Looking For a Whole Life Policy

[Franz Kafka]

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

I was just kidding but I was talking about a 10 Pay policy.

 

[stevew7]

So I haven't seen much discussion on the board about these HECV (high early cash value) policies. It seems that they aren't offered by all carriers (MassMutual seems to be one that has it).

I'm sure there's a trade off - higher initial premiums? Lower death benefits? Is there a reason why this isn't a good option for someone like me?

 

[VolAgent]

So I haven't seen much discussion on the board about these HECV (high early cash value) policies. It seems that they aren't offered by all carriers (MassMutual seems to be one that has it).

I'm sure there's a trade off - higher initial premiums? Lower death benefits? Is there a reason why this isn't a good option for someone like me?

Its designed to have over 90% of the premium show up as cash value in the first year. They sacrified long-term performance for better cash values in the early years. According to the wholesaler, the dividends won't be as strong in later years with this product.

Its really intended for the business market with maybe a 10-15 year policy life. And yes, it does have a high premium outlay for the same death benefit. Also, it is paid up at age 85. Personally, I'd do Mass Mutuals 10 pay or paid-up at age 65 over the HECV for most people.

 

[BNTRS]

So I haven't seen much discussion on the board about these HECV (high early cash value) policies. It seems that they aren't offered by all carriers (MassMutual seems to be one that has it).

I'm sure there's a trade off - higher initial premiums? Lower death benefits? Is there a reason why this isn't a good option for someone like me?

They are, in my opinion, sort of a dated product that at one time had the allure based on showing someone a higher early cash value. There was, and still is, some good point to them. Remember it's the fact that the cash is there that is important not so much the rate of return at least in the earlier years. However, the push for overfunding and the use of PUA's has knocked this sort of product back a bit. Still blended 10 pay works out better. Traditionally, the HECV products require a much larger premium 25k+/year. Massmutual is one exception, but if you are looking at a smaller premium into this product, it doesn't really have the same attractiveness. Ohio National also has a product that works well as a HECV product called Prestige Max, it's not quite a high on the early cash as Massmutual's product, but it has other perks that make it very attractive, especially later on.

The big down side for these products is their inflexibility. The outlay is the outlay. So, unlike using PUA's to get more cash which can be adjusted up or down accordingly, you settle on one outlay that will be it forever and always.

Now, it works well in a couple of particular applications. Prepaid premium might be one of them, but traditionally PUA-overfunding beats the HECV product as HECV's focus is more cash availability now for lower cash growth later. The other applications are for "Split Dollar"-like situations, where you are going to need to tap a fairly large amount of cash to "buy out" a loan. This might also come in handy in a premium financing situation (which I'm guessing is something for which you aren't eligible, as you usually need tens of millions in assets to even be considered), where you are borrowing money to finance a life insurance purchase, paying interest only on the loan for a number of years, and then using cash in the policy to retire the loan, which significantly decreasing your net outlay for the permanent death benefit.

So, to reiterate: older product that is really starting to show it's age.

 

[rex]

as a non agent, the HECVs is a good choice if u have substantial concern that u might need to cash surrender the policy early on. You will have a lower death benefit than a regular whole life policy. Businesses seem to prefer them bc of this concern. My understanding is that the agent commission is spread out more over time.

 

[DHK]

HECV policies are designed to keep a healthier balance sheet for companies.

When you're buying a permanent life insurance policy, you are trading an asset (cash) for another asset (insurance). However, if you are concerned about the affect it may have on your books (or the CPA's opinion), the HECV policies will still require a higher premium, but 90%+ of the premium still shows up as a current asset. This will substantially reduce the overall "cost" of the insurance policy and get the payor in the habit of writing the bigger check for the insurance.

 

[Franz Kafka]

There are ready-made products that guarantee positive IRR at the end of the first year. The only thing that prohibits this is the load and that's why big premiums are required to sell such products.

 

[VolAgent]

Don't forget the loads, fees and commissions on equity products. Depending on how the market does, it can take some time to overcome it and get a positive IRR. Plus, there is no guarantee you'll see a positive IRR at ay point in time.

 

[stevew7]

Well, based on what I had discussed so far, I almost walked away and didn't purchase a WL policy. A 5-7 year period of negative IRR was just too much for me. I was going to buy a 30 year term and invest the difference.

I decided I should at least get a quote though - so I went back to that IRR study I posted earlier, where SBLI was ranked first in both 10 and 20 year, and called their toll free number. I was connected to an agent, and asked for a 10 pay policy quote. After going through their questions, the agent said I probably qualified for their highest underwriting rating tier, and gave me a quote. They don't even offer a PUA rider, where I can purchase PUAs in excess of the whole life face value other than with dividends (as discussed extensively with Guardian here). So the 10 pay policy was very vanilla.

I was shocked when I saw the guaranteed cash value being more than my first year's premium. The non-guaranteed cash value was higher. The IRR was positive in the first year! This is a perfect fit for me.

Why has SBLI's WL policy not come up before? Is it because they are a lot smaller than the big boys? This is a slam dunk! If you called me as my agent and said, "I can get you a 2.5% return in your first year, and then approaching 4-5% from your second year on, with a guarantee of no loss of principal, and a death benefit on top of it" there is no way to say no to that, except if I couldn't afford the 10 pay premium.

Is SBLI just too small to recommend as a broker, even though their 10 pay policy CV is so high?

 

[Larry Tew]

It's official. This thread has finally jumped the shark. Remember, you heard it here first.