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  #1  
Old 02-17-2010, 09:22 PM
Una Persson Una Persson is offline
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Life Insurance Retirement Plan (LIRP) - scam?

A reasonably financially savvy co-worker has been suggesting that I look into these things called Life Insurance Retirement Plans, which appear to be some sort of scheme where you over-pay on a life insurance policy - but the life insurance policy is really an investment, which a broker directs for you - then at some point you start taking out "loans" against the policy which you have no intention of repaying, and these "loans" in effect are tax-free, and so you get tax-free earnings as well as keeping the base value of the life insurance policy...yeah.

Since I'm likely to soon be unemployed and lose my work-provided life insurance, I'd like to get some "private" life insurance anyhow. This sounds like something that could be a little bit better, provided I can overpay. It sounds like a "too good to be true" thing, but my co-worker says it's sort of analogous to a reverse mortgage on your life insurance. Do any financial Dopers have comments on the plans in general, or things to watch out for?
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Old 02-17-2010, 10:14 PM
hekk hekk is offline
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IANAInsurance Agent, but isn't that just a whole life insurance policy? They have real cash value that you can pay on and take loans from.
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Old 02-17-2010, 10:25 PM
Una Persson Una Persson is offline
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I don't know - I know very little about life insurance and things like this, which is why I was hoping someone here might know.
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Old 02-17-2010, 10:44 PM
The Lurker Above The Lurker Above is offline
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I don't know this product; but I am deeply, deeply suspicious of life insurance/investment mixed products.

From working at a (Canadian) life insurance company for a couple of summers in uni I know that agents make a significantly higher commission on these kinds of products; so I can only assume that they're great for the insurance company.
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Old 02-18-2010, 02:08 AM
Bobalude Bobalude is offline
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my guess is there are higher fees/expenses to those investments that are not immediately visible to people. A good approach is examining whether or not one can purchase the exact same investment holdings outside of a LIRP with lower expense ratios.
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  #6  
Old 02-18-2010, 04:58 AM
t-bonham@scc.net t-bonham@scc.net is offline
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Quote:
Originally Posted by Una Persson View Post
but the life insurance policy is really an investment, which a broker directs for you
So do you think the average life insurance broker is particularly great at managing investments? But that rather than going full time into the stock market, he continues to sell life insurance? Riiiight!
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Old 02-18-2010, 05:30 AM
Crafter_Man Crafter_Man is offline
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Originally Posted by The Lurker Above View Post
I don't know this product; but I am deeply, deeply suspicious of life insurance/investment mixed products.
Yep.

I know this is IMHO, but generally speaking it is best to keep your life insurance and financial investments separate. The vast majority of people are much better off with simple "term" life insurance than whole life, universal life, or whatever they call it nowadays.
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Old 02-18-2010, 06:01 AM
MsRobyn MsRobyn is offline
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The usual disclaimers apply. I am a licensed insurance agent, however I am not licensed in your state and I am not your insurance agent.

They're not a scam, exactly, but they're not entirely risk-free.

It sounds like your friend is describing a strategy using a life insurance product called a variable universal life (VUL) policy. These policies involve one or more separate investment accounts. When the value of these accounts go up, the cash value of the policy goes up. You can pay additional money into the investment accounts over and above the premiums, which is what your co-worker does, and (theoretically) gain a higher cash value over your lifetime. Distributions from these policies are tax-free.

There are several drawbacks to this.

First, you must be able to obtain life insurance, and if you are older or have health problems, that can raise premiums dramatically. The premiums are generally not cheap to start with.

Second, overfunding a variable universal life policy can push it into what is called a "modified endowment contract" (MEC). These have different tax treatment than a regular VUL; distributions from the policy during the lifetime of the insured are taxable in a MEC. The death benefit from the life insurance is still untaxable, however. And it's the IRS that determines whether a life insurance policy is really a MEC.

Third, the investment accounts in VUL policies are still investment vehicles that rely on the markets to make money. As with most other investments, they go down if the market does. I saw several clients in the fall of 2008 whose VUL values went away. Not just "down" but "gone".

My advice is to see a qualified financial professional in your state who can sit down with you and give you an honest assessment based on your specific situation.

Last edited by MsRobyn; 02-18-2010 at 06:02 AM..
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Old 02-18-2010, 07:20 AM
Una Persson Una Persson is offline
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Thank you, MsRobyn, that's the sort of info I was looking for. Googling on what my co-worker said wasn't turning up much for me that matched, but I remember now he said "VUL." Now I can try to do some more research before I bother my broker about it.

I'm probably too hard to insure to take advantage of it, given some additional thought.
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Old 02-18-2010, 07:28 AM
rbroome rbroome is offline
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Originally Posted by Una Persson View Post
A reasonably financially savvy co-worker has been suggesting that I look into these things called Life Insurance Retirement Plans, which appear to be some sort of scheme where you over-pay on a life insurance policy - but the life insurance policy is really an investment, which a broker directs for you - then at some point you start taking out "loans" against the policy which you have no intention of repaying, and these "loans" in effect are tax-free, and so you get tax-free earnings as well as keeping the base value of the life insurance policy...yeah.

Since I'm likely to soon be unemployed and lose my work-provided life insurance, I'd like to get some "private" life insurance anyhow. This sounds like something that could be a little bit better, provided I can overpay. It sounds like a "too good to be true" thing, but my co-worker says it's sort of analogous to a reverse mortgage on your life insurance. Do any financial Dopers have comments on the plans in general, or things to watch out for?
I have been discussing this kind of plan with my financial advisor for a few months. I have gotten the same pitch and I believe it is true as far as it goes. The long-term idea is that because there is a death benefit, you can spend down your other investments while your are still alive secure in the knowledge that when you pass, there will be money available for your spouse or to pay off any loans you took out while still alive. It's primary advantage, as far as I can tell, is it provides some protection from outliving your savings. Basically, it works if you plan to hold it long-term (15 yrs or more). It works even better if don't have the self-control to save outside of paying the (insurance) bills.
It is insurance and gets favorable tax treatment. But it is not cheap insurance. Owning a term life insurance plan is still a good thing to do. In my case if I invest the $ I would otherwise have spent on the whole life insurance, I will be far ahead for at least the first 5 years or so. The flip side is that if my circumstances change in 5 years and this plan begins to make sense for me, I will be 5 years behind in getting the benefits-it takes a long time to build up the cash-value that you can use to borrow from. I haven't decided what to do yet.
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Old 02-18-2010, 07:29 AM
Gus Gusterson Gus Gusterson is offline
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Originally Posted by Una Persson View Post
Since I'm likely to soon be unemployed and lose my work-provided life insurance, I'd like to get some "private" life insurance anyhow. This sounds like something that could be a little bit better, provided I can overpay. It sounds like a "too good to be true" thing, but my co-worker says it's sort of analogous to a reverse mortgage on your life insurance. Do any financial Dopers have comments on the plans in general, or things to watch out for?
If you're likely to be losing your job soon, you don't want to even think about a whole life or universal life policy. The premiums are several times what a term life insurance policy will cost. In my case, I got a $750,000 30-year term policy for $600/year. A VUL policy with a face amount of $250,000 was over $5,000/year. I was a healthy 34-year-old non-smoker who was eligible for the best rates at the time. Agents will tell you that the policy is building cash value so that $5,000 is actually an investment, but the illustration of my policy showed that it would take at least 10 years for the cash value to reach $50,000. For the first ten years the policy would be worth less than the premiums I had paid.

But before you buy even a term policy, you should evaluate whether you need life insurance at all. Do you have dependents? Does someone besides you rely on your income? If not, you probably don't need any life insurance policy. If someone does rely on your income, you probably can't afford to replace that income using a whole life or VUL policy.

Last edited by Gus Gusterson; 02-18-2010 at 07:32 AM..
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Old 02-18-2010, 01:00 PM
Una Persson Una Persson is offline
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I have no dependents, debts, or financial obligations, but they were pitching it to me as more of a great tax-sheltering investment. From other research I've now done it sounds like it might not be a good thing.
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Old 02-18-2010, 02:51 PM
Mama Zappa Mama Zappa is offline
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Originally Posted by hekk View Post
IANAInsurance Agent, but isn't that just a whole life insurance policy? They have real cash value that you can pay on and take loans from.
They do, but whole life is VASTLY more expensive than term life.

As an example, I've got a whole life policy. I got this policy when my company was sold to another company, and the new company's group life insurance refused me a policy initially for medical reasons. The old company's "conversion privilege" was only to convert to a whole life individual policy, not a term life policy. As I was worried about getting *any* insurance at that point, I took the most whole life insurance I could see affording.

Well, when I did get into the new job's group policy a year and a half later, its premiums (for me, for eight times the whole life's value) per month are about half the whole life's premiums.

Now, those premiums *will* rise, and of course when I turn 70 the whole group policy goes "poof" - whereas the whole life policy is forever.

Re the retirement thing: Yes, one could take a loan against a whole-life policy. Depending on the terms of the policy, you might or might not need to pay interest (typically at a fairly low rate). If you don't keep paying your premiums, however, the life insurance (and any untapped value) go away.

Also - whole life's value doesn't necessarily increase all that much over time so it may not be much of a nest egg.
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Old 02-18-2010, 03:34 PM
md2000 md2000 is offline
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I saw several threads on whole life vs. term life on a different board - the general consensus in Canada was that the whole life was a rip-off. You could combine term life with normal investments or an IRA (RRSP in Canada) or whatever until age 65 and come out much further ahead and have significantly more choices for your investments. In my case, I too out the value after 6 years when I went back to school, and it was worth about half what I put in.

As others pint out - it's an excellent choice for the guy getting a commision to sell it to you.

Besides - what do you need insurance for at 75 or 85? By the time term life gets expensive, at 65 or older, you should have the house paid off and a decent nest egg (plus the value of the house!). So you kick the bucket at 85 and the kids get $500,000, if you haven't used it all up in retirement payout, what good is it? If you're 85, your kids are 55. If they haven't gotten their shit together financially by then, even an extra $500,000 won't help. If they spend their whole life (sorry) waiting for this ship to come in, instead of making their own investment decisions, then you raised them wrong.

You need the (term) life insurance when you're 30 or 45, the kids are growing up, there's college bills to pay soon, and the house mortgage needs to be paid off if you get hit by a beer truck while crossing the street. At 65, you better be set instead of gambling that you'll die.

I know of only one set of winners in Whole Life. Most Canadian whole life companies were mutual companies, meaning each policy holder owned a share of the company. The managers saw a gold mine in taking the company public, so people who had shares/policies when it went public suddenly found their shares worth a fortune. Why? Because the assets and the fund were sufficiently undervalues and underinvested, and the fund had still grown so much faster than obligations, that there was a huge amount of money for everyone when it was revalued at the real market rate.

An acquaintance of mine found himself with tens of thousands in cash payout when he was in his late 20's, thanks to a policy his parents bought him on high school graduation. He had a good time for a year or two - then it was all gone. Good investment!
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Old 02-18-2010, 04:15 PM
B. Serum B. Serum is offline
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My dad was a lifelong insurance agent and he started up a life insurance plan for me when I was a kid as a supplement to Social Security and any other plans I chose to take part in. Once I graduated college, they transferred it into my name and now I pay the $300 a year.

I don't think dear ol' dad was trying to scam his youngest.
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Old 02-18-2010, 05:49 PM
Saint Cad Saint Cad is offline
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Here is the problem with a lot of these life insurance + investment packages. The numbers may not be wholly accurate but they illustrate the point. You end up paying $60,000 for $50,000 in insurance and $50,000 in investment so it's $100,000 right?

Wrong!

It's an either/or payout so you get either $50,00 for your investments OR $50,000 on your death. They make $10,000 either way.

And ask yourself this: why are you borrowing your own money?
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Old 02-18-2010, 09:33 PM
MsRobyn MsRobyn is offline
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Originally Posted by B. Serum View Post
My dad was a lifelong insurance agent and he started up a life insurance plan for me when I was a kid as a supplement to Social Security and any other plans I chose to take part in. Once I graduated college, they transferred it into my name and now I pay the $300 a year.

I don't think dear ol' dad was trying to scam his youngest.
Whole life does make some sense if you're young and healthy, because the premiums are dirt cheap. It doesn't make a lot of sense if you're middle-aged because it is so expensive, and because you often outlive your need for life insurance.

And, as I said upthread, an overfunded VUL isn't a scam. It's just not for everyone.
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Old 02-18-2010, 10:57 PM
Una Persson Una Persson is offline
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My broker says the premiums would be $2,000-$3,000 a month for what she recommends for a death benefit + overfunding.

That's a lot. Doable, but not what I want to do. Pass.
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Old 02-19-2010, 12:54 AM
Bobalude Bobalude is offline
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One point that I've encountered is the fact that a fixed life insurance benefit component loses purchasing power over time, and I believe VUL/whole life insurance policies have rising premiums as one ages compared to fixed payments for term insurance.

A death benefit of $250,000 today for someone who is 40 may mean very little 40 years from now for the beneficiaries who hypothetically collect when the insured dies at age 80. All along the way there are increasing premiums to pay and possibly higher annual expenses/fees that the investment component is wrapped in.

One point MsRobyn or someone might be able to clarify... are insurance payouts that beneficiaries claim exempt from estate taxes and the such because they aren't technically assets owned by the deceased insured, but rather the life insurance company? I've vaguely read these products may be appropriate for people who may be passing on more than the exemption amount for estate taxes to heirs.
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Old 02-19-2010, 06:38 AM
MsRobyn MsRobyn is offline
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Originally Posted by Bobalude View Post
One point MsRobyn or someone might be able to clarify... are insurance payouts that beneficiaries claim exempt from estate taxes and the such because they aren't technically assets owned by the deceased insured, but rather the life insurance company? I've vaguely read these products may be appropriate for people who may be passing on more than the exemption amount for estate taxes to heirs.
Payouts from life insurance policies are tax-exempt, period. I don't know why they are, they just are.

Life insurance is appropriate for a lot of reasons, but for some, it's a waste of money because it's not necessary. Only your insurance agent knows for sure.
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Old 02-19-2010, 09:40 AM
md2000 md2000 is offline
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Insurance is typically exempt from tax because it's a payout for loss. You insure your house or car - poof, bang - need another one? Imagine if the government dinged you for that replacement as "income". Similarly, a life insurance payout is supposed to be a replacement for lost income and support. In today's world, a million dollars may not be enough to replace the typical breadwinner biting the big one at 40 years of age.

Conservative nattering nabobs of negativism aside, how much do you have to pass on to the loved ones to pay taxes on an estate? IIRC from the last election hype, it was millions at least for estate taxes, unless they are actually completely gone nowadays. the only taxes payable on death are the ones you would pay if you did the same thing while alive, like sell the house, cash in your IRA (or Canadian RRSP) contents, etc.

The main point still being - if you did a good job of your retirement finances, why do you need insurance once the retirement fund is in place and the kids have left home? By then, the house should be paid off too. With today's life expectancies, the kids should be past 50 and have their retirement finances already in place before they ever see your insurance. Worst case, the spouse gets $500,000 when she is so old she can't count to 10.

Remember how the kids used to fight over who got the last piece of cake? Now imagine the fun when mama's half-million is controlled by one kid and the others suddenly start wondering what's been happening to it? Nothing like a good inheritance fight to bring out the best in people...
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Old 05-14-2012, 06:35 PM
Safe Money Tony Safe Money Tony is offline
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Life insurance retirement plans are known under a few other names, such as bank on yourself or 101 plans. There are several books on the subject. They are not a scam and are available only from licensed professionals.

While they may sound too good to be true, there are limits. There are some good books written on the subject such as "Tax Free Retirement" and Missed Fortune 101". The way to properly structure one of these is to fund it to the limit before it is considered a Modified Endowment Contract (MEC).

You can access the cash portion of these contracts as a loan. If taken as a loan rather than a withdrawal you can access this money tax free. Some of these contracts allow for the loans to come out of the general account of the insurance company leaving your money in your contract and still earning interest. Often the interest credited is higher than the interest charged on the loan creating and arbitrage in your favor.
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Old 05-15-2012, 07:52 AM
md2000 md2000 is offline
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They are still investment funds. Either they grow and make money like any other fund (yeah, right in today's financial situation - zero growth) or the company will not have the money when you are needing it if they promise great growth.

If someine has (see post 18) $2,000 to $3,000 to dump into something like this, they can dump that same amount into a savings plan or an IRA and have $24,000 to $36,000 saved for each year. 3 or 4 years, $100,000 even if there is no growth. 10 years, quarter of a million. You don't need life insurance if you can afford that. With that sort of disposable income, and no young dependants, you better already be set for life...
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Old 05-15-2012, 08:06 AM
Czarcasm Czarcasm is offline
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Originally Posted by Safe Money Tony View Post
Life insurance retirement plans are known under a few other names, such as bank on yourself or 101 plans. There are several books on the subject. They are not a scam and are available only from licensed professionals.

While they may sound too good to be true, there are limits. There are some good books written on the subject such as "Tax Free Retirement" and Missed Fortune 101". The way to properly structure one of these is to fund it to the limit before it is considered a Modified Endowment Contract (MEC).

You can access the cash portion of these contracts as a loan. If taken as a loan rather than a withdrawal you can access this money tax free. Some of these contracts allow for the loans to come out of the general account of the insurance company leaving your money in your contract and still earning interest. Often the interest credited is higher than the interest charged on the loan creating and arbitrage in your favor.
Reported.
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Old 05-16-2012, 10:01 PM
Nametag Nametag is offline
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Reported.
For what, exactly?

Una, my question upon seeing your post wherein you state that you have no dependents, debts, or financial obligations was -- why do you have life insurance? I have life insurance because I've got kids. One policy terms out when the house is free and clear, and the other terms out when they're adults. As an investment vehicle, someone in your position is better advised to stick to an IRA (or 401(k) when it's available).
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Old 05-17-2012, 07:56 AM
Mama Zappa Mama Zappa is offline
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Originally Posted by Nametag View Post
For what, exactly?

Una, my question upon seeing your post wherein you state that you have no dependents, debts, or financial obligations was -- why do you have life insurance? I have life insurance because I've got kids. One policy terms out when the house is free and clear, and the other terms out when they're adults. As an investment vehicle, someone in your position is better advised to stick to an IRA (or 401(k) when it's available).
Concur - one might want to have insurance to pay their funeral expenses or the like, but with no dependents needing an inheritance, I wouldn't bother.

Unless, that is, I wanted to hedge my bets against truly needing it in the future, when (due to declining health) I might have more trouble getting a policy.

And second the "reported for what" - while the person who posted may well be involved in selling such investment vehicles, the posting itself was in no way spam or in appropriate. It'd be the same thing as a Doper lawyer or doctor commenting on a legal or medical topic.
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Old 05-17-2012, 09:20 AM
Mama Zappa Mama Zappa is offline
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Rereading the thread: I can see one situation in which this might be worth doing: if you've fully funded your IRA / 401(k), but still want to save, tax-deferred (tax-free?) for retirement.

Would I suggest doing this in *preference* to an IRA/401(k)? No, I don't think so. With the LIRP, you're paying for actual life insurance in addition to the overage that's being invested - so there's money being spent, instead of saved. Yes, you get insurance, but it's probably pricier than a term policy.

So if someone DID want to try the LIRP option, I'd think that getting the least possible amount of insurance would be the way to go.

Note: I am not a tax or finance professional.
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Old 05-17-2012, 11:08 AM
Snickers Snickers is offline
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MsRobyn's already hit on most of what I could say. I no longer work there, but I did work for a large life insurance provider for 2 years. VULs are available, and their premiums are expensive. It takes a good amount of time to build up any sort of cash value, and that cash value is not backed by anything. As MsRobyn correctly said, they're subject to market fluctuations, and can lose value.

And while any loans you take may be tax free (I can't comment on this, I don't remember whether loans are taxed), they are loans - a portion of the premiums that you must pay to keep the policy in force will be automatically applied to any loan value, reducing anything that's shunted into the cash value. You can add more to pay off the loan quicker if you want, but I don't think you can avoid paying it. Maybe - I'm not sure how premium payments are structured. There may be a risk that if you reduce payments by any amounts applied to a loan (to avoid paying anything towards it), you might not have the payment required to keep the policy in force, and then poof - the policy's gone (but not your cash value, if any), and so no death benefit for your heirs (which is presumably why you bought it).

While I worked there, they were emphatic during training that life insurance is not an investment vehicle, and should not be thought of as such. (And it's probably going to get worse because of the recent financial collapse.) With some careful planning, life insurance can help you reduce tax burdens, which is why they can be attractive for wealthy investors that have maxed out other tax havens. However, IMO most Americans don't fall into this category.

In short, yes, you can, but the premiums required to keep the policy in force while building up that cash value are expensive, and other tax havens that might be available to you probably have better benefits.

Last edited by Snickers; 05-17-2012 at 11:08 AM..
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  #29  
Old 05-19-2012, 04:58 PM
Safe Money Tony Safe Money Tony is offline
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These plans are not suitable for everyone. Also Fixed Products are more attractive than VULs as the cash portion can't lose money because of market risk. All loans are tax free as loans are not income. Withdrawals of cash are distributions and any gains from the policy that are withdrawn are taxable as income.

Also there are funding limitations. These contracts need to be funded over years and are a long term vehicle.
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Old 06-04-2012, 01:07 PM
Guest 101 Guest 101 is offline
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Hey All,
Wanted to say that most people who purchase a LIRP do it because they have already maxed out their 401K contributions and IRA contributions. This is just another vehicle for those who want to save more to do so tax free. The tax benefits are the main draw to LIRP. The life insurance is just an added plus. The premiums due on our LIRP are about 10% less than the tax bracket we will most likely be in come retirement time. We also thought this was an excellent idea because who really knows how much the tax rates will rise in the future..... the premiums are set and will not go up. Yes, there are some disadvantages, your money is tied up, but so is my 401K..... and I have a lot more in it than my LIRP. But again, LIRP's are mostly used by people looking for tax free investments, not insurance.
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Old 06-06-2012, 08:07 AM
Mama Zappa Mama Zappa is offline
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A quick FYI: someoone apparently registered just to post a link to a site that (I presume) sells life insurance, and their posting has rightly been removed, but the one thing they said that might be informative is this:
Quote:
If this is a whole of life plan, then many of these have a maximum premium paying age (sometimes as low as 80) where you can stop paying the premium but retain the benefits.
.

I don't know how useful that is to the main topic of the thread, but figured I'd repost that much in case someone finds it helpful.

I happen to actually have a life insurance policy, which was given to me by an uncle at birth - "fully paid". I don't know what the face value is, or anything else about it except that there's some interest credited every year - 20 bucks or so - and also a similar amount that gets reported as 1099-R (retirement) income.
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  #32  
Old 03-02-2014, 02:52 AM
MichaelL MichaelL is offline
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I'm being pitched an LiRP from the tax-shelter view. The premiums are definitely sky-high and they promise benefits that sound too good to be true.

There's precious little information online. The best I found so far is here (register for free trial first):
http://nationalunderwriteradvancedma...fc110111-m.htm
and http://www.thinkadvisor.com/2011/11/...rip?page_all=1. They are a very precautionary.

I am not trying to sell anything, but I do want to understand if this is real.
I do have their "provisional" policy at hand, and it does has verbiage for these points. I just don't know if I should believe it.

With these caveats, here are the magical benefits. Are they really true or what's the catch?

1. They say I can borrow money tax-free and have no repayment plan at all. Thus it's a withdrawal, except it's legally called a loan to keep it tax-free. Does IRS really allow "loan" that does not need to be repaid?

2. They say I can borrow from the full death benefit, not just from the built-up cash value. If I sign up for $2M death benefit, but only have $200K in the account after X years, I can borrow from the full $2M, while $200K keeps accruing. This is really puzzling to me.

3. Interest on these repayment-free loans is 1.5% if the loan was issued during first 5 years of the policy, 0% if issued thereafter.

4. I can borrow tax-free from full Death Benefit for all kinds of reasons - acute and chronic health problems, Long Term Care, to pay for kids' college, Accelerated Death Benefit with 24-month window.

. If I can't afford the premiums, they can decrease the death benefit, which will allow me to lower my premium and keep the policy in force.

. They promise that company monitors proactively MEC risk. It is allegedly easy to avoid getting caught by MEC simply by staying well below the overfunding limit.

. The investment has a floor of 0% and a Max of 14% Annual Return

. They claim that these benefits will be grandfathered even if Congress & IRS may eventually cut off this sweet deal because "Insurance companies have powerful lobbies and that most Congressmen and Senators have large LiRPs themselves." I'm not making this up. This is a quote from today's conversation with their commissioned agent. I think the main Insurance companies are not selling these (Prudential, Northwestern Mutual). Is this true? Makes me wonder if these giants know something I should know.

Can someone with relevant experience please comment? Your advice is much appreciated.
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Old 03-02-2014, 06:41 AM
Jonathan Chance Jonathan Chance is online now
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Quote:
Originally Posted by MsRobyn View Post
The usual disclaimers apply. I am a licensed insurance agent, however I am not licensed in your state and I am not your insurance agent.
Ditto, Robyn. Except being a licensed insurance agent is only part of what I do. My main trade is the investment side.

LIRPs can be very good investments for the right person. I'm not saying that you are that person. Without sitting down with someone - you, that other guy, whomever - I couldn't say whether it's for you or not. But they're not for everyone.

In terms of the loan ability, there are a godawful amount of riders/special provisions that can be written into the policies so a policy for one person might look entirely different (and behave differently) than a policy written for another person.

I can't comment on any specific provisions here (I'm prohibited from doing so in any open forum) other than to say go carefully and sign nothing until you do understand it. But that should go without saying for any contract.
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Old 03-02-2014, 06:43 AM
Jonathan Chance Jonathan Chance is online now
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Originally Posted by Nametag View Post
For what, exactly?

Una, my question upon seeing your post wherein you state that you have no dependents, debts, or financial obligations was -- why do you have life insurance? I have life insurance because I've got kids. One policy terms out when the house is free and clear, and the other terms out when they're adults. As an investment vehicle, someone in your position is better advised to stick to an IRA (or 401(k) when it's available).
Well, that's not always true. There can be life insurance with long term care or early benefit provisions that pay out in case of a diagnosis of severe illness that can allow for the tax-free payment of medical expenses without the demolition of one's retirement plan.

But it's true that, for someone without financial need, the utility of life insurance needs to be carefully examined.
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Old 03-02-2014, 11:51 PM
md2000 md2000 is offline
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I know that in Canada, using your RRSP (like a 401K or IRA) as collateral for a loan automatically cancels its tax-free status if the tax people catch you.

If the IRS decides that too many people are pulling this trick, they will simply decide that this plan is a fraud and cancel its tax-free status. I assume the logic is that an insurance payout is tax free. However, if essentially the insurance company is parking your tax-free investment then feeding it to you, and collecting a repayment "tax free" as insurance payout when you die - that may be interpreted as a savings plan.

After all, real insurance means they bet on a probability - they may make money on one customer and lose on another. Structuring loans so that the savings fund covers it - is just the opposite of an insurance bet.

But that's the difficulty. As you can see happened with Canada's "Income trust" fiasco, if the wrong interpretation of a rule costs the government too much, they may e-interpret the rules to plug that loophole.
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Old 03-03-2014, 01:59 AM
MichaelL MichaelL is offline
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Thank you Jonathan and md2000.

You are correct -- the plan appears to be a super-sized tax-sheltered savings plan wrapped inside an insurance policy. It appears more attractive than IRA/401k because a middle-class retiree's income is taxed pretty heavily if all he has is IRA/401k distributions and Social Security payouts. This is my parents' big headache and is one of the reasons I'm even looking into LiRP for me.

Another mentioned benefit is that it is protected from creditors in all states where insurance and annuities are protected, which is all states but 5.

Ironically, I did invest heavily in those Canadian "oil field income trusts" for many years. They provided incredibly high dividends and stock growth for years. Unfortunately I stopped keeping a close eye on them and missed the Canadian government's crackdown. Sold most at a loss, but some are still in my portfolio and give off a modest dividend.

So I do worry -- if IRS has already forced even the vaunted Swiss to open up some of their anonymous accounts, what chance will domestic LiRPs have once the world will stop buying our debt?

Any more suggestions?
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  #37  
Old 03-03-2014, 01:56 PM
Jonathan Chance Jonathan Chance is online now
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Well, as I think I stated, I can't make suggestions here.

But I'm not seeing the connection between LIRPs and the lack of buying debt. Also, there's very little sign that US debt is in any near- or middle-term trouble in terms of demand. That's a sort of alarmism that TV pundits indulge and you should ignore.
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