Indexed Universal Life Insurance

[dczech09]

The only thing that still shocks me is, all this time: I have never sided with Cash Value policies or 401Ks. I nearly suggested that they are used for many different purposes.

Yes, we all agree that insurnace can be used for different purposes. That has never been the argument.

All of you who believe so strongly against cash value policies have gravely mistaken me to be pushing cash value policies as an Investment. They are not, and I believe I have stated that before. If you feel I'm stating that they are...reread the posts (without assumptions) and you realize I've never stated or assumed they are investments. The Pros I listed for Cash Value policies are the actual things that you can do with them. They are not my assumptions or opinions.

Yes, Wayde, we understand that you have never once said that life insurance was an investment. However you pointed out some "pros" to cash value life insurance that only make sense if it were an investment.

Tax Deferred Growth- only applies if the policy owner surrenders early. Even so, it is not like this will provide a stellar growth, or any for that matter. We have disproved this pro of yours because it is more like a myth.

Loans/Withdrawls- I cannot for the life of me understnd how this could be a pro for cash value life insurance. Why do people need another person to owe money to?

Your "pros" that you stated make is sound like you're calling cash value an investment without actually saying it is an investment. And this is actually how people sell it in the industry. They do not use the word "investment," but instead say the phrase "tax-deferred growth."

I'm sorry, but in what dimension does "growth" not mean investment? They are essentially the same darn thing. So that is basically what I have been getting that is that your pros operate under the assumption that cash value is an investment- which has in essence made you sound like another one of the industry clowns. This is certainly my opinion

One thing I just thought of that may make this discussion easier to understand is this:
If people are seeking insurance, they should just assume that permanent life insurance policies do not have a cash value in the first place. Afterall, there is really no value-added that the policyowner experiences with cash value. Cash value should just be seen as an illusion- so should home equity, but thats a differen discussion

[disneysteve]

If people are seeking insurance, they should just assume that permanent life insurance policies do not have a cash value in the first place. Afterall, there is really no value-added that the policyowner experiences with cash value. Cash value should just be seen as an illusion- so should home equity, but thats a differen discussion

Actually, cash value and home equity are completely different. Cash value doesn't belong to you. It isn't your money. Home equity IS your money. That's a very important distinction.

[dczech09]

Actually, cash value and home equity are completely different. Cash value doesn't belong to you. It isn't your money. Home equity IS your money. That's a very important distinction.

What I was getting at this that if you want to spend your cash value, you must do one of two things:
1) Take a loan out and pay interst
2) Surrender your coverage- which in effect is selling your policy back to the insurance company

When you want to spend your home's equity, you must do one of two things:
1) Take a loan out and pay interest
2) Surrender your house- which in effect is selling

So that is what I was getting at. But yes the fact that your home equity is your property is an important distinction. However I could say that the equity in your house is really just an illusion until you sell Because you cannot spend it on a whim; you must do one of the two things I stated

[disneysteve]

I want life insurance because i herd that it is cheaper to apply now. The Insurance rate increases as your age does...

Just because something is cheaper doesn't mean you need it or should buy it.

You should buy life insurance when you need life insurance. If nobody is financially dependent upon your income and nobody will be financially harmed by your death, you don't need life insurance.

Term life is so cheap that buying it before you need it really doesn't make any sense. Also, since term coverage, by definition, has a limited term, buying it too soon is a bad idea.

[Wayde]

Actually, cash value and home equity are completely different. Cash value doesn't belong to you. It isn't your money. Home equity IS your money. That's a very important distinction.

Steve, can you enlighten me on how you came to the conclusion that "Cash Value doesn't belong to you"? I'm looking at my permanent policies that I own personally and all of them state it is mine. It never states that it belongs "Only to the Insurance Carrier". I've read my policies backwards and forwards many times and can not find any statements in my policies that confirms what you have stated.

[disneysteve]

Steve, can you enlighten me on how you came to the conclusion that "Cash Value doesn't belong to you"?

If the cash value belonged to me, my beneficiary would get it when I died. Instead, the beneficiary gets only the death benefit. The insurance company keeps the cash value.

If the cash value belonged to me, I could withdraw it and not have to pay it back. Instead, I can only borrow it and either repay it while I'm alive or have it deducted from the death benefit paid out when I die.

The only way to actually get the cash value is to surrender the policy and that's true only after however many years have to pass before there is no surrender penalty.

So I could use a cash value policy as a sort of investment and plan to cash it out after the penalty runs out, but it is a gamble because if I die first, that money is gone. If I instead bought term and put that extra money into a tax-efficient investment, it will always be there for my family if anything happens to me and it can be withdrawn at any time without penalty and without having to be repaid.

[dczech09]

If the cash value belonged to me, my beneficiary would get it when I died. Instead, the beneficiary gets only the death benefit. The insurance company keeps the cash value.

If the cash value belonged to me, I could withdraw it and not have to pay it back. Instead, I can only borrow it and either repay it while I'm alive or have it deducted from the death benefit paid out when I die.

The only way to actually get the cash value is to surrender the policy and that's true only after however many years have to pass before there is no surrender penalty.

So I could use a cash value policy as a sort of investment and plan to cash it out after the penalty runs out, but it is a gamble because if I die first, that money is gone. If I instead bought term and put that extra money into a tax-efficient investment, it will always be there for my family if anything happens to me and it can be withdrawn at any time without penalty and without having to be repaid.

To expand on what DS said...

Some policy contracts actually do say that the cash value belongs to the insurance company after the insured dies. It may be in plain english, or it could be in legalize. Wayde, as I am sure you know, most life insurance contracts are not exactly "boiler plate" so there can be discrepancies in the language.

Otherwise DS hit the nail on the head. All of what he said is proof that the cash value is not some liquid cash account available to the policy owner. If it was, no loans would be necessary.

I know some people like to talk about "buy term and invest the difference." The problem with this argument is that is assumes that the cash value is even an investment in the first place.

And Wayde, why are you bringing this up all of a sudden? One minute you say life insurance is not an investment, but the next minute its like you are trying to load your gun and "school" us and try to prove some point that it might be an investment if used a certain way.

I will save you some time. Your next argument will be that cash value belongs to the policy owner because of XYZ yadda yadda yadda. All the while dismissing what DS and I have pointed out.

So rather than make that argument, could you tell me how a jar full of money that I cannot touch is some how my money? I cannot touch, I cannot see it, and if I die, my family does not get it. Yet it is supposedly my money? Only in a magic show would that argument hold water.

[dczech09]

One quick other note...

The notion that one can borrow money from their cash value is a total crock. What is really going on is that said person is borrowing money from the insurance company, paying interest on the loan, and the cash value serves as collateral.

Its the same as a home equity. What is really going on is that said person is borrowing money from the bank, paying interest on the loan, and the equity in the house serves as collateral.

Its a gimmick. Just another way for the insurance company to make money. Of course they would never say that though... so shhhh! Don't tell anyone that little secret!

[Wayde]

[QUOTE]

If the cash value belonged to me, my beneficiary would get it when I died. Instead, the beneficiary gets only the death benefit. The insurance company keeps the cash value.

That is correct in a level policy.

If the cash value belonged to me, I could withdraw it and not have to pay it back. Instead, I can only borrow it and either repay it while I'm alive or have it deducted from the death benefit paid out when I die.

After the surrender period (Depends from company to company. Some companies have riders that allows for no surrender charges), you can withdraw the cash value without getting a loan. Most people get a loan and that is due to Insurance regulations. If one does a direct withdrawal, it will decrease the death benefit and sometimes may cause the policy to lapse. Due to the nature of Life Insurance permanent policies, the government regulates it heavily because it's an easy vehicle for money laundering. Now getting a loan may seem bad, but it is not. When you take a loan from the Insurance company they charge a fixed 4% interest (this is my policy). They then move the same amount of money from your cash value into a 3% guaranteed account. So in essence you are paying about 1%. The beauty of it is that you don't have to ever pay them back until you die. If you do pay them back, it just gives you more borrowing power in the future.

The only way to actually get the cash value is to surrender the policy and that's true only after however many years have to pass before there is no surrender penalty.

Yes, most companies have surrender periods...due to costs of paying to set up the policy and paying the agent. Some companies, actually have riders now where there are no surrender charges.

So I could use a cash value policy as a sort of investment and plan to cash it out after the penalty runs out, but it is a gamble because if I die first, that money is gone. If I instead bought term and put that extra money into a tax-efficient investment, it will always be there for my family if anything happens to me and it can be withdrawn at any time without penalty and without having to be repaid.

So lets break down what you just said.

Assume Brother A Buys a $500,000 Term policy.
and Invests $5,000 into stocks, mutual funds..etc...
Let's assume the client dies 1 year later.
Let's also assume the client's investment gets a 10% return that one year.
Total Cash to client's family is $500,000 death benefit plus $5,500 investments = $505,500

Assume Brother B Buys a $500,000 Term policy as well
but puts $5,000 into a Cash Value policy that covers $200,000 of death benefit.
Again, client dies 1 year later as the above.
Total Cash to client's family is $500,000 from term and $200,000 from the cash value polciy = $700,000

Now this example is quite extreme, but you gave the example so I'm just breaking down the numbers. So if that is your concern, that your family won't get the cash value, isn't it more beneficial to get the death benefit. You paid only $5,000 but get $200,000.

[jpg7n16]

So lets break down what you just said.

Assume Brother A Buys a $500,000 Term policy.
and Invests $5,000 into stocks, mutual funds..etc...
Let's assume the client dies 1 year later.
Let's also assume the client's investment gets a 10% return that one year.
Total Cash to client's family is $500,000 death benefit plus $5,500 investments = $505,500

Assume Brother B Buys a $500,000 Term policy as well
but puts $5,000 into a Cash Value policy that covers $200,000 of death benefit.
Again, client dies 1 year later as the above.
Total Cash to client's family is $500,000 from term and $200,000 from the cash value polciy = $700,000

Now this example is quite extreme, but you gave the example so I'm just breaking down the numbers. So if that is your concern, that your family won't get the cash value, isn't it more beneficial to get the death benefit. You paid only $5,000 but get $200,000.

I really don't like lopsided scenarios.

The only reason B comes out ahead, is because he has a larger policy. Duh.

If B is covered at $700k, then let A be covered at the same amount.

New Scenario

Brother A buys $1.5 million of term coverage.
Brother B buys $500k of whole life coverage.

Both die at end of year. Brother A has $1 million more. Therefore term is clearly better.

See what happens when you switch it around??

Is his extra wealth in the scenario really due to term being that much better? No. It's due to a higher policy coverage.

----------------------------------------

Let's adjust your scenario so we're making a valid comparison.

Brother A - buys $700k term coverage, invests the remaining $4k, and earns 10%; dies after 1 year.

Result: $700k + 4400 = $704.4k

Brother B - buys $500k term coverage, and $200k whole life; which leaves no excess cash; dies after 1 year.

Result $500k + 200k = $700k


Term FTW.

[Wayde]

[QUOTE=dczech09;318929]To expand on what DS said...

Some policy contracts actually do say that the cash value belongs to the insurance company after the insured dies. It may be in plain english, or it could be in legalize. Wayde, as I am sure you know, most life insurance contracts are not exactly "boiler plate" so there can be discrepancies in the language.

Benefits after death and while alive are 2 different things. Yes at death, if cash value was not included it gets counted as part of the death benefit resulting in the insurance company paying less. Ex: cash value is $20,000, death benefit is $200,000. If client dies, insurance company only has to pay $180,000 because plus the $20,000 will equal $200,000. It offsets the insurance companies costs. But again? Wouldn't you want your family to get $200,000 and not just $20,000?

Otherwise DS hit the nail on the head. All of what he said is proof that the cash value is not some liquid cash account available to the policy owner. If it was, no loans would be necessary.

Again, if we look at traditional loans, auto loans, house loans...etc...are all debts and assumed to be bad. Now is all loans bad? It depends. Remember, in an insurance policy you do take loans but it is almost offset by having your cash value credited with the same rate or more (depending on the company). Now for liquidity. In my policy, I call my insurance company and I have my loan in a few days. If I want it faster I pay $20 for a direct deposit next day. Now, that seems pretty liquid.

I know some people like to talk about "buy term and invest the difference." The problem with this argument is that is assumes that the cash value is even an investment in the first place.

Now, I believe you have mistaken on the Buy Term and Invest the Difference model that was pioneered by AL Williams and now is Primerica. They do not believe at all in cash value policy and don't sell any of it. They Sell only Term policies and take the difference that was supposed to be in a cash value policy and invest it in mutual funds, stocks, etc... There philosophy is neither good or bad. Again, I'm not one sided. But their philosophy seems to be what you are saying so I'm not sure why you see a problem with their philosophy when they are doing the exact thing as you?

And Wayde, why are you bringing this up all of a sudden? One minute you say life insurance is not an investment, but the next minute its like you are trying to load your gun and "school" us and try to prove some point that it might be an investment if used a certain way.

I am not trying to school anyone. I just see that you are making points for the sake of argument and not really doing your full research. Just look at your statement above with the "Buy term and invest the difference". Right away you say you see a problem with it, but it's the same strategy that you do. Strange how you argue but without the full knowledge of what you are debating about?

I will save you some time. Your next argument will be that cash value belongs to the policy owner because of XYZ yadda yadda yadda. All the while dismissing what DS and I have pointed out.

You're too funny. I'm not dismissing what DS and you have said. I'm just stating what my policy states.

So rather than make that argument, could you tell me how a jar full of money that I cannot touch is some how my money? I cannot touch, I cannot see it, and if I die, my family does not get it. Yet it is supposedly my money? Only in a magic show would that argument hold water.

See, there you go again...you are stating an observation from who knows where? Why can't you touch it but I can? My only conclusion is that you have never purchased a cash value policy and don't know first hand that you can get money in your hand within 24 hrs( Assuming you have cash value). Again, you are saying things from the way you feel instead of actually seeing it first hand. You got me so curious that I actually called my Insurance Company and asked them..."have you ever denied anyone from access to their cash value if they have cash value available?" You know what their answer was..."NO, it's their money. If they have cash value and want to access a portion of it through a loan...we have never turned anyone down." Now before you go off on a tangent with your feelings, please call any Life Insurance company and ask them the same question. And don't twist my words. ask them "If I have cash value that is available for me to access through a loan, how quickly can I get it?"

Oh, by the way...Life Insurance is not an investment. I am not debating that with you or anyone on this forum. It's just that you and some others have made statements that seem to be incorrect about cash value policies and I'm debating that. So you can stop the "I think Life insurance is an investment" argument.

[Wayde]

I really don't like lopsided scenarios.

The only reason B comes out ahead, is because he has a larger policy. Duh.

If B is covered at $700k, then let A be covered at the same amount.

New Scenario

Brother A buys $1.5 million of term coverage.
Brother B buys $500k of whole life coverage.

Both die at end of year. Brother A has $1 million more. Therefore term is clearly better.

See what happens when you switch it around??

Is his extra wealth in the scenario really due to term being that much better? No. It's due to a higher policy coverage.

----------------------------------------

Let's adjust your scenario so we're making a valid comparison.

Brother A - buys $700k term coverage, invests the remaining $4k, and earns 10%; dies after 1 year.

Result: $700k + 4400 = $704.4k

Brother B - buys $500k term coverage, and $200k whole life; which leaves no excess cash; dies after 1 year.

Result $500k + 200k = $700k


Term FTW.

**now I just want to make a disclaimer since I gave an example quote on this forum. This is not a solicitation or offer to purchase any products or services.**

JPG,

On the first case, I agree with you that it's because he has more insurance. I was using his scenario and that's why it looks like that. Now for your second scenario lets look at it more closely with actual numbers.

Lets assume the client is 25 years old and has no health issues rated the best.
Lets assume we use only $5,000 of total premiums for both Brother A and B.
Now since I have access to actual costs of insurance I will run some illustrations. Not estimates but real time quotes.

Brother A
$1,000,000 coverage is 84.21 a month = 1010.52 per year
Leaves him with $3989.48 to invest
1 year at 10% = 4,388.43 total
If he dies after the one year his family will get $1,004,388.43

Brother B
$1,000,000 coverage is 84.21 a month = 1010.52 per year
Leaves him with $3989.48 to buy a permanent life (cash value) policy.
This equates to $576,446 death benefit with an Index Universal Life Policy.
If he dies after one year his family gets 576,446 + 1,000,000 = $1,576,446

See, even with real quotes using the same $5,000, same age, same health...Brother B is way better off.

**now I just want to make a disclaimer since I gave an example quote on this forum. This is not a solicitation or offer to purchase any products or services.**

[Wayde]

[QUOTE=dczech09;318930]One quick other note...

The notion that one can borrow money from their cash value is a total crock. What is really going on is that said person is borrowing money from the insurance company, paying interest on the loan, and the cash value serves as collateral.

It is not a crock and you are right about how it works. You borrow from the insurance company and they use your money as collateral. It is a win/ win situation. Again, they charge you 4% and move the same amount you borrowed from your cash value to a fixed account usually 3 or better. Some companies even do a wash. You borrow for 4% and they give you 4%.

Its the same as a home equity. What is really going on is that said person is borrowing money from the bank, paying interest on the loan, and the equity in the house serves as collateral.

Its a gimmick. Just another way for the insurance company to make money. Of course they would never say that though... so shhhh! Don't tell anyone that little secret!

It is not the same as an equity loan. When you borrow an equity loan, they charge you interest. They can't move equity into a fixed account and pay you interest. No such thing. Equity has no value until you sell Cash Value in a policy is actual cash. You can surrender the policy and they will immediately give you your cash value minus any fees. Equity on the other hand, you can dump your house and no one is going to give you any money until you can sell it for all the equity if possible. No sale, no money. Totally different. Again, this is the reason why I'm hooked on this forum . Not to debate the Life insurance is not an investment argument. It is to clarify some statements that are not true about Cash Value Policies.

[dczech09]

It is not a crock and you are right about how it works. You borrow from the insurance company and they use your money as collateral. [B]It is a win/ win situation. Again, they charge you 4% and move the same amount you borrowed from your cash value to a fixed account usually 3 or better. Some companies even do a wash. You borrow for 4% and they give you 4%.

So its a win/win to pay interest into a fixed account that is not even really mine IN THE FIRST PLACE?! How is that any different that just paying interest. (Rhetorical question)

Also, 4% is not a lot of money to get a "return" even if it was actually your money. Some critics dislike permanent life insurance because the returns are horrible. Howver the truth with permanent life insurance is that the returns are irrelevant.

This is what annoys me: you do not seem to understand the central argument. Cash value is not the policy owner's property. This is why it is a gimmick in the first place.

If you can prove me wrong, then please do so. But until you can somehow logically break my argument, then you have nothing to run on. The fact that the cash value is not the policy owner's property will all by itself destroy any argument you have about the cash value being good "if you use it the right way."

Cash Value in a policy is actual cash.

Well I suppose if I dress a wolf in sheeps clothing, then it must be a sheep?

Just because it is called "cash value" does not mean it is actual cash. If it were, then any Jo Schmo with a cash value could go into the insurance company tomorrow and say "I want my cash." Last time I checked, you can do that at a bank because IT IS your money, but not with a life insurance policy.

Cash value is so horribly illiquid that it takes like 60 days with withdraw from it. Even when you do, you pay interest on it. How is that cash, Wayde?

As I said before, the only time you get the money is once you surrender and the insurance company takes a big bite of the money that was supposedly yours in the first place. And that is supposed to be a good deal? Clearly you and I have different ideas as to where we should put our money.

I will respect your decision to sink your money into this black hole if you would like. How you handle your money is you business. But for you to tell others, on this forum and in person, this garbage about the greatness of cash value policies is something I will not stand for.

Again, this is the reason why I'm hooked on this forum . Not to debate the Life insurance is not an investment argument. It is to clarify some statements that are not true about Cash Value Policies.

You are some piece of work. You just got done saying "life insurance is not an investment" and all the while you have been defending it as an investment. You have never actually said it was an investment, you have just gone about it a different way.

You are not clarifying anything about cash value. You are the one making untrue statments. Your statements all operate under two ideas: cash value is the property of the policy owner and cash value is an investment.

Please try to rebuttal my "cash value is not the polcy owner's property" argument. You cannot do it. How do I know? Because you would have done so a long time ago.

[kv968]

**now I just want to make a disclaimer since I gave an example quote on this forum. This is not a solicitation or offer to purchase any products or services.**

JPG,

On the first case, I agree with you that it's because he has more insurance. I was using his scenario and that's why it looks like that. Now for your second scenario lets look at it more closely with actual numbers.

Lets assume the client is 25 years old and has no health issues rated the best.
Lets assume we use only $5,000 of total premiums for both Brother A and B.
Now since I have access to actual costs of insurance I will run some illustrations. Not estimates but real time quotes.

Brother A
$1,000,000 coverage is 84.21 a month = 1010.52 per year
Leaves him with $3989.48 to invest
1 year at 10% = 4,388.43 total
If he dies after the one year his family will get $1,004,388.43

Brother B
$1,000,000 coverage is 84.21 a month = 1010.52 per year
Leaves him with $3989.48 to buy a permanent life (cash value) policy.
This equates to $576,446 death benefit with an Index Universal Life Policy.
If he dies after one year his family gets 576,446 + 1,000,000 = $1,576,446

See, even with real quotes using the same $5,000, same age, same health...Brother B is way better off.

**now I just want to make a disclaimer since I gave an example quote on this forum. This is not a solicitation or offer to purchase any products or services.**

Using your numbers, and assuming that term coverage stays consistant with the more you buy, brother A could do this:

Purchase a $1.6 million term life policy for $134.74/month = $1617/yr
Leaves him with $3383 to invest
1 year @ 10% = $3721 total
If he dies after one year his family gets $1,603,721