On Feb 16, 10:00 am, "Nick" <nick_1...[at]yahoo.com.cn> wrote:
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If you need more life insurance, just buy an appropriate straight term
policy.

Separating the investment from the insurance is normally the way to
go. The commission structures in life insurance *tend* to overwhelm
any gains on the tax side.*

* there are undoubtedly exceptions, perhaps to do with estate
planning. Not my area.

On Feb 15, 9:13 pm, joetaxpayer <joetaxpa...[at]nospam.com> wrote:
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Thanks a lot, guys. There are always so much to learn. I think you are
right. It is really too early for me to buy extra life insurance since
right now, there are many things are still uncertain. And I already
have term life in our company policy. So, I think, mutual fund is the
right market I should put my investment to.
Thanks again for so many great inputs.

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True, but things change. I was an "extreme saver" too. I could live on
crackers and water, save every dime I made, and be completely happy.
Wives and kids change that. Now I would rather enjoy my time with my
family in the form of vacations and such. Every penny I spend on them
is a penny I no longer save.

The "IF he does not marry or have a child" in your post is the
concerning part. The main point of my earlier post, as Cal confirmed,
is an ever increasing chance of health problems. You're right that he
could probably save enough money now to offset the increased premium
costs of delaying the purchase. But only if he maintained his health
status! In an ideal situation he would postpone buying insurance until
the day before he absolutely had to (instant death or uninsurability).
That kind of foresight is rarely afforded to us mortals.

My point was that there is a chance that he MAY at some point need the
coverage and waiting only increases the chance that health problems
may arise that can limit or entirely prevent his obtaining coverage.
The decision is his, but I would really be kicking myself if I waited
10 years, started a family that depended on my income, and then
applied for insurance only to find that I was now uninsurable or table
rated becuase of a health problem.

P.S. for simplicity I have disregarded the "Life settlement" aspect.
Under the right circumstances it has the potential to not only recoup
all expenses into a policy but also turn insurance into a worthwhile
investment (which I acknowledge that it ordinarily is not, financially
speaking). Spitzer understands the importance of this facet of the
industry and that's why he is rapidly moving to bring regulation to
the sector (and rightly so).

kastnna wrote:


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The OP is an 'extreme saver' it would appear. If with a $97K income, he
maxes out his 401(k) and still wants to invest $20K more, he'll likely
not be working at 57, and if he is, it won't be to pay his bills.
Of course, we can't forecast the rest of OP's life, but if he does not
marry or have a child, any life insurance is a waste of his money. He
can make sure disability is covered to the max, but I find the advice to
buy life insurance now before it goes up to be suspect. If he saves the
premium at today's price, he will probably be able to fund however much
it goes up by the time he needs it, if ever.
(I have insurance, I bought a small term policy upon graduating school
to pay my parents back money I owed. Then a term policy when I got
married at 32. With an 8 year old whose college account is overfunded, I
won't need life insurance for more than another 10 years, and the term
runs out in 12, at which point I'd consider long term care insurance,
not life)
JOE

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Furthermore, if one were to inflation adjust funeral expenses they
might find that $25k might not even be enough.

To the OP, It is important to factor inflation, when applicable, to
coverage amounts. Not so much mortgage expenses, but burial expenses,
income replacement, college funding, etc...

Our firm is over 35 years old and we have clients that bought $25K
back when Coke was a nickel. That was ALOT of insurance back then. Now
$25K doesn't get you much.

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Another "unforseen debt"...................

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EXTREMELY astute of you and your agent.


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An excellent company. I was thier LEADING Agent in1964.....
receievedmy CLU & MDRT thru them

They are now ING.

Cal Lester CLU

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EXCELLENT analogy. The health risk associated wioth ageing
is a VERRRRRRRY important factor

Cal Lester CLU

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You do not tell us the size of your family, or what it MIGHT grow to be.
IF there are children, it is possible that you might want to INCREASE
that 25K permanent policy.
There is generally a need for MORE that funeral expense ! ! ! ! ! ! !

Cal Lester CLU

Nick wrote:
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This has been hashed out in other replies but just two key thinking
points I wanted to add...

1. as is typical you've been presented with a tax-related motivation for
buying VUL - that idea of loans against the policy. Why do you think you
need to go to these lengths -- an expensive, restrictive "investment"
vehicle -- to avoid taxes? At the moment you'd retire in the 0% tax
bracket. Why do tax planning for money you don't have yet?

2. you already said it but it's so important that you really need to sit
on it and make sure it's acceptable (it rarely is)...you're stuck with
this until death. Hopefully that's 60 years or more away. 60 years! So
you'll be funneling a huge amount of excess cash every year into a life
insurance policy that you don't at the moment need, that offers
"investments" that you might not like six months from now, to avoid
taxes that you might not even have to pay 40 years from now. A lot can
happen in the next 5...10, 15, 20, 25, 30, 35, or 40 years that might
make you want to get your hands on the money without worrying about
blowing up your policy and triggering a tax bill.

-Tad

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Just LUV that last line................
Cal Lester CLU

Nick regardless of your decision, beware of "captive" insurance
agents. They work for one particular company and have a financial
incentive to sell that company above all others. If you walk into a
Northwestern Mutual office you're more than likely going to get a
Northwestern Mutual product even if there are better companies out
there. Captive agents CAN sell other companies (through BISYS mainly)
but their commissions are greatly reduced.

Look for a multi-appointed non-captive agent or shop around yourself
through multiple agents. CLU, CFP and a few others I forget are also
preferrential.

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$130/month total ($64 for me and $66 for my wife).

The policies are 300k term (for each) and 25k permanent (for each).
The exact amount of each policy I am not sure of. Wife's policy is
slightly more because she told the nurse giving the physical she had
one puff of a cigerette when she was drunk on a business trip 6 months
prior to the physical. Her premium went up because of this.

The 300k included paying off all our debt (we each had student loans
at the time, car payoffs, mortgage payoff). The student loans have
gone away since... but we also moved and have a higher mortgage.

The term could be converted to whole life when it expired, we thought
the permanent policy at our young age made sense (relative to
converting the term). The payment difference of what it would cost 20
years later for the whole life policy did not "appear" to make sense
to me.

Our policies are through Indianapolis life, I believe. We use the
same insurance agent for car, house and life insurance... he shopped
for the best deal and I trust his judgement.

Cal is also partially right that you don't need the insurance right
now. There is one reason, however, that has been overlooked. The
simple fact is, as we get older health problems arise. I have seen two
clients in the past two years that considered life insurance 3 - 5
years ago but "didn't need it." Now they have a wife, family,
mortgage, and nest egg that need protection. Unfortunately, one of
them started taking anti-depressants (job stress, bills, wife, etc.)
and the other got a DUI. Both are no longer available for the
preferred rates they originally anticipated. Now they are paying
almost twice what they would have paid 5 years ago. With term in
particular, the price does not drastically increase with age
(especially when you are younger) but it does if health ratings
decline. You should consider buying now to "save health."

Certain progressive diseases are deal-breakers for young people. Mild
coronary artery disease (even only 5% progression) is not a big deal
for a 65 year old, but I have seen it render a 30 year old
uninsurable. The thinking is that the 65 year old will have lived an
average life expectancy before it develps too severely, and a younger
person will not.

VUL is probably not a good choice for many of the reasons listed in
other posts. Insurance is in an inferior investment vehicle to most
other options. The expenses are killer and 12% average return is
probably over-zealous.

I would consider term or low-level premium UL (especially at your
age). Term is a good option but what happens in 10, 20, or 30 years
when your coverage runs out and you still need the protection? You are
still exposed to the declining health risk factor and you are going to
need to be underwritten and re-aged at 37, 47, or 57. Term for a 57
year old man ain't cheap (especially when you've been paying relative
peanuts for 30 years). What if you're lucky enough to have made alot
more than the estate tax exclusion allows for? What if Congress
changes the laws out of the tax-payers favor? INSURANCE MITIGATES
RISK. It does not optimally grow investment dollars. Of course you
could also buy 10 year term and convert to UL once you have a better
idea of the risks you will be exposed to. Converting saves health
ratings, but not age.

There are many UL products that guarantee coverage for various time
periods and grow very little cash value (so they're cheaper). If
bought from a reputable company you may also be able to "settle" the
policy should you no longer need it and get far more than the cash
value of the policy. I've seen 67 year olds sell a $500K policy to an
institution for $200K even though the policy had almost no cash in it.
But life settlements are a whole different debate.

FWIW, $500K death benefit = 10year-$20/monthly, 20year-$31/monthly,
30year-$47/monthly (all at preferred health). But at age 57 if you
needed 10 more years (income replacement to retirement?) at standard
health would be about $180/month at today's rates. UL is about $100
month (with same variables) but goes to age 100 and could likely be
settled to recoup $100K-$200K of the expense.

On Feb 14, 9:21 pm, joetaxpayer <joetaxpa...[at]nospam.com> wrote:

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Good advice.

I would add that it's normally beneficial for an American to buy a
house at some point. There are tax advantages to same, and the
demographics of the USA (in contrast to many industrialised countries)
are highly favourable (population keeps growing) whilst at the same
time zoning seems to get tighter (constricting new supply).

That said, in many US markets housing still looks very overvalued
relative to historic multiples of either average income, or rental
income. The general principle is good, but the timing for house
buying is still very poor*.

* I am conditioned by living through 2 housing crashes. In both
cases, there was a slump, and everyone called the bottom-- ie they saw
it as a normal slowdown in a booming market. Then there was an
absolute howling crash, with prices for the same property dropping by
20-30% in the subsequent 2-3 years. I feel that the US is more likely
to be in the latter situation in the short term.

- quote -

Thanks for sharing this information with us. How much does your 20
year term insurance cost? Just curious.

On Feb 14, 4:21 pm, joetaxpayer <joetaxpa...[at]nospam.com> wrote:
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My first insurance policy was not purchased until I was married (age
30). At that time most of the insurance we bought was 20 year term
(to cover the mortgage, bills and income lost from either spouse).

We also purchased a much smaller permanent insurance product to cover
funeral expenses. Because the "death" part of this is going to
happen, we have a policy which would pay 25k now (cash value is only
$400-600 in year 4 of the policy), and this cash value will compound
to increase the benefit to more than 25k.

I do not know what the costs of the insurance and commissions were.
We had a permanent need and saw the need for a small amount of
permanent insurance.

Nick wrote:
- quote -

Consider this - the perceived compounding over time does the same thing
to expenses as it does for positive growth. 1% per year in extra
expenses over 40 years is a 33% hit to the account. Capital gains and
dividends are taxed at 15%. In ETFs or Mutual funds, there is some
control over when you take those gains/ losses. We had a lively debate
here a while back, and I produced a spreadsheet that showed that even
with a .25% adder, a VA (this was a Variable Annuity, not a VUL) would
not be beneficial compared to investing in taxable accounts.
Seek out the lowest cost indexes (sub .20% is good, some foreign funds
are a bit higher) and over time, you will be far ahead of any life
insurance product chasing tax dodges.
JOE

On Feb 14, 4:59 pm, "Cal" <cal-les...[at]comcast.net> wrote:
- quote -


Thanks a lot. I think you are right. I have read many posts about it,
and as an insurance policy, the first should be an INSURANCE, then is
investment.
I already have Roth IRA and 401k, and the question I was asking to
myself is, "where is a better place to put my money". Mutual Funds of
course is a good place, other than that, my friend then recommended
this to me. The part that I thought was good is the tax shelter
advantage and also with the time compounding logic which sounds like
very powerful.


======================================= MODERATOR'S COMMENT:
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On Feb 14, 3:11 pm, joetaxpayer <joetaxpa...[at]nospam.com> wrote:
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My comment wasn't really based on the estate tax. It was more
targetted toward the idea of tax free loans. Agents will say you can
borrow money out but you really can't borrow too much out without the
policy collapsing. So you must plan on leaving the leftover cash value
balance+death benefits to your heirs.

Now in terms of estate taxes, I personally think someone who will see
tax benefits from a VUL is sunk no matter what. If you are (1) maxing
out 401Ks/Roth IRAs, (2) maxing out a VUL which can be 2X/3X/4X the
401K/Roth IRA contributions at the 500K/1M policy level, (3) putting
plenty in taxable accounts -- you are a high income extreme saver. If
you run extreme savings projections for a decade or two or three, the
numbers just get absurd. Sure you could try to become a wild spender
during retirement in an attempt to use up all the cash but in all
likelihood, you'll have problems fighting your fiscal tendencies and
leave an insane amount to your heirs.

wyu[at]talisys.com wrote:

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snip
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Is your analysis based on estate taxes going back to the $1M threshold?
And then suggesting this may make sense if the estate is well over $2M
(taking the spouse into account)?

If estate taxes are eliminated, how would your view change?
JOE