Hi guys, has anyone heard of an Equity Index Universal life insurance policy? I heard it works sort of like this:
You open the policy and you can contribute some money over 5 years or something and you cant take it out for 5 years I think.
It tracks the S&P but your money is not directly invested in the S&P500 so the risk of loss isn't there.
If the S&P does poorly the most you gain is 1% but you cant lose your original capital.
You are guaranteed to gain at least 1% a year from the policy even in a down trending market. If the S&P does well for the year you can make at maximum, only 15% returns (so if the S&P goes up 20% in the year you'll only make 15% (this sucks)
After a certain amount of time (I think 5 years there is no age limitation I think like an IRA or 401K would have), you can begin withdrawing your money from the policy tax free.
So if I have 70K a year in gains from my policy I can supposedly withdraw it tax free (counting the withdrawal as my principle).
You dont have to pay the premiums if you don't want, but if you don't the policy doesn't grow obviously.
Also, if I die, the policy can be passed on to my kids tax free as an insurance policy.
I think I have it right as I heard it explained to me. Does anyone on the board have experience with this type of instrument that can speak on it? Id like to know the downsides to it as it sounds too good to be true to me. I know people doing it now and supposedly its awesome, but I want to know more about the downsides if there are any.
Seems to me the downsides are:
the policy may not grow very quickly, and 1% sucks. Of course the agents are touting the fact that the S&P500 averages 10% a year blah blah. But what if it doesnt keep up?
I know someone that is trying to take out a HELOC on their home to buy one of these, at around 8%. So what if the policy only returns 1% for a few years, hes out a lot of money on interest.
THe money you take out is tax free, but only up to the amount you put in, the gain is taxable at capital gains. So if you are making interest, can you take out the amount you got in interest tax free? and for how long? only until you take out all that you put in right? and then you would be paying tax on withdrawals after that right?
others? It seems the only way for this to work is Arbitrage including the tax benefits. But is it really easy to structure this policy to take advantage of an arbitrage system?
You open the policy and you can contribute some money over 5 years or something and you cant take it out for 5 years I think.
It tracks the S&P but your money is not directly invested in the S&P500 so the risk of loss isn't there.
If the S&P does poorly the most you gain is 1% but you cant lose your original capital.
You are guaranteed to gain at least 1% a year from the policy even in a down trending market. If the S&P does well for the year you can make at maximum, only 15% returns (so if the S&P goes up 20% in the year you'll only make 15% (this sucks)
After a certain amount of time (I think 5 years there is no age limitation I think like an IRA or 401K would have), you can begin withdrawing your money from the policy tax free.
So if I have 70K a year in gains from my policy I can supposedly withdraw it tax free (counting the withdrawal as my principle).
You dont have to pay the premiums if you don't want, but if you don't the policy doesn't grow obviously.
Also, if I die, the policy can be passed on to my kids tax free as an insurance policy.
I think I have it right as I heard it explained to me. Does anyone on the board have experience with this type of instrument that can speak on it? Id like to know the downsides to it as it sounds too good to be true to me. I know people doing it now and supposedly its awesome, but I want to know more about the downsides if there are any.
Seems to me the downsides are:
the policy may not grow very quickly, and 1% sucks. Of course the agents are touting the fact that the S&P500 averages 10% a year blah blah. But what if it doesnt keep up?
I know someone that is trying to take out a HELOC on their home to buy one of these, at around 8%. So what if the policy only returns 1% for a few years, hes out a lot of money on interest.
THe money you take out is tax free, but only up to the amount you put in, the gain is taxable at capital gains. So if you are making interest, can you take out the amount you got in interest tax free? and for how long? only until you take out all that you put in right? and then you would be paying tax on withdrawals after that right?
others? It seems the only way for this to work is Arbitrage including the tax benefits. But is it really easy to structure this policy to take advantage of an arbitrage system?
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