Life Insurance Vs Investment Account

[DHK]

CPA Ed Slott Avoiding Taxes in Retirement

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An attorney may draw up a trust (or in my case NOLO) but it's the FP's job to explain the need, advantages and uses unless he is an estate planning attorney and even if he is he should be working with the FP.

It is the FIDUCIARY DUTY of financial planners to discuss various legal instruments, such as wills and trusts. Is it their 'job'? No, their job is financial planning.

You have an odd way of looking at the English language. It's the same thing between lapse and surrender. Both are VERY different terms... yet you use them interchangeably.

An insurance policy is not tax-free.

Wow. Such an odd statement from someone with less than 1 year of experience. I think I'd rather listen to The American College, my licensing exams, and a CPA talk about life insurance... than you.

You are clearly confused and probably should master the vocabulary of your profession before trying to advise others on ANYTHING.

For your sake, I really hope that English is your second language.

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BTW... this is completely wrong too:

If it makes you feel better we'll used the term lapsed.

A lapsed permanent policy is effectively a term policy if you don't have the means to restart it.

Nope. A lapsed policy is a lapsed policy. You might not be able to "re-start" it. It depends on several factors. If it's lapsed too long... you'll have to re-apply and see if one qualifies medically and financially.

A surrendered policy is one where a client pro-actively cancels their policy. They made a pro-active decision... and this is quite rare, except in 1035 exchange situations.

But the coverage is GONE. That's what it means to lapse a policy - it's a policy that is no longer in force.

Now, if you meant to say that a lapsed permanent policy essentially was a term policy because the coverage was in-force for a limited period of time... that would make sense. It became a very expensive term policy, depending on the remaining cash surrender values. But the policy doesn't remain in force. The coverage is gone.

 

[LGilmore]

To bandwagon with Gooner, if after years in this business I can't quickly put my hands on 10k, something went wrong.

Let me clarify a bit as to why I tap my policy on occasion. I find it is a very liquid way to take a chunk of money for any need at any time with the lowest possible friction (transaction costs) for me while still getting a decent return.

I just don't keep more than 10-15k liquid at any time. Why? I have nothing I need that requires that much cash on immediate demand. I do have a fair amount of cv built up and I can wire that into my liquid account in 24 -48 hours with no charges for the transaction (yes, interest but nominal) fees or tax penalties for making it. Then I put it back to have again. My policies are old enough to where the cash values are growing quite well. It's a safe place that because I've owned them awhile that has a decent consistent return with no risk of market loss (inflation loss possibly). Everything else at this time has transaction costs either through fees or taxes. So essentially the cash values are my money market account that pays lights out returns for a money market account.

I used the have to "ask" somebody as one example. I could put it out there several ways. I basically practice for the lack of a better term that people here would understand a "be your own bank" sort of plan.... That of course makes me feel like crap because it's gimmicky, when really it's just life insurance. I'm not big on the gimmicky shite agents say to hide that it is life insurance we're selling.

So let's see I do this because no fees to do it, no capital gains to do it, no tax penalties to do it, a nominal interest rate charge over time until I put it back without having to pay new loads and I can have the money in 24 hours. To me, those seem like pretty reasonable reasons to do it this way. For me. Your mileage may vary...

 

[VolAgent]

So you can quickly put your hands on 10k, and that is fine.

I've never borrowed from a life policy and assumed it would take a bit longer. I stand corrected.

My point was directed towards the reasons people invent not to have liquidity without realizing getting a loan from a bank takes time and you may or may not qualify at that time. Also, being a desperate seller is a sure fire way to get less than fair value for your assets, not to mention the time it takes to close the transaction.

 

[LGilmore]

My point was directed towards the reasons people invent not to have liquidity without realizing getting a loan from a bank takes time and you may or may not qualify at that time. Also, being a desperate seller is a sure fire way to get less than fair value for your assets, not to mention the time it takes to close the transaction.

exactly. I was making the same point but somehow it became "well if you need to borrow money" and the point was lost and it became a challenge to defend my finances I guess...

Personally, I hate dealing with anybody for financial stuff, they pis s me off. I was going to get a credit card backed by a major airline a while back to take advantage of their free flights offers. I ended up with that guy in a cubicle whom immediately became an a hole when he started with that "So, you're self employed.." and it went down hill from there. We didn't have a friendly conversation and at the end while not shouting I basically told him he was a cubical working, apartment renting, no assets to speak of, risk fearful a hole who was judging me because I chose the risk of being self employed.

I was not the nicest person, don't really regret it as I really didn't need the credit card I just wanted the free flight for having it. The experience did harden me against ever talking to cubical people for anything again. I can go online to my policies, punch in what I want and never talk to a soul. And I like that sometimes. I like that my policy gives me a choice of a conversation or not. (haven't picked conversation in two decades )

There are a lot of things about owning a whole life that are really good things that don't get used in the advertising.. I am sure that they will never promote "you'll never have to speak to that p rick in the cubical" as a way to sell more policies... but it works for me...

 

[Gooner]

My point was directed towards the reasons people invent not to have liquidity without realizing getting a loan from a bank takes time and you may or may not qualify at that time. Also, being a desperate seller is a sure fire way to get less than fair value for your assets, not to mention the time it takes to close the transaction. exactly. I was making the same point but somehow it became "well if you need to borrow money" and the point was lost and it became a challenge to defend my finances I guess... Personally, I hate dealing with anybody for financial stuff, they pis s me off. I was going to get a credit card backed by a major airline a while back to take advantage of their free flights offers. I ended up with that guy in a cubicle whom immediately became an a hole when he started with that "So, you're self employed.." and it went down hill from there. We didn't have a friendly conversation and at the end while not shouting I basically told him he was a cubical working, apartment renting, no assets to speak of, risk fearful a hole who was judging me because I chose the risk of being self employed. I was not the nicest person, don't really regret it as I really didn't need the credit card I just wanted the free flight for having it. The experience did harden me against ever talking to cubical people for anything again. I can go online to my policies, punch in what I want and never talk to a soul. And I like that sometimes. I like that my policy gives me a choice of a conversation or not. (haven't picked conversation in two decades ) There are a lot of things about owning a whole life that are really good things that don't get used in the advertising.. I am sure that they will never promote "you'll never have to speak to that p rick in the cubical" as a way to sell more policies... but it works for me...

I know you guys are in the middle of a serious discussion, I will just interject that I was just messing with you.

 

[Glassesdude]

I'm pretty new to the business so if I'm off base I apologize. Been lurking for a while and this is my first post.
I would think that if your going to want the cash for a certain event, ie. in 20 years(college or a wedding) perm insurance would be the better option. Even if it was true that over the long term you will have a better return if you invest the money, all you need is that the market is down at the time you need the money and you then have to figure out where to get the cash from. I have perm ins for my daughter. The plan is to finance her wedding and let her have the policy as a gift so it will keep on growing.
I would love to hear some of the more expirenced agents opinions. Thanx.

 

[DHK]

Welcome!

I think your thoughts are spot on. You are exactly right about needing the money and if the markets take a down-turn (50% in October 2008)... then not only have you lost the value.. but you'd have to gain 100% in order to return back to where you were. It would certainly take a while to do exactly that.

It's funny, but people talk about "investment averages" or "market averages" all the time. Well, I can guarantee you a 25% average return over 4 years. Watch this:

Start with $100,000 and it grows by 100% to $200,000 in 1 year.
The next year, that $200,000 loses 50% and is now $100,000.
The next year, that $100,000 is back up 100% to $200,000.
The next year, that $200,000 loses 50% and is now $100,000.

How much do you have after 4 years? The same, original $100,000.

What was the average rate of return? 100% - 50% + 100% - 50% = 100% / 4 years = 25% average rate of return per year... even though you didn't gain anything.

Is this kind of volatility really far-fetched? Well, not the downside. The upside? Definitely not to be expected over a year period of time.

Most investors, let alone financial entertainers, don't often think about the sequence of returns and the impact they have when you need to take income at the same time. They often tout the virtues of dollar-cost-averaging... but don't think about REVERSE dollar-cost-averaging when taking income during down years.

It looks like this investment management firm understands it: Sequence of Returns & Reverse Dollar Cost Averaging

 

[LGilmore]

I will just interject that I was just messing with you.

absolutely no worries. I just rethought it and maybe I needed to expand. No butt hurt incurred.

I just try and point out some things that don't come with the sales materials.

For example they don't mention a big reason the pricing is what it is because they really can't tell you they are giving up control to the insured on the policy. Price locked, insured controls any changes. Kinda one of those things where you would ask yourself, if I owned an insurance company would I charge a little or a lot for control? Term is cheap because the policy holder never really owns the plan, they rent it.

At this time in my life I am uninsurable (type II, bad heart, assorted shite) and the fact I own my policies brings peace of mind. I don't have to worry about that decision of do I drop this or pay the increase? It's mine, it's cheaper than term at this point for my health and age "if" I could get coverage and it does nothing but grow.

 

[iviax]

An UL /VUL is just an investment with life insurance rider in it. So I don't know why you have question like this one.

 

[WinoBlues]

An UL /VUL is just an investment with life insurance rider in it. So I don't know why you have question like this one.

Could you explain that please.