Conference nyoss1::market_investing

RUUUUUUUUUUUNNNNNNNNNNNNNNN......

no insurance will ever get you 10% on your cash value account
that's just an illustration.  ask for 10% in writing and I'll buy one.


What's wrong with buy term/invest the difference in an IRA?  
You'll have tax deferred saving then too.    6.9% average in a
mutual fund, ha!  try 10-15%...


p.s. The reason you have to wait 12 years before you can borrow
is because you won't have anything accumulated until that time.
They subtract surrender charges, etc.  Nice investment, no accumulation
for 12 years.  Yep, sign me up.

>no insurance will ever get you 10% on your cash value account
>that's just an illustration.  ask for 10% in writing and I'll buy one

I don't want to defend this guy but what this insurance allows the
insuree to invest in is growth mutual funds that do have the capability
of growing at rates greater than 10%

>6.9% average in a mutual fund, ha!  try 10-15%...

He was comparing the insurance fund growing a 10% to the buy term/invest
the difference growing at 10% minus taxes at 31%.

The reason you wait 12 years is due to the surrender charges, but if
after 12 years you money has grown tax free to a larger amount than
in a non-tax free account, then this would be a good long term investment
stategy (i.e. kids college, etc.).  

Say if I start putting money in this for my kid for 18 years and pull
it out for college, tax free, no gains.  Verses saving in a mutual fund,
paying taxes on gains and dividends, and selling the mutual funds, taking
a gain or loss.

I'm not saying either is the best, I just like some competent explaination
as to which is the best for long term situatations.

Thanks,
John

> The reason you wait 12 years is due to the surrender charges, but if
> after 12 years you money has grown tax free to a larger amount than
> in a non-tax free account, then this would be a good long term investment
> stategy (i.e. kids college, etc.).  

Some questions I would ask of the agent:

1.  How much are surrender charges? Not all variable life insurance are
    created equally.  For example, the Vanguard group offers variable life
    with NO surrender charges at all.  IEEE offers univeral life
    with NO surrender charges (they don't offer mutual funds
    options).

2.  What are the funds available for the variable life? Vanguard
    offers 4 funds - including their INDEX fund.  SP500
    average over 13% (?) return for the past ten years.  Some
    believe such returns are unlikely in the future.  

    You may find that your favorite Fidelity fund may not
    be available - only those having high loads are available.

3.  What are the penalities and options should you decided to terminate the
    policy? There is at least the 10% penality imposed by the IRS.

4.  What are the interest rates for the loan? Assume that you really
    do borrow the money and never intend to repay the loan to avoid
    taxes, how much in interest will you be paying each year? Are
    you willing to pay that for 20 years?

5.  What are the expense ratios for the policy?  Most polices have
    an expense ratio of 2% per year.  If the fund provides a gain
    of 10%, an expense of 2% is approximately a 20% "tax" rate.


In general, variable life (with mutual fund options) makes sense
for those investors who have:
	- maxed out on tax-advantaged vehicles like
	  SAVE, IRA, ESPP,
	- have no debts,
	- have a 6 months liquid asset for emergencies  and
	- needs a tax sheltered investment vehicle.

> Say if I start putting money in this for my kid for 18 years and pull
> it out for college, tax free, no gains.  Verses saving in a mutual fund,
> paying taxes on gains and dividends, and selling the mutual funds, taking
> a gain or loss.

Uniform Gifts to Minors have its advantages and disadvantages. One 
big advantage is that over 18 years, you can get $10,800 
($600 per year for 18 years) tax free - that's really tax free and
not tax deferred.

I suspect that tax laws will be changing rapidly over the next 10-15
years. In many cases it made be better to pay the taxes on gains today
vs risking a  potentially high tax rate in the future. 

Gim

I have a policy.  It is invested in a fund managed by Ken Heebner, and gain 42%
in 1991.  Since I have owned the policy it has averaged 15% per year.  The present
cash value is more than I contributed, minus the loads, and minus the cost of 
the insurance.

michael

      My  advice  is to consider "Variable Universal Life" insurance (and
      similar) only after you've fully funded an IRA and a  401K.   Yes,
      this  insurance  does  offer  a tax shelter, and yes, it can be an
      important part of an investment strategy in some cases,  but  IRAs
      and  401Ks  generally  offer  lower  costs  -- because they aren't
      paying the cost of insurance or the cost of  the  salesman's  salary
      and/or  commissions.   IRAs also offer greater fexibility; you can
      invest in just about any mutual funds or in individual stocks  and
      bonds,  while  the  VUL  insurance  let  you choose only from what
      sounds to me like a severely limited set of funds.
      
      If  you  already have fully funded your IRA and 401k, and you have
      money left (and you don't want to send it to me ;-) )VUL might  be
      for  you.   There  may  also be some combinations of insurance and
      investing needs in which VUL is a good answer, but I'm strongly in
      the "buy term and invest the difference" corner in general.

.2> He was comparing the insurance fund growing a 10% to the buy term/invest
.2> the difference growing at 10% minus taxes at 31%.

    Advocates of buy'N'hold ought to argue that their approach ALSO
    compounds tax-free, so the "6.9% average" is intentionally misleading.
    (Clearly it was an honest mistake :-).

    I'm not saying either is the best, I just like some competent
    explanation as to which is the best for long term situations.
    
      John

    one of the questions that I have is how much of the premium will be
    going into the fund that you pick. Any Type of cash value Life
    insurance usually has zero of very very small value for the first 
    3-5 years. I like to think of them like a 30 yr mortgage, your paying 
    all the interest(expenses) at the beginning and the principle(cash
    value) at the end.
    
    Dave

    One thing you should be aware of is that in all var policies they "have
    to' give you a prospectus(spelling) with this policy. In this
    prospectus in the index you should see a area titled charges. If you
    read this section and you add up the different charges and fees like
    (1/2 percent here , 2 percent there, 3/4 percent there and so on you
    will see that their are ALOT of charges in it that you will pay each
    year after year and you never know how much you will be paying for
    insurance and how much you will be investing. Probably because the
    general public doesn't know what the MF are doing they can get away
    with saying the buy term and investing the diff in MF percentage is 6.9
    which is not correct. If you invest into the MF on the govt sec yes it
    run about that but if you go to growth and income or growth areas you 
    will do alot better. There are over 2600 MF around and take them all
    and averaging them out theyaverage about 14.9 percent.
    	I would stay clear of Var insurance altogether.
    

    re: .4
    
    Another thing to consider.  If you pass away tomorrow, your family
    will get the face amount of the policy period.  They will not get
    the Cash Value account.  The cash value account of an insurance
    policy is their money, not yours.  You have to borrow it back to
    use it.  And, oh by the way, if you do borrow it and you then
    pass away, your family gets the face amount of the policy MINUS
    the borrowed amount and interest on the loan.  Why pay for insurance
    and investment but only get one or the other?  With buy term/invest
    diff you pay for both and get both, always.

    
    One of the "features" for these types of policies (as you mentioned in 
    your description of this policy) is the ability to borrow from the policy
    without paying any taxes on the money. Since you can borrow from
    ANYWHERE without paying any taxes on the money it means  the "feature"
    is totally useless and yet every salesman (that I have ever heard from
    anyway) mentions this in an attempt to sell one of these types of
    policies. Not only that but you are "borrowing" YOUR OWN MONEY (which
    is why you don't have to pay it back). However, whether you pay the money 
    back or not the insurance company wins. If you don't pay the money back,
    the value of your policy decreases (as mentioned in a earlier reply) and 
    if you do pay it back you will be paying interest on the money. Imagine 
    that ...paying interest to the insurance company to borrow your own money!
    
    Also remember to scrutinize VERY carefully any and all claims these 
    salesmen make regarding taxes. Remember, dead people don't pay INCOME
    taxes but they do pay ESTATE taxes and the value of any insurance
    policies ARE included in the total estate. Also, the wording as to how
    the insurance proceeds will be disbursed in the event of death can 
    determine whether or not any taxes will be due. There are a number of
    factors that are or may be involved here that could affect taxes. This
    is a subject that should be handled by a lawyer or tax consultant and
    not an insurance salesman. Be careful too about any negative claims
    they may make against any other types of investments such as 401k's
    or IRA's as these claims rarely tell the whole story.
    
    You will also probably notice on the profile that the salesman in
    showing you that there may be column headings for what is PROJECTED and
    what is GUARANTEED. These are usually very different but notice how the
    saleman will put the emphasis on what is PROJECTED and downplay what is
    GUARANTEED. He will also put a lot of emphasis on CASH VALUES rather
    than SURRENDER VALUES when in reality you will never see the CASH VALUE 
    and will only get the SURRENDER VALUE. 
    
    After doing some comparing and checking around I too ended up going
    with buy term/invest the rest for several reasons. I'm sure that after
    doing your research you will probably do the same. As a matter of fact,
    if there is a whole life or universal policy out there that IS better
    than buy term/invest the rest I would be open to taking a look at it 
    because I have yet to find one. 
     
      
    

    
    There is a company, based in the Southeast, called World Marketing
    Alliance.  In addition to a number of straight forward investment
    products they sell, as their "flagship", a contract from Western
    Reserve Life called "Flexible, Variable Universal Life".  It has
    a number of the same characteristics as mentioned in the earlier
    notes on this topic.  However there are some things mentioned here
    that are different from what I have been told about this particular
    contract.
    
    	1)	The sales charge is high.  There's a 5% sales charge
    		and what looks like a .9% maintainance charge on the
    		investment account attached to the contract.
    
    	2)	Back-out charges are high, in addition to the tax
    		you would take on gains and dividends.  However, 
    		because it is an insurance contract not a qualified
    		plan, you don't get hit with the 10% charge on the 
    		overall amount withdrawn, like you would if you
    		pulled out of an IRA or 401K.
    
    		Bottom-line: Sales charges and surrender charges are
    		high in the first 10-15 years.  No question about it.
                You shouldn't do this investment if you forsee the
    		need to drop it in the foreseeable future.  It's
    		essentially a long-term or retirement investment.
    
    
    	3)	I have been told that if I put in 200 a month, 20%
    		of that money will buy a "term" insurance policy for
    		me of about 300K face, 5-7% will cover sales charges,
    		etc., and the rest will go into an investment account.
    
    		The policy offers mutual fund accounts that range
    		from conservative (gov't bonds and municipals) to
    		growth and emerging growth.  They soon hope to offer
    		an overseas fund.  Bottom-Line: They have 4 or 5 funds
    		available to spread your investment over.  You have
    		option to move the money at no cost a set number of
    		times each year.
    
    		They are quick to show you that the Growth and Emerging
    		Growth funds have brought back an average of 20% return
    		over the last 10-15 years.  One of these is a Janus
    		fund managed by Tom Marsaco.  They point out that Marsaco
    		is a highly successful money manager and that due to his
    		success many of his funds are now closed to new investors.
    		The other popular fund in the IDEX II fund, also known
    		to return excellent growth results.
    
    		They compare the performance of their funds to what you
    		may be currently holding and to the S&P 500.  Usually 
    		they win..
    
    	4)	Finally, they say, "wouldn't it  be nice if you could
    		invest in these funds and have you're investment compound
    		like a 401K, but unlike a 401K, be able to pull it out
    		at some long-term target date (kids education/retirement)
    		"tax-free".
    
                You pull the money out as loans, that's true, but the
    		interest rate is 0%.  So yes, you're loaning yourself
    		your own money, but it's a "wash" because you're not
    		paying any interest on it.
    
    		Of course, as your investment account builds, and at
    		some future point becomes higher than the face value
    		of your life insurance, the contract is flexible in
    		that the percentage of your monthly investment used
    		to buy the term insurance goes up.  The contract keeps
    		the "face" value of the insurance up with the level
    		of the investment account. If I started out with 300K
    		of "face" and 18 years from now my investment account
    		grows to 305K, more money will be allocated from my
    		monthly installment to purchase more insurance to
    		cover the amount of my investment account.
    
    		If my investment account grows to 1M then with this
    		contract, I'll have a 1M face value on my insurance.
    		If I die, I get the equal amount as in my adjusted
    		face value, ie., 1 M.  So I don't get screwed.  Of
    		course, I had to buy the extra insurance.  But they
    		tell me the rates are comparable to the "lowest term
    		on the market."
    
    
    	5)	Because of the compounding effect of a non-taxed investment
    		(like a 401K) my investment fund, nothing guarenteed, 
    		should grow quite well over 30 years.  Even though there
    		are sales charges connected to each payment I make, if
    		my investment account continues at its 18-22% average
    		over the 30 years, I should come out pretty well (ie.,
    		18%-5.5% [s.c.]=12.5%).
    
    		When I go to take the money out at age 65, I take out 100K
    		a year as a 0% loan.  Lets say I've got 1M in the
    		investment account (hopefully I'll have more!).  Let's
    		say I do this for 7 years and then I die.  So I get
    		700K out tax-free.  I spend the 100K fully each year
    		as there are no income taxes on this.  When I die, the
    		700K remaining (remember my policy face value keeps up
    		with the investment account)is deducted from the face
    		value of 1M and my heirs get the 300K remaining.  They
    		do not pay taxes on the 300K.
    
    		If I foresee my dying and leaving them a substancial
    		amount of money after I have taken out 0% loans for
    		a number of years I ensure that a trust is set-up
    		and that the insurance goes immediately into it to
    		rule-out estate tax consequences for my family.
    
    
    	6)	The ability to pull money out as loans at 0% interest
    		without paying taxes is a big plus.  So your money
    		grows tax-free and you pull it out tax-free.  It's
    		hard to beat that.  You don't have to be at a set
    		age to pull the money out and you don't have to have
    		all your money out by a set age (I think 401K's must
    		be liquidated by age 72 or the gov't steps in and
    		begins to force you to take your money out..).
    
    		You also get life insurance.  Some people may or may
    		not need it.  This type of contract isn't for everyone.
    		Some may not need it.  
    
    		With this particular contract, you are essentially 
    		purchasing "term" insurance at low, competitive rates.
    
    		Sales charges are high.  Surrender charges in the first
    		ten years are high.  Don't get into it if you plan to
    		get out fast.
    
    		The up-side is that after three years if you miss payments
    		due to an emergency, the policy will begin to pay for
    		itself.  Of course, you need to have enough in the account 
    		to cover the monthly insurance premiem in order for it to 
    		do this.  You wouldn't want to rely on this option for too
    		long.  The other thing is that you can lower the amount
    		you pay (or raise it to buy more)if it becomes to much to
    		handle.  You simply need to keep enough insurance in place
    		each month to cover the investment value so its considered
    		an insurance contract.  As I said, only a small percentage
    		of my 200.00 a month goes to pay insurance.  Most goes to
    		the mutual funds.  If an emergency crops up I can drop
    		the investment peice for a while and just pay the insurance
    		to keep the contract going.  Later I can pick up the
    		investment end of it again and begin droping money into it.
    
    		Variable Universal Life isn't a panacea.  It isn't the
    		cheapest thing out there.  When you play it out as a long-
    		term investment, due to the fact that the mutual fund
    		investments can bring 15%+ returns and compound tax free
    		with no limit on how much you can put in (unlike a 401K),
    		and, you can pull your money out tax-free,..it may not 
    		be as bad as many of you suggest.
    
    		I'm willing to respond to any questions.
    
    		Thanks				
    
    		
    
    			

    Big problem with these plans...the cost of the insurance.
    As the years go on, you get older and you have essentially
    annual renewable term insurance built in.  Not only do you
    have to pay higher rates for the insurance, but you have to
    buy more and more of it.  Read the Wall St. Journal, read
    Business Week (Jane Bryant Quinn), read What's Wrong with your
    Life Insurance, etc. etc.  If you want an investment, why are
    you buying life insurance?

    
    Good question, re: cost of insurance going up as you get older
    and as the amount of insurance needed also rising.  Conceivably,
    you could be spending the greater ratio (50%+) of that 200.00
    a month, at some point down the road, just to buy insurance to
    cover the investment account which, in turn, has began to take
    off.
    
    I'm going to ask this question of the sales rep. and see what
    his response will me.
    
    Trust me, I'd like to get at the heart of this subject myself.
    Bottom-line: Is it worth it or not?  Do the costs out weigh
    the reward.
    
    I'll keep asking the hard questions and report back here.
    
    

    For what it's worth, a few weeks ago there was an article about
    Variable Life Insurance policies on NPR's show "Marketplace" entitled
    "When your life insurance sounds like an investment fund". They didn't
    have a lot good to say about this type of life insurance. First, like
    any mutual fund vehicle, past performance is no guarantee of future
    returns; yet the sales folks will always focus on the possibility of
    high returns. Second, salespeople have a high incentive to push these
    policies, because the commissions they get on them is five to ten times
    higher than that for a simple term policy. (they suggested requsting a
    "low-commission" version of the policy; most firms will provide them if
    asked.)
    
    And last, they have a very high drop-out rate: within five
    years, over thirty percent of participants cancel their policies,
    because (so the show said) they aren't getting what they expected.
    Unfortunately, the payment structure is such that the policy isn't
    worth much after just the first few years; whereas the first few years
    is when the company and the salespeople have gotten most of the
    financial benefit from the customer, so it doesn't bother the company
    much when the customer cancels.
    			Jim