Allstate/Suntrust

[nellieb]

Suntrust/Allstate just tried to sell my widowed 82 year old father a single
premium whole life insurance policy. Anyone fimilar with this policy?

 

[brewer12345]

Why on earth would he need such a thing?

 

[Life_is_Good]

A financial planner once suggested that a life insurance policy is a "good idea" if your estate is highly valued (maybe over $2 mil?). The strategy is to estimate your probate taxes and obtain a policy that covers that amount. This should provide more net inheritance for the heirs in his Last Will and Testament because it makes up for the tax bite.

 

[ERD50]

A financial planner once suggested that a life insurance policy is a "good idea" if your estate is highly valued (maybe over $2 mil?). The strategy is to estimate your probate taxes and obtain a policy that covers that amount. This should provide more net inheritance for the heirs in his Last Will and Testament because it makes up for the tax bite.

It is certainly a 'good idea' for the insurance salesperson.

As long as there is liquidity to pay the taxes, it should not be a big deal. I'm not sure probate is that big a deal for most. It is sometimes used as a scare tactic to get people to buy... insurance.

Also, the policy needs to be in the name of the beneficiaries with the beneficiaries paying the premiums, else it is part of the estate and nothing is accomplished (except for the commission to the salesperson). The salesperson will usually recc annual gifting from the estate so the beneficiaries can pay the premiums. Funny thing about that is, once the money is gifted it is out of the estate anyway, and not subject to estate taxes or probate. So the question really comes down to - do you really want to buy some insurance?

At least that is how I understand it.

-ERD50

 

[FinanceDude]

Suntrust/Allstate just tried to sell my widowed 82 year old father a single
premium whole life insurance policy. Anyone fimilar with this policy?

Give me the actual name of it if you can, and I'll check it out. I have NO IDEA why he needs it..................

 

[2B]

It's no accident that the same people sell whole life, single premium life and annuities.

 

[FinanceDude]

It's no accident that the same people sell whole life, single premium life and annuities.

Yeah, they BARELY and ONLY passed their life insurance test............

Rememberm they are "planners"..................

 

[spideyrdpd]

http://www.smartmoney.com/ask/index.cfm?story=200112101
http://www.investopedia.com/articles/pf/05/SinglePremLife.asp

You dont usually do these as investments. They are a way to try to get around some taxes.

 

[2B]

http://www.smartmoney.com/ask/index.cfm?story=200112101
http://www.investopedia.com/articles/pf/05/SinglePremLife.asp

You dont usually do these as investments. They are a way to try to get around some taxes.

But most are sold to people that don't need them.

I agree that they are very useful to the uber-wealthy. At a certain point on the wealth spectrum, I would flip-flop and say someone should have "people" to manage their wealth. Of course, the amount of wealth I'm talking about wouldn't pay 1% but more like 0.1% of assets. It would also involve a lot more than someone just managing the stocks and bonds. Estate planning is underdone (in general) by all asset levels -- IMHO.

 

[ERD50]

But most are sold to people that don't need them.

I agree that they are very useful to the uber-wealthy.

I'm not even sure they are useful to the 'uber-wealthy'. Insurance, on average, has to be structured to provide a gain to the insurance company. Even the wealthy cannot change the laws of economics.

At least the examples I've seen, I can't see where the insurance policy does anything that could not have been done by gifting the money to individuals or charities, and lettting them invest it directly.

One possible exception - it looks like an insurance policy would provide liquidity at time of death, and this could be used to pay taxes that are supposedly due in 90(?) days. So, maybe insurance could be of some value in a very illiquid estate. But I suspect there are cheaper options if it came to that, like take out a loan against the value of property to be sold.

-ERD50

 

[FinanceDude]

I'm not even sure they are useful to the 'uber-wealthy'. Insurance, on average, has to be structured to provide a gain to the insurance company. Even the wealthy cannot change the laws of economics.

At least the examples I've seen, I can't see where the insurance policy does anything that could not have been done by gifting the money to individuals or charities, and lettting them invest it directly.

One possible exception - it looks like an insurance policy would provide liquidity at time of death, and this could be used to pay taxes that are supposedly due in 90(?) days. So, maybe insurance could be of some value in a very illiquid estate. But I suspect there are cheaper options if it came to that, like take out a loan against the value of property to be sold.

-ERD50

Some folks use a large term policy held in an ILIT to do just that.

 

[spideyrdpd]

The issue with gifting is there are limits. I think this is mostly for people that screwed up. They are widowed and they inherited the wealth of the spouse. Now they are very old with no tax planning done. They cant gift out enough money. They didnt realize that the estate would take a big tax hit.
Doesnt everything that sold have some benefit for the seller ?

The point with some of these things is you dont want the property to be sold. Or atleast you dont want to be forced into being a motivated seller selling at bargain prices because you have a tax bill to pay .

While we all assume that the person selling this was motivated by greed and the parent doesnt need this. There is a possibility that this means she has a lot of money that isnt structured correctly. For an insurance salesmen this would be the only answer ? Maybe not the best answer maybe you should dig further.
Many are saying this is a bad choice but we dont really know enough about the situation



quote author=ERD50 link=topic=12625.msg233697#msg233697 date=1173103993]
I'm not even sure they are useful to the 'uber-wealthy'. Insurance, on average, has to be structured to provide a gain to the insurance company. Even the wealthy cannot change the laws of economics.

At least the examples I've seen, I can't see where the insurance policy does anything that could not have been done by gifting the money to individuals or charities, and lettting them invest it directly.

One possible exception - it looks like an insurance policy would provide liquidity at time of death, and this could be used to pay taxes that are supposedly due in 90(?) days. So, maybe insurance could be of some value in a very illiquid estate. But I suspect there are cheaper options if it came to that, like take out a loan against the value of property to be sold.

-ERD50
[/quote]

 

[ERD50]

The issue with gifting is there are limits. I think this is mostly for people that screwed up. They are widowed and they inherited the wealth of the spouse. Now they are very old with no tax planning done. They cant gift out enough money. They didnt realize that the estate would take a big tax hit.

But, as I understand it (open to comments if anyone knows to the contrary), the insurance policy needs to be owned and funded *outside* the estate in order to escape the estate tax. Generally, the idea is the gifting is used to get money out of the estate and into the life insurance policy (held outside the estate). So, you are still limited by gifting maximums.

So, it seems to me that still boils down to: do you want life insurance or not?

So, like any insurance policy, if the insured dies well before the actuary table indicates, it would help. And maybe the insurance aspect is worth it to not be forced into a sale of inherited property if the insured met an early demise. I still suspect there are other options (use the property as collateral for a loan, etc) - none of which will be presented to you by an insurance salesperson.

--ERD50

 

[FinanceDude]

So, it seems to me that still boils down to: do you want life insurance or not?

So, like any insurance policy, if the insured dies well before the actuary table indicates, it would help. And maybe the insurance aspect is worth it to not be forced into a sale of inherited property if the insured met an early demise. I still suspect there are other options (use the property as collateral for a loan, etc) - none of which will be presented to you by an insurance salesperson.

--ERD50

Of course, your insurance "planner" will extol the virtues of CASH VALUE life for funding that ILIT trust......when term would cost about 1/8 as much.............

My estate guy has set a few of these, but only for folks that have HUGE portfolios. He figures the approximate taxes, and has a large company like NML write a level term policy to cover the approximate taxes owed.

 

[ERD50]

.....when term would cost about 1/8 as much.............

Yep, term would certainly be a lower cost way to go (for the client).

Wow, talking up the virtues of term - you must really be one of the 'good guys', FD. Pleased to meet you!

-ERD50

 

[FinanceDude]

Yep, term would certainly be a lower cost way to go (for the client).

Wow, talking up the virtues of term - you must really be one of the 'good guys', FD. Pleased to meet you!

-ERD50

Thanks......I guess I was raised right........ Actually, I have learned a lot from the folks on here, but it was mickeyd that pointed out I was being too defensive early on, and he was right!! Thanks, mickeyd............

I used to work at NML, so I feel I am qualified to comment on insurance "planning"..............

 

[spideyrdpd]

I dont think these people would be eligible for term insurance at their age ?

I heard about this in Respect to Joe Robbie who owned the Robbie stadium . The family had to sell the stadium at bargain rates. Although I think family squabling had some part in things. I was told that having one of these would of solved the problem.
Doesnt make it the best/only plan.
I also get the feelings its only for the really rich or people that are illiquid.
Again I dont think you can do a loan on something in an estate.

 

[saluki9]

I'm not even sure they are useful to the 'uber-wealthy'. Insurance, on average, has to be structured to provide a gain to the insurance company. Even the wealthy cannot change the laws of economics.

At least the examples I've seen, I can't see where the insurance policy does anything that could not have been done by gifting the money to individuals or charities, and lettting them invest it directly.

One possible exception - it looks like an insurance policy would provide liquidity at time of death, and this could be used to pay taxes that are supposedly due in 90(?) days. So, maybe insurance could be of some value in a very illiquid estate. But I suspect there are cheaper options if it came to that, like take out a loan against the value of property to be sold.

-ERD50

No, the are very useful and you don't need to be "uber wealthy" If you're a 50 or 60 year old person, the chances you're going to die in the next 30 or 40 years are pretty darn good.

If you pay 1% or 1.5% per year to buy an option (which is all the life insurance really is) that will pay $1M, $2M or more in estate taxes how does that not make sense?

 

[2B]

No, the are very useful and you don't need to be "uber wealthy" If you're a 50 or 60 year old person, the chances you're going to die in the next 30 or 40 years are pretty darn good.

If you pay 1% or 1.5% per year to buy an option (which is all the life insurance really is) that will pay $1M, $2M or more in estate taxes how does that not make sense?

I'm not sure what you mean. The "single premium" policies are essentially prepayment of the estate tax outside of the estate. One of the advantages if done right is that the insurance cost is not included in the estate so it saves the estate tax in it which can be substantial. The insurance company knows the person is going to die and these policies are frequently purchased when it's getting "close." There usually isn't much of a discount from the face value of the policy in these cases.

 

[ERD50]

If you pay 1% or 1.5% per year to buy an option (which is all the life insurance really is) that will pay $1M, $2M or more in estate taxes how does that not make sense?

So you are saying the insurance companies are giving away money? That, on average, they pay out more than they take in?

Does not make sense.

If the insurance co is charging you 1.5%, you could invest that money and make more (on average). So, if you need the insurance, fine. But don't think that you are making a great investment - you are buying insurance. On average, you will lose.

f that were not the case, insurance companies would have all gone out of business long ago.

-ERD50

PS: this is also being discussed here:

http://early-retirement.org/forums/index.php?topic=12724.msg235937#msg235937

maybe we should start a new thread for this, "Insurance as an Estate Planning Tool?"?

 

[ERD50]

One of the advantages if done right is that the insurance cost is not included in the estate so it saves the estate tax in it which can be substantial.

But don't forget - the insurance premiums are normally paid with money that is 'gifted' from the estate. That 'gifted' money is also free from estate tax. So, for Apples-to-Apples, you need to take that gifted money, invest it, and then compare the returns to a life insurance policy.

Unless I'm missing something, it seems like all the tax implications wash out and you are down to the basic question of 'Is insurance a good investment?'.

Sure, if the insured dies before their time, the insurance looks like a great investment. But lottery tickets look great when you win, too.

-ERD50

 

[spideyrdpd]

Again you could be maxing out your gift giving. Its only 12k per person.

I suppose this is like annuities. For most people it makes no sense. At some point though the tax benefit outweights the fact that you can do better elsewhere. Also an older person isnt going to be investing in beaver cheese. They want something more guaranteed and are willing to give up some return.

 

[2B]

Again you could be maxing out your gift giving. Its only 12k per person.

I suppose this is like annuities. For most people it makes no sense. At some point though the tax benefit outweights the fact that you can do better elsewhere. Also an older person isnt going to be investing in f*zzy b*nny. They want something more guaranteed and are willing to give up some return.

This is why I will concede that if someone is worth mega-millions and/or has highly illiquid assets it is worth paying for legal and financial professional advice. It also should not cost a % of the assets but reasonable professional fees.

 

[FinanceDude]

I dont think these people would be eligible for term insurance at their age ?

I heard about this in Respect to Joe Robbie who owned the Robbie stadium . The family had to sell the stadium at bargain rates. Although I think family squabling had some part in things. I was told that having one of these would of solved the problem.
Doesnt make it the best/only plan.
I also get the feelings its only for the really rich or people that are illiquid.
Again I dont think you can do a loan on something in an estate.

Well..........all insurance is age-based, so they would have to pass underwriting. However, I know several folks in their 70's that got $1 million 15 year level term for around $10,000 a year.........and used the dividends from their portfolios to fund it......sounds expensive, but it's really not for that age..........

 

[saluki9]

So you are saying the insurance companies are giving away money? That, on average, they pay out more than they take in?

Does not make sense.

If the insurance co is charging you 1.5%, you could invest that money and make more (on average). So, if you need the insurance, fine. But don't think that you are making a great investment - you are buying insurance. On average, you will lose.

f that were not the case, insurance companies would have all gone out of business long ago.

-ERD50

PS: this is also being discussed here:

http://early-retirement.org/forums/index.php?topic=12724.msg235937#msg235937

maybe we should start a new thread for this, "Insurance as an Estate Planning Tool?"?

I even understated my point. By going to quickquote, I see that a healthy 65 year old male can buy a 20 year term policy for $8900/year. So if I'm looking at paying $1M in estate taxes I can lay off that risk for .0089% per year. That is a VERY cheap option.

I think some people here need to get over their fear of insurance. That's cheap protection.

Whether the insurance companies have made their product too cheap I leave that for others to debate, but it wouldn't be the first time.

Also, if you decide to take the risk on yourself and invest the money (earning 6% after tax) you would wind up with $327,391.