Ohio National and Constellation

[scagnt83]

While what you are stating is true, most of the clients you are talking about that pay 5k or 50k annually into a WL for tax free retirement distributions will already be paying taxes on 85% of their SS checks as that already happens for single people at 34k a year & joint return at 44k......and that amount includes 1/2 of their Social Security check. Most people earning the kind of money needed to fund a max funded WL will already have very large SS checks. Plus, those with even higher incomes that already pay taxes on 85% of SS are not impacted because the tax on SS is limited to the actual amount of your SS

Exactly. The whole SS "benefit" is not relevant for most who are in a suitable position for WL or IUL.

 

[Allen Trent]

and dividends

I believe this is the key to your post. “And Dividends”. I think when Dividends are substantially lowered or even eliminated, a diversified bond portfolio could be similar or better

I am keeping all my max funded permanent as it is part of my overall planning where I utilize most all of the various instruments. I just have never liked when WL, UL, VUL or IUL are sold as if they are superior to 401k, Roth, After tax brokerage or bond account. The low interest rate environment is exposing this currently with all the dividend reductions, carriers no longer selling products, hedge funds buying carriers & now demutualizations. Plus with IUL having to lower caps & par rates while at the same time having to raise premiums & costs because of regulatory pricing requirements from the same low interest rate environment. If the last 35 years have shown us anything, there is a season where each of these life products thrived & then also suffered. the best play seems to be diversification across various financial instruments & tax classifications

 

[scagnt83]

I sold based on cash flow against the policy. Yes, that was based on current dividend performance - knowing that dividends aren't guaranteed anyway.

But I'd rather have tax-exempt cash flow than taxable income from investments... so even if the projected cash flow is going to be lower... it's still better than the alternative.

Id rather have $150k per year and be taxed on it than have $50k per year tax free.

And Id much rather have that $150k coming from stocks that pay Qualified Dividends to me on an annual basis... which means I receive it TAX FREE (federal, not state) if I keep taxable income below $80k.

----

I get the whole cash flow stance about CV life insurance. At the same, or even similar, rates of return it delivers a higher cash flow than traditional investments. Adjust for taxes, and it gets even better.

But that is not true for Guaranteed scenarios.
A 1% tax free return is not going to outperform MuniBonds.
Its not going to outperform AAA bonds at a 4% return.
And it certainly is not going to outperform long time Dividend Paying Equities such as the Dividend Aristocrat lineup.

The math doesnt lie. At a 4% Dividend, sure, the policies are still golden. But that is FAR from the guaranteed scenario, not even close.

And no way they keep Dividends that high. Id bet you $1k they will be at 2% or lower in 10 years or less, if not completely gone. What incentive does the investment fund have to pay a dividend when it is not contractually guaranteed? We have seen this scenario before.

 

[DayTimer]

I believe this is the key to your post. “And Dividends”. I think when Dividends are substantially lowered or even eliminated, a diversified bond portfolio could be similar or better

Where is the tax-free death benefit in a bond portfolio?

A bond broker can do everything whole life can do, without the insurance costs.

Where is the tax-free death benefit? How does the bond broker provide this?

Serious question - looking to learn something I didn't know before.

 

[Allen Trent]

Where is the tax-free death benefit in a bond portfolio?



Where is the tax-free death benefit? How does the bond broker provide this?

Serious question - looking to learn something I didn't know before.

Step up in basis currently. My mother died in late 2018. My dad took over her equites & bond portfolio. All assets in that portfolio received a huge step up in basis at her death. I also inherited from her a different bond portfolio. I paid zero income taxes or capital gains taxes on that when I sold it at her death because I received a step up in basis (I paid tiny bit of income tax on the interest earned between her death & when I sold off the account). So, currently, capital assets receive a tax free step up in basis at death the same as life insurance is a tax free death benefit

PS--I am certain the step up in basis for the ultra rich will be changing in the upcoming days & years as will annual wealth taxes(Liz Warren), estate taxes exemptions limited or lowered, etc.

PSS-- this is why NQ Annuities can be such an inferior product for seniors that dont need the money for income. Having the same money in a Life insurance or after tax account currently is income tax free & capital gains tax free whereas the NQ Annuity has deferred taxes at many times a low retiree tax rate & drops the deferred gains tax bill at ordinary income tax rates to the beneficiary on top of their existing annual income.....many times in a lump sum or at best over a 5 year deferral (10 year deferral from Qualified funds is not allowed on NQ Annuity)

 

[DayTimer]

Step up in basis currently.

But that isn't the same as receiving a tax free death benefit that is multiples of the basis, right?

 

[Allen Trent]

But that isn't the same as receiving a tax free death benefit that is multiples of the basis, right?

Correct. the insurance may have a multiple/leverage that is tax deferred while alive & tax free when you die. But you were asking about it being tax free at death. Unless someone dies in the earlier years of life policy, the long term of a bond portfolio growth would be even higher than the leverage provided in the insurance death benefit. But in most cases, people live to 75, 85, 95 after owning a life policy for 30-70 years, there isnt as much leverage left over & above cash value growth. The corridor of the insurance narrows the older & older we get.

 

[scagnt83]

But that isn't the same as receiving a tax free death benefit that is multiples of the basis, right?

Neither is WL in old age.

Assuming its a max funded WL, the DB is maybe 5% more than CV age 80 and beyond.

Just ran WL illustrations yesterday. Age 80 had $1.07m CV, $1.09m DB.

That is only 2% extra DB over CV. That is a multiple of 1.02

 

[DHK]

Id rather have $150k per year and be taxed on it than have $50k per year tax free.

That's too large of a gap.

 

[scagnt83]

That's too large of a gap.

Not for the average client who CV Insurance for income purposes is suitable for. They are looking at retirement incomes in the $100k - $200k range.