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Excellent description of permanent LI, mathjak. Everyone heed that. The one thing I will add to his point here:
Quote:
when you terminate your policy that cash value is the companies agreement to give you back a refund on the fact you over payed for what amounted to term insurance . they will refund you that agreed amount with an agreed amount of interest on the over payment.
...is that upon surrendering an LI policy, the owner is required to pay taxes on the capital gains of the cash/surrender value. This is a little-known detail that LI agents and companies tend to gloss over - especially in their attempts to present LI as a Roth- or 529-type investment.
Many times in some of the other forums i frequent folks question why they never see a breakout as to each premium payment they send in and how much is cash value and how much is insurance costs.
It shows you how little people understand about the products they buy. You can't really blame them either as annuities and whole life products can take an mba to really figure out.
They don't grasp the fact that that huge premium they pay over term is all insurance costs. It is based on the fact they will hold that policy until they die or the policy endows around age 100-105.
Usually by age 100 all your dividends , interest and premiums reach a point where your cash value is the same as the policy value. At that point your policy is terminated and they send you back only the face value of the policy and now you are self insured. That is refered to the policy reaching endowment.
The fact is you pay a hefty premium over term for the fact your heirs can and will collect if you hold long enough .
That is compared to term which goes largely un-paid out since it is only for a specified number of years . Generally you have it during the lower risk years too.
The facts show most whole life policies are cashed in during the first 15 years and coverage terminated.
Even though you get a portion refunded as your cash value if you terminate , the fact you are not using it until death makes it very very expensive term insurance.
Sure you can borrow from it but that compounding interest can overwhelm the policy value terminating the policy and sticking you with a tax bill to boot.
Excellent description of permanent LI, mathjak. Everyone heed that. The one thing I will add to his point here:
...is that upon surrendering an LI policy, the owner is required to pay taxes on the capital gains of the cash/surrender value. This is a little-known detail that LI agents and companies tend to gloss over - especially in their attempts to present LI as a Roth- or 529-type investment.
good point i forgot about that aspect of using it for school compared to a 529.
They were especially nice to have in 2006 when the cash value in those kept climbing while the rest of our retirement accounts were not. I know a lot of people that lost huge portions of their 529 values when the market crashed and just didn't have time to recoup those losses by the time their kids were going off to college.
The market tanked in late 2009 and had largely recovered by mid 2011. It has now exceeded previous highs, so anyone who stayed in and didn't panic should now be ahead. And anyone who has the majority of their 529 in stocks with less than two years before their child needs the money for school is making a big mistake regardless. Same rule goes for retirement funds.
They were especially nice to have in 2006 when the cash value in those kept climbing while the rest of our retirement accounts were not. I know a lot of people that lost huge portions of their 529 values when the market crashed and just didn't have time to recoup those losses by the time their kids were going off to college.
Golfgal, if those people needed the money within 2 years and they were heavily involved in equities, then they have no one to blame but themselves for ignorance...
its not the markets fault that they lost a good chunk and panicked. They were ignorant about what they were doing....
Golfgal, if those people needed the money within 2 years and they were heavily involved in equities, then they have no one to blame but themselves for ignorance...
its not the markets fault that they lost a good chunk and panicked. They were ignorant about what they were doing....
And again, having funds in a 529 plan hurts you for other options, scholarships, financial aid, etc. Having funds in your Whole life policies are specifically excluded from your FAFSA and CSS . You have to look at the whole picture. Fine if you don't like it, it's worked out VERY well for us thanks.
And again, having funds in a 529 plan hurts you for other options, scholarships, financial aid, etc. Having funds in your Whole life policies are specifically excluded from your FAFSA and CSS . You have to look at the whole picture. Fine if you don't like it, it's worked out VERY well for us thanks.
I don't really understand your reasoning. The whole point for me of saving for my son's education is precisely so he can AVOID financial aid in the first place. So many kids out there now are starting their lives in five and six figure debt. Many will never crawl out from under it. As far as scholarships, other than meritorious scholarships, he won't qualify for those anyway, given our financial position. And hopefully, he turns out bright enough to be competitive for the many, many meritorious scholarships out there.
I am unaware of any financial advisor that is not connected to the life insurance industry, not one, who recommends life insurance policies as an education savings vehicle. But I'm glad it worked out for you.
I don't really understand your reasoning. The whole point for me of saving for my son's education is precisely so he can AVOID financial aid in the first place. So many kids out there now are starting their lives in five and six figure debt. Many will never crawl out from under it. As far as scholarships, other than meritorious scholarships, he won't qualify for those anyway, given our financial position. And hopefully, he turns out bright enough to be competitive for the many, many meritorious scholarships out there.
I am unaware of any financial advisor that is not connected to the life insurance industry, not one, who recommends life insurance policies as an education savings vehicle. But I'm glad it worked out for you.
Not everyone can save up the $100,000-200,000+ or whatever it takes to pay for college, especially if they have more than one child.. Some people can only save part of their college expenses. Many scholarships require that you submit your FAFSA and while they are academic awards, often there is a financial component to them as well. Often the biggest scholarships are only given to those that demonstrate financial need, even if they are merit awards. It will be an eye opener for you when you start going through the process I am sure. Again, there are many advantages to using a good whole life plan for college savings whether you choose to believe it or not and our 6+% ROR over the past several years is just the starting point.
The average student loan debt nationally is $25,000, that is hardly something that is difficult to crawl out from under--it's a car payment, easily paid off in just a few years. Don't buy into the media hype that this is actually a widespread problem because you only hear of the few that are in this situation--the few stupid ones. Our kids will be able to graduate with no debt from undergrad because they are good students and we can help them pay for some. They, however, are paying for about 90% of their own schooling through scholarships. The college money we saved for them, we get to now spend in our retirement thanks!
And again, having funds in a 529 plan hurts you for other options, scholarships, financial aid, etc. Having funds in your Whole life policies are specifically excluded from your FAFSA and CSS . You have to look at the whole picture. Fine if you don't like it, it's worked out VERY well for us thanks.
Be careful here. LI value may not be included in FASFA, but many, many colleges - especially the more selective private ones - will specifically request it in the CSS profile.
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. You have to look at the whole picture. Fine if you don't like it, it's worked out VERY well for us thanks.
