Variable Universal Life Insurance

[GaseousClay]

Lot of wise financial guys here so I respect your opinions. What do you guys think of VULs? Is it worth getting as a young starting physician? I keep getting sold on it like its a backdoor tax loophole but are the financial gains even worth the tax benefit?

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[Wolverines83]

Don't mess with that stuff. Get insurance for insurance and get investments for investing.

Universal life (and almost any financial "product that is difficult to understand) is an inferior product. You know why the agents sell that stuff so hard? Because it has high commission. You know why the commission is high? Because the insurance companies know they're going to make a butt load of money if you buy it.

If insurance companies are making a butt load of money virtually guaranteed (their math whizz actuaries see it as guaranteed otherwise they wouldn't give those hefty commission to the reps), then it's a bad deal for the customer.

My source? I'm a former insurance agent.

 

[GaseousClay]

thanks Wolverine. They make it sound way too good to be true. I knew theres gotta be something fishy about it. Does anyone really trust financial advisors to manage their finances? I dont mind people making money as long as my money is doing well but I don't like being scammed or sold on things that aren't the best option.

 

[Wolverines83]

Do I trust financial advisors? I guess that depends on the individual advisor. Whether they're actually worth their fees, regardless of their trustworthiness, is another matter. Do some reading and then decide if you think you can do it on your own. If you've managed to get through school and become a resident, my guess is you're fully capable of managing your own finances. If after some reading you feel lost and uncomfortable, then perhaps an advisor is worth the money for you.

Some books I've recently read that I think offer good information are, in order of approachability:

White Coat Investor
Investor's Manifesto
Bogglehead's Guide to Investing
A Random Walk Down Wall Street

I think white coat investor is a great one to start with because it's very basic but is actually still very useful. The others expand on the topics a little more (Random Walk much more) but the white coat investor is a great primer for someone who's starting to look into their finances.

One piece of advice that I think everyone should follow: If someone approaches you to sell you a financial product, do not buy it without doing your own thorough research, under any circumstances. No exceptions. If it's that good of a deal for you, they won't mind if you do your own research.

Hope this helps.

 

[cincincyreds]

Please take out advice. THE VUL is only good for the person selling it. In fact, if I could successfully sell VUL products for a living I would quit Anesthesia as it is so lucrative.

The way the VUL works is you put the money into the VUL, buy a mutual fund, it will grow tax free with huge fees, you'l take some loans, lapse the policy and pay tax on stocks at the highest tax rate rather than the lower capitol gains rate if you had never bought that stupid VUL policy.

To get a goood laugh, ask your agent to make you a table with the following info. Asking for how much you will have with the rate of return over 5,10,20,30 years assuming a rate of return of the your mutual fund at 1-8% and paying tax to liquidate the VUL. If you compare this to just investing in a Vanguard s and p 500 indexed mutual fund and paying capitol gains, you'll be so far ahead, but it might be a good exercise for you to do to see how a VUL is just stealing your hard earned money.

I'm sure some insurance agents will read this and start attacking me, but whatever, I don't really care.

 

[cincincyreds]

please listen to wolverine83. He was a former insurance agent and knows how worthless cash value life insurance is. There is only one reason to get a policy and you don't have enough assets to make it worthwhile.

 

[Wiscoblue]

Don't go with financial advisers either. My buddy has just over 4m under management with an adviser at Merrill. That's 60 grand a year he pays them in annual fees. They also churn his account a lot to 'beat the index' and he ends up taking profits every year and paying half of that in taxes.

My money is all in index ETFs like SPY and QQQ. I've been dollar cost averaging since the qqq was at 35. I don't want to beat the index. I just buy the index. I'm doing quite well on my own.

 

[Wolverines83]

Don't go with financial advisers either. My buddy has just over 4m under management with an adviser at Merrill. That's 60 grand a year he pays them in annual fees. They also churn his account a lot to 'beat the index' and he ends up taking profits every year and paying half of that in taxes.

My money is all in index ETFs like SPY and QQQ. I've been dollar cost averaging since the qqq was at 35. I don't want to beat the index. I just buy the index. I'm doing quite well on my own.

And this churning results in sales of individual stocks which equals capital gains which means taxes which means those funds more than likely lag the index after deducting taxes and fees.

Like I said before, I think you'll find you're able to manage your money at least as well as any professional. Better when you don't have to pay the 2% fee. BTW, that 2% is actually 20% of your profits if you assume a 10% gain each year. It's an even higher percentage of your earnings if you have more conservative expectations of the market.

 

[jwk]

Don't go with financial advisers either. My buddy has just over 4m under management with an adviser at Merrill. That's 60 grand a year he pays them in annual fees. They also churn his account a lot to 'beat the index' and he ends up taking profits every year and paying half of that in taxes.

If you feel the need to use a financial advisor, go with one that is fee-only and doesn't sell anything. They can review your portfolio, or suggest one, and make recommendations for your overall financial picture. Any time they're selling ANYTHING other than their opinion, it's impossible for them to claim they're being objective.

Here's my free plan -
1) 100-age=percent of your portfolio in stocks. Index funds are great - no thought involved.
2) Get plenty of level term life insurance, especially if you have a family. It's cheap, especially when young and healthy. Get terms running 30-40 years out - that keeps you covered until retirement when hopefully you've got plenty of FU money socked away and don't need insurance. +
3) Get as much long-term disability insurance as you can afford
4) Get debt free as soon as possible.

 

[Wiscoblue]

I chose not to buy long term disability. My wife works. When I finished my fellowship I remember the Nirthwestern Mutual guys in suits cornered me at the University hospital and I thought to myself they're probably getting a lot out of this deal. I said No and my wife and I decided to self insure ourselves by living simple, saving like crazy and getting debt free ASAP. It was a good gamble. The chance of needing the long term disability are very remote and not worth the cost. Term life is cheap.

 

[BLADEMDA]

Okay, let me say right off I do not recommend a Variable Life insurance policy. That said, I've had one for decades now and I am still adding to it because the policy isn't bad compared to what I could buy for myself today. I would rate my policy a C- and wouldn't recommend one:

1. Very high fees (there is a small load charge every year plus a % for managing the plan)
2. Mutual fund fees are above average- My funds charge around 1%
3. Limited selection of mutual funds
4. Higher cost for the life insurance component

If i was forced to buy any type of whole life/Variable life/etc type of Insurance product it would be from Northwestern Mutual; Even then I can't recommend that type of whole life vs Term plus Index ETFs. I also have a whole life policy (small one) but I'd rate it a C compared to simply investing the money elsewhere.

Whole life from Northwestern Mutual could earn a B- provided you are making boatloads of money and have every other area of your life covered.

I do recommend a disability policy until age 50-55 in case you need money. The odds of disability far outweigh the odds of an early demise.

 

[BLADEMDA]

 

[BLADEMDA]

http://money.usnews.com/money/blogs...surance-avoid-universal-and-variable-policies

Life Insurance: Avoid Universal and Variable Policies
Why term policies are the best option

 

[Ignatius J]

I have combo whole life with some added term for good replacement income of I die too early for my wife and kids.

After research, I went with Mass Mutual that has a guaranteed rate of return plus dividends.

I know the "buy term and invest the difference", but I have my own personal account where I'm quite aggressive in the market and I wanted 1.) life insurance coverage, 2.) a conservative "guaranteed growth" fund that I don't and won't have the discipline to manage, and 3.) a tool for tax-free wealth transfer for my wife and kids when I am old and kick the bucket. They'll get about 1.5 million bucks tax-free. I like that.

I'll let yall know in 30 years what I think.

 

[OB1🤙]

You're better off IMO putting that money in a Roth and giving that to the kids tax free, they even get to grow it further for a time tax free.

As for VUL- http://whitecoatinvestor.com/could-there-be-a-good-vul-policy/

 

[Ignatius J]

You're better off IMO putting that money in a Roth and giving that to the kids tax free, they even get to grow it further for a time tax free.

As for VUL- http://whitecoatinvestor.com/could-there-be-a-good-vul-policy/

From my understanding, although loopholes exist for backdoor Roths, for which there is a lot of red tape and threat of future closure, Roths are off-limits above a certain income level.

 

[Wolverines83]

Yeah we all have to back door it. As for the loophole being closed... No one can see the future. But still better off in an IRA

 

[dhb]

What happens to your SPY when stocks enter and exit the index?

 

[Promethean]

I chose not to buy long term disability. My wife works. When I finished my fellowship I remember the Nirthwestern Mutual guys in suits cornered me at the University hospital and I thought to myself they're probably getting a lot out of this deal. I said No and my wife and I decided to self insure ourselves by living simple, saving like crazy and getting debt free ASAP. It was a good gamble. The chance of needing the long term disability are very remote and not worth the cost. Term life is cheap.

It was a good gamble for you. LTD is not a terrible product like universal life, though. In a situation where one is the sole or higher income earner, disability insurance can be a really good idea. You are far more likely to be disabled than to die before retirement age. Still, you are right that a simple life and saving / debt elimination is the wisest path. I just feel better about having at least some LTD coverage on top of that. All insurance is a bet against yourself, that you make for your peace of mind.

 

[Promethean]

.

Double post.

 

[deleted126335]

It was a good gamble for you. LTD is not a terrible product like universal life, though. In a situation where one is the sole or higher income earner, disability insurance can be a really good idea. You are far more likely to be disabled than to die before retirement age. Still, you are right that a simple life and saving / debt elimination is the wisest path. I just feel better about having at least some LTD coverage on top of that. All insurance is a bet against yourself, that you make for your peace of mind.

Don't confuse strategy and outcome. You shouldn't be mad if you buy a thirty year term policy when you finish residency get married have a kid if your estate doesn't collect on the policy over the thirty years. The premiums weren't wasted

 

[BLADEMDA]

Lot of wise financial guys here so I respect your opinions. What do you guys think of VULs? Is it worth getting as a young starting physician? I keep getting sold on it like its a backdoor tax loophole but are the financial gains even worth the tax benefit?

Buy a 30 year term policy which pays out 1.5-3 million upon your death. Back in my day I had $3 million of coverage but anything over $1.5 is reasonable.
I had a combination of policies like a 20 year term policy at a $1 million, a 10 year policy for a $1 million and 2 other policies. The point being is I knew as the decades passed I would need less life insurance as my assets grew over time.

 

[BLADEMDA]

Lot of wise financial guys here so I respect your opinions. What do you guys think of VULs? Is it worth getting as a young starting physician? I keep getting sold on it like its a backdoor tax loophole but are the financial gains even worth the tax benefit?

Again, I have had a VUL policy for over 20 years and am unimpressed with it as a savings vehicle. Fees and costs are too high not to mention the insurance component is more expensive than fixed term.

You should buy any life insurance policy while you are young and healthy as even ONE chronic condition could drive the cost of the policies way up; hence, buy what you need after Residency or as a junior attending (1-2 years out).

 

[BLADEMDA]

http://www.selectquote.com/learning/Term-Life-25.aspx

 

[BLADEMDA]

http://www.selectquote.com/learning/Term-Life-30.aspx

 

[BLADEMDA]

Money Essentials

http://money.cnn.com/magazines/moneymag/money101/lesson20/index3.htm

Strategies for buying life insurance
Getting the right life insurance policy at the right price can be incredibly easy or very difficult


Insurance companies pay fat commissions for selling whole-life policies; perhaps 80% of your first year's premium goes to the agent. Commissions for selling term-life policies amount to roughly the same percentage of first-year premiums. But since whole-life premiums are much higher than premiums for term-life policies with the same death benefit -- they can be five to ten times more -- agents make much more money selling a whole-life policy than they do selling a term policy.

It's no wonder, then, that agents push whole-life policies as if their livelihoods depend on it, because, well, they do. If whole-life policies were beneficial to consumers, our story would end here. The fact is the vast majority of those who need insurance should buy term.

Today, the annual premium on a $500,000 term policy for a healthy, nonsmoking 40-year-old male might be about $500. The same policy for a healthy woman, aged 30, might cost about $260 annually.

Not long ago you couldn't buy term policies with level premiums for periods of more than 10 or 15 years. Today you can easily find 20- and 30-year term policies.

Agents will argue that whole-life policies are superior because you can keep them the rest of your life and build up cash in them tax-free, which can then be borrowed.

That's true, but they don't tell you about the high fees and commissions built into whole life as well as surrender charges (if you want to cancel the policy) that often leave you with little or no cash value five and even 10 or 15 years after you take out the policy.

The point of a tax-free buildup of cash just isn't that powerful anymore, given the proliferation of IRAs, 401(k)s, and other tax-advantaged savings vehicles that have tiny commissions, much higher yields and complete portability.

So stick with term, and do your investing elsewhere.

 

[Ignatius J]

Money Essentials

http://money.cnn.com/magazines/moneymag/money101/lesson20/index3.htm

Strategies for buying life insurance
Getting the right life insurance policy at the right price can be incredibly easy or very difficult


Insurance companies pay fat commissions for selling whole-life policies; perhaps 80% of your first year's premium goes to the agent. Commissions for selling term-life policies amount to roughly the same percentage of first-year premiums. But since whole-life premiums are much higher than premiums for term-life policies with the same death benefit -- they can be five to ten times more -- agents make much more money selling a whole-life policy than they do selling a term policy.

It's no wonder, then, that agents push whole-life policies as if their livelihoods depend on it, because, well, they do. If whole-life policies were beneficial to consumers, our story would end here. The fact is the vast majority of those who need insurance should buy term.

Today, the annual premium on a $500,000 term policy for a healthy, nonsmoking 40-year-old male might be about $500. The same policy for a healthy woman, aged 30, might cost about $260 annually.

Not long ago you couldn't buy term policies with level premiums for periods of more than 10 or 15 years. Today you can easily find 20- and 30-year term policies.

Agents will argue that whole-life policies are superior because you can keep them the rest of your life and build up cash in them tax-free, which can then be borrowed.

That's true, but they don't tell you about the high fees and commissions built into whole life as well as surrender charges (if you want to cancel the policy) that often leave you with little or no cash value five and even 10 or 15 years after you take out the policy.

The point of a tax-free buildup of cash just isn't that powerful anymore, given the proliferation of IRAs, 401(k)s, and other tax-advantaged savings vehicles that have tiny commissions, much higher yields and complete portability.

So stick with term, and do your investing elsewhere.

This is true. However, in our profession (and assuming a modest lifestyle), we have the luxury of maxing a 401K and perhaps a Roth (if you want to do the backdoor Roth) and still have some change left over. I have those things and also fund a personal investment account and Whole Life each month. It definitely has it's advantages.

People say you can invest the difference between term and whole life, but show me a physician that personally makes more than 8% after capital gains taxes annually while managing their own portfolio and I'll show you a rare bird that should probably just hang it up and go manage his own portfolio for the rest of his life and live off of that.

Return on a good (read: good) whole life policy isn't great, but it will essentially get you what money market funds and some stabile bonds will get you, which are a part of almost everyone's retirement portfolio.

I get the "agent makes a lot of money" off of it argument, but the truth is that everyone has their hand in the cookie jar. In the same way, a lot of financial advisors may recommend term because it's a quite easy sell and very cheap. It also very, very rarely pays out so it's found money.

Also, if you use Whole Life as an wealth transfer or tax-deferred investment vehicle, guess who stands little chance to make commission off managing the funds? Financial advisors. Does that mean they skew it towards wanting you to get term? I don't think so at all, but we need to understand that your decision for Term or Whole Life has people on both sides that stand to make money off of you in their own right. It isn't just Whole Life.

 

[Ignatius J]

Yeah we all have to back door it. As for the loophole being closed... No one can see the future. But still better off in an IRA

Depends on how you hedge your risks.

No one is going to fault your for doing a Roth, but I have a personal investment account that I'm quite aggressive with. I wanted a solid, stabile, after-tax account that I know will always be there for the long haul and give me returns. In order to be aggressive with my personal account, I went with Whole Life to give me that peace of mind. I will never touch it until my kids get it when I die. That's the plan anyways. It will be worth much more than a backdoor Roth would too. More expensive, but will always be there and have a guaranteed rate of return. Most importantly, it gives me the peace of mind to push the chips to the center with my extra money.

 

[BLADEMDA]

Depends on how you hedge your risks.

No one is going to fault your for doing a Roth, but I have a personal investment account that I'm quite aggressive with. I wanted a solid, stabile, after-tax account that I know will always be there for the long haul and give me returns. In order to be aggressive with my personal account, I went with Whole Life to give me that peace of mind. I will never touch it until my kids get it when I die. That's the plan anyways. It will be worth much more than a backdoor Roth would too. More expensive, but will always be there and have a guaranteed rate of return. Most importantly, it gives me the peace of mind to push the chips to the center with my extra money.

After I finished Residency many years ago I contacted my local NW Mutual agent to buy a $1 million whole life policy. My quote was around $20K annually for the policy. The agent admitted to me his commission was $20K if I bought the policy. I agreed to buy the $1 million whole life policy if the agent split the commission with me; that is, he took $10K but left $10K in my policy at year 1. This would jump start my compounding of cash value while still leaving the agent a nice, fat $10K commission. I was told a flat "no" by the agent so I declined the policy and bought term instead. To this day I don't get the greed in this industry where someone walks away from an easy $10K commission rather than provide the customer with a fair deal.

 

[Ignatius J]

After I finished Residency many years ago I contacted my local NW Mutual agent to buy a $1 million whole life policy. My quote was around $20K annually for the policy. The agent admitted to me his commission was $20K if I bought the policy. I agreed to buy the $1 million whole life policy if the agent split the commission with me; that is, he took $10K but left $10K in my policy at year 1. This would jump start my compounding of cash value while still leaving the agent a nice, fat $10K commission. I was told a flat "no" by the agent so I declined the policy and bought term instead. To this day I don't get the greed in this industry where someone walks away from an easy $10K commission rather than provide the customer with a fair deal.

Wow. That's ballsy. Love it!

As an aside, that was a somewhat raw deal unless they gave you some good dividends. I pay about $16,500/year for a 1.5 million dollar policy (combined with 500K term). I also get the guaranteed rate of return/cash value build-up and dividend sharing. I am going to look back in 5 years and if I'm only getting the low-set guaranteed RoR I may consider cashing it out.

 

[BLADEMDA]

http://www.bankrate.com/finance/insurance/life-insurance-agent-make-1.aspx

How much does a life insurance agent make?

Ever wonder how much a life insurance agent makes on your policy? Does an insurance agent receive a salary?

That's a dirty little secret the insurance industry doesn't want you to know, for fear it would kill the sale.



Read more: http://www.bankrate.com/finance/insurance/life-insurance-agent-make-1.aspx#ixzz3aDz2VpE3
Follow us: @Bankrate on Twitter | Bankrate on Facebook

 

[BLADEMDA]

Wow. That's ballsy. Love it!

As an aside, that was a somewhat raw deal unless they gave you some good dividends. I pay about $16,500/year for a 1.5 million dollar policy (combined with 500K term). I also get the guaranteed rate of return/cash value build-up and dividend sharing. I am going to look back in 5 years and if I'm only getting the low-set guaranteed RoR I may consider cashing it out.

These days NW Mutual offers an Adjustable Comp Life policy as well as Whole life. The Comp Life allows Term plus whole/Permanent in one policy. Over time the permanent portion increases while the term portion decreases.

If the Insurance companies stopped playing games with its customers they could sell a lot more policies.

 

[BLADEMDA]

https://www.tiaa-cref.org/public/pdf/WSJ_honestly_whats_the_best_Policy_5_28_11.pdf

Best Whole Life Carriers:

1. TIAA-Cref
2. Mass Mutual
3. Guardian
4. Northwestern Mutual
5. New York Life

 

[nimbus]

After I finished Residency many years ago I contacted my local NW Mutual agent to buy a $1 million whole life policy. My quote was around $20K annually for the policy. The agent admitted to me his commission was $20K if I bought the policy. I agreed to buy the $1 million whole life policy if the agent split the commission with me; that is, he took $10K but left $10K in my policy at year 1. This would jump start my compounding of cash value while still leaving the agent a nice, fat $10K commission. I was told a flat "no" by the agent so I declined the policy and bought term instead. To this day I don't get the greed in this industry where someone walks away from an easy $10K commission rather than provide the customer with a fair deal.

You can do this with realtors too

 

[BLADEMDA]

Intelligent Life policies are low-load, with no sales or surrender charges. The only premium load is a state-specific premium tax charge, which we assess based on the state in which the policy is issued. Premium tax charges vary by state, and can range from 0% to 3.50%.

https://www.tiaa-cref.org/public/pr...es/Intelligent_Life_Universal_Life_rp_ol.html

 

[BLADEMDA]

https://www.tiaa-cref.org/public/performance/lifeinsurance

tiaa-cref offers low cost DFA and Vanguard funds in their Variable life portfolios with very low fees. Tiaa Cref has the lowest upfront fees and commission in the business. I must say that those of us who dislike Insurance products may need to take another look at TIAA-Cref's product line-up because it is very impressive.

TIAA-CREF is blazing a new trail for the life insurance industry as a whole, putting forth a permanent life insurance policy where every cost and charge is transparent, fully disclosed, and clearly conveyed to the potential buyer.

 

[Ignatius J]

https://www.tiaa-cref.org/public/performance/lifeinsurance

tiaa-cref offers low cost DFA and Vanguard funds in their Variable life portfolios with very low fees. Tiaa Cref has the lowest upfront fees and commission in the business. I must say that those of us who dislike Insurance products may need to take another look at TIAA-Cref's product line-up because it is very impressive.

TIAA-CREF is blazing a new trail for the life insurance industry as a whole, putting forth a permanent life insurance policy where every cost and charge is transparent, fully disclosed, and clearly conveyed to the potential buyer.

This is who my father-in-law recommended. He's a financial advisor and a good and honest guy who just wanted what was best for his daughter. He recommended TIAA-Cref for there reasons you mentioned, both the Universal or Whole Life policy.

 

[Wolverines83]

This is true. However, in our profession (and assuming a modest lifestyle), we have the luxury of maxing a 401K and perhaps a Roth (if you want to do the backdoor Roth) and still have some change left over. I have those things and also fund a personal investment account and Whole Life each month. It definitely has it's advantages.

People say you can invest the difference between term and whole life, but show me a physician that personally makes more than 8% after capital gains taxes annually while managing their own portfolio and I'll show you a rare bird that should probably just hang it up and go manage his own portfolio for the rest of his life and live off of that.

Return on a good (read: good) whole life policy isn't great, but it will essentially get you what money market funds and some stabile bonds will get you, which are a part of almost everyone's retirement portfolio.

I get the "agent makes a lot of money" off of it argument, but the truth is that everyone has their hand in the cookie jar. In the same way, a lot of financial advisors may recommend term because it's a quite easy sell and very cheap. It also very, very rarely pays out so it's found money.

Also, if you use Whole Life as an wealth transfer or tax-deferred investment vehicle, guess who stands little chance to make commission off managing the funds? Financial advisors. Does that mean they skew it towards wanting you to get term? I don't think so at all, but we need to understand that your decision for Term or Whole Life has people on both sides that stand to make money off of you in their own right. It isn't just Whole Life.

Eh I guess well have to agree to disagree. Just like anything else, different strokes for different folks!

I prefer to separate the two (insurance and investing) because the gains from investing (long term) in broad index funds will beat the gains made by a combo product or the gains from actively managing funds after cap gains taxes and transaction fees. Not to mention they often just flat out beat active funds (long term). Throw some money in bond funds and money market accounts for maintenance of purchasing power (not investing) and you're good to go. There shouldn't be many capital gains if a fund is managed properly.

As far as going over the 401k/Roth limit, I have a working spouse and maxing out all our accounts combined 401x2, IRAx2, HSA, plus any employer matches gets us awfully close to our goals. Add some tax managed funds and you're set.

But again, what works for one doesn't always worm for the other

 

[BLADEMDA]

Eh I guess well have to agree to disagree. Just like anything else, different strokes for different folks!

I prefer to separate the two (insurance and investing) because the gains from investing (long term) in broad index funds will beat the gains made by a combo product or the gains from actively managing funds after cap gains taxes and transaction fees. Not to mention they often just flat out beat active funds (long term). Throw some money in bond funds and money market accounts for maintenance of purchasing power (not investing) and you're good to go. There shouldn't be many capital gains if a fund is managed properly.

As far as going over the 401k/Roth limit, I have a working spouse and maxing out all our accounts combined 401x2, IRAx2, HSA, plus any employer matches gets us awfully close to our goals. Add some tax managed funds and you're set.

But again, what works for one doesn't always worm for the other

But, have you looked at Tiaa-Cref?

1. They have Index funds from DFA and Vanguard (expenses less than 0.3%) for Variable Life
2. They have a good rate of return on their whole life product
3. NO commissions. LOW sales loads (0-3.5% depending on your state)
4. Reasonable cost for the insurance itself
5. Immediate cash value on your policy and no surrender fees if you decide to cash out early

Will the product from Tiaa-Cref beat term life plus Index funds from Vanguard? No. Will the Tiaa-Cref product beat most other investment products on the market? Yes. Tiaa-Cref is worth a look and then look again.

Honestly, I would be very tempted to buy one of the life insurance products from Tiaa-Cref as a newly minted Anesthesiologist. The full disclosure and ZERO commission policy really helps the sale in my opinion. Tiaa-Cref is paying 4% right now annually on their whole life product with very low fees (fully disclosed). Your first year will IMMEDIATELY show cash value as the greedy sales agent (non existent) gets ZILCH. TIaa-Cref has a guaranteed rate of return of 3% but is paying over 4% as of today. Where else can you get FIXED INCOME returns with low risk at 4%?

 

[BLADEMDA]

This is who my father-in-law recommended. He's a financial advisor and a good and honest guy who just wanted what was best for his daughter. He recommended TIAA-Cref for there reasons you mentioned, both the Universal or Whole Life policy.

Mass Mutual was better than Tiaa-Cref? Didn't your sales agent get your entire YEAR 1 policy cost as his/her commission? With TIaa-Cref you would have had over $14K in cash value year 1 instead of zero. ($0.00).

Mass Mutual must of lured you with their higher dividend rates. Did they promise you 6 or 7%?
Tiaa-Creff is paying out around 4.25% right now on whole life. Mass Mutual agent must have convinced you they will pay more making up for your lost year 1 cash value of $14K.

https://www.tiaa-cref.org/public/performance/lifeinsurance

 

[BLADEMDA]

Underscoring its financial strength and stability, as well as its commitment to its policyowners and members, Massachusetts Mutual Life Insurance Company (MassMutual) today announced that its Board of Directors has approved an estimated dividend payout of $1.6 billion for 2015, marking the third consecutive year the company has paid a record dividend to eligible participating policyowners and members. The dividends to be paid in 2015 reflect a dividend interest rate1 of 7.10 percent – maintaining the same rate as 2014 – for eligible participating permanent life and annuity blocks of business.

The thing is what are the undisclosed fees? I've seen fees eat into my returns from NW Mutual and the cost of insurance seemed high. I can see how the lure of 7% returns swayed you from the 4.25% from TIaa-Cref. But, I don't trust insurance agents so I doubt that the Mass Mutual agent would have gotten the sale.

 

[Ignatius J]

Mass Mutual was better than Tiaa-Cref? Didn't your sales agent get your entire YEAR 1 policy cost as his/her commission? With TIaa-Cref you would have had over $14K in cash value year 1 instead of zero. ($0.00).

Mass Mutual must of lured you with their higher dividend rates. Did they promise you 6 or 7%?
Tiaa-Creff is paying out around 4-4.25% right now on whole life. Mass Mutual agent must have convinced you they will pay more making up for your lost year 1 cash value of $14K.

Good questions. I only looked at a 1 million dollar universal life policy with TIAA-Cref. Admittedly, I should have looked at Whole Life harder with them. I combed a few providers with Whole Life and liked the dividend sharing that Mass Mutual provided combined with a guaranteed RoR. The agent was also a personal friend who has a similar plan.

 

[BLADEMDA]

Good questions. I only looked at a 1 million dollar universal life policy with TIAA-Cref. Admittedly, I should have looked at Whole Life harder with them. I combed a few providers with Whole Life and liked the dividend sharing that Mass Mutual provided combined with a guaranteed RoR. The agent was also a personal friend who has a similar plan.

What was the guaranteed RoR? 4%? Did you run an analysis of cashing out after 10 years with Tiaa-Cref vs Masss Mutual? Remember, you start with $14K from Tiaa-Cref vs ZERO with Mass Mutual so the rate of return better be higher. I'd use 6% for Mass Mutual vs 4.25% for Tiaa-Cref because of the higher fees associated with Mass Mutual.


(Edit: The best I could find out was that Mass Mutual's guaranteed RoR was the same as Tiaa-Cref: 3%)

 

[Ignatius J]

What was the guaranteed RoR? 4%? Did you run an analysis of cashing out after 10 years with Tiaa-Cref vs Masss Mutual? Remember, you start with $14K from Tiaa-Cref vs ZERO with Mass Mutual so the rate of return better be higher. I'd use 6% for Mass Mutual vs 4.25% for Tiaa-Cref because of the higher fees associated with Mass Mutual.


(Edit: The best I could find out was that Mass Mutual's guaranteed RoR was the same as Tiaa-Cref: 3%)

I did not because I didn't look hard at whole life with them (as I mentioned I probably should have). I can dig up my illustration later and we can get a general comparison. The RoR with the hypothetical dividend at MM was pretty wild, although not a guarantee.

I think the big take home point is that comparing Term to Whole Life is tough because although Term is fairly uniform, it seems like WL policies are finger prints and can very widely.

TIAA-Cref is definitely interesting. Wish I had looked harder at a WL with them.

 

[Ignatius J]

What was the guaranteed RoR? 4%? Did you run an analysis of cashing out after 10 years with Tiaa-Cref vs Masss Mutual? Remember, you start with $14K from Tiaa-Cref vs ZERO with Mass Mutual so the rate of return better be higher. I'd use 6% for Mass Mutual vs 4.25% for Tiaa-Cref because of the higher fees associated with Mass Mutual.


(Edit: The best I could find out was that Mass Mutual's guaranteed RoR was the same as Tiaa-Cref: 3%)

Looked at the bullet points. The RoR is 4%. With the dividend, it paid out 7.1% last year.

 

[BLADEMDA]

Looked at the bullet points. The RoR is 4%. With the dividend, it paid out 7.1% last year.

This year (2015) and last year (2014) Mass Mutual paid out 7.1% RATE OF RETURN. FYI, These rates of return are inflated because of higher fees with the policies. I find the real rate of return to be lower than those published by the insurance carriers. Still, even at 6% that is a great return but remember you don't have much cash basis unlike the TIAA-CRef policy which pays out a real 4.25% compounded on a real cash basis.

 

[The White Coat Investor]

I think this is my first post in this forum. Too bad, I should have looked at anesthesia a lot closer in med school. Probably would have been my second choice if I had it all to do over again. At any rate, I was PMed and asked to contribute. I just want to make a few points.

1) Most VULs suck and suck hard. Expensive, crappy insurance + expensive, crappy investments makes for a terrible combination.

http://whitecoatinvestor.com/what-happens-when-ogres-and-trolls-mate-aka-variable-life-insurance/

2) There are some VULs that are a bit better. Insurance better and not quite as expensive and investments that are the equivalent of good mutual funds. In these scenarios, the question is whether in the long run the tax savings outweigh the insurance costs. For the vast majority of people, including docs, that probably isn't the case. But if you're making gobs of money, you're a great saver, you're maxing out everything and already have a large taxable account, and expect to be in a very high bracket not only now, but in retirement, maybe it makes sense to have one of these better VULs. I'm talking about docs making $600K+ a year who expect $400K+ of TAXABLE income in retirement. That's a very small subset of doctors, but anesthesiologists get paid pretty well, so....

http://whitecoatinvestor.com/could-there-be-a-good-vul-policy/

3) All that said, buying one of these things is like getting married- til death do you part. Divorce is very expensive, whether you're divorcing your spouse or divorcing your life insurance policy. Some docs are so pissed about being sold a policy they later surrendered they are actually suing the advisor that sold it to them. I have no idea if they'll win, but it gives you some idea of just how much time you need to spend understanding how this works BEFORE buying one. These are super complex financial instruments, and figuring out if it is right for you is very difficult. In general, complexity benefits the seller, not the buyer. But if you're going to buy one of these things, you should be an expert on them. Since most docs, even that tiny slice for whom these aren't a bad idea, aren't willing to do that, well, they probably shouldn't be buying one.

4) Like with whole life insurance, the dividend rate and the rate of return of the investment portion of these accounts is not exactly the same as your actual return since it doesn't consider the insurance costs. Use the XIRR (for past investments) and RATE (when looking at illustrations) functions to determine your return. Don't know how to do that? Then you have no business buying a VUL.

Good luck with your decision. Remember the decision to buy one is NOT the same decision of whether or not to keep one you have already bought. Like with whole life, the low return years are heavily front-loaded and are water under the bridge when it comes to making decisions going forward.

 

[Ignatius J]

This year (2015) and last year (2014) Mass Mutual paid out 7.1% RATE OF RETURN. FYI, These rates of return are inflated because of higher fees with the policies. I find the real rate of return to be lower than those published by the insurance carriers. Still, even at 6% that is a great return but remember you don't have much cash basis unlike the TIAA-CRef policy which pays out a real 4.25% compounded on a real cash basis.

True.

I think you can argue for either. I'll check the numbers and see what the real realized rate of return is. Do we have a TIAA-Cref illustration?

Imporantly, my goal is to use this both for wealth transfer purposes and as an investment tool.

And again, I think the real point here is that Whole Life is worth checking out as many insurance companies have raised the bar with what their policies contain.

Saying "Buy term and invest the difference" may work for some people, but we can't say that is THE way to go without looking into other types of life insurance. By the way, Dave Ramsey owns a lot of Whole Life insurance. He gets paid by a term insurance broker to push term to the layman. Just an interesting note.

 

[deleted126335]

True.

I think you can argue for either. I'll check the numbers and see what the real realized rate of return is. Do we have a TIAA-Cref illustration?

Imporantly, my goal is to use this both for wealth transfer purposes and as an investment tool.

And again, I think the real point here is that Whole Life is worth checking out as many insurance companies have raised the bar with what their policies contain.

Saying "Buy term and invest the difference" may work for some people, but we can't say that is THE way to go without looking into other types of life insurance. By the way, Dave Ramsey owns a lot of Whole Life insurance. He gets paid by a term insurance broker to push term to the layman. Just an interesting note.

You must have a lot of wealth to transfer. The unified credit is $5.4 million per person in 2015, indexed for inflation. That means you and spouse can give away/pass on $10.8 million without incurring of estate/gift taxes. Not to mention that each person can give $14,000 per year to a many people as he or she chooses without affecting these limits. (also indexed for inflation) This means that for wealth transfer, the vast majority of docs won't need anything more than the government gives you for free anyway.

 

[BLADEMDA]

Even for the whole life haters out there the TIAA-Cref policy isn't that bad. The insurance portion is a bit expensive but the investment side is decent with low fees, no commissions and a very low front load. Again, I'm not saying this policy beats Term Life plus Vanguard Index Funds as it doesn't win a side by side comparison but the TAX BENEFITS of the policy combined with life insurance makes it worth a look.

Overall, for the average Anesthesiologist forget Whole Life and especially Variable Life; go with Term Life (30 year fixed policy) and invest the rest utilizing 401Ks, Roth, etc. For the select few earning over $500K per year I think the permanent life policies from TIA-Cref deserve further investigation.