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Mario Said:

Whole life insurance + "enricher" or extra payments on the mortgage?

We Answered:

As it turns out, yes, setting money aside for a whole life policy will generate commissions for your agent. That's how he makes money. It's an honest business folks, car salesmen get paid by selling, medical sales, same thing. Sales is a business, not a scam. There are bad advisors who represent so-so companies, I would check his credential's with the state insurance commission if I was concerned, and find another agent that represents a company with a proven track record. A smart agent would recommend the best option for you, so he can keep you as a client for the rest of your life. Keeping your mortgage for as long as you possibly can, and using the extra dollars to put into a conservative and most of all GUARANTEED investment vehicle is an unbeatable strategy and here's why.

Your equity is building, but it's tied up. Historically, it's safe to say you earn around 3.5% on your home. Structured properly, you can easily earn 3.5% on a whole life policy. Because dividends on the policy play a major role in your investment, putting more money into it (enricher rider or whatever), your rate of return will grow much faster than most people experience. Fortune just published an article about New York Life being #1 in the world for Most Admired Companies in the Insurance industry, I believe it's also mentioned that they've been in business for 165 years, and have paid 165 dividends. This is key, since dividends can never be guaranteed. Whole life straight up, with no riders or features grows VERY slow, at about the rate these guys are talking about. The policy I purchased 9 years ago is earning nearly 3 times of what I'm putting in each year. I broke even 3 years ago, but I knew it was a long term strategy anyways. Now I'm not saying whole life is the KING of the investment world, because it's not. You should have a traditional retirement plan, since whole life is INSURANCE first, an investment second. Given it's LIQUIDITY, SAFETY, TAX ADVANTAGES, and conservative growth, in this situation, and compared to your options, his advice is right. Since your equity can't touch the advantages of something like this, factually, it's better to set your money aside for a whole life policy than paying extra on your mortgage. Your other options are tax-free-municipal-bonds, and ROTH IRA's, which put your money at risk and limit liquidity. WL should NEVER be anyones nest egg for retirement, but a supplemental. Overall, with WL's benefits, paired with the tax benefits of HAVING a mortgage, if structured properly (with a financial adviser and NOT on your own or online) you will retire when you WANT, and with more money. Those who achieve this usually keep their mortgages throughout retirement. Here's a 3rd party article you should read, or just look at the example of Brother A and Brother B. You are currently in Brother A's situation. On a side note: Suzy's take on life insurance is out-dated. There's a lot under the surface of "buy Term and invest the difference". Adding WL to a portfolio INCREASES rate of return, and LOWERS standard deviation, or risk. That's a fact. Your equity does nothing for you stuck with the bank, and freeing it to put into something guaranteed, that earns a higher rate of return and is liquid is a very smart move.

Here's the article: http://www.accurate-creditrepair.com/12%20Page%20MF%20handout.pdf