In Support of Life Insurance and Equity Harvesting
Jeff,
No one is more cautious about telling clients the pros and cons of life insurance and about equity harvesting.
Your statements are far too finite in your article while the average reader won't understand that you do not understand the subject matter, I recommend you better educate yourself both about the proper use of life insurance and equity harvesting.
That way you won't have articles out there with misinformation or ones that are simply wrong.
You are also overlooking the living benefits of some of the new policies (free LTC benefits).
I find your following comments unprofessional and can state with confidence that they are made out of ignorance. I spent months tearing apart the math of books like Missed Fortune 101 and Stop Sitting on Your Assets. While their math is defective in a similar manner to your comments, if you really do real live and honest math with Equity Harvesting, the concept can work. It also might not, but telling people it's smoke and mirrors is totally irresponsible, misleading and inaccurate.
I was so put off by the books that I created two cautionary web-sites www.www-stopsittingonyourassets.com and www.www-missedfortune101.com.
I was so put off by the misinformation out there I wrote my own book telling advisors and readers the truth about this topic. I see you didn't get a chance to read my new book otherwise you would not make comments like the one below.
"One of the most egregious sales tactic used to promote universal policies as an investment is that you should take the equity out of your home and ‘invest’ it in a universal life insurance policy. The argument is that your home equity is an asset that should be used, not left dormant. The tax benefits are also touted—-the transfer is tax-free, the growth is tax-free and the distribution is tax-free! That’s triple compounding, they say."
"Do not fall for this trap. Frankly, those recommending it should lose their licenses. The arguments used to support this scheme are all smoke and mirrors. The tax benefits are bogus, you lose control of your money and the agent earns a big fat pay day."
If you want to do a cautionary article dealing with crooks in the financial/insurance/mortgage field, take on the mortgage acceleration plans that are running wild.
You can get a little education on it by going to www.heaplan.com.
Your posted comments on this and other questions are welcome.
If you have a question for Jeff an answer is just a click away.
Find a wealth of information at Jeff's website.
posted by Jeffrey D. Voudrie @ 5:08 PM
2 comments
2 Comments:
I am familiar with your positions and approach and have seen some of your articles on Equity Harvesting.
Still, I disagree with this concept. You mention that readers may not be smart enough to understand my ignorance. I believe there may be a place for equity harvesting. For instance, someone who is knowledgeable in real estate investing regularly does this anyway. People in that situation tend to be very aware of the risks and the rewards.
I am very concerned, though, that this concept is being sold to homeowners that don’t really understand the risks associated with it. As I state, this is all about arbitrage. When you boil it all down you are borrowing money at one rate in order to try and invest it at a higher rate. Those on Wall Street who specialize in arbitrage always know their profit before they make the trade. In other words, they don’t borrow at one rate without having the rate they are going to earn locked in. That’s not the case with the equity harvesting concepts that I’ve seen.
Thanks for your comments.
I appreciate your concerns.
I'd appreciate them much more if you actually understood the math before you went to publications and had articles published that are totally inaccurate and misleading.
I share your concerns about clients getting into equity harvesting and not understanding the pros and cons and being sold a bill of goods by an agent who is either incompetent or is intentionally misleading the client.
That's why I took several months out of my life to write what I consider the only full disclosure and honest book that explains equity harvesting.
The fact of the matter is that equity harvesting using life insurance can work out as a terrific wealth building tool.
Having said that, it is not a perfect or even near perfect tool and the consumer does need to know the pros and cons before implementing it.
As for your comment about wall street, the comment is misplaced as you are not comparing apples to apples with these concepts. There are few ways to build wealth with a guaranteed return.
With most wealth building tools there is an element of risk.
when you put money in mutual funds, stocks, etc. clients can lose money. half our country lost nearly 40% of their portfolios from 2000-2002.
Life insurance is not a cure all either, but you do get tax free growth and can remove it tax free via policy loans.
Also with indexed life the client's money will not go backwards due to market returns as the policy does not allow it.
When you layer in an element of borrowing from the house it does increase the risk. this needs to be disclosed and discussed to determine how great the risks are vs. the rewards.
If setup properly Equity Harvesting can be a fairly secure transaction if you can lock in the lending rate at a good rate (and rates are not too bad right now).
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