The Motley Fool Discussion Boards
Investing/Strategies / Retirement Investing
|Subject: Re: 7702 Private Plans (indexed universal life)||Date: 3/28/2013 1:00 PM|
|Author: Dwdonhoff||Number: 71535 of 79093|
I avoid the various flavors of UL because it is a lifetime commitment. If you decide that it isn't right for you in first several years, you are hit with heavy surrender charges.
Nope, that's not true at all. It performs *better* if treated as a financial cornerstone to your balance sheet, but it can be unwound & exited over a reasonable time period at far less bloodshed than if you're sitting on a drawn down "buy and hold" position, from which there is no escape but wait & pray.
Further, you have from 80-90% liquidity of principal and gains from day #2, if desired.
If for reason you want or need to cancel the policy later, those tax-free distributions (loans) become taxable.
Only on the gains you borrowed, and only if you don't pay them back prior to unwinding.
In contrast, you can't get tax-free loans against your securities greater than 50% max, and getting anywhere near that level puts you at risk of margin calls that can force you to book permanent position losses when you can least afford it. If you sell & withdraw your cash instead of collateralizing a loan on your securities, you book the loss, and lose all the forward gain potential from the position you abandoned.
Don't forget, anyone in the securities market (even after sitting on buy & hold positions for over 30 years) took an up to 50% "surrender charge" when they were forced to sell in order to take income when the markets had collapsed.
With IULs the maximum "surrender charge" is defined from day 1, and declining daily through a prescheduled period... and entirely avoidable via loan liquidity.
If you start at age 30 for example, you may be making a 50-60 decision. What will happen during those years? Will the tax code change to make other products more compelling or the IUL less compelling?
Again, in comparison the IUL is *exponentially* better suited for making future changes than a buy & hold naked securities position, simply because there *ARE* unwinding options. When you're holding naked securities that have dropped 20%, 30%, 50% or more from your entry, you have no options.
Ray and Dave have been arguing over the product for years.
Ray is *AWESOME* and some day I'll get the chance to buy him a beer in person. We agree on 99.65% of our opinions, and on that 0.35% he does me the honor of loyal opposition with easy-to-crush arguments... and does so while remaining a gentleman (if a sharp toothed gentleman.) What more could I ask for!?!
The part I don't like is that I get a fibe from Dave that this product is good for a larger portion of the population that it really is.
Can't help you on that vibe (nor fibe) thing... I really have no idea what "portion of the population" wants what this offers.
I *DO* know what the features *ARE* that it offers.
We can define & declare those, and let those who want those results take them.
This is for the higher income earner who has already funded his/her Roth IRA (if eligible) and at least their 401k for the matching. It isn't for the average family earning the mean US income.
IULs outperform 401ks structured for similar safety and performance, handily (even considering typical freebie matching contributions.) It does so regardless of the owner's income.
IULs outperform traditional ROTH IRAs handily. Those savvy enough to actively structure alternative investments inside self-directed ROTHs may indeed have an advantage... but then we're talking about passive versus active management, so the IUL is still a good foundational cornerstone for the 'family banking system.'
The policy requires funding it in excess of the mortality charges.
That's misleading. Its easier to understand that any given amount of working capital requires a minimum amount of death benefit (as defined by the IRS codes of TEFRA, DEFRA & TAMRA) to keep the special treatment available inside the IUL design.
Your not "adding cash on top of a life insurance policy"...
You are "wrapping the very least amount of life policy possible around the capital you want to have perform."
If something were to disrupt your income, you would need the policy to be self-funding or it will lapse and you have a dat