Alternatives to Permanent Life Insurance

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Topic Author
mark1623
Posts: 93
Joined: Mon Jan 14, 2019 2:33 pm

Alternatives to Permanent Life Insurance

Post by mark1623 » Mon Jan 14, 2019 2:44 pm

To start, let me say that I've read a lot of reviews of permanent insurance, read the White Coat Investor's site, etc. and understand that the consensus is strongly against permanent life insurance. Feel free to rip on those products as much as necessary, but my goal here is to find some alternatives to those kinds of products for people already maxing out tax-advantaged accounts.

My wife and I max out our 401k and IRA and plan to save about 80k this year (and hopefully more going forward). I have a cousin who sells insurance and who I asked to suggest some things to do with that extra 30k. In news that will shock none of you, he went through options and settled on a VUL policy. This made sense to me because it's the only thing I can find that offers some tax deferral but upon doing more research it seems the cost is simply too high.

I am in my 30's, don't have any kids and don't plan to (and have no other need for a death benefit), and would like to be retired by 50 or so. Are there any other tax-advantaged options I might be able to use, especially because I am expecting to make some level of withdrawal prior to 59.5? I see a lot of people saying they haven't found a problem for which permanent life is a better solution than other options, but I can't seem to figure out what those other options might be beyond just buying index funds in a taxable account.

Thanks in advance for any help.

bloom2708
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Re: Alternatives to Permanent Life Insurance

Post by bloom2708 » Mon Jan 14, 2019 4:15 pm

Why the resistance to taxable investing?

Do you have access to an HSA?
ESPP at work?
Pay down debt. The mortgage has to go at some point
taxable account - Would a mix of emerging markets, small cap value and a treasury index be more exiting?

VUL is typically expensive and the returns are not great. But if you must buy it, people do. I don't think you will find too many here telling you to "go for it", but personal finance has a personal element.

Are you feeling pressure to "invest" with this "friend"?
“People don’t want advice, they want confirmation.” Unknown

NotWhoYouThink
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Re: Alternatives to Permanent Life Insurance

Post by NotWhoYouThink » Mon Jan 14, 2019 4:36 pm

I see a lot of people saying they haven't found a problem for which permanent life is a better solution than other options, but I can't seem to figure out what those other options might be beyond just buying index funds in a taxable account.
You just named it. Index funds in a taxable account. Gains are tax-deferred, because you don't get taxed on the gains until you sell. No fancy packaging required. You do have to deal with some pesky income from dividends, most of which will be taxed at LTCG rates, which are lower than the rates on ordinary income. Other than that, no taxes until you sell, with the opportunity to do some tax loss harvesting along that way that offsets some ordinary income plus some capital gains. It would take a pretty spectacular product to beat all those advantages. VUL is not that product.

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Stinky
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Re: Alternatives to Permanent Life Insurance

Post by Stinky » Mon Jan 14, 2019 4:43 pm

The embedded fees on a VUL policy are 2% or more. The fees on an index fund are a few basis points.

When you pull embedded gains out of a VUL policy, they’re taxed as ordinary income. Index fund gains are taxed at capital gains rates.

Don’t buy the VUL policy.
It's a GREAT day to be alive - Travis Tritt

Topic Author
mark1623
Posts: 93
Joined: Mon Jan 14, 2019 2:33 pm

Re: Alternatives to Permanent Life Insurance

Post by mark1623 » Mon Jan 14, 2019 4:46 pm

bloom2708 wrote:
Mon Jan 14, 2019 4:15 pm
Why the resistance to taxable investing?

Do you have access to an HSA?
ESPP at work?
Pay down debt. The mortgage has to go at some point
taxable account - Would a mix of emerging markets, small cap value and a treasury index be more exiting?

VUL is typically expensive and the returns are not great. But if you must buy it, people do. I don't think you will find too many here telling you to "go for it", but personal finance has a personal element.

Are you feeling pressure to "invest" with this "friend"?
No resistance, just wanting to make sure I'm not missing out on something.

No pressure to invest with the cousin, but would love to give him a little of my business if it's sort of a wash relative to anything else I could do.

No other debt to speak of, live in the Bay Area so forget about owning a house. Combined we have like 15k car debt at about 4% so I could pay that off but more generally just thinking of options for what to do with money beyond the 401k/IRA limits.

EDIT: No HSA or ESPP either, but good call on those. Wife has an ESPP so maybe we could bump that up.

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HomerJ
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Joined: Fri Jun 06, 2008 12:50 pm

Re: Alternatives to Permanent Life Insurance

Post by HomerJ » Mon Jan 14, 2019 4:55 pm

mark1623 wrote:
Mon Jan 14, 2019 2:44 pm
but I can't seem to figure out what those other options might be beyond just buying index funds in a taxable account.
Just buy index funds in a taxable account.

That's what I do.

You pay very few taxes until you sell. Dividends are around 2% a year, you'll pay 15%-20% on those. That's a 0.3% - 0.4% drag on your investments.

Far better than paying fees to defer all taxes like in a VUL.

It would a very bad decision to pay 2%-3% in fees every year to avoid 0.3%-0.4% in taxes.
The J stands for Jay

megabad
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Re: Alternatives to Permanent Life Insurance

Post by megabad » Mon Jan 14, 2019 6:31 pm

mark1623 wrote:
Mon Jan 14, 2019 2:44 pm
To start, let me say that I've read a lot of reviews of permanent insurance, read the White Coat Investor's site, etc. and understand that the consensus is strongly against permanent life insurance. Feel free to rip on those products as much as necessary, but my goal here is to find some alternatives to those kinds of products for people already maxing out tax-advantaged accounts.

My wife and I max out our 401k and IRA and plan to save about 80k this year (and hopefully more going forward). I have a cousin who sells insurance and who I asked to suggest some things to do with that extra 30k. In news that will shock none of you, he went through options and settled on a VUL policy. This made sense to me because it's the only thing I can find that offers some tax deferral but upon doing more research it seems the cost is simply too high.

I am in my 30's, don't have any kids and don't plan to (and have no other need for a death benefit), and would like to be retired by 50 or so. Are there any other tax-advantaged options I might be able to use, especially because I am expecting to make some level of withdrawal prior to 59.5? I see a lot of people saying they haven't found a problem for which permanent life is a better solution than other options, but I can't seem to figure out what those other options might be beyond just buying index funds in a taxable account.

Thanks in advance for any help.
Congratulations on being able to contribute $124,000 to tax advantaged accounts and still save $80k additional.

Other ways of deferring taxes:
1) Index fund/ETF investing
2) I-bonds
3) HSA
4) Fixed Deferred Annuity

There are many options other than Universal Life Insurance. I cannot really ever see a reason for Universal Life with the possible (long shot) reason of wanting a long term care rider. Otherwise, they seem useless to me for anyone other than the insurance company (and its salespeople).

livesoft
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Re: Alternatives to Permanent Life Insurance

Post by livesoft » Mon Jan 14, 2019 6:34 pm

Investing tax-efficiently in a taxable account has so many advantages that I don't see a reason not to stop right there. Such an account will practically guarantee that you can retire early just like the rest of us have already done. The Soft Life awaits you.
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Nate79
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Re: Alternatives to Permanent Life Insurance

Post by Nate79 » Mon Jan 14, 2019 7:40 pm

Index funds in a taxable account are FAR better than permanent insurance junk ( and their ugly cousins related annuity products).

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