Comparing a 401K to a IUL

[DHK]

Here's the interesting thing though: I cannot predict what will happen in the future in regards to current law. If you let thinking like that get to you, then no one would sell anything.

I am not responsible for future changes in the law in regards to the products I sell and the strategies I implement. I AM responsible for knowing how things are right now. And no, no one would be held liable because you sold something as an income tax-free vehicle... and CONGRESS decided to change it.

 

[DHK]

And no, 401k plans will NOT become "tax-free" vehicles. Nor will Social Security change how much can be taxable based on other taxable income. (Those limits haven't changed since 1993.) The U.S. owes far too much.

U.S. National Debt Clock : Real Time

Benefits Planner: Income Taxes And Your Social Security Benefits

Social Security History

 

[js44]

I also created a similar comparison worksheet on 24 different points comparing permanent life insurance to owning a home. And no, I'm not sharing that here.

Will this comparison also work for a rental property structured this way?

20% down and carry a 30 year mortgage at 4% or whatever is the going rate. After 30 years, rental income will pay off the note and the owner will have nice property free and clear for the rest of his life.

Can an IUL be structured this way? $200k down as SPIA, index credits on it should buy 1mil DB guaranteed for life after 30 years. Is this possible?

 

[DHK]

The cash flow is the differentiation between personal and rental residential property purposes.

However, there is the concept of "starting your own leasing company" where you lend to others and they pay you.

 

[js44]

The cash flow is the differentiation between personal and rental residential property purposes.

However, there is the concept of "starting your own leasing company" where you lend to others and they pay you.

I was just asking if the EIUL numbers supported the the structure I laid out i.e 20% of capital(premium) paying for the 80% guaranteed DB. The same way 20% down payment buys the owner the rest of the property(80%) with just the rental proceeds after 30 years.

 

[DHK]

Oh, that's right. You're not an agent.

Can an IUL be structured this way? $200k down as SPIA, index credits on it should buy 1mil DB guaranteed for life after 30 years. Is this possible?

SPIAs are lifetime pay annuity contracts that could be set up for period certain payments, but they don't have index credits. Age, medical underwriting on the policy, and companies used would be the critical factors, but I doubt it would work out much past the 30-year mark for the IUL.

For that strategy, I'd be looking at non-lapse GUL. Focus would not be in cash value accumulation, but in having the lowest premium for a given death benefit.

I ran a quote for age 44, standard underwriting, and the premium for a $1m DB would be $8,109 per year to guarantee the DB to age 100. The problem is, that's a premium to pay EVERY year.

Now, for your SPIA, also for age 44, $200,000 - but only for a 30-year period certain, would produce $9,906 per year, of which $6,666 would be non-taxable and $3,239 would be subject to ordinary income tax. But after age 74, you'd have to come up with the difference yourself to keep your life policy in force.

If you wanted to use it to fund a policy that focused on cash values... you'd need more money for the given death benefit, or a lower death benefit to do it right. This would be a slightly above minimally funded policy, so it would be destined to implode with the increasing costs of insurance after 30 years (assuming the policy would make it that long without more capital).

 

[js44]

Oh, that's right. You're not an agent.



SPIAs are lifetime pay annuity contracts that could be set up for period certain payments, but they don't have index credits. Age, medical underwriting on the policy, and companies used would be the critical factors, but I doubt it would work out much past the 30-year mark for the IUL.

For that strategy, I'd be looking at non-lapse GUL. Focus would not be in cash value accumulation, but in having the lowest premium for a given death benefit.

I ran a quote for age 44, standard underwriting, and the premium for a $1m DB would be $8,109 per year to guarantee the DB to age 100. The problem is, that's a premium to pay EVERY year.

Now, for your SPIA, also for age 44, $200,000 - but only for a 30-year period certain, would produce $9,906 per year, of which $6,666 would be non-taxable and $3,239 would be subject to ordinary income tax. But after age 74, you'd have to come up with the difference yourself to keep your life policy in force.

If you wanted to use it to fund a policy that focused on cash values... you'd need more money for the given death benefit, or a lower death benefit to do it right. This would be a slightly above minimally funded policy, so it would be destined to implode with the increasing costs of insurance after 30 years (assuming the policy would make it that long without more capital).

Thanks for the info. So nice of you to share and that's right! I am not an agent but a high networth sophisticated investor. I would like to leave this here on the forum to help other high networth individuals who are sophisticated investors too and not just accredited investors that Cash value life insurance is NOT comparable to Stock market investing or to Real estate investing structured as a rental property(investing in your primary residence is not real estate investing unless you let out your basement and it covers your monthly expenses). It is comparable to bonds at best and CDs at worst and yes, you can lose all your money if it's not structured properly. There are many unscrupulous agents out there who don't think twice in structuring your policy dangerously just to maximize their commissions. Beware of this! Thanks

p.s. Maybe, some are not unscrupulous but just parroting what their mentors have told them that the market or WL has returned 8% consistently since the 1800s
and these kind are even more dangerous than the unscrupulous ones

 

[DHK]

p.s. Maybe, some are not unscrupulous but just parroting what their mentors have told them that the market or WL has returned 8% consistently since the 1800s and these kind are even more dangerous than the unscrupulous ones

I could've told you that. I was extensively quoted in this article where I talk about the source of these misrepresentations about the returns on both IUL and WL. WL agents often tout their company's DECLARED DIVIDEND rate as a "rate of return". IUL agents don't always make the illustrated distinction between average returns and actual annual returns.

Misrepresentation and Ignorance: A Dangerous Blend for Ethics

One thing I WILL say about having whole life insurance (or IUL) and investing in securities or real estate... is that WL/IUL is a place to store cash for potential use. It's not tied up because you can borrow against the cash values of the policy. For this reason, a plan that includes WL or IUL as a foundation will succeed... but not a plan with ONLY WL or IUL.

 

[js44]

I could've told you that.

Misrepresentation and Ignorance: A Dangerous Blend for Ethics

Yeah, but you are an agent. Coming from a potential buyer like me would carry more weight.

 

[js44]

One thing I WILL say about having whole life insurance (or IUL) and investing in securities or real estate... is that WL/IUL is a place to store cash for potential use. It's not tied up because you can borrow against the cash values of the policy. For this reason, a plan that includes WL or IUL as a foundation will succeed... but not a plan with ONLY WL or IUL.

Oh, I agree with this, that's why I am spending so much time researching this but only if there are no surrender charges or locking up periods.