In response to Rick Kahler's April 14 column, "Self-funded insurance policy a scam." First, I'll start with a compliment for the brevity of the article. However, if Kahler believes he can give just an outline of the whole life policy given in this article, he is either being deliberately deceptive or is entirely unqualified to opine on this topic.
Without reference to age, the policy outlined is probably a Modified Endowment Contract (MEC). No insurance professional, using the banking concept to place a whole life contract to fill a specific client's needs, would ever sell this type of contract. I would question Rick: "If when working with a client on their safe money, this is the money for retirement that you can't afford to risk, would you ever put a client in a four-year position?"
Now, let's look at the actual numbers, as he called them, in a properly funded whole life policy inside the MEC limits. Keep in mind, this is non-qualified money.
The closest I could get to Rick's example of $12,500 annual premium cost is $12,499.88. Here are the facts (the reader can do the math as far as available cash versus premium paid): A 35-year-old, nonsmoking male would have a death benefit of $603,136, not $125,000. In 10 years, he would have $122,498.00 in guaranteed cash value (along with death benefit); after 20 years, $311,200; and 30 years, at age 65 -- when ready to retire -- the guaranteed cash value is $556,156. According to IRS code 72e, if done properly, this could generate a lifetime tax-free income, unlike a 401(K).
As for the banking concept, once again, Rick's example has too many flaws to respond properly to all of them, but let's start with the sentence, "you will pay the company 5 percent for borrowing your own money." For Kahler to make this claim, without addressing nonrecognition, tells me he has not fully studied the concept. When you borrow money from your whole life policy, you still continue to get credited interest and dividends, as though that money was still sitting in your policy. The money you borrow actually does double duty.
As previously mentioned, this is just a snapshot of the advantages of a properly funded whole life policy and not enough information to make a final decision without more detailed information.
I would invite Kahler to an open-forum debate on this topic at his convenience. Thank you for your attention.