# Permament life insurance to save for retirement?



## travellers (Jun 15, 2016)

Hello, I am new to this forum but wanted to seek a second opinion on using a permanent life insurance policy to save for retirement - instead of, or in addition, to an RRSP or TFSA.

My financial advisor recently suggested that my husband and I invest in a permanent life insurance policy as our primarily tool to save for retirement (we're a young couple and won't be retiring for about 30 years). He said that it will likely experience more growth since it's safer than a RRSP. Also, after a few years, we can use it to withdraw funds from the cash value to pay for vacations, home renovations or even to pay down on our mortgage. While we'd have to pay the funds back in these situations, our advisor claims that the benefit to using the insurance for these purposes, rather than taking it from a savings account, is that the investment will continue to grow and earn interest. At retirement, we would draw from the cash value of the policy, but wouldn't have to pay it back since any withdraws and interest would be deducted from our insurance when we pass away.

This was a very preliminary discussions so I'm not sure what the fees are yet and how they compare to RRSPs. That's definitely something that I will have to look in to before making a decision.

Does anyone here using a life insurance policy to save for retirement? Or have any advice on things I should consider, things I should ask, etc? I find it a bit confusing especially since none of my family or friends have heard of using this approach to save for retirement.


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## OnlyMyOpinion (Sep 1, 2013)

In short NO, I would never use life insurance as my "primary tool" to save for retirement. Before rehashing it, review these threads and see if you come to any conclusions about who is coming out ahead:

http://canadianmoneyforum.com/showthread.php/43922-Life-Insurance-and-Investment-Vehicle-Combo

http://canadianmoneyforum.com/showthread.php/869-Is-Universal-Life-a-good-idea


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## Moneytoo (Mar 26, 2014)

I was wondering about it myself earlier this year: UL investment account vs non-registered. In our case, 3% "admin fee" on ALL deposits was a deal-breaker, along with very limited investment options. But we have an old policy, nowadays I hear it's usually 2%. Still, I'm wondering how they're selling GICs that yield less than that... I mean, if you add 10K and have to pay 2% admin fee on the deposit and then purchase a 2 year GIC that yields 1% - you'll only start breaking even after 2 years, guaranteed


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## Mechanic (Oct 29, 2013)

The problem is the financial advisor gets a healthy, ongoing commission from your insurance purchase. Of course you need it, lol.


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## pwm (Jan 19, 2012)

These salesmen are smooth operators. They undergo a lengthy training and selection process to get where they are. The commission they make, plus company incentives and bonuses is outrageous. I worked in the industry for 35 years. The only life insurance I had was term insurance with the company that ended when I retired. I have NO life insurance now for the same reason I don't own golf clubs. I don't need either of those things!

Look at the profits the big 3 insurance companies make. Where do you think that comes from?


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## twa2w (Mar 5, 2016)

Run, run as fast as you can from this scammer. Two of the biggest life insurance companies in canada have been sued in the last couple of years for making misleading claims about returns on these type of products. Yes the insurance companies lost.
The salesmans commission on this policy if you buy it is generally equal to the whole first years premiums you pay. No wonder he wants to sell it to you. It will fund his retirement, not yours.
His statement that it will experience more growth than an rsp because it is more safe is an out right misleading.
An rsp is as safe as the investments you put in it. Your life insurance is only as safe as the insurance company and maybe the investments depending on the type of policy.

If you need life insurance, buy term life insurance for the amount of insurance you need. Invest separately.
Do not combine the two of them. The numbers just don't add up.
What is the face value of the life policy. What are your premiums. What rate of return is he using. How much does he say the cash value will be worth when you retire. What isit worth after inflation.

If you borrow against the cash value you pay interest on your own money and you lose the compounding effect until the money is paid back.
i was a financial advisor for years. These claims for permanent life insurance are always exaggerated. I have seen more than a few clients with these policies. Not a single one has panned out the way the advisor claimed. 
A few of my clients were involved in the lawsuit against the insurance company.


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## pwm (Jan 19, 2012)

I just started reading the Summer edition of Money Sense and quite a co-incidence. On page 11 there's an article "How much does your insurance agent get paid". The average commission and bonus that agents of the top five Canadian insurers make on a new $200,000 policy follows:

10 year term: Annual cost $209, 1'st year commission $184.
Universal Life: Annual cost $1,752, 1'st year commission $2,313.


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## fraser (May 15, 2010)

It is just another play on whole life insurance. They add an RSP component to mask the product deficiencies and the high cost of the whole life component.

Personally I would always recommend that people separate life insurance and RSP. Select the best product from the most competitive vendor.

It will enable you to easily calculate the costs and the benefits without the smoke and mirrors.

And guess who is paying the commission on the whole life/RSP product?


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## Walksing (Oct 16, 2012)

we have the Performax gold from Manulife that stated 6 years ago. still not sure it is right decision when we bought it but definitely will lost this money if I play stocks
using these money. 

all about diversity


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## LBCfan (Jan 13, 2011)

Whole life policies, full-service brokerage acounts and a few other financial products are designed to convert "worthless assets" into "valuable fees and commissions". Wonder who had what and who gets what?


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## GreatLaker (Mar 23, 2014)

Here is a thread with some good comments on how whole life & permanent life insurance work, compared to buying term life insurance.
http://forums.redflagdeals.com/comments-manulife-performax-gold-903731/#post11013654


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## travellers (Jun 15, 2016)

Thank you all for your input, I really appreciate it. My husband and I just didn't feel right about it so that's why we kept hesitating. I feel like if I can't fully understand it and how it works, then it's likely not a good product for me.

We already have term life insurance (to cover the mortgage, etc. if something happens to one of us), and we don't feel like we really need permanent life insurance.

I just thought that it was strange that he was pitching it as a retirement plan, as opposed to an insurance policy.


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## My Own Advisor (Sep 24, 2012)

I don't understand the statement of ...."invest in a permanent life insurance policy as our primarily tool to save for retirement...."

Personally, I see insurance as a hedge against risk. Meaning, it's a risk management product.

If something happens that you cannot afford, you insure it. Some forms of insurance are required by law (car, home insurance). Other things you can self-insure (like losing a cell phone). If you sadly lost a spouse/partner, you cannot replace their income yourself, so you buy insurance.

Insurance for the most part is not a means to 'save for retirement' then.

Some forms of insurance are certainly needed, I have some life insurance myself, but to 'save for retirement'? Odd from my lens. 

I would be interested to hear your reply!


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## GreatLaker (Mar 23, 2014)

travellers said:


> I just thought that it was strange that he was pitching it as a retirement plan, as opposed to an insurance policy.


It is a retirement plan.... HIS retirement plan. The costs and commissions are such that a large up front commission plus a small ongoing trailing commission gets transferred from the client to him each year, slowly turning the client's retirement savings into his retirement savings.


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## bautista99 (Mar 23, 2016)

How about Whole Life or UL as an investments means that is Corporate owned and not individual owned? Is this a good way to grow money and eventually get money out of the corporation for the individual?


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## sags (May 15, 2010)

GreatLaker said:


> It is a retirement plan.... HIS retirement plan. The costs and commissions are such that a large up front commission plus a small ongoing trailing commission gets transferred from the client to him each year, slowly turning the client's retirement savings into his retirement savings.


True that.........we bought our first policies from a guy just entering the insurance industry over 40 years ago.

Over the years he hustled up business and eventually bought the brokerage. They merged with other companies and got larger and larger.

Today they are one of the biggest brokerages in Canada and from what I have heard he is doing quite well in retirement..............LOL...........he worked hard for it and deserves it.

If Economical Insurance does demutualize, we stand to gain a significant amount ourselves from the sale of the company. 

I suppose we should thank him for keeping us in the same policy for more than 30 years.


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## carverman (Nov 8, 2010)

travellers said:


> Thank you all for your input, I really appreciate it. My husband and I just didn't feel right about it so that's why we kept hesitating. I feel like if I can't fully understand it and how it works, then it's likely not a good product for me.
> 
> We already have term life insurance (to cover the mortgage, etc. if something happens to one of us), and we don't feel like we really need permanent life insurance.
> 
> I just thought that it was strange that he was pitching it as a retirement plan, as opposed to an insurance policy.


Lots of good advice here. I used to have a Whole life policy (sold by a life insurance salesman) in my early 20s. It had a cash surrender value after 5 years,
but when I stopped paying the monthly premiums it became suspended until I paid them a lump sum in lieu of the missing premiums to re-instate the policy.
i decided to just forget about it (surrender it) as bad decision on my part because I didn't understand how it worked. 
The Life Insurance company was the BIG winner in that deal and I lost out. The cash surrender value was very small after 5 years and didn't even amount
to the total premiums paid...but at least I had life insurance from them for about 5 years. 


> *How does whole life insurance differ from term life insurance?*
> Whole life insurance is designed to provide coverage on the insured for the insured’s entire life as long as premiums are paid and the *policy has not been surrendered*. On the other hand, term life insurance provides coverage only for a fixed period that is stated in the policy.


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## carverman (Nov 8, 2010)

sags said:


> True that.........we bought our first policies from a guy just entering the insurance industry over 40 years ago.
> 
> If Economical Insurance does demutualize, we stand to gain a significant amount ourselves from the sale of the company.
> 
> I suppose we should thank him for keeping us in the same policy for more than 30 years.


 The only real benefit from a whole life policy is that you continue paying the same premium year after year without any increases in the premiums as you age.
So from a life insurance policy point that IS the main benefit vs 
a term life, where the premiums go up depending on your age when you apply.

Between 30 and 50, there isn' that much of an increase, but if you are a male age 60 and up..the premiums go up significantly.
From an investment point of view, it isn't that good..but if you needed the cash surrender value for some reason, you can get most of your premiums paid back after at least paying premiums for 10 years or more. 

It's good for those that want life insurance protection and can't be bothered to save a bit for eventual retirement, 
but unlike an RRSP, it doesn't have the same growth for you, and you certainly don't get any tax relief on contributions.


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## carverman (Nov 8, 2010)

Here's one more fact sheet on whole life insurance policies..while it is from New York State, 
the 10 questions and answers apply to any whole life insurance policy in Canada, since the insurance companies operate the same way, with perhaps some small differences depending on regulations. 

http://www.dfs.ny.gov/consumer/que_top10/que_life_who.htm


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## marina628 (Dec 14, 2010)

When we were 18 we bought whole life policies that we still have and we bought them for our kids as well.Our 23 year old had a $350,000 policy and the premiums are now capped at $60 per month and our 13 year old will pay similar fees through her life.For ourselves if i knew at 18 what I know now maybe i would not have done it but we do get extra paid up insurance by reinvesting the dividends ,our premiums are $102.50 a month and because I became permanently disabled they did waive the premiums on mine.Our accountant had us buy a policy about 3 years ago on us that the corporation own and we write off the premiums ,I just followed her lead on this and took her advise that we needed this step.


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## sags (May 15, 2010)

I think people should consider whole life insurance products as basically life insurance and accept any "value" as a bonus.

I recently read a review that whole life insurance policies not only don't guarantee growth in value, but may actually decline in value to the point of being worthless or negative.

It is all buried in the small print in insurance policies, that insurers may use customer equity to pay increased costs of the insurance.

An example would be that somebody pays $30 a month for $250,000 life insurance as a child and pays that premium for life, but the actual cost of the premium at age 65 is $1200 a month.

The insurers can use client equity to pay themselves the increased premiums.

A paid up insurance policy, taken out at a very early age when it is cheap is an easy way to provide a large lump sum inheritance.

My dad had a large insurance policy and in his 50s decided he didn't want to pay the premiums anymore. He reduced it to a $10,000 policy.

When he passed away all he had was the small policy. He hadn't "saved and invested" any of the saved premiums. That is just the way it usually goes.

I had a buddy who bought all kinds of toys and owed money all over the place. He was on the verge of bankruptcy when he died. His wife would have been left in dire circumstances.

But he had life insurance on everything..........a recently re-mortgage home, 2 new vehicles, a new ATV, and some personal loans.

The insurance companies fought against paying out the benefits because the policies were recent, but they ended up having to pay.

The widow's circumstances changed from possible poverty to quite comfortable financially............thanks to insurance.

Insurance is insurance. It makes a poor investment vehicle. Just consider it insurance.

Here is a link to an article by an insider expert who explains it in much more detail than I can.

Bottom line is counting on the proceeds from a life insurance policy for retirement is a really bad idea, as evidenced by the title of the article :

Retirement Disaster Looms For Universal Life Policyholders

http://www.forbes.com/sites/investo...or-universal-life-policyholders/#7868dfd4222f


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## carverman (Nov 8, 2010)

sags said:


> Insurance is insurance. It makes a poor investment vehicle. Just consider it insurance.
> 
> Bottom line is counting on the proceeds from a life insurance policy for retirement is a really bad idea, as evidenced by the title of the article :
> 
> Retirement Disaster Looms For Universal Life Policyholders


This Forbes site checks to see if you have adblocker on..if you do it nags you to turn it off, so they can promote some of their ads.
I declined...anyway,

You are right about insurance (whole life or whatever), being a very poor investment for your future. The only benefit is that under current regulations, the premiums you pay when you take out the policy continue at the same level, as long as the policy is in force. A tiny bit of the monthly premium is for your "cash (surrender) value" of the policy which is practically negligible in the first 10 years, but they claim you can "borrow" against it, if you need money for other things...at a higher percentage rate of course. 
Most of what you pay into into your insurance as "savings" are used for administration and commissions. 
You are better off these days with a term plan these days.


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## Eclectic12 (Oct 20, 2010)

I suspect it also depends on what the purpose is.

I doubt a business that wants a set amount for a critical person would want to the limits of a term plan. Or say, a couple who want the tax free payout to their kids to cover the capital gains on their cottage.

On the other hand, where one has the benefit of a good job plus one is saving so that as one is older (i.e. the term costs get high) - the lower cost of the term plan is probably better.


Cheers


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