Insurance or Investment?

[darnardo]

I read that as from 2011 certain life and annuity products will no longer recieve government tax benefits (H.R. 2733)

How do you advise your clients who are looking to use insurance products mainly for investment purposes?

I heard that it is illegal for agents to sell insurance for the sole purpose of invesment returns. However I reciently studied the correlation between VUL products and the S&P 500 and found a very strong correlation (growth r = 0.66) however when VUL sales were down UL sales only reacted slightly (r = 0.44) which leads me to believe a significant number of policy holders are using insurance products soley for investment.

I also read that the extra costs involved in being insured can be outweight by the tax incentives (deferred tax on returns and no estate tax etc) on using the insurance product as an investment vehicle.

I'm sure this varies from state to state. I'm interesting in hearing about your experiences in the field...

 

[djs]

How do you advise your clients who are looking to use insurance products mainly for investment purposes?

Simple.... insurance products are not investments.

I'll guess that the coorelation you found (which isn't that tight) has to do with the way people feel about having money to spend on insurance more than it does on the investment risk.

Dan

 

[dgoldenz]

Simple.... insurance products are not investments.

x2

 

[R. Paul Aguirre]

I read that as from 2011 certain life and annuity products will no longer recieve government tax benefits (H.R. 2733)

How do you advise your clients who are looking to use insurance products mainly for investment purposes?

I heard that it is illegal for agents to sell insurance for the sole purpose of invesment returns. However I reciently studied the correlation between VUL products and the S&P 500 and found a very strong correlation (growth r = 0.66) however when VUL sales were down UL sales only reacted slightly (r = 0.44) which leads me to believe a significant number of policy holders are using insurance products soley for investment.

I also read that the extra costs involved in being insured can be outweight by the tax incentives (deferred tax on returns and no estate tax etc) on using the insurance product as an investment vehicle.

I'm sure this varies from state to state. I'm interesting in hearing about your experiences in the field...

Hey D, can you forward me a link to the article that you read regarding policies no longer being tax deferred? Thanks

Oh this is the 151A deal. I did not know that it was going to affect the contracts tax deferred status. Hmm I need to read up a bit more on this.

 

[atlantainsguy]

Insurance is not an investment, never has been, never will be. You can't legally call it that either without violating NAIC Model Advertising code. Insurance is based on guarantees, not risk. Investments have inherent risk, including Variable Insurance products. That's why they're regulated by the feds.

Insurance does, however, have more tax benefits than any other financial product. I use tax benefits to explain LI. I frequently sum it up this way:

"The insurance industry believes, and trains its agents to believe -- that you're going to die tomorrow...and that somebody else needs the money.

On the other hand

I believe you will probably die of old age, and just want to live better in the meantime -- and still take care of your beneficiaries.

Which assumption would you like your finances to follow?"

People today have been burned by "investments", and many want the security of guarantees. Insurance is the perfect financial product for them.

atlantainsguy

 

[LGilmore]

I'm just not a fan of variable life... too many insureds forget too much about a policy that has to be monitored and then cry foul! Life insurance is an important part of a portfoilio as it provides security. That said, I have always found it uncomfortable to mix "securities" with something that we are taught should be secure, as 'securities" involve risk.

I have yet to run across more than 1% of the people who purchased variable life, who really understand it over these last 20 years. Most policies need immediate care and seem to be always on the cusp of lapsing.

Make two sales.. sell some life (anykind) and sell some securities. In the long run, keeping the two separate just keeps you out of trouble more often than not.

 

[annuityseller]

the kiss approach is always a winning in my book and never have an E&O claim??

 

[motoxxx]

So after reading this thread, what is everyones opinion about whole life polices? I have had a large policy for about 3 years and the value in that policy is outpacing the stock market consistently. I purchased it as an insurance policy first, and a savings account (of sorts) second. The dividends it has paid since I have purchased it are rolled over into the cash value of the policy. Seems to work well for me.

Also, has anyone read The Infinite Banking Concept by Nelson R Nash? I know that there are some flaws in his numbers in the book but I have found the idea of his strategy to be pretty sound.

 

[darnardo]

I read that as from 2011 certain life and annuity products will no longer recieve government tax benefits (H.R. 2733)

Can someone clarify this assumption for me? I've been reading up on rule 151A and it mentions that Equity Indexed Annuities will no longer be termed annuities. Since they will no longer be "insurance products" I assume they will be "investment products" therefore they will lose certain aformentioned tax benefits is this true? I mean, how can EIA be an investment product and still recieve insurance like tax benefits?

I can understand retirement products recieving tax benefits since they are a form of income protection but why would a investment product, if it is termed so, recieve the same special treatment?

Also other than EIAs are there any other products that may be included in 151A as investment products?

Finally, I ask; so what? If there is no difference in tax benefits the only difference I see is that you all have to get your secuirities licience. There is no knowledge that is not power n' all that, quit complaining and hit the books. I mean if your company is paying or you can write it off in taxes why not?

 

[dgoldenz]

So after reading this thread, what is everyones opinion about whole life polices? I have had a large policy for about 3 years and the value in that policy is outpacing the stock market consistently. I purchased it as an insurance policy first, and a savings account (of sorts) second. The dividends it has paid since I have purchased it are rolled over into the cash value of the policy. Seems to work well for me.

Also, has anyone read The Infinite Banking Concept by Nelson R Nash? I know that there are some flaws in his numbers in the book but I have found the idea of his strategy to be pretty sound.

The cash value won't make a difference when you die.....you could probably get a no-lapse UL with 2-3x the death benefit for the same cost you are paying now.