July 18, 2019
Welcome to week 3 of You Ask, I Tell.
The question this week is one I hear over-and-over with slightly different specifics:
Suze, I was told that this life insurance product was a better investment than my 401(k)/403(b) or IRA. Is it?
If you could only see how angry I am as I type my answer: No. No. No.
Whenever someone tries to sell you a life insurance policy with some story that it is a fantastic way to invest, you are to shut down that conversation and never work with that person again.
Please listen to me: life insurance is an expensive way to invest. Anyone who is trying to sell you life insurance as an investment is not acting in your best interest. And don’t let me near anyone who recommends doing a partial “rollover” out of a retirement plan into an insurance product.
What life insurance agents pushing the investment angle don’t tell you:
• I am going to get a huge commission if you agree to this.
• The annual fees you will pay on the investment portfolio within your policy will be a heckuva lot more expensive than if you went and invested the money in a low-cost index mutual fund or ETF.
• If you want to cash out your plan early you will likely pay big surrender fees.
I can’t be more explicit than to say: anyone who insists life insurance is a smart way to invest is not to be trusted. Period.
But I want to be very clear: life insurance is a cornerstone of financial security if there is anyone in your life who is dependent on your income. Just focus on buying life insurance only…without any “investment” angle.
The best life insurance that is just simple life insurance is called term life insurance. It is cheap. There is no investing angle to it. That’s how you take care of life insurance.
And you handle your investments separately. For retirement, if your employer offers a 401(k) or 403(b) and offers to chip in some money –called the employer match – that’s a great deal you shouldn’t pass up. Investing in low-cost index mutual funds and ETFs in a Roth IRA is another fantastic way to invest, with great tax breaks. And there is absolutely nothing wrong with investing in a regular taxable investment account. Again, low cost index funds and ETFs are the way to go with taxable accounts.