What is Cash Value Life Insurance Good for?
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- Опубліковано 28 бер 2023
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Cash Value Life Insurance can be so good for certain situations. Watch to learn whether you might be in one of those situations and if Cash Value Life is a good fit for you now or in the future.
Key Points:
Introduction to Cash Value Life Insurance: The video begins with an introduction to the concept of leveraging cash value life insurance for financial planning, highlighting the primary reasons people inquire about these policies.
Tax Benefits of Cash Value Life Insurance: The main attraction of cash value life insurance is outlined as its tax advantages. It's explained how the policy allows for interest earnings without issuing 1099 forms, similar to tax-deferred accounts like IRAs and 401(k)s, but with the added benefit of tax-free withdrawals through policy loans.
No Income or Contribution Limits: Unlike Roth IRAs, cash value life insurance policies are noted for having no income restrictions or limits on contributions, making them an attractive option for high-income earners seeking tax-advantaged growth and withdrawals.
Self-Completing Plan with Tax-Free Death Benefit: The death benefit of cash value life insurance is emphasized as tax-free and provides a self-completing aspect to financial planning, immediately leveraging premiums into a larger death benefit.
Alternative Asset Class with Reduced Risk: Cash value life insurance is positioned as an alternative investment that offers stock market-like returns with reduced risk, appealing to individuals already exposed to market risk and seeking diversification.
Ideal for Medium to Long-Term Financial Goals: The policy is presented as a suitable option for individuals nearing retirement who need a medium to long-term vehicle to grow their savings without additional market risk, serving as a complement to existing stock and bond investments.
Short-Term Investments Disclaimer: A clear disclaimer is made that cash value life insurance is not suitable for short-term financial goals, emphasizing that the policy is designed for long-term growth and tax advantages.
Invitation for Personalized Consultation: The video concludes with an invitation for viewers to reach out for a personalized consultation to explore whether cash value life insurance aligns with their financial goals and circumstances.
This summary encapsulates the key points discussed in the video, focusing on the unique benefits of cash value life insurance, including its tax advantages, suitability for long-term financial planning, and role as an alternative asset class.
Matt -- of all the videos you have done, I think this is by far the best.
Great point on a risk free alternative when you are already fully invested in stocks and have maxed out 401k and HSA. A bonus is the life insurance portion. I was getting 4% guaranteed for many years when CDs were paying less than 1%. I would say that in today’s interest rate environment, if you do not need life insurance, you can get municipal bonds paying close to 5% tax free and AAA rated agency bonds at 6.5% (taxable) in your brokerage account without risk or an insurance premium.
I have had a Universal life policy for 30 years. Costs while working were subsidized so $1.5m of insurance costs started at around $100 per month and were $400 per month when I recently retired. I am able to continue the plan but lose the subsidy and cost is now $1000 per month. I have funded it to the maximum they allowed and earned 4% interest rate for many years when CDs were paying less than 1%. Cash balance is $600k and interest is now 5% so net after paying insurance is 3%. Can I earn more elsewhere? Yes T Bills are 5% but are taxable and don’t come with $1.5m tax free to my heirs if I die. My plan is to reduce the insurance amount by $100k per year to keep cost of insurance at the current level and keep the cash value at the highest amount allowed by rules. That should keep the total policy over $1m well into my 80s.
Is 7 years considered short term? I want to save up $75k within the next 7 years and someone is trying to sell me a $1k a month policy for Pacific life 1 year no cap. I'm trying to get the documents like policy charges from them to verify charges, but idk. I just want enough capital to open a franchise (or enough for a down payment on an SBA loan) and not have to wait until I'm like 50 (currently 32).
Hey Matt, could I send you an illustration and get feedback on the quality? I’m looking to purchase a policy but not feeling confident about the product I was offered (American National). Thanks for your time
So you’d recommend a Roth 401k even if you’re in a high tax bracket? If so, why?
my question is. if someone wants to put money in that type of policy. it has to be bank transfer or could take hard cash as well?
When you say "short term," are you talking 1-5 years? Could you elaborate on the term please? Is 7-10 years considered medium? Thanks
Hi Wade. I will throw in my two cents here. Even with the most efficient policy design and most aggressive premium funding, most CVLI policies will not break even (cash on cash) until year 5. So for life insurance, years 1-5 are definitely "short term" where you will likely be net negative on the cash you have paid into the contract.
I would say 10-15 years would be considered medium. CVLI performs OK on that time horizon... but 15+ years will be better. Hope this helps.
@@pablo08034 I have NEVER seen a traditional WL policy break even in 5 years. Even if I did a 10/90 tier one base with a PUA, my break even point is at 7 years....at the earliest. Traditional policies will take about 10 to 12 years to break even.
If you pay target premium on an IUl and the illustration on the contract is set up correctly looking at the non guaranteed column, do you think the IUL is safe, even with fees?
I know there is a midpoint column too that shows the policy lapsing earlier. The non guaranteed last till past age 120.
Yes I do think it is safe IF funding is done with the appropriate time horizon, etc.
Which carriers do you think are best for IULs?
Reach out to us here:
leveragedwm.com/bookmeeting/
What happens to the cash value if the policy holder dies? I understand the beneficiary would receive the death benefit. But what will happen to the cash value? Will the beneficiary receive that as well, tax free, on top of the death benefit?
Depends on the death benefit option. If the policy has a level death benefit, the beneficiary only receives the death benefit. If the policy has an increasing death benefit, the beneficiary would receive the cash value plus the death benefit amount that the policy was issued with. It's important to meet with your agent on an annual basis to monitor the policy. I've seen too many agents who sell this product without understanding how it works and it can put your client in a tough spot down the road. IULs, like all life insurance products, have pros and cons and isn't always the right product for anyone that walks through the door.
So you have to take loans against the policy to get the tax benefit?
Surrender up to the cost basis, then take policy loans.
You can withdraw up to your contributions at anytime tax free. Your earnings are tax deferred and your tax contributions are the first money withdrawn so you are only taxed on amounts over that.
@@keithmachado-pp6fv You are taxed on the gains above your cost basis only if you surrender. Loans are not taxable unless the policy lapses.
If you surrender a policy, of course you’d get taxed on the gains because you are forfeiting the tax protections that life insurance has
I wish it was the case you only are taxed if surrender. My cost basis is $450k and cash value is $600k so if I withdraw over $450k it would be taxable whether or not a full withdrawal as in surrender. Yes I understand that a loan is an option but the rate is very high and would not make sense in my situation as I don’t need the cash.
I’m 26 and I want to put about $10,000 into cash value life insurance am I to Young to get started
No, the sooner you start the better.
Never too young
So this is for welthy people? That’s what it feels like
Did he really just talk up the subject and actually explained nothing about how it works, how to do it, what are the downsides.... phkn ads....
Money Money alk i hear
No idea what you are saying but thanks for the comment
he sounds so stupid comparing life insurance to a 401k. why would you ever pay 10k for 500k of coverage. that 500k on a term would cost you about 50 bucks a month then invest the difference.
If you're maxed out on Roth IRA and Roth 401k, IUL is greater for further tax free savings. Otherwise, you are taxed on a normal brokerage account
Yes you are correct by saying this is a good option if already maxed out other tax deferred options. But be careful with the brokerage account being taxable comparison. I have had a brokerage account for 40 years and have never paid $1 of Capital Gains. I do take advantage of $3k of capital losses per year against ordinary income and do have some dividends that are taxable at low long term capital gain rates. The reason I have cash value LI is I don’t want any more money is risk assets in my brokerage account and other risk free options are taxable. My LI is a fixed rate, not tied to an index, thus performing a different function than my brokerage account, where I am deferring capital gains indefinitely and my heirs will get a step up in basis.