Life Insurance Vs Investment Account

[Larry Tew]

SuperNewbie, I admit I haven't read every syllable in every post in this thread, but I read enough to know that there are some things regarding WL that may be just a tad different than your current understanding.

My question to you is this... If what you THOUGHT to be true about WL (or any permanent product) turned out NOT to be true, when would you want to know?

I've posted the attached here before, but if you haven't seen it, read it with an open mind. Feel free to shed light on anything in the report you believe to be incorrect.

 

[SuperNewbie]

So your premise is taking it out as income apposed to having other sources that might trigger tax your benefit? Those other sources are taxable as well. I might have caught on a bit quicker if you just said WL can be used as a tax free source of income instead of making it seem social security specific. A Roth IRA can do the same thing and you don't pay the premium over term that you do with a WL policy. Is that enough or have they maxed it out and need more? There are other alternatives for that as well and you brought up one yourself, although I'm not sure a reverse mortgage would be a way to go for too many people though. The way this country is going I'm not sure municipal bonds are an answer either.

The truth is though you that have to build up enough to worry about the taxes first. You sacrifice a lot of growth for safety in premium for that WL product. That growth could more than pay the tax difference. You will still be taxed on your property and your purchases (in most states) as well and those tax rates aren't guaranteed either.

An attorney may draw up a trust (or in my case NOLO) but it's the FP's job to explain the need, advantages and uses unless he is an estate planning attorney and even if he is he should be working with the FP.

An insurance policy is not tax-free. There is tax free growth, but you just paid for it in after tax dollars. I will give you the benefit of knowing and taking care of the tax before retirement though. In any case we seem to have different views the value of tax planning for the middle class. Most of the people I talk to seem to be too far behind in having an income in retirement to worry about the taxes on it. It's not going to be easy on them getting there either if they are paying $5000 in premium a year vs $500 either. You might say that extra amount is invested money but it's a forced investment. They don't have the option of investing less when they are having a down year. Surrendering early for cash value if they have to, puts them farther behind. ( often times at a loss) Borrowing against it puts them farther behind as well. (though that's the case with most investments) OK, as you mentioned you can take advantage of that borrowed money and it can be used for greater returns, but now we are talking about leverage and your losses can compound as well. (again the same with most investments)

LGilmore mentioned his safety net and I get that, but I think there are other safety nets out there. I'm not seeing the advantage of tax planning for someone that hasn't accumulated anything either. I mentioned before that I would bring up WL to someone in the middle class that has maxed out his 401k/IRA. That reason would be for tax free income. They are at the point where I would be thinking about tax free income. Again I think WL has a place, just not as big of a place as term.

You can go ahead a bash me again if you want. Experience might make me eat these words in the future, but I still believe that term is the better choice for most of my customers.

----------

Larry I'll try to examine and respond over the weekend. It's time for bed now. The whole reason that I posting here is to see if someone changed my mind. Except for DHK, it's not his job to educate anyone.

 

[Gooner]

Control is a big deal when you get old and cranky and you don't want to explain to that kid out of college why you want 10k. QUOTE]

Wait a minute...are you saying that if I'm in insurance sales for 26 years, I'm going to have to go to the bank for a 10K loan.

If that's the case...I quit

I apologize, you guys are just being a little too serious for me tonight

 

[LGilmore]

Gooner? why would I keep 10k liquid when I can call and have it wired into my account in 24 hrs? Does that help you with it a bit. Are you keeping 10-20k in a completely liquid position?

Not being critical of you but hey, we all set our funds up in ways that work for us. I don't want 20k sitting in my checking or savings account. But that's just me.



In my opinion a young person buying term and investing the rest over the long term will win

If it's a person that didn't do that and now they want to fix that by buying WL in their retirement years it is probably too late and they probably can't afford it.

Do you see your second statement contradicting your first statement? Why not purchase whole life as a young person when it is very inexpensive and the price is locked in?

Again just me. I purchased mine as a young man and now as an old fart, am quite happy with the premium and values gained.

 

[RyanCO]

.

I'm a financial advisor, and I'll toss my two cents in here:

First, blanket statements like "buy term and invest the difference" simply do not work in the real world. They completely ignore perhaps the most overlooked element in the planning process, and that is the comfort level of the client. They also ignore the fact that different people have different needs, priorities and situations.

DHK is providing some pretty helpful information here, and CVLI is a perfectly legitimate option to at least show the client. You never know where their comfort level is, what their life history may be.

Will investing in the right mutual funds out-perform CVLI over time? Probably, but that's not the whole story. The client needs to be able to sleep at night; they may have tax and estate issues that make CVLI more attractive; they may be a business owner who needs access to cash flow now and then; there are many exceptions, and they may just be more attracted to CVLI like a person is attracted to blondes or redheads - who knows.

And by the way, DALBAR did a study that showed the average "active investor" has seen only a 3.49% return over the last 20 years. So this notion of "investing the difference" is one huge assumption.

There is no "one size fits all" in this business. Personally, I'm becoming more interested in CVLI for my clients and I'm beginning to show it more, as just another of many options.

.

 

[Gooner]

Are you keeping 10-20k in a completely liquid position? Not being critical of you but hey, we all set our funds up in ways that work for us. I don't want 20k sitting in my checking or savings account. But that's just me.

Unfortunately, I have to keep a substantially more than that liquid, mandated by a commercial loan. But personally I do keep that amount liquid in different vehicles.

I was mostly just giving you guys a blast.

 

[scagnt83]

I think the whole "you can't get permanent insurance later" thing is a cop out because if they were advised well before, they shouldn't need it later. They should be financially stable at that point.

If they were advised well and have assets they care about protecting then they most certainly will need it. The Suze Orman "if your finances are in order you dont need LI" way of thinking is wrong and is proven wrong by real life every single day. The largest buyers of permanent insurance are those 50+ year old... I wonder why...???

I deal with both middle income and HNW. Often the 55 year old middle income family has a greater need for permanent life insurance than the high income 55 year old. Permanent Insurance protects more than just estate taxes.

You dont know what you dont know. There is a reason GUL sales have been skyrocketing as the boomer generation is aging... its because they have a huge need for permanent insurance... and I cant tell you how many of my GUL buyers tell me they wish they had bought permanent insurance years ago instead of term...

----------

You can go ahead a bash me again if you want. Experience might make me eat these words in the future, but I still believe that term is the better choice for most of my customers.

Yes, when I was green I believed everything my trainers told me... which for some reason happened to fit nicely in line with that companies product line...

If I had a dollar for everything I thought I knew as a green agent I wouldnt need to sell insurance anymore.

You dont know what you dont know... and it shows. The best thing you can do as a green agent is to LISTEN and ASK QUESTIONS.

You are arguing against about 60+ years of combined insurance experience.... do you think that maybe... just maybe... there are issues at hand which you are not aware of and have not experienced yet as an agent?


Lets take this situation out of the insurance paradigm.
Lets say you have cancer... and a single newbie doctor is telling you that xyz medicine is what you need... yet multiple experienced doctors (with over 60+ years of combined experience) are telling you that abc medicine is what you need... which do you trust with your life???
Now why are you any different than that green doctor?

 

[VolAgent]

You are getting a loan either way are you not? I would prob go with a WL loan if I had WL, before a HELOC, but I would prob get a loan on the boat or a car or sell them outright before doing either. I don't like debt period, but you have to do what you have to do. I am saying that selling someone money that could be invested for the option of being able to borrow it when times are bad later is not doing them any favors and selling the same debt so they can pull it out at whim to use as leverage is wreckless.

You're right. The next time I take my son to Disney World, I'll make sure to tell Mickey how big a dolt Walt was. I'm sure he'll be really impressed.

More importantly, did I say that is a reason to have a whole life policy? No. Too many people try to invent reasons not to have liquidity. There are so many reasons to have cash money or equivalent. An investment opportunity, jump on it. Times are tough, you don't have to borrow money from your life insurance or beg a loan officer, nor are you holding a fire sale to unload assets for money.

When times are tough, you are not going to get top dollar for any asset and for several reasons. To believe that is a good option is fallacy.

To bandwagon with Gooner, if after years in this business I can't quickly put my hands on 10k, something went wrong.

 

[MrDrClover]

SuperNewbie, I admit I haven't read every syllable in every post in this thread, but I read enough to know that there are some things regarding WL that may be just a tad different than your current understanding.

My question to you is this... If what you THOUGHT to be true about WL (or any permanent product) turned out NOT to be true, when would you want to know?

I've posted the attached here before, but if you haven't seen it, read it with an open mind. Feel free to shed light on anything in the report you believe to be incorrect.

Another great resource provided for free. I love this forum. Thank you for this Larry.

 

[Justin Bilyj]

I read enough to know that there are some things regarding WL that may be just a tad different than your current understanding.

My question to you is this... If what you THOUGHT to be true about WL (or any permanent product) turned out NOT to be true, when would you want to know?

That was a nice nugget of gold there...