This was originally published on June 3, 2013, and it continues to be one of the most-discussed topics we’ve covered during those years.
The idea continues to be teased and promoted actively by Tom Dyson and his folks at Palm Beach Letter, sometimes using different names, so we’re re-posting it for those new readers who might be interested… the idea is now sold partly as a secret strategy used by Warren Buffett, Joe Biden, Wall Street Bankers, and other notable names… but the basic idea and the type of “bank on yourself” life insurance policy they’re pitching is unchanged (yes, I expect Buffett probably has some whole life insurance, since essentially all wealthy people use life insurance as part of their estate tax planning, and Berkshire Hathaway has engaged in life settlements/secondary life insurance investments in the past).
While you’ll still sometimes see it teased as the 770 Account, or as the “World’s Most Notorious Asset,” it’s mostly now being teased as the “702(j) Account” (just another mysterious-sounding number, like 770, that refers to the part of the IRS code that deals with cash-value life insurance)…
…the story otherwise hasn’t changed much, here’s our original article…
—-from 6/3/13—-
“Imagine an account that…
“Lets you retire 100% tax-free
“Is NOT reportable to the IRS
“Pays you an average of 5% per year
“Has paid out, on average, for 121 straight years
“And which, unlike traditional retirement plans like IRAs and 401(k)s, lets you withdraw money anytime you like, for whatever reason you like, and with no penalties whatsoever.”
That’s what Tom Dyson and a few other folks who sign their promo letters are promising in the latest pitch for the Palm Beach Letter, which he publishes with Mark Ford. It’s all about an account that’s been used by the uber-wealthy for generations, and by “at least six different U.S. Presidents,” including John F. Kennedy and FDR, whose pictures grace some of the ads to provide gravitas, to generate “IRS-exempt” income for retirement.
So what’s the story? Well, Dyson calls it the “770 account” to make it seem mysterious (why else, of course, would you buy the newsletter?), but, frankly, it’s plenty mysterious on its own even if you don’t give it a sneaky name. More on that in a moment.
In fact, this kind of “Account” is already being touted by lots of skeezy-sounding infommercials and books whose promises make you very suspicious — they come with names like “Bank on Yourself” and “Infinite Banking.”
That’s not to say that any of the heavily marketed versions of these plans are skeezy, just that their promises give me that feeling, and the numbers and specifics for plans like this come usually only when you’re sitting in an office with an agent. “Skeezy”, by the way, is defined by your friendly neighborhood Gumshoe as a combination of “sketchy” and “sleazy.”
But what they’re talking about with those plans, and what Tom Dyson is pitching for his newsletter, is life insurance.
Not just ordinary term life insurance like most people under 60 carry, though — we’ll get to that in a minute. First, a bit more of his tantalizing teasing:
“Manhattan’s Secret Vault: Why Wall St. has kept this powerful secret hidden from you
“There’s a very good reason you’ve never heard about the “770” account before:
“That’s because Wall Street doesn’t want you to know about it!
“And neither do the big banks too, for that matter. (More on this in a minute.)
“Now, even though this is the investment account The Wall Street Journal is on record as saying is better than 401(k)s and IRAs… the majority of Americans don’t know it exists.
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“Well here’s a clue…
“I just got off the phone with an insider who works in the 770 industry. This person has worked first-hand with one of America’s biggest financial gurus (a name you’d instantly recognize), as well as several employees from Goldman Sachs and other big investment banks.
“And this is what this person said to me: NO ONE in Wall Street has their money in stocks—many of them are invested instead in ‘770’ accounts!
“Now, consider what this means…
“Here are the same investment professionals who’ve been telling us for years to “buy stocks”… and meanwhile… they’re all putting their money somewhere else!
“Ridiculous.
“Can you imagine the outrage this would create if most people found out about this?
“That’s why you’ll never hear your broker mention this investment to you, no matter how much money he (or she) has parked into it.”
We get a lot more in Dyson’s ad about the safety of these plans, and about how the big banks have tons of their own capital tied up in these plans (that’s true, by the way — banks have massive life insurance assets called “bank owned life insurance” or BOLI, they take it out on their top employees and it’s a large portion of their core capital), and Dyson’s reiteration that he has been putting increasing amounts of his own family’s money (20% of his net worth) into these accounts and getting a safe 5.5% yield … and it’s money that he can take out whenever he wants to by borrowing against it without penalties.
So what he’s talking about is not just life insurance, but probably a specific class of permanent life insurance that’s called “whole life.”
And it’s not really life insurance, not in the way those of us with term life insurance policies think of it (making sure your family’s not destitute if you die when your kids are young, or your mortgage has 20 years to go), it’s more of a wealth protection and tax-avoidance savings policy.
Whole life insurance is an agreement between you and an insurance company that they will pay out a certain amount of money when you die, and the agreement never expires as long as you keep paying the premium. That obviously means the premium is far larger than with a term life insurance policy, since a term policy expires at some point — term life insurance almost never pays out, so it’s cheap. You can pay $25 a month for $500,000 of 20-year term life insurance if you’re 35 years old, which is obviously cheap, but that’s because you’re young and healthy and the insurance expires when you’re 55, well before you reach the highest mortality risk years.
Whole life insurance does have that insurance portion, in that if you die in the early years of the policy there’s a death benefit that probably exceeds the money you’ve put in. But it’s not really for that — it’s set up to accumulate your death benefit over time. So if you want a $500,000 policy and the actuaries think you’ll die in 35 years, your premiums plus whatever returns the insurance company can earn on those premiums will have to add up to $500,000 in that length of time, plus whatever the insurance company wants to make as a profit. Life insurance companies do not generally do crazy investing or earn great returns in times of low interest rates, and they know pretty precisely when their insured people will die (for a large group, on average) so your premiums would likely be pretty stiff.
But that’s if you’re thinking about it as insurance — much of your premium goes into building a cash value for the insurance policy, and if you buy your policy through a mutual insurance company (like State Farm, or many others) that’s owned by the policyholders, and you get a “participating” or dividend-paying policy (meaning you get a dividend from the insurance company when they make money), then your cash balance can compound nicely and provide what are effectively decent investment returns that are indeed tax-advantaged. I don’t know whether the 5.5% gain that Dyson is expecting is typical or not.
Life insurance is often used by families who have some wealth to pass some of that wealth down to the next generation without taxes, and it doesn’t have accumulation limits that I’m aware of, like tax-advantaged retirement plans that restrict the amount you can put in every year — for most people contribution limits are a theoretical concept, but for the upper middle class and the wealthy the cap of 25-50 thousand a year across various retirement accounts is a bother.
So the key aspects of this, from what I can tell, are that you would want to buy whole life insurance, that you would want to have a participating or dividend-paying policy, and maybe even, if Dyson is following the same track as folks like the “Bank on Yourself” people, that you want to maximize the amount of savings you put into the plan (these are often called “paid up additions”) to increase your potential dividends from the mutual company and the growth of the account over time. The maximizing and “be your own bank” stuff is all about putting so much of your net worth into these policies that you do all of your big purchases (like buying cars, etc.) by borrowing from your policy. But of course, to do that you have to be the kind of person who can put a substantial amount of money aside for these large premiums as your “forced savings” plan.
And the reason it’s confusing, even if you don’t call it a “770 Plan”, is that these are complex contracts, they’re not standardized across different insurance companies, and from what I can tell you can only really buy them through an agent, whose commission structure may drive him in a different direction than you want to go. There are many, many variations and riders on these policies that I have only seen briefly mentioned, and I don’t know how most of them work — I suspect that they’re difficult to compare across providers, which is a hallmark of most commission-driven, hidden fee businesses.
Life insurance has a reputation for being riddled with fees, and for permanent life insurance and whole life insurance like this, the articles I’ve read suggest that most of the policies start to make sense after 10-15 years, but they suck up substantial costs and fees that mean you might lose out if you needed to try to pull your money out before that. This is a small segment of the insurance business that’s focused mostly on the wealthy, and the stuff that Dyson seems to be talking about is probably better handled with agents who are specialists in this … preferably those who don’t also happen to market a skeezy “secret plan.”
That is an extremely non-expert view. I don’t have a policy like this and I have not researched them fully, I’m sure there are people with whole life plans and probably agents who sell these plans out there in the great Gumshoe readership who could probably explain it better (feel free to use our friendly little comment box below) — all I can tell you is that Dyson seems to be teasing participating/dividend-paying whole life plans as his “770 plans” (and no, I don’t know what the 770 refers to), and they are real, and I don’t know whether they’re a good idea for you or not.
P.S. As of November 2013 this is now also being teased as “The ‘Underground Wealth’ Account: How to Fund Your Own Worry-Free, 100% Tax-Free Retirement” — these “accounts” were pitched in a different Palm Beach Letter teaser ad that was mostly about silver, I covered that one here on November 7.
Anyone know why Mark Ford changed his name from XXX to Mark Ford? Is he hiding something from his past? What might he be running away from?
Curious minds would like to know.
From Mark Ford in the Palm Beach Letter about his name
“Many years ago, I advised some of my protégés—Paul Hollingshead, Don Mahoney, and Katie Yeakle—to start a business. They came up with the idea of teaching copywriting, since Don and Paul had both learned to be A-level copywriters under my tutelage.
They wanted the program to be based on my teachings. I agreed but told them that I didn’t want to be actively involved because I was very busy consulting and had no time to get involved. They said okay, but they still wanted to use my story. I said you can do that, but don’t use my name.
So they gave me a name—Paul Hollingshead came up with Michael Masterson. It wasn’t a lie. It was a pen name. (A very common practice in publishing, by the way.) Everything they said about me was true. At the time, we thought they’d use my story (as Michael Masterson) to launch the program and after that they could drop it.
What happened was that I became interested in that business and found myself writing for them and consulting with them. Since we had introduced me as Michael Masterson, we kept using that name. Several years later, when I started ETR, I kept using it, because by that time Michael Masterson was a brand.
Whenever I spoke at an AWAI or ETR conference, I told the crowd the story and gave them my real name. But this didn’t stop rumors from spreading around the Internet about my pen name. Some of those rumors were wild. I was this king pin of the mafia and all that. It was amusing.
Anyway, when I agreed to write for The Palm Beach Letter, I had already retired from ETR, so I thought I could now go back and use my real name. We have made it clear to everyone since then that Michael Masterson is Mark Ford.”
Back in the day of ETR they did try to keep the Mark Ford thing “secret”.
I remember one conference video where a speaker would refer to “Mark” and “Michael Masterson” would lean in and say “Michael”, “It’s Michael”.
It’s not like there was any dirty laundry associated with the name Mark Ford, but they seemed to try to keep the pen name alive as best they could for the duration.
Roger.
Michael is his pin name for writing books.
It’s “pen name”, also known as a “pseudonym, a “stage name”, a “nom de plume”, an “alias”, an “assumed name”, etc.; there’s no such thing as a “pin name”.
You know what she meant. You didn’t have to rub it in.
In the more advanced cultures where fabrication is the rule, the term is indeed “pin name.”
Back to the Life Insurance, or “770” account as you/Tom Dyson describe it. What you are referring to (I believe) is called an “Indexed Universal Life Insurance” policy. If written correctly, it is a “contractual” agreement between you and the Insurance Co to pay a death benefit when you die. But, there are certain benefits and disadvantages. First, only “buy” one of these if you have plenty of disposable income, i.e. you can pay the premiums and then wait for 15-20 years before you begin to withdraw funds. Having said that, I purchased one of these and this is the basic plan: 1. Guaranteed no loss of principle (see following) 2. The “index” is tied to the S&P 500 index (usually there are several different indexes to select), and the “index” is reset every year at the new S&P level. So, the only way your “investment” does not GAIN extra money is if the S&P was to go down every year, below your index point. 3. But, this is an indexed insurance policy, so you are guaranteed no loss. Also, my policy is guaranteed to increase AT LEAST 3% every year, no matter what the S&P Index does. However, if the S&P 500 increases more than the 3% minimum, you are paid the % increase of the index up to (capped at) 13% (my policy). 4. I have a separate annuity that funds the annual premium, estimated to last more than 20years. 5. I received a substantial “bonus” when I purchased the policy of 15%! (True!). 6. Yes, there is a penalty for early withdrawal of PRINCIPLE (penalty ends after year 10 or 15, depending on Life Insurance company). But, after the 20 year period (could actually be less, but for lower amounts of withdrawals) you can take “tax free” loans against the value of the Life Insurance (not the principle). As long as your withdrawals do not draw your life insurance to “0” value, you do not have to pay tax or repay the loans. 7. In the end. when you die, there may be almost nothing left in the account, but “so what”? Your objective here is to receive a free money stream (via loans) from your paid-up life insurance.
That is a short description of the so-called “770” account. The IULI is super, if you can afford the payments and can wait for approx. 20 years to begin taking your “tax free” loans. BTW, the policy is a “contract” between you and the Ins Co, so legally (hopefully) the US Gov’t cannot change the contract. But, never trust the politicians. See an insurance professional and ask about the IULI. It surely impressed me as a great way to guarantee future stream of income. Only downside is that you have to wait to begin your withdrawals.
That’s a helluva deal you got, if true. You can’t find anything remotely that good anymore in today’s interest rate environment. I’d recommend Pamela Yellen “Bank on Yourself” rather than Nash. However, she doesn’t tell you her favorite carrier because it’s her trade secret, as an agent, although I can say it isn’t an indexed product.
Using a whole life policy with paid-up additions, you can start taking loans as soon as there is cash value in the account. The current rate of return for whole life is equivalent to buying term insurance and investing the difference in a taxable mutual fund returning over 10% pre-tax.
This comes under the caption of “There is no free lunch”. The life insurance companies are not dummies. Interest is charged on the loan from the cash value of standard whole life policies. The loans also reduce the face amount of the policy. The interest rate on my whole life cash value is 8%
Check the wording here. “You can start taking loans?” Loans? Its YOUR MONEY! Why should the insurance company charge YOU money in a form of a LOAN for using YOUR money? Not much logic here. NEVER use Life insurance as an investment. Buy Term and Invest difference in an IRA.
David…If you are paying 8% on a loan on your policy and it affects your cash value and death benefit you insured yourself through the wrong company.
So I agree with the 770 plan which is part of the IRS 770 code.
I have one of these programs of insurance too. I just got my 14.5% payment
today on about 5700.00 sweet. I also am older and Life insurance takes more
of my money then I would like. But a 250,000 dollar policy with additional paid
up premiums and 14.5% capped is not bad. The loan interest rate is 4% and although
the money from the loan does not come out of your money, your money still grows at
the capped amount each year. So unlike a 401K loan, your money still grows.
I will be able to take loans out in a couple years from now. not 15 to 20 years. However
the amount will go up more in 15 to 20 years for borrowing. I think it is a fair insurance
bank on yourself, whatever you want to call it. I first heard about this plan from E.V.G. then from the PBL, but found a local agent here in my city to actually get the program.
Thank you for your time.
Larry
In the “whole life” environment, I assume that you are depleting the cash value of your whole life policy when making withdrawals or loans. The explanation of the Universal Life policy was that you are depleting the face value of your death benefit.
I’m assuming that is the difference in the whole life & universal life. You also mentioned buying term and investing the difference. In a whole life policy, the insurance company sets a cash value accumulation, but “investing the difference” is a whole different deal.
I had an account and was charged interest on my own money. I was told that if I borrowed from it, I would pay 5% interest and3% of the 5% would be returned to my account. Bulls**t.!!!! Travelers took my interest and kept it. Liars All. Said I did not read the fine print. Mistake I made was in believing the lying SOB who was my agent. ALL these agencies lie and take your money. No exceptions. NO FREE LUNCH.
I’d like to know a Mutual company paying with an equivalent 10% return. I don’t think in this environment there is any. On loans you are not borrowing your own cash out of the policy on an Indexed policy you are borrowing it from the company. There is a collateral assignment against the contract. While this may sound the same it is not. The loan does not have to be paid back. Also, what is in your account continues to earn whatever the return in the market was. Say the market made 10% and the interest rate was 5%. You had a 5% arbitrage. On the other hand if the market went down 20% you would stay a zero and still have the 5% interest accrued. Many of the plans have earned in excess of 7-8% back tested over 20 or more years and beat the S&P 500 over the last 10. The key is to structure the plan to minimize the cost and there is where you need an agent to make it work. I prefer IUL plans since I find them more flexible than whole life.
Please people, there is a huge difference between ‘principle’ and ‘principal’.
Use the correct word.
amagi
Where did you see the mis-spelling and mis-usage? Carefully scanned but could not
find.
Misusage was here:
Robert says: (September 1, 2013 at 12:25 pm)
“Back to the Life Insurance, or “770″ account as you/Tom Dyson describe it. …
1. Guaranteed no loss of principle (see following)”
mentioned twice here:
Robert says:
September 1, 2013 at 12:25 pm
Back to the Life Insurance, or “770″ account as you/Tom Dyson describe it. What you are referring to (I believe) is called an “Indexed Universal Life Insurance” policy. If written correctly, it is a “contractual” agreement between you and the Insurance Co to pay a death benefit when you die. But, there are certain benefits and disadvantages. First, only “buy” one of these if you have plenty of disposable income, i.e. you can pay the premiums and then wait for 15-20 years before you begin to withdraw funds. Having said that, I purchased one of these and this is the basic plan: 1. Guaranteed no loss of principle (see following) 2. The “index” is tied to the S&P 500 index (usually there are several different indexes to select), and the “index” is reset every year at the new S&P level. So, the only way your “investment” does not GAIN extra money is if the S&P was to go down every year, below your index point. 3. But, this is an indexed insurance policy, so you are guaranteed no loss. Also, my policy is guaranteed to increase AT LEAST 3% every year, no matter what the S&P Index does. However, if the S&P 500 increases more than the 3% minimum, you are paid the % increase of the index up to (capped at) 13% (my policy). 4. I have a separate annuity that funds the annual premium, estimated to last more than 20years. 5. I received a substantial “bonus” when I purchased the policy of 15%! (True!). 6. Yes, there is a penalty for early withdrawal of PRINCIPLE (penalty ends after year 10 or 15, depending on Life Insurance company).
Anyone who doesn’t know the difference between “principal” (correct usage in this context) and “principle” should consult an independent financial adviser before investing in a plan of this type (and probably before investing in anything else).
Just remember, the principal is my “pal!”
It’s there. I noticed it too.
ikky picky
And…principally unprincipled prisses motivated predominantly by pomposity.
It’s a basic principle of investing that you shouldn’t lose your principal.
I agree, it’s “ikky picky”. That being said, a person can still get the exact message. However, that may not be the case with certain other words when this happens. It could change the entire point of the message.
Bill; he still has the best reply (at this point, anyway).
I’ve spent all this time basically educating myself on the principle of investing and now the principal is leaving my institutionalized integrity. What?
I am wondering if my insurance wl I should keep it as I since got it have been
diagnosed with diabetes. I am not sure what the consequences would be to
cancel wl and replace with term. Would I still qualify for term ins.
Thank you
Lee, If you have diabetes and already have a WL policy, you would be foolish to cancel it and get term. The term would be more expensive because of your diabetes and depending on the severity of your condition, you may not qualify. This is one of the advantages of WL insurance – once you have it, the policy is guaranteed for life as long as you make your premium payments. Don’t let ANYONE tell you otherwise. Keep what you have my friend!
Never cancel a life insurance policy until a policy has been placed in force to replace it if you have any health condition. Diabetes is a condition which will cause an insurance carrier to increase the rating on a new policy as the risk they bear is higher. As it relates to this concept; if the policy is designed properly you can still take advantage of this “tax free retirement” tool. Both Whole Life Insurance and Index Universal life insurance are popular to use in this concept. The reason is that by borrowing “against” the policy to access capital it allows your capital to continue to grow by earning interest or dividends depending on the product. Advisors who understand this concept will design the policy in such a way to maximize the internal growth of the policy and you do NOT need to wait 15 years for the policy to be accessible. I have many of these policies that I use to help pay for college for our children while my money continues to earn a net tax free rate of 5% the before tax rate equivalent for anyone would depend on their tax rate. The point here is that this product is ideal to give an individual liquidity use and control of their money while earning a competitive rate of return, protecting their money from creditors or litigation and keeping their money tax free for retirement. With the current state of our national finances, where do you think tax rates will go? I would prefer to have an asset that is protected against the long arm of the IRS.
You don’t borrow again the “life insurance death benefit” only the cash value. Index UL and INDEX WL are very different too. Also cost of insurance continues is deducted even if the index makes 0%, the minimum 3% is average annual but if you have a few good index years you may have no interest added during a particular index term when the ends up at 0% if it averaged higher than the 3% up to that point. Insurance policies used to be great safe savings accounts but not so much anymore, because of the low interest rate environment couple with costs, which is why they turned to Index type products to try to earn higher returns. Loans are not tax free in the long run if the policy lapses or is surrendered before death. Only if paid out on death will the “accumulated loan be paid off tax free by using a portion of the death benefit amount”, anything else results in a huge TAXABLE GAIN equal to the loan plus interest ( over and above any cost basis the may be left assuming you didn’t “”withdraw the basis if it is a Index Universal Life).
So what you are saying is that all these “tax free loans” will have to be paid back somewhere along the line? We need some feedback from all these experts on this site.
Policy loans do not have to be repaid. They can be used to annuitize the policy. A financial blog is a terrible place to get reliable information about insurance. I have seen many incorrect statements in this thread. Go to agents from the top companies and ask about a whole life policy with maximum paid up additions. This will cut the agent’s commission about in half and will boost growth–if the agent balks, talk to another agent. A whole life policy can easily have a rate of return on the face value in the high teens (as a taxable equivalent yield) over the long haul. It also allows one to spend down assets more quickly and has other advantages. Just don’t try to get reliable information here–this is too important a decision for you to make without proper research.
Hello, I borrowed $1.500. from my whole Life term policy as my spouse lay dying from cancer ” which deluded him “Bills, included his insurances, a Gas, electric bills of $1500.and growing was PAID”. His delusions kept me destitute–and grown kids financially supported me until he died.
Traumatized, I failed to re-pay that loan on my policy- returned to haunt me . 1. My policy was dropped and the death benefit gone. 2. Worse–the entire amount of the policy was ADDED to my TAX as if INCOME EARNED–and I was FORCED to pay Taxes on that sum. 3. My mistake was failure to CANCEL the policy AFTER I got $1500. of my own money borrowed on 55year old insurance policy. To allow the Insurance co to cancel–really HURT during my bereavement and worst moment of my life. As of this date I have NO life insurance policy–period. Happily, the policy wasn’t $10,000 or greater which would have wiped me out. AFTER my spouse I learned his insurances expired due to Non payment of premiums while he was hospitalized ,others “aged out” so a $25,000 policy only netted $7,000. 00. So ripped by Ins, I don’t even WANT to buy homeowner policy–required by Crazy Cancer caused decision to exchange PAID in full HOME DEED to Equity loan, I will probably NEVER repay in full again. Too late I discovered I am MUCH better money mgmt. than spouse ever was. So, IF this 770 is tied to Insurance–Easy decision, Thanks but NO thanks.
Not sure if you are being deceptive, or you’ve been deceived, but I can’t begin to describe how little of the real story has been told in your above post.
IULI, while not a scam, is one of the worst deals in all of the insurance industry. And it is unquestionably the least transparent. While you are mostly correct in your basic synopsis of the policy structure, you left out most of the caveats.
1. Let’s start with the big one. THERE’S ABSOLUTELY NO GUARANTEE THAT YOU CAN’T LOSE MONEY! While it’s true that you can’t lose money due to market performance, the insurance contract has mortality, expense, and administration fees embedded in it that are deducted from your cash value. They increase as you age. If your guaranteed growth % isn’t high enough to overcome those costs, in years that the market performs poorly, your “principle” will decline. It’s a fact. Call the insurance company if you don’t believe me. Also ask them if they have the right to increase their annual insurance charges. Hint: they do.
2. Index products do tend to have a minimum crediting rate and a potential annual “bonus” that is dependent upon the S&P 500 or some other index or combination of indices. However, the insurance company doesn’t invest in the actual S&P500 index, it invests in the derivative markets of said index. As such, your return precludes dividends, which (since 1940) has made up roughly 25% of the average annual return of the S&P. When the market makes 10%, your IUL is toiling somewhere in the 7%-8% range.
3. There is a cap, which you accurately mentioned. In your case, 13%. If the market makes more than 13%, you don’t get the amount over and above. What you failed to mention is that the cap rate is almost never contractually guaranteed. The insurance company has the power to reduce the cap at their whim. And many have been doing so as margins thin in this low interest rate environment.
4. Similarly, there is a limitation called a participation rate, which you fail to mention in your post. Perhaps your participation rate is 100%, but that is rare today, and has always been a costly feature to add (it increases those charges mentioned in #1). In short, the participation rate is a limit on how much of your cash value is “participating” in the stock market. If you have a participation rate of 80% (which is common), and the S&P makes 10%, you’ll walk away with about 6% (remember, you lose the dividends, and then you get 80% of that remainder). Again, participation rates are not contractually guaranteed and can be reduced by the insurer.
5. The poster has a guaranteed 3% growth rate, but products these days are usually offering 0% or 1%. I’m not questioning your honesty, just pointing out that new investors aren’t going to get such a deal. There was a time when variable annuities offered 6% compounded annual growth too. But those days are long gone.
6. Most IULs run on an annual point-to-point market assessment. Meaning that if your contract is purchased on March 1st, the return of the stock market is measured from 03/01 to 02/28 each year. There’s no jumping out of the market mid year after a huge run-up, even if you are positive that a correction is coming. You only get to make a market adjustment during a small window near the time of your policy anniversary.
7. Speaking of the market, did I mention that it rarely earns between 3 and 13%. Most investors know that the market has historically made about 10% per year (again, including dividends, which the IUL folks aren’t getting). So an unassuming IUL investors foolishly looks at this product and imagines that he’ll make about the same. But in truth, the market varies widely and wildly. It may be +30% one year and -10% the next. Over the course of many years, that averages out to be a respectable number. But all those years of big returns are vital to the long-term average return. And for an IUL investor, the cap becomes their worst enemy. In bad years, they make almost nothing (but they also lose almost nothing). But in good years, they also make very little (que the participation and cap rates, minus dividends). And since there have been, historically, twice as many good years as bad, all that missed growth adds up. Anyone quoting IUL with an expected growth rate greater than 5% (before fees, mind you) is engaged in borderline criminal conduct.
7. IUL is popular because it is stock market based insurance that doesn’t require a securities license. As a consumer, doesn’t that just scare the ^%$# out of you? Insurance companies found a crafty way to allow those not qualified to sell investments to actually sell investments…! Yikes. FINRA and the SEC have been fighting for years to get these things reclassified as investments, but the insurance industry fights them because most of the folks peddling these products would lose the ability to do so. And those of us with securities licenses (I’m in the biz, fyi) are smart enough to realize that these investments are mostly trash.
8. Like I said, anyone that owns a calculator stays away from these things. Why? Because there are better alternatives. Variable life, for instance. Agents selling IUL love to harp on the market risk of variable universal life. But they conveniently ignore the fact that any market environment that tanks a VUL will also sink their precious IULs (just more slowly). On the other hand, during a positive market cycle, a VUL will outperform IUL in every way. For one, there’s no caps. There’s also no participation rates. Not to mention you get dividends, and can move in or out of the market at any time (you can also move investments within the market at your leisure). There is literally not one 10 or 20-year rolling market period since the Great depression in which an IUL would have outperformed a VUL.
A long post, I apologize. But someone needed to put all the cards on the table. For the record, I am a Certified Financial Planning practitioner that is fully licensed to sell all types of life insurance, including IUL. And I don’t make any more or less money by promoting VUL over IUL. So as someone that has the power to sell both, and has no vested interest in seeing VUL succeed over IUL, ask yourself why neither I, nor anyone in my firm, has EVER sold an IUL product.
good luck out there.
Note, you know about half as much as you think you do. There are many mistakes in your essay. Just a quickie – SEC and FINRA (formerly National Association of Security Dealers) have been fighting for requiring those who sell fixed-indexed annuities to be securities licensed so the security dealers can control the market instead of having to compete against it. It was NASD (now FINRA), led by Mary Shapiro, who was fighting for this non-sense notion that FIXED-indexed annuities are securities. When she went to the SEC, the SEC began the same fight. Congress rightly outlawed their self-serving effort. The key is that these products are FIXED-indexed products, which means they have no market risk and are clearly not securities. There has been so such fight on the FIXED-indexed life insurance products. NASD-FINRA has been waiting with that effort until after they got their way on the annuities. Congress put an end to the whole bad joke, and the security dealers will have to continue to compete with these innovative and, in many cases, excellent products. I would prefer that those who know a little quit pretending to know it all.
Malcolm, your post makes confusing, deceptive statements in order to discredit the truth about these insurance tricks. But what would we expect from the industry that consistently makes confusing, deceptive statements to its customers through its unlicensed, unregulated, commission-driven sales force?? You claim Nate made many errors, but you fail to question any of the points he makes about why actual returns will be far lower than advertised. You only try to smear the licensed, regulated professionals who tried to clean up the mess. You also get Nate’s name wrong.
Thanks for this thoughtful response. I’ve been researching EIUL for about two months now trying to make sense of it all. I also came across the banl on yourself program and read the book. I am self employed so I am looking for a fairly safe and predictable vehicle for my retirement fund with a decent return (at least 5%) and I’m hoping to avoid much of the volatility of the stock market that can eat up my account (wishful thinking huh?) The best part of these life insurance polices seems to be the tax deferred growth and tax free withdrawals (which also will not affect my social security benefits as taxable income.) They seem like they could be good vehicles but I also hear a lot of negative views on them. Can you recommend anything for me?? Thanks
Hi Nicholas,
I’m sorry it took me so long to notice your request. I’ll be happy to help you know as much as possible as quickly as possible. It will help a lot if we can have direct back and forth communication. Send me an email at mj@malcolmjensen.com and I’ll be happy to help you. Note that I sell all kinds of life insurance except the very risky variable life. I don’t need a sale to be happy. It would please me to be able to help you.
Malcolm
Thanks for this thoughtful response. I’ve been researching EIUL for about two months now trying to make sense of it all. I also came across the banl on yourself program and read the book. I am self employed so I am looking for a fairly safe and predictable vehicle for my retirement fund with a decent return (at least 5%) and I’m hoping to avoid much of the volatility of the stock market that can eat up my account (wishful thinking huh?) The best part of these life insurance polices seems to be the tax deferred growth and tax free withdrawals (which also will not affect my social security benefits as taxable income.) They seem like they could be good vehicles but I also hear a lot of negative views on them. Can you recommend anything for me?? Thanks
Nate I’d like to know more about what you would recommend instead of EIUL?
Nate:
I had to give you a thumbs up on your article, or explanation. However, there is one remark in Item 6 that I thought you should have worded differently, especially if you consider yourself a financial advisor. Stating that you are “positive” there will be a market correction should have been; everyone knows there will be market corrections. They just don’t know when. So being positive about a correction within certain timetables (a year), I think is just wrong. That being said, and getting back to the subject at hand, do you think these different insurance products can decrease a person’s taxes by getting tax free loans? Do you think this is tax free money and is better than an IRA or all the other retirement plans?
I disagree and have sold both plans. The Variable life plans carries more fees and is subject to down years like the 38% drop where and IUL would have had a 0% return. A properly structured IUL can drive total long term cost down to the 1-1.5% range a year and you can arbitrage when taken variable loans. I’d rather sell a IUL any day and not cause my clients heart attacks and worries, especially going into retirement. Been in the business over 30 years and a 6-8% tax free return over time is pretty good for a safe money investment in any book.
So – one can become a Certified Financial Planner without appreciating the difference between “principle” and “principal”? On “principle”, I would never entrust my “principal” to anyone who misused either word in a discussion. Also – one word on the return on whole life insurance – “demutualization”. Having policies with Prudential and Metropolitan, I am painfully aware of the impact on policies with mutual insurance companies who change their minds and become capital stock companies, especially the tax impact.
I decided to reply to this because it is very informative but also slightly skewed by opinion. Not that I disagree with the guarantee of 0-1% that the IUL actually has and the fees assessed during a downturn in the market. However, one area you failed to mention on the IUL is that a person has the ability to spread out the earnings over fixed, capped, and uncapped allocations. This % will vary with insurance carrier, but a 20+60+20 could give 20% of the money in 4.5% fixed with no cap, 60% at 7.12% not capped, and 20% at 7.22 capped at 9.12%. Each of these allocations allows the money to grow at different intervals while not losing. Now of course illustrations that consumers get only show the absolute worst vs. the absolute best based on the numbers provided. The IUL is only guarantees for 15 years if the policy owner puts in the minimum payments, which is just a waste of money. And on the other side of the scale, you have the over performance if all the money was dumped in annually this what it could look like. Now those numbers on the illustration will change depending on how the allocation was set up. To take this a step further, insurance is to protect against the risk exposure people may have in the event a life crisis should occur. Just because people arent educated about what they purchased doesnt make the policy they hold a bad policy. It makes the unable to make decisions based on the policy they hold because they do not understand the drawbacks or benefits of that policy.
As the lady stated above, she will never by insurance again because of a 1500 dollar loan she took out against her policy and she had tax implications of such. Well, that is scenario while may be true is missing quite a bit of detail as to what she had and how it was handled. Maybe the policy was over funded at a time, then the premiums stopped, once it was paid to zero there was a balance left on the policy of 1500 which then would be considered income because she didn’t keep the policy in-force. Her remarks that stated that she should have taken the 1500 and cancelled the policy is absurd because you dont get money for free, especially if you borrowed the money before the maturity of the policy, in which case it is a viable loan that needs to be paid back or it is subtracted from the death benefit if any. So need less to say, there are too many parts with too many important details left out that formulates an argument in which those who feel they were wronged will believe this as gospel. When the best thing to do is sit down with an agent and ask intelligent questions until you are clear on exactly what you are purchasing.
I have always been taught that your insurance policy is what it is….an insurance policy. Never invest using your policy because the Insurance Premium is always high due to the insurance being a annual renewable policy. Another thing, the savings in the policy are capped at the face value of the insurance policy. Normally, the insurance company will have you pay a set premium which is indeed manageable. But since the insurance premium increases every year. The payment will could out of the savings and your policy can eventually blow up on you. You are better off buy mini bonds or get a Roth IRA.
The premium for a whole life policy is fixed and never increases.
Also, the face value continues to increase during the life of the policy.
YES, RICH FAMILIES BUY THIS INDEXED LIFE POLICY FOR TAX FREE RETIREMENT , AND EVEN FINANCE THAT THRU BANK LOAN- INTEREST ONLY, 15 YEARS. IN CALIFORNIA AND FLORIDA AGENT CAN DO REBATING-IT IS LEGAL, SOME AGENTS GETS 100% PLUS COMMISSION-WELL THEY HAVE CONTRACT LIKE THIS ,SAY 115% COMM, SO YOU PAY 100K FOR 1ST YEAR, NEXT WEEK AGENT IS EARNING 115 000 COMM. WELL, THIS IS PRIVATE CONTRACT AGENT-COMPANY,SO IS PRIVATE, THATS WHAT THEY PAY THEM. CALL FOR FREE ILLUSTRATION,6614412214, IN CALIFORNIA, . PREMIUM FINANCING- POLICY HAS TO BE AT LEAST 2.5 MIL, OR BANK WILL NOT TAKE IT.
Please, please, please, it is not “principle” when you are speaking of financial matters. It is the “principal” referring to, for instance, the “principal” amount of a loan. Principle is something entirely different, and it has nothing to do with financial matters A “Principle” is a fundamental truth or proposition that serves as the foundation of a system of belief or behavior or for a chain of reasoning: Basic Principle of Christianity. It usually defines a rule or belief governing one’s personal behavior.
Robert,
I took out a Whole Life Policy back in the late 1980’s and still have it today. Within my policy, I have a built in growth of 4.5% per year regardless of the market but can rise with the market as you explained. I am nearing 30 years paying this and the closer that I get to retirement the better this LOAN is beginning to look! As I have said to others about any Whole Life Policy, it is NOT a short term return by any means. A person must be committed to a long term arrangement and if they do this and stay loyal, it will pay in the long run. Thank you for your explanation!
The so called 770 account is an excellent investment long term if you have at least twenty years to spare. and many are correct it is quite expensive. My wife contacted a company called Paradigm Life ( either a subsidiary of a larger corporation or perhaps one of several companies that are utilized to sell these whole life policies). My wife whom is currently 43 years of age was quoted a figure of $900 per month which would initially result in a policy of $850,000 (life insurance) and after 30 years the life insurance policy would increase to 1.8 million dollars and a separate cash value of $780,000. I cannot exactly recall what was stated about an initial cash value of approximately $300,000, however, this I cannot state positively due to my inability to remember exactly what was said. And by the way the 770 stands for the IRS Title 26 section in the U.S. Federal Code-section 770 states the tax exempt status of this particular policy. At least until Congress catches on and does away with this tax break.
If you want a detailed explanation of this, read Becoming Your Own Banker, by R. Nelson Nash. (available on Amazon)
thank you for sharing the info about the book…I will definitely check it out…as for ins., I took out a variable universal life policy with a reputable co., consisting of decent mutual funds, back in mid-90s…unfortunately, the FEES associated with it ate at the growth…and even though taking out loans to help several causes along the way were easy, repaying those loans to myself were not (not being in the “rich” category)…so between the fees and loan amounts, together with interest due that I never paid, it was wisest recently to surrender the policy before it imploded…I would be disappointed to learn that the 770 accnt is life ins. Tom, can you say if Becoming Your Own Banker infers that?
Hi SDL, you will find in Nelson’s book that the idea of Becoming Your Own Banker can be done with something even as simple as a shoebox. And that’s the important piece! But, yes insurance is generally the safest and most effective vehicle and is exactly what a “770 Account” is. If you want more info, I actually specialize in teaching people Nelson’s concept for Nowlin & Associates, a wealth management firm in Homewood, AL.
Why is the life insurance vehicle the most “efficient” way? The shoebox method might have a better return after all the fees & interest and repaying loans. It may be that you get no return with either. Then the only risk is the insurance company going broke like a few did back in mid 2000’s.
The shoe box is low cost but is attachable by your creditors (whole life insurance is not) and shoe box cash is taxable to your heirs on your death (the proceeds from WL are not taxable). Finally, when you die (we ALL do!) your shoe box is filled with exactly what you put into it) whereas WL has a death benefit which is far greater than the premium you paid.
I started self financing about 4 years ago. Since then, I’ve become a keynote speaker on how money works and show others how to do the same. The key is managing down debt, accumulating wealth and make better financial decisions. Get the Nash book, Find an expert in self financing and start as soon as you can. Set it up for your children at young ages and watch them become financially free of the predatory banking system early on in life. It has changed my life and I thank CR for teaching me the process.
A variable universal policy has no protection against loss and is in no way endorsed by Nelson Nash and the Infinite Banking Institute he created for IBC practitioners. You purchased the wrong policy by an agent claiming to know and teach the strategy. This occurrence is one of the main reasons why the Infinite Banking Institute was created.
The creator of infinite banking or be your own banker actually uses WL insurance with paid up additions rather than a Universal Life policy indexed or otherwise. You can do it with Universal Life but it actually works better with WL. Get the book, and I recommend working with an agent who understands the product so that you get the best possible solution.
Hello, I have recently purchased a Income for life, Modified Universal Life Insurance Policy. I
First read about it on EVG, and thought it was a good way to use my money. But I did not buy it then, I again read about it with the Palm Beach Letter, and I did my DD , but then I talked to a local Agent in my town, and told him what I wanted to do. He not only knew about this but was able to get me insured with a preferred rating, and I will be contributing my maximum allowable amount every year until I retire. I hope to have enough money to live retired like I live now. Not rich but not poor, so things like 401k that my company offers but does not contribute to is taxed after you retire, assuming that you will be earning less money so lower taxes is just not going to work. Since my income will be at or near my wages today. The Income for life program will allow me to take a loan out from the money and either pay it back, or just let it be taken back after I am gone. Either way the money in the account still grows unlike a 401k loan . So I am fully recommending people look into this program. I have said that if I had know about this program 30 years ago, I would already be retired. I am glad that I fould a local person here that has been very helpful too.
Let me share some true facts about whole life insurance or any policy that has
a cash value build-up in it. Most people need insurance when they are young,
building their lives with children, home, cars, education, etc. They cannot afford to
properly protect their loved ones or their estate with expensive whole life insurance.
Term is much less expensive per thousand at all ages. The cash value in true WL Policies
never belongs to the beneficiary–it belongs to the insurance company. That is why one has to pay interest on their own money if they borrow it and if they die the beneficiary gets the face amount and the ins. co. gets the cash value. The IRS says cash value is an over-payment of premium , thus no taxes on cash value. Insurance is for covering libilities and not for a savings program. Buy term and invest the difference where the beneficiary gets the face amount plus the invested difference. I do believe a few companies sells ART
to age 100. Most people do not need insurance after 60-65. They need a quality estate plan
which will avoid probate and and many other financial pit falls.
The cash value is the portion of the face value that can be accessed before death. When a policy matures, the cash value equals the face value–they are the same money. Having a whole life policy in retirement allows one to spend down assets more rapidly; it allows about 35% greater cash flow without having any larger nest egg. The current cash value can be withdrawn at any time without a loan, but that incurs a tax liability for anything exceeding the dividends credited.
WHY ARE YOU SAYING IT ALLOWS ONE TO “SPEND DOWN” ASSETS MORE RAPIDLY? YOU HAVE NO EXPLANATION. ALSO, WHY DOES IT “ALLOW ABOUT 35% GREATER CASH FLOW”. AGAIN, NO EXPLANATION. I STILL SAY THAT BUYING TERM INS. & INVESTING THE DIFFERENCE IS THE BETTER WAY TO GO. WHOLE LIFE ALLOWS THE INSURANCE COMPANY TO MAKE A “SPREAD” ON YOUR MONEY; IF THEY INVEST IT ON THE LONG TERM. WHY NOT INVEST IT YOURSELF? ARE YOU SO INCOMPETENT AND UNDISCIPLINED THAT YOU CANNOT DO THE SAME AS AN INSURANCE COMPANY. IF YOU NEED TO PROTECT SOMEONE, BUY TERM INSURANCE.
Here is the article I was referring to:
http://www.scribd.com/doc/3120191/Permission-slip
Term insurance is not an asset on your balance sheet. About 97% of term policies never pay out. Whole life face value (minus withdrawals) remains an asset on your balance sheet.
Comparing term and invest vs. whole life gives the following approximate result:
If your investment returns 8% before taxes, whole life returns the equivalent of a 10+% taxable return.
I don’t care if anyone reading this buys insurance from me; I just want the facts to be known so that everyone makes an informed decision.
You sound like an A.L. Williams/Primerica devotee, speaking in platitudes…everyone’s situation is different…and J Perkins – only an ignorant jackwagon uses ALL CAPITAL LETTERS when posting insulting comments…….
Nothing insulting here. At least that is not the intent. If you read some of the other posts, and you do the numbers, you might open your mind.
Regarding the all caps, I just happened to have the keyboard in that mode. Talk about ignorant and insulting! My guess is that you’ve never even considered selling a term policy due to the commission difference. No one is more self-serving.
I am a Broker, appointed with a dozen major LIFE carriers. They ALL pay higher commissions on TERM. And this makes perfect sense when you remember that 99 of every 100 TERM policy holders OUTLIVE their policies. Then the drop them because the premium jumps 10 to 15x. This means pure profit for the insurance companies and it is the best game in town. This is the secret to how insurance companies can afford to build the largest buildings in many of our largest cities. CWL or custom whole life policies are paid up early, usually by age 70, and they grow your ‘deposits’ 2 to 6 times, depending on how long you live. They are the safest and best way to save AND you get FREE permanent LIFE insurance, tax free when you take ‘loans’ and tax free to the beneficiary. Also, I believe that creditors can not access the cash in most cases/states.
Hats off to you LLOYD for being honest enough to tell the truth about insurance. As a retired insurance agent I ONLY encouraged folks to buy TERM and invest the difference that they would have paid for a Whole Life or Universal Life Policy in an IRA!
I would like everyone to take care when listening to the educated arguments of those in competing industries. Malcolm, while correct on some points is OBVIOUSLY in the insurance industry so of course he will glorify investments and products he can sell. Nate IS correct on the market cap provision in IUWL agreements and that can and will make a huge difference in the returns an investor can realize. That said, Nate will be of an opinion that insurance products may not be as transparent nor offer the same return as one you could receive (especially in this bull market) by investing in the market.
So on some levels they are both wrong, and both right. Also, with insurance contracts you do need to read the fine print AND be aware of all fees associated with that insurance contract/product.
Lloyd Freeman, it would help if you understood the uses of the tax shelters included in life insurance. You quite obviously do not. Further, not all insurance needs go away as we age. As to your blanket statement that term insurance is cheaper at all ages, try pricing term after your health takes a nose dive and your old term coverage, maybe convertible only to a mediocre permanent policy, is about to expire. Blanket statements by those who know a little are unattractive and counter-productive.
Everyone on this board seems to have a different opinion, but what astounds me is that everyone is so insulting when discussing the advantages and disadvantages of whatever product they are selling. I do not plan to sell anyone anything. Personally, I just wish that we could have a reasonable discussion as to what product gives the consumer the “best return” on their money. I know that is hard to answer, but I also know that insurance companies do not always have the best interest of the consumer at heart. I also know that in just about all these posts the person is not taking into consideration the tax aspects of purchasing a policy. That is all I want to know; what product gives you the best return AFTER TAXES. Also, I hope I’m not showing my ignorance by using CAPITAL LETTERS, as john dillon would say. Dillon might consider this post to be insulting, as I am guessing that he sells insurance. I do not sell any of these products.
If you purchased an “Income For Life” policy , 770 plan, or any name given to the Infinite Banking Concept strategy that is a universal policy of any kind, you did not purchase the right type of policy as written about by R. Nelson Nash in his best seller Becoming Your Own Banker. All universal policies contain a cost of insurance chassis that is 1 year renewable term insurance which is the most expensive way to own life insurance. A dividend paying Whole Life policy from a mutual company is the way to go. The cost of insurance on these policies are guaranteed fixed for the life of the contract. With a universal contract you have to hope and pray the interest bearing account where the overfunded premium is directed stays ahead of annual cost increase of the insurance. If you are tying the returns to the market, variable or indexed, you’re adding another component of volatility that is completely unnecessary. Find an IBC practitioner here: http://www.infinitebanking.org/finder/. You’ll find me in CA and other states. should you seek additional answers or you can find someone who resides in your state.
Thank You.
John is right. The cost of insurance on a whole life policy is guaranteed for life. But what he either doesn’t know or doesn’t want to add is that the cost of insurance in a whole life plan is close to the maximum cost that a universal life policy. The psychology behind a whole life contract is “pay the fixed maximum amount and you’ll always have enough cash to borrow and death benefit if economic conditions go south.” The psychology behind a universal life contract is “pay a flexible amount and if you need to add more due to adverse conditions, you can.” If you contribute as much money to a universal life contract as you do for a whole life contract, it’ll perform just as well and give the buyer more flexibility. The only entities that won’t like that is the agent that makes less commission than he would if he sold you a whole life plan and the carrier which would rather sell a whole life plan to you.
I am reading and seeing everyone missing the mark!!! Why not have the
Whole life and a cheap term policy in case you do pass on?
To me this makes more sense than confusing us with these long drawn out if s and then I am not sure if any of this is true or just their opinion. I will be 64 in a few days. I just got
a couple whole life policies. I have not had time to get with them to see if any of these policies will do what I hear being talked about. I am hoping so. I have a property I will be selling and any realized money above the mortgage payoff I am now thinking about
doing a paid up policy on the smaller one. The rest put into one of the other two.
Any help will be appreciated, however please be a informed person. Suggestions are welcome but please let me know it is an opinion.
Thank you
John Montoya, your statement that ,”All universal policies contain a cost of insurance chassis that is 1 year renewable term insurance which is the most expensive way to own life insurance,” is naive. All whole life policies are built on 1 year renewable term, too. It’s just that they are hidden in the calculations done by the actuaries who build the policies. The death benefit costs in ALL policies are either term or built on term. I’m tired of typing this caution, but it would be nice if those who know a little would not pretend to know a lot.
Hard to explain things without being insulting, I guess.
Good luck with the Universal life. Universal Life is like pouring water (your hard earned money) into a bucket but guess what- that bucket has holes, These are hidden fee’s. NEVER EVER buy Universal Life Insurance. I am retired from selling Life Insurance. Always buy term and save (deposit what you would have paid for Whole Life or Universal Life in an IRA). So why do agents push Universal Life and Whole Life? Out of greed. Its called HUGE COMMISSIONS! All at the expense of YOU, the consumer.
So with this system you have the BEST of both worlds. You have Maximum Life Coverage (so if you die early) and SAVINGS if you out live your expectations. Life insurance is GREAT, if you die. Someone gets it. But what if you keep on living? You darn sure better have some money to retire on. Alas, an IRA. If only young people would get this logic early on in life!
David, never fund an IRA. Clear by your comments you just follow the crowd and do not investigate alternatives. The only time to use a tax deferred plan is if the company offering a 401k matches 100%. Do not contribute one dollar above the match. If the match is 50% don’t bother, it will only help pat the 5 to 7 times the taxes you deferred by participating in the plan.
So WW if not an IRA then what is your alternative?
David A., It’s a good thing you retired. You clearly failed to understand life insurance very well.
There are many circumstances in which term serves best. There are many others in which well-chosen UL or FIXED-indexed UL serves best. If you knew more, you wouldn’t pretend to know it all while making blanket statements that make you look foolish.
@ Malcolm: You sound like you have a dog in this fight. Is that true?
Yes, Ipsy, I do have. I have been selling whole life, universal life, fixed-indexed universal life and term insurance for over 45 years (or for as long as each has been available during that period). Contrary to some who speak as though they are authorities on this blog, I have made sure I thoroughly understood each. Many of the statements, some seemingly from the books promoting use of whole life, clearly indicate that the writer has big wholes in his knowledge. Whole life is not the best vehicle for developing and dispersing cash among life insurance products. The best is a well-constructed fixed-indexed universal life policy. Explaining this would take too many words for this forum and I’m used to being paid for these explanations. Again, I would prefer that those who write here make sure they know the details of their subject before advocating as if they are experts.
When, a moment ago, I mistakenly wrote “big wholes” in knowledge, it was not an intentional pun; it was just a typo. Of course, I meant to type “big holes” in knowledge.
Another insult being passed out !
When someone tried to sell me a policy with a “eight percent return,” the fine print hidden on a different page said that was “typical” and the guaranteed amount was three percent. Back then (decades ago), some bank savings accounts were over five percent. I figured out that putting the same money into a savings account at five percent compounded quarterly would yield far more than even the dollar amounts stated for the false promise of eight percent. Because fine print that was even more hidden was that the three (NOT eight) percent was on a small portion of the amounts paid in.
This but one example of a timeless principle: If some one is trying to sell you something, there is a high probability he is also lying to you.
Wes, yours is the truest post in this entire thread. There is no free lunch.
If you need or want specific features or guarantees, you will pay more, or get less return, than for an investment which lacks those features. On average, in the long run, term life combined with sensible investing will outperform any other insurance policy, because you are not paying for any extra features or guarantees.
Larry, I’ve read a lot about this also, but for someone already retired or at the age of retirement (65, more or less), I’m not sure this program will work. What are your thoughts on this?
Also, I’ve considered a lump sum purchase of different life insurance products, and this brings up a number of other variables, in that I am already retirement age. What are your thoughts on this?
Mark Ford used a pen name when he wrote in the past, using the name Michael Masterson. It’s no secret really, although it may have been back then. The books he authored were the financial self-help variety.
When I was young, Whole Life was THE insurance to buy for a family man. I bought a policy in college for me as a hedge against early death so my folks could cover the funeral and any bills I left behind. Early in my marriage we bought a small policy on my wife. She died 40 years later and that little policy paid for half the funeral (funerals are not cheap!) with cash left over that paid for some other bills. (The other half of the funeral was paid by other insurance.) The total paid by that little policy was perhaps 3X the face value.
My own policy was a respectable amount, equal to the price of a nice house at time of purchase. It was (very) eventually paid in full, some loans taken from it repaid, now accumulating dividends and waiting for my heirs to file a claim. I am not really sure if I am worth more dead or alive? Sometimes there are ongoing things done while living that are more valuable than the cash that can be obtained with a copy of a Death Certificate.
Harold–I am very interested in this type of policy please send me more info. on your co.
and your contact info.
Thanks, Charlie Richards
richards56@windstream.net
I sell this type of policy. I became interested when I decided that investing was too much like gambling, at least for core retirement funds. The company I represent currently gives over 6.5% in annual dividends and has matched or exceeded bond rates for several decades. When I considered the safety, the protection, and the ability to have tax-deferred growth and tax-free income in retirement, I decided I must tell all of my former colleagues about it. It is not a get-rich-quick scheme, but one can amass a large amount of money while remaining quite liquid.
I would like info on your policy; 6.5% is good these days.
Send your email address to me a hdkinney@yahoo.com and I will send you some information.
I’m 68, in decent health, and plan to work for 5 more years. Have some investments through NWL, have some savings, am contributing the max each year to the company’s matching 401K (using a Back Door Roth) and the company is also offering a Profit Sharing Plan. I’m currently considering getting into a Fixed Indexed Annuity (7%) or perhaps a 770 Account/Be Your Own Banker type account. Initial investment amount would be $100-150K. All that said, I’m confused about the actual relative pros and cons of an Annuity or the 770 Account at my age. Any advice would be appreciated.
Jeff A;
Your circumstance and mine are very similiar. I cannot find a product that pays a respectable return (without risk) in this market. When we build out retirement fund thru and IRA or company plan, we just defer the taxes. I thought this blog was about a product that would help with the tax aspect, but all I’ve found is sales people making insulting remarks to each other as to their product being better. Maybe we could start a new post, but not likely.
Charles, they are many top rated companies that have similar products with substantial growth benefits.. I personally have been in the financial services business for 35 years and founded my own company back in 1979.. Be diligent about the company behind the product
find a “independent” adviser that works with the very best companies in the world and is not
connected directly with any of them..If your interested in few companies, let me know.
Hi Ed,
I’d be interested in knowing which companies that offer whole life plans that you think are reputable. Not only as a potential investment, but I am considering a career change and would consider selling such a product, but I’d want to feel I represented the best.
Sincerely,
Sheila Terry
I am not Ed but I found this post interesting and addresses your
question: http://theinsuranceproblog.com/top-whole-life-insurance-companies-for-building-cash-value/
The best life insurance is pure term insurance.Low cost, high coverage to protect against premature death of a breadwinner. Whole life is a legal rip off for the consumer. I would stay away from it. Has 4 terrible features that hurt the consumer. Go to the best .com and look life insurance. There you will find who is the biggest and best! Contact me for further info. I would love to discuss further with you about this subject.
Never buy life insurance as an investment! EVER! Get an IRA or put money in a Blue Chip stock Company that has a proven history. Like BX, EXXON, McDonalds, MO, PM.
Hello Ed:
Please send me info regarding your company and investment options.
Hi, just saw this thread and thought I’d comment. I work for a firm called Nowlin & Associates in Homewood, AL and we specialize in teaching individuals how to use Nelson Nash’s Becoming Your Own Banker. In fact, I am currently going through Nelson’s Infinite Banking Practitioner’s Program. For anyone that wants more info or would like to call me and talk about how you can do this for your family, let me know.
Pleas
Send a free reports
For those of you in Alabama and the southeast seeking more info on how to implement this strategy, call me at 205-440-4136. I work with Nowlin & Associates and our specialty is helping people understand and use this process. I work specifically with families seeking total control of their finances.
i would like to know the best life insurance plan to have my money liquid and grow at the fastest pace possible 3214033645
I’m 68, in decent health, and plan to work for 5 more years. Have some investments through NWL, have some savings, am contributing the max each year to the company’s matching 401K (using a Back Door Roth) and the company is also offering a Profit Sharing Plan. I’m currently considering getting into a Fixed Indexed Annuity (7%) or perhaps a 770 Account/Be Your Own Banker type account. Initial investment amount would be $100-150K. All that said, I’m confused about the actual relative pros and cons of an Annuity or the 770 Account at my age. Any advice would be appreciated.
I’am dealing with a insurance co oneamerica but it’s only 5%.do you have the name of your 6.5% company?
While Harold’s company may be paying a 6.5% dividend, be careful in expecting a 6.5% rate of return. There are other expense factors that must be calculated first, in order to determine a policy’s internal rate of return. That said, however, Guardian’s & MassMutual’s declared dividend this past year (they’re normally declared in November) were 6.90%-6.95%, which are the highest in the industry. These 2, along w/Northwestern Mutual & New York Life are generally viewed as the safest mutual companies in the industry. Check the company’s financials & ratings, and make sure you’re dealing with an agent you trust.
Joe,
You are correct. When responding to requests for information, I have included the internal rate of return values for the policy and the PUA. However, one must also consider the face value in excess of the cash value, which is why a full policy illustration should be seen and discussed with an agent to get the complete picture.
I want to state that a dividend in insurance companies is a return of excess premium paid.
It is not a dividend as in “on stock of a company”. Since it is a return of an overpayment, then the higher the dividend the higher the overpayment, it is not taxed. The gov’t cannot tax you on a refund of your own money.
Will you please send me information also about this type of account?
Send your email address to hdkinney@yahoo.com and I will respond.
Call me. For complete disclosure. I’m insurance licensed, security licensed series 6, 63, 65 (fiduciary…that’s the key). EIUL is the 8th Wonder of The Modern World, if suitable,
if appropriate. Rick 918-809-8255
Harold–I am very interested in this type of policy. please send me more info. on your co. type and costs and your contact info.
Thanks, Joe
Joe, I need your email address.
life insurance policy
Dividends in life insurance is a refund of an overcharged premium. don’t be deceived people, get the facts. not a dividend like stock at all, simply a refund. O h and while we are on the subject, the reason this money is protected from the IRS is because it hardly ever exceeds what you put in thereby resulting in no tax consequence. Also if you want access to this money you have to borrow it from the company at interest. Or you can forfeit the insurance for the cash surrender value(cash value) who would knowingly do this???
Also know that surrender of a policy for its cash value creates a taxable event.
Who would do it? Millions and millions of un-educated folks! People need to wake up, and do some research and NOT trust the brokers or life insurance agents. They are out for the commissions that they obtain from selling this junk (Whole Life and Universal Life).
Please remember one size doesn’t fit all. Also remember term and whole life has its pros and cons. Anyone that pushes one product over another without uncovering needs are doing a terrible job for the customer. For example, term insurance is only a temporary fix. Most death claims are not paid out from a term policy, because most customers out live the policy. Most people can’t afford term insurance when they are older. It may be good to have a combination of both policies. Again the customers needs should determine the customers best options. Not the agents personal likes.
Cleve, Your message is pure baloney. Nothing you wrote is correct.
This may help to explain the “770”. It refers perhaps to a section of the IRS code. for PDF versions of these references, Google (or your favorite search engine) is your friend.
TRANSACTIONS OF SOCIETY OF ACTUARIES
1988 VOL. 40 PT 1
THE DEFINITION OF LIFE INSURANCE
UNDER SECTION 7702 OF THE INTERNAL REVENUE CODE
Article from: Taxing Times
February 2012 – Volume 8 Issue 1
A MYSTERY PARTIALLY UNVEILED: THE IRS RULES ON SECTION 7702A’s
NECESSARY PREMIUM TEST
By John T. Adney, Craig R. Springfield and Adam C. Harden
No need to guess, really. Within the first minute of their video advertisement that has been making the rounds on the internet, they state: “The number ‘770,’ by the way, comes from the IRS legal code section that allows these accounts to exist.”
I subscribe to the Palm Beach newsletter, but I also THOROUGHLY enjoy from time to time reading the gumshoe approach and analyses Mr. Johnson provides.
IF YOU ARE A SUBSCRIBER TO PALM BEACH NEWS,,,,,,,, DO YOU AGREE WITH THE GUMSHOE INFO? IT SEEMS TO PROVIDE BOTH SIDES. PERSONALLY, I PREFER TO BUY LOW COST TERM INSURANCE AND INVEST THE SAVINGS. IF AN INSURANCE COMPANY CAN MAKE MONEY DOING THAT, I BELIEVE I CAN TOO.
Exactly. And for those just starting on their financial journey there is a far better way. First buy and sell from discretionary income(this assumes that you work enough and for enough(2 jobs if necessary) and that you have ended or curbed foolish spending. After accumulating sufficient capital for other investments(takes no more than 1 year); then investigate and invest. Remember what you should have learned from your buy and sell activities and take profits when appropriate and sell losers at a pre-determined point so they don’t hurt you.
The wealthy make money from real estate, stocks, and commodities through capital gains(and other ways) and you should also. Forget tying up your money in whole life or universal life, CD’s, bonds, and unless you are over 50 or rich in IRA’s, 401Ks, etc. etc. as you cannot easily access your money or pledge these as collateral to secure a “sweetheart” deal(and they are out there, the millionaires buy them).
In conclusion, you should strive to make your money grow through capital gains(long term capital gains are better but short term gains of 100% and more should not be avoided). This is how the rich became rich; they “invest” in these other things(whole life, jumbo CD’s, bonds, etc. afterwards. And so can you, but I advise only afterwards.
The plan sounds more like a Variable Universal Life plan than a whole life plan. I had my brokers license years ago and could market these. Most of the author’s points are correct.. they are intended as a savings vehicle for those who know they are investing long term. Within the first 7-10 years, if you redeem (cancel) your plan, you are likely to lose everything you put into it.
Over the course of time, the money can generate safe returns like any paper investment vehicle. This is because you invest your funds into the same vehicles as a typical 401k, with the option to also invest in money market type vehicles for some plans as well. The best way to think of this investment is as a mutual fund investment with a life insurance component tied in.
You can typically take loans on these types of products and will have to pay them back just as you would on a 401k. In addition, VUL type insurance plans have advantages of asset protection. They cannot be legally confiscated by the courts as your bank account can. And they are excellent for passing wealth, post taxes, to your heirs. Since they are non-qualified (you purchase them with after tax dollars), you are liable for today’s tax rate and distributions should be exempt from taxes.
I purchased a popular plan years ago and decided to redeem it. I lost my investment, but that is because it was too expensive for my income at the time. I had decided to go back to school and couldn’t keep up with contributions. This is not something I would look for as my primary investment now that I think back on it. I could think of many other things more liquid and flexible.
BUT, if you need to put wealth in a long term investment vehicle that is protectable and relatively safe, these type of variable life plans are attractive. Just make sure you have your other retirement investment needs handled first, and the money you put into this type of insurance plan is ok to be tied up for a couple of decades, at least.
More than likely, you will pass this money on to your heirs at passing. Because you specify the beneficiaries on the policy itself, these life insurance policies are not subject to probate and are a good way to enforce distributions of your wealth to the heirs that you want. Beneficiary designations are easier to change than on a typical Will document and don’t involve a lawyer.
Catfish…….Well I am 80 years old with a pacemaker and bad wheels. Sounds like this plan is for you younger guys and gals………right?
It depends on how much assets you have and how you have structured their passing to heirs when the time comes. If you are above your means and have some stored away it might behoove you to put some of those assets into something that will directly pass to them and avoid probate. I know when I reach that age if I am in a position to I will want to shave things down to the necessity and pass the rest taking advantage of as much tax loopholes as possible that would benefit my heirs.
You bring up a great point with age being a factor. Certainly, if you are found uninsurable then that would cause you to need to look at Plan B. Which, still gives you full control of the money or “banking function” of one of these policies. Such as being the owner of the policy on your wife, kids, or grandkids. Any of these are great ways to still consider a “770 Account” as part of your strategy. If you need more info, feel free to contact me as I specialize in doing these types of accounts for people here in Homewood, AL with Nowlin & Associates.
please do send info thank you so much
Sorry, I haven’t posted on this thread in awhile. I actually specialize in helping families learn how to use this process in Birmingham, Alabama. However, I’m open for helping anyone in the country and would be happy to setup an online webinar with anyone wanting to be educated on this process. As always, feel free to call me at my office at Nowlin & Associates at 205-440-4136 or email me at dustinwelborn@nowlinandassociates.com.
I have held permanent life insurance since I was in collage. I bought $25000 at age 19 and the payments hurt a little but I made them faithfully and the 5th or 6th year my cash value exceeded my total premiums paid. I had a chance to buy into a business in 1973 and borrowed against the cash value at 5% when interest rates were at 12%. Whole life policies have times at which you can purchase additional insurance without question of insurability.
Fortunately I have never had that issue but if you were married with children and became disabled you could increase your insurance amount and the insurance company pays your premium as long as you are disabled. I have used the borrowing ability of the insurance on several occasions and it is invaluable.
My suggestion is that you find a Northwestern Mutual Life agent in your area and get all the facts. They have been in business for over 100 years and are best rated at the top.
This is a forced savings plan and if everyone did it there would not be the clamor about the pawltry payments from social security. Your 401K is still a good deal as you are not taxed on the money when you put it in but you are when you take it out, and you are forced to take it out beginning at 70 1/2. If you are a professional and done a good job of investing and saving you will be in a higher tax bracket when you retire than you are now and that can cause you all kinds of issues like paying double medicare payments and double part d payments and did I mention higher taxes? This investment may not be right for everyone but it was instrumental in my success.
Jim all valid points. One addition point is some companies let you borrow, typically up to 50% of the cash value. True you still pay interest on what you borrow but it goes back into the policy. The truly interesting part is you still get the dividend on the WHOLE cash value, not the Cash value less the loan. What happens is you end up adding both your interest and the policy interest to the account value. Also hopefully you are employing the capital you borrowed in another investment or business to get better return, the same as you would if you got the loan from the bank.
DOUG, YOU STILL HAVE TO PAY THE BORROWED MONEY BACK.
WHY ARE YOU SAYING IT GOES BACK INTO THE POLICY. IT GOES BACK
TO THE INSURANCE COMPANY TO DECREASE THE AMOUNT YOU OWE THEM.
Doug, While policy loans are collateralized by the policy cash values, the policy continues earning dividends on full value because loan comes not from policy but from general funds of ins co. Loan interest does NOT go back into your policy but into company general fund. As a policyholder of a mutual company, you are also an owner of the company, so you indirectly benefit from loan interest you pay back, but not more than the dividend you receive. In today’s market climate, most top companies pay a higher compound dividend rate than the simple interest rate charged on policy loans, so being your own banker is realizing a net profit by borrowing from your own ppolicy (collateral)
While occasionally interesting, comments and replies are ALL off-topic. “770 Accounts” are for wealthy individuals and large banking concerns who can afford to ‘properly’ use them. If you are reading or commenting here you likely have no real need to understand this form of insurance because you are likely not a bank or wealthy individual, and couldn’t make ‘proper’ use of this product – it seems that is really all you need to know.
Wow, looks as if we have another know-it-all posting here. COdesperado is telling us who should read this blog. If you’re wealthy you would not be reading this. Just exactly who do you consider wealthy, if I may ask? Also, just exactly how do you feel this product should be “properly” used? I am really anxious to get this experts take on all of this. Probably won’t happen. They hide behind their computers.
Travis, thanks for the info. on 770 accounts.
Harold, are there any advantages to using these types of accounts for retired “seniors”?
That is to say can you fund it with large sums of money? Would it be worth it, or would
the premiums “eat you alive” for someone who’se retired?
Frank
These policies should be held 20 years or longer to really take advantage of the savings aspect. I also offer annuities for retirees that currently pay 6% during the accumulation phase. However, you can purchase a single-premium Whole Life policy with a lump-sum payment. It can be beneficial to hold an annuity and a WL policy together. Each person’s situation must be evaluated before choosing a course of action.
Having the WL policy as your last source of retirement income can allow you to take as much as 35% more income from your other assets first without having to increase your nest egg. This is significant!
WHY WOULD IT BE BENEFICIAL TO HOLD AN ANNUITY AND A SINGLE
PREMIUM WHOLE LIFE POLICY? YOU STATED THAT HAVING A WL POLICY
ALLOWS YOU TO TAKE 35% MORE INCOME FROM “OTHER ASSETS”.
IT SEEMS A PERSON CAN DO THAT ANYWAY. THIS MAKES NO SENSE.
If you can invest consistently enough to fund your retirement, more power to you. I tried investing for years with the help of professional traders and found it to be too risky.
These issues are complex and should be explained on an individual basis. I am not in the business of converting every skeptic; I just need to explain it satisfactorily to my clients.
Also, someone mentioned rising interest rates. Policy dividends in the mid 1980’s exceeded 13%, having risen with bond rates.
Here is another resource:
http://www.youtube.com/watch?v=6-b1cwu6cOI
Harold, I’m not responding just to be the skeptic. I just want solid factual answers before I invest. If the numbers add up, I am all for it. That being said, I’ve been able to invest for the past 40 years without the assistance of a “broker”, in that most anyone can read a financial statement and keep up with the general economic situation in the Country (or worldwide), and make sound investment decisions, I assume. Most successful investors at retirement age have a huge tax problem, and that is the priority I have at this point. While setting up a family trust will solve some inheritance problems, there is still the issue of paying large sums of taxes in retirement and not having to liquidate other investments. No one has addressed that in this blog. If they have, I haven’t found it.
I would appreciate anyone’s thoughts on this.
Jesse,
A whole life policy is funded with after-tax money. Its advantage is that growth can occur tax-deferred and be accessed (or passed to a beneficiary) tax-free. If you have a large amount of money and only a few years for additional growth, then the policy won’t help you.
However, you can buy a single-premium policy to transfer the wealth to a beneficiary, but withdrawals by you could incur taxes. This policy removes the money from your estate for distribution, but it is included in calculating estate taxes. It does protect your principal from market fluctuations.
Life insurance is a conservative, safe way for people with years before retirement and who do not want to monitor investments to accumulate retirement savings.
(I replied here because there was no reply link for your January 9 comment.)
Thanks for the reply Harold. Finally someone that presents something without some degrading remarks. I might add that there may be more economical ways to transfer wealth unless you have an estate over $10 Million (assuming you are married). What I am trying to do is decrease my tax burden while I’m alive and well, as it seems to be larger every year even in retirement. Our government has a heavy hand and cannot stop spending. I guess most of these posts are from people trying to sell something.
Franklin, you can buy “paid-up” whole life.
Rog, based upon what you wrote, this would appear to be a good vehicle to avoid the
“death tax” associated with probate, or are their legalities preventing parents from funding
these with their assets before joining “the happy hunting grounds”?
Frank
Franklin, One should think twice about worrying about the “death tax.” Federal estate tax cannot touch your first $5,000,000; that’s $10,000,000 if you plan using your exclusion and that of your spouse.
These are WHOLE life policies as Harold explained above, not Variable Life Policies. And they are explained in detailed as Tom Trump says above in R. Nelson Nash’s book (been around for years). This type of policy is getting a new resurgence because of the potential for government intervention into 401(k)’s and IRAs. And it is another alternative that is available for wealth growth – although it isn’t for everyone. It is in fact one of the only investments that is tax-free going in and coming out, but that’s because you use after-tax dollars to purchase the life insurance policy. I started one of these accounts when my daughter was born and she is now 20 years old. However, if you only put in a minimum amount, it takes awhile to “Be Your Own Banker” with what is in the account even after this long. You have to put in more than what I did for her to be able to use the account to by cars, etc. It is an incredibly useful tool, however, if used properly.
STILL CONFUSED ABOUT THIS. THESE POLICIES SEEM GREAT RIGHT NOW WHEN INTEREST RATES ARE EXTREMELY LOW. BUT WAIT UNTIL RATES GET HIGH AGAIN, AND YOU CAN BET THEY WILL.
Since insurance companies invest primarily in investment grade bonds, they are able to adjust policy dividends to prevailing interest rates in the market. Dividend rate adjustments usually lag the market in both directions when rates first change, as the ins companies are reinvesting the proceeds from maturing bonds at prevailing rates
The comments that I have been reading are a mixture of everything ranging from popular misconceptions to extremely correct explanations of a situation. I have been a CLU, Chartered Life Underwriter, ChFC Chartered Financial Consultant, MAAA Memeber of the American Academy of Acturies and several other professional dsignations after my name for forty years. I suppose that I may add soething to the pot. The whole life policy, INDEXED, cannot ever go below the stated guaranteed level and verfy likely may also have an excess unguaranteed amount. The VARIABLE life policy has usually no guarantee of minimum value (although some variations may). Term insurance may be bought for coverage for life (sometimes capped at 100 or 120) and you may invest the difference. Unfortunately, the premium rates when you get into the 80’s, more so in the 90’s and don’t ask about the 100’s are in excess of any value to you and woulod eat up your entire accumulation in your investments outside the policy before you die – especially with to-day’s rapid increase in life expectancy. There are a few excellent companies to choose and we usually run an illustration on five companies for any partiular client so that the best plan is selected – not always from any one or another over the others – each situation can vary. I am presently licensed for insurance activities in New York and New Jersey but can easily arrange with a licensed agent in most other states to give uou advice. An aside example – one of my clients recently died at age 95 and one of his grandchildren for whom he had purchased a policy in 1978 or 1979 for an annual premium of $7,000 which he paid for seven years with the proviso that all diovidends be used to purchase paid up additions and the additions to be used as a source for all future premium payments, phoned me and asked if the trust holding the policy could be drawn on. The result is that the over one hundred thousand dollars in the trust would be available to the new trustee for the use only of that particular grandson. He said he would use it on the down payment for a NY City apartment. The current interest environment is a challenge but exceptional results can be obtained. Policies can have added benefits sych as guaranteed purchase optiions, waiver of premium for disability, long term and home health care and more – depending on the insured, the company, the coverage chosen . . . If you would like to talk to an expert in these fields of financial knowledge, harlind@optonline.net is my personal email address. I am always willing to help. If there is a commission or fee involved, there are no secrets. I disclose those that are known to me. Harris Levy
I have to add some points. The cash value in a pure insurance policy is used as a reserve to pay the cost of the term coverage each year as time progresses without changing the payable premiums. This premium is actuarially caculated to include the annual cost of insurance, expenses and profits and is then projected out over the period of stated premium payments or if none involved then life expectancy. The money is not your money nor does it belong to the company. It is part of the reserves which insurers are required to hold to back up payments to insureds or beneficiaries. Upon request, the ownr of the policy may borrow from the company using the cash value as collateral or he may cancel the policy for the release of the cash value from the company or he may sell the policy under certain circumstances for a sum greater than the caash value. True whole life is what I would more likely than not suggest to accomplish the stated purpose but I was responding to the posts about variable, indexed or term. The ownership of the funds in these policies are also not directly those of the policyholder but their relationship to reserves may have varying formulae. Typos are the result of carelessness and are not the usual trademark of the author. harlind@optonline.net
Tom is correct. Read the book Infinite Banking by Nelson Nash for details or visit the website at https://www.infinitebanking.org/ for more info.
Couple of points:
1-It is nothing like Variable or Universal Life. It is a Whole Life Policy using a Paid Up Additions Rider. (This rider is not often used as it significantly reduces the commissions payable to the agent….)
2- It can be used effectively whether you are young or not so young
3- If you believe that banking is one of the most lucrative businesses on the planet (as I do), then why would you not wish to be your own banker? The life insurance policy is just the vehicle that allows you to conduct honest banking activities. People generally have a much greater need for financing during their lives than they have for a death benefit!
4- It is not for everyone. You must be able to avoid many human pitfalls such as conquering Parkinson’s Law to succeed. This is one reason the wealthy embrace many of the attributes of the Infinite Banking concept. Maybe that is how they became wealthy in the first place.
5 – Even though the dividends do average 5.5 – 6.5% with favorable tax benefits and the death benefit is substantial, these are just considered added bonuses to the Banking aspects of the plan.
6- Most importantly, you must start with a good Coach who will set up a plan and work with you monthly on achieving your goals. Typically, the goal is to reduce debt and become financially independent. The light bulb will go on about a year into the process.
There are always skeezy people who take a sound product and try to turn it to their advantage…… so check out the website if you are interested and find a certified individual that can be your coach.
These Palm Beach guys are the absolute best that I have ever subscribed to. I only wish that I had bought all their recos and stuck with their advice. I would be a whole lot better off. To see people quibble about the price adjustments of their letter is a laugh considering the money one could have made following them.
HOW DID THEY DO IN 2006, 2007 & 2008 RICHARD?
The newsletter didn’t start until 2011or 12. I also know from personal experience that Tom Dyson has great ideas and recommendations. This letter has offered good actionable advice and also goes above and beyond conventional stock recommendations. BTW, Mark Ford was one of Porter Stansberry’s mentors and he(Porter) runs a very successful newsletter. I do own an Indexed universal life policy through Minnesota Life(best rated company in industry offering these plans)(Cap on one of the indexes is 16% as of this writing and that is a fine rate in this low interest rate environment) which in my opinion has greater advantages over Whole Life. I’ll discuss it more in detail when I’m done reading through this barrage of insults, half-truth info and some good info in this forum. I’m just a consumer of this product.
In my Youth I used to sell MF and Term Life for a very large Financial Panning Company. The pitch was “The problem is whether you will have enough to live on when you are 65, and 4 out of 5 will live to be 65.”
I guess my point is that Annual Renewable Term Life (ART) is ALWAYS the best, never buy Whole life or Pay to 65 or to 80, etc. Maybe level term (LT) is second best. In whole life, sure, the money is there for you to take out after 2 years, but you will be made to pay interest for withdrawing your OWN money to use. See the “whether” problem again, above. Good luck in getting the above best “kind” of policy facts from an Insurance agent if they need to sell a policy to make a quota for the company. ‘Nuff said.
Annual Renewable Term is the worst. Please explain why you would advise ANY client to pursue a policy who’s costs rise every single day they age? And to anyone at all interested in learning about the “770” or “Cash Flow Banking” or any other term you want to call it if you use a Universal, Indexed or Variable product you will not be in the right product. And to any agent on here who would suggest for a minute that a true Infinite Banking professional is trying to reach a quota and make high commission goes to show how painfully ignorant their training has been. Properly structured IBC policies are very low in commissions because the majority of the premiums goes toward CASH. The client’s CASH. We keep the cost of insurance as LOW AS POSSIBLE in order to allow for the highest rate of cash growth. And…the only time I think term insurance is a good purchase is when it’s used inside of a whole policy so it can be used to inflate the Modified Endowment Contract line so my client can contribute to more and more CASH–NONE OF WHICH any agent would ever get compensated for.
I would really like to speak with you about the best product available for my scenario. My income is not great, so, i have to be very selective with where it goes. Can I contact you about your insurance products?
SHANNON, IT SOUNDS AS IF YOU HAVE ALREADY MADE UP YOUR MINE BEFORE CONSIDERING AND “OTHER” FACTS. WHY DO PEOPLE BUY LIFE INSURANCE? TO PROTECT SOMEONE ELSE IF THE PURCHASER DIES, OR IS DISABLED. HOW DO LIFE INSURANCE COMPANIES MAKE THEIR MONEY (WHICH IS SUBSTANTIAL). SELL CONSUMERS INSURANCE POLICIES, AND INVEST THE DIFFERENCE. VERY SIMPLE. WHY CAN’T YOU DO THAT YOURSELF, OR DO YOU HAVE NO DISCIPLINE OR NO INVESTMENT SKILLS.
The best investment I ever made. It is the first investment every young man or woman should purchase. In addition I purchased two policies for my youngest at age 12 and is now 43. Check the actuarial tables to see what the multiplier is on $150K and what the cash value is now. It guarantees he’ll have a retirement.
Dear Sirs,
Beware. The accumulation process everything looks fine. As long as you leave the cash value alone everything will be fine. It is when you go to get into that money is when the problem begins. You will pay interest on the loan physically or the loan will start compounding and will start knocking the socks off of your years of gain. I was in the business for 35 years. The way these policies were sold was that if you wanted to borrow money out , no tax because it is a loan and that if you did not pay the loan it would just go against the face value of the contract. Loans would probably work if you were to take minimal loans but forget about a big loan for it will destroy the contract and cause a taxable event. I have seen it happen time and again. Regards, Larry H. Wyatt
THOSE ARE THE FACTS, LARRY. THANKS FOR THE POST.
I can’t complain regarding the payout of an annuity which I purchased years ago. Possibly a ordinary life would have been better, but this payout is nice because I am living past what the insurance company had figured. It’s not a big deal, so I probably don’t need to be concerned about the insurance company assigning a hit man to me.
However, now I would hesitate to get a policy because the USA government needs to devalue the US dollar. I realize that insurance people don’t like anyone to mention inflation, but with the trillions of QE in process, halving purchasing power is right around the proverbial corner.
ANOTHER GOOD REASON TO JUST PURCHASE TERM LIFE TO PROTECT YOUR FAMILY, WHICH IS WHAT INSURANCE WAS INITIALLY DESIGNED TO DO.
There is no product that is right for everyone. If a person makes it in the financial services industry long enough, he/she will agree. For the right person and situation, it can be proven beyond a doubt that a dividend paying whole life policy overfunded with PUAR can create more tax free income and more safely than other methods.
In the same event even though these policies are held in dollars, equities are also increasing in value as a result of QE consequences thus providing double digit returns in my policy indexes. I know this might not completely cover debasement of the dollar but it helps. Also 10-15% portfolio in gold/silver is a must right now. Especially silver as cheap as it is. I do believe the US dollar will lose reserve status prior to end of this decade. And we will experience 08 or greater type of crash 2016 or shortly after in which case the ins. policy loses no value at a time when 401Ks/IRAs will likely lose no less than 50%. And remember to get back to even, you need 100% gains. At that time when everything declines, borrow money against policy to buy solid blue chip companies on the cheap. Of course it depends on policy loan rates at the time, but if your return on equity will be greater than that, it would be beneficial using the policy to create free arbitrage. Remember you borrow against policy as if money representing your account value is untouched and will grow as stocks return to normal valuation. When used wisely these are great investment vehicles, not INVESTMENTS themselves. This is what the wealthy do and how they think.
As a member of the PBL and PBL wealth builders club I can tell you that you are 100% right here. Whole life insurance with paid up additions. The whole concept can be read in the books recommended here and I would definitely take a policy myself but I am not in the U.S. and therefore they can’t help me. Apparently only U.S. based companies have this concept. Maybe I will book a trip to the states and set one up once I got a steady income again :p
One you subscribe you can choose between 3 different agencies who can help you set it up as they have a ton of experience. You also get access to many explanations and webinars to tackle all the concerns one might have. Good luck.
remember that most people that write these policies on there children will be the person that has the control of the money too. So why not use the younger healthier person to get the cheapest rate then As the younger one grows show him how to borrow responsibly against the policy instead of paying a bank or worst yet a loan company interest?
Any insurance policy OTHER THAN a Term policy should NOT be considered as an investment vehicle. Period. There is nothing more to debate. What economics classes did you go to? This is supposed to be an investment letter, not choosing the right type of Insurance. And anyone buying an insurance policy for a dependent child is not thinking. A child is not an asset, they are liabilities until they start earning money in society. You insure against the LOSS of an ASSET. You do NOT insure against a loss of a liabilty. Think about it before you write… your brain is showing. OMG
Truman….read the book and then you can offer intelligent comments for the readers of this blog to think about. Selling policies in your youth does not qualify you as an expert in the insurance field. I did the same thing and didn’t understand. I still invest in the market but do it through my personal Bank (whole life policy with paid up additions rider) and will always make 15 – 20% better return than you on the same investment. Again, it is not for everybody but it does work well when you learn the concept.
By the way, I got my economics degree with honors from UNC and still can’t believe how long it took me to grasp the power of this concept. 99% of insurance agents don’t understand it either…. There is no debate here. You are incorrect and until you study the concept, you will just continue to be part of the uninformed masses.
Buying a WL pollicy with PUA rider for your child makes exellent sense. You get the advantage of the savings aspect with low insurance premium overhead. You can get a policy for your child up that is up to 1/2 your policy’s face value. The child’s policy remains your money for your entire life if you so desire. It is also an excellent alternative to a 529 college savings account, because there are no associated restrictions or penalties.
I too subscribe to PB and it’s the best info I have ever received. I just bought my first WL policy at 57. Wish I had known about it at 27…and I’m a smart guy. So as Joe says you have to really understand the benefit first. It’s not about all eggs in one basket anyway, is it. I have term until 80 too.
JOE, PLEASE EXPLAIN EXACTLY WHAT THIS “CONCEPT” IS. IF IT’S “FORCED SAVINGS”, THEN I AM NOT A CANDIDATE, AND THIS IS NOT THE ANSWER. THERE IS A DIFFERENCE IN A CONCEPT AND ACTUALITY. WE ALL KNOW THAT AN ECONOMICS DEGREE DOES NOT MAKE YOU AN EXPERT. I KNOW A TON OF BROKE ECONOMICS EXPERTS. THE U.S. IS BROKE, AND LOOK WHO IS RUNNING IT.
I bought into a whole life “life insurance” policy years ago when in my early thirties.
I added my wife as a rider for a minimal amount . When she passed away at age 52, I collected around 84k and my policy continued ( I was still on the policy). Since retiring at age 58, I cashed in and collected another 24k and paid cash for new vehicles. It’s life insurance with frosting. I didn’t plan my wife’s death but like the agent told me It was a way to get back something before dying. I was lucky in that I never had to borrow against it and I wasn’t one of the 97% who eventually had something come along that would stop the monthly premiums and therefore end a term type policy. If a period of bad time came I long I would have made some payments with a borrowed portion… Any one with money saved up doesn’t need life insurance anymore.
mr perkins
must have ate nails for breakfast, he is nasty
mary, please tell me what i’ve posted that is so “nasty”.
my previous reply was supposed to be to Truman sorry.
GLAD SOMEONE FINALLY WROTE THAT TRUMAN.
ONLY PROBLEM IS MOST PEOPLE WILL NEVER READ IT.
IT IS TOO CLOSE TO THE BOTTOM OF ALL THESE POSTS.
AND THERE ARE A NUMBER OF AGENTS POSTING TO
SELL POLICIES. NEVER FAILS.
Complexity tends to favor the seller over the buyer and policies are all but impossible to compare to each other, so the devil is in the details of guaranteed returns, fees or commissions, your expected inflation rate, your actual insurance needs and the “what would you be doing with your money otherwise” questions. There’s a pretty good article from the WSJ here if you want a more mainstream opinion: http://online.wsj.com/article/SB10001424052702303296604577450313299530278.html
The interesting factoid from that article: according to a survey, almost 40% of people surrendered their whole life insurance policy in the first ten years, presumably, in many cases, because they couldn’t handle the large payments anymore … so if there’s a decent chance you would do that, it seems like whole life would be a really bad choice — you’d be losing out just before any likely cash gains from the accumulated dividends of a mutual insurance agency start to overtake the costs of the commissions and the insurance.
The approach of the organization I work for is to find reassignable cash flow to fund the policy, so that purchasing it has no effect on lifestyle. We diligently try to prevent the possibility of premiums becoming burdensome. We want lifetime clients, because we provide service first and products second.
@harold, Hi, do you have contact info of your organization? I’ve had a WL policy for over 40 yrs. My paid up additions that were supposed to keep it afloat until my death, have fallen short due to economy, and I’m finding the newly required annual premiums hard to make. ANY helpful info is appreciated!
Leela, I cannot discuss details in a forum. Send your state of residence and your email address to hdkinney@yahoo.com.
Travis,
Dan Ferris has a new world dominator stock at Stansberry Research. Perhaps you can search that one out.
ANOTHER POST THAT HAS “FACTS”. OF COURSE THE WSJ WILL NOT BE A GOOD REFERENCE FOR SOME OF THESE “WHOLE LIFE” BELIEVERS. I MIGHT ALSO ADD THAT “UNIVERSAL LIFE” WAS INVENTED BY THE INSURANCE INDUSTRY JUST AFTER A LOT OF INSURANCE AGENTS STARTED SELLING TERM LIFE & SUGGESTING TO CUSTOMERS THAT THEY BUY THE “CHEAP STUFF” & INVEST THE DIFFERENCE.
I cancelled my term life policy and am buying the insurance ETF IAK with the difference over the next 5-10 months. I say better to own them then be owned by them! 😉
RANDY, YOU’RE GOING TO HAVE TO EXPLAIN TO US IGNORANT PUBLIC BLOGGERS WHAT YOU MEAN BY ETF IAK. WHAT DO YOU OWN?
ETF is “exchange-traded fund”. IAK is the iShares U.S. Insurance exchange-traded fund. So Randy is buying a “basket” of insurance company stocks. Currently it yields 1.45% according to finance.yahoo.com. It dropped dramatically in the 2008 downturn.
Yeah and if you held it then through today it has over 112% gain in that period, so what?! In my opinion a balance of Index Funds must perform better over time through the ups and downs then some basket of an insurance company’s profits. Everyone wants to avoid taxes, sure, but really it is a grey area which will get regulated more and more so why not just do the best you can and pay your taxes.
Because it is smart to invest in what the big banks, congressman, and wealthy invest in. Obviously they won’t s*** in there own nests(create new tax law affecting their policies)
Most of the comments about whole life are true. The website “bankonyourself.com” has good information as does Nelson Nash’s book. However, the way to actually put your insurance policy on steroids is to “borrow” money to pay for cars, vacations, home improvements, etc. What you are doing, is borrowing from yourself (you are a shareholder of the company) and then you pay yourself a very large interest rate, about 6.5% to 9% as Nelson Nash advocates. When you pay back your “policy loan” the interest paid back goes back into your policy. Also, the dividends that you collect once your policy is paid in full is non-taxable to the amount of money that you actually contributed. The fools in government have not figured out a way to confiscate this yet, but they may. Additionally, if you are a small business owner, one of your monthly expenses can be your payments to your whole life policy, thus reducing your taxes on your on your gross income by having the insurance premiums as an expense. There are a lot of positives about this type of policy. The major drawback is the monthly cost is not cheap. I recommend the book “Becoming Your Own Banker” by R. Nelson Nash. Here is a link: http://www.amazon.com/Becoming-Your-Own-Banker-Infinite/dp/B001NZO1DS
By the way, the company that Bank on Yourself uses is Lafayette Life.
https://www.llic.com/
Tim is Absolutley right. I have had one of these policies for just under a year and got it so that I would be able to use it as my retirement. I have borrowed from myself twice already- first time to pay for a vacation the second to pay an unexpected ER bill for my son. In the past I would have saved up to pay for the vaction enjoed the vacation and then started all over again to be able to pay for the next vacation. In the situation with my son we would have paid with a credit card. In borrowing from myself all the principal came back to me and all the interest so the policy grows more quickly. Definitely recommend anyone check this out.
Ann, is your policy with Bank on Yourself or with Lafeyette Life directly? Is it The Marquis Centennial Indexed Annuities or The Group Marquis Centennial Indexed Annuity & Group Marquis Flex Annuity?
Bank on Yourself is a marketing organization. Pamella Yellen markets information. If you like what she has to say she will refer you to an agent who can help fulfill your plan. Lafayette Life is one of the four major providers of IBC policies (or Bank on Yourself) Never, never, never use any indexed or variable product. ONLY use a permanent whole life policy. Depending on your age a Lafayette agent would most likely consider the Patriot 100 or the Heritage. You cannot use an annuity for “banking” purposes.
AGAIN, I ASSUME ALL THIS TALK IS ABOUT NOT HAVING TO PAY TAXES ON BORROWED FUNDS. IS THIS THE PROPORTED 35% SAVINGS EVERYONE IS TALKING ABOUT. NO ONE HAS EVER MENTIONED THAT.
REGARDLESS IF WHERE YOU BORROW THE FUNDS, YOU WILL NOT HAVE TO PAY TAX ON THAT.