Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Universal Life Insurance Contracts
Old 08-18-2017, 09:42 AM   #1
Confused about dryer sheets
 
Join Date: Aug 2017
Location: Maumelle
Posts: 2
Universal Life Insurance Contracts

I have recently enrolled in a Universal Life Insurance Contract. Basicly you pay the premiums with after tax money and upon retirement the proceeds are paid monthly, tax free, providing retirement income as well as providing a death benefit.

Is this a good retirement instrument?

Diversification is good and I'm thinking about increasing the amount but wonder if I should just put those funds in an IRA.

Thoughts? Pros/cons?

Todd
Wingnut1 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 08-18-2017, 09:54 AM   #2
Moderator Emeritus
aja8888's Avatar
 
Join Date: Apr 2011
Location: Conroe, Texas
Posts: 18,593
Quote:
Originally Posted by Wingnut1 View Post
I have recently enrolled in a Universal Life Insurance Contract. Basicly you pay the premiums with after tax money and upon retirement the proceeds are paid monthly, tax free, providing retirement income as well as providing a life insurance payout.

Is this a good retirement instrument?

Diversification is good and I'm thinking about increasing the amount but wonder if I should just put those funds in an IRA.

Thoughts? Pros/cons?

Todd
Hi Wingnut1: Welcome!

Before asking questions like this, why not tell us a little about yourself?

Hi, I am... - Early Retirement & Financial Independence Community
__________________
*********Go Astros!*********
aja8888 is offline   Reply With Quote
Old 08-18-2017, 10:06 AM   #3
Thinks s/he gets paid by the post
38Chevy454's Avatar
 
Join Date: Sep 2013
Location: Cincinnati, OH
Posts: 4,344
You won't get a lot of supporters for your universal life plan here. You will get a lot of supporters on the life insurance agent's forum (sorta kidding, I am sure there is one out there).

Give some more info on your investments and you will get better help.
__________________
The problem isn't artificial intelligence, it's natural stupidity.

You can't spend yourself to prosperity.

Semi-Retired 7/1/16: working part-time (60%) for now [4/24/17 changed to 80%]
Retired Aug 2, 2017; age 53
38Chevy454 is offline   Reply With Quote
Old 08-18-2017, 10:08 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 10,252
In general, any life insurance that is not term insurance is a very terrible idea. That is, life insurance should almost never be used as an investment or retirement instrument unless perhaps one is a billionaire.
LOL! is offline   Reply With Quote
Old 08-18-2017, 10:19 AM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,204
Quote:
Originally Posted by Wingnut1 View Post
I have recently enrolled in a Universal Life Insurance Contract. Basicly you pay the premiums with after tax money and upon retirement the proceeds are paid monthly, tax free, providing retirement income as well as providing a death benefit.

Is this a good retirement instrument?

Diversification is good and I'm thinking about increasing the amount but wonder if I should just put those funds in an IRA.

Thoughts? Pros/cons?

Todd
You usually have 10 days or more to get out of the contract.... called a '10-day free look". I'm not a fan of any insurance product for retirement savings... most have significant surrender charges to get out to reimburse the insurer for commissions paid to the agent... most also have significant fees. If you act fast you can get out without any damage.

If you want to invest for retirement, buy no-load, low-cost mutual funds or ETFs and buy term life insurance to protect your family... also known as BTID.... "buy term and invest the difference".

From what you wrote it sounds like when you retire that the account value would be rolled into an annuity... if so, the retirement benefits woud not be tax-free. Alternatively, if the retirement benefits are policy loans they will only be tax free to the extent of premiums paid.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 08-18-2017, 10:21 AM   #6
Confused about dryer sheets
 
Join Date: Aug 2017
Location: Maumelle
Posts: 2
Ok, I'm 50, have $450K in a 415c and contribute $60k (includes catchup) annually to it and another $6500 on a Roth.

I am looking for some kind of catchup and this Universal thing sounded like a nice supplement for long term income.

Any other recommendations for good places for supplemental investing?

Todd
Wingnut1 is offline   Reply With Quote
Old 08-18-2017, 10:26 AM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,204
It sounds like you are tax-sensitive and probably in a probably in a high tax bracket. If so, then munis in a taxable account (like a brokerage account) would be a possibility. Also, domesic and international equity mutual funds or ETFs in a taxable account would generally be taxed at only 15% (perhaps a bit higher if you are in a really high tax bracket).

The other great thing about these sources is that if you chose to retire earlier than 59 1/2 you can use these taxable accounts from ER until when you can access tax-deferred accounts without penalty.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 08-18-2017, 10:46 AM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
OldShooter's Avatar
 
Join Date: Mar 2017
Location: City
Posts: 10,308
Quote:
Originally Posted by Wingnut1 View Post
Ok, I'm 50, have $450K in a 415c and contribute $60k (includes catchup) annually to it and another $6500 on a Roth.

I am looking for some kind of catchup and this Universal thing sounded like a nice supplement for long term income.

Any other recommendations for good places for supplemental investing?

Todd
Sorry to say, @LOL! is almost certainly correct. This type of product is usually a good tool for enriching insurance salespeople and insurance companies but that is about it. Get out if you can. (I have heard that there are exceptions from firms like TIAA/CREF and Vanguard, but if you bought from an insurance salesperson you do not have one of those.)

As @pb4uski says, BTID if you actually need life insurance for some reason. If not, just buy a low cost total world market fund like VTWSX, using a tax sheltered account if possible. Even in a taxable account, passive funds are quite tax efficient because they trade much less frequently than actively managed funds and, hence, realize fewer gains.

You might benefit from some of the educational videos here: https://famafrench.dimensional.com/videos.aspx
OldShooter is offline   Reply With Quote
Old 08-18-2017, 10:49 AM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 10,252
Quote:
Originally Posted by Wingnut1 View Post
Ok, I'm 50, have $450K in a 415c and contribute $60k (includes catchup) annually to it and another $6500 on a Roth.

I am looking for some kind of catchup and this Universal thing sounded like a nice supplement for long term income.

Any other recommendations for good places for supplemental investing?

Todd
Any investment account invested tax-efficiently is perfect for supplemental investing. We have a joint brokerage account which we buy tax-efficient investments in. There are many advantages to such a so-called taxable account:

1. No limits on contributions. No penalties for early withdrawal. No limits on withdrawals.

2. Return of capital is tax-free.

3. Long-term capital gains are taxed at a favorable low rate. For us, that rate is 0%. Yep, LTCG are not taxed for us.

4. One can sell losers and get a tax break from the IRS. Yep, losses are shared by other taxpayers. Yep, that means YOU and other taxpayers have reduced my taxes for me with no choice on your part.

5. One can die and heirs get a stepped up basis and not pay taxes on one's gains.

6. One can give shares away to charity and not pay taxes. Those shares must have been held long-term.

7. Qualified dividends paid by such investments are also taxed at a favorable rate. For us that rate is 0%. Yep, for us qualified dividend income is not taxed.

8. And one more: Unrealized capital gains are not taxed either. One could go years and years without realizing capital gains and thus pay no taxes on those gains during that time.

All the above make such an account ideal for just about any investing. Of course, Roth IRAs and tax-deferred accounts have slightly better features, but a taxable account invested tax-efficiently comes pretty close. A taxable account invested tax inefficiently is terrible, so be sure to understand how to make your taxable account invested tax efficiently. A life insurance sales rep is not going to help you do that because it will cost them commissions and fees which they need to make a living.
LOL! is offline   Reply With Quote
Old 08-18-2017, 08:02 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Koolau's Avatar
 
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 17,707
Just wondering if the new fiduciary rule will affect such insurance products. Hmmm. YMMV
__________________
Ko'olau's Law -

Anything which can be used can be misused. Anything which can be misused will be.
Koolau is offline   Reply With Quote
Old 08-18-2017, 08:24 PM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 10,252
Quote:
Originally Posted by Koolau View Post
Just wondering if the new fiduciary rule will affect such insurance products. Hmmm. YMMV
I don't think so since they are not retirement accounts.
LOL! is offline   Reply With Quote
Old 08-18-2017, 08:54 PM   #12
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 4,629
Quote:
Originally Posted by Wingnut1 View Post
I have recently enrolled in a Universal Life Insurance Contract. Basicly you pay the premiums with after tax money and upon retirement the proceeds are paid monthly, tax free,
The cash value withdrawals are only tax free up to your basis (the sum of the premiums). After that, the withdrawals are taxed as ordinary income, they do not get the favorable capital gains rate.

If you don't plan to have any gain, it's not much of an "investment".

Generally, life insurance is a great product for people who need life insurance, and a lousy product for people who want investments. That's because the loads on life insurance tend to be higher than the loads on pure investments.

If you want to post some numbers here, people might be able to address your specific policy.
Independent is offline   Reply With Quote
Old 08-18-2017, 09:41 PM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,983
Quote:
Originally Posted by Wingnut1 View Post
I have recently enrolled in a Universal Life Insurance Contract.
When I see a post like this I wonder whether it might not have been better to ask first, then enroll or not after you have this additional information?

One of my sons used to say, I am thinking of buying a 911. What do you think? Then I'd look out in the drive and answered, looks like you already solved this one! I tend toward stupidity, but even I sometimes know when there is no sense choosing, this game has already been played.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Universal Life Insurance Contracts
Old 08-18-2017, 11:55 PM   #14
Full time employment: Posting here.
urn2bfree's Avatar
 
Join Date: Feb 2011
Posts: 852
Universal Life Insurance Contracts

When I see a post like this, I wonder whether it might not be a fake - or rather is actually an attempted sales pitch by an insurance salesperson.
urn2bfree is offline   Reply With Quote
Old 08-19-2017, 01:34 AM   #15
Thinks s/he gets paid by the post
 
Join Date: Dec 2010
Location: Midwest
Posts: 1,787
Welcome.

How about some thoughts from someone who actually sold UL (for 15 years) and formerly owned a policy?

"Is this a good retirement instrument?". No. It is an insurance instrument. And a very good one IF you NEED life insurance. Basically, UL is term insurance (paid monthly) inside an annuity, but taxed as life insurance at death, or surrender of the policy. UL was invented to counter "buy term and invest the difference" arguments-many customers at that time (late 70's/early 80's) were investing the "difference" in annuities which paid 10% and higher then.

Yes, cash value over your basis (contributions) will be taxed if withdrawn (not borrowed, withdrawn). However, to my knowledge, there is no accounting of the "interest/ investment return" used to pay the monthly insurance deduction.

Say you paid $50k in premiums over 30 years, and your cash value is $80k. Yes, you would pay taxes on $30k if you surrendered the policy. But, if your insurance part (mortality charges) were $30k, during that time-where did that money come from? It must have come from your earnings, since you get full credit for your payments (basis).

It is a nifty way to pay term insurance with before tax income.

Now, I have been out of the insurance business for a long time, and the IRS may have tightened this up. But it did not look that way when I did a quick search on line.
brucethebroker is offline   Reply With Quote
Old 08-19-2017, 07:26 AM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,204
I think you are right on the net impact of COI/mortality charges effectively coming from income/earnings... while paying for mortality coverage with part of the inside build-up is a minor benefit of UL, IMO it is totally eclipsed by mediocre interest crediting rates since the insurer invests in the same bonds we can but also needs 200 bps or more to cover expenses, overhead and return on required capital.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Old 08-19-2017, 07:36 AM   #17
Thinks s/he gets paid by the post
growing_older's Avatar
 
Join Date: Jun 2007
Posts: 2,657
Quote:
Basicly you pay the premiums with after tax money and upon retirement the proceeds are paid monthly, tax free
This is not correct, and if the salesman told you this to get you to buy, then it is very likely that other things he told you are also not true. You can get back the premiums you paid tax-free, but that you could have had by putting the money under the mattress or in any kind of savings account.

The investment component of these plans is usually sub-par. The insurance component of these plans is usually sub-par. You almost always can do better with separate insurance (if needed) and separate investments.
growing_older is offline   Reply With Quote
Old 08-19-2017, 09:59 AM   #18
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 4,655
Quote:
Originally Posted by LOL! View Post
Any investment account invested tax-efficiently is perfect for supplemental investing. We have a joint brokerage account which we buy tax-efficient investments in. There are many advantages to such a so-called taxable account:

1. No limits on contributions. No penalties for early withdrawal. No limits on withdrawals.

2. Return of capital is tax-free.

3. Long-term capital gains are taxed at a favorable low rate. For us, that rate is 0%. Yep, LTCG are not taxed for us.

4. One can sell losers and get a tax break from the IRS. Yep, losses are shared by other taxpayers. Yep, that means YOU and other taxpayers have reduced my taxes for me with no choice on your part.

5. One can die and heirs get a stepped up basis and not pay taxes on one's gains.

6. One can give shares away to charity and not pay taxes. Those shares must have been held long-term.

7. Qualified dividends paid by such investments are also taxed at a favorable rate. For us that rate is 0%. Yep, for us qualified dividend income is not taxed.

8. And one more: Unrealized capital gains are not taxed either. One could go years and years without realizing capital gains and thus pay no taxes on those gains during that time.

All the above make such an account ideal for just about any investing. Of course, Roth IRAs and tax-deferred accounts have slightly better features, but a taxable account invested tax-efficiently comes pretty close. A taxable account invested tax inefficiently is terrible, so be sure to understand how to make your taxable account invested tax efficiently. A life insurance sales rep is not going to help you do that because it will cost them commissions and fees which they need to make a living.


+1
I purchased a similar policy and watched its value stay pretty constant despite the underlying investments growing at a healthy rate. My market gains were getting almost totally eaten up by fees. I cancelled the policy and paid surrender charges to get out so I could start investing the funds productively.

Get out while you can and invest in a taxable portfolio instead.
Scuba is offline   Reply With Quote
Old 08-19-2017, 10:01 AM   #19
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 4,655
Quote:
Originally Posted by pb4uski View Post
I think you are right on the net impact of COI/mortality charges effectively coming from income/earnings... while paying for mortality coverage with part of the inside build-up is a minor benefit of UL, IMO it is totally eclipsed by mediocre interest crediting rates since the insurer invests in the same bonds we can but also needs 200 bps or more to cover expenses, overhead and return on required capital.


+1
Exactly my experience
Scuba is offline   Reply With Quote
Old 08-19-2017, 10:19 AM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
OldShooter's Avatar
 
Join Date: Mar 2017
Location: City
Posts: 10,308
Quote:
Originally Posted by brucethebroker View Post
... How about some thoughts from someone who actually sold UL (for 15 years) and formerly owned a policy? ...
The thoughts are very welcome. I'd like to ask a few questions.

First, I'll say that my impression (never bought one) of Universal Life is that the bold print giveth and the fine print taketh away. IOW, the concept (which you describe well) is attractive but the commissions and fees on the majority of these policies are at ripoff levels. I saw one where the insurance company kept all dividends (which creates an agency problem) and also kept all gains above an annual investment growth ceiling.

So:

1) What were your average commissions as a % of the customers' first year premiums?

2) What fees, caps, and other takeways (like keeping all dividends) were typically in the fine print?

3) Had you been a fiduciary, could you have sold the customers these policies without violating your fiduciary duties? (https://www.law.cornell.edu/wex/fiduciary_duty)
OldShooter is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Why Cancelling An Existing Whole Life Or Universal Life Policy May Be A Bad Idea mickeyd FIRE and Money 8 04-21-2013 11:26 AM
Universal Life insurance wrichards58 Other topics 12 07-19-2012 05:39 PM
Questions about overfunding a universal life insurance policy Nords FIRE and Money 7 01-16-2012 03:20 PM
Universal Life for Long Term Care Insurance? DJRR FIRE and Money 2 02-28-2008 11:22 AM
Universal Life Insurance nellieb FIRE and Money 13 06-24-2007 04:19 PM

» Quick Links

 
All times are GMT -6. The time now is 09:01 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.