Recently, I was in a tax meeting with two of my favorite clients (both business owners) and their tax team. We had made an introduction to the tax pros a couple of years ago, and it has offered a new level of collaborative advice for my clients.
We talked about 2025 income, future growth opportunities, tax savings opportunities, and a few other items.
Afterwards, the wife mentioned that an insurance guy was pitching her on whole life insurance. She asked me:
“Do we need that?”
A lot of the time, advisors will hedge this kind of advice with, “Well, it depends.” But in this instance, I was able to say:
Absolutely not.
Here’s why I could answer her with confidence.
- There’s no estate planning angle. They don’t have kids, and they don’t need to mitigate any estate taxes.
- The tax-free growth insurance reps talk up is overblown. Plus, our client didn’t understand the terms of the policy. She thought it was a tax-deferral (i.e., the premiums offset current year income). That’s not the case. The account just grows tax-free. But it begs the question: Why didn’t the guy pitching her this policy take the time to explain that?
- The fees are high. Plus, the monthly premiums are expensive and not fun to fit into your budget. Sometimes they increase over time and missing payments can void your policy, depending.
- In most instances, a diversified portfolio will outperform a whole-life policy against key metrics.
Beyond that, we had just found several excellent tax planning opportunities that added more value to her overall financial plan than a whole life policy would have.
In this case, it was utilizing a Mega Back Door Roth IRA in low-income years, maximizing Solo-Ks in high-income years, switching to an S-Corp if some opportunities come through, and travel deduction opportunities for both spouses.
The Whole Life Policy doesn’t help any of that, and the cost would restrict monthly cash flow.
She nodded, the elevator pinged, and and we shifted our conversation to the new Purple Rain musical.
This isn’t an anti-whole life insurance post. Okay, okay, this isn’t ‘only’ an anti-whole life insurance post. More than anything, I want to urge you to seek collaborative advice.
All your professionals —tax, legal, financial, investment, and insurance —look at your situation from different angles and with different expertise.
That’s good! Disagreement is okay!
Ultimately, it’s about sifting through all the options and defining the right strategy for you, your unique situation, and your unique goals.
My job is usually to elicit options and then help coordinate and sift through the best advice for my client. I think this is what a good wealth advisor does best, and it is incredibly valuable to the type of client we work with.
