My wife is a 100% service connected disabled vet so I can tell you a lot of stories, both good and bad, about VA health care. However, I’ll leave that for another time and place. As for the Indian health care system, our agency has several Native American clients. I always enjoy their health care stories. I’ll also leave that for another time and place.

Willard,

Untaxed loans is a clever way of saying tax free, at least to me. Since it is allowed in the code and is tax free, I guess I’ll still call the money tax free. BTW, congratulations on a nice article in the InsuranceNewsNet Magazine.

Hopefully, you’ve read the controversial 26 CFR 1.861. It is the only section in the code that actually describes the four types of income that are taxable.

That too is ripe for another place and time.

I wish everyone a great and prosperous day.

Tom

Your initial comments are on target, including your reference to the consequences of a policy lapsing. However, I highly recommend that you refrain from calling these loans tax-free. The are untaxed loans.

Please read my article in the April 2009 issue of InsuranceNewsNet Magazine. This edition can be accessed from my website.

Willard R. Brumbaugh, LUTCF

But back to retirement planning. When searching on the keywords Tax-Free Retirement, I find only you and Patrick Kelly even talking about it. Can you give me your take on how a good life policy compares to the typical Roth IRA?

Thank you for your clarity on the EIUL. I hope it reaches a wide audience. As for the politicians, one can never tell what they will do with the tax code to screw you and I while keeping their benefit package intact.

A good example is the non-answer to the simple question of after you pass health care reform, are you leaving your current plan to join the government program?

BTW, I live near the Mustang Ranch and can still remember when the government took over control and actually ran it as a business. If memory serves correct, they went out of business in 6 months. This begs the question, if they can’t even make a profit running a whore house, how are they gonna manage health care?

The Technical and Miscellaneous Revenue Act of 1988 (TAMRA) set concrete limits to premiums that could be paid in without destroying the tax deferment. Exceeding those limits creates a Modified Endowment Contract, which has much less advantageous taxation of cash values and loans.

The new definition of tax-deferred life insurance that resulted from this reform has been in place for over 20 years. In making the reform, Congress recognized the social value of life insurance and determined to protect its fundamental character. How the underlying cash values are invested has little to do with this. As performance over the long term for any investment strategy cannot be guaranteed, bureaucrats proposing to tax EIUL as such would have to make prospective judgments that clearly cannot be supported. What would be a ‘gratuitously excessive’ rate of return? And how will we know that a particular financial vehicle will violate it? Given that there are in fact costs associated with the life insurance benefits–costs that have an impact on return–and that these benefits are real and socially useful, I don’t see this product being attacked.

I do see the likelihood that the product could be lumped in with Variable products. Requiring that sellers be securities licensed is probable. And that would be a shame, because there is little understanding of this valuable concept among securities practitioners.

Hard to tell when our newly annointed king will act but here is a tidbit from an AP article about how fast Social Security is disappearing.

They actually printed this sentence:

“The trust funds- which exist in paper form in a filing cabinet in Parkersburg, W.Va.- are bonds that are backed by the government’s “full faith and credit” but not by any actual assets.”

Given this is true, one can reasonably assume that the smoke and mirrors that is called Social Security applies to EVERY agency created by the USG.

I bet you can figure out how all of this is relative, right?

Aside from that, I wonder how long it will be before the Obama administration closes “the EIUL Loophole”?

Thank you for the risk and potential penalties reminder. As I mentioned in the post, anyone considering using this vehicle needs to do their research before using it. Truth is, no matter what you plan to use, you should do your research.

Here’s another point nobody wants to talk about – the political thinking on various investments as being appropriate for the unwashed masses. I’ve been reading numerous articles by tenured professors on the retirement plans available to the working stiff and, to me, it is quite amazing they all seem to be in favor of a government retirement program for the people while their plans are to remain as is.

Yes sir, do your research because it is a very important component of your retirement program.