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Over funded Life Insurance

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Over funded Life Insurance

 
Old 04-15-2016, 08:38 AM
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Default Over funded Life Insurance

Ok, yes I am on a car forum asking investment advice, but it seems there are a couple sound investment experts who really chime in and offer good advice, I think on an investment forum I may get mixed advice on this subject.

My wife and I are both young and in good health, we have a small daughter who we want to be sure is taken care of when we are gone, not made filthy rich, but taken care of. We have several term policies that would give a total death benefit of around $300k each, these are really inexpensive policies mostly provided throug work. Recently we began talking with an advisor about whole life in an effort to take advantage of low premiums available to healthy 34 year olds. My concern was can I invest that $ and do better for my daughter while still maintaining the flexibility to use the $ for retirement if needed, which brought about the idea of doing both by overfunding a policy.

My understanding is the overfunded policy essentially has the same benefits of a Roth IRA, but no income cap, plus the death benefit for my daughter

Does anyone have any guidance relative to what we are being advised?
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Old 04-16-2016, 07:59 PM
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Whole life is one of the worst products you can buy. The interest you're getting is horrid and the policy itself will not beat a term policy in terms of coverage vs. premium amount. I would be cautious of an adviser who pushes you towards whole life as they're most likely getting a commission from selling you this product.

Shop for a term policy outside of what is provided by your work as you'll most likely get lower premiums. One of the best term life insurance brokerages out there is Zander Insurance (http://www.zanderins.com/default.aspx) - I used them to buy mine and my partner's term life policies. With the low premiums you'll be paying for your policy, use the additional $$ savings to either fund your daughter's college fund or your own retirement account.

I wrote a blog post about buying life insurance as a younger person, check it out: http://khang-nguyen.com/?p=451

If you haven't already, I would read Dave Ramsey's The Total Money Makeover because it's one of the best books on personal finance out there. I thought my knowledge of personal finance was quite savvy but I was looking at everything from the wrong perspective after reading the book.

In summary, DON'T BUY WHOLE LIFE INSURANCE!!! Buy a 15/20 year term policy and then use your savings from what you would spend on a whole life policy to invest for your child's future as well as your own.

Hope this helps and feel free to message me if you have any further questions. I'm by no means a financial adviser or expert but I think it's always a good idea to bounce your ideas off someone who is objective.

Good luck mate!
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Old 04-17-2016, 04:57 AM
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Well I think that it is an investor directed whole life, so it isn't like a traditional whole life policy.

This is an article with more info:

http://www.fa-mag.com/news/tax-relie...ing-17185.html
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Old 04-17-2016, 04:58 AM
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My concern is, I am 34 if I buy a 20 year term what am I looking at in premiums when I am 54?
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Old 04-17-2016, 05:35 AM
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Originally Posted by bgoetz View Post
My concern is, I am 34 if I buy a 20 year term what am I looking at in premiums when I am 54?
Follow khangaroo's advise, he is correct. Whole life is junk, not an investment. Don't worry about premiums later, you just buy another term life or renew the one you have, yes, it will be more because you are older but you still come out ahead. I also would not look at your/wifes life insurance as a way to take care of your daughter, it is for you or your wife to be taken care of. Save for her college and set up some mutual fund act for her.
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Old 04-17-2016, 07:06 AM
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We have a 529 for her college. The idea is to have some portion of our retirement that isn't taxible income. We don't have a Roth and we're going to start investing the same amount in a Roth as we were the policies, the concern is that based on our income we will not be able to take advantage of a Roth after 3-5 years. So the idea is an over funded policy would serve this purpose.

Or are we better going 100 percent into the Roth and worry about exceeding the income cap when we do
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Old 04-17-2016, 05:10 PM
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Originally Posted by bgoetz View Post
We have a 529 for her college. The idea is to have some portion of our retirement that isn't taxible income. We don't have a Roth and we're going to start investing the same amount in a Roth as we were the policies, the concern is that based on our income we will not be able to take advantage of a Roth after 3-5 years. So the idea is an over funded policy would serve this purpose.

Or are we better going 100 percent into the Roth and worry about exceeding the income cap when we do
There's a "loophole" where you can invest in a traditional IRA and then roll it over into a Roth if you exceed the income limit - Google "Backdoor Roth", it's a perfectly legal thing to do. I'm sure the government will close it soon but might as well take advantage of it while you can; hopefully it'll still be there in 3-5 years when you anticipate hitting the income limit.

I would also max out an ESA prior to investing in a 529.

Also, jca24 is right about the purpose of life insurance. When you're 54 and have been following sound financial principles then the goal is that you won't need life insurance because you should have at least a million in the bank so that if you die, your wife will be well taken care of. As for your daughter, hopefully she'll be all grown up by then and not living in your basement!
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Old 04-19-2016, 01:52 AM
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Most people need whole life insurance. The reason being is that the idea of buying term and investing the difference so that when your in the 60's you won't need life insurance is a great idea and great plan. But the truth is that 90% of most people don't do that and will still be broke at that age and will still need/want life insurance. You can imagine the sob stories I hear all the time from old broke people in there 70's crying cuz there term policy expired or the price got so absurdly high that they can't afford the policy anymore, wishing they bought whole life when they were young. But then again I only deal with average people not not the top 20% of whom can actually build a retirement for themselves.

I been selling all types of life insurance full time for a living for the past 10 years now.
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Old 04-19-2016, 04:48 AM
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Originally Posted by riceball777 View Post
Most people need whole life insurance. The reason being is that the idea of buying term and investing the difference so that when your in the 60's you won't need life insurance is a great idea and great plan. But the truth is that 90% of most people don't do that and will still be broke at that age and will still need/want life insurance. You can amazing the sob stories I hear all the time from old broke people in there 70's crying cuz there term policy expired or the price got so absurdly high that they can't arrows the policy anymore, wishing they bought whole life when they were young. But then again I only deal with average people not not the top 20% of whome can actually build a retirement for themselves.

I been selling all types of life insurance full time for a living for the past 10 years now.
So what are your thoughts about over funding an adjustable rate whole life policy as a way to "kill 2 birds with one stone"? Based on the comments so far I sorta decided to stick with our term policies and put it all in a Roth then figure things out if and when we exceed the income cap, but if you can convince me different....
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Old 04-19-2016, 09:20 AM
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Originally Posted by bgoetz View Post
Originally Posted by riceball777' timestamp='1461059548' post='23942460
Most people need whole life insurance. The reason being is that the idea of buying term and investing the difference so that when your in the 60's you won't need life insurance is a great idea and great plan. But the truth is that 90% of most people don't do that and will still be broke at that age and will still need/want life insurance. You can amazing the sob stories I hear all the time from old broke people in there 70's crying cuz there term policy expired or the price got so absurdly high that they can't arrows the policy anymore, wishing they bought whole life when they were young. But then again I only deal with average people not not the top 20% of whome can actually build a retirement for themselves.

I been selling all types of life insurance full time for a living for the past 10 years now.
So what are your thoughts about over funding an adjustable rate whole life policy as a way to "kill 2 birds with one stone"? Based on the comments so far I sorta decided to stick with our term policies and put it all in a Roth then figure things out if and when we exceed the income cap, but if you can convince me different....
like he said, he deals with the average people. Average people in the US are horrible at saving/investing. Don't do what they do.
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