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EIUL-What are the drawbacks???

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Leatherneck2006
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EIUL-What are the drawbacks???  Reply with quote  

I have heard a lot of good things from my agent about EIUL. He said it is like a Swissarmy Life with 7 big benefits. According to him, it is even better than Roth IRA and 529 Education Funds.

However, I went to an Financial Adviser today and he told me there are drawbacks. For example, (1) if I let the policy lapse in the future, all the earning will be taxed retrospectively; (2) Also, he said the hidden danger is towards the end when I am older, the cost of insurance will increase to tens of thousands per year. Will any insurance agent or fianancial expert confirm this for me? According to him, I will be deeply regreted if I purchased EIUL and put big chunk of money in it. He said the better option is to max out 401K first, since I no longer qualify for IRA due to my income level.

Thanks in advance,

A New Investor
Post Mon Nov 13, 2006 4:42 am
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coaster
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The insurance agent is trying to make a living, and he's trying to sell you a product he gets a commission on. Obviously, he's going to paint it only in the rosiest of colors.

Equity-indexed Universal Life Insurance is "permanent" or "whole-life" life insurance. This means it's meant to be kept for your lifetime, and during your lifetime you're making payments on it. Part of premium goes toward the cost of insuring your life, and part goes toward building up a cash value. In this policy, the cash value is indexed to stock market performance.

Normally people buy whole-life insurance because at some point the cash value of the policy will be enough to cover the premiums for the rest of their lives and then it becomes a "paid-up" policy. I'm not familiar enough with this type of insurance to know if that applies here. You should find that out from your insurance agent. Are the premiums level or do they go up each year? What is the anticipated MINIMUM accumulation of cash? Will you be able to convert to a paid-up policy? And do you want to spend that much to do it?

Obviously if you're just looking for an investment or a savings vehicle this is the wrong product. If you don't anticipate needing insurance coverage for the rest of your life to provide for survivors or to pass on some of your wealth tax-free this isn't for you.

I think your financial advisor has given you pretty good advice, except for the part about the premiums. That may or may not be true; you should be able to find out from the agent. He should be able to provide a schedule of premiums for your lifetime.

~Tim~
Post Mon Nov 13, 2006 11:03 pm
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Stromprophet
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Re: EIUL-What are the drawbacks???  Reply with quote  

quote:
Originally posted by Leatherneck2006
I have heard a lot of good things from my agent about EIUL. He said it is like a Swissarmy Life with 7 big benefits. According to him, it is even better than Roth IRA and 529 Education Funds.

However, I went to an Financial Adviser today and he told me there are drawbacks. For example, (1) if I let the policy lapse in the future, all the earning will be taxed retrospectively; (2) Also, he said the hidden danger is towards the end when I am older, the cost of insurance will increase to tens of thousands per year. Will any insurance agent or fianancial expert confirm this for me? According to him, I will be deeply regreted if I purchased EIUL and put big chunk of money in it. He said the better option is to max out 401K first, since I no longer qualify for IRA due to my income level.

Thanks in advance,

A New Investor


Remember you have the right to ask him if he is a RFA (Registered Financial Advisor) and see his certificate.

You also have the right to request he document that he has your best interest in mind first and not the companies. Get that in writing and have him sign it.

If you search MSN for articles on this you should find some. I think it is "Questions to ask your financial advisor"

It has 15 suggestions, good article.
Post Wed Nov 15, 2006 3:44 pm
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Leatherneck2006
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Equity Index Universal Life  Reply with quote  

I found out that if I buy life insurance with death benefit of $1,000,000, with a rider of second insuranced person (death benefit of $500,000), the cost of insurance is:
$14,701 at age 80
$22,378 at age 85
$34,205 at age 90
$47,310 at age 95
$80,807 at age 97
$123,210 at age 98

One good thing is if I do not take out the cash value after age 65, the cost of insurance will be paid by the earning from cash value if the annual premium $9000 (target) is paid till age 65. So the cash value is part for take out as loan only. Otherwise, the death benefit will decrease.
Post Thu Nov 16, 2006 3:23 am
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coaster
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So that's the equivalent of whole-life insurance that's paid up at age 65. The main difference is the indexing, which is a variable you can't predict. When the cash value was calculated, was that the expected return or the minimum return?

~Tim~
Post Thu Nov 16, 2006 4:16 am
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Leatherneck2006
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The value was the expected return, 12% annually. The minimum guaranteed return is 1% during the down turn. Do you think it is worth buying this insurance as an investment? Or it is better off to invest in 401K plan or 529 Education Plan for my kid? I think the latter is better.

Thank you all for reading and giving advice.

Leatherneck
Post Fri Nov 17, 2006 5:55 am
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coaster
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Insurance is NOT an investment. Buy it only if you need permanent insurance and the minimum one percent return will cover the cost of the insurance for the rest of your life, after it's paid up. 12% is totally unrealistic. I'd suggest recalculating the expected value using EIGHT percent minus the cost of the insurance minus the agent's commissions minus the management expenses as the net cash build. The agent should be able to run this scenario for you.

~Tim~
Post Fri Nov 17, 2006 12:54 pm
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mxjbt
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Your premiums do not increase to insane amounts. A male smoker at age 28 and contributing $300/mth with $550k face amount @ a conservative 8.2% for 25yrs will result in $900k in the cash value. His premiums stay at $300. The sooner you start the better. You can choose to pay more early to reduce the amount in later years or pay a fixed rate or lower rates now and it gradually increases. The EIUL has been averaging 12% since 1985 and is currently at 10.5%. This results in approximately $70-75k of tax free income for the rest of his life assuming it performs at least 8.2%.

It is not an investment but a life insurance product with tax advantages. Your agent should have given you an illustration on how your EIUL is "projected" to perform including cost of insurance for the life of the policy. All of these should have been explained before you signed up. If you suspect something shady is going on you have 30 days after the policy has been issued to cancel and get a full refund. All life agents should give full disclosure on the products you buy. If they can't answer your questions or are withholding information, cancel and find a new agent. What happens is that if you cancel, the life agent gets whats called a charge back. Commissions are paid as soon as the first check as been received regardless of whether the person passes underwriting. A charge back means the agent must send the commissions back to the insurer and if he/she has spent it already then the chargeback will be deducted from his next commissions.

Cash Value Life insurance policies create an immediate estate. It is a protected asset meaning the IRS can't touch it (unless you surrender the policy and cash out), the courts can't see it and when you apply for financial aid for your children it won't be considered in deciding the amount your children qualify for. This is a bad example but O.J. Simpson is the poster boy for these. He lost his civil suit and lost everything, houses, cars, clothes Heisman trophy.....but he lives in a mansion playing golf. Its a matter of public record that his financial advisors told him to stuff millions in these accounts.
Post Sun Nov 19, 2006 11:25 am
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Leatherneck2006
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EIUL Cost of Insurance  Reply with quote  

Hi, are you telling me that these cost of insurace are not for real? I am sure you have the software from WRL. Run a case similar to this scenario, assuming the couple's age is about the same. ($1million/rider of $500k face value).

Tell me if your calucation is different than mine listed below...
Cost of insurance.
$14,701/year at age 80
$22,378 at age 85
$34,205 at age 90
$47,310 at age 95
$80,807 at age 97
$123,210 at age 98

Having mentioned the cost of insurance, I am not saying the EIUL plan does not have tax advantage. BTW, the 90% withdrawal on cash value any time is taxfree but just a loan only, if not returned, it will lower one's death benefit or cash value, as I understand. Overall, this policy may accumulate cash value in long run, but as one gets old, you cannot take out much of the money as the cost of insurance is increasing every year. Otherwise, the earning from cash value won't cover the insurance cost. That is the real hidden dander I have not heard from my agent, but from a financial adviser. According to a well known financial adviser I spoke to, if I purchased EIUL, I will be deeply regreted later on.
Post Sun Nov 19, 2006 8:06 pm
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mxjbt
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I'll run the #'s and get back to you. But just like Life insurance companies nobody gets service for nothing. You pay commission to someone. Someone who sets you up in security products will be paid for life as long as the account is open. Unless you can open something on your own someone gets paid. So I'm not too sure why a financial adviser telling you something is bad to get your business is seen as a positive.
Post Sun Nov 19, 2006 9:04 pm
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coaster
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The insurance agent and the financial advisor both have an agenda. The truth lies somewhere in between. I don't think you're getting the full story from either, but hopefully you can figure it out. It seems to me that you understand it quite well at this point. Remember to be realistic about expected return. Plan for a worst-case scenario. If you can maintain the insurance under the worst-case scenario, then the rest is gravy. That's assuming you're considering this for permanent life insurance.

~Tim~
Post Sun Nov 19, 2006 10:07 pm
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mxjbt
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First and foremost the EIUL is life insurance. Everyone needs insurance of some sort if you have a family that depends upon you. The drawback to Term is that it expires. As you get older the cost of term rises so much no one can contribute when they most need it. The purpose of a cash value life insurance policy is to be in effect for your life time. If the cost rose as dramatically as term no one would use it and a policy that lasted your entire life would be pointless. Congress passed the laws for the cash value life insurance. I highly doubt they did for us. However, I am not suggesting that you dump all your money into one. You need to diversify. But relying on only 401k, only stocks or only Life insurance is not a good idea.

My friend has one of these EIUL's. He front loaded it over the past 4 years at $65k/yr. He is 41 and at age 64 he will have accumulated $1.5m and will be able to pull out $109k a year tax free until age 100. This is at the conservative 8.2%, not the 10.5% it is at now. He does not care about leaving money to beneficiaries cause he has none. But even if he lives to 100, he is still making money. He's pulling interest out only. If he is pulling interest out the cash value stays the same. He is no longer paying for insurance as he front loaded it to start. And the cost of insurance will not deplete his cash value. His cash value rises to 2.8m when at age 90.

This is not a typical scenario as not everyone has $200k to start it. This is especially beneficial to the wealthy as they get sued a lot. Money in here is protected. I plan on oppening a VUL on both my wife and I soon. When it hits $30k I can put it into an IA program where my money is managed for me daily in high yield accounts.
Post Sun Nov 19, 2006 11:30 pm
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Airborne
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Where did you get the numbers on the cost of insurance, from the illustration, or the agent/financial advisor ?

There is a simple explanation which no one has offered yet, but a GOOD agent should be able to explain what the missing factor is. I know, but I'm wondering if threr are truly any other experts/planners on here that know.

If neither the agent nor the advisor can explain the "OTHER" factor, I would fire them both.
Post Fri Dec 01, 2006 11:54 am
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coaster
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If no one else wants to know, I do. I was in life insurance for a very short while a little over a decade ago. But I didn't get into any kinds of variable, so my understanding of them is pretty basic at best, and over ten years old to boot.

~Tim~
Post Fri Dec 01, 2006 12:58 pm
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Airborne
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Coaster

I was hoping Leatherneck would respond with the name of the "well respected" planner. I've heard a lot of incorrect advice on life insurance from planners, as well as the financial news media and life insurance agents, and my goal is not to train these knucleheads.

If Leatherneck doesn't reappear, I might be willing to send it you via a junk email address next week if you promise not to post it here.
Post Sat Dec 02, 2006 5:45 pm
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