All Life Insurance Tips

Is whole life insurance a bad idea for a retirement plan?

I currently have a 401k with the max invested/yr. 15K + employee contribution - I'm thinking of utilizing a 457 plan, but a finacial guy said I should consider a life ins. plan for tax benefit purposes. Any suggestions appreciated!

Public Comments

1. Buy the insurance what is it worth. Life. Get term insurance. Don't mix and match two goals. You will regret it.
2. Whole life insurance are never a good retirement plan. On average, rate of return is between 1-3%. During first two years of the policy, no savings are accumulated. Plus, whole life insurance are very expensive because you are paying for death benefit and savings. If you wanted to use the savings for retirement there are two choices you can make: 1) Borrow it and pay it back with 6-8% interest (this interest does not go back to your savings, but kept by insurance company). OR 2) Surrender it. Surrender charges may apply and you may owe taxes as well. If you die while the policy is enforced, your beneficiary will only get the death benefit. Please note: Death benefit will be reduced if you have borrowed any money from the savings and/or you missed any premiums. All savings (or cash value as they call it) will be kept by the insurance company. To me, this is a total scam to the people being insured. Since this is all stated in the contract, everything is perfectly legal. So, your beneficiary can't even sue the insurance company for taking all the savings upon your death. Now you know how whole life insurance works, I suggest starting an IRA since you are maxing out your 401k already. Depending on your income and marital status, you may qualify for a Roth IRA. Roth IRA are tax-deferred accounts, so you will never owe taxes on any capital gains, interest, or dividends. When you reach age 59 1/2, you can start withdrawing money without any tax consequences. Every working citizen qualifies for a traditional IRA, which allows you to make tax deductions. You will be taxed on any gains or interest received in the traditional IRA. If you do want life insurance, I suggest buying term insurance. You should consider a 30 year term, if not then a 20 or 25 year term. There are inexpensive. When term expires, you can renew it without needing to provide proof of insurability. Usually when the term expires, people either lower their coverage because their investments has grown very well or decide not to need life insurance anymore because they have no financial obligations to pay (like mortgages or loans or credit cards).
3. While it’s true that whole life insurance policies can provide a source of retirement income, they are not retirement savings vehicles. As a matter of fact, many states outlaw marketing whole life plans as an investment or a way to save for retirement. Life insurance should be a part of most everyone’s retirement plan in that it is essential to help protect loved ones who might suffer without your income, but it should not be a substitute for IRAs, annuities, and other retirement savings plans. Check out MostChoice.com if you’d like to check out the latest prices, rates, and policy information on insurance and annuity products available in your area. There’s no obligation, and you’ll get a chance to discuss insurance and retirement planning concerns with local area agents. You can find MostChoice here: http://www.mostchoice.com/life-insurance.cfm Hope this helps, Barnes@MostChoice.com