by Guest » Wed Feb 16, 2011 10:10 pm
I would like to get the opinions of some the insurance experts on this forum regarding a life insurance proposal. An insurance agent (who is a family friend) has proposed an Indexed Universal Life policy from Pen Mutual. The agent is selling it as a retirement investment. Some of its features are:
• Indexed to the S&P500
• Lower cap of 2% and an upper cap of 13%
• Loan rate of 6% with loan participating in returns
• Loan rate of 0% with loan not participating in returns
• Life insurance benefit of $2.8 million in the proposal
The agent is proposing investing heavily up front (the model he illustrated has $50k, $50k, and $35k the first three years and then $15k each year after that until age 65). Note, I would not put that much money into it, but I would front load it if I were to do it. He is then proposing to begin loaning from the policy in year three and reinvesting the money back into the policy; in the model it is $60k of loans each year. The idea is to leverage the money since you can loan at 6% and get an historic average return of about 8%. In good years you could make up to 7% on the loan value (13% cap - 6% interest); in bad years you would lose 4% (2% floor - 6% interest); and on average make 2% (8% historic average – 6% interest). The model shows a huge growth with the 8% average return that would allow tax free income (loans) at age 65 to 100 of around $690k per year.
He claims this is a low risk proposal. On paper it seems like a great way to save for retirement; my company recently cancelled the 401(k). I have done a lot of research on life insurance; particularly on if life insurance is a good investment for retirement. There are reputable sources/people with good arguments both for and against using life insurance as an investment. I cannot decide if it is or is not a smart choice. This particular proposal seems to be a more aggressive plan to use life insurance as an investment.
Is this proposal a good way to save for retirement? Is it very risky?
Thank you.
• Indexed to the S&P500
• Lower cap of 2% and an upper cap of 13%
• Loan rate of 6% with loan participating in returns
• Loan rate of 0% with loan not participating in returns
• Life insurance benefit of $2.8 million in the proposal
The agent is proposing investing heavily up front (the model he illustrated has $50k, $50k, and $35k the first three years and then $15k each year after that until age 65). Note, I would not put that much money into it, but I would front load it if I were to do it. He is then proposing to begin loaning from the policy in year three and reinvesting the money back into the policy; in the model it is $60k of loans each year. The idea is to leverage the money since you can loan at 6% and get an historic average return of about 8%. In good years you could make up to 7% on the loan value (13% cap - 6% interest); in bad years you would lose 4% (2% floor - 6% interest); and on average make 2% (8% historic average – 6% interest). The model shows a huge growth with the 8% average return that would allow tax free income (loans) at age 65 to 100 of around $690k per year.
He claims this is a low risk proposal. On paper it seems like a great way to save for retirement; my company recently cancelled the 401(k). I have done a lot of research on life insurance; particularly on if life insurance is a good investment for retirement. There are reputable sources/people with good arguments both for and against using life insurance as an investment. I cannot decide if it is or is not a smart choice. This particular proposal seems to be a more aggressive plan to use life insurance as an investment.
Is this proposal a good way to save for retirement? Is it very risky?
Thank you.
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