Should I consider getting a permanent life insurance policy?
After meeting with a financial advisor for a large life insurance/wealth management organization, I am starting to see the benefits of a permanent life insurance policy. I am 35 years old, make over $100,000 annually, max out my 401(k) match at work and max out a Roth IRA. I do not have a need for the death benefit as I already own plenty of term. I was looking at overfunding the whole life policy right up to the point before it becomes a modified endowment contract. Is this a good alternative to save and grow my extra cash, especially as a conservative option within my portfolio? I was starting to get sold on the flexibility because of its tax-deferred growth, the policy loan options, and the ability to use the cash value as collateral. Is this a good idea?
Most of the time when I see questions like this I answer no- but you do sound like the ideal person to look at permanent life insurance. I call this strategy the Rich Person Roth.
If you are looking to build up cash value check out universal life- they typically have better returns/interest rates compared to Whole Life.
Take a read at some of these links:
Here is the thing.... It is all based on what is best for you! Its not a matter of opinion, but a matter of facts based on math and science. The truth is a life insruance contract with a GOOD AAA rated carrier, that pays dividends! can be awsome! I own a ton of it myself. There are only 3 places in the current tax code that allow for tacx free growth. Muni's, Roth, and life ins.
Who is the company that the rep you talked to represent? Lets talk happy to help
So glad you asked this question. Run, don't walk, away from this deal.
I think you are being misguided by an insurance product salesperson who is not a fiduciary financial advisor. If they were a fiduciary, they would be obligated to always act in your best interest. Instead, they are motivated by a healthy commission, made more so by overfunding a policy. Additionally, first and foremost, any sale of life insurance must be predicated by the NEED for life insurance. By your own comment, you do not need additional life insurance.
I suggest you work with a fee-only financial advisor who is a fiduciary and explore other investment options that may have tax advantages for you. Without even knowing more about your situation, I can suggest that you might max out your 401(k) contribution beyond the match, look into non-commission deferred annuity products for conservative tax-deferred growth, invest in municipal bonds for tax advantages, and/or simply have tax-efficient active portfolio management on your non-retirement accounts. You don't need policy loan options if you maintain an adequate emergency fund and save judiciously for your future needs (or you can even borrow from your 401(k), or after having a Roth for five years make tax free withdrawals up to the cummulative amount of contributions, although I seldom recommend either), and you can always use your investments as collateral no matter how it is invested.
Full disclosure, I am insurance licensed, but this is simply an inappropriate use of what might otherwise be a viable solution to someone else's needs. I wish you well.