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Re: Buy term and invest the difference?
Old 03-07-2007, 11:34 AM   #21
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Re: Buy term and invest the difference?

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Originally Posted by FinanceDude
The SCARIEST thing I ever overheard at a Starbucks was an insurance rep telling a prospect to think of the return on his while life policy as the "fixed income portion of your portfolio"...................
Why is that scary? Isn't the investment part of the premium like a long bond held to maturity, or rather a series of bonds bought over time and held to maturity? You are only subject to changes in the interest rate environment, not equity market volatility. (understanding that the mortality part of the remium is just a cost).
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Re: Buy term and invest the difference?
Old 03-07-2007, 02:43 PM   #22
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Re: Buy term and invest the difference?

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Originally Posted by Gumby
Why is that scary? Isn't the investment part of the premium like a long bond held to maturity, or rather a series of bonds bought over time and held to maturity? You are only subject to changes in the interest rate environment, not equity market volatility. (understanding that the mortality part of the remium is just a cost).
I guess the "scary" part is a lecensed rep selling whole life as an INVESTMENT, something that the SEC is not too crazy about.........
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Re: Buy term and invest the difference?
Old 03-07-2007, 02:52 PM   #23
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Re: Buy term and invest the difference?

what they also don't show you when you buy these things is how they calculate your risk for your age -

think of it as a steep hill and youth on the left, old age on the right.

as you age, your "risk" of dying increases - so the "death benefit" portion of your policy increases each year - so it eats up more of your principle. The compound interest is supposed to keep up w/ your death % so you don't have to pay more - and in fact (they say) you "should" pay less as your policy increases in value - but that has not in fact been the case in several historical periods and people have had to throw in a lot of money to float the policy or else it is collapsed by the company...

of course - if you live through less volatile markets and don't see a drop like we did before the milennium, you *might be ok...but you are still paying a *load in fees for whatever return you do get.
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Re: Buy term and invest the difference?
Old 03-07-2007, 03:09 PM   #24
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Re: Buy term and invest the difference?

PW

Make sure you are approved for the replacement term policy before you cancel your whole life contract. Just a precaution but you never know with insurance companies.

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Re: Buy term and invest the difference?
Old 03-07-2007, 03:12 PM   #25
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Re: Buy term and invest the difference?

No worries there, already have my Term in place and first two-months premiums already paid.

When I drop the WL, I intend to get some 20 yr Term on my wife to cover the other side of the insurance equation.

Quote:
Originally Posted by 2soon2tell
PW

Make sure you are approved for the replacement term policy before you cancel your whole life contract. Just a precaution but you never know with insurance companies.

2soon2tell
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Re: Buy term and invest the difference?
Old 03-10-2007, 12:36 AM   #26
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Re: Buy term and invest the difference?

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Originally Posted by ats5g
Peter Katt has some articles that may help with the modeling or decision.
After reading one of his articles, I came across this comment of his:

Quote:
Because of its significant income tax advantages, bond-based life insurance, purchased from quality companies that give fair treatment to all policyholders, will always outperform similar investing outside of life insurance because fixed-income yields are reportable as income each year, whereas the values built-up inside whole and universal life insurance are not reportable.
And from this article:

Quote:
Life insurance is an ideal wealth transfer asset when cash is gifted and must be invested because life insurance¯s benefits are not subject to income or capital gain taxes and can therefore produce an aftertax rate of return that is superior to investing in a similar manner (for instance, bonds) outside of life insurance.
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Re: Buy term and invest the difference?
Old 03-10-2007, 09:19 AM   #27
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Re: Buy term and invest the difference?

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Originally Posted by Peaceful_Warrior
Quote:
Life insurance is an ideal wealth transfer asset when cash is gifted and must be invested because life insurance¯s benefits are not subject to income or capital gain taxes and can therefore produce an aftertax rate of return that is superior to investing in a similar manner (for instance, bonds) outside of life insurance.
Sorry, I'm not buying that statement. If it were true, this forum would be full of people recc buying insurance as an investment. The blanket statement that he makes should hold true no matter the source of the money.

Remember, money 'gifted' within the annual exclusions (currently $12K per individual)* is not taxed in any manner. The recipient can invest it in any way they see fit. If life insurance was a great investment for that money, it would be a great investment for all our money.

IMO, these statements sound good to less knowledgeable investors, and open the door for 'tax planners' to set up some complex strategies and expensive products and skim money from their clients along the way.

I'm open to anyone that can show how life insurance becomes a 'superior' investment under these conditions. I am very, very skeptical.

-ERD50

* http://www.irs.gov/formspubs/article...112782,00.html
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Re: Buy term and invest the difference?
Old 03-10-2007, 11:00 AM   #28
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Re: Buy term and invest the difference?

For me, the decision to go with a whole life was almost entirely due to the ability to defer taxes on earnings. My current combined federal and state marginal tax rate is 40.5%. I chose a policy where I pay premiums for 15 years (as I understand it, it must be more than seven years or you lose the tax advantage). My plan is to cash it in at the conclusion of that period, when I expect to be RE and in a marginal tax bracket no greater than 25%. I am into the 5th year of the plan and the crediting rate has been stable at 7.4% over the past five years. I consider the cash value to be akin to a bond (or a series of bonds purchased every quarter and held to maturity) with a 7.4% coupon. When I run a spreadsheet that compares 1) buying term, investing the difference in bonds and paying taxes on the coupons at my current rate with 2) buying whole life and then paying taxes on the cash value minus the total premiums once I terminate the policy, the whole life option is clearly superior on an after tax basis. (and that assumes I could find a non-junk bond paying 7.4%).

Of course it helps that it is a mutual insurance company available only to people in the Navy/Marine Corps that has very low insurance costs and no commissions or surrender fees.

In my asset allocation plan, I treat the cash value as a bond.
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Re: Buy term and invest the difference?
Old 03-10-2007, 12:59 PM   #29
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Re: Buy term and invest the difference?

PW,

Haven't seen/heard the most important question asked ... DO YOU HAVE KIDS?

If not, forget about life insurance - whole or term. DW does not need to hit the insurance LOTTERY in the event of your untimely death. She'll continue working and meet someone else and move on (same deal for you if she dies).

If yes (kids), then get a term life policy that covers at least 3-5 times your's - and DW - salary. The KIDS will need it.

When you have kids do not let anybody insure the kids ... nobody should profit from the death of a child (that's SICK). :P
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