by Guest » Thu Feb 10, 2011 06:52 am
I have a single-premium whole life policy that I purchased for $100,000 a few years ago. If I understand it correctly, it has a $450,000 face value, and the additional premium has been applied towards purchasing an additional insurance rider each year. The annual premiums are a little over $15,000 annually, and the premise on which the policy was sold to me was that the annual dividends and extra premium that I paid originally would be sufficient (at least under then-current projections) to not only pay the premiums each year but to build up substantial cash value in the policy as I grew older. The policy was really intended more as an investment vehicle than a life insurance policy, and I don't need any additional insurance beyond the face value amount; I was told that the additional rider is being purchased from the extra single-payment proceeds that I used to buy the policy in order that it not be considered a MEC.
At some point last year, my agent had me fill out a form that authorized the insurer to take out a loan against the policy itself in order to pay that year's annual premium, and then authorized me to use ALIR to pay back the loan. (I confess that I did not and perhaps still do not understand this transaction.) In any event, I received a Form 1099-R this month indicating that I received a distribution equal to the amount of my annual premium payment plus the interest on the loan. Of course, I never received any cash distribution, so I am now looking at having a tax liability on $15,000 plus of phantom "income," which does not please me.
Can anyone explain to me why this was considered a taxable event and what I should be doing in the future to make sure that it does not happen again? Did my agent advise me incorrectly in using a loan against my policy in order to pay the annual premium? Was/is there some other alternative for paying the annual premium that should have been used and that should be used in the future?
Thanks in advance.
At some point last year, my agent had me fill out a form that authorized the insurer to take out a loan against the policy itself in order to pay that year's annual premium, and then authorized me to use ALIR to pay back the loan. (I confess that I did not and perhaps still do not understand this transaction.) In any event, I received a Form 1099-R this month indicating that I received a distribution equal to the amount of my annual premium payment plus the interest on the loan. Of course, I never received any cash distribution, so I am now looking at having a tax liability on $15,000 plus of phantom "income," which does not please me.
Can anyone explain to me why this was considered a taxable event and what I should be doing in the future to make sure that it does not happen again? Did my agent advise me incorrectly in using a loan against my policy in order to pay the annual premium? Was/is there some other alternative for paying the annual premium that should have been used and that should be used in the future?
Thanks in advance.
Posted: Mon Feb 14, 2011 09:57 pm Post Subject:
fjakfja,
I certainly have to give you credit for one thing; that is your undying determination to not take a stand on aything. "Well, the sky might be blue and then again, it might be grey. It all depands on where you are standing. If you said it was blue, I could argue because it isn't blue where I am - therefore you would be wrong. If you said is was grey, I could argue because it is blue from my point of view and again, you would be wrong. I wouldn't necessarily be right but you would still be wrong."
Let me see if I have this straight: In 20 years of being an insurance producer, part of that as a licensed rep, you have sold one (1) ROP Term Policy and one (1) VUL policy - which you may have sold as an investment with a life insurance rider, or a life insurance policy with an investment side fund.
You do not work for Primerica so we can assume you have sold some form of permanent insurance. This leaves several types of universal life, whole life, whole life blends, equity indexed life policies (which you don't need a license to sell) and, of course, annuities.
For the sake of argument, we will not nit-pick through the five or six different types of universal life, for example, let's just acknowledge their existence.
Can you guarantee that a 70 year old with some health issues would be around for the long term?
Define "Long Term" for me.
Term + a side fund might do better
.Better than what?
I/We don't know. You don't know.
If we are clear in your assumption that "nobody knows nothing" what [exactly] are you arguing?
That's the legal way of asking what the hell you're talking about.
It certainly can't be used for someone who doesn't want the risk.
Define "It". Are you referring to some sort of policy?
Her poliocy (policy) is guaranteed until she is well into her j90's. (90s). It works for her.
Again, which type of policy are you referring to and what did you represent at the time of sale? Can I speak with "her" about this policy you claim to have sold?
Posted: Tue Feb 15, 2011 01:53 am Post Subject:
Let me see if I have this straight: In 20 years of being an insurance producer, part of that as a licensed rep, you have sold one (1) ROP Term Policy and one (1) VUL policy - which you may have sold as an investment with a life insurance rider, or a life insurance policy with an investment side fund.
I sold it as life insurance. I explained to her and her children what VUL is, and explained why I don't like it and that all of the money was going into the fixed account.
Define "Long Term" for me.
Max said that whole life would be better. My point was that the initial death benefit with WL is smaller, so WL would only lead to a higher death benefit if she lived long term. Unless the dividend scale went up significantly (and it has gone down), long term would be longer than the person's life expectancy.
Posted: Tue Feb 15, 2011 01:59 am Post Subject:
Max was also arguing that term + a side fund in an S&P 500 fund would outperform the policy. By "perform", I am talking about leaving behind more money at death.
The "better than what" is the single premium VUL policy that she purchased. It isn't an assumption that "nobody knows nothing". It is reality for this type of situation.
Gladys buys a single premium whole life policy.
Sara buys a single premium VUL policy with all of the money in the fixed account.
Mary buys a 20 year term policy and puts the difference in a mutual fund invested in the S&P 500.
Max argued that choices 1 & 3 are better. I'm the one speaking honestly that we don't know. Choice 2 certainly beats Choice 1 if death is sooner rather than later. Choice 3 wasn't even a possibility.
Posted: Tue Feb 15, 2011 02:00 am Post Subject:
The "it" that you are asking about is Max saying to use an S&P 500 index fund and I'm saying that it can't be used for someone who isn't willing to take investment risk.
Posted: Tue Feb 15, 2011 02:08 am Post Subject:
Again, which type of policy are you referring to and what did you represent at the time of sale? Can I speak with "her" about this policy you claim to have sold?
I already told you. It was a VUL policy. We did it with a single premium with 100% of the money going into the fixed bucket. At the guaranteed level, the policy will last until her mid-90's.
Mark, yeah, you can talk to her. I'll just call her and see what she says. "Hey, client, do you mind if some stranger calls you. He thinks that I may have done something less than kosher to trick you into buying the life insurance policy."
My belief is that life insurance is for the death benefit. I sell tons of term insurance. I sell a fair amount of whole life insurance. I sell some UL at a secondary guaranteed level primarily for folks 60 and older. Amount of insurance is far more important than type of insurance.
Posted: Tue Feb 15, 2011 02:11 am Post Subject:
Mark, you need to understand that most of my posts are in response to Max speaking in absolutes. For instance, he says that there are no interest rate guarantees in a VUL policy. This would be true if the money wasn't in the guaranteed account.
Posted: Tue Feb 15, 2011 04:47 am Post Subject:
I sold it as life insurance. I explained to her and her children what VUL is, and explained why I don't like it and that all of the money was going into the fixed account.
Let me see if I understand your sales technique here:
Hey, Client and children, I detest this particular product, do not agree with the way its money is internally distributed, but I want you to buy it so I can earn a commission - sign here.
Oh, by the way, an Insurance Fraud Investigator, who owns the #1 spot on Google and has worked with both the CA Dept of Insurance and the CA State Attorney General's Office would like to speak with you about some remarks I made on ampminsure.org. about the way I sold your policy. See how easy that is?
If there wasn't a problem with the way you presented the policy, everything will be fine and you'll be a hero. If not, somebody's going to be upset with you. How confident are you? Are you willing to take that chance?
Unless the dividend scale went up significantly (and it has gone down), long term would be longer than the person's life expectancy.
You are NOT going to get an argument from me on this one. I agree that "long term" could be considered longer than a person's life expectancy. By the way, which COS table did you use to arrive at this brilliant conclusion?
I wish you had made this statement during a deposition so I could get a better feel for what you're talking about here - have you ever been deposed in a life insurance fraud investigation?
Max was also arguing / Max said / Max saying / Max speaking /etc. / etc.
I'm certain that none of my questions for you began with "What did Max say?" I asked for your views and understanding regarding several issues and you conveniently passed it all back on Max. I think I'm safe in my belief that Max didn't sell your clients anything. I'm concerned, however, that you might not have had the client's best interest in mind when you made the sale.
By "perform", I am talking about leaving behind more money at death.
Again, you are absolutely correct. The only "good" life insurance policy is the one in force when the insured's heart stops beating.
I sell tons of term insurance.
Do you have any idea what the percentage is of term policies that result in death claims? Would you believe me if I told you it was less than 2%? Have you ever told your clients this fact?
Gladys buys a single premium whole life policy.
Sara buys a single premium VUL policy with all of the money in the fixed account.
Mary buys a 20 year term policy and puts the difference in a mutual fund invested in the S&P 500.
I'm asking you; If each of these policies has a face value of $500,000, whose beneficiaries would get the largest non-taxable benefit if the insured died in ten (10) years? Let's leave Max out of this one.
Mark, you need to understand that most of my posts are in response to Max speaking in absolutes.
I disagree with this statement. In my opinion, Max has correctly explained what is widely accepted as the Industry Standard, as defined by NAIC. Although I am convinced you believe every single point you've made and/or argued, to at least a few of us your positions have been baseless and unfounded.
My intention has not been to attack your credibility and/or insurance knowledge. I'm sure you've been a very caring and conscientious agent to all of your clients, and will continue to do so.
Please understand my position. I have spent the past 17 years defending policyholders against agents whose sales methods / representations are less than honest - and I've gotten pretty good at it.
Posted: Tue Feb 15, 2011 11:53 am Post Subject:
Let me see if I understand your sales technique here:
Hey, Client and children, I detest this particular product, do not agree with the way its money is internally distributed, but I want you to buy it so I can earn a commission - sign here.
Mark, are you intentionally being an idiot? I have all sorts of problems with VUL as I have mentioned. If you can read, I also said that 100% of the money is going into the fixed account. What's the difference between VUL with all of the money going into the fixed account and UL? The basic answer is nothing.
In this case, the guaranteed rate in the fixed account was higher than we could get in any fixed product and the carrier is the only one that we could find that didn't give her a substandard rating.
The product may be a VUL, but the reality of the situation is what she has is identical to a single premium UL product with a death benefit guaranteed to age 95.
Posted: Tue Feb 15, 2011 12:05 pm Post Subject:
Oh, by the way, an Insurance Fraud Investigator, who owns the #1 spot on Google and has worked with both the CA Dept of Insurance and the CA State Attorney General's Office would like to speak with you about some remarks I made on ampminsure.org. about the way I sold your policy. See how easy that is?
If there wasn't a problem with the way you presented the policy, everything will be fine and you'll be a hero. If not, somebody's going to be upset with you. How confident are you? Are you willing to take that chance?
Yep, I could say that. Her response would be, "Should I talk to him?" My response would be, "Don't waste your time."
Seriously, what kind of agent would I be if I went out of my way to have a fraud investigator who is intentionally twisting my words contact my clients?
You have some ego if you think that after talking to her and agreeing that the sale made sense, it would somehow turn me into a hero. The family and their CPA and their attorneys already know me and are very thankful for the work that I have done for them.
If you are out there and are helping to stop fraud where it exists, I admire what you are doing. However, if you are simply looking to find fraud, be awfully careful because it’s probably pretty easy to find it where it doesn’t exist. If you don’t understand what I mean, use this thread as an example. You so much want me to be doing something wrong that you are choosing to interpret things in not only the worst possible way, but are making up things that don’t exist like my conversation with my client.
Posted: Tue Feb 15, 2011 12:14 pm Post Subject:
I wish you had made this statement during a deposition so I could get a better feel for what you're talking about here - have you ever been deposed in a life insurance fraud investigation?
Nope. I've never had a complaint of any type.
Do you have any idea what the percentage is of term policies that result in death claims? Would you believe me if I told you it was less than 2%? Have you ever told your clients this fact?
The 2% figure is what I always here bantered around. I assume that it is fairly accurate. So what is your point? Term insurance isn't designed to insure against death at any time. It is designed to insure against death during a certain time period. This is why it is fairly inexpensive and it does a great job of this.
I would make a lot more money if all of my clients bought whole life insurance. A whole life purchase is a terrible decision if it results in too little death benefit and/or a policy lapsing because of high premiums.
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