How Does Term Life Insurance Work?

[VolAgent]

You are talking in circles. I am not stating what you accuse me of, I am simply saying ultimately any excess payments beyond the costs of insurance is similarly a dividend - since it's always made up of excess premium. What is so hard to understand? And regarding policy holder vs. shareholder thing - you know the answer?

You either do not really understand what you are talking about, or can't communicate it. These terms have precise definitions for a reason, don't confuse them.

A WL premium, whether par or non-par, is just that, its premium. None of it is excess, send the company only a portion of the premium and see what happens to the policy. A dividend is classified by tax code as a return of excess premium for a reason. It allows a dividend to be paid without generating a taxable event, a very nice thing.

Now, it can be argued that a dividend is really more than just excess premium, particularly when the dividend greatly exceeds the paid premium. But that is a completely different discussion.

 

[LGilmore]

"You are talking in circles"

Not really, you're lumping together too many different whole life policies together and as such, make no sense in your comments.

You do understand stock companies DO NOT issue a "dividend" to their policies, yes? They set a return each year they must meet. They do not provide excess revenues to policy holders. The excess revenue becomes a dividend to the insurance company's stockholders who do not have to own a policy to own shares of a stock insurance company.

Now let's cover what you "know" about dividends. A mutual company dividend is a combination of savings from projected (budgeted) operating expenses, mortality expenses and excess investment returns. It is not really a return of excess premium.

However,

The IRS considers this a return of premium to a whole life policy holder rather than a stock dividend, which is what it would be in a different organizational make up.

So the problem is your "generalization" is made difficult because Whole Life is almost a generic term these days with all the different variations. It's tough to generalize.

 

[ticker_shuffle]

"You are talking in circles"

Not really, you're lumping together too many different whole life policies together and as such, make no sense in your comments.

You do understand stock companies DO NOT issue a "dividend" to their policies, yes? They set a return each year they must meet. They do not provide excess revenues to policy holders. The excess revenue becomes a dividend to the insurance company's stockholders who do not have to own a policy to own shares of a stock insurance company.

Now let's cover what you "know" about dividends. A mutual company dividend is a combination of savings from projected (budgeted) operating expenses, mortality expenses and excess investment returns. It is not really a return of excess premium.

However,

The IRS considers this a return of premium to a whole life policy holder rather than a stock dividend, which is what it would be in a different organizational make up.

So the problem is your "generalization" is made difficult because Whole Life is almost a generic term these days with all the different variations. It's tough to generalize.

Irony of it all is that this thread asks the question how does term insurance work. I was being very general because the thread has skated all over and around the subject of whole life. I realize very well the different between a mutual insurance company and one that is not. I don't see how I could have confused that issue. I didn't bring it up. I am not sure what anyone is arguing about. The idea that dividends can contribute to cash value is all I ever was saying. I also just pointed out that the premium minus the cost of insurance is also money that attributes to cash value. I will admit that is not a dividend, but my tongue and cheek comment that it could be argued at the same, sure complicated the casual conversation.

Good luck out there!

 

[Newby]

Ticker Shuffle I assume you are fairly new in the business. You will learn that this is a business about communicating well. Most of what you have said is wrong information. It doesn't appear that you know it but I assume that is inexperience.
In your last post it comes across like you think mutual companies pay dividend and stock companies don't. That is a common mistake. But if you know better you should use the words participating and non participating when you are talking about dividends. Not mutual since many mutuals do not pay dividends and some stock companies do pay dividends.

 

[ticker_shuffle]

Ticker Shuffle I assume you are fairly new in the business. You will learn that this is a business about communicating well. Most of what you have said is wrong information. It doesn't appear that you know it but I assume that is inexperience.
In your last post it comes across like you think mutual companies pay dividend and stock companies don't. That is a common mistake. But if you know better you should use the words participating and non participating when you are talking about dividends. Not mutual since many mutuals do not pay dividends and some stock companies do pay dividends.

Yeah that clears it up...NOT. Whatever guy. You are assuming too much. I am not stating absolutes. But just for fun, show me a mutual company that doesn't pay dividends on a whole life policy, excluding those that perform so poorly they can't afford to.

Read this: Mutual insurance - Wikipedia, the free encyclopedia, maybe you'll get it right. What a bunch of wackos.

 

[Robert Barney]

Robert, you're missing something in your explaination. It may be an understanding of what a dividend election can be or can't be.

As far as GUL as a solution to everything... run a premium offset plan (reduce the dividend so the plan pop's a year or two after projections to be sure) and you have a lifetime policy that is a far lower cost than a GUL policy which requires payment for the entire contract.

Run a comparsion sometime and you'll see it. Over time 30+ years, a popped WL is a much better value than a Gul.

Sorry, but I saw too much heartbreak, heartache, and lost money created by "vanishing premium" whole life polices where the only think that vanished were the dividends that were originally projected to pay premiums.

Fool me once, shame on you...

Dividends are NOT guaranteed.

A no U/L policy with a no lapse guarantee gives you a guarantee that a dividend is not.

I have been around in this business too long to embrace projections. Give me a contract that guarantees values.

I am not saying that risk is bad, I just see no need for it in a life insurance policy. Insurance is about protection. It is a defensive financial tool, not an offensive financial tool. Insurance is what you look to if bad stuff happens and you should not have to depend on good stuff happening for it to perform it's objective. When it comes to taking financial risk, there are plenty of other places to do it outside of life insurance.

 

[LGilmore]

"Fool me once, shame on you..."

Ok robert, been down this road before with you, not worth the effort.

If you'd bothered to read what I posted instead of the knee jerk reaction, you'd understand a bit more. I have many clients who have popped policies. It is very simple to ensure a successful premium offset. Done it many times.

Later.

 

[Newby]

Yeah that clears it up...NOT. Whatever guy. You are assuming too much. I am not stating absolutes. But just for fun, show me a mutual company that doesn't pay dividends on a whole life policy, excluding those that perform so poorly they can't afford to.

Read this: Mutual insurance - Wikipedia, the free encyclopedia, maybe you'll get it right. What a bunch of wackos.

OK if it's just for fun.
Mutual of Omaha is an A+ rated company that has non participating whole life available.
It's also been WELL documented that Royal Neighbors has the lowest priced whole life of all companies and they do not pay a dividend. They are an A rated Fraternal.

 

[Robert Barney]

OK if it's just for fun.
Mutual of Omaha is an A+ rated company that has non participating whole life available.
It's also been WELL documented that Royal Neighbors has the lowest priced whole life of all companies and they do not pay a dividend. They are an A rated Fraternal.

OK, lowest price non-par whole life in the business.

40 year old, male, non-smoker, best of health. How much for a $500,000 non-par whole life with premiums for life?

Just the facts ma'am, just the facts.

 

[Newby]

OK, lowest price non-par whole life in the business.

40 year old, male, non-smoker, best of health. How much for a $500,000 non-par whole life with premiums for life?

Just the facts ma'am, just the facts.

He would pay $6,980 annually for that and it would be paid up at age 65. If he needed a lower premium he could pay $5,150 lifetime.
I don't believe there is a lower priced product for that coverage AND had full access to the cash value during your lifetime.
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He would pay $6,980 annually for that and it would be paid up at age 65. If he needed a lower premium he could pay $5,150 lifetime.
I don't believe there is a lower priced product for that coverage AND had full access to the cash value during your lifetime.

Of course the other opions they will be given are no lapse UL and 20 and 30 year convertable term. I have a great software program for those.
The example case would be unusual for me so I don't specialize in young whole life cases but I assume most would choose the UL or the term which would make the most financial sense.