Health Coverage Segregation
- Thread starter NYShoreGuy
- Start date
There are pros and cons. But getting a jump on it early, like 20s/30s can make it a powerful tool when you’re in retirement. But unlike a Roth IRA, you don’t have limits on investment or usage.
If you want to get my email from Dan, I’ll send you some materials to understand how it works.
Life insurance can be pretty versatile. Investment features, long term care features, not just your traditional death benefit. Universal life is far more flexible and cost effective than whole life, both types of permanent insurance.
I know this is straying off topic, but always happy to point people in the right direction.
sami is an excellent source for information on insurance, and generous with his time to help you navigate.
Yes, it’s a supplement, longer term play. It’s costly in early years because it is life insurance, has policy issue charges and other fees. But over time, when that has a chance to absorb those and grow, the tax benefits will outweigh those early costs. Bonus, if you check out early (read: die), of course there’s the tax free benefit to your beneficiary of death benefit + cash value (depending how you structure). It’s always an insurance product first, but a very good secondary use for investments if structured right.
Where else could you put, for example, $100k away a year and have that grow tax deferred and potentially draw on it in the future without paying income taxes on growth? I only say “potentially” as you have to stay within the rules (e.g. keep policy in force when drawing loans, do not put too much premium in vs. death benefit and cause it to become a Modified Endowment Contract - IRS is wise to the tax haven).
The first three you mention are all valuable in their own way. Always max the company match and try to hit the IRS limit on your 401k. Roth is great but you could hit the contribution limits on income pretty quickly and are limited by contribution amounts. HSA similar to Roth and you have an early usage issue (taxed and 20% penalty on non-medical or just taxed after age 65). I shy away from brokerage due to cost unless you’re confident and doing it on your own as more of my practice is structured around fee-based advisory accounts, which I feel are better for the client overall and better for me in the long run.
I worked 20 years in asset management and only thought about investments. But the switchover for the last few years has taught me so much about risk mitigation and other ways to leverage insurance.
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anon_ezos2e9wn1ob0
Guest
Sami what type of income range is this used for? Being able to put 100K a year away is serious serious coin.
I threw that out there, a bit exaggerated as the point is, this doesn’t have limits that other vehicles have. Someone who can put away $100k a year can purchase a $5m life policy and build that cash (doctors do it because the cash value in life insurance is not counted in assets in malpractice suits).
People do it at $100/month. Just note that if you’re 30 years old, putting away $36k over 30 years isn’t going to net a favorable income stream. But the cash is always available for loan. And these policies are flexible, meaning you could start with a premium and reduce or increase it, only there is a ceiling on increases (IRS again) unless you employ some simple tricks.
Had a guy in his 50s, too young for IRA withdrawal and didn’t want to sell assets, took $40k from his life policy tax free for home renovations. The interest rate is low, it’s a “participating loan” meaning most of the interest is credited back to the cash value anyway, and he never has to pay it back. The death benefit is netted down by loan values.
Good basic article that explains a lot of this…
www.forbes.com
Anyone in their 20s/30s should run to an advisor and start a permanent cash value policy at $100 a month with a minimum death benefit. That means you probably cannot increase the premium unless you increase the death benefit, but the “trick” is you buy super-cheap term insurance that can be converted into the permanent policy without proving insurability. As you can invest more, you convert a piece of term.
You can also convert a piece of the term to a permanent protection policy, where you don’t care as much about the cash accumulation (it’s still there) but the intention is guaranteeing the death benefit for life.
It’s called life insurance in 3 buckets.
1-term for high benefit, low cost when you need the leverage (young family, mortgage, kids)
2-permanent policy for guaranteed protection, long term care potential, legacy/estate planning
3-permanent policy for cash accumulation and retirement income
Personally, between my wife and me, I have 11 life policies. 2 each term that are laddered to protect until the kids are independent, 1 each permanent for long term care/guaranteed death benefit, 1 each for cash accumulation (low face), joint policy for long term care with death benefit feature, and 1 for each kid to accumulate cash and gift to them when they’re on their own.
EVERYONE with a young child should have a permanent policy on the child. Low cost, lock in guaranteed insurability for life with face value increases WITHOUT underwriting, cash value gift in their 20s and god forbid your child passed away, you’re not starting a GoFundMe page on Facebook and you can mourn gracefully.
I have an advisor buddy who put a policy on his child at preferred rating. The child was subsequently diagnosed with diabetes. What do you think that young adult would pay for a rated substandard policy later in life? But no, she has a policy that is locked at preferred pricing for the rest of her life.
What Is Cash Value Life Insurance?
Having cash value in a life insurance policy may sound like a good thing. But you don't always need it, and you may not want to pay for it.
www.forbes.com
Anyone in their 20s/30s should run to an advisor and start a permanent cash value policy at $100 a month with a minimum death benefit. That means you probably cannot increase the premium unless you increase the death benefit, but the “trick” is you buy super-cheap term insurance that can be converted into the permanent policy without proving insurability. As you can invest more, you convert a piece of term.
You can also convert a piece of the term to a permanent protection policy, where you don’t care as much about the cash accumulation (it’s still there) but the intention is guaranteeing the death benefit for life.
It’s called life insurance in 3 buckets.
1-term for high benefit, low cost when you need the leverage (young family, mortgage, kids)
2-permanent policy for guaranteed protection, long term care potential, legacy/estate planning
3-permanent policy for cash accumulation and retirement income
Personally, between my wife and me, I have 11 life policies. 2 each term that are laddered to protect until the kids are independent, 1 each permanent for long term care/guaranteed death benefit, 1 each for cash accumulation (low face), joint policy for long term care with death benefit feature, and 1 for each kid to accumulate cash and gift to them when they’re on their own.
EVERYONE with a young child should have a permanent policy on the child. Low cost, lock in guaranteed insurability for life with face value increases WITHOUT underwriting, cash value gift in their 20s and god forbid your child passed away, you’re not starting a GoFundMe page on Facebook and you can mourn gracefully.
I have an advisor buddy who put a policy on his child at preferred rating. The child was subsequently diagnosed with diabetes. What do you think that young adult would pay for a rated substandard policy later in life? But no, she has a policy that is locked at preferred pricing for the rest of her life.
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And easier than one would think to manage. There can be some kinks but when you get it down there are smooth periods. I’ve maxed out my HSA contributions for a long time.
And as Hall85 above says, I’m happy to take it offline and review your life insurance policies. At the very least, you walk away confident that you have what’s very best for you and we don’t do any business. But chances are, you open your eyes to decisions you should have made that it’s not too late to address now, at any age.
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anon_ezos2e9wn1ob0
Guest
Another obsessive post about the government and food. One trick pony.
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