UnThreaded | Threaded | Whole Thread (33) | Ignore Thread Prev | Next
Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76386  
Subject: Re: How to make your own annuity on the cheap Date: 1/24/2012 4:07 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
6-handle yields for new money do not exist. Of course, if you can point me to some outside of insurance contracts, I would be very interested.

I'll bring links to financials later... but why would you be only interested OUTSIDE of the insurers?

========

Hi intercst,

...and what's the annual cost of keeping the policy in force if you live to age 95? Probably pretty expensive.

Total average annual cost, all inclusive of insurance coverage & all other costs & burdens, can be designed to be 50-100 bips by the 30th year. Of course, the best yields come with time commitments (passed through to the client as declining surrender charges, in such case as early unwind.) That means the short-term costs are front-loaded, and include unrealized early-unwind costs. Fortunately, with easy policy loan liquidity at a wash or positive credit there's virtually no reason for early unwind.

As the time progresses surrender/unwind charges recedes, compounding accrues, and required insurance coverage (as a percentage of principal) drops, bringing the total and annual average costs down with it... WELL below comparable alternatives.

(NOTE: Several of the top IUL carriers offer surrender-waiver terms for corporate-owned contracts, all else the same. The face reason is so that the corporate books can show more cash value up front for reporting purposes, and there's no fee to the corporate owner for this feature... but anybody with any corporate small business can exploit it.)

Properly designed & responsibly treated (not raided below safe levels (50-80% pulled in leverage) prior to retirement, assuming 15-20 years to that point,) the risks of lapse are virtually non-existent as the minimum-guarantee annual credits cover the minimum-required costs of insurance. Further, most carriers offer a no-lapse guarantee from age 70 or 75 onwards at no cost unless actually triggered. That is, a guarantee that the contract will not lapse and trigger a taxable event (conversion of loans to withdrawals) due to outstanding loan balances over-weighting the remaining principal available to cover IRS-required death benefit coverage.

There's nothing available in the market that I've found recently that can provide a similar risk-weighted market participation on a tax-free basis at that low of a cost.

========

Naturally those who sell these products don't want to discuss policy expenses.

I talk about them all day long. As soon as I find something less expensive for the same results, I'll be excited about it!

I wouldn't even consider an EIUL policy to be an investment vehicle due to the expenses it has.

It appears you're unfamiliar with the expenses an EIUL has versus any comparable alternative.

<PEDANTRY> The term "investment" is considered, by the regulatory world, to be defined as a vehicle at risk of loss of principal. Due to this, EIULs are clearly *never* 'investments.' </PEDANTRY>

If we use that term on a lay basis to mean "market-type growth" then EIULs outperform (at least over the last decade) all risk-weighted tax-equivalent passive verhicles.

Given the mechanics of them (collared somewhere between 0-2% as an annual floor, and 12-17% as an annual cap, with an annual gain lock & reset,) they'll average somewhere in the range of the mid-6%s to the low-8%s, tax-free. They'll underperform passive direct index investing when the direct index beats the tax-effective (given each investor's tax profile) returns on a consistent basis... which, historically, occurs less than 20% of the time.


You can rail against "insurance peddlars" all you want, and I'll generally join in the harmony. Life insurance, as a death benefit, is significantly oversold and unnecessary. I prefer my folks to bounce their last check to the under-taker, and I believe that my job as a parent is to raise my kid to be exponentially more successful than I am, and scoff the idea of taking unenjoyed money left over when I take my dirt nap.

On the other hand, I would rather retain my growth for enjoyment than bleed or leak it away to taxes, management fees, liquidity traps or volatility.

The fact that there's a veneer of term life coverage wrapped around this product to shelter off taxes is just an opportune quirk the tax code to exploit, as far as I am concerned. The clients that I have set up with these strategies walk in the door certain that they don't need or want any additional life insurance death benefits, and I never have to change their minds... and they walk away *STILL* certain they don't need or want any additional life insurance death benefits... and roll a significant chunk of their assets into this structure.

I'll say this again; I have access to *EVERYTHING* in the world of financial products... there is no available puzzle piece I cannot put into a plan. Whenever I see a realistically competitive/comparable financial product outside the insurance industry, I'll include it in my bag of tricks.

It ain't out there.

Dave Donhoff
Leverage Planner
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (33) | Ignore Thread Prev | Next

Announcements

The Retire Early Home Page
Discussion on accelerating retirement day.
Foolanthropy 2014!
By working with young, first-time moms, Nurse-Family Partnership is able to truly change lives – for generations to come.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Dividend Growth Investing

Good Time for Dividend Champions?
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement