For the most part, I'm convinced that a CVLI is a bad idea -- especially if you haven't already taken advantage of a 401K or IRA -- and that you can get better returns on the same money by following the "buy term and invest the rest" mantra. However, I'm still unsure about one thing. Could a CVLI plan be worthwhile if I completely raid the death benefit and trade that in for additional cash value in life?
Assume that I don't want to use the CVLI for insurance at all, and I'm only interested in it as an investment vehicle. I've been shown a plan with a printed schedule from the insurance company which has yearly premiums of $6,000. After 30 years, I will have paid $180,000, the "non-guaranteed" cash value will be roughly $360,000, and the death benefit will be roughly $800,000. Since the cash value comes out of the death benefit, if I receive that $360,000 while alive, then the death benefit will be reduced to $440,000.
I know that it is possible to transfer some of your plan's cash value to its death benefit funds. In fact, that's a strategy that Investopedia recommends:
If you have accumulated a sizable cash value over the life of your permanent life insurance policy and do not intend to use these funds yourself, you may choose to leave a larger death benefit to your beneficiaries. How can you pull that off? It’s usually very simple. Just call your life insurance company and say you’re interested in making a trade: You’d like to increase the death benefit in exchange for the cash value on your policy. Because the company doesn’t want to lose your business, it will more than likely accept your request.
My question is, can I do the opposite? Can I trade all death benefit value for cash value, and thereby get the entire $800,000 value in life, leaving $0 behind? Are there legal issues with this? Does whether this is allowed depend on the insurance provider?
And if I can do this, is this a good use of that $180,000, compared to the returns that I would get by simply investing in an index fund or a backdoor Roth IRA?