Feedback on Kai-Zen premium finance life insurance plan

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andy2012
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Feedback on Kai-Zen premium finance life insurance plan

Post by andy2012 » Sun Oct 14, 2018 9:16 am

I came across this plan which is a Universal Life Index premium financing plan. Here is the website: http://www.kaizenplan.com/what-is-kai-zen/

In nutshell, you take a 1m-2mm policy. You pay some premium for 5-7 years and Kaizen finance more than half of the premium as well. They invest in S&P and other indexes where Floor of zero and Ceiling is 10%. Over the span of 20+ years, money grows and you have quite a significant amount which can be used as retirement income or lump sum payment.

I would love to get feedback from Boogleheaders who have used this kind of plan in the past or currently in process of taking it.

Thanks

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dwickenh
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Re: Feedback on Kai-Zen premium finance life insurance plan

Post by dwickenh » Sun Oct 14, 2018 9:31 am

andy2012 wrote:
Sun Oct 14, 2018 9:16 am
I came across this plan which is a Universal Life Index premium financing plan. Here is the website: http://www.kaizenplan.com/what-is-kai-zen/

In nutshell, you take a 1m-2mm policy. You pay some premium for 5-7 years and Kaizen finance more than half of the premium as well. They invest in S&P and other indexes where Floor of zero and Ceiling is 10%. Over the span of 20+ years, money grows and you have quite a significant amount which can be used as retirement income or lump sum payment.

I would love to get feedback from Boogleheaders who have used this kind of plan in the past or currently in process of taking it.

Thanks
I do not have such a plan, but leveraged premium payments for 10-20 years sounds scary to me. I am sure the expenses are not low either.
If you don't fully understand the returns and expenses, better to invest in what you understand.
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

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TomatoTomahto
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Re: Feedback on Kai-Zen premium finance life insurance plan

Post by TomatoTomahto » Sun Oct 14, 2018 10:02 am

I would love to get feedback from Boogleheaders who have used this kind of plan in the past or currently in process of taking it.
That’s going to be a very small group. BHs typically don’t invest in things they don’t understand, and those policies are intentionally impossible for mere mortals to understand. The salespeople understand the profit involved.

IMO, those policies are sold rather than bought.
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David Jay
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Re: Feedback on Kai-Zen premium finance life insurance plan

Post by David Jay » Sun Oct 14, 2018 10:03 pm

I looked at the literature for another Boglehead who was pitched this product about 18 months ago.

I think the bottom line is the old adage not to mix investments with insurance. It is almost impossible to figure out the different moving parts of this Rube Goldberg arrangement. And if you can’t figure out how it works, how can you judge the outcome?

All I know is that someone is getting paid commission on a 1-2M policy, that commission will be 50% -100% of the first year’s payment. Lots of incentive to, how do I say it, oversell the benefits and undersell the downsides.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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David Jay
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Re: Feedback on Kai-Zen premium finance life insurance plan

Post by David Jay » Sun Oct 14, 2018 10:09 pm

Instead of looking at the pretty glossy brochure, ask for the prospectus.

When you fully understand the prospectus and have calculated the impact of fees, caps, participation rates and dividends lost, then you have a basis for comparing the product to traditional investments.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

Nate79
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Re: Feedback on Kai-Zen premium finance life insurance plan

Post by Nate79 » Mon Oct 15, 2018 3:26 am

Here was the other thread.

viewtopic.php?p=4161238#p4161238

Strange that this horrible product is brought up again after that previous thread was bumped by an apparent salesperson.

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camillus
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Re: Feedback on Kai-Zen premium finance life insurance plan

Post by camillus » Mon Oct 15, 2018 3:55 am

I don't understand how this plan has an advantage over investing in a taxable account.

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oldcomputerguy
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Re: Feedback on Kai-Zen premium finance life insurance plan

Post by oldcomputerguy » Mon Oct 15, 2018 6:18 am

This concept is not much different than financing a house – you use a mortgage to leverage the assets you have on hand to buy more house than you could afford on your own. Money is borrowed to buy more house, or with Kai-Zen, more benefits. With Kai-Zen, you are buying a life insurance policy with a larger death benefit, more living benefit protections, and the potential for more cash accumulation without the risk of losses (due to declines in a market index).
Um, so let’s see... it’s like mortgaging a house, right? So, when and how do we pay the loan back?

Remember, these guys are not in business to lose money.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

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sergeant
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Re: Feedback on Kai-Zen premium finance life insurance plan

Post by sergeant » Mon Oct 15, 2018 1:02 pm

Hi andy2012, you seem really interested in these type of products based on your past posts. In your prior threads no one has recommended them to you. Did you think that some how this time it would be different?
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andy2012
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Re: Feedback on Kai-Zen premium finance life insurance plan

Post by andy2012 » Tue Oct 16, 2018 9:36 am

sergeant wrote:
Mon Oct 15, 2018 1:02 pm
Hi andy2012, you seem really interested in these type of products based on your past posts. In your prior threads no one has recommended them to you. Did you think that somehow this time it would be different?
This product was bit different and cheaper so I thought maybe someone might have done it and will have more information.

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David Jay
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Re: Feedback on Kai-Zen premium finance life insurance plan

Post by David Jay » Tue Oct 16, 2018 11:18 am

andy2012 wrote:
Tue Oct 16, 2018 9:36 am
This product was bit different and cheaper so I thought maybe someone might have done it and will have more information.
I'm pretty sure no one here has "done it": Use leverage to purchase more Universal Life than you can afford.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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David Jay
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Re: Feedback on Kai-Zen premium finance life insurance plan

Post by David Jay » Tue Oct 16, 2018 11:51 am

Sorry, that last reply was a bit snarky. But really, Universal Life???

1. The cost if insurance goes up every year - you are basically have a guaranteed issue 1 year term policy underlying the investment. Through your 50s and 60s the insurance portion will climb exponentially.
2. Typical total ER (i.e.: fees plus fund expenses) will be about 2%
3. SP500 index does not include dividends - nearly another 2%
4. 10% cap - have you actually examined how frothy the market is? The SP500 has exceeded 20% total return 11 years in the last 30. It has exceeded 30% total return 4 years in the last 30 years. You give up most of the market return with the 10% cap.

This means that the very best you can ever do in one year is about 8% (in a year when the SP total return exceeds 12%). Before you pay the insurance premium.

In a year when the market is up a bit, say 6%, you get 2%. Again, you also pay for the insurance.

And after fees, the 0% floor is actually a -2% floor. And you still have to pay the insurance premium.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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TomatoTomahto
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Re: Feedback on Kai-Zen premium finance life insurance plan

Post by TomatoTomahto » Tue Oct 16, 2018 4:49 pm

Gosh, when you put it that way, David Jay, where do I sign up?

By the way, we are a friendly forum and try to help everyone, but I don’t think you (or I) have to apologize for snark directed at a product, not at a forum member.
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David Jay
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Re: Feedback on Kai-Zen premium finance life insurance plan

Post by David Jay » Thu Oct 18, 2018 9:00 am

A final thought:

White Coat Investor has suggested that if you have filled all of your tax-advantaged space and you are in a high tax bracket (i.e. 35% or 37%), an over-funded Variable Universal Life can make sense. Link here: https://www.whitecoatinvestor.com/could ... ul-policy/

And don't forget his brilliant flow-chart for permanent policy use, at the bottom of the page at this link: https://www.whitecoatinvestor.com/12-qu ... insurance/

A problem I see with the Kai-Zen plan is that by purchasing Universal Life with leverage, you are purchasing a larger-than-necessary face amount of insurance (2-3x) so the increasing premiums for the insurance portion are 2-3x larger than without leverage. As those premiums take off in your 50s, the premium increases will be 2x-3x what they would be without leverage.

A smaller, over-funded VUL seems better for the purchaser. Three times larger commissions (from a 3x face amount of insurance) seem better for the seller.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

andy2012
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Re: Feedback on Kai-Zen premium finance life insurance plan

Post by andy2012 » Thu Oct 18, 2018 9:44 am

Thanks guys. This is a great analysis. That's why members come to the forum to get a transparent and honest opinion.

Out of all feedback which I agree for the most part, one thing to keep in mind that, I dont think the premium of insurance will increase in 50s. They will tell all of the cost upfront.

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David Jay
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Re: Feedback on Kai-Zen premium finance life insurance plan

Post by David Jay » Thu Oct 18, 2018 9:55 am

andy2012 wrote:
Thu Oct 18, 2018 9:44 am
Thanks guys. This is a great analysis. That's why members come to the forum to get a transparent and honest opinion.

Out of all feedback which I agree for the most part, one thing to keep in mind that, I dont think the premium of insurance will increase in 50s. They will tell all of the cost upfront.
Is that from the prospectus, or from the glossy brochure? Statements like the one highlighted above suggest you are putting too much trust in the moving lips of the salespeople.

As I said above in my second post on this thread, get the prospectus, study the prospectus, do not sign until you understand the prospectus.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

andy2012
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Re: Feedback on Kai-Zen premium finance life insurance plan

Post by andy2012 » Thu Oct 18, 2018 10:02 am

Thanks David. Make sense. I have requested the prospectus. I will post the details from that. I am in knowledge gathering phase with fellow boogleheaders :) :happy

boglesmind
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Re: Feedback on Kai-Zen premium finance life insurance plan

Post by boglesmind » Thu Oct 18, 2018 10:45 pm

David Jay wrote:
Tue Oct 16, 2018 11:51 am
Sorry, that last reply was a bit snarky. But really, Universal Life???

1. The cost if insurance goes up every year - you are basically have a guaranteed issue 1 year term policy underlying the investment. Through your 50s and 60s the insurance portion will climb exponentially.
2. Typical total ER (i.e.: fees plus fund expenses) will be about 2%
3. SP500 index does not include dividends - nearly another 2%
4. 10% cap - have you actually examined how frothy the market is? The SP500 has exceeded 20% total return 11 years in the last 30. It has exceeded 30% total return 4 years in the last 30 years. You give up most of the market return with the 10% cap.

This means that the very best you can ever do in one year is about 8% (in a year when the SP total return exceeds 12%). Before you pay the insurance premium.

In a year when the market is up a bit, say 6%, you get 2%. Again, you also pay for the insurance.

And after fees, the 0% floor is actually a -2% floor. And you still have to pay the insurance premium.
Nice summary, cutting thru all the BS!

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surfstar
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Re: Feedback on Kai-Zen premium finance life insurance plan

Post by surfstar » Thu Oct 18, 2018 11:01 pm

I don't get it - do you need insurance or do you want to invest?
If you have lots of money and need life insurance - get a term life policy. Invest the rest.

Are you so greedy that this standard approach doesn't work? Maybe as a low net-worth person I just don't get the reasoning.

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David Jay
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Re: Feedback on Kai-Zen premium finance life insurance plan

Post by David Jay » Fri Oct 19, 2018 8:41 am

David Jay wrote:
Tue Oct 16, 2018 11:51 am
And after fees, the 0% floor is actually a -2% floor. And you still have to pay the insurance premium.[/b]
I forgot about dividends. Because a Fixed Index Variable Annuity uses the SP500 INDEX (not total return), the actual floor is closer to -4%.

And that is still before paying the insurance premium on a policy with a death benefit that is 3x higher due to the leverage. Which your family doesn't get in the early years when you need a higher level of insurance because the bank holds an interest in the death benefit.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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