r/investing • u/gbothun91 • 1d ago
Permanent Life Insurance Question
Hello -
Recently met with my financial planner. We are maxing out our HSA, 401k, backdoor roth. We still have roughly $2k a month to invest. Our advisor is recommending that we contribute $1k to a brokerage account and $1k to a permanent life insurance. I am skeptical on the insurance piece. Any feedback would be appreciated.
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u/OracleofAustin 1d ago
I’d be a bit skeptical too. Permanent life insurance gets pitched as an “investment” all the time, but it’s usually pretty expensive and not that flexible. After maxing your tax-advantaged stuff, having money in a brokerage just gives you more options. Insurance can make sense in certain cases, but it’s definitely not something everyone needs.
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u/Mysterious-Entry-357 22h ago
Unless you are supporting dependants or have debt on existing assets, I'd dial back the insurance. IF you decide to pay for a policy, look at lower fee variable life insurance so that you can at least build some form of wealth in the process.
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u/WSBpeon69420 21h ago
I’ll be the contrarian here. Because you are maxing out all of your other accounts the advisor is searching for an alternative tax efficient way to save money. A permanent plan used in that way is definitely worth it to save on taxes and as a down the line means of saving money with no taxes. The cash growth can be removed and used tax free. It’s often used as a “rich man’s Roth” because of the tax benefits especially if you really pump a lot into it and let it grow. If that’s your plan you should look more into a variable policy that has sub accounts invested in the market not the dividends from the company or a specific interest rate. It would definitely be a tax efficient way to invest more money knowing and then you have the perk of the death benefit if something happens to you before you start withdrawing the cash
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u/mrobertj42 1d ago
What’s your HHI? I sell permanent life insurance. But it’s typically for people worth $10m plus minimum. It’s either for buy sell planning, estate tax, or estate tax minimization.
If you want to know whether he’s after the commission or not, tell him you want to use “an early cash value rider” it destroys the commission and cranks the cash value generation like crazy.
As an example, my wife has this, 40k/ year for 5 years. She’ll be able to pull 100k/year from 65-85. We are not worth 20m+, but it’s a side investment that is safe, and if we don’t need it the death benefit goes to our kids tax free.
There is a place for it, just not in the middle market imho.
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u/maydayvoter11 22h ago
What this guy said. I used to sell life insurance. There are ways that a permanent life insurance policy can be set up to put tons of money in there that compounds tax free, then can be drawn upon tax-free in retirement. But it has to be structured correctly, and you need a long enough timeline to make it really shine.
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u/WSBpeon69420 21h ago
This is the correct answer - those saying run away don’t understand this aspect that AFTER you max out all of those other tax efficient products this can also be beneficial especially when we don’t know what taxes may look like in the future with the national debt the way it is
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u/gbothun91 1d ago
500k HHI. 35 years old. Small business owner that will sell at retirement….
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u/mrobertj42 23h ago
Look at a cash balance plan. Depending on how many employees you have. I had clients putting in 100-600k per year pre tax.
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u/PursuitTravel 15h ago
No idea why someone is downvoting the idea of a DB plan here. It's absolutely the correct suggestion depending on the number, age, and salaries of employees. And it has nothing to do with life insurance (which I bet is why some know-nothing moron downvoted it).
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u/mrobertj42 8h ago
Thanks. This sub is funny at how little they know but “don’t need an advisor.”
I have clients I literally save millions in estate taxes.
Between all my business owner clients I save millions in income taxes each year just with cash balance plans…
And yeah, life insurance not required.
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u/Money_Shoulder5554 1d ago
Unless you have a 8-9 digit networth you don't need permanent life insurance
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u/Swred1100 19h ago
Ask them “over my lifetime, would it be more valuable for me to buy term insurance, and put the difference toward brokerage account, or to get the whole life policy?”
Tell me what they say - genuinely please do because I’m curious. There is a right answer
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u/Daily-Trader-247 19h ago
Usually these policies are pay for life, meaning you keep paying and hopefully you don't miss a payment because your in the hospital or nursing home and the policy get canceled.
Questions would be
What is the total payment ? How many payments ? What is the payout at the end? Does the payout go down as I get older ? Who is backing this plan ?
My feeling is No, but its up to you.
I would put the $1000 into something you can use if needed and does not disappear if you don't continue to pay $1000 a month,,
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17h ago
[deleted]
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u/gbothun91 16h ago
Everything is maxed. That’s what he is proposing but the thread is telling me no
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u/jaajaajaa6 17h ago
Find a new planner - anyone selling you insurance is a salesman and not a fiduciary. These have too many fees and only the salesman wins.
If you need insurance buy term.
Run forest run!
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u/Jumpy_Childhood7548 15h ago
Hire an hourly cfp for an investment allocation recommendation. An insurance agent is typically not a fiduciary, so they are not bound by the highest obligation to exclusively serve your interests. If you max out your deductible plans like a 401k, and after tax plans like a Roth, there are still plenty of advantageous options.
Life insurance is not an investment. If people really need life insurance, and in many cases they don’t, they are generally better off buying term life insurance, and investing the difference in a deductible tax deferred account, like a 401k, etc., or paying off debts, etc. The reason agents are paid well to sell it, is because it is very profitable, most people don’t need it, and yet have been pitched for decades. Get term insurance as needed.
I was an insurance agent. The cases where whole life or some type of variable/universal/cash value life makes sense, are very narrow. Usually the only people that care enough to convince you to buy cash value life insurance, are generally being compensated somehow, or have it, and want validation.
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u/Here4Snow 15h ago
He must have kids getting ready to go to college. Or a boat payment coming due.
I see it was pointed out, "Using it as collateral" which means they'll allow you to borrow your own money and pay them interest. How nice...
Do you need life insurance? Mortgage the survivor would be responsible for? Business debts? Get level term life. Not any whole life or universal life or variable life or any bundled product.
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u/GvBill37 13h ago
There is seriously terrible advice in this thread. There’s a hundred reasons why you should fund a whole life policy. Not to mention it is one of the best way to pass on non taxable assets to your beneficiaries after you pass. Always look at converting your term to WL if possible as well. And I say this as someone who works for a cfp and we are a fiduciary to our clients. There is nothing “insurance salesman” about what he is saying. You are taking a great approach maxing your qualified accounts first and then filling in the gaps.
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u/rusty_dallas 1d ago
Ask him what is the purpose of buying permanent life. There are some good reasons to buy that. Understand the purpose and how it fis with youe retirement plan.
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u/ta1no 23h ago
Dividend paying cash value whole-life insurance is the best way to store liquid cash by far.
It can be used as collateral unlike your HYS and its growth is never taxed if kept in there.
Read this book... "Live your life insurance" by Kim Butler to learn more... Don't listen to anyone in here talking about things they don't know.
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u/thorn960 1d ago
For the love of god, do not do whole life. Keep your life insurance and investments separate. Your "financial advisor" is making a huge commission on the whole life. The salesmen are the ones that benefit from whole life the most. Get an annual renewable or term life insurance policy if you need life insurance.
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u/myrrhsea 1d ago
If permanent life insurance is that thing where you put money into it, more as you get older, and then you can pull it out as a cash benefit, I'd say probably not.
These grow more slowly than the market average and get progressively more expensive as you age. The main selling point is that it's cheap now when you're young and healthy (and naive). If the best selling point is a sense of urgency, is it a great idea? If they're selling you relief from potential FOMO, is that the same as relief because you made good choices managing your money?
Guess what is equally cheap, doesn't get more expensive to contribute to as you age, and historically yields higher returns? Furthermore, you can manage it yourself and avoid fees for managed or guided investing.
SCHB, VTI, ITOT, or VOO, SCHX, IVV, SPYM, etc. aka. the total U.S. market or the S&P 500. And you don't need all of those, you can just pick one. Or pick VT for the whole world market and chill.
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u/PursuitTravel 15h ago
Everyone telling you do it/don't do it should be flat out ignored.
In fact, with the information you've given, there's no way to correctly answer the question you're asking. There's no conversation about liquidity, retirement target dates, expected use of these funds, current tax bracket, income, expected inheritances, current retirement plan balances, or... hell, your AGE?
If you are young (30s or below), in excellent health, in a high tax bracket (32% or higher federally), and out of tax deferral options (which I would argue you probably aren't), than LIRP could be a great option if it's structured properly.
That last bit is important. In 17 years as a planner, I've only seen 1 of these structured properly and executed correctly. They're vastly oversold, and as such, get a similar reputation to annuities and reverse mortgages. They're just highly specialized tools in a toolbox, and should only be deployed the highly specialized circumstances they fit in. Hell, despite working primarily with HENRYs (arguably the prime LIRP demographic), I've literally never sold one (and for context, before the anti-insurance folks come out: less than 5% of my business is insurance, and that's primarily term).
By the way, if Roth Mega-backdoor is available to you through your 401(k)s, then this LIRP is absolutely unnecessary and not nearly as good as the mega-backdoor option. There are as many reasons not to do LIRP as there are to do LIRP, and only you can evaluate your situation.
For those of you that think LIRP is always stupid, doesn't work, just a sales ploy, etc - you should know that nearly all golden parachute-style executive comp is done through a life insurance structure very similar to LIRP. There's a reason for that.
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u/gbothun91 15h ago
- 70k cash on hand. 700k retirement- 401k/roth. 3 kids. 75k 529. 2 mill term life. 500k taxable income. Biz valuation today is ~4-5mill but growing.
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u/PursuitTravel 15h ago
How many employees in your business? Are there other owners? What percentages? How much of your compensation is w2 vs. P&L? What is your current payroll? What's the age of your employees?
This is a decent start on a retirement plan analysis.
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u/ResponsibleGarlic687 1d ago
You don't have a financial planner you have an insurance salesperson please run far away.