I've heard some intriguing things about EIULs which are basically investment grade life insurance policies that can build up cash value for tax free use later in life.
Does anyone on here have an EIUL policy? If so, would you please explain your experiences with it?
If you have entertained the notion of getting an EIUL but concluded you'd be better without one, why did you come up with such a solution?
The thought of tax-free money from an EIUL combined with tax-sheltered real estate investment income sounds like a great recipe for a comfy retirement, but I'm not sold on the EIUL. Your take?
@Kevin Yeats nice discussion.
BP I enjoy this thread re: permanent life insurance.
I would recommend folks read Investopedia
https://www.investopedia.com/terms/u/universallife...
https://www.investopedia.com/terms/t/traditionalwh...
buy term and invest the difference vs. permanent http://www.investmentnews.com/article/20150728/BLO...
Guardian Life has a IPF rider on their WL policy https://www.guardianlife.com/news/guardian-introdu...
"The IPF is an innovative rider that individuals and their financial advisors have been looking for during this low interest rate environment. It offers a unique opportunity for index-linked upside potential, while still supporting the robust guarantees that policyholders have come to expect with Whole Life. And best of all, clients can change their IPF allocations as their needs change, so they are never locked in"
Wealthy people have bought permanent life insurance for over 150 years for many reasons.
Here are 12:
The perfect retirement plan - 12 features
1. The plan should allow for tax-deferred growth
2. The plan should provide for income tax free withdrawls
3. The plan should earn competitive returns as much as possible but still have guarantees.
4. The plan should allow any taxpayer to put in as much money as they want.
5. The plan should provide a taxpayer to use the account as a collateral for a loan.
6. The plan should protect against market losses.
7. The plan should assure access to loans should the taxpayer need money before age 59 1/2.
8. The plan should allow for these loans to be paid at the taxpayers discretion, at any rate of repayment or even not paying them back at all.
9. The plan should be protected from creditors.
10. The plan should eliminate early withdrawal penalties, late withdrawal penalties, and excess contribution penalties —- there just shouldn’t be any penalties at all.
11. The government should continue the contributions to the plan at the same level the taxpayer was contributing if the taxpayers should become disabled and cannot continue to put money into the plan.
12. The government should accelerate the expected retirement account balance to the taxpayers family if the taxpayer dies prior to retirement
If you compare these characteristics of an ideal plan and compare it with a Roth IRA,
you can’t do number four, put in as much money as you want
you can’t do number five, use it as collateral for a loan
you get to number six, protect from market losses (see rider above)
you can’t do number seven, assure access to loans before 59 1/2
you can’t do number eight, allow for loans to be paid at the taxpayers discretion or not at all
you can’t do number nine, be protected from creditors
you can’t do number 10, eliminate early withdrawal penalties, late withdrawal penalties, and excess contribution penalties
you can’t do number 11, making the government continue the contributions to plan at the same level the taxpayer was contributing if the taxpayers should become disabled and cannot continue to put money into the plan
lastly, you cannot do number 12, the government should accelerate the expected retirement account balance to the taxpayers family if the taxpayer dies prior to retirement
Permanent life insurance is much better than a Roth IRA for these reasons.
I sold UL Policies some years ago. As a requirement the insurance agent who sells you these must present you with a prospectus of all the funds.
I suggest you take a look at this prior to investing as you will be putting some of your money into "funds".
As far as I know, and I am not an agent, EIULs are not a security and thus do not require a prospectus. The application for an EIUL and any cash value life insurance policy probably comes with a small library of paperwork.
An Equity Indexed insurance product provides a return to the money within the policy that is linked to the performance of an index. The most popular is the S&P 500 stock market index. The insurance company that issues the product buys options on that index with part of the money that the policy holder has in the policy.
The insurance company and/or the company that actually does the investing "charges" the policy holder in one (or more) or 3 ways - off the top, off the bottom or off the side. They can cap the amount of return that you receive - your money will earn what the index earns up to say 10% but no more if the market does more than 10%. They can charge a fixed amount of the stock market's return - for instance, they get the first 4% of the stock index return and the policy gets the rest. Or they can charge on the side - the policy earns 75% of the stock market return no matter how high or how low. They can also combine these strategies and also change the limits each year.
So as not to fall under the classification as a security, if the index incurs a loss, the money in the insurance policy stays the same - no gain but no loss either.
Keep in mind that most insurance policies also have monthly and annual "charges."
I STRONGLY ENCOURAGE you to talk to several agents and perhaps even a fee-based financial planner. Determining the amount of insurance coverage and the makeup of that coverage (term versus permanent) as well as other factors is NOT an easy task. For the average person, the needs change every year. For someone in business, the needs change about every quarter. Planning for the flexibility in coverage is often neglected, especially when running a business.
Good luck
Does anyone on here have an EIUL policy? If so, would you please explain your experiences with it?
If you have entertained the notion of getting an EIUL but concluded you'd be better without one, why did you come up with such a solution?
The thought of tax-free money from an EIUL combined with tax-sheltered real estate investment income sounds like a great recipe for a comfy retirement, but I'm not sold on the EIUL. Your take?
I'm working on filtering my rental income through my whole life policy right now. Working with my CPA to make sure it's all above board. Will let you know how it goes in the next few months here.
I'm working on filtering my rental income through my whole life policy right now. Working with my CPA to make sure it's all above board. Will let you know how it goes in the next few months here.
I look forward to hearing how that goes. And please shed a little extra light as to how you're going about this strategy.
@Kevin, thanks for the quick rundown of an EIUL for those that may be unfamiliar.
But, really, is there anybody out there with an EIUL policy? I'd love to hear about it, especially if you're not an insurance broker.
Jeff Brown posts about them all the time on the bigger pockets blog. I LOVE his articles, I hate when he posts about EIULs. He's very smart about lots of Real Estate things, but at some point someone convinced him EIULs were good, he bought into the idea, and has been preaching it ever since. His other retirement posts are good, his other general posts are good, the EIUL stuff is junk.
I will say that he actually believes it - I don't think he's a shill for an insurance company, and I don't think he makes money off it. But the insurance companies are making money off of it. He genuinely believes it's good, and even advised his daughter and son-in-law to invest in the EIUL over 401k.
However, in general, they're a money maker for the insurance company selling it to you. There are much better financial vehicles to invest in.
The smart money buys term life insurance and invests the rest.
Oh, and one last thing for the OP, as an aside from EIULs... Don't invest in anything you don't understand. Would you tell a friend to blindly invest in "real estate" or would you encourage them to understand it first? :D
Jeff probably follows the program of Doug Andrew of "Missed Fortune" fame and books. (I checked out his book once at the library.) He advocates taking advantage of the tax preferences given to insurance contracts. Dump huge amount into an EIUL policy, a little bit of it buys a death benefit (thus it qualifies as an insurance contract with all the tax bennies), and a WHOLE LOT of it is just in an equity indexed fund--with very high expenses. The key is staying just inside of the line of death benefit vs investment account. It then reaps tax deferral status, and builds cash value that can be extracted "tax free" in retirement.
Yes, it makes huge fees for the advisors selling this. And many advocate dumping your IRA/401K asset (early if need be, with penalties), to fund this thing. And yes, the insurance company expenses passed through are high.
I looked at it, but just couldn't get comfortable. For one, it looks to have regulatory risk, as the IRS doesn't like folks having anything that looks like a free lunch. Also, I don't want any equity market exposure. The equity markets will inevitably underperform over the next 20 years, simply because currently the markets are still relatively expensive. When market valuations are in the top couple of quintiles of historical valuation, as they are now, forward returns over the ensuing 20 years lag substantially. This is just common sense. Those who spout the 8-9% long-term average return of stocks have their head in the sand and will be sorely disappointed. Same goes for bonds. The 20+ year bull market in bonds is going to meet mathematical reality, with 10 yr treasurys at 2%.
All excellent points David.
And regardless of whether or not one agrees with you about the equity markets doing well or not, if you want to invest in equities, there are better ways. By investing in an EIUL with their high fees, you are guaranteeing you will underperform the market versus sticking your money into a low-fee index fund, like something at Vanguard or whatever.
If the market does have mediocre returns, your EIUL will do worse. If the market does great, your EIUL will do worse. By paying high fees to index, instead of low fees, you're guaranteeing a worse performance.
I read that same book by Doug Andrew. An advisor was trying to sell me on the idea of putting everything into EIUL’s. After reading the book I thought it was too good to be true, and that they were both insane. How can the value never go down if it’s tied to the stock market? Even if they’re equities. It just doesn’t make sense. And the advisor could not give me a solid answer. Just, “well that’s how they work.”
I had a similar Variable Universal Life (VUL) policy for years. The fees and the death benefit ate away at the earnings and it was worth much less than I’d put in when I finally had enough and cashed it out.
Keep in mind that ALL financial products are merely tools. When used as intended, they do a good job, when used other than as intended, the results may dissappoint.
That is why I encourage anyone to talk with several advisors including a fee-based financial advisor/planner.
Term insurance has its use but does NOT solve the problem that many people run into at the end of life of having enough money to pay all the bills. Too many people use a temporary solution (term insurance) for a permanent problem.
Vanguard funds, depending on the account title, are not protected against lawsuits. Funds inside a cash value life insurance policy are (ask OJ about lawsuit protection).
NOTE: This is not legal or financial advice. Talk to a professional.
@Kyle, to address your question, ask the agent about long-term (10 and 20 and 30 year performance of Equity Indexed products. My understanding is that they will product 2 or 3 percent less than the long-term index performance. That may have changed.
In insurance company products, such as variable annuities or these types of UL policies, you commonly give away some of the "up side" potential of the market in return for having a guarantee of at least the principal you put in. In some cases, the principal guaranty periodically "steps up" to a new higher floor level. All of this protection cost money for an insurer to provide, as they're creating a financially engineered solution in the background using actual assets and complex derivative strategies.
Many VA issuers were crushed on these products when the market tanked a few years back, as they hadn't property priced in the risk of having to give investors back their principal after stock values had fallen severely. So generally the cost of this "protection" is now much higher than it was a few years ago, and these products can be quite expensive. Some financial advisors sell this "have your cake and eat it too" program pretty aggressively as the tonic for volatile markets. In many cases, it can be a viable approach.
Alot of times you're having to buy something you dont' want/need, or paying a high price for it, like a death benefit or the building of cash value, to capture the tax benefits afforded to insurance contracts.
@David- Excellent points. Everything has its ups and downs.
The way insurance companies are able to create such a product with limited downside risk, yet still tied to the market, makes sense to me. They also fully disclose fees, which are very expensive for the first ten years (having an EIUL is only beneficial long term). However, after that, the fees become a much smaller percentage of your cash value account and will end up being less expensive than mutual fund fees. Once again, we're talking long term.
I don't think EIULs are terribly hard to understand. However, I would like to know if anyone's actual experiences with it mirror their expectations. If you jump into EIULs, you gotta do it with both feet.
I have one and my wife has one. Just wraped up our third year in them and they are performing better than the illustrations we saw upfront. Regarding other comments below, the index account doesn't have any fees associated with it (like a mutual fund would inside a VUL). Only fees are the insurance related ones and when set up properly, they are as small as legally possible. I did tons of research before I bought and recommend you do too. A structural flaw by the agent can send the contract into a tailspin from what you thought you were getting. Contrary to what most people think, the way these are structured, if done correctly with a minimum death benefit, actually dont pay the agent much. (i.e. you put in $5k/year, agent gets about $1500 upfront and pennies each year after). When structured maliciously, the agent will pocket $5k in the first year... hence the need to make sure yours is structured right. The slight variance can mean a few hundred grand more in your pocket in 30 years and a much better vehicle to save money in. Find a local agent who you trust and has done dozens of these. Run the illustrations with him and ask him to see the "Target premium". Thats what he/shee will make. If it's anywhere close to what you are paying into the contract, it's not the investment you sought out for. If it's around 15-30% of the amount you are paying in the first year, you've got yourself a good agent and solid policy structure. Note: Minimum/Increasing death benefit is key for people who will pay into the contract for 7-10year or more. Level/Minimum is key for those who will stop funding after 4-5 years. If you plan on paying forever and get a Level death benefit, you aren't in as good as shape as you could be. Hope this helps!
I was in one of these for about a month until it came back that I tested positive for tobacco (I used to chew, yummy huh?) so they thought I was a "smoker" and I ended up cancelling it instead of paying the higher rate. My investment adviser was absolutely furious the next time I saw him and I finally figured out why, he was out some SERIOUS up front fees and future percentages.
Scott Burns does a series of articles called Annuity Watch where he compares returns vs. low cost mutual funds. Good read.
http://assetbuilder.com/blogs/tags/Variable+Annuity+Watch/default.aspx?GroupID=6
Hope he's not your "adviser" anymore.
FWIW, Financial Advisers should be fee only. If you aren't paying them, you're the product, and they're selling something to you and making money off of you.
Aside from the 'insurance contract' angle in these things, I'd still stay far, far away from equities... and bonds for that matter, for the next several years, until average have experienced some mean reversion.
That's a depressing article, although I found it very informative and potentially useful as I attempt to navigate the next few years of my financial future.
So, by my tally, one person has actually purchashed an EIUL and he's happy with it. Anybody else?
Frankly, I would suggest you keep your insurance protection separate from your investment. Most life insurance experts agree you’ll get more returns from your money if you invest in stocks, bonds and equities and not in a [LINK REMOVED]. Instead, get more coverage for your money by buying term life insurance. You can invest the difference between term and EIUL into an investment instrument that would most likely reap more profit for you in the long run.
Denise Mancini
Disclaimer: I work for AccuQuote and this is my personal opinion.
Denise Mancini
Disclaimer: I work for AccuQuote and this is my personal opinion.
So Denise, if I follow your advice and own a real estate business with a partner and have a business breakup and my former partner sues me, those investments are protected from attachment?
Same if I get sued because of an accident or incident on one of my properties, I am protected correct? I will know that these counterparties cannot get to the money that I set aside.
I don't think that "most life insurance expert" agree to buying term and investing the difference. There is an ongoing strong disagreement in the best approach to life insurance.
You're right, most "life insurance experts" would not agree, because there are two different groups that have very different motives.
I think I think most financial experts getting paid for their advice (ala a fee-only financial planner, etc) would agree that EIUL, VULs, etc. are inferior and term life + investments are the way to go. Their motive is to make you the most money possible.
Most insurance salesmen, on the other hand, would agree that EIULs, VULs, etc. are the best way to go. Their motive is to make themselves the most money possible.
Joe, you and I will have to agree to disagree.
There are plenty of agents who advocate term only and there are many that advocate some form of permanent insurance and many that advocate both term and permanent insurance.
The truth is that one size ... or type of life insurance ... does not fit all. That only works with hats.
A quality agent first understands a client's needs and then proposes the best insurance coverage.
I know plenty of fee only planners who strongly recommend permanent life insurance plans ... especially for those people who work in professions that can easily lose civil lawsuits. They are hardly motivated by a commission.
I will stick by my bottom line message posted previously. Most people will be well served to talk to several qualified financial professionals.
@Kevin Yeats nice discussion.
BP I enjoy this thread re: permanent life insurance.
I would recommend folks read Investopedia
https://www.investopedia.com/terms/u/universallife...
https://www.investopedia.com/terms/t/traditionalwh...
buy term and invest the difference vs. permanent http://www.investmentnews.com/article/20150728/BLO...
Guardian Life has a IPF rider on their WL policy https://www.guardianlife.com/news/guardian-introdu...
"The IPF is an innovative rider that individuals and their financial advisors have been looking for during this low interest rate environment. It offers a unique opportunity for index-linked upside potential, while still supporting the robust guarantees that policyholders have come to expect with Whole Life. And best of all, clients can change their IPF allocations as their needs change, so they are never locked in"
Wealthy people have bought permanent life insurance for over 150 years for many reasons.
Here are 12:
The perfect retirement plan - 12 features
1. The plan should allow for tax-deferred growth
2. The plan should provide for income tax free withdrawls
3. The plan should earn competitive returns as much as possible but still have guarantees.
4. The plan should allow any taxpayer to put in as much money as they want.
5. The plan should provide a taxpayer to use the account as a collateral for a loan.
6. The plan should protect against market losses.
7. The plan should assure access to loans should the taxpayer need money before age 59 1/2.
8. The plan should allow for these loans to be paid at the taxpayers discretion, at any rate of repayment or even not paying them back at all.
9. The plan should be protected from creditors.
10. The plan should eliminate early withdrawal penalties, late withdrawal penalties, and excess contribution penalties —- there just shouldn’t be any penalties at all.
11. The government should continue the contributions to the plan at the same level the taxpayer was contributing if the taxpayers should become disabled and cannot continue to put money into the plan.
12. The government should accelerate the expected retirement account balance to the taxpayers family if the taxpayer dies prior to retirement
If you compare these characteristics of an ideal plan and compare it with a Roth IRA,
you can’t do number four, put in as much money as you want
you can’t do number five, use it as collateral for a loan
you get to number six, protect from market losses (see rider above)
you can’t do number seven, assure access to loans before 59 1/2
you can’t do number eight, allow for loans to be paid at the taxpayers discretion or not at all
you can’t do number nine, be protected from creditors
you can’t do number 10, eliminate early withdrawal penalties, late withdrawal penalties, and excess contribution penalties
you can’t do number 11, making the government continue the contributions to plan at the same level the taxpayer was contributing if the taxpayers should become disabled and cannot continue to put money into the plan
lastly, you cannot do number 12, the government should accelerate the expected retirement account balance to the taxpayers family if the taxpayer dies prior to retirement
Permanent life insurance is much better than a Roth IRA for these reasons.
hello my name is bobbie dancy and i am unfamiliar with eiuls can someone help me
hello my name is bobbie dancy and i am unfamiliar with eiuls can someone help me
Hi Bobbie:
Equity indexed Universal life insurance
This is part of the life insurance family, let’s start with the basics:
This is part of the life insurance family, let’s start with the basics:
There is term insurance and there is permanent insurance
The two basic types of permanent insurance are whole life insurance and universal life insurance, each having a cash savings component.
Universal life insurance can be tied to an index that mirrors generally fortune 500 companies.
There is generally a floor which means you can’t go below a certain amount which is usually 0% (you cant lose principal)
And there is a cap which is generally between 8 and 12% ( if you are more than the insurance company makes that difference)
In a regular mutual fund you pay for gains and losses. You can make money and lose money.
It is the losses that makes it difficult for a true rate of return to be terrific.
So if you have an equity indexed Universal life insurance policy, your cash value will grow between zero and 8 to 12%, and you can get access to those funds by borrowing money.
The thing that is unique to cash value life insurance is that the cash value growth will always continue even if you borrow money from it or not. Think of it like collateral for a loan. You put up a cash value for collateral to borrow your money but the collateral keeps growing like the loan doesn’t exist .
It is more expensive to buy permanent insurance whether it’s whole life or universal life.
It is the ability to build cash value in the policy with safety features of no losses and if you get disabled and can’t pay the insurance company will pay that make it an important tool in financial planning.
There is a movement in this country to buy policies that are permanent and build cash value that you have access to down the road in 10 or 15 or 20 years versus trying to put money into 401(k) or IRAs where there’s a lot of rules as far is withdrawing the money and paying penalties if your timeframe isnt incorrect.
A lot of stockbroker types will say that you should buy term insurance and invest the difference.
It is not an either or a conversation, but what life insurance tool works the best and in different situations and when in your life do you need it.
A young family with small kids should have a lot of term insurance to protect in case there was an untimely death and save six months of emergency funds in case somebody loses their job or has an illness, and take advantage of their employers’s matching program in their 401(k) .
Because we are living longer and longer, medical bills are going to be approximately $200,000-$250,000 that we did not have to plan for past age 65. Sandwich generation folks that have parents in their 70s and 80s are finding that they need to help out their parents with long-term care and other issues. The new policies that are now available will allow you to have living benefits payments to handle some of these bills. The older policies did not have these living benefits available.
Protecting your paycheck is another need especially for self-employed people that if they can’t go work their business then They have to go bankrupt or at least get into a lot of trouble with their credit rating. Disability income insurance helps people protect their paycheck,
I hope this helps somewhat.
Yes it does... Thank you. Any down side to it?