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I have indexed universal life insurance for me and my kids with national life group. Is this a good idea?

Oct 12, 2014 by ANNE from Middle River, MD in  |  Flag
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John Essigman Level 17

Hi Anne,

I would agree with William... and would add that life insurance can be a very complex product. Among other things, it can be used as income protection should the insured pass prematurely, it can be used as a source of retirement income, or used as a way to help pay estate taxes. It can be combined with a trust mechanism to fund a variety of other goals.

Generally speaking, financial products, particularly life insurance, should be purchased with specific goals in mind. In most cases life insurance allows you to leverage money and can pass tax free. However, if used or adjusted improperly, it can create a tax nightmare.

Life insurance can be a very useful and powerful financial tool. I highly recommend that you consult with a financial advisor to conduct an annual review of your life goals in relation to your savings and insurance.

Comment   |  Flag   |  Oct 14, 2014 from Cleveland, GA

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An advisor would need to have much more information in order to answer that question correctly. However, you mentioned it is for you AND your kids, which likely means it is for a long term investment. If so, I would imagine that this is not a good investment for you. These products are very rarely a good investment, and should be seen as insurance in the best cases. I would recommend meeting with an independent financial advisor in your area that is not employed by an insurance company, and does not receive commissions for any insurance sales. You might need to pay them for a few hours of their time, but receiving an unbiased recommendation as to what is best for you might make a significant impact on your investment future.

Comment   |  Flag   |  Oct 24, 2014 from Oklahoma City, OK

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On the surface, probably not (I would say no, but I don't want to paint with a broad brush). Life insurance should almost never be used for investment purposes (again I would say never, but...) and that's the product you have here. Use insurance for insurance and use investments for investments, don't mix the two. More over, don't let an insurance agent mix the two for you. Consult with a fee-only financial planner and have him/her do an insurance needs analysis for you. Without knowing your situation I would consider dropping the policy on your children and instead contribute those assets to a direct sold (not advisor sold) 529 college savings plan or an UTMA/UGMA to start getting your children stock exposure. The reason why I write you should consider dropping the policy on your children is because insurance should be used for two reasons: to provide money for your dependents and your estate. This is a harsh (but fortunately unlikely reality) if your children die young they're not going to have any dependents that need care and not much of an estate either. To paint with a broad brush again your children should only get life insurance policies when they have dependents (most likely children, or a spouse that would need support after their passing). Again, consult with a fee-only financial planner, not a salesman.

3 Comments   |  Flag   |  Oct 24, 2014 from Lemont, IL
John Essigman

Michael – I disagree with your points.

When children pass parents become non-functional… sometimes for years. The money from a life policy may help parents pay down final expenses and possibly take a leave of absence.

There are many other uses for life insurance beyond what you state here. It can indeed be used very effectively as a retirement income mechanism. A premium financed policy can be used, among other things, to leverage money to fund or create a very large endowment.

Life insurance is likely one of the most powerful and versatile tools in our financial toolbox… yes, it can be improperly sold or placed so you are correct that the starting point is with a fee-only advisor combined with a reputable insurance agent. More advanced cases should likely include a CPA and a tax attorney.

Flag |  Oct 24, 2014 near Cleveland, GA
Tunc Tanin

Michael, You are not licensed insurance agent and you are giving insurance advice online, good luck in explaining that to regulators. You are also clueless on how indexed life insurance works. I dont like to say never but people like you are a disgrace to the profession in your absolute beliefs, I wished more DA's prosecuted fee only advisors for giving advice in the insurance field

Flag |  Oct 24, 2014 near Somerville, MA
Michael David Pensinger

How do you know I'm not a license insurance agent? This site would say otherwise: https://sbs-il.naic.org/Lion-Web/jsp/sbsreports/AgentLookup.jsp please search my name, Michael Pensinger. I do understand how indexed life insurance works. What exactly do I have to explain to regulators when I write 'probably not' and 'I would consider.' A district attorney represents the government and prosecutes criminal offenses. For what exactly would a DA prosecute me? Because I'm a licensed insurance agent and I gave my opinion? Lock me up for life, I guess...that's a little bit of an insurance pun :)

Flag |  Oct 24, 2014 near Lemont, IL

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Anne If you can't tell by this discussion page, you've hit on a divisive issue in the financial planning community. There are some advisors who believe you should buy term insurance and invest the difference (said another way, permanent insurance should not be used for an investment). And others who believe permanent insurance has it's place in a sound financial plan.

I can tell you this, depending on who you listen to, you are going to get different answers (although my best guess would suggest more advisors lean towards buy term and invest the difference).

Here are my thoughts 1 - As has been discussed, a complete complete analysis of your total financial picture would be necessary to answer your question in full. 2 - Permanent insurance (whole life, indexed life, variable life, etc) is complicated. Arguably very complicated, so proceed carefully. 3 - Be careful not to get overly excited about illustrations and projections offered by insurance companies. While they can look very attractive, more times than not you are looking at projections and not guarantees. 4 - Never hurts to get a second opinion.

Hope this helps

Comment   |  Flag   |  Oct 25, 2014 from Exton, PA

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Life insurance in general is usually a good idea, but without knowing more specifics about your situation it would be difficult to provide an informed answer to your question.

Comment   |  Flag   |  Oct 12, 2014 from Canton, GA

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Tunc Tanin Level 10

It all depends on your objectives and financial situation. We would need to know a lot more to tell you if it is appropriate or not. I don’t sell National Life group products and I don’t normally recommend indexed Universal Life. However, I do recommend other types of life insurance and index annuities when they are in the client’s best interest. Indexed Universal life has been criticized by people who don’t like insurance products and you should invest in the stock market and hope for the best. It is also not very much liked by other insurance companies that sell only whole life and term. For these policies to work, you have to fund them to the maximum level (the insurance term is MEC Level) in the early years and assuming you have reasonable expenses they should be fine. When this product was sold to you, I would check the illustration to see what assumptions they used in making projections. It is common to see 8% a year or 9% a year; these returns may or may not happen. These products have not been around for a long time whereas whole life and regular universal life have been around a long time. I don’t know any AAA rated life insurance company offering indexed universal life. On the other hand, if you are using this for college savings, and you fund it properly, the savings in the indexed universal life won’t be included in the financial aid calculation and that’s a great plus. I prefer whole life from reputable large insurance companies with critical illness/long term care riders as they can become more flexible once the child reaches age 25. With indexed Universal life and with regular universal life, you always have the risk of interest rates remaining very low. If they stay at current levels for another 20 years, your projections won’t really work. You will have to put more money to keep the policy inforce. You don’t have these risks with whole life policies and you are guaranteed a rate of return even if the stock market remains flat for the next 30 years.

Comment   |  Flag   |  Oct 14, 2014 from Somerville, MA

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Brian Kuhn CFP® Level 17

Thanks for asking the question. What's the goal for this insurance? Is it to build cash value for the children to use later in life? Have you had an analysis done on the policies to project out how long they will last based on the current amount you are paying? Lot's to go over. Feel free to reach out if you would like.

Comment   |  Flag   |  Oct 19, 2014 from Fulton, MD

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