Total Comments: 431
Posted: Thu Nov 01, 2012 08:21 am Post Subject:
I've broken down all cash values, and it never made sense how people can sell them as an investmental.
We don't always see eye to eye, but fjavmafaru is probably correct when he says you don't understand insurance well enough. Term life is a perfectly good solution in many cases, but it is not the perfect solution for all cases.
If you are offended by the commissions paid for cash value insurance sales, that's fine, but that's not an acceptable reason not to provide someone with a cash value policy when a term life solution is not suitable. Term life is generally inappropriate for most estate planning and business uses of life insurance. Not that it won't work, but it might not be the most efficient use of premium dollars over a long period of time.
Any agent who markets life insurance solely as in INVESTMENT as opposed to life insurance is probably doing a disservice to his/her clients.
Posted: Thu Apr 18, 2013 12:11 am Post Subject:
Katt, I've never totally understood the argument that an agent shouldn't sell cash value policies or that they are somehow a ripoff based on the commissions paid to agents. I do see how one could feel uneasy about the potential conflict of interests and on the surface ethically about being paid more when there's options that pay less, but it seems to me a bigger ethical issue to only reccommend term to clients even when cash value may be the better option for them. Plus, I've heard that having such a large amount of premium going towards commissions is wrong, yet commission rates for term and cash value are not very different and term can be higher. I don't get how being paid say 90% commission on a whole life policy is wrong, but 105% of a term policy is somehow right, especially when you add the additional commissions one gets from selling securities & investment products when "investing the difference". I guess to me it boils down to knowing that I did the right thing for the client, whether term or cash value. As long as its in the client's best interests, I don't feel wrong ethically.
That said, I agree with you and the other posts that said selling a life insurance policy as an investment is wrong, especially fixed policies like an IUL. When I read all the posts on this thread about an IUL being a great investment with insanely high rates of return and several people suggesting that they are better for retirement savings & investing than qualified retirement plans I couldn't believe it. Don't get me wrong, I do like IULs for certain situations (although not nearly as fond of indexed annuities), but some people make them out to be the best thing thats ever happened for investors while completely disregarding the myriad of disadvantages. I can perhaps see an IUL as a protection/emergency fund mix (long-term, after surrender charges) as a conservative part of a comprehensive financial & insurance portfolio, but never as a growth asset & investment.
Sorry for ranting but some of the posts were very frustrating. Like MaxHerr said, it's those kinds of marketing ploys that give agents a black eye.
Posted: Thu Jul 18, 2013 06:21 pm Post Subject: Is it worth it?
Bottom line is this worth doing?
Posted: Thu Jul 18, 2013 09:01 pm Post Subject:
Is what "worth doing"? Buying or selling?
Indexed UL policies have improved significantly in the past few years and have overtaken sales of all other cash value life insurance policies. They still, inherently, have the lingering problem of Annual Term rates for cost of insurance, and unless the funding and interest crediting matches the illustration that created the "planned premium", there could be the potential for lapse in the future. The same flaw that has plagued UL policies since Day1 some 35-40 years ago.
Posted: Sat Aug 24, 2013 06:52 am Post Subject: Thanks!
Just wanted to say thanks Max, found this thread via Google and your contributions helped immensely. You answered all the questions I had about IUL. My determination is that is NOT a viable retirement vehicle unless you are also funding more traditional methods -- and even then, caveat emptor.
Posted: Sat Aug 24, 2013 12:00 pm Post Subject:
Don't misunderstand. IUL policies as they exist today are not bad products. They are life insurance, and the fundamental purpose is to provide cash resources to loved ones or others, like business partners, to get on with life after the death of the insured. Life insurance should not be promoted as, or even described as, a retirement plan. It is not.
Does a cash value life insurance policy permit the owner to take money out of the policy? Yes, that's guaranteed by state insurance laws and contract language. Can your life insurance policy be a revolving charge account -- a put-and-take savings account? Yes. Should it be? No, that's not what it is designed to be. Do some insurance companies and their agents want you to believe it is the same as a tax-free bank account? Yes. It is not. All it is is life insurance.
If you have purchased a life insurance policy believing that it is a retirement plan, because that's what the agent or insurance company marketing materials led you to believe, there is a good chance that your money can be recovered through legal action. You can email me for more information through the link at the bottom of this post.
Can life insurance be exploited in other ways? Yes. That's what all this "Bank on Yourself" stuff is all about [whole life is less susceptible to collapse, but not immune -- if you fail to repay borrowed funds or, at the very least, the annual interest, the policy may die before the insured does]. Those who are promoting the "Roth IRA on 'Roids" scam are more likely to recommend the use of IUL for their scheme.
Unfortunately, people do not fully understand the ramifications of borrowing against a UL policy, which has huge potential to derail the contract. No form of UL policy should be contemplated as a source of cash withdrawals or retirement funding unless a person is willing to lose that policy because they cannot afford the premiums in the future (and the income tax implications when they remove more than the cost basis in the contract).
Can Congress shut off the free use of life insurance cash value? Absolutely. At any time. All they have to do is reword a couple of sections of the Internal Revenue Code. Do they have to "grandfather" existing policies? No. Do they have to grandfather existing policy loans? No. But they probably would. Could they say, "Existing policy loans must be repaid in full within 1, 3, or 5 years" or the outstanding balance will be subject to a tax? Yes.
Will they do any of this anytime soon? No one can tell you yes or no with any certainty. But pay attention to the cost of implementing the Affordable Care Act -- it was sold to the American people as "saving a trillion dollars over the next ten years." What happens when the "savings" don't materialize and the piper has to be paid? (Or, worse yet, health care in America as we know it today is replaced with a "single payer" [aka: government] system by default?)
Raise existing taxes. Create new taxes. One or the other or both. Popular? Of course not. Which one would impact fewer folks or affect wealthier folks the most? Taxes on touching life insurance cash value. The hand writing on the wall is plainly visible to those who understand the economics of this.
The "guaranteed income" claims of agents are not necessarily supported by the language of the contract. If you want guaranteed income, purchase an annuity (but that requires having the cash accumulated). If, in the future, one chooses to change objectives, and no longer needs the life insurance for its death benefit value to others, under current tax law, the contract may be exchanged for an annuity without incurring a tax liability, and the cash value can be converted into a stream of guaranteed [taxable] income for the remainder of a person's life or even longer.
If you want cash value life insurance with a better potential for cash accumulation over time, IUL may be an appropriate choice. It just isn't as simple as saying, "You get most of the upside of the stock market and none of the downside. You cannot lose money." It's the "you cannot lose money" part of that statement which is untrue. If an IUL (or any other UL) policy does not earn a sufficiently positive rate of return, it will succumb to the increasing cost of insurance built into the contract.
Some agents know and understand this, others do not. Those who do can explain it to you. Those who don't will tell you anything other than that. Just ask the simple question: "Does the monthly cost of insurance stay the same every year?" That's not the same as asking, "Does my premium ever change?"
If the agent says, "Your cost of insurance does not change," hand them a sheet of paper and ask them to write that down, and have them sign it and date it. If they won't, you know what to do. If they do, you save that piece of paper forever -- it will be your ticket to a big cash settlement if the policy fails in the future because the monthly COI increased beyond the premium you were paying in all the years prior.
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