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Jan

"estate Rider" Of A Tax-sheltered Product

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I recently listened to a presentation by a representative of "Mutual Inc." at an educational conference. This man also works for one of the approved 403b providers in my school district. I will try to summarize my understanding of what he was selling. He was basically proposing a way to provide survivorship benefits (income at age 75) by buying life insurance products through my 403b plan or by using the leveraging power of my 403b & 457 investments. He used such language as "pre-tax permanent life insurance" and "by using a variety of insurance products (whole life, universal, term and enhancement of a variable annuity) you can get a guaranteed income after a set 10 year period." He also said it's "an Estate Rider of a tax-sheltered product to get additional insurance coverage without it costing much, if anything." Although I probed, I could not make heads or tails of what the actual plan is. My suspicions of this being a terrible idea are quite high. It sounds like he wants to use people's 403b & 457 investments as a way to leverage an insurance product. Has anyone heard of this before? I am interested in any thoughts/opinions. Thank you.

Jan

 

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I am not sure I can make heads or tails of that either. It sounds expensive and also so sounds suspiciously like VUL (Variable Universal Life Insurance). I would think that if you wanted income protection in the form of a death benefit and you are insurable, level premium term life insurance would be your best bet. I wouldn't think you need that in a 403b product either. If you are truly interested in this, my suggestion would be to gather all the prospectuses and brochures on the products and sit down with someone you trust and is knowledgeable and see if the "devil is in the details." If it were me, I would stay away from that.

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While using pre-tax money (ie 403b) to buy life insurance is perfectly legal it is also highly complicated. The portion of your contribution that is used to buy the insurance is a taxable event each year. Did the "educational"presenter tell you this?

 

Peace,

Joel

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Stay far away from this individual and make sure your friends do the same. These life insurance policies may be pre-tax, but it is rarely a good idea to buy a policy in your 403(b). For one thing there aren't many products available for purchase, this means you will be stuck with a cost product which means it probably won't perform as "guaranteed" and all you end up with is a policy that will be cancelled. While it can be done correctly, It rarely is and there isn't really a need. Look at the bright side, you just found one more person that you know you can't trust and shouldn't do business with.

 

Warm regards,

 

 

ScottyD

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