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Recently I have been involved in a very heated discussion regarding the payment of contract charges from the separate investment account. There is a school of thought that believes that these charges are being paid with before tax money. The discussion moves along to state that because the cost of insurance charges are being paid with before tax money (from the separate investment account) that this is a better deal for the consumer than buying term insurance with after tax money.

It seems to me that if were one to buy into this view, logic would dictate that it is ONLY possible provided you take into consideration that the planned or target premium (which in effect produced the separate investment account) is paid with after tax money...therefore you cannot have your cake and also eat it. By this I mean you must clearly indicate that the true cost for the planned or target premium is what the policy owner would have to earn before taxes to net the necessary after tax money to pay the premium.

My thesis would then be: Marginal Tax Bracket Subtracted From 100 Percent ==The Target Or Planned Premium is then divided by that result...this then is the true cost.

Comments please.

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