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I think everyone posting on this thread with advice should post their credentials.

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Pe*** measuring contest coming in 3....2....1.....

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And what is a good credential? Some Mickey Mouse certification? An advanced degree? I think its pretty clear there are some good insurance agents out there and a lot of bad ones so do we judge based on that? That's just a pissing match with a bottomless bowl.

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Sadly, there's a lot of truth to this. Some of the dumbest, poorest, rock heads I know in the financial services industry have lots of letters behind their name. On the flip side, I know some fantastic advisers that have little to no credentials (And the truth can be applied in reverse).

I know Money Game, nactown, myself, gigemhilo (and his wife), CJS, etc., all have credentials of one sort or another. But if the conversations through the years have told us anything, it's that even the credentialed people don't necessarily agree on all aspects of insurance/investments/planning.






There's a whole lot of stupid that college can't fix. -My Grandfather



[This message has been edited by Stive (edited 7/1/2014 9:01a).]

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Some of the dumbest, poorest, rock heads I know in the financial services industry have lots of letters behind their name.

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My dad would say they are educated beyond their intelligence.

Well put Stive. The financial services industry provides just that, a service. To the extent a professional performs that service efficiently, effectively and ethically I would call them a success. The best advisor I know doesn't have a single designation but the guy is relentless when it comes to serving his clients. My wife has strict instructions to call him first if anything ever happens to me.

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And what is a good credential? Some Mickey Mouse certification?

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As a former member of the industry, with several Mickey Mouse certs, licenses to sell every product mentioned in this thread, and a related degree, I agree. I always find these threads entertaining.

Carry on!

34 years old with an Engineering degree and MBA. I just started maxing my 401 k this year. I have 4 whole life policies. 2 are from the 80's my parents bought on me. Those pay for them selves now. I purchased more so that they will do the same in 20 years. I want the money to be there for my wife and kids when I die. Even if they are well off, I don't want them to be burdened with the cost of a funeral ect. I am not a fan of term life because I believe I will live until 90 or 100 and that is money tossed down the crapper.

Double

[This message has been edited by Aggbock (edited 7/1/2014 10:43a).]

Regarding slacker Ag's picture: I laughed out loud so loud in my office that my assistant walked in from the other room to see what was going on.


Timed it well and it hit me funny.

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I am not a fan of term life because I believe I will live until 90 or 100 and that is money tossed down the crapper

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The point of term life is to get more insurance for less money when you need insurance and invest the savings compared to whole life.

You won't need any life insurance when you are 90 or 100. Instead of the investment value of the whole life you'd have a bigger nest egg from your investments.

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I think everyone posting on this thread with advice should post their credentials.

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I have achieved legend status on the popular website www.texags.com

And I still can't post a link half of the time

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Instead of the investment value of the whole life you'd have a bigger nest egg from your investments.

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Unless taxes ate half the returns of the nest egg in your investments. Advisors sell this stuff based on the presumption that the mortality cost and other fees in an insurance product are less than the cost taxes have on a taxable account. That's why one, it generally only makes sense when the client (shmuck?) is in a high tax bracket, and two, only when all other tax deferred options are fully utilized (401(k), 457, IRAs, etc).

The investment options can also be more restrictive and/or more expensive in an insurance product, so this gets sticky and divisive even when everyone discussing the concept understands how it works (which they usually don't, especially on Texags).

It really boils down to a math problem for the OP, with a few variable assumptions he must make:

- where does he expect his tax rate to go in the future (which will vary not only on his income, but on what the govt does with tax rates in the future)

- Is he comfortable with the commitment to fund the policy long enough to make the scheme work -if not, there's not much else more expensive than blowing up an insurance policy

- Are there sufficient investment options in the insurance product to give him the appropriate market exposure based on risk tolerance (or if looking at whole life, is the expected return high enough to offset the opportunity cost of the funding capital)

- yadda yadda yadda. I'm sure there are plenty more, but you get the idea

The point is that it's a bit more complicated than "OH NOES, someone is selling life insurance to someone who doesn't NEED it!" Sure, that happens, but there are plenty of sophisticated investment vehicles and strategies that make sense from a financial perspective, that probably shouldn't be discussed here. The average Ed Jones or NWM rep probably won't understand how they work, let alone the self-proclaimed experts here.

To the OP: Get good advice from someone you can trust with experience, who has seen these strategies work end to end, and then work out a strategy that accomplishes your goals and lets you sleep at night.

[This message has been edited by Ark03 (edited 7/1/2014 3:13p).]

So, typical insurance works on the basis of statistics. In a simple fashion, 2% of people will die between 30-40. Buying ten year term insurance, the sum total of premiums paid by 100 people will cover the policy payouts for the 2 deceased plus overhead and profit.

What's the business strategy/angle for whole life? A broker once went through the whole speech and rigormorale with me but never explained where the "growth" and/or gains actually came from. He'd show me other people's charts and projected curves, but I left never understanding where that growth came from.

Anyone care to educate me?

There's a broad spectrum between term life and what's usually called "whole life." There is universal life, variable universal life, and whole life, with several variations for each.

I'm not going to try to define each, but whole life is generally considered to be the most expensive, most conservative type of permanent life insurance. The other end of the permanent life insurance spectrum is variable universal life, which allows you to invest in subaccounts to grow the cash value. You may even try to minimize the death value of the policy to avoid the mortality cost, while maximizing premiums you put into it to have capital to grow the cash value.

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What's the business strategy/angle for whole life?

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From an actuarial standpoint, similar to your first illustration of a certain amount of people dying in a certain period of time....permanent/whole/variable/universal policies use the full mortality tables (average age of a healthy male currently aged 40 is that he will live to X years old) instead of a window of time (in your example, 10 years). The rate of return illustrated on the policy (at least in traditional whole life) is based off of the insurance companies ability to invest the premiums well, their ability to accurately predict when people are going to die (the mortality cost), and the insurance companies expenses/overhead.

If a company can manage those 3 aspects well, then the policy "does well", the company is profitable, etc. If the insurance company does poorly, then the opposite occurs.



(I probably butchered that and made some brains go numb with the explanation)

I'm wondering why insurers can't sell a permanent policy that is pure insurance and no investment and paid for like term insurance is -- monthly.

They can 91. It's called Guaranteed Universal Life. Cheapest Permanent Insurance out there. No cash value. Often used for estate planning purposes. Can be paid for monthly, annually, semi-annually etc and can also specify the number of years you want to pay.

It's intriguing how many people can't separate the mortality/death benefit elements of life insurance and the accumulation/living benefit components.

They should rename accumulation focused cash value life insurance "Mega Investment 5000!" or some other flashy name, strip the death benefit off, reinvest the savings from not having mortality charges and watch the money roll in. Oh wait, the government already closed that loophole because even they get the fact that it's a great tax haven. Damn you MEC testing!

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strip the death benefit off, reinvest the savings from not having mortality charges and watch the money roll in. Oh wait, the government already closed that loophole because even they get the fact that it's a great tax haven. Damn you MEC testing!

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If it weren't for MEC testing permanent insurance wouldn't have any competition at all.

AginKaty and Stive, I am curious. I tend to lean on the buy term and invest the rest. I do think a perm can be wise for high tax bracket. It probably has chagned, but when I would run a VUL vs a taxable fund, the taxable fund would win over time. Taxes run about 1%/yr cost from performance, but the fees on the insurance would run 2-3%. Have either of you run a comparison? My scenario isn't fair due to the fact that in real life, you don't hold the same fund forever. You may exchange it from time to time, which would create taxes.

Isn't cash accumulated in life insurance a safe haven for people with professional liability risk as well?

[This message has been edited by cjs4715 (edited 7/2/2014 1:40p).]

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I do think a perm can be wise for high tax bracket. It probably has chagned, but when I would run a VUL vs a taxable fund, the taxable fund would win over time. Taxes run about 1%/yr cost from performance, but the fees on the insurance would run 2-3%. Have either of you run a comparison? My scenario isn't fair due to the fact that in real life, you don't hold the same fund forever. You may exchange it from time to time, which would create taxes.

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If you're running a taxable fund vs a policy with a ME (mortality and expense charge) of > 30% then you're going to have a hard time getting the insurance to outperform it. If the ME is less than 25% (a fairly small group of companies) then the insurance will likely win out over time (assuming of course the investment options are similar/same).

That's why every time this is discussed in this forum, my statement is typically "if it's bought from the right company (low ME, strong ratings, ....by the right person (good health, high tax bracket) then it can be a good fit". Too many times, people in the industry sell it where it doesn't fit and it blows up the credibility of the equation.

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Isn't cash accumulated in life insurance a safe haven for people with professional liability risk as well?

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At this point, yes. The courts, at least until now, have historically left life insurance cash values alone when it comes to liability/credit issues. It's my understanding that there isn't any laws/rules against them going after it, but the historical precedent thus far is that they haven't.

It used to be touted as "creditor proof"...but the way an attorney explained it to me was the way I explained it in the previous paragraph.


And this is just in professional liability cases. The IRS does have the authority (and have used it) to go in and rip out cash values in the past to satisfy tax claims.



[This message has been edited by Stive (edited 7/2/2014 2:31p).]

Hark, I run the comparisons all the time and try to do so with the client so they can have input on the assumptions used.

The 1% discount on the NQ account is probably too low. I've found it (and it varies by the client's income and cap gains rate) is closer to 1.75%. That is derived from more specifically isolating the portions of a fund that distribute as interest income, dividends, short and long terms gains and apply the effective tax rates accordingly. Weight that average and it usually hovers around 1.75%. And yes, you could minimize turnover but you'd have to eventually liquidate for consumption purposes and applying a 15% (maybe 20%) LT cap gains rate still puts the discount over your 1% assumption.

I couldn't begin to put the insurance charge in percentage format because it's going to vary wildly with specific mortality factors and is so considerably front-end loaded I don't even know how you'd average it all out. Futhermore, my compliance department would have a heart attack if I started paraphrasing a VUL illustration. You'd have to rely on the VUL illustration which would be inclusive of any applicable charges and show distributions accordingly. I even go so far as to include a charges report (most providers can include this in their illustration) to highlight the charges to the dollar. In short, given the right factors, the VUL stomps a mudhole in the NQ account when it comes to distributions.

And just because I can't leave well enough alone, the gap is widening. Uncle Sam is officially hitting high income earners harder with all the goodies in the 2012 Taxpayer Relief Act whereas insurers are continuing to innovate, making policies more efficient accumulators and distributors than ever before.

Buying term and investing the difference totally works too, just differently.

And CJS, it varies by state but generally speaking in Texas, yes.

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And CJS, it varies by state but generally speaking in Texas, yes.

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I forgot to include the "by state" line.

Thanks for the insight. I will revisit. I know that the FIFO method applies for life insurance, but it would be income tax on gains when pulled out, right? If borrowing to avoid the tax hit, it is an additional cost to the owner, right? Still sounds good for high income earner, but there are a lot of factors to consider.

Yes, it would be income taxes above your basis but generally you would be taking loans to avoid the taxation after your basis is exhausted. The loans usually carry a 0-1% effective rate (after some crafty crediting by the insurer)that would eventually decrease your death benefit but we don't care about the death benefit in this scenario.

Thanks - did run a hypo on top tax brackets w/ new laws and it was a 1.72% difference. It was with a low turnnover ratio firm, so would be worse with others unless ETF/index fund.