Curious what people here think about life insurance as an investment. The answer I remember reading on FW is that it is only a good idea under some limited circumstances. Nobody seems to talk about these limited circumstances… what are they?
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Because there’s really no reason to do it if you can manage your own assets?
I believe there are situations where it makes sense, but they mostly involve people with extremely high income who want to max out tax exempt compounding and/or have assets in excess of the federal estate tax exemption.
At what income level would it make sense?
It’s not about income, it’s about having high tax rates and wanting to hold lots of very tax inefficient investments for a long time. In those cases, the tax deferral advantage of an insurance investment wrapper can eventually make up for the high fees. But this narrow target already got narrower since REITs got a more favorable dividend tax treatment in the new Trump reforms and bonds still pay so little it doesn’t matter much.
I understand there are some estate tax planning uses if you’re really rich and haven’t otherwise planned for your estate transition, but that’s something your estate lawyer should be telling you rather than seeking out.
Insurance when you don’t need it is a waste or a bad investment.
Generally, life insurance proceeds you receive as a beneficiary due to the death of the insured person, aren’t includable in gross income and you don’t have to report them to the IRS / state taxing authority.
Of the states that still have a death tax, life insurance payouts are generally not taxable.
Life insurance can be a cost-effective way to boost a foundation’s or an estate’s funding on one’s death, and, if combined with an annuity of some type, provide cash during one’s life.
Also, if the life insurance policy owned by a revocable trust, its value will generally be protected from creditors. If the policy is owned by an irrevocable trust, its value is generally excluded from the estate and not ever taxed.
Just a thought, if you had an old universal life policy from the 80’s some of those paid guaranteed rates of 8 or 9% which would have been pretty nice the last 15-20 years.