by Guest » Fri Sep 07, 2007 09:20 am
Hi friends, I've heard that Equity indexed universal life insurance can be a very good investment option. I want to purchase a policy that will give me some investment benefits along with life coverage. Shall I consider buying EIUL or something else? Pls. suggest.
Jeremiah
Jeremiah
Posted: Fri May 04, 2012 02:21 pm Post Subject:
why do WRL agents ask for check before the premium's even in effect? just cut them a 2000 dollar check 7 days ago
I assume you mean "WFG" (World Financial Group) agent. Those are the persons most likely to market WRL universal, indexed universal, and variable universal life policies. There is nothing "wrong" with those policies that the right amount of money cannot solve, but they may not work quite the way they are explained to folks by WFG agents.
It is a common practice in the insurance industry to ask for a check for the first month's premium at the time the application for insurance is submitted. And there is a good reason for this. If you actually have a need for life insurance, you want your coverage to begin as soon as possible, and that cannot happen before at least the first month's premium has been paid
Contract law requires "consideration" from both parties as one of the four necessary elements to form a contract (along with competent parties, a legal purpose, and the offer/acceptance of the contract). Your application is the "offer" and your check sent with the application is the "consideration". If the insurance company accepts your offer, the contract can begin to provide protection even before the policy is issued and delivered if you have provided consideration.
However, most WRL policies have a clause which requires the insured to be able to sign a "Statement of Good Health" before the policy goes into effect. So it is important, once the policy is issued, for the agent to deliver the policy as soon as possible.
My question is this: Are you going to be paying $24,000 per year for life insurance through World Financial Group? For most persons under age 50, that amount of premium would pay for at least $2,000,000 of coverage, probably a lot more with many companies. You don't indicate whether the $2,000 is for a month or a year, nor do you state the insurance amount.
If this is true, you may want a "second opinion" before your ten day "free look" period expires. You might discover that there are high surrender charges for 10-15 years which you were not aware of and that would erode some or all of your policy's cash value if you cancel or lapse the policy in the first several years (almost ALL cash value policies have substantial surrender charges, some are higher and/or last longer than others, and few have any "cash surrender value" during the first two years). It would be a shame to lose $100,000 or more because of that.
Additionally, some WFG agents are well known for misrepresenting life insurance as something better than a qualified retirement plan, using words such as "TAX FREE" repeatedly when they mostly mean tax DEFERRED, and you may discover that there are more favorable Universal Life policies at lower cost from many other life insurance companies.
WFG agents also talk about how they represent 20-30 of "the largest insurance companies" but they tend to place business with only two of them: Western Reserve Life and Transamerica, because both of those are owned by WFG's parent company, Aegon.
If you were also told that your policy will develop enough cash value in a short period of time to "pay for itself" (such as after seven years), don't believe that either. Such statements are in direct conflict with the language of the contract, and are based on a policy illustration using a rate of return that is probably unrealistic.
Your need for life insurance is probably genuine. But your choice of product at this time to provide for your need might have been influenced by an agent who has placed his/her own best interest ahead of yours. That should NEVER be the case. The client's well being should always be the most important part of the transaction.
Your policy will take two to four weeks to be underwritten and issued. Once you receive it, you will have at least ten days to read it, or have someone experienced in analyzing insurance contracts read it and explain it to you, in order to understand what it promises to do, how it works, what your responsibilities to the contract are (you may be required to pay a much greater amount of premium in the future to keep your policy in force).
Then you can decide whether to keep it or not. If you return the policy within those ten days, you will receive a full refund of all the premium you paid without deduction of any policy charges or other penalty (if your policy is a "variable" universal life contract, you will receive the actual market value of the separate account, plus any sales and/or administrative charges or cost of insurance that were deducted, but the full refund may be more or less than the initial deposit due to market risk).
Some life insurance agents, but not all, spend most of their time during a sales presentation (and again at the time of policy delivery) talking about all the positive things the policy can do. All policies have their good points, and these are good to know about.
Rarely, however, do they spend any time talking about the DISADVANTAGES in that same policy that must be discussed in order for the owner to make an informed decision to accept or reject the policy. All insurance contracts have a number of disadvantages.
EVERY contract -- not only insurance contracts -- has both positives and negatives. When the positives outweigh the negatives, the contract is probably acceptable. But, for some people, just one negative can outweigh all the positives, and cause them to reject the contract. Here's a real example that happened to many families:
Would you buy a home built directly on top of a toxic waste dump if you knew it? The home might be beautiful and meet all your requirements in every other respect, but the potential for other problems caused by the toxic waste underground might be enough of a disadvantage to lead you to decide not to buy the house. What if you didn't find out about that for 10-20 years? How would that make you feel?
Before you make a final decision to keep the policy from WRL, you need to identify all the disadvantages in the contract and make sure you are completely comfortable with them. Once the ten day free look period has passed, unless you can prove material misrepresentation, concealment, or fraud on the part of the agent and/or insurer, you will not be entitled to a full refund of the money you initially paid.
Feel free to email me with any questions you may have.
Posted: Thu May 10, 2012 04:39 am Post Subject: LSW FlexLife
Anyone familiar with First Financial Services ?
Told me my wife (29) would be looking at $60K/yr in tax-free policy loans from an IUL projection based on 8.5% avg gain, if she bought a $200/mo policy and funded until age 67.
Shows $91,200 in total premiums; TCV = $455,093; TDB = $537,010 and can start tax-free policy loans of $60,685. Projection taken to age 119. If she died at age 98yrs, TCV= $5,286,065; TDB= $5,338,925. Will have received $1,941,920 in tax-free policy loans. $5,338,925 - $1,941,920 = $3,397,005 in income-tax free Death Benenfits passed to her beneficiaries. Policy with Life Insurance Company of the Southwest and is their FlexLife policy in particular. Also, projection shows :
Minimum Monthly DBPR Premium $96.96 (minimum premium that can be paid ?)
Minimum Annual DBPR Premium $1,163.52
Target Premium $1,973.29 ( My annual minimum goal ? )
DEFRA Level Premium $2,401 ( MEANS WHAT ? )
MEC Premium Limit $7,156 ( MEANS WHAT ? )
Guideline Single Premium ( MEANS WHAT ? )
Modal Premium $200
Rate Class : Verified Standard NT
Thanks Max, or anyone else with the knowledge !!
Seems people have questions but no one putting up full info like above from a projection by an agent.
Posted: Thu May 10, 2012 05:18 am Post Subject:
Their Interest Crediting Strategies are :
Fixed-Interest
Point-to-Point, Cap Focus Index (100% partic. w/ 14% Cap)
Point-to-Point, Participation Rate Focus Index ( 140% partic. w/ 12% Cap)
Point-to-Point , No Cap Index ( 80% partic. w/ NO Cap)
Point-to-Average Index ( Index beginning value = 1000, daily avg = 1100, Index Growth = 10% [(1100 - 1000 = 100) / 1000 = 10%
They state: The Index Strategy earnings are credited and locked in annually. Once interested is credited it can never be lost due to a decline in the Index. NO INDEX STRATEGY EARNINGS ARE CREDITED FOR FUNDS ALLOCATED TO THE INDEX STRATEGIES FOR PERIODS SHOTER THAN A FULL YEAR.
Policy has 2 loans options:
Variable Net Cost
Fixed Net Cost
Further states:
As long as the policy stays in-force until the death of the insured, policy loans remain tax-free income. If the policy were to lapse prior to death, a portion of the loaned amount may be taxed as income to the policy holder. (Anything beyond the Basis I assume ?)
Note: Loans and withdrawals will reduce the policy's death benefit and cash value.It may also become necessary for you to resume premium payments if the policy's cash value is not sufficient enough to cover the monthly fees and cost of insurance charges. (How do I avoid this ? By over-funding like a policy holder should with an IUL ? Is this where the MEC Premium Limit comes into play ? )
Posted: Thu May 10, 2012 05:25 am Post Subject:
$200 per month will not do what they claim. Plain and simple.
DEFRA level premium is the amount you could pay every year and possibly expect the policy to last to age 121. It may or may not happen. Taking the loans later in the policy always affect the future performance of the contract, often in a negative manner. If nothing else, it reduces the death benefit by the amount of the loan plus unpaid interest.
MEC premium is the only one you should pay attention to. That's also known as the 7-pay premium -- pay more than that each year in the first seven years (or more than that total in the first seven years) and you will not be able to do ANY of the "tax-free" crap they told you -- because you won't have a life insurance policy as you thought. Once a policy becomes a Modified Endowment Contract, it is essentially irreversible. The IRS has allowed a relative handful of folks who demonstrated that their MEC was the result of an inadvertent mistake to undo the mistake. For all the others . . . tough luck.
Guideline single premium is the most you can pay the first year to avoid a MEC. It's also an important number.
Both the 7-pay and Guideline Single premiums are the ones you should consider paying. They won't promise any of the things you were shown in the illustration, but it's better to "fully fund" a UL policy early, than to get the big premium surprise later in life when you may not be prepared or able to pay it.
But look at the difference: the MODAL premium ($200 per MONTH) is what the agent led you to believe will be worth $5,000,000+ in the future, and how does $2400 per year compare to $7156? Yep, 1/3 the amount you should be paying to try to make the policy work.
First Financial Services
andPolicy with Life Insurance Company of the Southwest and is their FlexLife policy in particular
Oh yes. Mark Colbert and I are currently working up a class action suit based on these policies and illustrations. That might tell you something.
Taking $60,000/year out beginning at age 67 with only $500,000 of cash value will not lead to a $5,000,000 death benefit in 52 more years. When you say "Funded to age 67" . . . were you told -- or in any way led to believe -- that you won't have to pay any premiums after that? If you were, Mark and I would definitely want to talk to you about it.
Posted: Thu May 10, 2012 05:35 am Post Subject:
I'm lost on the MEC Premium Limit.
I can put the $7,156 into the policy annually for 7 seven years ?
Or $50,092 TOTAL over 7 years ( 7,156 x 7 ) ?
What would we be looking at doing that instead ?
Yes, the projection shows her paying $2400/yr from ages 29 to 66, then $0 for the remainder of her life until age 119.
I assumed he got those numbers using the 8.5% for the projection.
What are IUL's historical average since they have been available ?
Posted: Thu May 10, 2012 05:52 am Post Subject:
$7156 - $2400 = $4756
If I fail to put that extra $4756 per year for those first 7 seven years, can I come back with the $32,292 and place it all on the policy, say in year 8 ?
Posted: Thu May 10, 2012 05:53 am Post Subject:
If the policy were to lapse prior to death, a portion of the loaned amount may be taxed as income to the policy holder.
"May" is NOT the right word to use. The IRS WILL assess income tax on EVERY PENNY borrowed PLUS unpaid interest that exceeds the cost basis. IN ONE YEAR -- the year of policy lapse. Makes no difference to them that you are totally disabled, blind, deaf, and/or about to die (although if they waited until after you died, they might collect even more through estate tax).
So think about this: $91,200 in premiums to age 67. $60,000 borrowed in that year. Loan interest? Let's be generous (in your favor) and say 5%. At the end of the year you owe $63,000. Don't have to pay it. Borrow another $60,000 at age 68. End of the year, you now owe $129,150 ($3000 interest on the most recent $60,000 plus $3,150 on the unpaid $63,000 from last year). You're already $37,950 over the cost basis. Every additional dollar of "tax-free" loan beyond that point and the unpaid interest is a potential tax liability if the policy lapses.
What do you think might happen in 7-8 years, at age 75 or so, when you have no cash value remaining and get a premium due notice for, let's say $10,000 to keep the policy in force for just one year? Let it go? Well, how does paying income tax on $500,000 or more sound to you at age 75? Where will that money come from?
If you need TAX-FREE money in retirement, the way to have it is put that $2400 in a Roth IRA every year.
But wait! Why not put in the whole $5000 you can put in this year? And every year. At age 67, your account would have been funded with $190,000 and with any amount of positive growth in all the 38 years, will be worth more than that. Using the same 8.5% straight line rate of return, the account would be worth $1,411,391.23. With 0% interest after that, you could take out $60,000 per year for the next 23 years. With a nominal interest rate of a few percent in retirement, the money would last even longer. But who's going to want to be alive at age 90 or 100 in 40 or 50 years from now when the minimum income tax rate is 50% and the maximum tax rate is 90%?
The really hard part . . . getting 8.5% EVERY YEAR for 38 years. No one's ever done that, no one is likely to do that. But with the ups and downs of the stock market, an AVERAGE rate of 8.5% is not unrealistic.
Being invested in the stock market, through Index ETFs or low cost Index mutual funds (such as Vanguard's S&P500 fund) is VERY DIFFERENT than giving control of your money over to an insurance company for their pie in the sky.
Posted: Thu May 10, 2012 06:01 am Post Subject:
$7156 - $2400 = $4756
If I fail to put that extra $4756 per year for those first 7 seven years, can I come back with the $32,292 and place it all on the policy, say in year 8 ?
Possibly. It depends on which MEC test the policy is based on. With Cash Value Accumulation test it might not be, with the Guideline Premium Test, it might.
Large lump sum payments into any UL policy can be problematic. You always have to calculate what the maximum amount you can put into the policy is. Make a mistake, and the IRS doesn't have to give you a do over. And with all the money we now owe to the world, they might not be inclined to even listen to your request.
Posted: Thu May 10, 2012 06:04 am Post Subject:
Found that from 1998 - 2008,Index products have averaged +5.91%
Posted: Thu May 10, 2012 06:10 am Post Subject:
During that time, the REAL return for Index products was +74.19%
S&P averaged -0.84% and REAL return was -29.83%
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