Thanks for trying Brian but not really the kind of answer I was looking for. Was hoping Ed might have something to say on the topic as it’s pretty clear that permanent life is only an appropriate product for a very small portion of the population if really for anyone at all. If there is a group that would benefit in his mind, I would like to know who they might be and how the numbers break down so as to make the product beneficial too them.

Life insurance does two things provides a guaranteed amount for a family (at death) and in retirement, it allows one to have several options such as getting an annuity for some of the retirement funds (currently paying 8% or better in some cases, for life also guaranteed).

Where else can $100,000 produce $7,000 to $8,000 or better in retirement every year guaranteed as one example?

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

Life insurance rates have gone up because of the low interest rates, also as one gets older as well.

The goal is to spend and enjoy you money in retirement, without having to worry about rates of return and pay less taxes.

cheers,

Brian

‘In short, “Buy term and invest the difference” is wise advice for almost everyone.’

Could you elaborate on who the very few individuals are who can benefit from having a UL policy?

Happy New Year. Thanks. John.

Here is some new information your readers might want to review. From the Toronto Star
By James Daw | Mon Oct 25 2010

The cost today of insuring a life, no matter how long it may last, has remained roughly the same for many years.
Statistics Canada and similar agencies in other countries do not track the cost of life insurance in their national consumer price index. But insurers can point to certain permanent life insurance policies that are cheaper now than 16 years ago.

So coverage became more affordable for middle- and upper-income earners as wages rose. But, now, Canada’s leading seller of certain permanent policies is saying today’s prices cannot last.

Manulife Financial Corp. says it expects interest rates will remain low, and there are not enough savings to squeeze from gains in efficiency, from policyholders living longer or from policyholders letting their coverage lapse early.

My understanding is to also expect term rates to increase shortly as well.

regards,

Brian

Insurance is a wants product. Do you want coverage and for how long. Over the years we change what we want as life changes. For example having a family means you think differently than someone who has no kids. In my case I have two twin boys. In Ed Remple’s case (my understanding) is he has no childern, which means he has no kids which gives him a different perspective on insurance in general. Again insurance is wants product.

If you read my article on annuities you could use the insurance as a way to guarantee a high after tax return in retirement. You don’t have to worry about returns. You have to look at cash flow. If money is tight maybe term is the only way.

I sell a lot of insurance and a lot of investments. When I started out 16 years ago with Investors Group (I am independent now) I was taught you could expect 12% returns every year …later 10% ….later 8%. Now advisors are talking about 5 to 6% in retirement! So the idea of buying term and investing the difference seems good on paper but does not always work. There is much more I can add but I will leave it here for now.

It depends on what the extra cash value is invested in. Lets assume it is GIC’s you could borrow up to say 80-90% of the cash value. If you die, the insurance would cover the loan and you would have a small death benefit…assuming you do not repay the loan.

If you pay back the loan, the cash value keeps growing as if you never took the money out in the first place.

The question to ask is how will this help me in retirement or much later in life? If you like annuities, or have a cottage you want to keep in the family, children who need extra help, a pension you wish to pass on to a spouse…and many more ideas, a UL policy may make sense but it is not for everybody.

Can someone (Ed or Brian perhaps) explain this comment further? Can you not take out a loan that is guaranteed by the cash value, which is repaid upon your death, AND have the death benefit paid out?

The information is very limited. For example are you buying more insurance with the premiums, is it max funded. Without details, I nor anyone else can’t help you. This is for a second opinion, not to change what you have. If you re read my story about annuities, you may be able to increase your income and pay less taxes. It is hard to say what choices you have with the insurance company.

What you are asking is like phoning a doctor with limited information, who can not run some tests or see the patient. The other idea is to contact your insurance company and try to get them to help you, or have some one guess at what is going on with out details. Best of luck.

Brian

I am still waiting to hear from you.

Brian

The best I can say on this would be to sent me a copy of the illustration and the last statement showing the cash value of the policy.

What maybe happening here is the majority of the money has gone to pay the insurance premiums. Having said that I have a few ideas, to turn this policy around for you without leaving your insurance company. If need be I maybe able (or give you) questions for the insurance company to ask. Again, without understanding facts all I can really do is guess what you may have.

Feel free to drop me a line first, if you wish.

It sounds like you may own a UL policy with the excess invested in the market.
As you already know the markets have not gone anywhere for years. In general the mers are higher. Perhaps you can tell me details on what you own. If you read my comments regarding whole life the money is invested in government and corporat bonds, real estate, some stocks, mortgages etc. The fees are around .20.

The UL topic I have use in the past is using gics please read Using UL with corporations.

As far as commissions go I make more money selling term than most permanent life insurance policies based on the same yearly dollar amount paid.

Since I have not heard back on the question of who the mangagers who are beating the index I will address some other points you made in error.

The long term returns for whole life is about 5% (after 20 years) and remains at that level. This is with over 100 years of experience in Canada… far longer than any mutual fund sold here. This return grows tax free. Loans can be made tax free for the first 15 years at that point the ACB will have been reached. Currently, loans charged by some insurance companies and banks is 4%. Loans can be made up to 90% of the cash value.

Since money can be used tax free the insurance company credits the dividends as if no money was taken out.

An example would be $30,000 borrowed from a policy for a 35 year old male at year by year 11, the cash value would be worth $65,347 by year 16. The cash values never go down… unlike stocks which can fall in value.

So buying real estate, stocks etc. would be tax deductable. Using a loan with a life insurance policy.

The idea of the insurance policy is not to replace stocks or real estate, the best idea is to have this as a swiss army knife. If one gets sick the policy will continue to be funded by the insurance company to age 65, if a wavier of premium is bought.

If you need or see an opportunity the life insurance policy can be used. In retirement you can pay less taxes and have more money to spend than with out it.

With investments if they are doing well why not borrow and buy more? The insurance allows you to do this and covers the debt against death or disability, you could even skip payments.

Ps. the ten year return for the TSX (as of July 2010) is 1.19% (no fees). This does not factor taxes payable during this time as well! This would be paid out of pocket or out of the investment.

I really don’t want to put you in a spot so here goes…

You made some interesting points… I will address a few here. The 8% you are talking about for equities I think is high. Even if I assume you are geting 8% with the “top fund mangers” I don’t think you have any you can name any who has been around even twenty plus years if you can, please tell me.

From my data the TSX composite index (no fees) is 5.97% after 20 years (as of June 30th 2010)…GlobeHysales

The returns go up and down like a ….seat. So someone who is near retirement is still be 100% in equities? Will they get 8% or better? I don’t think so.

Assuming you have to pay capital gains, 2% gets lost to taxes. So the real return is a generous 6%.

Using life insurance you have the opportunity to pay less taxes have more money in retirement with less risk. In retirement many people worry about running out of money and can not recover from a market correction so the equities is not going to work.

For one example please review my new calculator on my web site http://www.rightinsurance.ca
Under free financial tools go to person A vs. person B.

Person B has less money than person A…yet has more money and pays less taxes in retirement. If needed, cash can be taken out of the insurance policy at the end of 20 years (age 85) every year even if he lives beyond 100! He spends more money and leaves money to his family instead of the government.

cheers,

Brian