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Old 12-24-2016, 11:24 PM   #21
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Yes
You have a very rare Whole Life Policy. If you feel comfortable could you tell us the insurance company, the fees, the premiums and the cash value?
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Old 12-25-2016, 06:03 AM   #22
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6% seems reasonable if you have done the math correctly but I have always found that term insurance for the minimum period of time required and investment of the difference builds more NW. I am always sceptical of other insurance products or annuities.
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Old 12-25-2016, 10:04 AM   #23
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You have a very rare Whole Life Policy. If you feel comfortable could you tell us the insurance company, the fees, the premiums and the cash value?
Actually, if you adjust the return for the value of mortality coverage at term insurance rates then I suspect that 6% is very possible over a very long run.

I have a whole life policy that I bought in 1977. Ignoring any value of mortality coverage during the time I have owned it it has returned 4.95% (interest rate given the current cash surrender value and premiums paid).

If I cashed it out and paid 15% taxes on the inside build-up, the after-tax return would be 4.53%. If I died tomorrow, the tax-free death benefit in relation to the premiums paid would represent a 7.55% after-tax return (death benefit in relation to premiums paid).

The cash value returns about 4% currently which is better than I can do with any similar low-risk fixed-income investment so I keep paying premiums.

That said, I think to buy term and invest the difference is better and that is what I did for most years that I needed life insurance.

IUL is typically not a fair product. One question to ask is if I had invested $100k in this product 3 years ago and wanted my money back now, how much would I receive. Typically, fees and surrender charges eat up the returns.
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Old 12-25-2016, 10:53 AM   #24
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6% is rather high in the current climate. Not saying that it couldn't be if the policy was held through the good times for bonds. These products are designed to be sold and few have returns in the long term that are much greater than inflation. How could it be otherwise with the huge commissions that come out of the policy and the other expenses that the companies incur. The only way one wins on these is dying early - the return can be quite excellent then.
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Old 12-25-2016, 10:55 AM   #25
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Actually, if you adjust the return for the value of mortality coverage at term insurance rates then I suspect that 6% is very possible over a very long run.
Yes, in a similar way the IRR of an annuity will approach the initial payout rate the longer you live, annuities and whole life insurance work best when you can work those mortality credits. The one financial product I bought from an insurance company is a TIAA-Traditional Deferred Annuity which is currently paying annual interest of 4.85% and 6%/year over the time I've owned it. It's acts like a 10 year CD.
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Old 12-25-2016, 11:43 AM   #26
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I think where people get into trouble is substituting insurance for investment products. Insurance can be bought for insurance purposes, a tax shelter or hybrid situations like as a substitute for LTC coverage when specific riders are added.
If you are buying it as an investment, that is a mistake. If you are in a high tax bracket, sometimes it makes sense to overfund a whole life policy to have one more tax shelter when you have maxed out all your other tax deferred investments. In cases like that the funds in the policy should be viewed as part of your cash/bond allocation. Nothing more.
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Old 12-25-2016, 11:53 AM   #27
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That is what the iul product he was trying to sell me. Over funded insurance so I can borrow back my own money tax free since loans in the policy are not taxable.

Yeah the 6% was a mistake. It's actually yielding less when I look at it but it's going up around 2% every year. It's worth more than I put in and when I compound it out it's not bad and I am comfortable with it. So not going to publish all the numbers to get it ripped apart. Bottom line I have put in about $35k over 23 years and it's worth cash value around $50k. Plus he amount of insurance has gone up. As long as the death yield stays over 5% why sell it. It's just gravy on a nice nest egg.
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Old 12-25-2016, 11:59 AM   #28
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Yeah the 6% was a mistake. It's actually yielding less when I look at it but it's going up around 2% every year. It's worth more than I put in and when I compound it out it's not bad and I am comfortable with it. So not going to publish all the numbers to get it ripped apart. Bottom line I have put in about $35k over 23 years and it's worth cash value around $50k. Plus he amount of insurance has gone up. As long as the death yield stays over 5% why sell it. It's just gravy on a nice nest egg.
So that's closer to 3%.
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Old 12-25-2016, 12:00 PM   #29
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That is what the iul product he was trying to sell me. Over funded insurance so I can borrow back my own money tax free since loans in the policy are not taxable.

Yeah the 6% was a mistake. It's actually yielding less when I look at it but it's going up around 2% every year. It's worth more than I put in and when I compound it out it's not bad and I am comfortable with it. So not going to publish all the numbers to get it ripped apart. Bottom line I have put in about $35k over 23 years and it's worth cash value around $50k. Plus he amount of insurance has gone up. As long as the death yield stays over 5% why sell it. It's just gravy on a nice nest egg.
This situation could have made sense if you were already maxing out a Roth,IRA, 401k,...most never find themselves in that situation, so the benefit of overfunding may apply to very few and only in the higher tax brackets.
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Old 12-25-2016, 12:02 PM   #30
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I think where people get into trouble is substituting insurance for investment products. Insurance can be bought for insurance purposes, a tax shelter or hybrid situations like as a substitute for LTC coverage when specific riders are added.
If you are buying it as an investment, that is a mistake. If you are in a high tax bracket, sometimes it makes sense to overfund a whole life policy to have one more tax shelter when you have maxed out all your other tax deferred investments. In cases like that the funds in the policy should be viewed as part of your cash/bond allocation. Nothing more.
+1. I've always kept investing and insurance well away from each other. There are some scenarios for high net worth people or those that want to stash lots away from the tax man where it can work, but frankly that needs specialist advice and I'm not prepared to hand my money over to anyone. So if I can't fully understand something and manage it myself I just put it to one side.
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Old 12-25-2016, 12:03 PM   #31
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Yeah. I max out 401k for me. Wife is limited by job. I then max out backdoor Roth IRA for her. I do traditional non deductible for me. Then on top of that we pay max top tax bracket. So it made sense but I am thinking of retiring next year. So not sure that it still does. Plus he fact I don't really understand it.
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Old 12-25-2016, 12:09 PM   #32
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I agree with read the fine print! My wife just recently rolled over an annuity, and the salesman offered her one option where she would get a 9% bonus if she did. BUT, when I read the fine print, the annual fees were higher! I ran it through a spreadsheet, and found that after year 6, she would lose money!
I presented that to the salesman, and he said nobody have ever done that calculation. DW was grateful that I had done that, because she would have not found that in the small print
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Old 12-25-2016, 12:13 PM   #33
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Insurance Co's are not all evil and they do pay very well. Pops had a few policies and they sent me a book of checks on an account created in my name. If I needed the dough, I just wrote a check. But since the account pays 2.5% I just left it there.
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Old 12-25-2016, 12:19 PM   #34
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One possiblity if the policy allows and you don't need the whole benefit any more, is to go to reduced paid up insurance. I have a paid up at 65 policy that just paid up. I paid about $8500 for the policy over 47 or so years, and it has a base cash value of 7450. However it was a participating policy (no longer available as the company de-mutualized in the interim) that means with the dividends the cash value is 38,500. Partly this is a demonstration that if you can find a participating policy, you can do well.
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Old 12-25-2016, 12:26 PM   #35
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Mine does participate and it had a vanishing premium option. I stopped paying for a few years where dividends covered the premium. But then payments started again. I could stop they told me but then cash value will go down. Since it seems to go up about 2% I feel it's worth it to keep it going.
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Old 12-25-2016, 02:49 PM   #36
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Get any "guarantee" in writing, signed by an officer of the issuing insurance company. Without the insurance company's officer guarantee, any promises by the agent are worthless. I went through this with a client, and we had the insurance agent and the issuing company signature on a letter. Saved us about $350k when the policy didn't perform as promised / guaranteed! Even if you get the letter, the only one to make out is the agent!
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Old 12-25-2016, 06:14 PM   #37
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Indexed Universal life? Sounds like a salesperson's dream.
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Old 12-25-2016, 08:17 PM   #38
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Yeah the 6% was a mistake. It's actually yielding less when I look at it but it's going up around 2% every year. It's worth more than I put in and when I compound it out it's not bad and I am comfortable with it. So not going to publish all the numbers to get it ripped apart. Bottom line I have put in about $35k over 23 years and it's worth cash value around $50k. Plus he amount of insurance has gone up. As long as the death yield stays over 5% why sell it. It's just gravy on a nice nest egg.
Ah. That "6%" included contributions through premiums?

Sounds like you already had your mind made up, which makes me wonder why you bothered to ask to begin with.

There are very few situations where someone isn't better off buying term life and investing the premium difference in a moderate allocation (say 50/50 or 60/40) investment account. What do you think the insurance companies are doing with your whole life premiums, also remembering they have to take their cut of the action?
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Old 12-27-2016, 09:05 AM   #39
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The problem with whole life insurance is the initial marketing/sales/underwriting cost. The company recovers them over the early policy years.

In some cases, both of these statements can be true.
- Buying the policy was a poor decision, if you measure from the issue date.
- Keeping the policy one more year makes sense.

I've got a small policy from AAL/Thrivent that I bought before I understood anything about life insurance. I don't pay any premiums because the dividend is more than the premium. The total cash surrender value went from $8,377 to $8,746 in the last policy year. That's a 4.4% gain.

If I died tomorrow, the death benefit would be about $3,000 more than the cash value.

If I surrendered today, I'd owe FIT on all the gain in the policy. If I keep it until I die, my wife will get the entire face amount without FIT.

To me, the best decision at this point is to keep the policy.

(Later on, when I learned about life insurance, I bought term. That would be my advice to anybody starting out today.)
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Old 12-27-2016, 09:10 AM   #40
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Yeah I tend to agree. Life insurance is insurance. I bought when younger when I needed to protect my family. The agent talked me into some whole and some term. The term has long lapsed but I kept the whole going because I saw a trend that at the time made sense and I think it still does. If I can continue to get a decent yoy yield greater than say 1% and the death benefit yield stays high and over say 5% then why not. I will just be giving a bonus to my wife when I pass or it can be used to cover funeral costs. Either way it still seems like a win to me though I am sure if I took the cash value today and invested it well it could exceed the death benefit by the time I die but that is a maybe since no one knows when they will die!
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