IUL for College Savings?

[slcbtff]

And we 'wonder' why the public does little to nothing when it comes to many insurance offerings....a confused minds does nothing and how CAN'T one be confused when even the PROS seem all over the place, on advice.

When licensed 'trained' agents go
what about this....
well haven't you heard of that......
wouldn't do that b/c of this....

so many diverse ideas and opinions on what to do w/ other ppl's money (lives) there's no wonder why ppl say 'eff it i'll just leave it in the mattress vs picking wrong.

So differences of opinion shouldn't exist...?

I just assumed that some on here are security licensed and some aren't. If that is the case... then some will utilize insurance as an option and others will utilize 529 or other investment options.

I guess it is positive that people can provide their opinions. Hopefully a discussion like this leads to less confusion.

 

[celks72]

since your an insurance agent trying to find a good way to fund college for a client. Easy solution. Your company probably offers a flex premium annuity. All you have to do is setup a roth IRA for the flex. Set them up on a monthly payment plan and there you go your all done. This is a much better option than a 529 plan due to the restrictions and who knows if the child will even go to college. so you make money and the client is better off

 

[BNTRS]

And we 'wonder' why the public does little to nothing when it comes to many insurance offerings....a confused minds does nothing and how CAN'T one be confused when even the PROS seem all over the place, on advice. When licensed 'trained' agents go what about this.... well haven't you heard of that...... wouldn't do that b/c of this.... so many diverse ideas and opinions on what to do w/ other ppl's money (lives) there's no wonder why ppl say 'eff it i'll just leave it in the mattress vs picking wrong.

The difference of opinion isn't really a problem. The absolutely terrible advice that has been rolled out here on the other hand...

 

[DHK]

since your an insurance agent trying to find a good way to fund college for a client. Easy solution. Your company probably offers a flex premium annuity. All you have to do is setup a roth IRA for the flex. Set them up on a monthly payment plan and there you go your all done. This is a much better option than a 529 plan due to the restrictions and who knows if the child will even go to college. so you make money and the client is better off

A Roth IRA has restrictions too. It's an IRS regulated plan, just like the 529 plan.

What you have to know, is if one plan's restrictions are better for the client than another, then outline it for the client and let them choose.

Keep in mind, that using an annuity plan that has continuous premiums going into it may have (what I call) rolling surrender charges. Each premium going in has its own surrender schedule. Unless you can get a contract that has surrender charges based on the contract issue date... this idea won't work well either.

Gotta know your regulations and you gotta know your products - why they will work and why they won't.

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And we 'wonder' why the public does little to nothing when it comes to many insurance offerings....a confused minds does nothing and how CAN'T one be confused when even the PROS seem all over the place, on advice.

When licensed 'trained' agents go
what about this....
well haven't you heard of that......
wouldn't do that b/c of this....

so many diverse ideas and opinions on what to do w/ other ppl's money (lives) there's no wonder why ppl say 'eff it i'll just leave it in the mattress vs picking wrong.

There is more than one way to "skin a cat". And different products work differently for different situations.

Oh... that was funny. You said 'trained'. LOL! You see, THIS is what happens when everyone says "GO INDEPENDENT! The commissions are higher!" Well, when you don't know what you're doing... that's when independence has limits. I'd feel much better if more agents START out their (planning) careers in a career agency for a few years. Learn the ropes. Learn what you can and can't do. Get some formal training... THEN go independent.

We are our own worst enemy. Unfortunately, it's clients that can end up suffering because of it.

 

[maxherr]

All you have to do is setup a roth IRA for the flex. Set them up on a monthly payment plan and there you go your all done.

All done until you get sued when the client discovers a tax penalty to withdraw money beyond the cost basis if he's not yet age 59-1/2, or that there isn't enough money to pay for four years or more of college as he was promised. Additionally, a Roth Annuity would not permit as much in contributions over 18 years as a 529 Plan would.

If the child is age 0 today, and the client is age 30 today, come college time in 18 years, there will only be about $90,000 or so in cost basis (assuming the annual contribution limit remains about $5000), even though the annuity CV might be $200,000 or more (but doubtful). A 529 Plan can be fully funded today with more than $100,000, and without gift tax liability if the contributions come from several persons (such as mom and dad and grandma and grandpa, who can maximize their contributions using a 5-year average contribution provision in the IRC).

Today's average cost of private college/university at close to $50,000 per year will likely be double that or more 18 years from now (the University of California regents recently approved a 25% increase in tuition rates over the next 5 years to pay mostly for professor salaries and pension obligations -- and there will me more to come after that), so even $200,000 won't cover 4 years of education, with or without tax penalties.

Like anything else involving personal finances, a well-coordinated plan, started early enough, given enough time, can solve many needs. College funding is problematic because the time frame is extremely limited. Just as there are no get-rich-quick schemes that have any validity, neither are there any fail-safe college funding schemes, including the dreadful "Bank on Yourself" nonsense.

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Oh... that was funny. You said 'trained'. LOL! You see, THIS is what happens when everyone says "GO INDEPENDENT! The commissions are higher!" Well, when you don't know what you're doing... that's when independence has limits. I'd feel much better if more agents START out their (planning) careers in a career agency for a few years. Learn the ropes. Learn what you can and can't do. Get some formal training... THEN go independent.

We are our own worst enemy. Unfortunately, it's clients that can end up suffering because of it.

Very concisely stated, DHK. On this point, you and I occupy the same page.

As I have taught a couple thousand prelicensing students since September 2000, insurance products are generally quite good, and you probably won't hurt a client with a policy unless you poke him in the eye with it, but that doesn't mean every product is the right product for every situation. And in some cases, insurance isn't even the answer.

An agent needs to be knowledgeable enough to know what's right, what's wrong, and when he/she is in a situation that is beyond his/her knowledge base and be bold enough to admit it to the client. I don't profess to have all the answers, but given 24 hours, I'm sure I can find one that I didn't havebut yesterday.

But from my perspective, however, agents who make decisions intended to meet clients' needs based on their own commissions are among the most dangerous of all, despite their knowledge or lack of it.

 

[scagnt83]

Assurity has a "Premium Deposit Fund" to store cash for future premiums. Currently paying out 1% on it.

Lots of IUL companies have a premium deposit fund (and WL). Or you can always do a 10 year spia into an IUL if you have a lump sum.


I would always use IUL over WL for college savings. Unless if it was Penn WL with the overloan protection rider. No way I would suggest permanent insurance for multiple large withdrawals in a row and not have an overloan rider in place. Most agents are not aware of the tax time bomb their clients could have if they lapse the policy... and even less clients are aware of it!!!

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What if the parents are under 59.5 when they withdraw? Bam, 10% penalty...

All done until you get sued when the client discovers a tax penalty to withdraw money beyond the cost basis if he's not yet age 59-1/2, or that there isn't enough money to pay for four years or more of college as he was promised.

IRAs, ROTHs included, have an exemption for payments for higher education. You can pay for yourself or for an immediate family member. So as long as they fill out the forms right there would be no taxes on the ROTH to pay for college.

 

[DHK]

Lots of IUL companies have a premium deposit fund (and WL). Or you can always do a 10 year spia into an IUL if you have a lump sum.


I would always use IUL over WL for college savings. Unless if it was Penn WL with the overloan protection rider. No way I would suggest permanent insurance for multiple large withdrawals in a row and not have an overloan rider in place. Most agents are not aware of the tax time bomb their clients could have if they lapse the policy... and even less clients are aware of it!!!

Agreed. Without such a rider, it's imperative that the agent continue to keep in contact with the client to maintain the policy.

I finally found an IUL that I like here in California... (ANICO Signature IUL) and as I compare loan provisions and the overloan protection, I'm coming around to your way of thinking.

My only problem is that the illustration software won't let me 'vary' the rate of return over various years. Other than that, I really like it.

 

[scagnt83]

Agreed. Without such a rider, it's imperative that the agent continue to keep in contact with the client to maintain the policy.

I finally found an IUL that I like here in California... (ANICO Signature IUL) and as I compare loan provisions and the overloan protection, I'm coming around to your way of thinking.

My only problem is that the illustration software won't let me 'vary' the rate of return over various years. Other than that, I really like it.

Is Midland/North American IUL not available in CA?? Im pretty sure it is. Check it out, imo it is a superior product. And their software lets you customize the credited rate if you want. LFG lets you do that as well and is a good product too.

 

[DHK]

I'm appointed with Midland & North American... but all disability waivers of premium aren't available in California. That's been since October this year. Even when it was approved, it was limited to waiver of charges and the stipulated waiver was limited to $500/month.

ANICO's IUL will waive the full stipulated premium upon disability in California.

I'll be keeping my eyes out for new product changes and hopefully Midland/North American will revise and roll out new disability waivers soon... that will (hopefully) match what ANICO currently offers.

 

[maxherr]

IRAs, ROTHs included, have an exemption for payments for higher education.

And what will your client do if Congress chooses to change the IRC again and disallows these exempt withdrawals in the future?

But you fail to address my comment about the contribution limit of an IRA/Roth IRA. For these "Bank on Yourself" schemes to work for something as near-term and large amount as college funding, far more than $433.33 (+ COLA) is required. AND!! you cannot do this IRA "thing" at all with LIFE INSURANCE -- an annuity, yes.

As far as "overloan protection" is concerned, even if you dropped the idea of an IRA, with an IUL, what would that do for the 50-something parent whose rider contains conditions such as "The insured must be at least attained age 75. On survivorship policies, the younger insured must be at least attained age 75." or "The total loan balance must be equal to or greater than the Stated Death Benefit (or Target Death Benefit, if greater)." Or do you even read the language of the contracts you sell? That, too, is the downfall of many an agent.

And concerning "their software lets you customize the credited rate if you want" . . . you may be able to plug in your own long-term interest rate -- such as 6% instead of 8% (thankfully, you cannot plug in a higher rate than the insurer currently illustrates) -- when creating an illustration, but I've never seen one that uses any kind of math other than a straight-line rate of return, which is exactly what gets agents into trouble when a UL policy collapses under the weight of such loans and loan interest in the face of rapidly increasing COI due to the tinkering with NAR if you've sold the client an Option 1 death benefit. With Option 2, the COI is always at the maximum current charge.

And even if you could specify the exact years in which the crediting rate was higher or lower, from what crystal ball did you get that information?

The bottom line in accounting is often the truism of a simple statement: "Figures don't lie, but liars always figure."

Hopefully, that college-educated child will go on to earn enough money to pay mom and dad's tax bill if the policy lapses before they die, or to pay their funeral expenses when the death benefit has been consumed by all the loan and loan interest.