IUL Question

[Peds]

Gamma Knives wrote:

This thread is year and a half old but was bumped to the top by a question about getting out of a policy. If that discussion needs to be continued it would probably be better served by its own thread.

I don’t know anything about running a forum. Could there a warning if you are posting in an old thread with a suggestion to start a new topic rather bumping up an old post? Or auto locking posts after a few weeks of inactivity?

Click to expand...

hopefully that button worked. agree new topic.

theres a nifty little time stamp at the bottom of each post.

its not harmful to post on old threads and can be adjusted when needed.

[Gamma Knives]

This thread is year and a half old but was bumped to the top by a question about getting out of a policy. If that discussion needs to be continued it would probably be better served by its own thread.

I don't know anything about running a forum. Could there a warning if you are posting in an old thread with a suggestion to start a new topic rather bumping up an old post? Or auto locking posts after a few weeks of inactivity?

[afan]

The OP just might need life insurance. With a special needs child one should do that planning very carefully. If the amounts intended for the SNT cannot be funded up front then insurance for a while might be the answer. Hard to see a need for permanent insurance. Start funding the trust and use term, owned by the trust, I assume, to get the value up where it is needed. As time goes by the need for insurance should go down and eventually end. So no need for permanent insurance.

[FIREshrink]

The whole thing is preposterous. With a net worth over five million dollars you don't need life insurance at all, even with a special needs child, unless your estate is unusually illiquid. We only keep our term insurance for karma, and when our policies lapse in ten years or so we won't be buying new ones. That's one of the rewards of achieving a high net worth: you can self insure any number of risks, including your future death.

Agent is appealing to your ego to sell this crap, and apparently it is working.

[afan]

Am I the only one appalled at the suggestion to borrow money to put even more into the policy? Ten to one leverage???

As for he typical life insurance claim of a TAX FREE!!!death benefit- that is the same as if one had invested the difference in a taxable account. Heirs would inherit the money tax free. With the low tax rates on a total stock market fund or a blend of such a fund plus munis, tax deferred accumulation is not worth much.

Years ago when I was considering a permanent policy for a life insurance trust I got information on an IUL policy. The agent was eager to talk with me about it and seemed quite disappointed when I said to send me the documents and I would reach out if I had questions. Although the illustration made many references to "as described in the prospectus" it took multiple requests to get that sent to me. It was eye opening. It was over 100 pages of fine print and as I dug into it I realized I needed to take a lot of notes.

There was no consolidated table of all the expenses. Instead I had to find and tally them one by one. As others have noted, the credited return was not based on the full cash value, the cap would eliminate the big advantage of stocks when the market had high returns, the costs of insurance were not guaranteed, the level of the cap was not fixed, and so forth. Even worse were the fees that were applied to the investment account. The actual amount I would have received was not the calculated index return, even in an uncapped year. Instead, that was before costs. Annual expenses on the investment part, not including insurance charges, which were assessed separately, were over 4% . In effect, an index fund with a >4% expense ratio with capped returns and potential insurance costs far higher than illustrated.

When I did get back to the agent they at first claimed I had misinterpreted the information and got a lecture on why I needed their help to understand. So I dragged the agent through the prospectus table by table until they admitted I was right.

That convinced me that I wanted no part of that policy. Anyone considering an IUL simply has to work through all the details. Puff piece emails are meaningless.

[djohnflatfeecfp]

A few thoughts:

 

1. If you ever want to quickly determine whether someone is a real or fake financial advisor, tell them you're interested in an IUL.  You wrote out 'advisors.'  I think you were correct those are not real advisors.


2. If you have a special needs child, the legal documents are going to be of critical importance.  This is something the average attorney shouldn't try and prepare.  ************************, a lot of estate planning attorneys won't touch them either, depending on the complexity of the situation. https://www.specialneedsalliance.org/ is a great resource to find a qualified special needs attorney near you.


3. $5 million of net worth should go a long, if not all the, way to providing the care for two generations.  Especially if there is a situation where your child qualifies for benefits such as SSI or SSDI.


4. If an insurance policy is needed, a second-to-die may be more than sufficient to provide that "tax-free death benefit" they put in all caps.  Heck, I know advisors who help their clients get SSI and then these funds help offset second-to-die life policies.


5. I agree with Vagabond about your CPA.  At a minimum, ask him/her why they recommended this group.

 

[Vic]

Well, 3 years ago I was bamboozled into buying an IUL by my CFP who I just fired.  Yes, my bad for trusting him, but more importantly I am trying to find a way to undo the mistakes without hopefully costing me a fortune.  Someone suggested a 1035 conversion to a Vanguard Variable Annuity.  Is an annuity actually a good product or just another costly gimmick like IULs?  Any other thoughts on how to get rid of an IUL policy with the least amount of $ loss?  Since I fired the CFP, I have been learning daily and diligently about DIY financial management, but also drowning in the amount of information out there, so any guidance is GREATLY appreciated.  Thanks very much!