Indexed Universal Life Insurance

[Petunia 100]

The ability to pay for the cost of coverage with pre-tax dollars is not a better deal?

The cost is not paid with pre-tax dollars. Pre-tax has a very specific meaning. Every dollar spent on life insurance premiums to benefit one's loved ones has already been taxed.

[Petunia 100]

Which is generally how things are sold. Not always though and there are good life insurance agents out there. Would like to consider myself one of them.

If you put your client's needs ahead of your own, then you are one of the "good" ones (a person with integrity).

[bp019j]

The cost is not paid with pre-tax dollars. Pre-tax has a very specific meaning. Every dollar spent on life insurance premiums to benefit one's loved ones has already been taxed.

You are correct in stating the initial dollars allocated to premium payments are after tax dollars. The cash value account grows tax deferred, and over time the cash value account can be used to pay the cost of coverage - which would be considered pre-tax dollars.

[bp019j]

If you put your client's needs ahead of your own, then you are one of the "good" ones (a person with integrity).

I would like to think so. We are working on a life insurance fiduciary model to put clients first. A client can choose how they want to hire us; consultant, or commission based - with proper fee disclosures from both the carriers and commissions.

The insurance industry is the only industry that still operates like it is in the dark ages. Take a look at what is happening in financial services with 401(k) fee disclosures. It is causing uproar among participants.

[Petunia 100]

You are correct in stating the initial dollars allocated to premium payments are after tax dollars. The cash value account grows tax deferred, and over time the cash value account can be used to pay the cost of coverage - which would be considered pre-tax dollars.

No, that is not at all what pre-tax means. Pre-tax means a deduction from income is made "above the line", i.e., above the line labeled "Adjusted Gross Income". Where is the above-the-line income tax deduction for a cash value life insurance policy? It does not exist. Sorry, you don't have the authority to redefine terms with very specific meanings, not even in the interest of making your product sound better than it is.

This sort of word game is exactly the sort of slimey tactic which gives life insurance salespeople a bad name. Persons of integrity do not resort to such tactics.

[dczech09]

No, that is not at all what pre-tax means. Pre-tax means a deduction from income is made "above the line", i.e., above the line labeled "Adjusted Gross Income". Where is the above-the-line income tax deduction for a cash value life insurance policy? It does not exist. Sorry, you don't have the authority to redefine terms with very specific meanings, not even in the interest of making your product sound better than it is.

This sort of word game is exactly the sort of slimey tactic which gives life insurance salespeople a bad name. Persons of integrity do not resort to such tactics.

I work professionally as an auditor. So I have to know the tax implications. And no, life insurance is not made in "pre-tax" dollars; it is all post-tax meaning that the dollars used to purchase the insurance were already taxed. There is no tax deduction.

And there is no real tax "benefit" for permanent life insurance. Agents call the "tax deferred growth" a benefit when really it is a pseudo-benefit.

Withdrawals are not taxed because they are actually loans, and loans are not taxed.

If a policy becomes an MEC, then withdrawals are taxed to the extent that the cash value is exceeding premiums paid.

Surrender values are only taxed if the cash value exceeds the amount paid in premiums. This hardly ever happens as the policies are specifically structured NOT to allow this to happen. They are structured on endowment which means the cash value is supposed to equal the death benefit at a pre-determined age (typically 100).

Death benefits are not taxed unless they drive the value of estate above the $5 million estate exemption. This is the case for both term and permanent policies, so this is not a benefit exclusive to permanent.

The bottom line is this: life insurance is life insurance. Period. It is not an investment and does not provide such benefits that would be helpful to a typical investor. Yes, whole life policies can help for estate planning, but most people are not going to have estates large enough for a whole life policy to be useful.

The only reason why permanent policy premiums are larger than term is because the permanent policy will pay out FOR SURE (unless the insured becomes immortal- I am working on this myself ). Since the insurance company will certainly pay a claim on a permanent policy, they must charge enough to cover that risk.

There is no magic that happens with the cash value. All it is a cache for "pre-paid premiums" or "paid up mortality." Example, you pay a $100 premium but your mortality charge is only $5. The insurance company has to capture excess per Federal law so that you can take your money as surrender if you close the policy early. Loans are just another vehicle for the insurance company to make money.

Life insurance is insurance. That is it. If someone has a NEED for life insurance that is permanent, then a permanent policy will serve them. Most people have a temporary need for life insurance, so they only need a policy to cover them temporarily.

The rest is theory. Sure, a salesman can make a policy sound like it is "suitable" for a lot of people. But most people will be best served through a simple term policy. There is a difference between a policy that "makes sense" for an individual, and a policy that is the "best fit." Most agents follow the definition of "makes sense," while most people want the "best fit."

[bp019j]

No, that is not at all what pre-tax means. Pre-tax means a deduction from income is made "above the line", i.e., above the line labeled "Adjusted Gross Income". Where is the above-the-line income tax deduction for a cash value life insurance policy? It does not exist. Sorry, you don't have the authority to redefine terms with very specific meanings, not even in the interest of making your product sound better than it is.

Seriously?? Pre-tax income - Income from an investment before income tax. http://financial-dictionary.thefreed.../pretax+income

Study life insurance or pick up a book by Professor Joseph Belth.

This sort of word game is exactly the sort of slimey tactic which gives life insurance salespeople a bad name. Persons of integrity do not resort to such tactics.

Not this guy.......No such misrepresentations, misconceptions or fraudulent sales practices over here - like you may have seen or heard from other insurance salesmen.

[bp019j]

I work professionally as an auditor. So I have to know the tax implications. And no, life insurance is not made in "pre-tax" dollars; it is all post-tax meaning that the dollars used to purchase the insurance were already taxed. There is no tax deduction.

You pay cash value life insurance premiums initially with after tax dollars. The interest credited to the cash value account are not taxed.
See Professor Joseph Belth's : A consumer's guide to life insurance; 2nd edition.

And there is no real tax "benefit" for permanent life insurance. Agents call the "tax deferred growth" a benefit when really it is a pseudo-benefit.

Or you may call it a tax shelter (with limits b/c of Section 7702/7702A). It is a benefit, and it is greater for individuals with higher incomes or tax brackets.

Sure, a salesman can make a policy sound like it is "suitable" for a lot of people.

Yes, and that goes on daily. Which is why the industry has such a bad rep.

But most people will be best served through a simple term policy.

I would not argue this, it depends on individual circumstance, resources, goals and objectives.

[Petunia 100]

Seriously?? Pre-tax income - Income from an investment before income tax. http://financial-dictionary.thefreed.../pretax+income

Study life insurance or pick up a book by Professor Joseph Belph.

Yes, seriously. Allowable pre-tax deductions are defined by law. Congress makes federal income tax law; neither life insurance companies nor Professor Joseph Belph have any authority to do so. Please point me towards the section in the IRS code providing that life insurance premiums paid from accumulated cash value are made pre-tax. Nothing else will lend your claim any credibility.

BTW, the definition you provided is hilarious. I guess investment income is the only possible type of income? Did you write the definition yourself? It does not seem to come from the url you cited. When I copy and paste the url you cited into my browser, this is what pops up:

Pretax Income
An individual's total income before he/she pays any income tax or other tax, but after he/she takes deductions. For example, suppose one's salary is $50,000. If the person takes $10,000 in tax deductions, his/her pretax income is only $40,000.

Not this guy.......No such misrepresentations, misconceptions or fraudulent sales practices over here - like you may have seen or heard from other insurance salesmen.

You are making a huge misrepresentation. You are claiming your product has tax advantages but those tax advantages do not exist. There is no pre-tax deduction. Excess paid over premium grows "tax-free" because no interest is actually paid to you nor available for withdrawal. You can access your cash value via loans tax-free because all loans are tax-free (unless defaulted). Or, you can cancel the policy and have your cash value refunded. This is tax-free, because return of your own capital is always tax-free.

Fortunately, the vast majority of Americans don't understand our income tax system at all. This works out nicely for the salesperson willing to make false claims in order to sell their product.

[bp019j]

Not if it's costing 3 times the price.

Define 'COST'?

[bp019j]

Yes, seriously. Allowable pre-tax deductions are defined by law. Congress makes federal income tax law; neither life insurance companies nor Professor Joseph Belph have any authority to do so. Please point me towards the section in the IRS code providing that life insurance premiums paid from accumulated cash value are made pre-tax. Nothing else will lend your claim any credibility.

It is ignorance and other misrepresentations that complicate things more than necessary. I have never claimed to have authority in this matter, just stating the facts.

IRC 7702 http://www.nongnu.org/lmi/7702.html

Tax Laws for Life Insurance:

TEFRA - Tax Equity and Fiscal Responsibility Act of 1982
DEFRA - Deficit Reduction Act of 1984
TAMRA - Technical and Miscellaneous Revenue Act of 1998

Such laws were put into place to prevent misuse and abuse of the tax advantages of life insurance.

Petunia 100 - Think you may be combining a few things here.

Pre-Tax Income & Taxable Deductions

Here is an example:

Individual X has 10,000 in their savings account, earning 5% (hypothetical example) annually.
The 10,000 was already taxed so there would be no additional taxes on that amount.
However, any interest earned would be taxable in the year in which it was earned.
Therefore, 10,000 * .05 = 500 Taxable Income or Pre-Tax Income

Yes there could be Taxable Deductions that can be applied to reduce taxable or pre-tax income. Such as contributions to a 401k, up to a certain amount per year.

In the case of cash value life insurance....
Individual X pays 1,000 annually toward cash value life insurance
In the 10th year the cash value account is 10,000. 1,000 * 10 = Basis
Under current income tax rules there is no taxable income on the 10,000.
The 'interest earned' in the cash value account is equal to the cost of coverage for the 10 years.

Vs. buying term insurance over the same 10 years

Individual X pays 500 annually toward pure term life insurance
Puts the difference of 500 into a savings vehicle
The cost of coverage is not deductible and the interest from the savings vehicle is taxable in the year earned.

A cash value policy allows you to apply the cost of coverage (pure term life insurance) against the interest earned.

Another example:
Suppose the cash value account is 11,000, or 1,000 greater than the ten annual premium payments of 1,000. Under current income tax rules, there would be taxable income of 1,000.
Here is where the confusion is stemming:
Under current income tax rules, there are no deductions because the cost of coverage is not deductible. However, policyholders are allowed to apply the cost of coverage against the interest earned in the cash value account so as to eliminate any taxable income.

BTW, the definition you provided is hilarious. I guess investment income is the only possible type of income? Did you write the definition yourself? It does not seem to come from the url you cited. When I copy and paste the url you cited into my browser, this is what pops up:

You are pretty funny b/c I never said investment income was the only possible type of income. If you kept reading you would have seen the definition for pre-tax income on investments.

Pretax Income
An individual's total income before he/she pays any income tax or other tax, but after he/she takes deductions. For example, suppose one's salary is $50,000. If the person takes $10,000 in tax deductions, his/her pretax income is only $40,000.

Thanks for your nice definition, I get it.

You are making a huge misrepresentation. You are claiming your product has tax advantages but those tax advantages do not exist. There is no pre-tax deduction. Excess paid over premium grows "tax-free" because no interest is actually paid to you nor available for withdrawal. You can access your cash value via loans tax-free because all loans are tax-free (unless defaulted). Or, you can cancel the policy and have your cash value refunded. This is tax-free, because return of your own capital is always tax-free.

No misrepresentation is being here. I never said anything about pre-tax deductions. I simply said you may have the ability to pay for the cost of coverage using pre-tax dollars.

Fortunately, the vast majority of Americans don't understand our income tax system at all. This works out nicely for the salesperson willing to make false claims in order to sell their product.

I have no argument. Unfortunately you are right. Which is why working with a professional is wise, however getting passed the sales rhetoric may be challenging for some.

Here is a guy who knows life insurance and is not afraid to stick his neck out to defend consumers.
Breadwinners Insurance

[disneysteve]

Define 'COST'?

I used your own example.

Person A buys 300K in term coverage for 20 years for $8,500.
Person B buys 300K in whole life for 20 years for $20,000.

Both people die in year 19.

Person A's beneficiary gets 300K.
Person B's beneficiary gets 300K.

Who had the better deal?

[jIM_Ohio]

Or use a life insurance expert who could charge a fee for their genuine expertise and value. Even if you buy insurance from a fee-only financial planner, the client is double paying...a fee to the planner and a sales load to someone. Term sales load are baked into the premium.

I know of one carrier that offers no load products. Maybe there is one other.

We find policies with the lowest expenses based on individual circumstance.

The insurance products I offer are through a broker which strips commissions from the products. Fee-only insurance is cheaper.

[Petunia 100]

No misrepresentation is being here. I never said anything about pre-tax deductions. I simply said you may have the ability to pay for the cost of coverage using pre-tax dollars.

Oh, I understand what you are saying. You are using the term "pre-tax" incorrectly in order to make cash value life insurance seem better than it is. You are attempting to convey that any growth in the cash value being used towards premium equates to the premiums being paid "pre-tax".

I'm saying your claim is a misrepresentation.

Now you are amending to "may have the ability".

The bottom line is that it is foolish to pay 20k for something which only costs 8.5k. Even if it were true that life insuance premiums were paid with pre-tax dollars, one would have to be in a marginal tax bracket greater than 57.5% to come out ahead. Currently, the highest tax bracket for individuals is 39.6%.

[jIM_Ohio]

Perhaps if you would focus on what is best for the salesperson rather than what is best for the customer, you would quickly see why cash value is a better deal.

If advice is linked to compensation for the agent, its best to educate yourself before buying anything.