Let's do a controversial one to create discussion! People are pretty polarized on this topic so let's hash it out. Is whole life insurance a scam? Not term life insurance. Not universal life insurance. Specifically whole life insurance. Is it a scam? Should a frum person ever consider getting it? Should the average frum person consider getting it? Under what conditions should someone consider it?

The last question is the one I've been looking for an answer to for a while, because without an answer to it it seems like it isnt worthwhile to ever get it over term.

The only situation I currently recommend whole term life insurance to anyone is when they hashkagically refuse to invest for the future, but believe in buying life insurance. These types of people, The only way I can get them to invest is through a whole term life insurance. The way I think about it is, no matter how inefficient it is, at least I got them to invest something.

My understanding (experts, feel free to correct me) is that it's a costly method of investing for the future. @mysterious-tomato-10057, sounds like we're on the same page. My setup, after some thought, was term life and retirement accounts to step up when term expires.

Yes, that's the exact plan I create for everyone that joins my program. The term expires when the FI number is expected to be reached. The value of the policy is whatever is necessary to fill the FI gap

I believe it's an arbitrage opportunity on people who don't have all the facts, or don't have the patience to gather them, etc. Kinda like kosher supermarkets charging a premium. But yes, I'd love to hear the other side.

Does anyone know any insurance salesman we can add to our slack?

Not to get off topic but I have found seven mile and market maven to be reasonably priced relative to other stores in the area if not cheaper.

I think you sent this to the wrong thread 🧵

Actually I was responding to something @nutritious-raincoat-28876 said 😁

Oh totally missed that whoops. If you really think that then you must not be buying a lot of vegetables at 7 Mile or market maven.

And that really does go back to the other thread about me not buying almost any fruits or vegetables

Yeah that's the only thing that's really crazy priced in our supermarkets.

Whole life might make sense as an estate planning tool, where a particular expense incurred upon death can be offset by the policy. As a general investment tool it's pretty lousy all around because of the fine print, release charges, overhead expenses, ...

@rich-notebook-17814 I've seen a lot of people do that with term life. My grandfather had term life at 95 for that reason lol. Why whole life?

@mysterious-tomato-10057 estate planning can start much earlier depending on circumstances, and the policy can't expire to be effective. If you start the plan at age 50, what's to say it won't be needed at age 95? And perhaps the policy holder will be uninsurable at that time due to illness, etc

@bored-jewelry-48369 made a good point in another thread that I think is relevant here. https://frumfinance.slack.com/archives/C04FE40CYU8/p1672067509212269?thread_ts=1670854624.607919&cid=C04FE40CYU8

And that seems like the point I made at the top about it being a best option for people who don't use stocks so agreed!

Yes, you mentioned people who don't believe in investing hashkafically, which I perhaps took too literally, so I thought the emotions piece was a nice additional point.

Makes sense. Yeah I think I can include emotions in that. Before I put people in stocks I always ask them if they can handle the money going down 50% for 10 years and not want to sell haha.

@mysterious-tomato-10057 yes, everyone I know that has such a policy, bought one because their financial education wasn't that great. Which is also true of the general population globally (frum or otherwise). And that problem is much bigger than which type of insurance to buy.

Which is why I started this slack group and my non for profit so I totally agree!

On the flip side of the halachic equation, I heard sometime back that a rabbi ruled that one shouldn't liquidate his retirement assets or insurance policy to repay a debt owed to another jew. The reasoning was that this money was meshubad for his wife's use as well, much like a kesuba, and that preceded the baal chov. (This wasn't to mean he should continue contributions while in debt, or that this psak is for anyone else - certainly ask your LOR)

do you have a source for that psak? I would love to have that on record to share with people who come to me with questions or to provide as input to frum.finance’s rabbinical board.

IIRC, it was mentioned in one of Rav Yisroel Belsky's Q&A sessions. But I don't recall which one :(

Not sure if this is off topic, but is there any downside to getting the cheapest life insurance policy (say using policy genius) vs getting a more expensive policy directly from a big name in the industry? Ignoring any benefits the bigger name may have. Meaning, I just want term life and that’s it. No riders etc.

Use policy genius. They find you the best deal from the big name brands

I wonder where you heard about policy genius...

😂😂 i stopped listening to his podcast the last 2 years

If you buying term make sure you compare apples to apples in terms of financial ratings from Moody's, Fitch etc. What policy genius will not be able to do is tell you up front which company will underwrite you most favorably. For that you will need to go through each insurer's respective processes.

It forces people to invest who wouldn't have the discipline. I prefer term life and diversified investments where you add money every month

There are other uses for whole life from a self-financed loan perspective. I know some real-estate and high-net-worth people use it in certain circumstances. I'm not super familiar with them though

The benefits are not taxable, so someone with a large estate can use it to shelter assets

Life insurance benefits may not be subject to income taxes, but they are absolutely included in the gross estate for estate tax purposes unless an ILIT is put into place.

Or if the life insurance policy is all spent on the legal / accounting / financial fees of dividing the estate then no taxes also

The estate tax exemption is currently over 12 million so it is an issue for very few. https://www.investopedia.com/estate-tax-exemption-2021-definition-5114715#toc-the-bottom-line

Iyh it should be an issue for all yidden.

There are some interesting tax benefits to life insurance, but there are also interesting tax benefits to using a Roth for example. Are those who are buying life insurance for tax benefits already maxing out their other tax advantaged accounts? (that was a rhetorical question)

I’m sure the first thing that a family would want to do after its breadwinner dies is try to collect money from the state government to pay their mortgage. I’ll stick with financial ratings thanks.

One of the biggest costs to whole life is opportunity cost; what could be earned if the money is invested for decades instead of put into an insurance policy. Of course, most investments are not guaranteed, which is the promise of whole life that makes it interesting to many buyers.

I'm having trouble understanding @bored-jewelry-48369s position. Everything @eager-smartphone-39564 is saying seems to make perfect sense to me and further my understanding of whole life not being worth it. Though I would like to understand better what sort of calculus goes into deciding to get rid of a whole life plan, but that's a separate discussion.

Many insurance salesmen will pitch it as something that can replace one’s fixed income portfolio - not necessarily their equity portfolio. If that’s the case, the opportunity cost is gone and it becomes a much closer call. If someone does not have access to a retirement plan at work or has large enough of an overall portfolio that their fixed income allocation can’t fit in what they do have access to, they can argue that the tax deferral provided by the insurance policy creates a benefit - especially for those in high tax brackets. They can further point out that the full amount of the insurance premiums are added to the cost basis of the policy even though a portion of each premium isn’t really going to the cash value but rather to pay for the net amount at risk. Imagine if every premium you paid to your term policy could be added to the cost basis of the brokerage account you funded with the amount you saved by not purchasing a whole life policy. Then you could take distributions from this policy life insurance policy on a first in, first out basis such that you get back that entire cost basis without any tax ramifications and even the earnings are never subject to a 10% penalty unlike with annuities that are LIFO and subject to penalties (unless you violate certain provisions in which case the policy would be considered a modified endowment contract). For a pre 59.5 expense in particular (other than education), it’s definitely not easy to refute going with whole life. Not to mention the death benefit staying in place forever. Overcoming these argument is doable, but you need to be able to demonstrate certain nuances of an investor’s asset allocation decision that would render the above obsolete.

I'm confused as to what @bored-jewelry-48369 may have said that implied to others (@eager-smartphone-39564 and @mysterious-tomato-10057) that he is in favor of whole life over equity investments. He merely pointed out that there are guarantees and that underwriting such guarantees costs $$$. This sounds like a violent agreement to me.

@rich-notebook-17814 I suggest you reread the thread

I just did, twice. Can you quote which portion indicated this?

He never supported whole life over equity investments. I did not argue against whole life.

Lastly, @bored-jewelry-48369 לשיטתך that using historical returns to inform current portfolio decisions is like looking in the rearview mirror while driving, buying something with guaranteed returns would be essential. Given that one cannot rely on historical metrics to derive reasonable risk/return assumptions going forward or rely on Monte Carlo analysis to ascertain a reasonable distribution of plan outcomes, the only way to be confident that an objective will be funded is to insure investment risk - no matter what the opportunity cost might be.

Where is this shita to be found?

@rich-notebook-17814 i’m not particularly interested in fulfilling your continued requests for interpreting things that have already been discussed on this forum. Please feel free to read the various threads and share your opinions.

So this came from another thread?

“Where is this Shita to be found” was not exactly friendly pal. Somethink like this would have probably yielded a different reaction. “Hi I am really interested in learning more about this discussion. Would you mind pointing out where this opinion was stated?”

I'm sorry you took it that way. I was using the context you had prepared to rephrase where my confusion was coming from, it wasn't intended in an unfriendly manner at all.

All good

@mysterious-tomato-10057 @rich-notebook-17814 Pinny Markowitz is correct in my intentions. I never recommended whole life. I was just explaining why the projected returns of whole life are not comparable to the projected returns of equity investing. In general, I’m really not into financial shitas, I don’t agree with “whole life bad” or “whole life good.” Whole life insurance is a tool that may appeal to some and not to others. I think prospective buyers should educate themselves about the product and make an informed choice. @eager-smartphone-39564 you are taking my analogy of the rear view mirror out of context. I was just saying that history does not tell you everything you need to know. Investors must consider historical and forward looking indicators in concert with each other. I am in agreement with the core points of Philip Fried’s perspective on whole life; it can look interesting as a fixed income substitute particularly if the investor is in a high tax bracket, has maxed out tax advantaged plan options, and wants to leave a legacy to heirs.

Sorry to join this thread late, I was busy at the time it started. @mysterious-tomato-10057 Please tell me more about your grandfather using term insurance at age 95. I am totally unfamiliar with the concept of having term life insurance at that age (and it would be prohibitively expensive, if available). Having dealt with estates within my family I can tell you that there's a lot more to estate planning than just taxes. When I was in my 20s and 30s I also thought that my "need" for life insurance will go away at a certain age. And while I realize now that the "need" is actually highest in my 50s, I definitely WANT to have as much life insurance death benefit whenever I pass on. It is the most efficient and flexible asset to transfer wealth to the next generation (avoiding unnecessary aggravation and strife).

@numerous-machine-80402 I actually don't understand why he did it but I'm curious now so I'll push my father on it. All I know is it was 1 year terms and it was obviously very expensive. I also know that he did it for estate planning reasons, not for leaving anyone any money reasons.

I will repeat my assertion that I think EVERYONE should read Richard Russell's piece which has been published in many places. Here is one: https://www.mauldineconomics.com/frontlinethoughts/richard-russells-wisdom-mwo041406

It was definitely a high end complex estate tax planning strategy

@mysterious-tomato-10057 Estate Planning reasons = leaving assets to someone, or else nothing is needed. Let it all be lost to Uncle Sam, and legal fees for family members fighting each other.

👍👍