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Ummm....perhaps I'm a little slow...but what's this board about?
>>Ummm....perhaps I'm a little slow...but what's this board about? <<<****************Haven't a clue...Molly--
I requested that this board be set up for those that are interested to discuss and dive into the Bank on Yourself insurance and investing concept. I have done some investigation and have talked to some investors who practice in this area. Basically, the concept includes life insurance from a dividend paying company, where you overfund the policy to build a large cash value. The concept includes thoughts that encourage you to "borrow" from the cash value of the policy to fund purchases of cars, college, etc. You pay the loan back and your policy continues to grow. It becomes a place where your money grows tax free and you have access to those retierment dollars later in life as loans or withdrawals. I know most of us out here are skeptics of this type of approach, but from what I have seen, it looks like if it is set up correctly, it could work and work well. I hope that is enought to get us started in conversation. I am not an expert, but I am trying to learn.
First of all, if you don't need life insurance, this is an expensive way to save. The life insurance charges & fees outweigh the taxes you save.you have access to those retierment dollars later in life as loans or withdrawalsI believe that if you withdraw, you lose the tax advantage (and of course you reduce your cash value and possibly death benefit). If you take out a loan, it reduces your death benefit -- you're paying a bunch to borrow your own money.If you miss the premium payment, and don't have an automatic loan set up (or your loan is maxed out) it's likely that you automatically surrender the policy.If you want to force yourself to save, there are cheaper ways.I only see this plan working for people who:- need a lot of life insurance- have maxed out their tax-deferred savings options- can overfund the policyBTW, are you an insurance agent?
A few more thoughts:- An entire board set up to talk about using life insurance as a savings vehicle is overkill. If that's the case, whoever set it up should check out the posts that have been made over the years, cause it's been covered a million times from every perspective.- If the policy is not a MEC (Modified Endowment Contract - the issuer can tell you) under the regs, withdrawals are return of principal first. If it's a MEC, the scheme does not hold water and there's a "boot" on the withdrawals - taxable earnings come out first.- Borrowing gives you tax DEFERRED, NOT TAX FREE use of the money.- The only way to get money out of the policy truly TAX FREE is to leverage the tax free death benefit. When it comes time to get at the savings you borrow all but what is necessary for the policy dividends to carry premiums & loan interest. When you die, the tax free death benefit pays off the tax deferred loan, thereby avoiding EVER paying income taxes on the tax deferred gain.As a planner I helped a number of people set these up. Really slick, really cool, you get the IRS to pay your income taxes, but IT IS NOT FOR THE FAINT HEARTED and should only be done as part of a comprehensive estate plan. This is a fantastic way to leverage the tax free death benefit, but you'd better have the cash to pay premiums till you die if the dividends fall off! If the policy lapses cause it can't carry itself, the entire gain becomes taxable as ordinary income in the year of lapse. But you already spent the money you borrowed! So you have phantom income: no money comes to you, but you get a tax bill for the entire gain. No money to pay the tax man? Who wants to be 90 and find out they have to resume premium payments or face a tax lien?As jrr7 said - if you need insurance, buy insurance. If you are saving, then save.
As jrr7 said - if you need insurance, buy insurance. If you are saving, then save. This is the kind of advice I came here for. I understood 90% of what you said and figured the rest out from context.
Glad to hear it! Insurance is really messy when you play off the tax treatment of dividends & death benefits, so if you got 90% of it right off the top & figured the rest out, you win!Eric.
I would suggest you read a couple of books if you have not. the first, Bank on Yourself by R. Nelson Nash. The second Missed Fortune by Andrew Douglas. Then let me know how you feel. No, I am not an insurance agent. I am an investor, consumer and business person. I have 4 of these policies now, I am borrowing from them using that money to fund low risk investments and I am growing the cash values of my policies at impressive rates. The dividends keep getting larger. It is the smartest thing I have ever done and those who poke holes in it without knowing the details are cheating themselves and other readers of information on this board. No, there is not much demand for this information here, as the general fool mentalitity is to invest in stocks, but term, yada yada. I invest in stocks and I do by some term, but I also invest in dividend paying whole life policies and I do so for investment and retirement purposes, not for insurance purposes.
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