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- #11
Never meant to say they are a rip off. I was only pointing out that they are nothing more than a return of unused premium (just like the IRS says).
My issue is that it is easy for people to:
A: get confused
B: Get misled
And think an insurance company dividend is the same as a dividend on a stock.
There is an IRS determination on basis for stock or mutual insurance premiums. Correct.
The applicant is a Colonel in the Air Force, a smart guy. If he can be confused at the IRR presentation (or whatever it was) there is a problem.
Oops....gotta go, I'm on a mini vacation. I can finish my ideas later.
Back...had to run and get some vino. Our hotel room overlooks a nice harbor, why am I getting my mind into insurance.
Anyhow, transparency is a good thing. I go back to my time of studying college text book actuary stuff. You have pure term mortality rates; then you take those pure term, add in some temporary annuity due, how much to need to collect for (X) amount of time and ya can get a level term rate for (X) amount of years. Take that out to age 99 or 100 and ya have level term for the whole of life or shall we call it Whole life.
Then you must consider the risk, underwriting, etc. and you can come up with a premium to charge the consumer for any kind of product. So it would be great if you could just look at the mortality charges and say...yes I like that lower mortality charge. Due to company strength you might accept a higher charge, the choice should / would be there. UL comes close to trying transparency with those mortality charges & fees, showing them on the annual statement. Is Whole life as transparent so the policy owner can understand? I ask the question and wait for answers. I would lay $1000 on a table and ask a policyholder, "on your annual WL statment, please explain IRR to me." If they answer correctly I would lose my $1,000 but I wager that I would not lose.
One could ask the question about dividends and how the IRS looks at them as unused premium. One can ask, why are you charging me that mortality rate just so you can give me back the unused portion as a dividend? Ok, there is an argument to be made on the idea of dividends but do consumers understand the pros and cons of the argument. I dare say that very few understand it. Do they even conceive the idea of how much of their cash value is basis?
Even self proclaimed gurus like Dave Ramsey confuse cost of insurance with premium. Dave goes on to say that whole life is 10 times more expensive as level term. Expensive? Does he mean the mortality rates / fees are higher or that the premiums are higher? Even in the guru club confusion reigns over cost or premium
IMHO one thing is certain -- life insurance should never, ever never be sold as an investment. Regulators should come down hard and fast on those that sell it as a straight out investment. Those agents are out there, I've heard their spiels.
Twenty six years ago I used to try to explain to a potential client how pure insurance rates are determined, how level premiums are developed, etc. Did they listen....did they care? Answer -- no. They wanted to know how much it would cost, could they afford it and did they trust me. In the end it really came down to trust. The prospects trust you and if they are being led astray with a slick presentation, a presentation that is meant to create magic, I ask --- where is the trust?
My issue is that it is easy for people to:
A: get confused
B: Get misled
And think an insurance company dividend is the same as a dividend on a stock.
There is an IRS determination on basis for stock or mutual insurance premiums. Correct.
The applicant is a Colonel in the Air Force, a smart guy. If he can be confused at the IRR presentation (or whatever it was) there is a problem.
Oops....gotta go, I'm on a mini vacation. I can finish my ideas later.
Back...had to run and get some vino. Our hotel room overlooks a nice harbor, why am I getting my mind into insurance.
Anyhow, transparency is a good thing. I go back to my time of studying college text book actuary stuff. You have pure term mortality rates; then you take those pure term, add in some temporary annuity due, how much to need to collect for (X) amount of time and ya can get a level term rate for (X) amount of years. Take that out to age 99 or 100 and ya have level term for the whole of life or shall we call it Whole life.
Then you must consider the risk, underwriting, etc. and you can come up with a premium to charge the consumer for any kind of product. So it would be great if you could just look at the mortality charges and say...yes I like that lower mortality charge. Due to company strength you might accept a higher charge, the choice should / would be there. UL comes close to trying transparency with those mortality charges & fees, showing them on the annual statement. Is Whole life as transparent so the policy owner can understand? I ask the question and wait for answers. I would lay $1000 on a table and ask a policyholder, "on your annual WL statment, please explain IRR to me." If they answer correctly I would lose my $1,000 but I wager that I would not lose.
One could ask the question about dividends and how the IRS looks at them as unused premium. One can ask, why are you charging me that mortality rate just so you can give me back the unused portion as a dividend? Ok, there is an argument to be made on the idea of dividends but do consumers understand the pros and cons of the argument. I dare say that very few understand it. Do they even conceive the idea of how much of their cash value is basis?
Even self proclaimed gurus like Dave Ramsey confuse cost of insurance with premium. Dave goes on to say that whole life is 10 times more expensive as level term. Expensive? Does he mean the mortality rates / fees are higher or that the premiums are higher? Even in the guru club confusion reigns over cost or premium
IMHO one thing is certain -- life insurance should never, ever never be sold as an investment. Regulators should come down hard and fast on those that sell it as a straight out investment. Those agents are out there, I've heard their spiels.
Twenty six years ago I used to try to explain to a potential client how pure insurance rates are determined, how level premiums are developed, etc. Did they listen....did they care? Answer -- no. They wanted to know how much it would cost, could they afford it and did they trust me. In the end it really came down to trust. The prospects trust you and if they are being led astray with a slick presentation, a presentation that is meant to create magic, I ask --- where is the trust?
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