Insurance or Investment?

[Full Throttle]

Let's do a quick UL/WL comparision. We'll use Ohio National (competitive WL & UL), 35 year old non-smoker at standard who has $250/month to pay for life insurance protection. Let's compare the death benefit and surrender value:

Let's compare a middle of the road WL product (not maxed out close to MEC limit) with dividends sent to paid-up additions versus a no lapse guarantee UL product. Yes, this isn't a UL vs. WL arguement, it's a UL minimally funded NLG product vs. WL arguement for a younger person.

10 Yrs Out = $231,854 WL DB / $438,000 UL DB
$22,418 WL CV / $3,289 UL CV

20 Yrs Out = $282,850 WL DB /$438,000 UL DB
$77,503 WL CV / $0 UL CV

30 Yrs Out = $345,628 WL DB / $438,000 UL DB
$160,473 WL CV / $0 UL CV

40 Yrs Out = $431,233 WL DB / $438,000 UL DB
$278,052 WL CV / $0 UL CV

Summary: If I was 35 years old, I would hands down take the whole life policy as it will be roughly the same at projected mortality age, but I will have a hell of a lot more options with the cash value accumulation. I could surrender the policy if my needs changed, I could take a reduced paid-up policy, I could use a portion of the cash value for retirement income, and more.

The arguement would be the early years, I have less death benefit. As a 35 year old, I would gladly buy a $200,000 20 year term policy for $20/month to plug the gap for the ability to have cash value options later on in life. If I was absolutely 100% certain that I only cared about the death benefit and not the cash value, they're about a wash near projected mortality. The cost savings with a NLG UL policy would be so minimal, plus with the possibility of beating the UL policy if I live beyond age 75 with the death benefit, I would still take the WL policy.

Side note: I'm not against NLG UL policies. I think they're great for people in their later years who want it strictly for the death benefit.

 

[VolAgent]

VolAgent -- Dividends are a separate, stand-alone transaction. Each of your PUA is a separate transaction, and they have not changed the base policy's CV or DB. They are in addition to the base policy/contract, not part of it. I think we are both talking about "six of one, and half-dozen of the other" here.

I would like to know, though, how "WL really shines" when you want to get the money back?

As NMFNMDRT said, you can surrender down to the cost basis, and take longs from that point. Also, with a non-direct recognition policy, you continue to receive dividends on the borrowed amount.

NMFNMDRT, why should I have to pay extra for non-can, when I can get a policy that is non-can, with better definitions?

 

[motoxxx]

I have to say that even though I focus the majority of my business on Ind health ins these days, this has been an awesome thread with people inputting excellent perspective from all sides. It has been a great refresher for me!

My current policy is a $400K death benefit WL that has been structured to use a combination of paid up additions to increase the CV, and several types of additions for paying the premiums due to disability, loss of income etc. I pay a fair amount of money each month for it and so far all of the returns have outpaced even the projections in the original illustrations.

I actually sold the policy to myself a few years ago but have not really spent much time on life insurance since then. This thread has been a great refresher and I would like to thank all that have contributed so far!

THANKS!

 

[Death Cab For Tootie]

NMFNMDRT -- hey, if I could truly retire after even one year from starting my retirement plan, I'd sure as heck do that in a heartbeat! But that's just me.

Your comments are really appreciated for their lack of name calling, and none of the vile I see on some other posts. Also appreciate your thoughtfullness with the concepts.

There are a few things in the "mix" that I'm uncomfortable with, however:

1. WL is inflexible. That to me is a drewback in its basic design. I think flexibility is a solid benefit.

Explain two things: One, how is WL inflexible? I assume you're referring to the premium. Well, I don't know of a single policy that won't blow up if you don't pay on it. The advantage is WL offers non-forfeiture options. Look it up and you'll see what I mean. Two, why is flexibility a benefit? What happens if a client stops payment, falls behind on bills (*ahem today*) and can't get back to paying for premiums?

2. When you supplement your other retirement income, how will you get the money/CV back? I view an 8% gross loan as being quite inefficient. My preference is a wash loan.

The loan on a WL policy does not effect the DB until it pays out. The bene's get the net. IOW, $10k loan grow to $40k after 30 years, 8% interest. DB grows from $1mm to $2mm over that same time frame. Why? In non-direct-recognition par WL, the dividiend does not get affected by a loan outstanding. Subtract the $40k and the bene's get $1.96mm. I'm using rough numbers, but my point is made.

How does an unpaid loan affect a policy who's COI is going up every year?

3. You can only put true "additional money" into a UL (Option 2 -- difference between minimum and GLL). Then, it's totally voluntary. You have the right, but not the obligation, to do that. If you do, 100% of the money goes straight into the CV -- no COI, no fees, no commission.

PUA rider on a WL policy is the equivalent. Not the same as your example. I fail to believe that the extra has no COI, no fees, no commissions. There is no such thing as a free lunch. Prove this statement to me.

4. Have you ever done a "parallel what if" to putting the same money into a UL, as you did into your WL? I've compared NML policies before that way, and the UL always comes out ahead on CV. Or, same CV at age 100 = lower premium. This is on the guaranteed side, not current.

What happens in your illustration when you take a loan or distribution from the policy? Aren't you making this comparision to show how one can spend more money from their policy? Or are you just thumping your chest about accumulation? Who gives a crap about accumulation if they can't spend it?

It's nice we can agree to disagree. Thanks!

atlantainsguy

All I know is when you take a loan off a UL, you run the risk of blowing the thing up. WL has a much lower risk of this happening. If you can prove me wrong (i.e. can you generate more income without blowing up) with using a UL, be my guest. I feel I'll be waiting a long time.
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As NMFNMDRT said, you can surrender down to the cost basis, and take longs from that point. Also, with a non-direct recognition policy, you continue to receive dividends on the borrowed amount.

NMFNMDRT, why should I have to pay extra for non-can, when I can get a policy that is non-can, with better definitions?

I checked. NML's DI policy is non-can.

 

[VolAgent]

All I know is when you take a loan off a UL, you run the risk of blowing the thing up. WL has a much lower risk of this happening. If you can prove me wrong (i.e. can you generate more income without blowing up) with using a UL, be my guest. I feel I'll be waiting a long time.
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I checked. NML's DI policy is non-can.

I refer you to NML's website and NMFNMDRT's earlier comments. The base policy is guaranteed renewable, you have to pay extra for the non-can. Thus my question, why should I have to pay extra for it, when there are companies that are non-can, and with better definitions of disability?

NMFN: IP, DI, Disability Income

 

[NMFNMDRT]

I refer you to NML's website and NMFNMDRT's earlier comments. The base policy is guaranteed renewable, you have to pay extra for the non-can. Thus my question, why should I have to pay extra for it, when there are companies that are non-can, and with better definitions of disability?

NMFN: IP, DI, Disability Income

In most cases I stick to the GR contract. It does make the most sense to the average person.

How are the definitions so much different than other companies? Take a look at the extended period option (Own Occ.) and tell me how you can make that more simple? We offer that contract to all CPAs, Architects, Engineers, Professors, Teachers, Attorneys, and now Physicians.

The 2 year initial period was the best option before that and made sense, because the premium difference between that and the base contract was around 3%. It is basically 2 year own occ.

 

[DavidD1]

In most cases I stick to the GR contract. It does make the most sense to the average person.

How are the definitions so much different than other companies? Take a look at the extended period option (Own Occ.) and tell me how you can make that more simple? We offer that contract to all CPAs, Architects, Engineers, Professors, Teachers, Attorneys, and now Physicians.

The 2 year initial period was the best option before that and made sense, because the premium difference between that and the base contract was around 3%. It is basically 2 year own occ.

thats a good point

 

[motoxxx]

So after rereading this thread, I actually feel better about my own situation. Thanks for all of the info guys!