Interesting . . .

I have been told and I have read that permanent life insurance known as "Whole Life Insurance" is a bad deal.  That it is a poor investment.

Years ago my now deceased ex brother-in-law, a New York Life Insurance Agent, sold me a series of whole life insurance policies.  They were for face value of $10,000 each for a total of $30,000 of life insurance.  They cost ten or twelve dollars each a month for the rest of my life, or until I made some changes.  Some of those changes were unaware to me, I was ignorant of what I had really gotten into.  But it did not hurt me at all. I bought those policies around 1965.

About 1981 I borrowed the cash value out of each of the policies and invested the money in the very hot money market fund.  I was getting 10 to 12% return on my money, much more than the stated amounts in the life insurance policy.  And I had to pay interest annually on that borrowed money.  It was my money but . . .  

I had changed the policy status from active to paid up participating in 1981 which meant I no longer paid a monthly fee for the policies.  The change meant that the face of the policy was what I had essentially paid into it less of course the cost of the administration of the policies.  So they were in limbo.

In about 1995 we, my wife and I,  paid off the loans on those policies.   And then I elected to use the annual dividends to buy more paid up participating insurance.  Those policies have steadily grown and are now all worth more than $10,000 each, one is over $12,000 face value and all continue to grow.  The dividends are not like stock dividends, they are a return of your money and thus are not taxable on an annual basis.

I just got the statements on two of the policies and the dividends amounted to a little more than $360.  The dividends went to buy more participating paid up insurance.  I am guess the third policy will also be about $200 in dividends make my annual total about $560.  No matter, it is income that I do not have to pay taxes on and is reinvested in the policies.

My intention is that my children shall get the policies when I die.  Of course, should my wife predecease me for that to occur.  She is the primary beneficiary, the boys are the  tertiary beneficiaries. 

Back in 1981 I also got a $20,000 whole life policy from USAA for my wife and I got a "Universal Life" policy from USAA.  These are policies I continue to pay for via allotment out of my retirement income.  Her policy had immediate purchase of paid up additional coverage using the dividends and today is almost $40,000 in coverage.  In my case the Universal Policy has more than $44,000 in cash value.  It grows at 4.5% based on the cash value per annum, the actual insurance declines so that the beneficiary gets $50,000.

The bottom line is I was late at using the paid up participation elements because I just did not know about them.  But in the end I learned and used them to make the policies grow in value with no addition out of pocket expenses to me.  And there were no tax implications as I did not "cash them in".  The children will get the benefits in the long run at a time when they can probably really use them for their benefit.  Or God forbid, they are cash instruments and if need be, I can access the money in time of need.