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$2M Whole policy on newborn for college plan?

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  • #16




    Why do u want a WL policy loan at 8% but don’t want to pay down your mortgage at 3.25% or whatever it is?
    Click to expand...


    Right, this is one thing I'm trying to figure out....let's say I want to buy a car (which I just did, SUV for the newborn & wife) for $30k.

     

    Situation #1:  I have cash invested in after-tax portfolio.  I go to bank and get an autoloan for 1.6% and pay off minimum while still leaving principle invested.

    Situation #2:  I previously bought a WLI policy and have a large cash-value.  I go to the insurers and take out a loan against the policy at some rate % (loan rate = 8%?).  The $30k is still in the policy and earning dividend at some other rate (div. rate = x%?).

     

    So at the end of the day i'm still taking a loan, but I'm seeing dramatically different loan rates and investment costs.  What's the benefit of the WLI policy then?

     

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    • #17
      Echoing the advice you're already getting here (good advice from people who aren't trying to sell you anything)

      Run as fast as you can away from these commissioned sales people masquerading as “advisors”

      You are in a bit of a difficult situation with respect to the fact that many family members and colleagues have used these guys. It will be more difficult for you to say “No” and then have to point out to your family/colleagues why you didn't use “their guy”

      If you're really worried about how to fund your child's education, your problem is already solved with your windfall.

      The taxfree windfall gives you lots of options, the first of which should be “do nothing”. Over the next 6 months, read a few books, read any relevant posts from this site, bogleheads, etc. The only person that cares about your finances as much as you is you.


      If you really want financial advice, hire someone with no financial conflicts of interest on an hourly basis (they won't be trying to sell you complex financial products) . Just realize that it will be expensive (but much less expensive than the mistake you're about to make).

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      • #18
        It's evident by your responses that you simply need to do more reading. Take your time making this decision...it's a big one.

        I can "bank on myself" by acquiring appropriate term life insurance policies (and investing the difference between those premiums and the exorbitant whole life ones, keeping complete control over the investments), investing in appropriate tax-deferred and taxable investment vehicles, and setting aside some money in 529s (you don't seem to understand the options for these very well, based on your posts), and never have to pay some firm looking to get rich off my decisions.

        You seem to already be sold on this, so I wish you luck. Please report back in a few years how this works out so others can learn from your decision (mistake).

        Comment


        • #19







          Why do u want a WL policy loan at 8% but don’t want to pay down your mortgage at 3.25% or whatever it is?
          Click to expand…


          Right, this is one thing I’m trying to figure out….let’s say I want to buy a car (which I just did, SUV for the newborn & wife) for $30k.

           

          Situation #1:  I have cash invested in after-tax portfolio.  I go to bank and get an autoloan for 1.6% and pay off minimum while still leaving principle invested.

          Situation #2:  I previously bought a WLI policy and have a large cash-value.  I go to the insurers and take out a loan against the policy at some rate % (loan rate = 8%?).  The $30k is still in the policy and earning dividend at some other rate (div. rate = x%?).

           

          So at the end of the day i’m still taking a loan, but I’m seeing dramatically different loan rates and investment costs.  What’s the benefit of the WLI policy then?

           
          Click to expand...


          The benefit should be obvious.  If you're having to search so hard for this unicorn benefit, perhaps it doesn't exist.

           

          Keep it simple.

          Comment


          • #20
            From what you've said, you're way too OK with debt. $350k in savings, so why do you have $50k in loans? Why are you needing to take a loan out for a $30k car? You will regret the whole life policy, but do what you want. Not our money to waste.

            Comment


            • #21
              I believe that the OP has been effectively brainwashed. His family and friends were unwitting accomplices. I have seen this phenomenon before, multiple times, in various contexts, including an "investment" in a durable medical equipment company that was offered to my father that turned out to be a scam. He got sucked in for $25k because a good friend, who had been successful (i.e. lucky) in business many years ago was committing $100k. I tried to stop the investment, but I was too late. Both lost all of their investment to the scammers.

               

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              • #22
                I agree that the op has drunk the kool-aid along with his family and friends.  He should pay off his car and student loans.  I think a mortgage is ok at his age.  The child does not need insurance.  I think the 80/20 split is ok too.  He needs to invest the windfall and forget banking on himself. Try to think I don't need to borrow money. I need to invest and accumulate money.  I do not need whole life.  I need term.  I need to read   The previous posts about these issues. Will he?  I am skeptical

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                • #23
                  FI @ 31.  Nice.    Stay away from whole life/annuities unless you get the an insane return guarantee (ie they have minimal commisions).   You're much better off on stable 2-3 fund investments and have a term life policy to guarantee the next 20 years.  $2.75M is a bit much with that salary and capital that you have already.  $1.5-2M is good enough for kids protection with your capital at this point.  You'll recoup the minimal cost in better investment vehicles and save the 0.9% managed fees to boot if you stay the boglehead course.

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                  • #24




                    I believe that the OP has been effectively brainwashed.
                    Click to expand...






                    I agree that the op has drunk the kool-aid along with his family and friends.


                    I don't think I have...that's why I'm here asking questions.  I'm being presented these options and am quite skeptical.  What's with the jumping to conclusions?

                    ======================




                    He should pay off his car and student loans.  ...Try to think I don’t need to borrow money. I need to invest and accumulate money.
                    Click to expand...






                    From what you’ve said, you’re way too OK with debt. $350k in savings, so why do you have $50k in loans? Why are you needing to take a loan out for a $30k car?
                    Click to expand...


                    I think the discussion of the nature and purpose of debt is best for another thread.  I'll just say that I don't understand why you think low interest debt is bad.  I'm not sure how spending $30k helps accumulate money when instead I can borrow that $30k at 1.6% and keep the $30k in the bank, invested at 8%.   This is a simple scenario to model.  But again, this is a different discussion from the original...I'm being 'sold' a $2M WLI policy as an investment vehicle.

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                    • #25


                      I don’t think I have…that’s why I’m here asking questions.  I’m being presented these options and am quite skeptical.  What’s with the jumping to conclusions?
                      Click to expand...


                      The thread is now 2 pages long. I don't think anyone has voted in favor of the WLI policy. That should be your answer. Yet you keep pushing for different answers. You won't find it here unless there's a surge of WLI sales(wo)men waiting in the wings for their chance to shine...

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                      • #26
                        Is the $350k in savings? Or in a taxable? I'm confused on your terminology.

                        And whole life has zero purpose in any portfolio. There are just better ways to accomplish whatever purpose this wli policy is aimed at. For college, just do a 529. Remember, if you take a non qualified withdrawal, you're only penalized on the gains, not the whole thing. There are also multiple exceptions in case your kid gets scholarships or whatever. A 529 is the best vehicle for college saving. If you are really skeptical your kid won't attend college, just put it in a taxable and bankroll college when it comes around.

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                        • #27
                          I guess I confused "savings," "in the bank," and "invested." I consider the first two to be money in cash that just sits there, maybe getting 1% in an online savings account like Ally or something. If you're choosing not to pay your 3% mortgage and 1.6% auto loan with money you're investing at projected 6% (expecting 8% is a bit much imo) a year, that's just leverage...which mathematically is smart imo.

                          I won't go so far as to say you're being conned, but it's all sales. Let insurance be insurance and investments be investments.

                          Comment


                          • #28
                            To OP - yes people on here can be a bit harsh when it comes to this stuff.

                            Let me just give you my math as to why I think this policy is terrible - even with its "death benefit". Let's take those 10 payments of 20,200 each and assume you can put them in a regular taxable investment account earning 5% - which is totally doable with a simple relatively low-risk stock/bond index fund mix. So at age child's age 10 you'd have about 280k in that account. So now don't deposit anything else ever. At 18 the account is worth 420k. So if they don't go to college or they get a scholarship, then keep that money there in the account, like you said. It now becomes an account to "pass on" similar to the whole life policy

                            At child's age 57, well before the average age of death, the your investment account will be over 2 million. At 78 - a typical age of death, those 10 deposits earning only 5% year, would be worth 8.3 million, not 2 million.

                            If you invested more aggressively and earned even 7%, the account at 78, never adding more than the original 10 payments would be 32 million - that would be nice. And at 7%, the account would pass 2 million at age 39.... And that's what the insurance company is thinking too...

                            So sure you could do the WL and give the loan "to yourself" to pay for school, which you would have to pay back with ridiculous interest, but why? How long do you think it would take you to repay the 85k loans x 4? Quickly? And at high interest. Seems risky.

                            I, like the others here, like to bank on myself, using my own accounts. Honestly, the salespeople are banking on you, not you on yourself.

                            My wife and I have term life - got it at age 30 - me for 2 million, her for 500k, and we pay $1200 a year for 20 years. By then we will be well off enough to not need the extra money with paid house, college for kids and retirement. And I can take all of the money we've saved and invest it.

                            As an engineer, please just do the math. And the 0.9% on top of what they are doing? You can save that and put it at Vanguard or Fidelity and do it yourself.

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                            • #29
                              And I didn't even mention the 700k inheritance. You and your wife could drop that in account and pay for college no matter what for multiple kids in 18 years.

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                              • #30
                                For the love of all things good and pure, do NOT do this. The objective analysis has been stated already by many posters.  I have other questions:

                                1.  What is the term on your 2.75M policy?  Why so much?

                                2.  Why, with the $700K windfall in the trust do you think saving for college or needing to worry about paying for a car will be a big problem?

                                3.  What is being done with that $700K?

                                4.  Where is your money going to be invested at 0.9% AUM?  I suggest you go anywhere on the internet and look at the investment losses you'll suffer as a result of this over time.  I also suggest reading the boglehead literature on their wiki page about investment returns when actively managed.

                                5.  Your wife being a stay-at-home has significant value, and I think it's worth insuring against any untimely demise.  It looks like you're considering a WL policy with her, simliar to your son.  DON'T.  You are going to pay $100K for that policy over 10 years.  My wife is healthy and is older than your wife and got a 20 year 400K term policy for 200-something a year.  You'll pay $5000 over 20 years.  She is VERY likely to live another 10 years.  Do the with/without analysis.  I think that you'll see by investing the difference you'll come out ahead - likely VERY ahead if she lives anywhere close to her life expectancy - PLUS you'll have the term policy to cover you as well.  Don't do this policy for your wife.

                                Like the other posters have suggested, don't do these WL policies.  Take it from someone who purchased one and is about to get out of it, even at a steep loss.  It's liberating.  The amount of money you'll be paying every month for these policies will eat away at your savings, carry a heavy opportunity cost, and only make these jackasses richer - not you.

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