Retirement Plan Regarding Life Insurance

[maxherr]

All the profit from a mutual insurance company is returned to the whole life policy owners, in the form of a tax-free dividend. When reinvested into your policy every year, it does incredible things for the growth. 100% tax-free growth, on top of that (as long as it never becomes a MEC). It's the only tax-free dividend in the world.

Boy, oh boy! Someone just completed his prelicensing course! Except you don't know the difference between "tax-free" and "tax-deferred". And you don't understand the technical aspect of "divisible surplus".

Stock companies return dividends to shareholders (not policy owners) that are taxable at the capital gains rate. (I believe capital gains will be abolished in the future)

And you certainly have little or no grasp of taxation in the United States. Stock dividends are considered "ordinary income" and are not taxed at the lower capital gains rates.

But worst of all, you don't understand the meaning of "ownership" when it comes to who it is that owns a mutual insurance company. Policyowners, according to a most recent federal court opinion, are not paying for anything other than their life insurance contractual promises when they pay premiums to a mutual insurance company. They are NOT paying a dime for any measure of corporate ownership. And as the court pointed out in its analysis of mutual life insurance companies, policyowners pay "slightly more" for the privilege of receiving refunds of their excess premiums.

I've said the same thing time and time again on another forum, only to be scoffed at by others. But it's the truth, and the court recognized it based on the expert testimony presented during the trial and on appeal. As the court identified, regardless of the size of a policy or the premiums being paid, a participating policyowner has only one vote when it comes time to elect members of the mutual insurer's corporate board of directors. This is vastly different than stock-based corporations of any kind, where a person receives one vote for every share of common stock he/she owns.

(The issue before the court was actually a tax matter concerning the shares an individual received when his five mutual insurance companies demutualized many years ago. While he initially claimed no cost basis in the shares he received, he later decided that he paid too much tax on the sale of those shares and resubmitted his amended tax returns showing a cost basis, and requesting a refund of excess tax paid. The IRS denied his cost basis calculation and refused to refund any taxes, which led the case to the federal courts, where the court agreed that the shares were funded with the proceeds of each company's IPO, and were not related in any way to the cash reserves of the policies or the cash reserves of the insurance company. With no ownership interest in the company, according to the court, the demutualization shares were essentially a tax-free gift with no cost basis, and when later sold at a profit, generated fully taxable capital gains.)

There are plenty of good reasons to consider doing business with a mutual insurance company. The ones touted by our newbie are not the most important.

 

[ktri14]

Whether or not a dividend is qualified or unqualified, determines if it's taxed at the capital gains rate or ordinary income. I should've specified that, but then again, so should you have.

You're getting uber technical about a court case that you know a lot about, in order to try to dismantle a point.

Here's the deal, is it safe to say that profit from a stock company is returned to shareholders and the profit from a mutual insurance company is returned to the whole life policy owners? I think it is. Is it also safe to say that the dividend from the former is taxable and that of the latter is tax-free? I think so, again.

But, if you want to get technical beyond measure, I guess we could all say that we don't even own our own property and that the creator of the universe owns it. But hey, if I get to receive all the profit from that property, then it's almost as if I own it, huh?

For the record, I'm new to this forum, but not to the world insurance or finance. I put well over six figures a year into my policies. I've seen what they do, how they perform, and they all grow tax-free because I design them that way. All my clients' policies grow tax-free, as well. We have clients that do anywhere from $500 to $50k per month in premium.

I don't know what you're saying about the difference between "tax-free" and "tax-deferred." My polices grow tax-free, not deferred. Do you know the difference?

Instead of trying to pick apart one sentence in someone's post, why don't you contribute something of value to this forum, and let us all know why a crappy IUL policy is better than custom whole life for the specific purposes of warehousing cash, retirement, leveraging, tax advantages, capturing opportunity costs, and so forth.

DHK, I don't have time to post on here the way you do. I have clients to meet with, so I'll kill two birds here because I know you see every post on this forum and are waiting on the edge of your seat to praise the almighty IUL. Answer me this: If the largest mutual company in the nation won't even touch IUL, that should tell you something. That, in and of itself, should be enough for any advisor to stop and say, "Hey, maybe they understand something that I don't."

But, what do I know? NYL is probably just crazy.

We've had plenty of people come to our office with IUL illustrations from other firms. They're horrible and ours blow them out of the water, every time. The last one we had brought in to us, the agent gave the client a "for agent use only" illustration that didn't show the M&E column, hiding much of the truth about it.

 

[DHK]

DHK, I don't have time to post on here the way you do. I have clients to meet with, so I'll kill two birds here because I know you see every post on this forum and are waiting on the edge of your seat to praise the almighty IUL.

Answer me this: If the largest mutual company in the nation won't even touch IUL, that should tell you something. That, in and of itself, should be enough for any advisor to stop and say, "Hey, maybe they understand something that I don't."

But, what do I know? NYL is probably just crazy.

We've had plenty of people come to our office with IUL illustrations from other firms. They're horrible and ours blow them out of the water, every time. The last one we had brought in to us, the agent gave the client a "for agent use only" illustration that didn't show the M&E column, hiding much of the truth about it.

First, how I spend my time... is my business.

You keep attacking the product, rather than the agent who is designing the policy. That's foolish. I think that until you truly understand IUL... that you shouldn't sell it.

Hey, maybe Guardian knows something that NYL doesn't?
http://www.insurance-forums.net/for...guardian-nextgen-wl-indexed-rider-t77856.html

What does it tell me that larger mutual companies won't touch IUL?

1) They have a sales force that they are CONTROLLING through their various policies and procedures, rather than training.

2) Because of the complexity of the IUL product and their business design (recruit agents to sell to friends & family so that when the agent fails, WL is much easier to maintain without agent interaction), they want to limit potential liability due to lack of agent training.

3) The best way to avoid these issues with a captive sales force, is to promote propaganda and show them all the 'indicators' that "we're always right".


No product is "perfect". Every product has trade-offs. Whole life is a very good product. So is IUL when it is properly structured. Structuring WL doesn't take as much skill and knowledge as structuring IUL, in my opinion.

If IUL is such a bad product... then why does NYL have a VUL product? Which one has a worse illustration and risks?

So, you keep drinking that kool-aid, rather than learning.

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For the record, I'm new to this forum, but not to the world insurance or finance. I put well over six figures a year into my policies. I've seen what they do, how they perform, and they all grow tax-free because I design them that way. All my clients' policies grow tax-free, as well. We have clients that do anywhere from $500 to $50k per month in premium.

I don't know what you're saying about the difference between "tax-free" and "tax-deferred." My polices grow tax-free, not deferred. Do you know the difference?

You're wrong. Life insurance grows tax-deferred... unless you can guarantee against phantom income (a future event that you generally cannot control).

Forbes Welcome

ProducersWeb - Life - Beware of phantom income when policies lapse

So, the proper phrase would be "Grows tax-free as long as the policy stays in force." The only WL policy I know of that offers an overloan protection rider is offered through Penn Mutual. Most IULs have an overloan protection that helps to prevent policy implosion due to loans taken out in retirement years.

 

[Larry Tew]

Now after all these posts between Newbies, Prolific Posters who live on this board, Random Posters who come out of their hole once a quarter to talk down to the newbie so that they can feel good about themselves, and a select few balanced posters who do not go nuts in either extreme, HAS ANYTHING ACTUALLY BEEN ACCOMPLISHED? Is anyone better off after the insults, put-downs, blow-hard BS, and kool-aid toxicity poisoning?

 

[maxherr]

I don't know what you're saying about the difference between "tax-free" and "tax-deferred." My polices grow tax-free, not deferred. Do you know the difference?

and

they all grow tax-free because I design them that way. All my clients' policies grow tax-free, as well.

First, you don't DESIGN anything. You fill out an application and you check boxes. Actuaries design policies.

Second, I DO know the difference between tax-free and tax-deferred, and you make my point for me by writing "I don't know what you're saying . . . ." You, like most life insurance agents, clearly do not understand the difference, and that makes you dangerous, because your lack of knowledge can get other people in big trouble. Like the clients who will sue you one day when they end up paying a big tax bill thanks to you.

IT IS THE SPECIFIC REASON that our agency contracts with any insurance company we represent admonish us against giving direct tax advice to consumers. It does not relieve us of the responsibility, however, to understand how insurance and taxes work together or not, and we can be held accountable for the bad advice we give. And you are definitely giving BAD ADVICE when you mistake tax-deferred by calling it tax-free.

The cash value accumulates in your (or anyone else's) cash value life insurance product on a TAX-DEFERRED basis -- it is not tax-free . . . in the same way that they would in an IRA (other than a Roth IRA). If, like many innocent purchasers of failed UL policies discovered in the 1990s (and still discover today), at any time you have withdrawn/borrowed (including unpaid, accrued/capitalized loan interest) more than your cost basis AND subsequently allow your policy to lapse or surrender it, you and the IRS will dance to the tune of the Internal Revenue Code and come to a complete understanding of the "technical" difference between tax-free and tax-deferred, and YOU won't be the winner.

The same is true of all those PUAs you are accumulating: there can come a point in time that you surrender too much in the way of cash value and exceed your cost basis, which can result in an immediate and unavoidable income tax liability.

I'm just waiting for the shoes to begin dropping on the "Bank On Yourself" proponents who are misleading consumers down the same path.

As for "qualified" and "nonqualified" stock dividends, the dividends you get from a stock life insurance company as a shareholder are taxed as ordinary income, not as capital gains.

if I get to receive all the profit from that property

Again, your lack of knowledge is causing you to make irrational statements, and that, too, makes you dangerous. You may own a life insurance policy, but you are not an owner of the insurance company. You simply have a single vote per policy for or against the members of the Board of Directors.

When you or anyone else receives a life insurance dividend, you are NOT receiving 100% of the insurer's profits -- far from it. You are receiving an undivided share of the DIVISIBLE SURPLUS of the company -- the portion of this year's profit the Board of Directors feels that it can comfortably refund to its current policyowners. The fact that your dividends stop when your policy does is an indication that you never paid for any ownership of the company.

 

[wln417]

I know some of you guys are very proficient with the tax laws and stuff like that so I figured I would venture on over here to see if this plan has any holes (which I would assume it does because I am not that smart.)

Mr. Bull, you must have someone who does your books and tax returns. You should take your question to that person. If you've been doing your own, get outside assistance. If you're a P&C guy and not comfortable with doing your own life policy, bring in someone you trust for that. Get the three of you together, and then you'll get the answers to your questions specific to your situation.

For instance, if I understood right, and you're going to have the new owners of the business replenish the cash you withdraw from your policy rather than pay you directly to avoid income tax, you might be creating a gift tax situation. You need a tax professional to help you. I'm sure there will be other questions that come up as well as you pursue this.

 

[fredbull337]

After racking my brain on this I guess the best thing to do is just "not retire". I can build more wealth for my family by socking away money into whole life instead of retirement plans. My kids are going to inherit my agency when I pass away. I can allow them to start out as agents making 100% commission and they can build their own book of business in the meantime without the overhead. I dont give up anything during my lifetime. What is the point of walking away from 300 or 400k a year net ( or more) if I can just pay someone to run the business while I spend my time at my beach house drinking Yuengling all day everyday? Heck since my kids are going to inherit the agency anyways it would be in their best interest to work the book of business I have built so that it stays with them when I pass away. I know I will miss out on some deductions over my working years but I am a big believer in paying taxes on the seed and not the harvest.

Thanks for the input guys!

 

[pfg1]

After racking my brain on this I guess the best thing to do is just "not retire". I can build more wealth for my family by socking away money into whole life instead of retirement plans. My kids are going to inherit my agency when I pass away. I can allow them to start out as agents making 100% commission and they can build their own book of business in the meantime without the overhead. I dont give up anything during my lifetime. What is the point of walking away from 300 or 400k a year net ( or more) if I can just pay someone to run the business while I spend my time at my beach house drinking Yuengling all day everyday? Heck since my kids are going to inherit the agency anyways it would be in their best interest to work the book of business I have built so that it stays with them when I pass away. I know I will miss out on some deductions over my working years but I am a big believer in paying taxes on the seed and not the harvest.

Thanks for the input guys!

If you plan to continue to work, all the more reason to max fund a WL policy
Down the road you have a pile of cash that can be used as needed/wanted....gives you options.

 

[fredbull337]

I agree. Now the question is what path to go with the whole life policies. I did several illustrations with stacking a MM 10 pay throughout my remaining working years vs their PU at 65 policy. Since I am far from a guru I am kind of at a standstill. Having the cash value to fall back on is nice, but my main goal would be the highest DB possible. Any advice is welcomed