Question for the Money Doctors
Question submitted on Jul 6, 2022.
QuestionI keep seeing these "be your own bank" advertisements. The little research I've done seems like they are utilizing a whole life insurance policy to do this. I am trying to figure out if this is a solid financial investment that would make more sense than possibly my 401K that fluctuates based on the market.
I do not suggest taking financial advice from TV, radio, or internet advertising. There is always a reason why these are being advertised - the advertiser wants your money.
Life insurance's purpose is to replace your income for your dependents in case you pass away.
Life insurance is not always the most cost-efficient way to invest.
If you are considering this, please run an analysis on the cost and see if it makes sense for you.
This strategy involves paying premiums into a life insurance policy and later borrowing against it.
The borrowing is not free since there is an interest cost to be paid.
Also, if you borrow too much, you may increase the amount of the premiums to sustain the insurance policy.
There are also tax consequences if you borrow against the policy and the policy terminates.
The interest expense is not deductible.
Here is a link to 360 Degrees of Financial Literacy to learn more about Retirement Planning.
If you have access to a 401(k), certainly take advantage of it. At minimum contribute enough to qualify for the maximum amount of matching from the employer.
For additional information visit //www.360financialliteracy.org/