I’ve read here and there that WL can be useful for people who’ve maxed out their retirement accounts like a 401k. Can anyone explain how this works and why it’s a good idea? Thanks in advance!
It’s not that there’s zero benefit, but there are definitely better options for someone who has good income and can save a lot. A simple brokerage account with a mix of index funds and bonds adjusted as you age could work better.
I’d only suggest WL for someone who can’t save on their own. It’s better than wasting money on random stuff, but if you’re disciplined, you’ve got way better choices.
Here’s an article that might help: https://retirementresearcher.com/occams-how-buffer-assets-might-help-retirement/
You’re probably better off just investing in a taxable account rather than using life insurance for investments.
But don’t forget to make sure you’re covered if someone depends on your income.
If you design WL right, you can pick how much you want to pay. The growth is tax-deferred and tax-free if you handle it the right way.
You also avoid things like RMDs. You won’t get equity-level returns (unless you look at IUL for market exposure), but you do get steady, compounded growth. Plus, it can leave a legacy for your family.
WL can work well for lifetime fixed income planning if that’s what you’re after. You can use your retirement accounts for stocks and let WL act as a kind of compounding, tax-free bond-like asset. The insurance company runs a bond fund and passes gains as tax-free dividends, without the same risks or hassles as actual bonds.
@Toby
It’s tax-free because technically you haven’t made real money. The IRS treats it as a return of overpayment rather than a dividend since it’s not true profit. The insurance company charges you more, invests your money to make themselves money, then gives you some back and calls it a dividend.
@Blake
That’s only half right. If it’s just a refund, how does the cash value grow beyond what you paid? Some policies have cash values that are 5x the premiums paid. It’s a legal framework, sure, but the practical result is real growth.
@Toby
Nope, I’m right practically too. If you’re after a big death benefit, term insurance is better. You’re trying to spin this to sell WL, but people only buy it because they’re misled.
Blake said:
@Toby
Nope, I’m right practically too. If you’re after a big death benefit, term insurance is better. You’re trying to spin this to sell WL, but people only buy it because they’re misled.
Wrong again. Even at current dividend scales, WL can grow cash value to 5x the premiums over 40 years. That’s just the cash value, without even touching the death benefit.
You’re contradicting yourself when you say WL returns are bad (which acknowledges there’s growth) but then call it a refund of your own money. Pick a side.
@Toby
You’re twisting things to make WL sound good, but it’s one of the worst financial products around. You’re not truly gaining money if you have to borrow to use it. With regular investments, you grow money that’s 100% yours, and you can spend it without owing anyone.
@Blake
Okay, Primerica.
Hollis said:
@Blake
Okay, Primerica.
Haha, no, I’m definitely not advocating for Primerica.
@Blake
That’s another oversimplification. Sure, you can withdraw cash value and pay taxes on the gains, but why would you? Borrowing against it lets you avoid taxes while keeping the compounding going.
The idea is you borrow against the cash value, pay a small interest, but also keep earning dividends on the full value. It’s a smart way to use it if you know what you’re doing.
EY has some studies on this topic.
Whole life insurance can work as a retirement tool if you’ve already maxed other options. Tax-deferred growth, flexible loans, and estate planning make it attractive for high earners. But the high premiums and slow cash value growth are downsides, so weigh the pros and cons carefully.
If you’re after retirement income, have you looked at annuities?
WL is more about creating an estate for your family after you pass. Its cash value can help later, but that’s secondary.
Overfunded life insurance has tax benefits, but it also comes with costs. I wouldn’t bring it up unless someone maxes out all other tax-favored investments and has significant extra funds to invest, like $50,000+ a year. And I’d go with IUL or UL over WL since they offer better loan options and added protections to avoid tax issues if the policy lapses.