Comments on: Whole Life Insurance: Borrowing Against Your Policy

By: David

David — Thu, 18 Dec 2008 22:06:31 +0000

I agree that one should “keep it simple”. The problem is what one means by “simple”. For famous radio and T.V. personalities, it means painting everyone with the same brush al la Suze Orman and Dave Ramsey…but worse than that, it means either being ignorant of or hiding the history of life insurance.

I’ve found a few instances where term may work really well. However, if a proper plan is being implemented, it is truly hard to beat whole life.

REF: http://www.twintierfinancial.com/the_uncommon_cents/2008/06/term-life.html

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By: km

km — Fri, 04 May 2007 00:33:24 +0000

One comment in the original posting is not correct. If cash value earns 7% dividend and loan interest rate is 8%, then, you would need to earn at least 8% from your outside investment to break even. It's because if you kept the money in the policy, then, the money would earn 7% while you need to pay 1% for loan. Actually, dividend for the loan amount could be lower than the rest of the cash balance. So, most likely, you need to make more than 8% from your investment to just break even. In conclusion, his comment, "Even if this property appreciates at the rate of inflation (3%) you are ahead of the game 2%" is not correct. But then again, he is talking about 10 to 1 leveraging, so, 3% gain means 30% gain on his investment. Then, he is way ahead, provided it's in a year.

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By: Another Andrew!

Another Andrew! — Thu, 26 Apr 2007 00:31:26 +0000

I’m actually with Guardian as well.. Small world! I think the most important thing is to make sure your Whole Life policy comes from a Mutual company paying dividends (There are only 4 true mutual companies left). The other consideration that needs to be emphasized is that that of the MEC (Modified Endowment Contract). If your insurance rep structures your policy in the wrong way, many of these tax-free benefits found in life insurance may deminish be it in year 1 or 60…although tax defferred growth developes. Otherwise, where else can you get the GUARANTEES found in a whole life contract? Not in a 401K, IRA…. etc.

And lastly, if a financial rep. is putting their commissions before their client’s’s best interest, they have no business being a financial rep.

And a thing to remember about Suze,
Suze Ormand makes some good points about families budgeting their money. But remember, Suze is not selling the American public anything other than her celebrity personality and building a following to sell books, commercial air time, and watertight boxes after Hurr. Katrina!

Andrew
alamkin@cox.net

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By: Steve Weik (Guardian Financial Representative)

Steve Weik (Guardian Financial Representative) — Sun, 22 Apr 2007 16:48:01 +0000

Tony Forcucci and Andrew are absolutely correct! I am a Registered Rep at Guardian Life and I love the possible big gains you can get in securities! But I have to tell you, after I learned about the way the wealthy use whole life insurance, I never viewed it the same! It truly is an awesome product due to the advantages and versatility it offers. I use Roth IRA’s and retirement plans also, but a properly structured dividend paying whole life policy is a great foundation and it also creates a second estate (the death benefit)-which allows you to spend down your other assets(401k,IRA’s, real estate,etc) while you are in your prime retirement years without fear of living too long and running out of money because—-when you die the death benefit will replace your spent assets(beneficiary gets tax free benefit) and if you live longer—you now have a very nice build up in your cash values to use!!!!!
Think about it yourself and you will see…it is awesome to be able to have access to your whole principal and interest of your retirement assets instead of just living off interest/income of 5% or whatever your financial advisor tells you is safe because you don’t know how long you will live! I know its a radical concept and it took me a while to mentally adjust to it after chasing stock returns(I was a day trader)! When it comes to the protection and financial advantages of that old boring whole life policy….you will understand why the big mutual life insurance companies like Guardian are doing just fine (the company is currently paying it’s policy holders the highest dividend payout in its 146 year history!)…because the people in America who have money know where to put it—and you know that. But don’t just take my opinion or Suze tv host’s……think for yourself and check into it..read the details…and decide for yourself.
Stephen Weik
Financial Representative (Tampabay Area)
(727)254-1196

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By: Andrew

Andrew — Mon, 16 Apr 2007 21:22:38 +0000

I wish to respond to the reader who wrote: "this option still gets whipped by HSAs, 401Ks, IRAs, Roth IRAs, etc". I cant tell you how many "financial advisors" have left meetings with me with their repective tails between their legs. When we compare taxed ernings vs tax free earnings, there is no comparison. I have run illustrations where the qualified plan is earning up to 14% and the properly structured life insurance policy is only earning 7%, and the life policy beats it severely. What people need to realize is that taxes will have the biggest impact on their retirement dollars. Financial advisors can speak of "The Time Value of Money" or inflation; however nothing will have a larger impact on your retirement than paying 15%-28% of Federal income tax. Some believe they will be in a lower tax bracket when they retire. That is no longer axiomatic. I know of many retired people who are paying the same, if not more, income taxes then they were during their earning years. For example: they have paid off their mortgages so they no longer have that deduction, their children have grown and dont have that deduction anymore and they are no longer contributing to qualified plans so that deduction is gone. Technically they may be in a lower tax bracket; but without the deductions they once had they are paying just as much, if not more, in taxes. For conservative long term investing, a properly structured life insurance policy will outperform any tax deferred option available. I can back it up anytime with real mathematical calculations.

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By: David

David — Tue, 10 Apr 2007 04:44:25 +0000

Search for "Infinite Banking". This is a concept that was originally promoted by R. Nelson Nash who continues to teach it across the country. Although students of Nash say it works best with dividend paying whole life, it works equally well with fixed, and equity indexed universal life. The key is to overfund the policy up to what is called the MEC guideline. Lots of life insurance agents either don't or don't like to recommend this approach because it cuts into their commission (anything over the target premium or anything funded into the paid up additions rider is normally VERY VERY light on commissions to the agent because all of the excess is going into the policy owner's cash value). The benefit clearly lies with the policy owner. The low interest loans you are skeptical about are called "preferred loans". They are legit, and are available from some companies. What they will do is if you need a loan, they will cut you a check for the amount of money you need (i.e. if you need $5,000 and you have it available in your cash value, they'll give you a check for $5,000) and charge you, say 3% for the loan. Then the insurance company takes the ($5,000) from your policy cash value and puts it into a fixed interest account that earns 3% so that the net cost to you is 0%. Sometimes the loan interest is 6% and the fixed account that they put the money from the policy into pays 4%, so the net cost of the loan is 2%. It depends on the insurance company. >>>However, this option still gets whipped by HSAs, 401Ks, IRAs, Roth IRAs, etc. Only go the permanent insurance route after you completely max out traditional retirement accounts and hit your allocation % for low-turnover, low-dividend index funds in taxable accounts.

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By: No Credit Needed » Blog Archive » Carnival of Personal Finance #94 Hosted By No Credit Needed

Mon, 02 Apr 2007 11:27:01 +0000

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By: prlinkbiz

prlinkbiz — Wed, 28 Mar 2007 16:11:07 +0000

I found this post timely, as I just put life insurance in place for my kids. I am posting about it on Friday, and gave a little shout out with links your way for the great info here!

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By: MossySF

MossySF — Tue, 27 Mar 2007 09:26:17 +0000

I've run the numbers and permanent insurance (WL, EUL, VUL) can make sense if you shop for a fixed dollar commission policy and then overfund to the max the IRS allows. The math is pretty simple -- what used to be X% commission becomes 1/10th the percentage. And at a certain threshold, the tax benefits (tax deferred growth, tax free loans) overcome the commissions + additional expense ratio and can produce better returns than a taxable portfolio. However, this option still gets whipped by HSAs, 401Ks, IRAs, Roth IRAs, etc. Only go the permanent insurance route after you completely max out traditional retirement accounts and hit your allocation % for low-turnover, low-dividend index funds in taxable accounts.

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