Seeking information about TIAA-CREF "Intelligent Life Insurance"
April 26, 2016 9:32 AM   Subscribe

We have been getting financial advice from TIAA, which, on the whole, seems to be a pretty good institution, but we have some anxiety about life insurance.

One investment possibility they have offered us (no pressure, just one of many possibilities) is their "Intelligent Life Insurance." It's a whole life policy, which I've been warned against in the past, but this is something where you can take out any and as much of the money as you want to if you need to at any time, and you do get some interest on it (3%). The death benefit is about double what we would put in (that is, what our children would get after both of us die).

Is there any down side of this? The idea would be that this would be money that we probably wouldn't use in our lifetimes but we could if we needed it, and our children would inherit more than they would if we invested it in some other way that would yield less interest.
posted by DMelanogaster to Work & Money (11 answers total) 2 users marked this as a favorite
Steer clear of Whole Life. It's very expensive for what it is, and the management fees are much higher than a good Exchange Traded Fund. The commissions to the sales people for these are handsome.

Buy Term Life insurance to protect your family only for the years when they need that protection. When your children are young and to cover a mortgage. People who have life insurance for grown children or a paid for house are enriching insurance companies.

Do not buy life insurance as an inheritance for your children.

Put the money that you save on the difference between Whole life and Term life into a Roth IRA if you want an investment that allows flexibility for withdrawals.
posted by Ruthless Bunny at 9:42 AM on April 26, 2016 [1 favorite]

This is a good article on the subject. An excerpt: "Permanent-life policies... generally need to be held for at least two decades for the savings component to beat a bond-based buy-term-and-invest-the-difference strategy. That's because the savings account expands so slowly in many of the policies pitched to consumers—thanks largely to big upfront commissions."
posted by ubiquity at 9:47 AM on April 26, 2016

100% seconding what Ruthless Bunny said.

our children would inherit more than they would if we invested it in some other way that would yield less interest.

I often mix it up with people assuming that you can just invest and expect a 8% return or whatever, but assuming you invest somewhere with reasonable fees, you ought to be able to do better than this. I find this phrasing odd: "Cash value credited with a fixed interest rate, guaranteed to never be lower than 3%." They are not guaranteeing a 3% return on your investment, they are guaranteeing that they will credit whatever "cash value" is with 3% interest. I'm guessing that's because the fees take the initial cash investment well below the initial amount. And, reading the pamphlet further, that's only for the "Fixed Account," e.g., one of the investment options within the policy. If you choose to invest in one of the other options (remember that each of those will take its fees as well), no guarantee on return at all.
posted by praemunire at 9:50 AM on April 26, 2016

I don't know where you go to get a GUARANTEED return of more than 3%.

Also I don't know that this TIAA policy is actually "whole life." Here is a review of it:


The idea is, make more interest than in a CD; have just as much liquidity; don't risk the money; get a decent return for survivors.

One more thing: I am 65 and my husband is 70. So: not all that much time to hang onto an investment for the future!
posted by DMelanogaster at 11:36 AM on April 26, 2016

I don't know where you go to get a GUARANTEED return of more than 3%.

I often give this advice to people: if you don't understand the investment, don't invest in it. Complexity is often a deliberate feature to obscure how much the investment is costing you, so if you have trouble understanding what you're being offered, it's often less a sign that you're an incompetent adult and more that someone is trying to slip something by you. My previous comment laid out for you the two separate ways in which this insurance does not offer you a "guaranteed 3% return," not in the way you're thinking of it. If you don't understand either of them, you don't understand what this investment is actually offering you and you shouldn't invest in it.
posted by praemunire at 12:36 PM on April 26, 2016 [3 favorites]

If you are 65 and your husband is 70 the very LAST thing you need is LIFE INSURANCE. Your survivors don't need your money. They're working and earning their own money. The way to win at life is to die broke. That's YOUR money and planning to leave it to your heirs is...just don't do that.

You can't hold onto this long enough to make it pay off for you. It has to mature before you earn that 3%. When does the policy mature?

If you need the money to be liquid, don't invest it. Ladder it in CDs and keep your money in YOUR pocket, not an investment firm's pocket.

BTW, how much are we talking about, perhaps you might enjoy discounted T-Bills.

The person suggesting you buy this life insurance will earn a hefty commission if you do. YOU will pay that commission, from the money that's invested into this vehicle. This is not a person who has your best interests at heart. He has his own interests in mind.
posted by Ruthless Bunny at 12:36 PM on April 26, 2016

Whole/permanent life insurance is appropriate for almost nobody. It is intentionally complicated. If you need insurance, buy term life. If you want to invest, then invest. Don't mix up the two.
posted by LoveHam at 1:45 PM on April 26, 2016

Life insurance is not an investment. It is a way to create an instant estate for your dependents. If you have no dependents, you have no need for life insurance (unless you want to create a larger inheritance for you kids, I suppose). And annual renewable term life is the cheapest.
posted by Johnny Wallflower at 2:14 PM on April 26, 2016

It's a very, very conservative investment, to the point where you will almost certainly lose money after accounting for inflation. You won't lose capital beyond whatever up-front fees you pay, so that's nice. But you are going to pay a lot for that security, and if security is all you're after, you don't have to pay upfront fees for it.

Personally I wouldn't do it. Ruthless Bunny's CD ladder suggestion doesn't make you much more in interest, but it also doesn't have any upfront fees. A simple bond index fund could make you 3% or more a year with barely any more risk (and minimal fees).
posted by mskyle at 2:18 PM on April 26, 2016

We're about your age, we own this policy, and are glad we do.

If you're purchasing life insurance to replace income lost due to death, then most of the advice given here is relevant. However, we're both retired and no longer need that protection. We did own a term policy while we were working, but let it lapse when we quit.

We bought the policy to park an amount of cash that we need access to at any time (so the stock market wasn't a good place to invest it), and to allow our beneficiaries to inherit it tax-free. It is a two-life policy, which means both of us have to die in order for the death benefit to be paid. The policy guarantees 3% return per year, and usually returns more as decided annually by their Board of Directors; the current interest rate is 4.1%. After one year, between $1,000 and 90% of the money originally invested plus interest minus cost of insurance can be withdrawn at any time for a $20 fee; of course that causes the death benefit to decrease. TIAA can print a policy illustration for you that shows all the numbers.

I don't work for TIAA (it's no longer TIAA-CREF), but we've had most of our retirement and savings invested with them for many years and are 100% satisfied. If you're working with a non-TIAA agent, just be certain you're not paying extra for the policy compared with what it would cost if it were purchased directly from TIAA.
posted by davcoo at 2:25 PM on April 26, 2016 [1 favorite]

davcoo, this is exactly our situation. We are working directly with TIAA, where most of our retirement income is (my husband worked for a non-profit). Thank you.
posted by DMelanogaster at 9:17 AM on April 27, 2016

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