Variable life recommendations
It’s tough for me to not just completely beat up this idea. Let me at least strongly suggest that if he is buying a variable policy, he is much better buying “variable life” instead of “variable universal life”. If it is a VUL policy, there should be an expectation that the policy is going to lapse in the future, so all money taken from the policy will ultimately be taxed as income.
I understand what you are saying about the risks of using VUL as a true insurance policy, and making minimum contributions. I have seen several of those policies either blow up or be in danger of doing so. But in this case, we are going to be stuffing in as much cash as the IRS will allow. If we are maxing this out for the next 10 years, how is it going to lapse?
I’m going to respond on regreps dot com instead of here.
Wow, and I was really looking forward to that answer. It’s a shame that you aren’t using a good thread like this one to actually add some value to this site.
Spaceman, I’m not doing that to be a jerk. Rather, he posted in both places so I’m going to keep my responses in one place.
I’ve seen VUL policies do just fine when they’re properly funded. The ones that implode are those that were sold with minimum funding by an insurance agent only looking for a commission, imo. Or if the agent doesn’t understand how to set up a decent asset allocation.
As you pointed out, it can make sense as a shelter for malpractice awards, and you can find policies that don't have astronomical fees, yet offer a broad choice of subaccounts if you look. Don't you have an insurance brokerage you can use? If you do, you can ask for quotes from several carriers with all things equal (all "preferred"/standard/etc., all for $1MM DB, all projected at 8%, etc.) this way you can effectively compare apples to apples. Whichever carrier's policy is predicted to have the most money at say, age 65 will likely have the lowest operating costs. If said policy also offers an attractive array of investment subaccounts for you to put together a good asset allocation, then that's probably what you're looking for.I do have an insurance brokerage I can use, but my understanding is that they only deal with fixed products and all variable goes through my broker dealer. That means if I want a quote from ING, I need to call ING. I also need to call Pac Life, Met Life, and everyone else under the sun. I was hoping for some direction, such as “Met Life has low insurance cost and good subaccounts, you should check them out”.
Even if I can use the insurance broker, I believe the guy we are using is taking a very healthy cut off of the top, so I would just as soon go direct to the insurance companies. I know that some of our fixed annuities pay about 1/2 of what some of the rest of you get, and I have no control over which guy I use, I'm stuck with him (nice guy, but alot more expensive than some of his competiton). I assume if he was able to give me variable life (and I don't know if he even can), he would be taking a couple of percent of the commission. My main problem is that I don't know where to start, other than randomly pick 10 insurance companies and ask them for a quote.[quote=anonymous]Spaceman, I’m not doing that to be a jerk. Rather, he posted in both places so I’m going to keep my responses in one place.[/quote]
Why would you pick Bobby’s clubhouse to post valuable insights like that? Are you still a loyal member of his cult?
[quote=EDJ4now]I do have an insurance brokerage I can use, but my understanding is that they only deal with fixed products and all variable goes through my broker dealer. That means if I want a quote from ING, I need to call ING. I also need to call Pac Life, Met Life, and everyone else under the sun. I was hoping for some direction, such as “Met Life has low insurance cost and good subaccounts, you should check them out”.
Even if I can use the insurance broker, I believe the guy we are using is taking a very healthy cut off of the top, so I would just as soon go direct to the insurance companies. I know that some of our fixed annuities pay about 1/2 of what some of the rest of you get, and I have no control over which guy I use, I'm stuck with him (nice guy, but alot more expensive than some of his competiton). I assume if he was able to give me variable life (and I don't know if he even can), he would be taking a couple of percent of the commission. My main problem is that I don't know where to start, other than randomly pick 10 insurance companies and ask them for a quote.[/quote] So, in other words, you'd like to implement a strategy you have no clue about, will probably blow up in your face, and cut a broker out (that probably gives you your best shot of closing the case) because he'll get a cut of the commission. Maybe he's more expensive than his competition 'cause, well, he's that much better? I don't know which irritates more: the sheer arrogance or the sheer ignorance.Why don't you follow along on the other site? Oh, wait......[quote=anonymous]Spaceman, I’m not doing that to be a jerk. Rather, he posted in both places so I’m going to keep my responses in one place.[/quote]
Why would you Pick Bobby’s clubhouse to post valuable insights like that? Are you still a loyal member of his cult?
Why don't you follow along on the other site? Oh, wait......[/quote][quote=joedabrkr] [quote=anonymous]Spaceman, I’m not doing that to be a jerk. Rather, he posted in both places so I’m going to keep my responses in one place.[/quote]
Why would you pick Bobby’s clubhouse to post valuable insights like that? Are you still a loyal member of his cult?
Because I was banned for failing to bow to the Tyrant of the Realm, Hater of all CFP's.
Why don’t you just use a variable annuity? Sure the money comes out taxed at ordinary income rates, but you eliminate alot of uncertainty that VUL poses.Also as far as VA fees go, do the math as far as the money being in a taxable account, getting 1099’d on every asset allocation rebalance, some of it short term gains taxed at ordinary income, vs tax deferred. (Earn interest on taxes instead of paying taxes on interest.) Does this person even need life insurance? Annuities are also sheltered from lawsuits in most states. The only VUL’s I’ve seen are ones that have blown up. Cash value life insurance for asset accumulation is almost always a bad idea, unless it is going to fund a buy sell agreement, key man, etc.
The VUL is basically a 1 year renewable Term with mutual funds attached to it. If you over fund it and properly allocate, it should not "blow up". This will grow tax deferred and the money inside of it can be withdrawn for retirement tax free. For example after 20 years...the client takes a loan each year for 20K, the loan interest rate may be 6%, but the client is credited back 6% so he really never has to repay the loan. Warning...if you do not leave enough value in the policy to keep the insurance in force, the client WILL have an huge tax bill.
I work for Met so I only use Mets VUL…the funds available are pretty good and it will rebalance.
[quote=Start] The VUL is basically a 1 year renewable Term with mutual funds attached to it. If you over fund it and properly allocate, it should not “blow up”. [/quote]
That’s an awfully big ‘if’ don’t you think? Especially down the road, say when they are 70, simply covering the escalating premium cost of ART insurance will be incredible, never mind over funding.
OP was not sure that annuities were creditor protected in his state. So a VA may or may not be appropriate. Since when is investing in tax-deferred accounts like a VA always good? Do you know what income tax rates will be when the client gets ready to withdraw money? Do we know the client wants to lock the money up until 59 1/2? I agree about VUL - expensive ART plus expensive investments = poor BTID (even worse that it's BTID at all). Works great on paper, but as soon as the investments don't return the bullshit illustrated 8%, well, ooops.........."Gee Mr. Client, we need $20k more or this thing will blow up." Don't think it won't happen. It happens ALOT. OP did not mention the client wants high growth potential. Maybe WL is more appropriate because it takes on less risk. Hell, the client is taking on enough risk as it is, what with running his own business and all. WL is, on an after-tax basis, a phenomenal savings tool. Note, I did not say "investment". And since when should life insurance be considered an "asset accumulation strategy" if it's a key-person/buy-sell situation? That makes not a bit of sense. The death benefit is the most important thing in these senarios. I don't know the client, but I can guaran-fucking-tee he could use more insurance. 99.9% of the population is lacking the appropriate amount of life insurance. Seeing as the client is a doctor, my guess is he's in debt up to his eyeballs. Like many doctors I've encountered. To the OP - drill down - we don't have enough info on this client to make a clear recommendation.Why don’t you just use a variable annuity? Sure the money comes out taxed at ordinary income rates, but you eliminate alot of uncertainty that VUL poses.Also as far as VA fees go, do the math as far as the money being in a taxable account, getting 1099’d on every asset allocation rebalance, some of it short term gains taxed at ordinary income, vs tax deferred. (Earn interest on taxes instead of paying taxes on interest.) Does this person even need life insurance? Annuities are also sheltered from lawsuits in most states. The only VUL’s I’ve seen are ones that have blown up. Cash value life insurance for asset accumulation is almost always a bad idea, unless it is going to fund a buy sell agreement, key man, etc.
Not to mention the triple whammy of: Yearly Increasing COI + withdrawals during a down market + A DOCTOR (who won't continuously over-fund - they're too spend-happy) = A shitstorm of epic proportions. Did I mention I hate the words "should not blow up" and "life insurance"? What an oxymoron.........[quote=Start] The VUL is basically a 1 year renewable Term with mutual funds attached to it. If you over fund it and properly allocate, it should not “blow up”. [/quote]
That’s an awfully big ‘if’ don’t you think? Especially down the road, say when they are 70, simply covering the escalating premium cost of ART insurance will be incredible, never mind over funding.
I work for Met so I only use Mets VUL...the funds available are pretty good and it will rebalance
Start, before you sell another VUL, you better to be able to answer the following question. What is the COI at age 70? Age 75? Age 80? Age 90? etc. If you don't know the answers, you have no business selling the product. If you do know the answer, you wouldn't be selling the product.
[quote=anonymous]
I work for Met so I only use Mets VUL…the funds available are pretty good and it will rebalance
Start, before you sell another VUL, you better to be able to answer the following question. What is the COI at age 70? Age 75? Age 80? Age 90? etc. If you don't know the answers, you have no business selling the product. If you do know the answer, you wouldn't be selling the product.
[/quote]You can get VUL products now that have a no-lapse rider built in to the product. Doesn't that protect against some of these issues?
You can get VUL products now that have a no-lapse rider built in to the product. Doesn’t that protect against some of these issues?
Not really. This really only helps if you are using the VUL strictly as a death benefit product. The problem is that VUL isn't good for a death benefit only sale. I'm not a fan of BTID, but using reasonable assumptions, you'll see that BTID always beats VUL, so why would VUL ever be appropriate?Should not "blow up", this is based on equities folks, so if he is in a brok. acct. you cannot say "this account will never lose money". I am cma by saying "should not" no one can predict the future.
Once the client becomes older...and the COI increases the money can be rolled tax free into a VA. There is no other acct. that allows tax advantaged withdraw before 59.5, and he is fully funding a 401K currently. Just as a side note, I am not a huge fan of VUL's, though if a person IS maxing 401K and (if eligible) Roth, IRA is fully funded, it can be appropriate for the right client.Should not "blow up", this is based on equities folks, so if he is in a brok. acct. you cannot say "this account will never lose money". I am cma by saying "should not" no one can predict the future.
I'm willing to bet that you've never seen an older VUL that was not in danger of blowing up. I've been doing this a lot longer than you and I've NEVER seen one. VUL is one of those things that may work in the laboratory, but not in the real world. Once the client becomes older...and the COI increases the money can be rolled tax free into a VA. Sure they can. The problem is that one would have significant more more money if they would have purchased term insurance and invested the money on their own. At death, doing it your way, they would lose the step up in basis. There is no other acct. that allows tax advantaged withdraw before 59.5, and he is fully funding a 401K currently. There is no tax advantaged withdrawal. One can simply remove their basis. All gains are taxable as income. I challenge you to make up any scenario that you would like in which a VUL would beat BTID using the same funds. Overpriced insurance combined with overpriced investments combined with ultimately all gains being taxed as income combined with human nature dooms VUL.I am sure you have been doing this longer than me I am not disputing that, though I doubt you have seen every VUL and even if I did (see one in good shape) would you believe me?
BTID...This is not a discussion about which is better...this a Dr. who wants to put money aside (not insurance) so that he can access it at any time. This is tax advantaged because the insurance is paid from the gains...not the basis. In addition...if IF there is enough cash value as I stated earlier, you can take out even the gains as long as you leave enough money in to keep the policy in force. The withdraw is considered a loan, i.e. you have a 6% interest rate on the amount taken and you are credited 6% back it is a wash.though I doubt you have seen every VUL and even if I did (see one in good shape) would you believe me?
Have you seen one that has been in existence for a long time and wasn't in danger of lapsing? I haven't and I've seen hundreds. this a Dr. who wants to put money aside (not insurance) so that he can access it at any time. Then how does it make any sense to put the money into a product that has huge surrender charges, huge front end loads, and large insurance costs? This is tax advantaged because the insurance is paid from the gains...not the basis. Insurance, which he doesn't want, is paid from writing a check 1st. The withdraw is considered a loan, i.e. you have a 6% interest rate on the amount taken and you are credited 6% back it is a wash. Take loans from a VUL and you've drastically increased your chances of having the policy lapse.I actually have seen one that has averaged a 10% return, this was started in 2001 and done by my current mgr. will that trend continue I don’t know. The older VUL’s that you are talking about, what were the funds available to them? Did they rebalance? The COI is now less than it was due to the mortality charts being changed, since people live longer.
Aside from that you said earlier that all gains are taxable as income...which is untrue which makes me skeptical of how much you know about VUL's? The loans can be used as retirement income. Increasing your chance of lapsing due to loans? What else would you have a VUL for? It is designed as a way to take money out, there would be no other reason to use it. If you just needed ins. you would be better off with a UL or WL or term. Finally you are saying that it is impossible for a VUL to work and I am saying it is possible. Especially for what the poster is needing it for. That is my last post of the weekend, I will now watch college bball.I actually have seen one that has averaged a 10% return, this was started in 2001 and done by my current mgr. will that trend continue I don’t know.
2001 doesn't qualify as an older VUL policy. Averaging 10% a year for 6 years doesn't mean too much. How much money would there be if the money was invested directly into funds? (Hint: The answer is much more.) If your manager is selling VUL's, you need a new manager. The older VUL's that you are talking about, what were the funds available to them? It depends on the particular VUL. Did they rebalance? If the client wants them to rebalance. The COI is now less than it was due to the mortality charts being changed, since people live longer. Yet, they still charge significantly more than they charge for term insurance. The problem is that people with term insurance can take advantage of the drop in term premiums, but someone with VUL often can't. It's not like the insurance company lowers the COI for existing clients. Aside from that you said earlier that all gains are taxable as income...which is untrue which makes me skeptical of how much you know about VUL's? Ok, please tell us how realized gains are treated. The loans can be used as retirement income. Yes, they can, but when loans are combined with increasing insurance costs, they can be very dangerous. This is doubly true when money is borrowed and the market goes down. Try running an illustration that shows a loan and a negative investment return at the same time. You'll won't sell another VUL. Increasing your chance of lapsing due to loans? What else would you have a VUL for? It is designed as a way to take money out, there would be no other reason to use it. VUL mostly benefits the insurance company and the agent. If the idea is to take money out, you have to compare it to BTID and you'll see that VUL will ultimately provide both significantly less cash for the insured and less of an inheritance for the beneficiaries. VUL is a lose/lose proposition. Finally you are saying that it is impossible for a VUL to work and I am saying it is possible 1) It is possible that it won't blow up. The insured just has to make sure not to live too long. Otherwise, VUL only works in the laboratory and not with real people. I'm willing to bet that you can't come up with a single scenario in which VUL is better than BTID using the same funds.Start, let's try to understand this MetLife VUL. Let's look at the cost for a 40 year old buying a $200,000 policy and contributing $250/month. <?: prefix = o ns = "urn:schemas-microsoft-com:office:office" />
$35 is going to an administrative expense (This decreases over time.)
$40 is paying for insurance (monthly charge of .2 per thousand for a 40 year old; this cost per thousand increases annually).
$6.25 2.25% sales charge
$5 2% state premium tax
$3.12 1.25% Federal premium tax
$89 total will go to expenses. $161 will get invested.
(Additionally .9% is going to come out for M&E based upon the value of the separate account. This is above and beyond the fund expenses.)
What happens if this same person buys term insurance instead? ART is as cheap as $12/month. Even if we go with a 20 year term, we are only talking about $25 month.
In short, we are looking at overpriced term insurance plus useless other monthly charges + .9% of extra expenses. How can this not suck?
Would you rather rather have $161 invested or $230 invested? Don’t forget that the $161 will also earn a rate of return that is .9% less if it is invested identically.
I see no way possible for VUL to not severely underperform.
By the way, if you would actually read the prospectus, you’ll see that the loan is not a wash. The loan rate is 6%. Money gets credited at 4%. The longer that one owns the policy, the less that they charge for the loan. After 20 years, the interest rate is only 4%. It sounds like a wash. It really isn’t. Why? Let’s say that $100,000 is borrowed from the policy and the policy still has another $200,000 of cash that is invested aggressively. $100,000 must be moved from the aggressive investment to the 4% account. This means that if the aggressive account earns 12% the next year, this move cost the investor $8,000 that year!
I’ve seen more than a few VUL policies work as well as projected or better. Those are the ones that were sold for the appropriate situation, with the appropriate funding, and received some semblance of advisor review over the years. To say that they all blow up “outside of the laboratory” is ignorant and cynical.
I've also seen several implode. These are the policies that were sold for a commission, engineered to make the premium palatable, which doesn't translate into a working longterm product. To the original poster: make sure that your policy that you propose to the doctor doesn't have a lengthy surrender period, since you mentioned that your client may want to access the cash value before retirement. Also, make sure this doctor really understands that this product will work as long as you do a decent job of allocating the subaccounts (if you illustrate it at 8%, then your portfolio needs to reflect that goal--never run it higher than 8%), he does the job of funding it appropriately, and that if he's not going to come in for reviews every so often for the life of the product, then he should forget it now. It's just like any other investment account: there really is no autopilot. That said, you may find a policy that offers a rebalancing service based on the clients' risk tolerance and goal. That's about as autopilot as you can get as long as it's funded properly. And whereas anonymous wrote that he's not a proponent of BTITD, I am. I think it makes sense for the majority of people's life insurance needs. But in this case, BTITD compared to a VUL for the doctor's needs is completely irrelevant. Also, it seems that anonymous conveniently forgets that term insurance lasts for a "term". Usually the longest being 30 years. Not a valid comparison. Yes, after a 30yr term ends, a client may be able to renew their policy, but this would most likely be cost prohibitive. Furthermore, a properly funded and allocated VUL will (in the long run) offer you one of the lowest cost life insurance options. A portfolio of mostly equity subaccounts will most likely increase in value more and faster than the returns you make in a fixed or semi-fixed "permanent" life insurance product, at least on a long-term basis. In anonymous' last BTITD comparison he writes that "ART is as cheap as $12/mo". Uh, possibly, depending on the client's health, age, etc. And there are VUL products that offer lower expenses than the MetLife example. Also, if you're going to BTITD (which is inappropriate for the doctor's goals), and if you're investing the difference with me, there will be fees. They'll be more than the .9% M&E. Clearly anonymous has a pro-"wholelife" agenda." I see no way possible for VUL to not severely underperform. "
certainly you won't if you're trying your best not to see it. anonymous is writing a lot of BS on this thread. I'm not going to take any more time to Line Item rebut them today. But if he truly believes some of the stuff he's written, then his manager did a good job of brainwashing.I’ve seen more than a few VUL policies work as well as projected or better.
Me too. These people are all in their 30's, 40's, and 50's. It's doubtful, that they'll work as they expect when they are taking money out in their 70's and the market goes down and their investment money goes into the "loan account" to cover the loans and the COI is high. A VUL performing better than projected doesn't have any real meaning: Ex 1. A client is funding a $1,000,000 policy with $200/month. The policy was illustrated at 8%. The policy has been averaging 10% a year. It is performing better than illustrated. We still know that it will blow up at some time. Ex 2. A client is funding a $1,000,000 policy at close to MEC levels. The policy is performing better than illustrated. The client goes through some tough times a few years in the future and needs to stop his premium payments for a few years and then funds it at a lower level. The policy blows up in the future. Ex. 3 The client funds the policy properly. It averages 8% as illustrated. The client is older and starts to remove money. At the same time, the market takes a dive. The policy blows up. Is it possible for a policy to not blow up? Sure, if everything goes right. Even if everything goes right, it doesn't make sense. Why? It's going to underperform buying term insurance and investing with Big Taco. (The cost of insurance is significantly higher. There is a 5.5% in up front costs on both the insurance and the investments. The investment costs are higher. I'm guessing that Big Taco charges a fee and "all in" his clients are paying 1.3%. With the VUL, the investments are costing 1.7%.) Big Taco, or anyone else, I challenge you to give an example of how VUL can beat BTID. "And whereas anonymous wrote that he's not a proponent of BTITD, I am. I think it makes sense for the majority of people's life insurance needs." Don't confuse buying term insurance with BTID. I'm a huge propenent of term insurance. I just happen to think that the concept of BTID isn't understood and doesn't make sense. I certainly agree that for most people, most of their insurance should be term insurance. Also, it seems that anonymous conveniently forgets that term insurance lasts for a "term". Usually the longest being 30 years. Not a valid comparison. Don't confuse the period of time that a premium stays level with the term of the insurance policy. Regardless, I didn't "conveniently" forget anything. Isn't a big part of the idea between both VUL and BTID is that the cash eventually replaces the insurance? Fully fund a policy and 30 years into the future, the cash value or the investment "side fund" should be greater than the original death benefit. The problem is that with a VUL, one must continue to pay insurance costs. With BTID, the term insurance can be dropped. With VUL, one is now paying the rates of a 70 year old. "Also, if you're going to BTITD (which is inappropriate for the doctor's goals), and if you're investing the difference with me, there will be fees. They'll be more than the .9% M&E. " Very true. However, your fee + the fund expenses should be less than the M&E + fund expenses of the VUL. Even if they are the same. They don't pay a front end charge with you. They pay 5.5% in front end charges with the VUL regardless of how much is invested and they get charged this on money that goes to administrative expenses and on money that is paying for insurance." I see no way possible for VUL to not severely underperform. "
certainly you won't if you're trying your best not to see it. I'm begging you to show me how VUL can overcome all the additional costs and not underperform. Why am I in favor of WL and not VUL? It's pretty simple. If you take investment dollars and put it into a VUL instead of buying term and investing it aggressively, it will ultimately hurt the client and his family. If you take savings/conservative dollars and put them into WL instead of buying term and saving it/investing it conservatively, it will ultimate help the client and his family. You see, I don't like the concept of BTID because it is savings/conservative dollars that belong in a whole life policy and not investment dollars.I forgot to mention what happens at death. After all, this is life insurance.
Joe buys a VUL and pays $1000/month for $1,000,000 of coverage. Tom buys a 30 year term policy for $50/month and invests $950/month. Both policies are $1,000,000. Both Joe and Tom die in 20 years. Joe's family collects $1,000,000. Tom's family collects $1,590,000. This assumes an 8.7% return. (It is true that one can structure a VUL policy that the cash value increases the death benefit, but in practice this is rarely done because the cost of insurance is too high.)If your broker/dealer has a selling arrangement with Principal Financial Group then you should research their VUL. It is designed to provide coverage for high income individuals who have a limited amount of tax advantaged investment options. It also has built in mechanisms to prevent policy lapse from withdrawals/loans. They also have excellent fund/subaccount management.
The Principal policy atomatically converts to a lesser face value paid up policy when approximately 95% of the account value has been withdrawn/borrowed.[quote=ContactSport]If your broker/dealer has a selling arrangement with Principal Financial Group then you should research their VUL. It is designed to provide coverage for high income individuals who have a limited amount of tax advantaged investment options. It also has built in mechanisms to prevent policy lapse from withdrawals/loans. They also have excellent fund/subaccount management.
The Principal policy atomatically converts to a lesser face value paid up policy when approximately 95% of the account value has been withdrawn/borrowed. [/quote]Right, and when you're looking at the product, make sure you also consider Principal's long standing reputation of sending in their reps to cannibalize business referred by other firms.
Phoenix and Prudential have similar products, without the risk of getting screwed by your own vendor.
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