Comments on: Cash Value Insurance: An Overlooked Investment with Big Tax Savings

By: Brian

Brian — Mon, 23 Apr 2012 06:20:44 +0000

It makes little sense to put your money into a cash value policy when you understand that the policy doesn’t mature until you are nearly 100. As a result your cash accumulation is very slow up until that point. In addition, what is not discussed above is the reality that you do not receive both your cash invested plus your face amount- you receive one OR the other upon policy maturity or death. So whether I am disciplined or undisciplined with my money, I would rather take my chances investing where I know I will get use of my cash AND a distribution of the face amount of my policy will go to my family if I pass away. Be smart and buy term.

By: Petunia 100

Petunia 100 — Sun, 22 Apr 2012 17:46:58 +0000

This is horrible advice!

All loan proceeds are tax free. This is not a benefit of cash value insurance!

Tax deferral? Yes, you defer taxes all right, and pay ordinary income tax later on any gains. A much smarter approach is to buy index funds and pay long-term capital gains rates instead of ordinary income tax rates.

Tax free distribution at death? I notice you conveniently fail to mention that heirs lose the cash value built up and receive only the death benefit. This is an advantage? Ha!

I would love to know what sort of incentive you received to promote cash value insurance policies. If this article is an example of your “smartest” financial ideas, I will pass on your book, thank you very much.

By: wingtipwalker

wingtipwalker — Mon, 16 Apr 2012 21:42:32 +0000

I would be interested in reading this book, but it has -0- Amazon reviews. Are no other Minters willing to take the plunge?

By: Matthew Amster-Burton

Matthew Amster-Burton — Fri, 13 Apr 2012 23:56:30 +0000

Dan, a couple of quibbles.

1. I think we’ve had this discussion before, but you are arguing that whole life is better than buying term and investing the difference because people are likely to buy term and spend the difference. That’s probably true, but it raises the question: what do people do with their cash value policies? Do they keep them until they retire or die? Or do they let the policy lapse and end up losing the insurance benefit and most of the money they paid in premiums?

The answer is, of course, that the lapse rates on whole life policies are scandalous–over 10% in each the first two years and declining slowly thereafter. A majority of policies last less than a decade. (These numbers are from LIMRA, the insurance industry group.) Sure, if you hold the policy for a long time, it can be a nice saving tool–maybe better than buying term, maybe not, depending on what you would have invested in otherwise. But to argue that whole life offers a behavioral advantage is inconsistent with the evidence: most people who buy whole life would be better off buying term and spending the difference: at least they got a nice TV instead of handing the money over to an insurance company.

2. ‘“If properly structured, it may never go down,” Witt notes.’ I’m pretty sure “it may never go down” is financial speak for “it will go down.”

Best,
Matthew