ROTH Vs Permanent Insurance (More Specifically, FIUL)

[lementex]

Hello

I have a friend . He is young (25), not married and with no kids, no dependents of any kind. He has a modest income (around $45k) He asked me about Insurance the other day, and I was over at his house discussing general financial topics.

He informs me that he is maxing out his ROTH IRA contributions in single deposits every January for the past three years, and that he doesn't have much room for anything else.

I wondered - could I honestly argue that an FIUL would be a better alternative? I want to, but only if it's true. At this point I don't think it is, but maybe there's something I'm missing.

Of course I would love an insurance sale but only if its in the best interest of the client. If the ROTH IRA is the best option for the first $5-6k in his budget, then I wouldn't want to convince him otherwise.

And liquidity is actually not an issue. He doesn't want easy access to his savings - so the borrowing ability of a permanent policy isn't what would entice him.

Thoughts?

 

[LGilmore]

While a Roth is a great thing, it is poor insurance. At 25 he can purchase a decent insurance policy and have both to an extent.
While some here might think it would be dumb, it seems pretty smart at 53 as a diabetic who just had his heart restarted to have all that stuff locked up, put away and working for me.

They can't take it away, it can't go backwards and it has provided a decent conservative return all that time.

And yea, maybe his health doesn't change. At 25, I was 6'7" 250lbs, ran a 4.6 and was a terror on the rugby pitch and soccer fields. Things change.

The thing I find is all those advisors who tell you permanent insurance is a bad deal, disappear when you get sick. They don't have an answer for health changes and how hard it is, not to mention expensive to get insurance after your body tanks. Shut Ramsey right up as a health change doesn't fit his argument about insurance as he doesn't have an answer for it.

Anyway, good luck and hopefully the guy can think ahead. My biggest market is the 60+ club who didn't and now are in a scramble to find something, anything to cover them.

 

[DHK]

Here are my thoughts:

1) A Roth IRA is subject to income eligibility for contributions. FIUL does not have any income caps for contribution.

2) A Roth IRA has a contribution cap. FIUL does not have a maximum (unless you are talking about MEC guidelines for a given face amount).

3) A Roth IRA can be invested in securities or in the bank (Individual Retirement Account). FIUL is not an investment, but has the potential to out-pace bank savings easily. Even then, you could recommend a Fixed Index ANNUITY for a Roth IRA as well (Individual Retirement Arrangement/Annuity).

4) The only way I can think of a Roth IRA being more suitable than FIUL... is if he plans on needing access to the principal contributions within the next 5 years. Withdrawing the principal contributions from a Roth IRA has no tax consequences. Only withdrawing the interest accrued has tax consequences (and penalties) before 59 1/2.

If this is not the case at this time, the FIUL would be a better solution for:
- Unlimited contributions
- Not subject to IRS income limitations
- Savings is secure, yet can earn a better amount of interest credited to the cash surrender value.
- Provides a death benefit.


I'm not seeing a downside... but I didn't meet him, or did I have a complete fact-finder to make my own recommendation. This is just a comparison between the Roth IRA and a FIUL.

 

[LGilmore]

Look at a dividend paying whole life like ohio or guardian. Old school does work, that's why it's still around while everything else comes and goes.

Plus it gets you off of trying to compete on return. Don't compete on return with life insurance. There's a lot to be said for low and slow when you don't have to give it back when the market changes. Both Ohio and Guardian work with independents.

 

[Larry Tew]

... The only way I can think of a Roth IRA being more suitable than FIUL... is if he plans on needing access to the principal contributions within the next 5 years. ...

I may not be understanding your point, but at 5 years on a "just under MEC" WL, the CV is 70% to 90% of the premiums paid, which is pretty good access to liquidity assuming he doesn't need to cash in all his chips at one time.

 

[pcbinsurance]

"At 25, I was 6'7" 250lbs, ran a 4.6 and was a terror on the rugby pitch and soccer fields."
*********************
Cripes! You were a larger (Ted was 220) and faster version of Ted Hendricks!
- - - - - - - - - - - - - - - - - -
"He asked me about Insurance the other day...."
*********************
First thing I would do is lock this young healthy lad up with a cheap 30 year term policy.

 

[LGilmore]

Loved the mad stork.... I was considered the little brother in my family. My speed came from surviving my big brothers.

Now the problem is I am twice the man I was back then, literally.

Which was my point to make. Buy the hell out of whole life when you're young, given time to work it does a great job. It actually does what it's supposed to do.

As I lay on that bed in the hospital waited to be rebooted (heart stopped and restarted, just like windows) the thought that I wasn't stupid like the financial gurus imply.

I had my WL and nobody was going to take it away or change the price or end the policy before me. Probably the smartest dumb thing I've ever done. Except forgetting my mouthpiece in Canada and just nailing a guy, 47 stitches later my lower lip was put back on.

Do the 25 year old a lifetime favor, sell him the boring stuff.

 

[pcbinsurance]

I'm glad you rebooted and I hope your operating system goes on for decades more.

 

[RonRoberts]

I'm glad you rebooted and I hope your operating system goes on for decades more.

I'd like to second that. Life is great.

 

[lementex]

Thanks for the points. I didn't consider a few of those.

I would like to sell him on the FIUL as an alternative to the ROTH, but I want to make sure its suitable and in his best interest.

Some good points were brought up. I think I'll talk to him about it again.