Whole life cash value automatically adjusts in high interest rate environment?

[Allen Trent]

To sum it up, its tax-free growth of your money.

just to be clear, technically, it is tax deferred growth of your own money.

none of your own money is ever tax free except for the cost basis & only way to access the cost basis directly tax free is if the policy has PUAR values.

You can also borrow some of the carriers money tax free when you pledge your own cash value as collateral against the loan of the carriers money. These loans continue to be tax deferred, not tax free.

if you die, the loan is extinguished tax free as part of death benefit.

If you live & cancel, lapse, 1035, etc, all the tax deferred growth along with all the compounded loan interest is reported as taxable in the year the policy ends, with only your total cost basis/deposits being tax free

 

[Al3x Lee]

Had a great conversation with Tahoe Ray and DHK. DHK did a great job challenging me on my beliefs about whole life, and gave me some good material to go read including Confessions of a CPA and The Truth about Life Insurance by David Blume.

I don't know that I can do his explanations a great deal of justice (I concede I am not a life insurance expert, but Ray and DHK certainly are)

Given the tax advantages of whole life, and given the right client, I do see some benefit as part of a retirement and dare I say, an investment strategy. The importance is where that person puts their money and how they manage it. I've also learned it can vary by the regulations and available captial of the individual.

Now I present a new challenge, how do you condense the benefits of these policies into a presentation for a client who does not have any understanding of the product or regulations?

 

[DHK]

Alex, it was great to meet you and have this conference with you and Tahoe Ray. I really enjoyed it!

As far as learning a presentation... you'd need a mentor to help with that. The financial group I'm a part of... we work primarily in crafting our presentation, words, and questions to help facilitate these conversations.

Here's our current schedule of events that you can register for in advance:
https://www.thebreakawayleague.com/upcoming-events

I have some past recordings with Thomas Love on my YouTube channel. I don't necessarily have them categorized on exactly what we talked about, but you'll get something out of each one.

Here's the link for that:
https://www.youtube.com/c/DavidHKinderRFCChFCCLURetireSSMillion/

Oh, and The Breakaway League has its own YouTube channel with a few video snippets from past events they've done.

https://www.youtube.com/channel/UCgPG2DoOE7mTstCKIeWDfgQ/videos

 

[scagnt83]

just to be clear, technically, it is tax deferred growth of your own money.

none of your own money is ever tax free except for the cost basis.

You can borrow some of the carriers money tax free when you pledge your own cash value as collateral against the loan of the carriers money. These loans continue to be tax deferred, not tax free.

if you die, the loan is extinguished tax free as part of death benefit.

If you live & cancel, lapse, 1035, etc, all the tax deferred growth along with all the compounded loan interest is reported as taxable in the year the policy ends, with only your total cost basis/deposits being tax free

You can access it tax free.All us agents know its not that cut and dry. But you can take a lifetime of tax-free income from a whole life policy.

Yes the policy growth is "tax-deferred" but it grows without you paying taxes, you can access the money without paying taxes, and it passes to your bene without paying taxes.

 

[scagnt83]

So what was the outcome? How does 0% beat 10%?

 

[Allen Trent]

you can access the money

Actually you can't. You can access someone else's money(the insurance carriers) by using your policy value as collateral. Not exactly the same & one of the reasons consumers are misinformed on the mechanics of how this works in regard to loans.

High end professional agents understand it, the best explain that, but 99% of agents licensed to sell life insurance don't know this fact...... because we all gloss over it in training & discussions

 

[DHK]

You can still do a withdrawal but it's not usually in your best interest.

And I agree that it's tax deferred for as long as the policy is in force through ideally the death of the insured... or the possible lapse and creating phantom income tax situation. Until the policy outcome is determined, it's just tax deferred.

 

[Lloyds of Lubbock]

"You can still do a withdrawal but it's not usually in your best interest."
Are you advocating that you should take a loan instead of a withdrawl?
I am curious regarding the breakaway league as you are referencing them.
To my understanding and I could be wrong, most of their business was placed with Ohio National.
Their recent demutualizing was icing on the cake but this was predictable years ago.
The clients that bought their policies based on this concept have suffered a huge loss of tax free income.
How are they handling they dealing with the policyholders?

 

[Allen Trent]

You can still do a withdrawal but it's not usually in your best interest."
Are you advocating that you should take a loan instead of a withdrawl?

With WL, the only part that can be withdrawn anyway is if there is PUAR from Dividends or PUAR from PUAR deposits. The only times I would ever suggest taking loans & pledging PUAR as collateral is

1. If the client was 150% sure they want to pay it back soon. Like buying something big (house/car) & selling same & will have the money from the sale soon to pay off loan against PUAR

2. If client has already taking all cost basis out of policy before & doesn't want tax bill now on the gains

3. Rare windows of time the client might be able to take loan against PUAR at lower rate than they can invest the money

Lastly, it is somewhat of a moot point as I don't believe carriers spell out what part of a policy is the collateral pledged for the loan borrowed from the carrier. So, the only way to have an outstanding loan against PUAR is if you already have an outstanding loan balance equal to or greater than the base policy cash value

 

[DHK]

"You can still do a withdrawal but it's not usually in your best interest."
Are you advocating that you should take a loan instead of a withdrawl?
I am curious regarding the breakaway league as you are referencing them.
To my understanding and I could be wrong, most of their business was placed with Ohio National.
Their recent demutualizing was icing on the cake but this was predictable years ago.
The clients that bought their policies based on this concept have suffered a huge loss of tax free income.
How are they handling they dealing with the policyholders?

A loan is far better than a withdrawal particularly for non-direct recognition policies. If direct recognition, then a withdrawal to basis then loans is the preferred method.

I resent your tone and insinuation regarding "icing on the cake". Makes me wonder why I'm bothering to respond other than the fact that I can.

Yes, through 2021, nearly all of the business was placed with Ohio National. Tom Love was their #1 producer for 9 years in a row.

ONL terminated Tom Love. Their reasoning was the notion that Tom was recruiting agents 'away' from ONL, which was not true. Tom was promoting OneAmerica, Penn, and Mass... but he was not advocating that agents give up their ONL contracts, etc.

ONL crapped the bed and they created this mess... and since Tom was a career agent, but recruiting agents to other companies, they used that as the basis for termination. (It's BS since they allow you to do any other business you want as long as you meet your production requirements each year.)

Regarding dealing with clients: This was not the agent's fault and it's not the client's fault. We waited many months to figure out how policyholders were going to be affected by this new proposed acquisition. They announced it late in March, 2021... and it wasn't until February 2022 that we had the ability to illustrate new in-force illustrations with the amount of proposed consideration being paid for their ownership shares.

ONL fundamentally changed how they treated their participating policy holders, particularly AFTER paid-up policies will be treated in respect to dividends.

They did this. Not the agent force.
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The fact that 7702 laws have enhanced policy structure is a blessing at this time as well as it will lessen the impact of making a move to a new company.

So, we have a choice: We can stay, or we can adapt, depending on the client's situation.

Some are uninsurable. For them, they may stay, OR they may look at NQ SPIAs for tax-exempt income.

Those who are insurable, will most likely move to another company.

https://www.dynamicadvancedwealth.c...e-just-a-return-of-unused-overcharged-premium

https://www.dynamicadvancedwealth.com/post/1035-exchange-considerations