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Post by sd51555 on Jan 28, 2017 16:52:35 GMT -6
It's killing me to not mention this. Lots of shady players give this stuff a bad name, but I wanted to share how I finally got a policy set up so that it works for me. Please feel free to poke away at this. I took my guaranteed projection and plugged it into a spreadsheet to analyze it every way I could think. But first, my big reasons: 1. I wanted to create a low interest war chest of capital to use as life went on. I didn't want to have to do business with bankers. 2. I wanted to have a safe leg to my portfolio so I could go exclusively aggressive with the rest of my stuff. 3. Don't plan to pay much income tax after I turn 60. This is in case I move back to high tax MN. I'm planning to slide in there with no penned up tax bills. 4. Could give a shit less about making anyone rich when I croak. I plan to use up most of it before I go. How this one works: I bought a $100k policy. I also purchased a "modal paid up addition" rider. This is the special part. Base premium is $93/mo. I have the right to add $100 each month to purchase paid-up insurance. That basically goes straight to cash value. That's why this returns value more than twice as fast as a standard whole life policy. This also is not one of those policies that can underperform and require catch up contributions to keep it in force. Each year, I can increase the rider amount by 25%. So Year 1 $100 Year 2 $125 Year 3 $155 Year 4 $195 Year 5 $244 Year 6 $305 Year 7 $180 Year 8 expires and just the base $93 remains. By the numbers, I have broken even on cost vs value at 9 years with no consideration for inflation. After 28 years, the tax adjusted cumulative return for me is about 5.5%. I am borrowing cash from this and a half dozen others at 4.2% right now, and soon there won't be a lien on the property. No, I don't sell this stuff. It just pains me to see it done wrong by even agents who don't understand it. They make about half the commission on you when it goes this way, so you have to beat it out of them to see if they offer it.  |
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Post by MoBuckChaser on Jan 28, 2017 17:08:17 GMT -6
So your loaning money to your self basically.
And all that wordage for maybe a 5.5% return before all the fee's?
Sorry SD, would not be my choice of an investment.
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Post by smsmith on Jan 28, 2017 17:11:24 GMT -6
I'm no brain surgeon, but a 5.5% "tax adjusted" return after 28 years? More power to you, but not what I'm going to bet my future on
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Post by MoBuckChaser on Jan 28, 2017 17:27:54 GMT -6
The problem is 5.5% is not guaranteed! Plus you are investing, and I use that word investing loosely, in one company. If that company has a bad year or two, or goes broke, you are in big trouble!
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Post by sd51555 on Jan 28, 2017 17:55:12 GMT -6
As any one tool, be it an investment, a borrowing mechanism, or actual death protection, it's mediocre at best. Put them all together, to me, it looks a little better. I look at it as a savings tool that I can borrow from, returns better than savings accounts or bonds, and doesn't have some cheese eater in a tie deciding whether I'm worthy of borrowing it, telling me when I've got to pay it back, or hitching liens to my stuff.
This is all through the KC's which is a fraternal mutually owned insurance company. I don't get the interest back directly, but I do get my share of the profits of the whole outfit as a policy holder. This past year, the average dividend was about 2.5% of my total cash value of all the policies. Paying 4.2% on 90% of what I've got, but also receiving 2.5% back in dividends.
This is the same scheme that made Disney Land and McDonalds happen.
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Post by sd51555 on Jan 28, 2017 18:10:00 GMT -6
The problem is 5.5% is not guaranteed! Plus you are investing, and I use that word investing loosely, in one company. If that company has a bad year or two, or goes broke, you are in big trouble! I won't BS ya, when the big banks and big insurers like AIG were going under in '08, I was damn curious to see how the Knights were going to come out of it. The dividends weren't spectacular in those years, but the cash value was credited exactly as it was supposed to be, and there were still some earnings to be had, they were just low. The stuff insurance companies invest their money into wasn't paying anything, and to now still isn't paying much. But these loans as well as abandoned policies still generate some good income for the outfit. Not so good for the guy that walks away from his policy early, or the term guys. IMO, buying plain whole life or term is a waste of money. Term is cheap, but it costs you money and if you fail to die, you're left with nothing. Whole life is expensive and it'll take 20-25 years to just break even. If a guy used term to cover his untimely death needs as well as something like what I've put up above, you can at least get your money back and use it for other things down the road, while spending a lot less than plain whole life. |
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Post by sd51555 on Jan 28, 2017 18:13:13 GMT -6
I'm no brain surgeon, but a 5.5% "tax adjusted" return after 28 years? More power to you, but not what I'm going to bet my future on It's less than 8% of my assets. Just a small part of the pie. |
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Post by MoBuckChaser on Jan 28, 2017 18:14:00 GMT -6
Since I am old, I will tell you how it works. Unless you have a family, or a child that may have needs for the rest of their life. You don't need any life insurance, let alone whole life. You can borrow against a 401K and have a pile of companies the invest in instead of one company. Most of the people that borrow against there life insurance never pay it back anyways, the have every intention to pay it back, but don't. Also, Most policies Lapse within the first 10 years. So you loose huge money if that happens. Plus, There is NO guarantee of a exact percent of return, because they can change the rules anytime they see fit. Also they are not bound to give you a prospectus like a mutual fund on all the costs associated with the policy you just bought. And believe me, they have more hidden fees than you can imagine! Whole life is not insured by the FDIC either. If that one company goes down, your done. The insurance company has actuaries that track all this crap, that is why they get to build huge buildings with someone else's money.......yours!
But, if you are happy, that is all that matters, not what we say!
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Post by leexrayshady on Jan 28, 2017 18:37:58 GMT -6
Is there any other option to get the security you looking for? If you're not going to leave anything for heirs why go the life insurance route.
But It all boils down to if it's right for you its right for you. I trust insurance people as much as bankers
Me and my wife bought 250k 20yr term policies for about $110 a year. She is skinny and healthy, me I'm chubby and never exercise but hers was more expensive because get dad died at age 50 of a heart attack, screwy system if you asked me. Reason we bought was to pay off any debt we had at the time. Now being debt free we can just use it for extended time off or what ever the other wants to do with it.
Wish we could have a crystal ball to know what the right thing to do is
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Post by Foggy on Jan 28, 2017 19:06:44 GMT -6
Why would you pay an insurance company an interest rate to borrow YOUR money?  ? If you put your money in a bank.....the bank (by law) must loan you money back to you at 1%. cost to you over the rate you are currently getting. So.....tell what you have accomplished by letting the insurance company profit off of your savings?? I agree with MO......if you don't have anyone that is dependent upon you......then whom are you insuring? Not good judgment IMO. These insurance companies have a pretty smooth sell.....and they do have a few tax advantages. but mostly they get OPM for cheap. (OPM= Other Peoples Money) It don't add up SD. But if you like it.....then, go for it. I predict that one day you will have an "AH HAH" moment and understand what is being said here. |
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Post by sd51555 on Jan 28, 2017 19:08:43 GMT -6
There's always the 401k loan, but that carries it's own risks. You leave your job before its paid back and you get crushed with taxes and penalties if you can't settle up. 401k loans can be more rigid in repayment, and right now for example, more expensive. Fidelty wants me to pay myself 5.6%, which I don't understand. When I did it last time it was 4.5%.
You could do a home equity loan, but then you've hitched non-home debt to your home and at a variable rate. Both of those are risks I'd prefer to not take. I never know when I'm just gonna blurt out "Fuck this" in a meeting, and walk out.
I don't really do savings accounts. Seems like it's harder and harder to avoid having to pay fees to have one. So in my situation, that leaves me with selling stuff that is doing well right now, and I don't really want to do that. I'm carving some off, but nowhere near an account raid.
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Post by Foggy on Jan 28, 2017 19:15:53 GMT -6
The old saw "BUY TERM AND INVEST THE DIFFERENCE".......is '/ was / and will be sound advice for a long time to come.
The other thing I don't get is when you don't have a dependant.....whom are your insuring your demise for? that insurance risk costs money......I don't care who you are.
Stick to the fundamentals.......seems to me you have some tables and stuff clouding your vision on what is real here.
......last post. ( I mean well for you)
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Post by sd51555 on Jan 28, 2017 19:25:14 GMT -6
Why would you pay an insurance company an interest rate to borrow YOUR money? ? If you put your money in a bank.....the bank (by law) must loan you money back to you at 1%. cost to you over the rate you are currently getting. So.....tell what you have accomplished by letting the insurance company profit off of your savings?? I agree with MO......if you don't have anyone that is dependent upon you......then whom are you insuring? Not good judgment IMO. These insurance companies have a pretty smooth sell.....and they do have a few tax advantages. but mostly they get OPM for cheap. (OPM= Other Peoples Money) It don't add up SD. But if you like it.....then, go for it. I predict that one day you will have an "AH HAH" moment and understand what is being said here. Fair question foggy. The difference I see in my thing vs a bank is this. You can put $40,000 in a savings account over 30 years and probably get back $40,023. What I'm doing is putting in $40,000 over 30 years and getting $90,000 back, minus what interest I'd elect to pay by borrowing it. I think what's making me a little crazier over this than the average bear is my dislike of lenders, liens, payment requirements, and entities (bank or employer) having control over me in general. I'm not snubbing my nose at anyone else on this because i've been there. This is just something I'm very comfortable with and I think it functions well for what I want it to do. I place a very high value on knowing I can just not pay one month and the whole thing won't fly off the sprocket. The other thing too is, in another 4-5 years, most of my policies will be paid up and my outta pocket will be almost nothing after I turn 39. By then it'll be rolling really well and I can focus on putting that money back and getting ready for the next deal to come along. |
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Post by Foggy on Jan 28, 2017 20:10:00 GMT -6
GET THIS: The insurance company is using your money to fund EVERYTHING you want.....plus making an ROI. They aint doing this for free. Always remember the "Rule of 72". If you take x amount of money and give a ROI of 6%....it will take 12 years to double your money. ( 6 x 12 = 72) If you take x amount of money and get a 10% ROI....it will take 7.2 years to double your money. If you give x amount of money to the insurance company.....they will skim about 3 to 4% and then give you the balance of that for your ROI. Insurance companies are not a benevolent society......they don't make their millions by being stupid. They take your money .....invest it......and give you lower than market rates of return. Zip, point, period. Buy term (if you need insurance for loved ones)......and invest the difference. If you don't have insurance needs.....screw 'em.  |
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Post by Foggy on Jan 28, 2017 20:29:09 GMT -6
^ Gotta add one more caveat to the above. The thing that gets into peoples way.....after they have owned their insurance plan a while.....is they they will take a "hit' to get out. DUH!. The issue is.....the insurance companies "bundle' insurance and savings and make you feel that they are doing some great service for this. THEY ARE NOT. They are bundling these things (albeit with some improved tax consequences) to screw you in the long run. Don't fall for these clowns line of thought. Keep your investments "unbundled" and you will be able to make better decisions with your insurance needs and with your investment needs. BTW......I did hold an insurance and a brokers license for a few years.......and have spent a fair amount of time understanding this topic. These guys are constantly "gaming" you. Just saying.  |
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? If you put your money in a bank.....the bank (by law) must loan you money back to you at 1%. cost to you over the rate you are currently getting. So.....tell what you have accomplished by letting the insurance company profit off of your savings?? 
