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Message
re: Indexed Universal Life policy. Who has done it?
Posted on 7/28/23 at 10:15 am to meansonny
Posted on 7/28/23 at 10:15 am to meansonny
There are some concepts out there where you fund these policies to the point where the value is high enough to loan yourself an income stream….and the loans aren’t taxable. They reduce the face value at death. I looked into it and still couldn’t figure out how this would create more value than just investing the money other than maybe internal caps on market losses and tax free accumulation? The amount you need to pay in premium over time is substantial to get to that point.
Still too many hands in the pot IMO.
Still too many hands in the pot IMO.
This post was edited on 7/28/23 at 10:20 am
1
Posted on 7/28/23 at 10:24 am to La Place Mike
quote:
The biggest issue is that a lot of brokers that push buy term and invest the rest are just as disingenuous as agents that sell permanent life products as investments.
It is a fair objection in your position to ask, "invest in what?"
But you know the reality is that there are a ton of things better than the growth within a life insurance product.
Can you show me a guarantee on an index UL with a balance greater than the premium paid in by year 5?
Posted on 7/28/23 at 10:24 am to La Place Mike
Ok, 3% tax free return on a permanent whole life policy that will break even around 20 years in.
Vs
7% conservative taxable returns in a non qualified account. 15% cap gains tax or 15% dividend tax equals 6% net returns.
Therefore, you have positive net 3% year over year growth outside of a permanent policy. Not to mention, you have a 95% chance after year 5 to have made money and a 98% chance after year 10. Also, you have the flexibility to not make a contribution every.single.month.
Things that make you go hmmmm
Vs
7% conservative taxable returns in a non qualified account. 15% cap gains tax or 15% dividend tax equals 6% net returns.
Therefore, you have positive net 3% year over year growth outside of a permanent policy. Not to mention, you have a 95% chance after year 5 to have made money and a 98% chance after year 10. Also, you have the flexibility to not make a contribution every.single.month.
Things that make you go hmmmm
Posted on 7/28/23 at 10:25 am to La Place Mike
quote:
Which has nothing to do with a comfortable retirement. So, are you going to supply the data or just ramble on?
Show me the greatness of the UL and it is my job to find a plan that can beat it.
Posted on 7/28/23 at 10:27 am to SquatchDawg
quote:
Running out of money is real for a lot of seniors with rising health care costs.
I think everyone should have some baseline of whole life for this reason.
Please explain this reasoning further.
It almost sounds like you are arguing for long term care. Or an annuitizing a sum of money (running out of money being the concern?)
Posted on 7/28/23 at 10:31 am to Shepherd88
quote:
Ok, 3% tax free return on a permanent whole life policy
I'm not arguing with you.
I'm just trying to get an explanation on the tax free return nomenclature around whole life insurance.
Growth in a whole life policy is tax deferred.
Death benefit on a whole life insurance policy is tax free (in the vast majority of cases)
Withdrawals are not tax free. Tax deferred =/= tax free. Deferred is explicitly the opposite.
There may be something I don't know about. I'm just looking for clarification.
Posted on 7/28/23 at 10:34 am to La Place Mike
I am tyring to answer and told you my answer. I will be self-insured by the time my term insurance runs out. The death benefit of a WL policy will not be needed in that situation to provide for my family/inheritance. When I compared my cost of buying term insurance plus investing my excess, I end up with a balance that is approcimately 40% greater than what the whole life benefit would be in the same stage of like.
The biggest risk I take in this is two-fold. ONe is that I have a drastic change in income that makes me not self-insured at my projected age. If that happens, I would likely also not be able to afford my whole life premiums (multiple thousand per month). The second is a stark inheritance law change. This could also go both ways where whole life becomes taxable on death benefit (unlikley but possible). For me, I would rather accept the market proven return of the S&P and pay low cost term policy to get to that point. If that happens, I retire at my desired age without financial concern, and will leave my kids/interests a significant windfall in life. If I die before then, my family gets a substantial portion of money to provide for their needs during their lifetime.
Since you have been the one asking the question, please tell me the flaw in this explanation.
The biggest risk I take in this is two-fold. ONe is that I have a drastic change in income that makes me not self-insured at my projected age. If that happens, I would likely also not be able to afford my whole life premiums (multiple thousand per month). The second is a stark inheritance law change. This could also go both ways where whole life becomes taxable on death benefit (unlikley but possible). For me, I would rather accept the market proven return of the S&P and pay low cost term policy to get to that point. If that happens, I retire at my desired age without financial concern, and will leave my kids/interests a significant windfall in life. If I die before then, my family gets a substantial portion of money to provide for their needs during their lifetime.
Since you have been the one asking the question, please tell me the flaw in this explanation.
This post was edited on 7/28/23 at 10:38 am
Posted on 7/28/23 at 10:37 am to meansonny
I’m not defending WL. I agree with your statement. Loans are tax free but they are simply that, a loan.
People like to over complicate things bc all investing boils down to individual stocks and bonds. Anything else is just simply wrapped up in a package and the more it’s packaged the more expensive it is and the more watered down the returns are.
People like to over complicate things bc all investing boils down to individual stocks and bonds. Anything else is just simply wrapped up in a package and the more it’s packaged the more expensive it is and the more watered down the returns are.
Posted on 7/28/23 at 10:48 am to SquatchDawg
quote:
There are some concepts out there where you fund these policies to the point where the value is high enough to loan yourself an income stream….and the loans aren’t taxable. They reduce the face value at death. I looked into it and still couldn’t figure out how this would create more value than just investing the money other than maybe internal caps on market losses and tax free accumulation? The amount you need to pay in premium over time is substantial to get to that point.
Still too many hands in the pot IMO.
I get that.
But the loans have interest.
If you pull out $10,000, you may feel like you avoided taxes.
But you would be paying interest every single year until the loan is paid back or you cancel the policy (which converts the loan to a taxable withdrawal) or you die (which subtracts the loan from the death benefit).
Retire at 65. Borrow $50,000 and pay back interest on that loan for 25-35 years?
As you said... the policy would need to be massive to keep itself from imploding in itself (funds to cover cost of permanent life insurance, funds to cover annual policy management fees, funds to cover interest on loans, and the borrowed funds are deducted from the balance to sustain that).
Posted on 7/28/23 at 10:50 am to meansonny
quote:
Please explain this reasoning further. It almost sounds like you are arguing for long term care. Or an annuitizing a sum of money (running out of money being the concern?)
My in laws recently passed…one with dementia and the other with lung cancer….and their end of life expenses damn near wiped their retirement savings out. Also, at that stage you may not make the wisest financial decisions. My FIL’s whole life policy that he almost let default ended up helping to close out the estate., paying debt, etc. LTC insurance wont cover the debt on the Audi, Volvo and boat you bought that need to be sold.
To me it’s more about diversification. How many independent income streams can I have at that stage of life? What can I have if Plan A fails? There aren’t many options if you don’t have a pension.
That said I looked into life, annuities, etc. but just didn’t like the math and the opportunity cost of directing capital into these vehicles. You lose too much off the top to fees and admin.
Posted on 7/28/23 at 10:54 am to meansonny
I agree. The concept of ramping your cash value up to a point where any of this is possible is fools gold. It takes a ton of $$ that can be used elsewhere.
Posted on 7/28/23 at 11:04 am to Shepherd88
quote:
Shepherd88
You are speculating. I can do that too. I could increase the 3% to 5%, add a dividend, and then base the rate of returns on the 5 year Government bond for the last 30 years.
What were you shown that convenced you that buying term investing the rest works? Did someone show you made up numbers like you showed me?
Posted on 7/28/23 at 11:06 am to meansonny
quote:
Show me the greatness of the UL
When did I ever say UL was great?
Posted on 7/28/23 at 11:27 am to La Place Mike
You never responded to my replay as asked. The returns are based off stock market historical averages. What if the life insurance company goes insolvent? How can you guarantee that?
Posted on 7/28/23 at 11:35 am to La Place Mike
Show me your numbers then bro.. lol quit making them ups. You’re full of shite otherwise.
I’m using historical factual data since you’re scared to answer my first question.
I have several letters behind my name that shows I’m a specialist and certified in what I do.
I’m using historical factual data since you’re scared to answer my first question.
quote:
What were you shown that convenced you that buying term investing the rest works? Did someone show you made up numbers like you showed me?
I have several letters behind my name that shows I’m a specialist and certified in what I do.
This post was edited on 7/28/23 at 11:40 am
Posted on 7/28/23 at 11:36 am to HailToTheChiz
nope. Def not
Posted on 7/28/23 at 11:51 am to La Place Mike
quote:
You don't need an individuals information to prove "buy term, invest the rest" works. If it works it should be easy to prove. I will ask you, what sold you on the strategy? Did you see anything or are you just taking someone's word that it works?
Its actually pretty easy to prove. All insurance is term insurance. Its just what they attach to it. WL is nothing but decreasing term with an inefficient cash growth attached to it that grows at the exact rate that the insurance is decreasing. That increasing cash with the decreasing insurance is how the death benefit stays level. Honestly the returns don't have to even be great to beat WL. The first 3-5 years on the cash is a -100% return. Takes about 20 years to get even (0%), with a 1.3-3% return over the life time of the policy if it's kept to age 100 (maturity...which well...). You can do a fixed annuity with the term and get a better plan than what the whole life is offering all together (I'm not saying its what you should do. Just relaying to the fact of how really ineffective these policies are as a whole)
quote:
I could increase the 3% to 5%, add a dividend, and then base the rate of returns on the 5 year Government bond for the last 30 years.
first off 3%/5% on what? You don't even know what its growing on. Its not the total premium. The agent that sells you couldn't even tell you that. The only person that can is the actuary that put the policy together. Plus dividends are just a return of the overcharged premium (Look up US Treasury Decision #1743). Why do you think its not being taxed. If it was additional it would be taxed as ordinary income. But this money you have already be taxed on (Not new money).
But overall it has to do with my responsibilities being high while my cash is lower at this current moment. I have enough term coverage currently to cover my loss of income, mortgage, and taking care of my kids. I continue to invest significantly. I have a SoloK, wife has a 401k, we both have Roths, and we have UGMAs for the kids. We invest a significant amount. As the mortgage is paid down, kids grow up, and move in to retirement our responsibility on coverage goes dowm. We then have entered in to financial independence phase where our gap for life insurance now is non-existent taken care of by our cash. But the cost effective term allows me to put more to these areas than an inefficient cash spot like I explained above in the post.
This post was edited on 7/28/23 at 12:11 pm
Posted on 7/28/23 at 12:00 pm to GeauxTigers777
quote:
GeauxTigers777
Congrats on being on top of your game. The average investor doesn't have the time nor the inclination to mind their investments which are for the most part all tied up in their 401K at work.
quote:Because it's an explanation. I am looking for hard data that proves that buying term and investing the rest works that can't be disputed. To be honest, there isn't hard data that proves it doesn't work that can't be disputed. In the end, it's all speculative and depends on which side of the street you're on. I could come up with illustartions to prove it works and I could just as easlily come up with illustrations that proves it doesn't work. The thing is both illustrations can be "valid" based on the products and the rates of returns I use.
Since you have been the one asking the question, please tell me the flaw in this explanation.
I do appreciate your attempting to answer. You have to do what is right for you and your family and you have evaluated the risk involved. Most people aren't savvy enough to do that.
Something that is lost to most people on this board is they beleive that what is right for them is right for everyone else and that is not the case.
Posted on 7/28/23 at 12:04 pm to HailToTheChiz
quote:
give me some cons!
how about the fees and rising cost of insurance (annual renewable term inside the policy) that allows less and less to go to the cash (index). Think about having an S&P index fund where every year they raise the fees on you, in many cases the fees costing more than what you are paying in and they take out of the fund to pay those fees lowering the cash overtime. There's a reason for the minimum premium and target premium in these policies. Many of these policies implode on themselves leaving the client with no insurance or cash.
Posted on 7/28/23 at 12:25 pm to Shepherd88
quote:You made up numbers, bro. It's okay. You have to speculate unless you think "past results are not indicative of future results" is just a wink, wink, nudge, nudge.
Show me your numbers then bro.. lol quit making them ups
quote:
I have several letters behind my name that shows I’m a specialist and certified in what I do.
Am I supposed to be impressed?
You don't charge a fee to keep those assets under management?
This post was edited on 7/28/23 at 12:36 pm
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