Whole Life for Asset Protection Vs Other Vehicles

[chris1515]

I am a new physician (about one year out of residency) and am trying to put together a financial plan.  I fully invest in my 401k and profit sharing to max out retirement accounts and will do a yearly backdoor Roth.  I have a well priced term life insurance plan for most of what my family would need if I were to die.  I am considering a Whole Life policy to supplement this and am mainly interested in it for it asset protection.  I am curious if there are other vehicles that I can save / invest that would give me good protection like a 401k, Roth IRA that I am missing or should I use my extra income to go with a Whole Life knowing that I am not getting the best ROI but knowing that what I do earn is protected?  Thanks for any advice.

[Scott at MD Financial Services]

IF you do it then buy it with a waived surrender charge so if you decide you don't want to have it any more you can cancel it without a bunch of fees.

[DMFA]

I am assuming you've read this post: https://www.whitecoatinvestor.com/12-questions-to-ask-before-purchasing-whole-life-insurance/

[LBKCLU]

The asset protection value of a Whole Life policy varies greatly from one state to another. If you are considering it, you should make sure that your state considers it to be an exempt asset.

Are you married? If yes, can you take advantage of your spouse's retirement plan options to further maximize retirement contributions?

Do you own your home?

Are you funding for your child(ren)s college educations?

Do you have a plan to pay back your student loans?

Do you have a substantial amount of money left over each month that you can dedicate to this on an ongoing basis?

Remember, first and foremost, you are buying life insurance and, if you don't have the need/want for permanent death benefit, odds are very good you can do better elsewhere.

[DoubleMDs]

I would recommend searching "whole life" on the wci website and reading through at least a few of the dozen or more posts WCI has written on the subject prior to even talking to a single agent. Often helpful to read the comments section below the posts as well as there is often good discourse discussing pros and cons.

There are ways to gain asset protection that don't include whole life. Would not let that be your sole driver for such a decision.

[Raster]

If you don't need the death benefit, at least for the next 30 years or so, Whole Life Insurance is very ill advised.  The return numbers never work out if you wouldn't be buying term insurance (i.e. if the alternative to whole life insurance is not "buy term and invest the difference" but instead "invest the whole thing").  Even if you would be buying term, the numbers are very rarely attractive on Whole Life.  Look only at the guaranteed values.  If you are dead set on Whole Life, be sure to investigate a limited pay policy (Usually 10 pay or 20 pay, you pay only for 10 or 20 years and don't pay anything more) which are somewhat simpler than other policies, at least when evaluating them as an investment.

For asset protection, consider carefully why you need to protect your assets... and think about a 529 plan.  Many states (investigate yours) have extremely strong protections for 529 plans.  The beneficiary can be kids (or yourself) and if the kids don't go to college, the 10% penalty on the gains is likely much less than the costs associated with a whole life policy.

[The White Coat Investor]

chris1515 wrote:

I am a new physician (about one year out of residency) and am trying to put together a financial plan.  I fully invest in my 401k and profit sharing to max out retirement accounts and will do a yearly backdoor Roth.  I have a well priced term life insurance plan for most of what my family would need if I were to die.  I am considering a Whole Life policy to supplement this and am mainly interested in it for it asset protection.  I am curious if there are other vehicles that I can save / invest that would give me good protection like a 401k, Roth IRA that I am missing or should I use my extra income to go with a Whole Life knowing that I am not getting the best ROI but knowing that what I do earn is protected?  Thanks for any advice.

Click to expand...

If your goal is asset protection and your state offers asset protection to whole life insurance, and you don't care about the relatively low returns and other downsides, then sure, buy as much as you like. Obviously it's dumb to buy it for asset protection if you can get that from something else with higher returns (like retirement accounts in most states or paying off your mortgage in some states) but if your main goal is to stave off the 0.01% chance of being sued above your malpractice limits, whole life may be exactly what you want.

I would first read up on asset protection though. Remember this is a life-long decision, not something you can reverse without consequence next month or next year. Make sure you're going to be darn happy with that policy for decades BEFORE buying it.

[RocDoc]

Does your state have laws to protect assets held in a Family Limited Partnerships? FLP's are a well recognized and respected form of asset protection in Texas. We use the FLP to hold our taxable assets. We always max out the tax deferred first and remaining profits go into the FLP. The legal cost to set a FLP up was approximately $1000 plus a small state filing fee (?250 or so for filing) when my husband and I formed ours back in 2002. You can have the assets in the FLP at Fidelity or Vanguard and use low cost index mutual funds or stocks. Fidelity charges nothing to hold the FLP funds other than the mutual fund ER. The only annual fee we have is what we pay the accountant to file our annual Schedule K for the IRS. I think we pay the accountant $550 usually. (You could easily do the Schedule K yourself if you wanted to save money.) We have to file an annual Texas Franchise tax report for which there is no fee due.  I will probably eventually file the schedule K myself once I retire.