Looking For a Whole Life Policy

[Bluefin646]

Bmtrs projections being life changes, not proj. Of policy.

L suppose to be last 3 years. Obviously confused and trying to imagine out 30-40 years.
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And Ty,Ty Ty !!!!

Bntrs--- WL pay 10 blend is superior to two separate policy's why? Ie WL and term.
Thx again gents!

 

[BNTRS]

That's the beauty of it. You can't predict what will change in your life 30-40 years from now, but WL can hammer down some incredibly strong guarantees.

It has the highest risk adjusted rate of return for any vehicle in which you can place your money.

It is guaranteed to increase in cash value every year.

It carries a permanent death benefit.

It allows you to access money from it while still making that money work for you.

It can continue along as planned in the face of serious illness or injury.

You can't predict what your health or investment account will be in 30 years, but you can prepare for a situation where health isn't great and investments haven't done as well as you'd hoped. The awesome part is that WL is not only a rock to anchor your life and bring stability, it also brings some powerful benefits (see above).

Why is 10 pay better? Simply time value of money. The more money you give the insurance company, the more they'll give you back. In truth PUA's are the best (with respect to growing cash values). There's no magic, it's simply math. I'll use an example:

Let's say a WL contract paid up at age 100 costs a 30 year old $100/mo for $100k db. That mean for every dollar I pay, I get 100 back in db (100:1). Now, let's say the 10 pay costs 250/mo, meaning for every dollar I put in I get roughly 33 in db (33:1). Let's say the PUA ratio is something like 5:1. It's really expensive death benefit. What's the insurance company giving you to make this deal for expensive death benefit? Money. And since you are part owner by virtue of being a policy owner, they're simply returning to you the excess. The more you give them then they really need, the more they'll give you back.

Prudential used to run some pretty good commercials about the idea of owning WL insurance with respect to mutuality of a company. That's what the whole "grab a piece of the rock," stuff was all about.

 

[LGilmore]

Ya might want to point out there are mutual companies and stock companies out there and the policies work differently.

Another thing for both posters that I really appreciated in the recent meltdown, whole life values don't go backwards, you can't lose what's there.

As bntrs pointed out some very good aspects a couple others that aren't financially an thought of issue. Whole life doesn't run out, nor can you be priced out of it later.

 

[stevew7]

Thanks for everyone's help in trying to better understand the options with a whole life policy.

I've been browsing other threads where some agents have been kind enough to post illustrations from Guardian. There were a few illustrations seemingly configured very well, as we've discussed in this thread (ten pay whole life with a low DB: 100K, and PUAs with a term rider setup as 3x-4x base DB: 300-400K). However, the IRR doesn't go positive in the policy until year 6 in the several examples I've seen posted, and even later if you only use the "guaranteed" dividend instead of the 2010 dividend amount.

Is that the best possible configuration with whole life? I was hoping that the IRR would go positive a lot sooner than year 6 (remember the death benefit amount is not important in my situation - the highest IRR is most important). Would pre-paying the premiums help get the IRR positive any faster?

Thanks again for any insight.

 

[Larry Tew]

If you pre-pay, where did the money come from used for the prepay? if it was or could be earning interest, what did you really accomplish?

Any time you take money off deposit to prepay anything (mortgage principal for example), you may earn interest in the asset you're prepaying or save interest on a mortgage - but you are also foregoing (giving up) interest by taking the money used for the prepayment off deposit.

 

[stevew7]

If you pre-pay, where did the money come from used for the prepay? if it was or could be earning interest, what did you really accomplish?

Any time you take money off deposit to prepay anything (mortgage principal for example), you may earn interest in the asset you're prepaying or save interest on a mortgage - but you are also foregoing (giving up) interest by taking the money used for the prepayment off deposit.

Good question Larry - but as you know, right now, the best yielding online FDIC insured savings accounts only yield a little more than 1%, so the opportunity cost is minimal today.

There is a flyer from Guardian (that Google found) that states Guardian offers a "pre payment of premium account" with a guaranteed interest rate of 4.75% a year for 10 years. What happens if rates go up? Does this rate fluctuate annually? This is another factor that I can use to determine my net IRR on a whole life policy.

Basically, what I would like confirmed, is that the best designed 10 pay whole life policy (from any company) still has a negative IRR for approximately the first six years. If the IRR turns positive more quickly, I would be more likely to consider overfunding a whole life policy significantly more (ie, selling off parts of my after tax low risk investments). But it's hard to stomach that I'm going to have paper losses the first six years (possibly longer if dividends are lower).

At the end of the day, with interest rates so low, I've opened up to considering any and all other options for low risk after tax dollars, including whole life. I didn't start looking at the illustrations in other threads until the past few days, and when I saw the IRRs being negative for six years, I was surprised.

Best,
Steve

 

[BNTRS]

Any time you take money off deposit to prepay anything (mortgage principal for example), you may earn interest in the asset you're prepaying or save interest on a mortgage - but you are also foregoing (giving up) interest by taking the money used for the prepayment off deposit.

Maybe, this depends on what the other options are. Prepaying has gotten less attractive in the last year as interest rates have dropped and the insurance industry has recently made adjustments.

Yes, prepaying will effect IRR, and in most cases it'll be a better return on money than other options. As already stated, it depends on where this money is coming from.

6 years to positive IRR isn't terrible. I'd keep in mind that the IRR on PUA's will be positive much sooner (in most cases year two). I've hinted at it before, I still think there's a bit of a focus on the wrong target. IRR is important, but you're a little too worried about this. It's smoke and mirrors that not too surprisingly you've been beat over the head with by stock jockeys and the like b/c they live and die by this stuff. Who cares if the IRR is positive in year 6 or year 7? If you still have the ability to access the money and continue to have it grow, but that means the net IRR isn't positive until later, is that such a bad thing? If IRR is 8% from day one but you're only getting it so long as the money stays there, and there's risk of going negative is it really that spectacular?

There's a reason BoA owns more of this stuff than any other asset in their portfolio.
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There is a flyer from Guardian (that Google found) that states Guardian offers a "pre payment of premium account" with a guaranteed interest rate of 4.75% a year for 10 years. What happens if rates go up? Does this rate fluctuate annually? This is another factor that I can use to determine my net IRR on a whole life policy.

This is an outdated flyer, Guardian adjusted this downward at the end of 2010. The number is now somewhere between 3.25 and 3.75%, can't remember exactly.

Still better than a high yield savings account or CD, I'd agree.

 

[Larry Tew]

Good points in the previous two posts. My thoughts:

1. Six Years to Positive IRR: Whether you care about the death benefit or not, it has value as a leverage tool while you are living. Subtract the equivalent cost for term insurance from the WL premium and you will find positive IRR a little sooner. There are too many ways to illustrate why a 6 year break-even is a non-issue to try to do using smoke signals (posts).

2. Advance Premium Side Fund: You will receive a 1099 and owe tax on the interest earned in the side fund, and the interest rate on the side funds these days is low.

Final thought on the importance of having maximum CV as early as possible... the real rate of return on the policy isn't the cash value IRR, it's the value of having liquidity, access and control of the cash value. If you plan on stuffing the policy as full as possible and leaving the CV in there untouched until some future benchmark such as retirement, you will NEVER realize the maximum ERR (EXternal rate of return) on the policy as you could have.

 

[Franz Kafka]

There are special policies for businesses that will do what you're looking for. If you're doing at least 50K annual premiums, I can help you. Otherwise, the low commission plus licensing fee in your state won't be worth it.

 

[BNTRS]

There are special policies for businesses that will do what you're looking for. If you're doing at least 50K annual premiums, I can help you. Otherwise, the low commission plus licensing fee in your state won't be worth it.

There are ways to do this without a special HECV product or that outlay. Yes commissions are still low, boohoo.