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PropofoLSU
LSU Fan
Irwin, Idaho
Member since Aug 2013
541 posts

The debate about universal life insurance

Just read a retirement book about cash paying life insurance policies. I see a majority of ceos and football coaches use this as a retirement vehicle.

Anybody here against this idea. Assume all retirement options are being matched out. Hsa 401k plus match. It’s a tax free vehicle from everything I read.
This post was edited on 8/9 at 9:55 am


tigers win2
LSU Fan
Baton Rouge
Member since Oct 2009
3689 posts
 Online 

re: The debate about universal life insurance
Coaches use it because their employers fund it as part of their comp plan.

I’m not a fan for the average person. Buy level term and invest the difference is my mindset.


Hopeful Doc
LSU Fan
Member since Sep 2010
13175 posts

re: The debate about universal life insurance
quote:

I’m not a fan for the average person. Buy level term and invest the difference is my mindset.



Agreed

The people he lists are far from average. The death benefit inside the policy is generally exempt from estate taxes. When dealing with trying to move more than ~$11MM per spouse per child (intentionally written that way. 2 spouses, 1 child= $22, 2 spouses and 2 children =$44MM), you can see some benefit of the lower ROI in the next generation vs, say, a taxable account with larger gains that could get eaten up with the estate tax.


But essentially no one considered "average" has to think about that. I would imagine a handful of those in the OP would.



You could make an argument that it could replace a bond portion in a portfolio. With some case specifics, this may or may not be true. But I don't think it has a place in everyone's portfolio.


BornKjun
LSU Fan
New Orleans
Member since Apr 2008
703 posts

re: The debate about universal life insurance
Retirement is before you die..

Realize that you either get your cash value or your death benefit- not both. So if you die with the policy intact, you get the death benefit and forfeit the cash value.

A 40 year old person wanting a 30 year term policy would need to achieve a after tax return of 6-7% on the “Investment the rest” to equal their death benefit. This, the pretax is somewhere between 6-9% depending on the effective rate.

Note: this is just to match the death benefit after thirty years. The longer this person lives, the lower the break even return.

Therefore, if you get the required hurtle rate of 6-9%, you’ll have money in the bank instead of having to die. Thus, you have more flexibility, etc.

The cash value is pitched as an alternative to a savings account. No one thinks it’s a good return.



BornKjun
LSU Fan
New Orleans
Member since Apr 2008
703 posts

re: The debate about universal life insurance
Also note: don’t buy into the fear tactics saying investing is risky.

The spread of returns of the stock market over 30 years is actually very tight.

The returns of the market for 1 year is pretty wide, but every 30 year period has been pretty similar.



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meansonny
Georgia Fan
ATL
Member since Sep 2012
15553 posts

re: The debate about universal life insurance
As with all insurance products, it is for a specific clientele.

I personally think it is better than a bond portfolio in a long range investment portfolio (tax deferred).

But how much should a young person have in bonds? Honestly? I'm in my 40s and I don't see any need for bonds right now.

I do have 2 universal life insurance policies right now. 1 without cash value and 1 with. I am presently not over funding the cash value one. The opportunity is in the market. Not in a safer vehicle (i.e. cash universal life). In a different circumstance, I will over fund the policy (probably when inflation rears its head). But until then, I can accomplish my goals better with a Roth.


TurtleSS208
LSU Fan
Member since Sep 2015
69 posts
 Online 

re: The debate about universal life insurance
Depends on the situation and even then it is still only for a few situations...only way to the see the effects is to do long term cash flow and tax planning...have one client that is taking 90k per year in income and because of ssi, Roth, and tax free distributions taken in the form of a loan from universal index life policy (one for husband and spouse) is paying nothing in taxes


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RedlandsTiger
LSU Fan
Greenwell Springs, LA
Member since Jan 2008
2713 posts

re: The debate about universal life insurance
ALWAYS BUY TERM. (Ops, may Universal Life isn't so bad.)
This post was edited on 8/11 at 8:15 am


BestBanker
USA Fan
Member since Nov 2011
15817 posts

re: The debate about universal life insurance
It's an income tax-free asset. I like it.

Eta. WL is best. UL is full of contract caveats in favor of the insurer.
This post was edited on 8/10 at 7:58 am


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24
L S Usetheforce
LSU Fan
Member since Jun 2004
22117 posts

re: The debate about universal life insurance
Good question Prop

I"m looking at it this way: the Bottom line is, whole life insurance is not the most efficient “investment” when you only consider the return on the investment. In the book I read SMART money it says its a better place to store cash than any other financial instrument I've found after maxing out the normal tax free vehicles the IRS has created.

It is protected from the prying eyes of the IRS, tax hikes, lawsuits, the next Wall Street scandal, even massive bank failures. I also notice big banks use it as well......

If I'm storing cash in a low interest savings account...why wouldn't it benefit me to move some into a location with a better long term return. I'm being quoted 80K a year tax free on a 10 pay plan. The calculators are quite interesting.
This post was edited on 8/9 at 8:18 pm


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TDsngumbo
USA Fan
Alpha Silverfox
Member since Oct 2011
33056 posts
 Online 

re: The debate about universal life insurance
The only way a UL works to your advantage is if you continuously over find it each year. This means increasing your contributions more and more each year.

OR

If you are able to make enormous one-time contributions while avoiding a MEC.

Otherwise, I advise 99% of my clients to avoid UL’s like the plague. They result in most who buy them losing money while having the impression that they’re not and actually have a permanent life insurance policy (it’s not permanent unless you over find it each year and you will likely lose money).

As an agent, I don’t like them. You don’t buy a permanent life policy for the cash value component - you buy a permanent life policy to lock the rate in while you can and have something there for when your term runs out later in life and you only need enough to bury you with.

For someone over 50, I advise having around $10,000-$15,000 of whole life insurance for a basic funeral. Anyone under 40 should probably have $25,000 due to the cost of funerals going up over time. Personally, my wife and I each have $50,000 of whole life coverage in addition to $1M of term each. When our term runs out in 30 years, we still have the $50k to bury the other with and by then, the house and other debts will be paid off.
This post was edited on 8/10 at 8:01 am


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10
TigerDeBaiter
LSU Fan
Member since Dec 2010
9431 posts

re: The debate about universal life insurance
Is your salary millions of dollars a year?

The answer to that question is the same as whether you need it.

It has its place, but in the order of operations it is far far down the list. And income must be significant for it to make any sense at all.


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yatesdog38
Mississippi St. Fan
in your head rent free
Member since Sep 2013
12737 posts

re: The debate about universal life insurance
Any kind of permanent insurance is garbage unless you are gonna have a massive estate. A munibond fund would likely achieve your tax avoidance goal better if that is your plan.


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castorinho
Oklahoma Fan
13623 posts
Member since Nov 2010
77991 posts

re: The debate about universal life insurance
quote:

ceos and football coaches


Well....


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30
LSUFanHouston
LSU Fan
NOLA
Member since Jul 2009
27943 posts

re: The debate about universal life insurance
quote:

Just read a retirement book about cash paying life insurance policies. I see a majority of ceos and football coaches use this as a retirement vehicle.

Anybody here against this idea. Assume all retirement options are being matched out. Hsa 401k plus match. It’s a tax free vehicle from everything I read.


Having UL or WL isn't going to make you a CEO or a football coach (or have their amount of wealth).

If you already have a lot of wealth, it's a way to cause some of the growth to be tax-deferred.

The benefits come from the amount you can over-fund it, in excess of the insurance charge. But you can't over-fund it too much, or else the IRS sees it for the scam it is and removes a lot of the benefits.


PropofoLSU
LSU Fan
Irwin, Idaho
Member since Aug 2013
541 posts

re: The debate about universal life insurance
So then my question to everyone is....if I’m maxing out all my retirement options. I have a strong emergency fund. Where should my cash go? Let’s shoot for 15k per year. What can beat the tax free option at 68?
This post was edited on 8/10 at 12:06 pm


BigErn
LSU Fan
Member since Mar 2007
3283 posts

re: The debate about universal life insurance
Not a bad option for the situation you're describing. Stick with a WL policy from a mutual insurer here


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10
yatesdog38
Mississippi St. Fan
in your head rent free
Member since Sep 2013
12737 posts

re: The debate about universal life insurance
Growth stocks that don't pay a dividend. They will grow faster and long term capital gains tax will still beat any insurance policy.


LSUFanHouston
LSU Fan
NOLA
Member since Jul 2009
27943 posts

re: The debate about universal life insurance
quote:

So then my question to everyone is....if I’m maxing out all my retirement options. I have a strong emergency fund. Where should my cash go? Let’s shoot for 15k per year. What can beat the tax free option at 68?


How old are you / how healthy are you?

15K a year in my experience isn't nearly enough to go here. I have a client, business owner, 52 yrs old, and his investment guy, who also sells insurance, is trying to push him into a 10-pay policy with a premium of 85K a year for 10 years, and it's giving me a lot of heartburn.


meansonny
Georgia Fan
ATL
Member since Sep 2012
15553 posts

re: The debate about universal life insurance
quote:

So then my question to everyone is....if I’m maxing out all my retirement options. I have a strong emergency fund. Where should my cash go? Let’s shoot for 15k per year. What can beat the tax free option at 68?


What is the universal life attached to for policy growth? Is it tied to an index fund? Is it an attractive tax deferred interest rate?

Most people stay away because they dont understand anything about the UL (which isnt bad advice. Stay away from things you dont understand).

I'd be happy to give you the pros and cons of your scenario if you can share more detail.


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