Whole Life as debt payoff plan

[disneysteve]

Makes you wonder how much the 'planner' earned for getting you guys into that policy, and then all the other people that kept on paying.

A typical arrangement is for the salesman to earn 90% of the first year's premium and 5% per year after that, so these policies are incredibly lucrative for the seller.

Forget the law helping you here. There have been numerous law suits including a huge class action case in the 90s and each time, the industry has lost for misrepresenting whole life policies as investment vehicles. But nothing has changed at all. They still sell them as investments. They still show outrageously false projections when convincing people to buy them. And because they aren't selling investments, they aren't subject to the same laws as licensed brokers.

Whole life is bad, bad news. Get out of it. Pay the penalty. And move on.

[Petunia 100]

106K in 2 years would mean you've put in over $2,200/month on top of the premiums. Does that sound about right?

No, that doesn't sound right.

$2200 x 24 = $52,800

[disneysteve]

No, that doesn't sound right.

$2200 x 24 = $52,800

Oops. I'll fix that. Not sure what I was doing when I typed that.

[bigoilman]

Yes, the current cash value is $105,691.43. We are putting about 5K in each month. We only need to pay in for three more years. Dividends earned are not taxable since they don't exceed what we pay in, the death benefit is income tax free (which is huge for our policy), and we plan to use the cash for other investments as well, so we will continue to earn interest off of the money we borrowed from the account while we make money with it elsewhere.

Are these advantages still not worth it in your opinions?

[disneysteve]

Yes, the current cash value is $105,691.43. We are putting about 5K in each month. We only need to pay in for three more years. Dividends earned are not taxable since they don't exceed what we pay in, the death benefit is income tax free (which is huge for our policy), and we plan to use the cash for other investments as well, so we will continue to earn interest off of the money we borrowed from the account while we make money with it elsewhere.

Are these advantages still not worth it in your opinions?

There ARE NO advantages. You are paying outrageous fees to park your money in an account that earns little to nothing just so that years later you can pull it out and invest it somewhere else.

Had you been putting $5,000/month into a simple index fund the past 2 years rather than this scam, you would have way more money today.

VTSAX, Vanguard's Total Stock Market Index fund, has a 5-year average annual return of 14.54%. Had you invested $5,000/month for 48 months at 14.54%, you would have $145,000 today instead of $105,000.

[Gailete]

Yes, the current cash value is $105,691.43. We are putting about 5K in each month. We only need to pay in for three more years. Dividends earned are not taxable since they don't exceed what we pay in, the death benefit is income tax free (which is huge for our policy), and we plan to use the cash for other investments as well, so we will continue to earn interest off of the money we borrowed from the account while we make money with it elsewhere.

Are these advantages still not worth it in your opinions?

If my math is correct, you have paid $120,000 to get $105,000. I wouldn't call that advantageous at all. You have less money now than you put in. That $60,000 per year could have been put to much better use and brought in more money over the long haul. Depending on your mortgage, just putting that $5000/month onto your mortgage would have gone far with paying it off super fast. Then that frees up the mortgage money and extra $5000 to do other things with that money or to make investments as you like.

BTW - Life insurance proceeds for the most part are tax free to the beneficiary. (so that isn't special with your policy)

If you have a cash value life insurance policy that pays dividends, you may be liable to pay taxes on the amount of dividends that exceed the amount of the premiums paid for the policy. Otherwise, policy dividends are generally not taxable.

The items about life insurance I found by a simple google search. What I'm seeing is that what you seem to say about your policy that is special is normal for life insurance policies.

[disneysteve]

http://www.savingadvice.com/forums/personal-finance/64417-indexed-universal-life-insurance.html

Here is a previous thread talking about the dangers of whole life policies. OP, please take some time to read through it.