Multi Index Universal Life Insurance

[nun]

Quote:

Originally Posted by COcheesehead I just looked at my policy docs. 0% up to what you paid in. 4.5% after that.

So there's no charge to borrow money up to the sum of the premiums?

It strikes me that if you want a guaranteed death benefit for someone then it's better to buy Guaranteed Universal Insurance and if you want to get more tax deferred investments for retirement income in addition to 401k etc then you'd buy a deferred annuity.

[COcheesehead]

Quote:

Originally Posted by nun So there's no charge to borrow money up to the sum of the premiums?

Up to the sum contributing to the cash value. So premiums, less cost of insurance.

[jzajzz]

Quote:

Originally Posted by nun It strikes me that if you want a guaranteed death benefit for someone then it's better to buy Guaranteed Universal Insurance and if you want to get more tax deferred investments for retirement income in addition to 401k etc then you'd buy a deferred annuity.

GUL is the cheapest way to buy permanent death benefit. if that's all you're looking for ..especially if you're older .. GUL is the way to go...

[nun]

Quote:

Originally Posted by jzajzz GUL is the cheapest way to buy permanent death benefit. if that's all you're looking for ..especially if you're older .. GUL is the way to go...

So it's interesting that in Wade Pfau's paper commissioned by OneAmerica he uses Whole Life in the retirement income scenario, rather than GUL, but only for the death benefit. The idea is that with a guaranteed death benefit the 401k allocation can be very aggressive and that when retirement income is required a single lifetime annuity can be purchased rather than a joint to give higher income as the death benefit will provide for the other partner if the one with the annuity dies.

While the conclusions of the paper look good given the assumptions and parameters I think it's a good example of a smoke and mirrors sales pitch for Whole Life.

[REWahoo]

Quote:

Originally Posted by nun While the conclusions of the paper look good given the assumptions and parameters I think it's a good example of a smoke and mirrors sales pitch for Whole Life.

+1

Wade Pfau's ties to the insurance industry renders any of his research conclusions highly suspect.

[nun]

Quote:

Originally Posted by REWahoo +1 Wade Pfau's ties to the insurance industry renders any of his research conclusions highly suspect.

The conclusions are fine given the biased assumptions and things like not accounting for inflation in income and ridiculously high investment expenses in toi 401k.

I wonder if all the "wealthy folks" using whole life would be better served by guaranteed universal life and deferred annuities?

[COcheesehead]

Quote:

Originally Posted by nun The conclusions are fine given the biased assumptions and things like not accounting for inflation in income and ridiculously high investment expenses in toi 401k. I wonder if all the "wealthy folks" using whole life would be better served by guaranteed universal life and deferred annuities?

I think you miss the point on all that WL can offer, as evidenced by this thread, so DA can replace a part of WL's benefits, but not all.
I am tired of talking about it with you because your bias has been exposed and we all know where you stand.
I am out of this thread.
Ciao!

[Big_Hitter]

is someone trying to change our minds about something?

[pb4uski]

Two of my BILs were life insurance agents with two different old-line mutual companies. Since I was making good money back in the day they both pitched WL to me and in both cases I gently rebuffed their advances.

I'm just waiting for the day that they ask me how I could retire so young... I'll respond that it was because I didn't "invest" in WL but invested in equities instead.

[nun]

Quote:

Originally Posted by COcheesehead I think you miss the point on all that WL can offer, as evidenced by this thread, so DA can replace a part of WL's benefits, but not all. I am tired of talking about it with you because your bias has been exposed and we all know where you stand. I am out of this thread. Ciao!

I think I understand...as I said you'd need both GUL and a DA to get both the death benefit and the retirement income that is bundled in WL. My question is if using GUL and DA is better for the wealthy people who might actually need a life insurance policy for estate planning purposes. If you can save tax deferred in a DA for a fee of 0.5% and then take money out when you retire without having to do a loan it looks like you have all the tax advantages of the CV WL with lower fees and no loan interest to pay. Then wew need to discuss the nature of the investment....what return can we expect form a WL CV account vs a DA invested in mutual funds etc.

[nun]

I looked at some annual premiums for $1M GUL for a 30 year old male non-smoker. They ranged from $4k to $6k......so picking the middle of $5k here are some numbers.

Age at death % return
30 20000
65 8%
83 4%

[pb4uski]

How are you calculating return? DB in relation to premiums paid (IOW an Excel annual rate calc where the premiums are an outflow and the DB is a FV inflow)? If so, that is also an after-tax return.

[nun]

Quote:

Originally Posted by pb4uski How are you calculating return? DB in relation to premiums paid (IOW an Excel annual rate calc where the premiums are an outflow and the DB is a FV inflow)? If so, that is also an after-tax return.

Just setting the rate for compound interest on the premiums over the period between 30 and the ages given that produces $1M.....so if the 30 year old male puts $5k into an investment every year and it grows by 4% annually by age 83 they will have $1M which is the value of the GUL death benefit.....I've rounded the numbers for simplicity.

The advantage over a ROTH is that you can continue adding money in retirement as you don't need earned income. So if you want to pass on wealth tax free to someone the GUL is a way to do it. It would be interesting for Wade Pfau to rerun his model using GUL rather than WL given that he completely ignores the CV of the WL in his paper.

[jzajzz]

Quote:

Originally Posted by nun So it's interesting that in Wade Pfau's paper commissioned by OneAmerica he uses Whole Life in the retirement income scenario, rather than GUL, but only for the death benefit. The idea is that with a guaranteed death benefit the 401k allocation can be very aggressive and that when retirement income is required a single lifetime annuity can be purchased rather than a joint to give higher income as the death benefit will provide for the other partner if the one with the annuity dies. While the conclusions of the paper look good given the assumptions and parameters I think it's a good example of a smoke and mirrors sales pitch for Whole Life.

You do realize that both annuity and GUL are insurance product.s.. so I'm sure he has his biases like everyone else but he makes money off both products. it's more lucrative for an insurance agent to sell a GUL than an overfunded whole life w/ term + paid up additions.

[jimbee]

I'm still waiting for the explanation why these insurance policies are a good investment. The responses in this thread so far, it depends, or, it's complicated. Guess I'm too stupid to understand.

[jzajzz]

Quote:

Originally Posted by nun I think I understand...as I said you'd need both GUL and a DA to get both the death benefit and the retirement income that is bundled in WL. My question is if using GUL and DA is better for the wealthy people who might actually need a life insurance policy for estate planning purposes. If you can save tax deferred in a DA for a fee of 0.5% and then take money out when you retire without having to do a loan it looks like you have all the tax advantages of the CV WL with lower fees and no loan interest to pay. Then wew need to discuss the nature of the investment....what return can we expect form a WL CV account vs a DA invested in mutual funds etc.

There are lot of info missing here (how old is this rich person) for me to accurately assess this but from afar... you have no liquidity..

[jzajzz]

Quote:

Originally Posted by jimbee I'm still waiting for the explanation why these insurance policies are a good investment. The responses in this thread so far, it depends, or, it's complicated. Guess I'm too stupid to understand.

it depends that's the answer for any investment vehicle. Of course some are better for a larger number of people than others. In short, it's lower risk plan than putting your money in the market, but higher than a CD. liquidity during retirement years is great because you can conservatively get more than the 4% because you eliminate the "sequence of returns" risk

The returns are not attractive if you have less than 20 years .. it doesn't work if your health is substandard. You can't really "start small" by investing small amounts and increasing from there. Less liquidity than a CD or cash ... less potential than the market.

[nun]

Quote:

Originally Posted by jzajzz You do realize that both annuity and GUL are insurance product.s.. so I'm sure he has his biases like everyone else but he makes money off both products. it's more lucrative for an insurance agent to sell a GUL than an overfunded whole life w/ term + paid up additions.

Yes I understand about annuities. Wade Pfau is suggesting retirement income from a combo of 401k, SPIAs and WL in this paper.

https://www.oneamerica.com/wps/wcm/c...e-1a0b0ef95d91

Wade Pfau is not an insurance salesman, but he is paid to do research and modeling by insurance companies and has produced some results that favor insurance products with a certain set of circumstances and assumptions that many people believe to be biased towards the insurance products.

One of my criticisms of Pfau's paper is that it only uses the death benefit of the WL policy and if he's ignoring the CV it would be cheaper to use GUL.

Also, I'm wondering if a wealthy person looking to pass on money through a death benefit and also save money for retirement over and above the usual retirement accounts would do better with a GUL and a deferred annuity rathe than WL.

[nun]

Quote:

Originally Posted by jzajzz There are lot of info missing here (how old is this rich person) for me to accurately assess this but from afar... you have no liquidity..

Sure a personal deferred fixed or variable annuity isn't a bank account, but it's withdrawal rules are similar to qualified retirement accounts and if you are going to be using the money after 59.5 you can either take it out as a series of payments or convert it into a lifetime SPIA. There no tax on the principal, just the gains and critically no interest is charged as you aren't taking a loan, Vanguard fees are around 0.5% on funds.

So lets say a 30 year old man wants to pass $1M to his children at death and he also wants a CV in some account of $400k at age 59.5. What should he do?

A $1M GUL would cost $5k/year for life and if he puts $5500 into a ROTH with fees of 0.1% and a 5% return he'd have $400k at 59.5. If he dies at age 83 he would have contributed a total of $430k and conservative planning would have allowed him to withdraw a total of $550k tax free from his ROTH (SWR=4% and 3% inflation). So how much would a WL policy cost in lifetime premiums, loan interest, taxes on gains in the CV etc to guaranteed a death benefit of $1M and a retirement income of $550k....

[nun]

Quote:

Originally Posted by jzajzz liquidity during retirement years is great because you can conservatively get more than the 4% because you eliminate the "sequence of returns" risk

Liquidity is better outside of an insurance policy as you don't have to pay interest or surrender fees to get at your money post 59.5. Liquidity is also cheaper in a DA if you buy one from someone like Vanguard if you really want extra tax deferred growth.

Sequence of returns risk can be easily mitigated with asset allocation.