Hello guys, so i bought a 30-year term life insurance policy for $200,000 11 years ago after purchasing my first home. The policy costs me $61 a month. Recently, an agent from Assurity reached out and offered to convert my policy into a whole life policy for $170 a month. Some benefits include building cash value—almost $3,000 in the first year—and it will grow as I pay into it. The biggest draw is that since I’ve been paying for this policy for 11 years, I wouldn’t need a medical exam (mostly).
I’m a 39-year-old male with no health issues or medications, just a high BMI. I’d appreciate any insights on whether this is a good deal for me or if it would be better to invest that money into a Roth IRA or another investment option. I also have other life insurance policies through work, but I’m looking for advice. Thank you!
If you’re still in good health, get a quote for a new insurance policy and choose the permanent insurance that fits you best. Then, compare it to the quote they gave you to see which one benefits you more and aligns with your long-term goals. The advantage of converting is that you don’t need a medical exam, and you’re past the period where they can cancel your policy as long as you don’t increase your coverage amount.
If you’re healthy and under 50, many carriers offer accelerated underwriting, so you can get approved without a medical exam. I recently helped a 44-year-old man get a $3M policy without one.
Instead of using whole life insurance, consider Index Universal Life (IUL), which gives you some market participation (without being directly in the market), unlike just getting a fixed rate. Also, think about how you’re contributing to your 401K. If there’s a company match, contribute up to the match, but consider putting the rest toward your policy premium. Many people don’t realize how much they’ll pay in taxes when they withdraw from their 401K in retirement—this is often referred to as the “retirement tax time bomb.”
“Massive taxes” and “tax bomb” sure sound alarming, but it seems like you don’t fully understand how taxes work. I retired early at 47, and all my income comes from my rollover 401k. With the 12.5% early withdrawal penalty plus regular federal and state taxes, my effective tax rate on $200k of income was 26% last year. You insurance folks love to exaggerate with these scare tactics. LMAO.
Wow, calling it fear-mongering? Take a look at Ed Slott (he’s been on PBS too) — he discusses the “Tax Retirement Time Bomb” in detail. Congrats on retiring early! But what happens to your retirement if the market dips while you’re withdrawing funds? Have you protected yourself against that risk? By the way, with an effective tax rate of 26%, your marginal tax rate is probably around 32%. If you’ve already covered market risk, tax risk, and long-term care in retirement, that’s great. But for many of my clients who don’t have those safeguards, these policies help fill that gap.
I wouldn’t buy whole life insurance unless I had already maxed out contributions to my Roth IRA, 401k, and other retirement accounts. If you’re looking for longer-term life insurance, it might be worth applying for a new policy. Many carriers now offer accelerated underwriting, so you may be able to skip the medical exam, but you’ll still need to answer health questions and provide your height and weight. Good luck!