IUL Opinion?

[scagnt83]

Is there a big difference from preferred to not? I dont know if I would qualify as preferred, as I smoke cigars once in a while.

Thanks all!

It depends on how low of a health rating you get. There is a larger difference between smoker and non.

As long as you smoke less than 12 cigars a year (by admittance on the application) and can pee free of nicotine for the policies health exam; you can get Super Preferred with North American. (which is the best health rating possible)

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1. Are caps, loan rates, participation, etc. all fixed or guaranteed once you start or can they be changed at anytime?

They are able to lower them. But the Caps/Loans/Rates/etc. are based on the current 10 & 30 Year US Treasury Bond.

Considering that we are currently at historical lows for those two Bonds, the likelihood of a large reduction is very slim unless the company just fell apart. (North American is an A+ rated Company)

The likelihood of the Caps reducing below 8% are very low. However there is a guaranteed minimum of 4% for the S&P 500 Yearly Cap.

Your illustration shows the minimum Caps/Spreads/etc around page 16.

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3. Why not stop contributing to matching 401k and put those contributions to an IUL (which is what being proposed to me). The person also recommended my wife stop contributing to her 403b (she is a teacher) and put that towards the iul. He says you can't touch the death benefit and tax free income, which is tempting plus no downside, but my gut tells me I shouldn't stop paying into a 401k.

Why not is because you get an immediate 100% return on your money with the match.
For every $1 you put in your 401k, your job is putting $1 into your 401k (up to 4% of your salary). That is a 100% return on your money. It is also an extension of your salary.


The other reason is because you contribute pre-tax and it would take 20%-30% more in funds after tax to contribute to the IUL.


If you can afford the IUL on top of your Matching Contributions, then go for it, its a great thing. But by no means should you stop doing your Match.

If you do decide on an IUL, then you need to use an agent who knows how to design the policy properly and can fully explain things and show you proof of what they are saying via the Illustration.

 

[maxherr]

I am being advised to stop contributing to my 401k w/ a 4% match, and start putting those contributions into an IUL policy.

About the only person who would ask you to do this is a representative of World Financial Group ("WFG"). It is just about the worst advice you can get.

If you need life insurance, you purchase life insurance -- Term, Whole Life, Universal Life, or a variable life product -- the choice is yours, based on your needs and objectives, and the ability to understand the contract and your responsibilities to it. If you need to save money for retirement, you use qualified retirement plans such as a 401(k), 403(b), SEP, IRA/Roth IRA. After you've funded your qualified options, you can think about non-qualified options, such as an annuity or a deferred comp plan through your employer (such as a 457 plan for public employees, or, if you are a "highly compensated" employee and your employer offers one, a 409(a) plan).

Your life insurance contract responsibilities:

Term and Whole Life = pay the premiums on time and everything will be fine as long as you die while the contract is in force. Nothing else to worry about as long as you don't borrow from cash accumulation without at least paying the annual interest.

UL (and all of its flavors) = paying the "planned premium" is not good enough. You have to read and understand your annual statement and figure out what course correction may be needed in the coming 12 months. Don't ask your agent, because he/she probably can't tell you how to read the statement, let alone do the calculation necessary to right a suddenly stalled or sinking ship. Don't pay premiums or take money out of cash value, and the policy can go to H*** in a matter of a few years.

You have to be prepared to pay higher premiums every year if your policy is not growing its cash accumulation faster than the increasing COI each year. The first several years might look like everything is OK, when in reality it might not be. You have to be able to answer these two questions right off the top: 1) Did my cash accumulation increase this year compared to last year? 2) If it increased, did it increase more than the previous year or not? If you cannot answer YES to both questions with simple math, your policy is in trouble, even if the cash accumulation increased.

Don't understand how that could possibly be? The agent who sold you the policy probably doesn't understand it either, but he was willing to sell it to you anyway.

You can always seek out a Life & Disability Insurance Analyst ("Counselor" or "Consultant" in many states) to explain it to you. We offer unbiased guidance to policyowners. As a CA Licensed L&D Analyst, that's my public responsibility.

 

[scottstreet]

maxherr, while it's hard to argue that anyone advocating against a company match in favor of non qualified products is giving poor advice, I'd like you to explain to me why your so confident that retirement contributions (beyond a match) are best placed in qualified instruments? The old question about wanting to pay tax on the seed or the harvest comes to mind. What is the love affair with tax deferred qualified plans? The taxes are being DEFERRED not forgiven. ...and does the deferral makes sense in a budget deficit/debt economy? Do you think taxes will go down? Is the upside potential of equities worth the downside risk? Particularly sequence risk? How'd that work out for those planning to retire in 2009?
Retirement saving/planning decisions are about risk appetite. Market risk and tax environment risk. When it comes to vehicle choices Q-palns, NQ-plans or a combination can work. But to categorically state that Q-plans are the way to do it seems kind of presumptive to me.

 

[briko3]

maxherr, while it's hard to argue that anyone advocating against a company match in favor of non qualified products is giving poor advice, I'd like you to explain to me why your so confident that retirement contributions (beyond a match) are best placed in qualified instruments? The old question about wanting to pay tax on the seed or the harvest comes to mind. What is the love affair with tax deferred qualified plans? The taxes are being DEFERRED not forgiven. ...and does the deferral makes sense in a budget deficit/debt economy? Do you think taxes will go down? Is the upside potential of equities worth the downside risk? Particularly sequence risk? How'd that work out for those planning to retire in 2009?
Retirement saving/planning decisions are about risk appetite. Market risk and tax environment risk. When it comes to vehicle choices Q-palns, NQ-plans or a combination can work. But to categorically state that Q-plans are the way to do it seems kind of presumptive to me.

I think the point was that matching up to the 4% is a 'free' 100% return on your money. Also, taxes might go up or down. They're a lot lower now than they used to be.

 

[maxherr]

Scottstreet . . . you probably need to visit the SEC and FINRA websites to see why I made those statements. And, yes, of course, taxes are going to rise in the future -- thanks to Social Security, Medicare, and Obamacare cost overruns. But that doesn't negate the fact that funding one's available qualified plans first is still the most highly recommended advice to consumers.

Insurance agents who advocate stopping those contributions in favor of funding UL/IUL/VUL are doing nothing to secure their clients' future retirement. Those policies are highly likely to lapse without value long before the client reaches retirement. Then they will face an expert witness such as myself, who will see to it that the agent and his E&O policy funds the client's retirement.

And when Congress gets around to seeing that all the "Bank on Yourself" schemes are intended to rob Uncle Sam, they'll close that loophole in the IRC, as they did when creating MECs in the 1980s. Unfortunately, it will hurt those folks who have a legitimate need to temporarily borrow against their cash values.

 

[scottstreet]

Maxherr, I'm very well aware of FINRA -the monthly attestation makes them hard to forget. I'm aware of the semantic games played with the word investment. Thus, I'm content to avoid it. However, using IUL/WL max funded non-mec policies is an acceptable way to save for retirement in an alternate asset class.

"But that doesn't negate the fact that funding one's available qualified plans first is still the most highly recommended advice to consumers."

I'm less concerned about whats "most highly recommended" and more concerned about meeting a clients needs and risk appetite is a critical part of that conversation. I am of the belief that dependent on risk appetite Q-plans beyond a match are not advisable for the reasons I outlined earlier.

As far as the cash accumulation in insurance policies being a "scheme to rob uncle Sam" I agree wholeheartedly. Gaming the IRC has been sport in this country since 1913. I just don't think it's a bad thing As for the congress you seem to have faith in: any changes will be grandfathered as they were with DEFRA & TEFRA.

 

[DHK]

Scottstreet . . . you probably need to visit the SEC and FINRA websites to see why I made those statements.

SEC and FINRA are not an authority on financial planning. They ARE an authority (SRO) for those who are securities licensed and make securities buy/sell recommendations. Their "opinions" are great... if you're selling securities.

And, yes, of course, taxes are going to rise in the future -- thanks to Social Security, Medicare, and Obamacare cost overruns. But that doesn't negate the fact that funding one's available qualified plans first is still the most highly recommended advice to consumers.

Let's talk about taxes and social security. How about a little history lesson?

What are the limits of income that is subject to tax before your social security benefits are taxable?

When were those limits established? (1993)

Are those limits going to change anytime soon? (Highly doubtful)

So, if you have income from a 401k or IRA, how much of that income is subject to taxation? 100%.

How much of your social security benefits are now added into your annual income for tax purposes? It could be as high as 85%.

Without having inflation adjusted limits, and a surge of people nearing retirement age... I bet the Federal Government will LOVE to collect more in taxes on all those qualified plan withdrawals.

Insurance agents who advocate stopping those contributions in favor of funding UL/IUL/VUL are doing nothing to secure their clients' future retirement. Those policies are highly likely to lapse without value long before the client reaches retirement. Then they will face an expert witness such as myself, who will see to it that the agent and his E&O policy funds the client's retirement.

Everything "depends". First, does the client have access to a TRUE match - meaning a $1 for $1 contribution up to a specified limit?

Second, how well funded was the recommended policy?

Third, does the client have a more efficient means of spending for future needs than to raid their savings (eliminate earnings) or charge a credit card (pay higher interest rates)?

Remember that all income from a 401k or IRA is retirement income that is subject to taxation. Life insurance withdrawals (to basis) or loans is cash flow that is NOT reported.

And when Congress gets around to seeing that all the "Bank on Yourself" schemes are intended to rob Uncle Sam, they'll close that loophole in the IRC, as they did when creating MECs in the 1980s. Unfortunately, it will hurt those folks who have a legitimate need to temporarily borrow against their cash values.

Sorry, but there are too many people in Congress that are DOING THIS. They're not going to close out a benefit that they're taking advantage of themselves.

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BTW, a Roth IRA will do the same thing... but contribution limits apply... and income is still reported, even though it is tax-free. Yes, tax-free distributions from your Roth IRA are still reported. Things that make you go "hmmm".

 

[BNTRS]

or, if you are a "highly compensated" employee and your employer offers one, a 409(a) plan).

That's not generally how that works. 409a plans are usually funded by the employer as a perk to HC employee as a bargaining chip to keep them at the company and/or show the employers appreciation of their contribution to the company.

With the exception of a few simplified or guaranteed issue life insurance products that are mostly built to offer death benefit protection to someone who is unhealthy, there is little to practically nothing that a regular individual couldn't get by just purchasing whatever funding vehicle is used to meet the obligations of the 409a him or herself.