insurance protects. It’s like if you don’t have a car, you don’t need car insurance. But when you do have a car, you must have car insurance. Most people won’t face millions of dollars of estate taxes, but some does. Think about it, how your kid going to pay millions of dollars tax without this? Term won’t cover you once you are very old. Without whole life insurance, your kids will have to sell some of your stuff to cover the taxes. They might not want to do this. And this might cause more taxes. Again, this is very rare. Not many people are this rich and not richer. Because if you are even richer, there are other better ways of doing it.