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: Tue Feb 15, 2011 02:04 pm Post Subject:
What's the difference between VUL with all of the money going into the fixed account and UL? The basic answer is nothing.
I CANNOT BELIEVE I READ THAT! You must be insane. I explain it as FEES + FEES + FEES on top of fees. That's no small difference. And at least UL comes with a minimum guarantee. The VUL "guaranteed" account has no minimum guarantee. That's no small difference, either.
And why not add, "What's the difference bewteen VUL, UL, and Whole Life? The basic answer is nothing" ?? Since that is apparently what you believe.
You state, the policy should perform into her 90s. With WL, the policy performs FOREVER. What good does it do if her VUL with everything in the "Guaranteed bucket" lapses for lack of cash value (due to the ART premium) on the day before she dies?
Best to keep your identity anonymous after all, I guess. [/quote]
Posted: Tue Feb 15, 2011 02:27 pm Post Subject:
Max, you are wrong. The fixed bucket in the contract does have a guarantee.
As long as the insurance company stays in business and no money is removed fromthe contract, there is no "should.". It is guaranteed.
If she lives past 95, there maybe no coverage. She is aware of this. She is also aware that we could have guaranteed this longer for a lower death benefit. Everything has a tradeoff. With Wl, for ex, if she dies today, it would mean a much smaller death benefit. I like what we did, she likes it, and her kids and her CPA and attorney...everyone except max.
Posted: Tue Feb 15, 2011 09:31 pm Post Subject:
Max, I'm done with this person. He's answered my questions in the same way Primerica agents would and this scares me. Personally, I applaud him and hope he continues to sell lots of insurance to our nation's senior population (except VUL and ROP Term). Agents like this add to my job security.
Posted: Tue Feb 15, 2011 11:59 pm Post Subject:
Insinvestigator, so you are another one who can't admit when they are wrong? Can you quote anything that has been said in context that is wrong without adding your assumptions? I doubt it.
Posted: Wed Feb 16, 2011 06:06 am Post Subject:
Hello Mr. Small, thanks for the feedback.
Are you serious? Have you been following this thread? Are you licensed to sell insurance in any state?
Ok, you're obviously going to make me work for this one:
A registered person can't sell a registered product and not call it an investment.
VUL must be called an investment.
In Middleton et al v. Metropolitan Life, a case brought in The Circuit Court of the Thirteenth Judicial District of the State of Florida.
Metlife encouraged and trained its agents to market its Variable Life Insurance policies as "retirement plans," "savings plans," or "investments." Metlife knew, but failed to disclose, that a multifunded life insurance policy is an inferior means of long-term wealth accumulation compared to bona fide investments such as annuities and mutual funds.
Engaging in the misrepresentation of a VUL policy, as an investment, is unlawful, unfair, and a fraudulent business practice in violation of Business and Professions Code section 17200, et seq. This is just one of many cases currently on the books.
However, I am a fair man. If I have made a mistake, and the courts are wrong, I will personally send AFFLAK a written apology.
After he explains why the courts are wrong, all he has to do is send me his name, address and insurance license number and I will issue a written apology. I cannot be more fair than that.
A registered person can't sell a registered product and not call it an investment. An insurance agent can't sell insurance and not call it insurance. VUL must be called an investment. VUL must be called insurance.
Posted: Wed Feb 16, 2011 06:10 am Post Subject:
Oh, I forgot:
Can you quote anything that has been said in context that is wrong without adding your assumptions?
Would you like to know one of the really great things about being qualified as an Expert Witness in the business of life insurance? My assumptions and opinions are admissible in court.
Posted: Wed Feb 16, 2011 09:58 am Post Subject:
Mark, your reading comprehension absolutely blows. Alternatively, maybe you are just choosing to ignore anything that doesn't agree with your pre-conceived notions.
WTF? Seriously, you want to treat me like some guy who is out selling VUL as a retirement plan when I think that it absolutely blows and typically will end up with the person having no insurance and no investments so I don't use the product.
Are you trying to win a mythical court case against me or are you trying to get to the truth?
When you only include part of my quotes, you are being intellectually dishonest. Is there a reason why you are chosing to ignore the parts of the quotes that said that VUL must be called insurance?
VUL can't be sold as a retirement plan. I agree that the court case is correct. The court case did not say that one can't use the term investment. It can't be marketed as an investment while ignoring the insurance. The prospectus still uses the term "investment".
What is VUL? It is annually renewable term coupled with an investment. The term is either level term or decreasing term. If we are talking about the product as a whole, both the terms "investment" and "insurance" must be used. To ignore the term "investment" will get one in trouble with FINRA. To ignore the term "insurance" will get one in trouble with one's state insurance department.
Posted: Wed Feb 16, 2011 10:27 am Post Subject:
That's sweet of you, your willingness to privately apologize. Is that because you aren't capable of publicly apologizing?
Posted: Wed Feb 16, 2011 07:32 pm Post Subject:
Can you quote anything that has been said in context that is wrong without adding your assumptions? I doubt it.
Mr. Small posted a question and I answered it. Fortunately, I have an entire room full of legal documents, Opinions, books and case law that I can use to do so.
I agree that the court case is correct.
Good, we're making progress.
Are you trying to win a mythical court case against me or are you trying to get to the truth?
Does it really matter? You've challenged me and I will use tools recognized by the Superior Court, FINRA, the SEC, IRS, and whatever else I'll need to meet that challenge. If you were an 80 year old disabled senior who'd just found out your investments/life insurance agent wasn't completely honest and you had lost everything, I would be the answer to your prayers.
WTF? Seriously, you want to treat me like some guy who is out selling VUL as a retirement plan when I think that it absolutely blows and typically will end up with the person having no insurance and no investments so I don't use the product.
But YOU DID sell this product - that you continue to claim "absolutely blows" is bad, and you do not approve of, to a senior citizen with health issues (I can go back and post your exact words, if it will help you remember).
You cannot argue the fact; As a security, the sale of a variable life policy must be found by the insurer to be suitable for the buyer. Wouldn't it be advantageous if the agent believed it as well?
The court case did not say that one can't use the term investment. It can't be marketed as an investment while ignoring the insurance.
I'll give you 50% credit on this one because you hadn't a clue what the case was about. The plans in question were sold as "Investments with a life insurance rider." The court frowned on this terminology.
What is VUL? It is annually renewable term coupled with an investment. The term is either level term or decreasing term.
Let me get this straight: It is your belief that a Variable Universal Life policy is either a level or decreasing renewable term policy coupled with [an] investment?
Who gets to decide which type of term policy (level/decreasing/YRT) is used within the VUL plan?
Let's get away from insurance for a minute.
History books will tell us that between 1939 in 1943, an entire generation of German children were raised believing that all Jews should be executed. These were the children of the Hitler youth and this is what they were led to believe since birth. After the war was over, a large number of these children committed suicide - some tragically, still believing their Fuhrer was correct. These children would rather die than face someone else's version of the truth.
There are still small communities in and around the Appalachian Mountains where children, from the time they are born, are taught that African-American people should still be held in chains. Counselors have found many of these children/people unable to accept the fact that society does not agree with them. Still, many of them will take this belief to their grave.
I have personally attended life insurance seminars (A.L. Williams, Primerica, WFG, and others) where there was almost a cultish atmosphere. These people are absolutely steadfast in their belief that term insurance is for everyone and no one should ever own a cash value product. Some of these people would rather fight than admit they are wrong. Professors of Insurance Law and Theory, actuaries, MBAs, Insurance SIU members and investigators - they believe we're all wrong and they're right.
Pick one of these categories and jump into it because these are the classes of people I deal with all the time. In this format, Max and I cannot help you and, because of your training (or lack thereof) you will take your beliefs to the grave.
I know for a fact you've never witness someone's great-grandmother cry because the life insurance she's paid on for more than 50 years is lapsing because of a dishonest agent and she'll have nothing to leave her grandchildren.
And I'm very certain you've never had a Superior Court Judge, who'd been told he lost nearly $1.3 million to a dishonest VUL agent, place his entire insurance portfolio in your hands - confident in your ability to help him.
I will not apologize to you, publicly or privately, because you have failed to show that I (or the court case) was wrong.
If you had done so, I would have kept my word and issued you a public apology - right after I received the information I requested.
Posted: Wed Feb 16, 2011 08:16 pm Post Subject:
There is a point that you seem intent to completely ignore. Sure, I don't like VUL. I don't like the investment risk inside of an insurance product. I think that M&E expenses that increase as the insurer's actual risk go down is complete B.S.
However, when the only thing that is used is the fixed account, this policy has no investment risk and it has no M&E charge. What's the difference between how this policy works as it is being used and how a traditional UL product works? The answer is none except for the fact that the guaranteed interest rate is higher AND she was able to get standard rates.
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