Life Insurance With Cash Value Exposed!

Candy 20 months ago

Feel like writing lately??? :)

Kevin 15 months ago

I have to say SaiKit, you seem to know your stuff. Cash Value is a gimmick for the sales rep and only a tax deferred benefit for the rich. The average middle class family should be buying term for a reasonable time while investing the difference in a solid Roth-IRA.

And I love how my 'advisor' tells me that standard IRAs and 401Ks are better for me because they're tax deferred. That's what I want, a tax deduction now with my piddly income so I can have over 39% taxed when I retire so I have nothing when I need it.

Spread the word dude.

Samer 14 months ago

I send to the Insurance company that I want to cancel the insurnce and they send me that after 3 years that the cash surrender value as per today 24/11/2010 = L.E. 4109.04

and I already being paying tell now about 11088 so it is logic and it is 20years policy

thanks

Samer 14 months ago

No

Buck 14 months ago

I stumbled upon this blog looking for a difference between my cash value policy, and my brothers (which fits what you're saying). The fact is, and everyone should already know this (and shame on you for not mentioning), buy a quality product, from a quality company. My parents bought me a cash value policy (CVP) when I was 5. The agent promised that I would have around 20k in usable cash value by the time I was 22. There was some mention about the history and financial strength of the company to solidify his pitch. Well truth be told, when I was 22, I had a very lavish wedding and honey-moon, costing about 25k in total, 100% funded by my own cash value. My dividends from the company (New york life) continued paying, and I still have remaining cash value, as well as an additional policy.

In my brother's case, my parents went with The Hartford, and got the same promises. His cash value is "ok", but most definitely not going to fund a wedding from it. No one knows exactly why, but my own agent mentioned something about "mutual companies" and public companies.

As far as the "tax-free" income goes, I'll be ready to retire in 15 years or so. I will fund my retirement by taking half from my 401k, and the other half in cash value every year. Basically, I take out a LOAN against my cash value (while still earning the same dividend, on the same cash value amount because of non-direct recognition) and the IRS can't tax me for it. Yes, the premiums I've paid into it are after-tax dollars, but come on, how else is the government going to get us out of this recession? BY RAISING TAXES! By my financial advisors assumptions, I could be in the 40-50% tax bracket during retirement. And YOU can't even argue with that. So, I'm deferring my taxes, yes, but I would rather do that with after tax dollars than get taxed 50% from my 401k.

So, knowing that, would you agree that it isn't the strategy, but more the company in which you entrust that strategy with? Sure, my brother doesn't have what I have, but he's still going to pull out tax free dollars which only get paid back to the company after he passes, which, hopefully, will be a long time from now when his own kids have there own kids and aren't selfishly looking for a huge death benefit.

p.s. Dave Ramsey is a genius, but who can trust a guy that would bust the balls of a clearly good strategy, because it would lose him money on sales?

Buck 14 months ago

Well, I don't know how other companies do there business, but you can't call it a dividend if they are simply just giving you back excess money you've put in. That would be called a reimbursement. I've loaned against my cash value a few times, and have chosen to pay it back. Not having to pay taxes on that money I used and spent is still key.

If I die with an outstanding loan, my family will STILL benefit over 10 times the amount that I've put into this thing. If it has to come down to death benefit, my rate of return is about 26%, so thats pretty good as well. I would much rather have the ability to take out 10k to fix my roof out of this than request it from the bank. It's smarter and more efficient. Lastly, I got the policy for life, because I wanted it for life. I want to be able to fund my grand kids college, pay for my sons wedding if something were to happen to me, and make sure my wife is taken care of when we get old. We also have long-term care insurance through the same company, who has never increased their rates, and never will. There is NO PRODUCT or strategy out there that will do what this will. A roth IRA is not comparable due to its lack of liquidity in the early years and its ability to be aggressive (which was a good choice for me since I have a conservative product in the life insurance to fall back on.) Did you have a bad experience with this product or what? What company was it through? Hopefully not Metlife...that's who my brother has/had. But really, why do you view this as a bad vehicle?

Anonymous  14 months ago

The dividend paid on cash value policies is what it is, a dividend. It's the companies profit paid back to the policy holder. You cannot explain it like that and call it fair. When you build your cash value, you earn interest on the EXTRA money you've put in. The company will take that money and invest it in their general account. If they earn 6% on it, you earn 5.5%. When you have millions of policy holders, you can afford to only shave off the top. Not only that, but the government regulates insurance companies very STRICTLY, and there are laws stating how much a company can profit off of this.

Borrowing against your cash value has to be considered a loan in order to receive the tax free benefits. The IRS, of course has to get something out of it. That's why these loans are charged interest. Currently, it is rated at 5.3%. The insurance companies have nothing to do with this interest rate and do not profit off of it. So, if you want to borrow 300k from your 2mil policy, to take advantage of the tax free benefits and supplement your retirement income, you get "charged" 5.3% interest on that loan. So if you decide not to pay it back, and in 10 years you die, yes, around 160k will be taken out of your death benefit. As you have your loan outstanding, you are still earning dividends and additional insurance (because most people choose to roll their dividends back in to buy more insurance and earn a higher dividend in the future), so, when you do die, 160k will be taken, but out of a much higher death benefit because of the extra insurance you purchased with your dividend.

It can get better than that. The fella above mentioned non-direct recognition. This is when a company closes its eyes when you take a loan out. So you are earning the same dividend rate, because your cash value is the exact same even though you take 300k out. This is because you are borrowing from the DEATH BENEFIT and NOT your cash value. Companies do this (New York Life is one of the only ones left) because they are able to earn more money by continuing to invest those dollars. Sure, the IRS will eventually come asking for 5.3%, but the company can pay that back through your death benefit, or if you choose to pay the loan back. Most people who take loans out pay them back, because the policy is ultimately for retirement, but it is only optional to pay back.

Cash value IS your money, but it needs to be structured in a way that the IRS (or ANY creditors) can't touch it. This is extremely beneficial to policy holders because it can potentially cut your taxes into a quarter of what you would be paying. Back to my previous example, you take 300k out of your policy to supplement your retirement. Since it IS an after tax vehicle, of course you dont get taxed again. The current tax structure is historically LOW. It is safe to say that we're looking at significantly higher tax system for the next 50 years or so. So, by deferring taxes now (say you're in the 25% bracket)through a pre-tax plan (401k) to later pull out money for retirement, and pay a HIGHER tax would obviously be a huge mistake. Paying the taxes NOW, while in your high income earning years, and pulling out tax free income when taxes are higher, is the ideal situation everyone should plan for. Roth IRA's CAN accomplish the same thing, however, they aren't liquid until 59, and CAN lose money. So, by taking out half of my retirement income from a pre-tax plan, and the other half out of a life insurance plan, you're only gonna be taxed on the half pulled out of your 401k, so cutting your taxes in half, and then considering you have TWICE the income, if you average that out again, you'll effectively be cutting your taxes by 3/4. People have been affectively using policies to accomplish similar benefits for over 100 years now.

There are cash value products in which you can pay for a certain period. I KNOW New York Life has one. You pay a SLIGHTLY, and I do mean slightly higher premium than regular whole life, but instead of paying for it until you die, you can pay it up around retirement if you choose. You will still get all of the dividends, interest, growth, and other benefits as if you were still paying premiums, but you've done your part already so there is no need to pay more. If you want to cancel your policy once you feel you've gotten enough out of it, you can. You'll take the cash value, and walk. Then you'll get a call from uncle sam wanting his cut. The most logical option is to keep the policy in force, since at that point, you're most likely earning more than 10 times in cash value than you're paying in premiums annually.

Generally, and this is just my opinion this time, people take out these policies at first to have a safe place to save money, earning a considerably higher rate than a traditional savings account, which is just as liquid. Yes, the first couple of years yield you very little cash value, this is because your money is being LEVERAGED in the markets. Which is why it is so important to choose a reputable company, with a good track record and a solid investment account. That is where your guarantee comes into play. Anyone would be smart to have their doubts about some joe-blow representing ABC company, but if you know your company is quality (mostly though reviews, history, portfolio, and overall ratings), you can assure that your agents word is his bond.

It would not surprise me if 85% of the bad stories of cash value policies stemmed from policy holders that made mistakes. This kind of strategy is LONG TERM. If one is looking to open one up, and then opt out in 5 years, they'll most likely lose a lot of money. Unless they put extra dollars, in addition to the premiums they pay every month (doing this would boost cash value and dividend payments), you're not likely to have earned more cash value than you've paid into the policy in 5 years. A lot of people believe they will get what they put in back. Premiums are never refundable, and it is important that people understand that. If not used properly, cash value life insurance is a bad idea. That is KEY to what I'm saying.

Now, it's not all flowers and stars. Of course there are drawbacks. As mentioned above, if you don't use it the way it is designed to be used, you could potentially be losing money. Off the bat, premiums are premiums, and you will have little or no cash value, unless you "dump-in" extra dollars. So, as far as liquidity goes, only the dump ins are liquid, since they go directly into your cash value. Being a long-term strategy, it is a conservative product, so the returns aren't sexy like a mutual fund may be.

There ARE bad companies out there, plain and simple. Companies that make profits a priority instead of sustainability, are the kind one may want to be wary of. These are the kind of companies that have very low standards in their selection process, basically putting as many agents as they can out there, and pushing sales. Publicly traded companies are also less favorable when dealing with cash value policies. This is because the decisions they make, the dividends they pay, and the product benefits they design are subject to shareholders. They have a less personal relationship. As we all know, shareholders understand one thing 100%, and that is profit. Anyone investing in stocks, of course, does it to make money, it's not wrong, it's just the way it is.

All in all, this is a good strategy. A great place to set money aside, and then a great way to supplement your retirement income in the future. Recently, cash value life insurance was moved into the portfolio management side, and is now considered an asset. For those advisors who wish to become charters, or certified planners (two of the highest accomplishments in the finance industry) are required to study and know cash value life insurance in order to actually be certified. This says a lot to the value of the strategy. Ibbotson, a branch of Morningstar, has calculated that having a cash value policy in a portfolio reduces standard deviation (risk) and increases earnings. It's officially a win-win situation for policy holders, and th

Theodor 14 months ago

Wow man! Who do you work for? It seems to me like you are just bias against it. I doubt all the big companies wouldn't be around if anything you said was true...unless you think they are skilled enough to scam the millions of policy holders out there...we aint all nieve man. More people do it than not, so what's the big deal over it? The commission? What's wrong with commission, people gotta eat man. I guess it's your blog so write whatever, I just think you might be a lil close minded on this stuff.

Theodor 14 months ago

WHO IS BUCK? And yeah, I am that anonymos person who would take 6 hours out of his day to type all that...I was just researching cause Im looking at getting a insurance plan and my buddy told me to read blogs and stuff outside of company websites. SOrry man, it just looks like you aint seeing the whole story or something...so when you say invest the difference, what should I invest in?

Theodor 14 months ago

hahaha, oh I see. I thought that was some name calling, I just read it wrong I think. Anyways, no Im not. I'm only 27 but I got a wife and a child on the way. I know I want insurance so I'm just looking. What do you say about investing the difference? In what?

Theodor 14 months ago

I don't see an IP address on my right or my left man. If you can't answer my questions thats cool, just dont start claiming you're some sort of government spy looking at peoples IP addresses and stuff. Seriously though, I dont see one. And you didn't own anyone man, don't start with that. You just claim you see an IP address to try to cover up the fact that you got PUNKED by that guy. So yeah, that IS funny.

Theodor 14 months ago

Listen man, you dont see any IP address so you can stop all that. And I don't have MDP, and I'm sure not going one click further on that website. Even if I DID have that, it wouldnt make anything buck said less true. Sorry man, but I think you need to look at some option yourself.

A happy customer 14 months ago

Over a year ago I found a web article about "Infinite Banking" (IB). The basic idea behind IB is to use a whole life insurance policy as a piggy bank. When the policy's cash value increases to whatever significant amount, use it to self-finance the purchase of big ticket items. Effectively one would be borrowing from himself, and then paying himself back with interest.

The idea sounded good to me so I located an insurance broker that specializes in IB and started a new policy. I've had the policy for little over a year, and I gotta say I'm pleased. Already I've borrowed/repaid from several times (for small things). As of now the cash value is just over $5k.

Buy term and invest the rest does have its merits. But for me, having my own piggy bank from which I may borrow cash without filling out loan apps and paying for credit checks is priceless (my credit rating is horrible anyway). I'm not looking at the policy as a form of investment, but rather as a tool for self finance.

In reality IB could be facilitated with any type of financial instrument. It could be a checking or savings account, a 401K, a IRA - even cash one might hide in between the bed matresses. I chose a life insurance policy because I need the death benefit to cover my family should i get hit by a bus one day.

Just my two cents.

Anonymous 14 months ago

Not that the media is completely honest, but I think all of the articles below regarding "Life insurance with cash value in the news" are supporting the usage of it. Not only is it now considered an asset, but if you type in "Life insurance in a portfolio" into google, you'll find a very interesting study done by Ibbotson, on how a normal portfolio's standard deviation (risk) is decreased, and rate of return is increased just by getting rid of term and getting whole life. Just thought I'd put that out there.

p.s. what's my IP address? j/k

Anonymous 14 months ago

Ok, whatever man. Point is, you say things like "borrow your own money" and "give away to someone else", and maybe that's not a fair way to shed light on a subject you seem passionate about.

The reason its called a loan, is so the IRS cant tax it. If you just want to withdraw the cash, it will be subject to income tax like every other gain. Most always though, it will still avoid capital gains tax. That's one advantage.

The way the loans are structured depend on the company, but the interest rate on the loan is dependent on the general interest rate environment. If you want to continue using the full benefits of your policy after taking out a loan, try to pay it back. If you are with one of the big 5 companies, you'll be earning the same rate of return on the same amount of cash value, regardless of if you've paid it back or not. In the end, it will be taken out of your death benefit when you die. That's another advantage.

Saying the money isn't yours is really ridiculous and a cheap argument. When it's not effecting your credit, it doesn't matter who the money belongs to, it only matters who is using it. If taking a loan out on your cash value effected your credit, than yes, that statement would make more sense. You get everything you put in back, and in most cases, if used properly, you get a significant amount on top of that.

Buying term and investing the difference CAN still be used advantageously, for those who actually do it. That's really important. Saying "I'm going to buy term and invest the difference" is easy, actually doing it is the tough part. According to LIMRA, in 2009, only 20% of policy holders bought term and invested the difference, and only 40% of those people invested the full amount, the amount needed to make this strategy work. Now the cash value life insurance is an asset, buying term and investing the difference is becoming an out-dated strategy, and yes, Dave Ramsey absolutely hates that fact.

I have more faith in this countries institutions to be as cynical you. The reason for groups like Morningstar and Ibbotson are to GUIDE consumers, not to take advantage of them. They work with agencies like the SEC to make sure that consumers are protected from being taken advantage of.

Lastly, you'll be paying income tax as well as capital gains tax on the investments you made with "the difference". Not that big of a deal right now, but as the tax system changes, we may be looking at paying way more than we calculate. It's actually already started with the capital gains tax rising at the beginning of the year.

Just do a little more research before you take a side, because if you've done your research and fully understand how this works, you would realize that you should never take one side, but both.

A happy customer 14 months ago

"The thing is, why do you have to give your after-tax income away to someone, and have to borrow it back?

Remember, this money is no longer yours, forever. You can only borrow it, but it will never be given back to you."

The same goes for deposits into bank account. Deposits are effectively loans to the bank (i.e., no longer yours).

My understanding is that mutually-owned life insurance companies are not nearly as leveraged as banks, so I feel more comfortable stacking cash within a policy than I do witihin bank accounts. I only use banks for check-cashing purposes.

Perhaps the main reason that "buy term and invest the rest" is not apppealing to me is because I have no interest or faith in the equity markets. I also have no faith in banks.

Anyways, I reiterate that the purpose of my life insurance policy to facilitate a piggy bank that has a death benefit attached, for the purposes of self finance - not for the purpose of being an investment with an expected rate of return.

I do not recommend life insurance policies as an investment.

Whatever you want to call me 14 months ago

I'll make this short, as it seems you can't wrap your head around it.

1. The main reason most people have BOTH a 401K and a cash value policy is because you cannot liquidate a 401k before 59 and a half without being subject to tax and federal penalty. Another reason people like to diversify is because taxes are low right now, they will get higher, so when you pull out of your 401k, you'll be paying a higher tax.

2)It IS your money, and that is PROVEN in the fact that you can cash out if you want. But the main point is that IT DOESN'T MATTER WHOSE MONEY IT IS TO THE IRS, JUST WHO IS USING IT. Once again kid, VERY IMPORTANT.

3) I want to get this one in your head and make it stick. People who choose CVLI aren't throwing all their eggs in one basket. These people should have a 401k, for example, maybe a house, an employee stock purchase plan, and whatever else. A forced savings plan is part of that yes, but they have other money elsewhere. It's called DIVERSIFICATION my poor friend. Bottom line, and UNARGUABLE point: Your money is safer, more liquid, has more tax advantages, and earns more when you diversify. Both horizontal and verticle, aggressive and conservative, pre-tax, and after-tax. Cash value life insurance is a big part of that equation, especially for our generation.

4) You DO realize that agents and advisors get watched heavily right? And many throughout a given year are fired, sued, and jailed right? That's because some government agency sees that this agent's client makes 40k a year, yet he sold him a cash value policy for $800 a month, we better check this guy out.

Pick a good company and you wont have to deal with pushy agents, and if you do, honestly listen to their point. If cash value isn't right for you at the time, let him know it isn't right for you and you plan to convert your term or something. It's simple and easy, you don't always have to victimize yourself. wah wah wah, that agent pressured me to do something I don't understand and I don't like it!! wah wah wah, I'm telling mommy. That's what it sounds like when people talk about dealing with salespeople.

No, I don't work for NYL, nor are my policies through them. I do have 8 years experience in wealth accumulation strategies as well as tax-diversification. Listen, I don't disagree that buying term and investing the difference can get you where you want to be, but so can this. It just depends on who you are. CVLI isn't for everyone, but it's been working this way for a lot of people for over 100 years.

Jesus Christ wants you to get over the IP address thing. If anyone is spreading propaganda, its definitely YOU with your one-sided, closed-minded article.

A happy customer 14 months ago

@SaiKit

Interest on bank savings accounts and bank CDs are ridiculously lower than the inflation rate (not worth my time).

An insurance broker that specializes in IB collects a much smaller commission. Why? Because they build a policy for the purpose of being a piggy bank - so the policy is geared towards quickly building the cash value, rather than making the insurace broker rich. I've read that the standard commision for the first year of the policy is %95!!! Yikes! The first year commission on my policy was only %33.

The dividend payouts (i.e. refund of premium) eventually become big enough to pay the premiums. After that point the policy is self sustaining - no more premium payments out of pocket.

I no longer incur tax liability because I redeem Federal reserve notes for lawful money pursuant to section 16 of the Federal Reserve Act. With that being said, what is/isn't taxed is not an issue for me.

P.S. I'm enjoying the discourse. I learn from sharing ideas with others. Thanks.

A Happy Customer 14 months ago

@A Happy Customer,

“It's like you intentionally give away your money enough to avoid tax. Again, you build your piggy bank with your after-tax money, so why would the government tax it again?”

It is not my intention to avoid taxes by holding a participating whole life insurance policy. I avoid tax liability by not giving any signature endorsement of private credit of the Federal Reserve, and only transacting in lawful money of the US Treasury.

“You can just put your after-tax money in a shoebox, and government won't tax it. Save that 33% commission fee.”

I don’t mind paying the commission for the same reason I don’t mind paying for a hamburger at McDonalds – I don’t expect to get something for nothing.

“It's like saying you have pay the entire policy with a single premium that is large enough to pay for the entire policy once and for all.”

No, what I’m saying is that my premium payments will eventually be paid by the policy itself, and not by my payroll check.

“What's the benefit? How is it supposed to be advantageous that you pay so much for a few years that it is enough to sustain the policy? You can pay me a 1000 buck now, and I will give you 2500 bucks when you die (Assuming you are 45 or something). With inflation and interest rate and market average return of 12%, that's pretty much the same amount of money. (i.e. 1000 bucks now = 2500 bucks when you are 85)”

The benefits are:

1.) Independence from banks, credit cards, payday loans, etc.

2.) If I get struck by lightning, my wife will receive a nice paycheck from the insurance company.

When it’s all said and done, I’m really enjoying the benefits of the Infinite Banking (IB) concept. I just chose to use a participating whole life insurance policy to implement IB. Someone else would use a mutual fund. Yet someone else might use a 401(k). To each his own.

A happy customer 14 months ago

To correct a mistake - my last post was directed @SaiKit.

My apologies.

A happy customer 13 months ago

@ SaiKit

SaiKit: So you are avoiding tax. You have to understand that different wordings can mean the same thing.

Me: My point is that I do not hold the policy for tax avoidance purposes. I hold the policy for the purpose of self-finance, with a death benefit attached as icing on the cake. It’s primarily about self-finance.

SaiKit: 33% of commission off your hard earned money, that's something for nothing. I would rather invest it and pay tax on the earning. Remember, the government can never tax your after-tax money again, but only additional earning from investing that money. Eventually, everything you earn in any way will be taxed. Cash value won't get tax, because there is no earning.

Me: Well, there you have it. YOU would rather invest, while I would rather self-finance. For me, investing is a matter that is separate from self-finance. You->investing. Me->self-finance.

Also, maybe I’m not being clear. I have zero (0) tax liability (with regards to Subtitle A and E taxes). The government does not tax me because I do not incur tax liability. There is no tax liability because I do not give signature endorsement of private credit of the Federal Reserve. Instead I redeem that private credit of the Federal Reserve for lawful money, and then only transact in lawful money. Federal Reserve credit incurs use and transfer fees which have the misnomer of “taxes”.

SaiKit: It still came from your payroll check. What I said remains true, quoting myself, "It's like saying you have pay the entire policy with a single premium that is large enough to pay for the entire policy once and for all.” Tell me what's the actual different between your sentence and mine.

Me: If the policy’s dividend payout covers the premiums, and I no longer have to come out of pocket to support the policy, then how can you say that the premiums are covered by a payroll check?

SaiKit: You are no more independent than using banks. In fact, you are more restrainted and controlled. You are being forced to save for someone else.

Me: How am I more restrained?

Suppose I want to purchase a car. If I get financing from a bank, I’m subject to the terms of that bank for the loan. I’m stuck with whatever finance rate that “my” credit score will allow. I’m subject to the bank’s payment schedule. If I fall behind by three months, the bank repossesses the car.

But if I finance the car with a policy loan from the cash value, I’m virtually subject to my own terms (everything except the interest rate, currently %5.5). No credit checks. No loan applications for amounts $5k and under (anything above $5k requires a signature – that’s it). No wondering whether or not the loan will be approved. I set the amortization schedule – not the bank. If I’m late on payments nobody cares. Heck, I don’t even have to repay the loan if I don’t want to (a bad idea, though). Am I really more constrained? Self-finance – I love it!!!

SaiKit: If you get stuck my lightning, a term insurance will pay several times more than a cash value life insurance.

Me: Again, I hold the policy for the purposes of self-finance. The death benefit is a secondary concern. The death payout is not exorbitant because the policy is engineered for self-finance and not for death benefit.

SaiKit "To each his own". You have your option, but I am just offering a better, much better option.

Me: I wouldn’t consider you option “better” - just “different”. However, I do not have a closed mind. If we continue this discourse, you may convince me to change my position. Perhaps you may suggest a financial instrument that will facilitate Infinite Banking more efficiently that a participating whole life insurance policy. I’m gain for that.

I’m not a cheerleader for whole-life insurance – I’m a cheerleader for self-finance.

Facts, not opinion, but FACTS 13 months ago

If CVLI is so bad, why has it been around for over a century? Are you saying we're all simple minded? That agents are evil, and they feed off dumb people so they can get a bigger commission? That commission based work is a scam?

The reason it's been around for so long is simply because IT WORKS. Especially in this day in age, people want safety and liquidity. Stop with the whole "It's not your money" thing, OPEN YOUR MIND. Ask Warren Buffet, one of the most successful investors ever, who continually converts profits of his variable investments into CVLI.

No one said it was for everyone. But when most people want at least something safe in their portfolio, there is nothing that works as well as CVLI. You could go on and on (which you do) arguing the same points (which I have proved wrong multiple times), but that won't make my point any less true. People, diversify. Get your rate of return in an aggressive manner, always have a form of emergency cash (savings or credit card if you prefer), do not cancel your 401k, and keep your lazy money safe and liquid with a company you can trust. What's most important is being open minded to different strategies and not making decisions based on one-sided-bias articles like this.

tim01 13 months ago

I'm just as annoyed as you with the constant name changes of Buck/Theodore/next new thing.

SaiKit, Let me propose the following two situations:

A) I have $10,500 annually. I use $500 to buy term. I use $6000 on three mutual funds A, B, C evenly. I call this the higher risk bucket. I use $4000 on bond fund and money market evenly. This is the safer bucket.

B) I have $10,500 annually. I use $500 to buy term. I use $6000 on three mutual funds A, B, C evenly. I call this the higher risk bucket. Here is where I change my "safer" bucket. I use $4000 on a participating whole life insurance policy from a highly rated mutual company. The $4000 is broken down like this: $1400 for a $100K Death Benefit (DB), $462 for a 10 year term of $400K DB; The rest $2138 will purchase paid-up addition (PUA). After 10 years, it will be $2600 for PUAs. PUAs will buy on avg 3 times DB for the money. The DB in this policy will continue to grow. It won't be stuck at the $100K. The total premiums have a Rate of Return of 5% after 30 years.

Both situations are funded for 30 years.

I'd say that if I die anytime during those 30 years, proposal B will always leave MUCH more money to my beneficiaries than proposal A. Agree?

In my retirement years, most likely I will have more money to spend immediately using proposal A, but you see, I will be drawing my retirement income slowly from my higher risk bucket and social security before I draw from the safer bucket. Most likely by the time I die, I'd still have some left over from the safer bucket.

So which one will I have more left over once I die of old age? I'd say the B's safer bucket due to the DB.

tim01 13 months ago

I don't think you read B) carefully. I even broke it down to the insurance costs and you still asked me how much it costs. Also situation B) is buy term (the $500) and invest the rest (the $10,000). I just decided to "invest" my safer asset class in a WL instead of bonds or money market. I know that WL is considered a bad "investment" to some, but I chose this bad investment plus its death benefit. By choosing it, I will always leave more money to my family than A) if I pass away. That's how one gets OUT of the rat race. If my wife and child are out, then I feel like I have succeeded.

You are correct about the PUA becoming increasingly expensive. That's why I stated the average is 3 times in DB the dollar amount. For me, the rate starts at 5.7 times and slowly decreases by .2 or .1 each year. Example, if I put in $10,000 in PUA, the death benefit will be $57,000 initially. I can't put money in anything else to match that except a better WL.

It actually doesn't matter how my higher risk funds turn out b/c in both cases it's the same funds. Obviously over the years I may change funds and I'll do that in both scenarios.

To rephrase, I am buying term and invest the difference. I just decide to invest it differently than most would.

anonymous 13 months ago

There is no way to calculate, much less guarantee the returns of variable investment tools. You should know that. By the time you will retire, you will most likely be paying significantly more taxes, in which your ENTIRE retirement fund is subject to tax (if you follow the buy term and invest the difference strategy). NOT GOOD. Having some whole life enables you to use tax free income, in a tool that CAN be calculated and guaranteed, and if things don't go well and you die, people you care about can still achieve their goals.

It's not about the returns when you are young, it's about what you can pull out when you are retired, and are not making other money. Remember people, have a percentage equal to your age in something safe, like CVLI, and the rest invested. That is one strategy that has always, and always will work for EVERYONE.

Who cares about someone earning a commission?!?! Seriously, there is a fee if you put any amount of money into anything, and someone is always earning a commission. It's sales. Same thing with buying a car, computer, cable, cell phone, ect. There is no escaping it, so don't worry about this guy who is basically saying people who earn commissions are evil. That's just clown music.

tim 12 months ago

Saikit,

I don't think you understand the different asset classes and diversification. There are three asset classes: equities, bonds, and cash. Diversification is putting money into each at some percentage that you feel comfortable for each class's risk. For me, 60% equities, 20% bonds, and 20% cash is good. Maybe for you it's 90% equities and 10% bonds. That's not for me.

What do I expect the rate of return for the bonds and

cash to be? 5-6% combined. This is projected and not even guaranteed. Guess what the rate of return for a par WL policy is? It's roughly 5%. That's cash value and it's also projected. But if you look at the death benefit, the GUARANTEED is aproximately 6.35%. The projected is 8.4%. These are assuming I use the $4,000 for the WL.

You keep pointing to your link "Invest difference", but that table is assuming total investment. I'm just comparing the bond/cash to WL. Which is a fair apples to apples comparison. I can't compare equities to WL. It's like comparing a Porsche to a Benz ML350.

tim 12 months ago

I need to clarify something. It should be 30% bonds and 10% cash.

Anonymous 12 months ago

Vertical diversification, MAY be considered old fashion. Buying term and investing the difference DEFINITELY is old fashion. With the rate of fluctuation in variable markets these days, and as history shows, over time, no one in their right mind would be more than 75% aggressive. And, as Tim has stated and I've been saying the whole time, not only are you comparing fried chicken to apples, but YOU DON'T GET IT. So buy term and invest the difference MIGHT be a good strategy, and definitely was during the 70s and 80s as tax deferred plans started taking off and the tax structure was through the roof, but it's not the same today. LISTEN TO WHAT THE INVESTMENT WORLD IS SAYING. Why wouldn't you? If they screw you with terrible advice, is that good for their business? NO. If they give you good advice, is it good for their business? YES. Sure, go ahead, buy term and invest the difference...invest it into what though? Sure, equities are great for a PORTION of it, but what do you have that you know will be there 30 years down the road? Bonds, sure. Municipal bonds that is, since they grow tax deferred and when you pull them out, they are tax free. Roth IRAs, sure. If you can afford to shell your after tax dollars up until you're 59 1/2. So lets see, I know there is one more vehicle that can provide you tax free income...and you know what? I believe you can pull it out whenever you need to as well, kind of like an emergency fund, or a rainy day fund...I just can't think of what it is. Oh yeah, CVLI. Duh. The fact that it is now an asset, is proof that it is SMARTER have a WL policy than it is to buy term and invest the difference. And once again, the I.P. address tells you to sit down on your own blog.

anonymous 12 months ago

Saikit,

Everyone keeps trying to explain it to you but you just dont see it. Your just not smart enough to understand. Its ok, whole life insurance is an complex financial product and only those with actual intelligence can understand it. Now go ahead and continue spilling your "lack of understanding" of a complex yet stable financial product. Oh nevermind. Nobody is listening to you anyway.....at least I hope not.

Anonymous  12 months ago

The only reason I have to repeat myself is because you simply DO NOT UNDERSTAND. Nothing that you said proved anything I said wrong. I am telling you to look at this from both sides, as I have. You just aren't. This page gets a lot of traffic because a few of us check it every day to see what you come up with next. That's all.

You think you know a better strategy, and try to compare the tools you would use versus CVLI, and it's just not going to work. I certainly hope you pay someone to manage your finances, because you seem like the type of person who would put major financial decisions in the hands of open opinion on the web. Financial disaster.

Anyways, there is no ONE WAY to place ones personal finances. But there is ONE strategy that is crucial to success, no matter where you put your money, and once again, that is 50% aggressive pre-tax assets, 25%-50% conservative after tax assets, or 0%-25% aggressive after tax assets. Within that allocation, do whatever you want, sure. But the only logical option for nearly everyone (unless you are 55 and haven't started saving for retirement at all) in the conservative after tax area is CVLI. So as far as ROTH investing, having 25%-50% of your investable dollars in CVLI will give you a permission slip to structure your IRA more aggressively, giving you the returns you are looking for. This article is telling people to put it all at risk, in hopes of better returns. Unless your strategy involves living from paycheck to paycheck, no one should risk 100% of their money, and you look like a fool because you take this stand in your article, and then close your mind to opinion.

76.104.152.154 12 months ago

Hmmm, I guess you still do not seem to understand. I'll take it nice and slow for you. You are correct, 1+1 is always 2. We aren't talking about a one way to do things here. Being open minded in this matter means you are open to both the idea of buying term and investing the difference, as well as buying CVLI. What were trying to accomplish here is for you to get the big picture, that no one person should follow one rule while investing, except for diversify.

I clear your mess up really quick ok kid? By roth investments, we mean eventual tax free income. Those tools are limited to Roth IRA, CVLI, Tax free municipal bongs, and sometimes, tax deferred annuities. These 4 tools are the ONLY tools currently available for comparison. We know we need at least one of them, but which one? Roth IRAs can be great, you can diversify within them, as well as structure them and re-balance whenever you like. There is one problem that a lot of people seem to think of and shy away from putting a a full 25%-50% of their money in Roths. Aside from them being variable (moderate to high risk), they lack liquidity. You can't pull them out until 59 1/2.

How about TFMB? You give your money to a city, they build a school or park or whatever and pay you our principle plus interest over your lifetime, tax free. Problem here is, in order to utilize this effectively, you need a lot of capital. Generally, those who are close to retirement and haven't started saving for it yet have to use this tool, because their age, health, and maybe income level may not enable them to use any of the other 3. Also, the interest rates have been very low for at least a decade, we're talking maybe 1-3%.

Tax deferred annuities are a useful strategy, but they are never 100% tax free at retirement. That's why most people choose CVLI. It takes care of many needs and accomplishes the same goal, tax free income when you need it most. You can choose a policy that you pay for life, or structure it to have it paid in full in a certain amount of years beyond 7 (to avoid a modified endowment). You build cash value (emergency savings, or rainy day fund) at a higher interest than ANY savings account, CD, or money market account. You can use it when you need it (and with non-direct recognition companies, not paying it back will not hurt you), and if you die, which you will at some point, your family is taken care of. Now the big picture is CVLI insurance is in a group of 4 types of assets that generate tax free income, the difference between this and the other 3, is the liquidity factor, in case things don't go as planned. That's all I've been trying to say. Choose a strong, mutual company with a good general account, and use this to save money, pay for a major expense in the future, take care of your loved ones, and supplement your retirement. There is a reason why this is the number one most utilized asset in the United States, and also THE most complex. Just take that into consideration, because you can't prove it wrong.

Jay 12 months ago

You can withdrawal money from your cash value as well and not pay back the insurance company. So I guess it is your money afterall. http://en.wikipedia.org/wiki/Life_insurance#Perman (Fourth line under "Permanent Life Insurance)

76.104.152.154 12 months ago

Wrong again buddy. If you were to buy an insufficient amount of insurance, that's on the agent and consumer. Yes, whole life is a bigger ticket, but it's been proven for over a hundred years that the benefits of it far exceed the forced savings element. Most people want CVLI, plain and simple, but a lot can't afford it, so they work with their agent or advisor on how to have SOME cash value, and supplement the rest with term until their income increases.

The illustrations are based on calculations, the calculations are based on the companies general account. So yes, if you go with a poor company, you will get poor results, which is why a lot of "one stop shop" insurance companies tend to drop whole life products. Their business plan is not set for the long term, and that is perfectly fine, but everyone needs something long term, thats why some companies base their goals and investments of their general account for the future, and not short returns. If I wanted to put 70% of my money into something very aggressive, I would not go to one of these conservative companies, I would go to someone who had short term gains in mind. The other 30%, I will take to a conservative company, and the illustration they show me will be attractive yes, but most of all accurate. Why do you think the two major insurance companies have AAA+ ratings? It certainly wouldn't come from over-estimated returns for their clients.

Open Mind 12 months ago

Wow. I just spent about a half hour reading through these comments. It seems to me that having an open mind about this (and all things really) is a smart move. I've been thinking a lot about life insurance, and now I see how important it is to actually weigh the pros and cons, and I really don't see how having permanent LI can hurt anyone in any way. No offense, you blog pretty well, but as an ordinary investor trying to save, put my kids through college, and retire when I want, I have to say, the points go to the commentors who write against your article. I rate this blog a solid 9, 6 from you, 3 from the other guys. You and anonymous, or buck, or whoever he is should colabirate and start a speech and debate website!

76.104.152.154 12 months ago

Oh really? Short term investing should be conservative? Long term investing should be aggressive? WOW BUDDY. Looks like you just dug yourself another 3 feet deep.

So I should buy stock off the OTCBB, and plan to sell it the next day, hoping to get a heaping 1%? And most of my money should go into a young and aggressive tech company, and I should hold on to it until retirement, while still funding it? Are you retarded? If you put 80k into something, wait 35 years, and pull it out with 300k (inflation adjusted), what is your rate of return? And stop with the insurance agent thing, that's annoying. Don't start calling names because someone who has more experience than you counters your arguments every day and has others agreeing with them. I didn't want to take it to this, but you are a simple minded idiot. You were probably an insurance agent who got fired or was too lazy to get out there and find clients. You are, simply put, WRONG. I certainly hope you're not licensed in anything, because you'll probably end up in jail for giving people uneducated investment advise.

hahaha 12 months ago

You know what, it's okay. You can say what ever you want, no one is listening except me, and I love it because you constantly give me more material. Again, you are comparing something safe and guaranteed to something aggressive and variable. If you can't wrap your head around that, there is no use in force feeding a baby. I suppose that all the people who commented on this are friends of mine who let me borrow their computers? Listen buddy, if I wanted to try and fake you out, I would have simply re-set my IP address. Don't kid yourself.

I do agree with you on the average return basis, but what I don't agree with is how you can dismiss CVLI as a useful tool. That's something I now know I can do nothing about. All in all though, you're a mouse fighting a gorilla on this subject and your patronizing remarks about ego and immaturity are ridiculous. Everyone who is reading this: well, I guess there is nothing to warn you about because he probably discredited himself by the 3rd paragraph.

whoa buddy 12 months ago

At first I tried to get you to open up to the reality that CVLI works when used properly. You ignorantly rejected that, I thought I'd try out a few different approaches to get you to see the point, and you still dont. So let's talk pure numbers then, since neither of us can argue those.

Of course, you want the money you put into an INVESTMENT to gain a larger ror in the long run, hell, even in the short term, but this isn't the same style. When comparing rates of return, you would compare this to a savings, checking, or money market account, because they are safe and liquid. Those are the key points to my argument, safety and liquidity. I'm done trying to get you to understand the tax advantages.

What features do you look for when you open up a savings or checking account? Well, you want your money to be safe. You also want to be able to use it. You aren't expecting any return really, just a safe place to put money that you plan on using at some point. That's what my dad thought of when he was looking at CVLI. He spent $40 bucks a month for a 20 year term policy, for insurance purposes only, but since he knew there was something safe and liquid in CVLI, he chose to replace his savings account with that.

Scenario-You start a savings account, putting $300 in a month. You could put in more, but you simply keep it in your checking account because there is no where else to put it. You do not want that extra money tied up in anything.

5 years later, you realize that that extra money you kept in your checking account accumulated faster than you thought, so you took your extra 8k, and added it to your savings account. If your savings account averaged a return of .20%, how much would you have 20 years from now? Work the same scenario for MMA, and checking accounts too, since these are also safe and liquid. You're lucky to get more than 1.5% on your MMA.

Run that same scenario for another safe and liquid tool, CVLI, at a conservative average ror of 4%. With a non-direct recognition company, you can use the money you have built up whenever you like, for whatever you like. Just like a bank account. Now, I know you can't just swipe a card and have it debited from your CVLI, but it is still very liquid.

So 20 years down the road, which one of those 4 vehicles nets you more money? Hell, I'll add to it and touch back on the tax advantages too! Which one of those 4 vehicles can you pull your principle AND profit out of tax free? Let's go ahead and ask one more question, which one of these will pay your loved ones a tax free death benefit if you happened to die?

I ran around the bush with you on this for the past 2 months or so, but this is what I'm trying to explain (aside from the tax advantages associated with CVLI, in which you would compare this to a municipal bond, or tax deferred annuity), people who use this tool properly, use it as a rainy day fund. They put 300 a month in as premium (while still having an actual emergency fund: 2k in savings, maybe some credit cards), and dump extra money in when they can. Overall, it will earn you more money in 20, even 10 years if you do it right, than a savings, checking, or money market account. Do you disagree with that?

ok 12 months ago

If you try to refute my last post, you are clearly confused yourself. There are people who want to make important financial decisions, who have dual income, who try to save as much as they can so they can stay above water.

The hypothetical situation I just mapped out is not a stretch by any means, especially for pointing out why some people should choose CVLI. Those who will never be able to put $300 or so in total into some sort of savings vehicle are the people who would be better suited with term insurance. Not buying term and investing the difference, but simply buying term until they can afford to convert to permanent.

You simply need to connect with the fact that there are also people who want insurance after "they need it". Sure, most would expect their kids to have their own plans set up, but what if you leave your spouse behind? I couldn't tell you how it feels or anything, but I can say that my grandmother struggled, and still struggles. She collects $1100 in social security benefits every month, and my grandpa died in 1983. Sure, she's lived a long time, but more importantly to this conversation, she's lived over 25 years passed my grandfather. I bet he was wishing he had bought a permanent policy while on his deathbed. We now all take turns taking care of her financially. I'm not looking for sympathy here, this is just a real life situation, and I'm sure a lot of people out there go through this same exact situation.

A savings account with an average return of 4% is terrific, and I'm also sure that many of the older readers have regretted not taking advantage of this when they were younger, I know I would.

I ended the tax advantage discussion because you simply do not understand the value, but you will when you are older. Hopefully you will be thanking yourself and not regretting anything. If you still do not agree that if you are saving an average amount of money in a savings account, it would be better used if placed in CVLI, than there is no use in beating a dead horse more. Good luck finding something better, perhaps things are different in Toronto.

Angela Rosas 11 months ago

I started out reading the article about CVLI exposed and got caught up in the debate that followed via these comments. Amazing and funny.