Using Life Insurance as a Savings Vehicle

The Street

Watch Using Life Insurance as a Savings Vehicle - The Street on Dailymotion

Transcript

00:00this morning on brn using life insurance as a savings vehicle joining me now to help break it

00:10all down phil snyder is with the warner companies and full disclosure he's also my father dad great

00:17to see you thanks for joining us this morning well thanks jeff happy new year to you as well

00:21and let's make it a good peaceful and prosperous new year yeah amen to the peaceful part and i don't

00:27want people to get the wrong idea because i do talk to you and mom on a regular basis it's not

00:31like i don't don't see my parents or talk to my parents on a regular basis but dad we're always

00:36great always thankful to have you on the network um you know we've talked to you about so many

00:41different issues last time we talked i think about long-term care policies today i want to ask you

00:48about using life insurance as a savings vehicle so what what does that exactly mean well there

00:57various types of life insurance and we've spoken of this before there are term policies which are

01:04really short-term coverages that have no intrinsic value they only they're only valuable um at death

01:11but there are cash value policies passion they're permanent policies they come in various different

01:18forms um some people call them whole life some people call them universal life whatever excuse me

01:24whatever the case may be those policies build cash in them or can build cash and those types of

01:33policies carry with them very specific tax advantages that the average consumer probably is unaware of

01:41um just real quickly to highlight that all life policies upon death pay insurance proceeds to name

01:50beneficiaries on an income tax-free basis so that's not necessarily unique um premiums paid to buy life

01:59insurance or pay with after-tax dollars so there's no immediate tax benefit to buying a life insurance

02:05policy as an individual um cash that builds up within an insurance policy that could be guaranteed cash that

02:15could be um investment returns built into the policy and we can talk about that a little bit more in depth

02:23um those tax taxes on those earnings are tax deferred as long as that money stays within the life insurance

02:31policy and thirdly and this is really the more critical element there are ways to withdraw cash from an

02:40insurance policy on a very tax favorable basis there are rules around that how you do it how you design

02:48policies and things of that nature but that's an opportunity to build cash within an insurance policy

02:55to defer taxation on your gains and then withdraw if not all the lion's share of all the of all the

03:03money you've accumulated draw it from the policy on a tax-free basis if it's done correctly

03:09so so dad it sounds very similar and i want to know is it similar or is it different than

03:16the 401k qualified plan or even an ira and i'm saying like a traditional not the roth not

03:24any of these other bells and whistles but it sounds very similar in that in these plant those other plan

03:30types you grow your contributions your cash in tax deferred over time so is it similar to those types of

03:38programs it's similar in some respects because there is no tax on the gain as you're earning money

03:45not unlike a qualified plan but you can take money out of the plan out of the policy on an income tax-free

03:53basis you can do that with a roth certainly but perhaps a 401k plan for example you can't do that

04:01and and let me as a caveat this is just an idea it's an adjunct of what people may already be doing

04:09they have more money they wish to set aside and this could be a vehicle through which to do it

04:15so so dad you know people listening to this or watching this hopefully they're watching us and also

04:21listening to us um they may say well this is really something that a wealthy person who has

04:30discretionary income would use but is that truly the case could anybody with any amount of income

04:37if you earned 45 000 a year 75 000 a year could you contribute to your company's 401k

04:46make an ira contribution and buy some type of permanent life or whole life policy and do what

04:53we're talking about this morning sure they're not mutually exclusive but what what i what i'm

04:59referring to is really people who are kind of maxed out for many of their other opportunities

05:05and now they're sending money to their investment advisor or they're managing their own money

05:10and they're trying to figure out what's the best alternative and on the list of alternatives could

05:16be a properly structured life insurance policy and we can talk about structure if you'd like

05:22relatively quickly what i mean by that yeah what we've got about three or four minutes left so

05:28take us down the road of the structure what do you mean by structure do you mean investment

05:32structure investment vehicle structure what do you mean by that the policy design

05:37um typically what you want to do if you're looking for a life insurance policy not so much for the

05:46death benefit which you can't avoid because it's life insurance but if you can minimize the face

05:52amount the death benefit of the policy and maximize the cash accumulation within the policy

05:59then that could be very advantageous um there are rules within the internal revenue code that's that

06:07relate uh the the amount of cash accumulation to the amount of money that's being paid in so you have

06:14to you have to work with someone who's mindful of those rules because you don't want to give away

06:21the opportunity in the future to take money from this insurance policy on an income tax-free basis

06:27so you can put money into an insurance policy minimize the death benefit maximize the cash accumulation

06:34within these policies you can choose the nature of your investment it could be accounts that look like

06:42mutual funds they could be indexed accounts there could be a blend of different types of accounts

06:47international and so forth and and you can achieve investment returns over time on a tax-deferred basis

06:56and then pull out money on a tax-free basis if it's done properly and if it's managed properly

07:04so that's that's a very high level overview yeah sorry to mean to interrupt you um are there are there

07:12any negatives to this so for example if uh for whatever reason the 401k record keeper goes bankrupt

07:21that money is held in a trust and that trust it's not subject to the whims of creditors

07:28so in the case of a life insurance policy it would that be a little bit different so say the life

07:35insurance policy fails uh company fails it it has happened from time to time but but would would

07:42that be a challenge so are there any challenges i guess is my basic question to this product or cons to

07:47this type of uh structure yeah um well first of all every state pretty much a state has a state

07:55guarantee fund so the those funds would be available whether they be adequate to cover any potential loss

08:03don't know that it's all subjective but um then the negatives would be this is not a strategy

08:11particularly when you get into the withdrawal aspect of this for people who are not going to pay

08:16attention to what they're doing um because the thing you have to be careful of let's just let's assume

08:23i put in pick a number ten thousand dollars a year five thousand dollars a year i do it for 20 years i put

08:29in a hundred or two hundred thousand the policy has grown to a cash value of four hundred thousand

08:35hypothetically now i want to get my money out i'm retired i'd like to have some supplemental money

08:41i'd like to do a tax favored in a tax favored manner well you can't just radically take out the

08:47whole four hundred thousand dollars that you have because that would result in a taxable gain so what

08:53you want to do is begin a process of withdrawing money up to the amount that you've paid in

08:59called basis and and then make a series of loans after that and there are policies out there that are

09:08structured to do that they're structured and they provide internal safe safeguards guard rails so

09:15you're not over borrowing because the worst thing that can happen to you in that situation is you

09:21borrow way more than you should you withdrew and then the policy lapses that could happen has happened

09:28to other people then all the excess monies over your over your premium deposits become taxable

09:34so this is not for the faint of heart it's it's it requires some diligence it requires professional

09:41management and advice from competent people but it's an excellent strategy and it's not necessarily

09:47relegated to highly um high net worth people or big income earners it's just another tool in the

09:54toolbox um it's particularly advantageous as a fringe benefit in a corporate structure for example

10:01providing a benefit for one or more highly valued employees there's all kinds of ways to do that

10:09but people should be aware that life insurance is more than just a death benefit and it's more than

10:15just paying a premium or can be more than just paying a premium but not really know what's going

10:20on within the policy if you pay attention and you can learn what to do and you get good advice you can

10:26accumulate a lot of money in the life insurance policy well hopefully people are watching today

10:31and they're taking notes and they can seek out the professional advice and maybe find this as an

10:37alternative or is it compliment to what they're already doing dad we're gonna have to leave it

10:41there because they don't give us enough time to do the you know we could talk you and i could talk for

10:45hours upon hours about this stuff but i think really good forethought good information and look we'll have

10:50you back on the program again very soon yeah my only parting comment would be just make sure before

10:56you engage one of these things that you you really know all the ins and outs uh these kinds of deeds are

11:03easy to get into um just as an adjunct you want product types you want policies that build cash from the

11:11get-go uh you don't want policies that defer the cash bill up in an ideal world you want policies that

11:18don't have surrender charges so you can actually get a hundred percent of the value in the policy

11:24so there are policies that do that and and that's what you need to look for all right dad i'm getting

11:30the hook so great to see you thanks for joining us and we look forward to talking to you again very

11:34soon all right jeff hope it hope it was helpful talk to you tomorrow bye bye and don't forget to

11:40subscribe to our daily newsletter the morning polls for all the news in one place details of course at our

11:45website and we're back again tomorrow for another edition of brn until then i'm jeff snyder stay

11:50safe keep on saving and don't forget roll with the changes

Category

Transcript

Be the first to comment

Recommended