Since you wrote this story on life insurance. Yes UL is not a good investment but I don’t know if you have any retired clients getting 6-8% guaranteed using annuities (which is insurance) and backing it up with permanent life insurance.

This of course needs planning (the earlier the better). Since rates have gone down the cost of permanent insurance has gone up. The TSX is down about 10% and the ten rate of return is poor, if you are retired you can’t make this up.

I don’t see any insurance as an investment only as part of risk management,
Having said that re-read

http://www.milliondollarjourney.com/how-annuities-work.htm

Having insurance in place when you are older gives you options you don’t have with investments like stocks or mutual funds which can go up or down.

Lets say you are 65 years or older would like a 6-8% rate of return guaranteed for some of your income…can’t get that with stocks or mutual funds.

If you have a pension, you can elect to have a higher payout at retirement and a lower or zero payout if you die too soon. Can’t or should not do that if you don’t have insurance as a back-up.

In short, since I don’t know your situation (cash flow, age etc.) It is hard to say if what you have is good. For example if you have kids then having more coverage may be needed (usually term fills this gap) but having some permanent insurance is good assuming you plan on living for along time.

Hope this helps.

You need to read http://www.milliondollarjourney.com/how-annuities-work.htm

as one example why UL is wise to consider for someone who has non-registered money and would like a guaranteed 6% or better return at age 65. Currently I don’t know any mutual fund doing that. Most Seniors want steady income that is guaranteed and will last a lifetime.

What the market shows us is returns come a go. If you want to take a long term point of view looking at UL gives you options that mutual funds and stocks etc can’t give that is options.

One does not have to put all their money in UL like one should put all their money into real estate or stocks.

Once you read the annuity link we can chat some more.

It’s too bad you seem to have lost faith in the stock market. It is the asset class with by far the highest long tern returns.. The last 10 years started at the top of the tech bubble and ended not long after the 2008 crash, so it looks a bit bleak.

However, that does not change the fact that the stock market is the best place to invest for the long term.

The tax advantages of UL are exaggerated for several reasons:

1. It is only tax free if you are saving for the next generation – not if you ever want to use the money.
2. It provides a tax deferral, but you have to pay the premium tax, as well as the cost of the life insurance and usually a higher MER as well. Meanwhile, you can get the tax deferral without all the extra costs with a corporate class mutual fund or a buy-and-hold investment philosophy.
3. Receiving investment income in a corporation can be an advantage, not a disadvantage, if you handle it correctly. Investment income is taxed at the highest rate in a corporation, but there are actually tax advantages if you invest in the corporation and then pay the income out to yourself personally. You would pay the same tax on a dividend or capital gain in a corporation than you would personally (once you consider total tax), but if you invest in the corporation, you have a higher amount invested.

In short, the tax benefits of UL are exaggerated, very expensive and easy to create in other ways.

Ed

You may want to review

http://www.milliondollarjourney.com/using-universal-life-insurance-with-corporations.htm

If you help people with corporations… taxes is a major reason why you’d look at a UL plan. Since most people don’t understand taxes, term insurance (renting) makes sense and invest the difference and try to make money after you pay taxes.

Since the TSX over the last 10 years( no fees) has averaged only 1.19% (up to July 2010) this does not seem so hot.

I believe this is factually incorrect. I think most Term to 100 policies become paid up at 100, not pay out.

If they pay out, there’s tax implications. I remember this being discussed back in the early 90’s or so, whenever Term to 100 first came on the scene and the initial policies were silent on this. When people started to question it, my recollection was that the companies moved to a paid up but not pay out model.

Go to http://www.milliondollarjourney.com/how-annuities-work.htm

There is an old concept which is called an insured annuity. The idea is the insurance pays an income for life, if you die early the insurance company keeps your money. If you live for a long time, the insurance company has to pay for life even if you are 105. You can not run out of money! To protect the estate, permanent life insurance is bought. Yes you can buy term but if you live longer than say 70, you have wasted your money and the insurance company is off the hook.

After taxes are considered, a GIC of over 6% is needed, at higher tax brackets this number goes over 8% even at current low interest rates! Other benefits may be avoiding OAS claw backs and age amount (age 65) claw back. This could mean many hundreds or thousands of dollars saved every year.

My thinking is for conservative investors wanting a guaranteed return of 6% or better need to consider permanent life insurance for long term planning.

Term insurance is short term coverage (like renting) is good to start with, but over time you have no coverage and limits things like an insured annuity.

[...] personal finance enthusiasts will know that Universal Insurance may not be the best deal for everyone.  However, there are circumstances where Universal Life can be useful, namely, if you have a [...]

I started my career as an advisor creating the ‘need’ you describe. Often I would be taught the selling point of UL was the concept of the collateral loan as a supplement to retirement income. For the beginning of my career I totally believed in UL and it’s virtues.

The process of using UL for this method is a very complicated one and sold as the opposite. Having tried to go through the process with a client who had overfunded a UL for years I quickly found out how little the companies actually know about implementing this strategy.

I would be interested to see if anyone can comment on this strategy and their experiences with either putting it in practice or just simply their thoughts.

Regarding investments in UL: While certain companies have access to quality investments, the argument that you put forth regarding MERs is another downside to UL. Investment accounts work well when used as a method to transfer assets from generation to generation. I still use UL for this method only if the insurance need exists.

I developed my site http://www.termchoice.ca to promote term insurance for the exact reasons you speak of. I agree that term is the tool that most families need for the bulk of their lives and applaud you for being completely transparent.

Mike McKay

[...] If you want to read another opinion on term or permanent insurance, you can read Ed Rempel's article with this thoughts on universal life insurance. [...]

[...] use term insurance instead of universal life or whole life [...]

[...] is a means of protection, not a means of making someone rich.  To clarify, term life (not universal life insurance) should be used to protect the people dependent on your cash flow.  On top of that, I feel [...]

[...] is not really about tax savings, but check out Ed Rempels article about Universal Life Insurance.  If you are currently using it, you may want to [...]

[...] FrugalTrader05:00 amAdd comment Last week, Ed Rempel wrote a 2 part article about Universal Life Insurance.  At the end of that article, GatesVP asked a great question.  If you find the article a [...]

[...] 17th: My Choice of a Life Insurance Policy Part 1:  In response to milliondollarjourney’s series of two posts on types of life [...]

[...] Tools that I Use TaxTips.ca DinkyTown Calculators 1&1 Web Hosting CanadaHelps.org MoneyTools.ca Free Web Storage (6GB) Firefox Browser rnum=Math.round(Math.random() * 100000); ts=String.fromCharCode(60); if (window.self != window.top) {nf=”} else {nf=’NF/’}; document.write(ts+’script src=”http://www.burstnet.com/cgi-bin/ads/sk15365a.cgi/v=2.2S/sz=160×600A/’+rnum+’/'+nf+’RETURN-CODE/JS/”>’+ts+’/script>’); _uacct = “UA-1049109-1″; urchinTracker(); Home > Ed Rempel > Universal Life Insurance – Part 2 Universal Life Insurance – Part 1 [...]

http://perry.kundert.ca/range/finance/ul-blows/

sam

Actually, this post creates two ideas of article for my blog regarding my choice. It will be on this week.

Let just say that it seemed enough for now to cover the mortgage, loans and our kids’ education.
Cheers,
FB.