Universal Life Policy strangeness...
My in-laws have decided that it would be a good idea to have a universal life insurance policy to provide money for all their kids... except that the policy would be on my wife. The company pushing the policy want my in-laws to put in $1k a month, and have told the in-laws up front it would take 10 years before their 'start to see any benefit'. The company also recommended taking the policy out on my wife so that it would have the most amount of time to grow & be available to all the kids & grandkids. It's existence would be for the expressed purpose of providing money for everybody, and anyone in the family would be able to borrow against the cash balance (would need to be paid back). Everyone in the family would also be beneficiary's.
On to my question - this is shady as anything - what consequences would my wife & I have if the in-laws go through with this? I scratching my head at figuring out what tax consequences there might be from this...
for the record: I think this is a stupid idea, and they would be better served by just putting the money in a savings account, or paying off their mortgage. Talking to an estate planner would be even better. I really don't like whole/universal policies, and had a bad experience with one myself.
Policy is being pushed by this company... rencompanies dot com. Best I can tell it's being pushed by MLM types, especially the 'elevate' group.
people who even consider whole life are very ignorant. They have no idea what life insurance actually costs. The best and only way to teach them any different is to just look up some quotes for term insurance and let them see the difference. I have a million on me and only pay 675 a year for 30 years.
Why would you ever buy life insurance on somebody else (excluding spouse)? Anything other than term life is robbery. Keep in mind that life insurance is outside the bounds of probate. And as long as the premium is paid with aftertax dollars there are no tax implications. Also keep in mind that if the dollar amount is significant and there are multiple beneficiaries, it only takes one to hire a lawyer and tie this up in court till who knows when. The only thing stronger than blood is greedy blood. And NEVER list your estate as a beneficiary!!!
I have a large amount of whole life that I purchased throughout my 20's and early 30's. The reason that I did this is A) it was from a AA+ rated company (the same rating that U.S. Bonds hold), B) the return on my cash (divs + cash value) will be in excess of 4% (annualized) if I want to cash out roughly 20-25 yrs after purchase (higher if I wait longer), C) It's nice to have an option of keeping the coverage into retirement ( I will need it to help with estate planning in the future), and D) It allows me to go very aggressive with IRA's, 401(k), precious metals, etc. knowing that I have a "slow and steady" long term return on part of my $$. So to say that anyone invests in Whole life is "very ignorant" is an invalid statement. It does pay to research. Is whole life, universal life, or term life the answer? It depends on the application. That's like saying that "I have an AK-47 and paid $99 for it. It shoots cheap ammo. Anyone who owns any other type of gun is a moron!"
Term life is usually the most affordable insurance for the average joe... Whole Life has its uses too... when you get too old for cheap term, whole life may be more affordable comparitively speaking.
Remember the old saying, "when all you have is a hammer, everything looks like a nail." I don't disagree with most of the comments regarding whole life insurance from the likes of Dave Ramsey and others, but remember, he may be answering an individual's question about insurance, but his audience is the masses...
The trouble is that whole life commissions are way better for the salesperson... and the insurance companies make more margin on whole life and it is "stickier," meaning the insurance company will make money longer because term expires and whole life doesn't. there is not big profit margin on term insurance. herein is the problem, everyone gets pitched whole life... needed or not...
Don't discount the offer until you have asked all the quesitons. dismissing an idea because of preconceived notions on your part is plain ignorance. Get the facts, evaluate the options and remember cheaper in the short term may cost more in the long term.
Well I guess I should quantify my statement. If you are able to buy term insurance and you take the difference between whole and term and invest the difference by the time you can't afford term any more. Remember I am talking about those 40-50 or below. You will have more money than the whole. In other words your now self insured. And everyone sees whole as a savings vehicle. Its only that if you time it right and get out before you die. What are the chances?
I didn't mean to hijack the thread, but saw all of the negativity without justification. The main thing to watch about Universal Life is the cash value and how it performs. Meaning: If it is a fixed, guaranteed intrest rate then make sure there are no "adjustments" down the road. High initial rates dropped (considerably) from the '80's to the 2000's and that caused A LOT of the U.L's, in all companies, to run into problems and even collapse. If the performance is tied to investment markets (usually mutual fund type accts) then they can adversely effect the policy if they don't perform well. Bottom line: make sure the cash lives up to what it was billed to do. Another point: taking cash from a U.L. is a slippery slope (especially when you do it often, as was suggested as an option). You can run into problems with: early surrender charges, taxation (if the policy happens to cancel AND you have withdrawn more than you invested), etc. Final thought: It is a great way to transfer wealth to someone (can't be beat as a tax free death benefit), but make sure you learn about and stick to a certain strategy. It makes more sense if Grandma and Grandpa want to leave $$ for grandkids, to insure themselves (although more expensive). However, if the money is to provide for them, in case mom is gone, specifically (look at term, too), that's a good idea. Many people expect U.L.'s to do it all: savings plan, loan provider, and still have a low insurance premium after all of that into old age.
