Whole/universal life is not a scam but is probably not recommended for ~99% of the people that Transamerica pitches it to.
Universal life IS a scam if you think you're getting the illustrated returns. It is only not a scam if you get secondary guarantee UL and plan on never accumulating cash value. I'd also recommend you be fairly old to even consider that, since the guarantee is a company, not government guarantee.
UL is essentially term insurance you pay more for having the flexibility to pay whatever and whenever you want. The caveat is that if you pay too little or too late the coverage decreases or goes away.
There are periods of time when you can get a good deal on NLPGUL, but the last was about 8-9 years ago, and I do not foresee one coming up any time soon with interest rates in the toilet.
Whole life can be a perfectly fine way of accumulating tax-deferred cash so long as you buy it on a commision-minimized and death benefit-minimized basis. Unfortunately these deals are hard to find. They are offered only by mutual insurance companies whose reps are not even told the policy structure exists.
The death benefit should be minimized to avoid paying for term insurance you don't need (whole life policies are a blend of term insurance and paid-up additions).
Someone made a comment that the first year commission on a whole life policy accounts for the majority of the first year premium. This is true in 9999 out of 10000 cases, but it doesn't have to be if you know where and how to get a policy.
As far as the OP is concerned, he is right to run away from his SO's auntie's pitch. However the general scheme is sound if it is set up properly with the correct product. Certainly NOT some Transamerica garbage UL though!!!
The plan requires a large capitalization period (at least 7 years), with a large cash inflow. After that the ability to borrow from yourself tax free will outweigh any any advantages of 401k. Companies only match up to maximum, so advice would be to set aside the minimum into 401k that gets the max match, and use the rest to purchase COMMISSION-MINIMIZED WHOLE LIFE from a MUTUAL life carrier NOT a stock company. Pay on an annual basis, never monthly.
How do you know the policy your buying is commission-minimized? Learn to read life insurance illustrations. The first year cash value will be close to the first annual premium amount. Most will show almost zero first year cash value; avoid these.
Imagine buying your own home with cash that you borrow from yourself. $20k/year for 7 years could accomplish this. Most people could easily do that on their own.
Facebook
Twitter