Best Way to Sell Against Whole Life?

[fjman]

I will admit that I only read through the first page of the post.... If its a participating WL policy that been in force for a while, maybe suggest taking dividends in cash for a couple years to offset the out of pocket cost of the term insurance.
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Thats easy just show them the four funny banking rules of whole life.
Show them the low return on their so called investment part of WL, witch they will never see unless they surrender the policy.
If they borrow against the cash value and it does not get payed back and the insured dies the benificiary only recieves the face value less the monies borrowed.
Not to mention the price tag of WL.

Ahhh yeah....

 

[xrac]

A Financial Bunker For Scary Times - Forbes.com

 

[VolAgent]

I will admit that I only read through the first page of the post.... If its a participating WL policy that been in force for a while, maybe suggest taking dividends in cash for a couple years to offset the out of pocket cost of the term insurance.
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Ahhh yeah....

Its bad enough racjac doesn't understand WL, but don't fall for his line of BS. If you have a participating WL, you'd be better off letting the dividends continue to add PUA to the policy. Any amount taken as cash dividends that is more than the premiums paid in is taxable. Instead let the dividends pile up as PUA and grow the death benefit, do partial surrenders of the PUAs, or take a loan against the cash value. Also, if it has been in force long enough, you can also stop making premium payments and let the dividends carry the policy forward.

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[LGilmore]

"Any amount taken as cash dividends that is more than the premiums paid in is taxable"

You might want to check yourself on this wording. Dividends as far as I've seen from uncle bucks, are considered a repayment of overpaid premiums and never are taxable. Are you including the guaranteed side in your comment?

Because you can change your dividend election to pay premiums on the policy (dividends only) and over time they can or will become greater than the cost of the policy and yet you are not taxed on this.

Could you be referring to a part of the CV of a mutual WL policy? I know my statements the two (guars and divs) are declared separately.

 

[VolAgent]

I guess I should be more clear. I mean if you take the dividends in cash. Once the amount received in dividends exceeds the amount paid into the policy, then yes it is taxable. If someone is sensible and does what you do with your policy, then yes it is not taxable. Dividends reinvested into the policy as either PUA or premium reduction are not taxable.

That is why Mass allows you to switch at cost basis from surrenders to loans.

 

[LGilmore]

"I mean if you take the dividends in cash"

Dividends are a return of premium and not taxable, at least so far according to the IRS at least with a mutual company.

Are you talking about the setting them into a interest earning account? I don't think anybody uses that option because I believe you pay tax on the gains.

It's been a few since I looked deeply at the dividend options. I know some can interupt them differently, but I think I am correct.

 

[VolAgent]

I admit, you got me thinking and looking to verify this. Basically, the rule is that if you take the dividends in cash or let them sit and accumulate interest, then yes they can become taxable. If you use them for PUA or to reduce premium, then no they are not taxable. I found this on NML's site, Mass's site, and from the Insurance Department for the State of New York. Look at dividends on page 3 of the PDF.

http://www.nmfn.com/contentassets/pdfs/90life.pdf

 

[SportsNut]

I admit, you got me thinking and looking to verify this. Basically, the rule is that if you take the dividends in cash or let them sit and accumulate interest, then yes they can become taxable. If you use them for PUA or to reduce premium, then no they are not taxable. I found this on NML's site, Mass's site, and from the Insurance Department for the State of New York. Look at dividends on page 3 of the PDF.

http://www.nmfn.com/contentassets/pdfs/90life.pdf

If you take dividends in cash they are NOT taxable.

The only exception to this is, IF dividend payments exceeded the basis, (total of all premium payments made since inception of the policy), then the dividends in excess of the basis would be taxable. Hence, this means that there was a net CASH gain in the policy. (irrespective of the remaining cash value that is continuing to build up on a tax deferred basis, just counting the dividend total, not likely to exceed the basis).

A darned few policies have ever had dividends paid in cash exceed the basis... (maybe a really old policy, but frankly I have never seen one). So in effect, dividends taken in cash are generally non-taxable.

 

[VolAgent]

Sportsnut, if you will have read the previous posts, you will notice I said that numerous time. Once the dividends taken in cash exceeds the cost basis, then it does become taxable. Thank you for pointing it out again, but you're a bit late to the party.

 

[LGilmore]

"Thank you for pointing it out again, but you're a bit late to the party."

Well, now he does have a point. Since dividends are the unused portion of a premium paid each year, it would take a great while (a lifetime) for the dividend "refund" to be greater than the premium side. Now I am just talking about the dividend, not the guaranteed part or PUA's or anything else that makes the policy grow.