Tips for Buying Permanent Insurance?

[DHK]

Yeah, he's stuck in comparing rates of return only. Of course, that's not the only factor in a life insurance policy.

I wonder what the rate of return was for Walt Disney when he was building Disneyland and he couldn't get approved for a bank loan, but he borrowed from his life insurance policy? I wonder how well that one did for him?

Or Pampered Chef?
Or JC Penney?
Or John McCain (Well, that one went badly because he lost his presidential campaign, but at least he had it to waste!)

Sometimes liquidity is more important than rate of return for emergency or opportunities that come around.

 

[atxeng]

For you, go with BTID. You're seeking confirmation bias right now. At least with Term, you'll have some protection until it expires.

As far as being "selectively blind", I could ask you the same thing. I doubt you've watched the videos I've posted.

- I doubt you understand that you could borrow against your policy for enhanced liquidity and more favorable borrowing terms while allowing your original balance to continue to grow as though you never touched it.

- I doubt that you understand the favorable treatment of life insurance and annuities when it comes to planning for college funding for your children - assuming that you're in a high tax/high income bracket and we know that college is only going to get more and more expensive.

- I doubt that you understand that you could structure your life insurance policy to provide you with a tax-free cash flow source in retirement, saving your social security benefits from being included in your taxable income.

The good news... is that you're not MY prospect or client, so I don't have to care as much as the agent who is trying to get you to do something that HE hasn't clearly explained as well as I already have in this thread.

sorry to burst your bubble, by I think I do have a pretty strong understanding of this. and from what I'm seeing, all those things you listed don't seem to make sense compared to BTID...

the arbitrage in interest rates against the policy...I just got a car loan for 1.59%...that's a heck of a lot better than the either 6% fixed APR or the 4.5% variable rate I would get against the cash value of a MM policy. Why would this be any different in the future?

I understand and have read about how loans against insurance are treated for FAFSA. Chances are I will be in a tax-bracket that won't matter anyway, so it seems a 529-plan will beat these tax-advantages.

I understand the tax-free loans for retirement income. As I've said, it seems that BTID allows for greater growth and returns which will eclipse and overcome the tax advantages of this WLI policy. so what if I get tax-free income if I can earn an RoR in an after tax account that is equal or better than the WLI loans.


I'm coming here to try to figure out why and how a permanent policy is better than BTID. Ad-hominem attacks doesn't really support the case. My broker/adviser has prepared policies for myself, wife, and baby and I want to sign this stuff but I'm just not convinced it makes financial sense.

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Do you really want to learn about WLI policy .. or do you really want to make your case as to why BTID is better ?

I take it if you were truly interested in WLI policy .. you would inquire as to why your policy is breaking even in 12 years. and you would go back to your advisor to try to get some explanation.

Instead you chose to ignore any constructive points that we make and you rather fight over things that you already have made up your mind about.

I'd love to learn why my projections are failing or are incorrect. I posted a lot of stuff and DHK fixed on one sentenced and then dismissed everything, even though all the rest of my post showed that DHK's statements seemed to be incorrect.

I'd love to figure out how to structure a WLI policy that doesn't have such high load fees (sales commission) so that I get a positive return sooner than 25 years guaranteed.

I've addressed each point raised here, not ignoring any of them. Not sure what you think I've ignored.

You (the royal 'you') said that you can't compare to stocks/equities. I agreed, so I listed comparisons to bonds & guaranteed t-bills.

You (the royal 'you') said that you can't compare historical returns to projected returns. I agreed, so I listed both historical bonds vs historical WLI and projected bonds vs projected WLI and guaranteed bonds vs guaranteed WLI.

You (the royal 'you') said you must consider the bank-on-yourself value. I agreed, but I listed that current loan rates are much better than insurance loan rates. The math shows that its better to take a traditional loan.

You (the royal 'you') said that there are tax advantages in retirement. I agreed, but I listed that the math shows that at best-case scenario, WLI returns an equivalent to a 5.5% return in an after-tax account. In actuality, WLI seems to earn much less than that, which means the equivalent or better in an after-tax account will be a lower % as well.

Again, I'm trying to figure out why this is a better investment than BTID. I'm looking at a $2M policy on a baby, a $500k policy on the wife, and a $3M+ on myself. I am seriously considering these and have the tables and documents. I am just not convinced it makes sense except in the best-case scenario or I die young.

 

[atxeng]

here's an export of some of the projections I ran and am looking at. WLI for a variety of returns. BTID for a wide variety of returns. WLI vs BTID for a select few returns.

 

[atxeng]

trying to upload and share the excel file.

 

[DHK]

You keep comparing rates, but not the whole picture.

Your 1.56% is okay. You're still missing out on the interest you would've earned if you would've kept the money for yourself.



You're not PAYING 6% (using your number) and losing that money forever. You actually get to KEEP that because it's restoring the values back to your policy.

If you have $100,000 cash value and it's earning 4%, it will earn $4,000 for the given year.

If you borrow $50,000 to buy a car, and you are PAYING 4% interest (notice the rate is the same), then your loan cost is $2,000 per year.

If you do nothing, the $4,000 earnings - $2,000 loan cost = $2,000 net earning for the year.

If you pay AT LEAST the interest of $2,000 (and ideally the principal back too for future reborrowing), then $4,000 earnings - $2,000 loan cost + $2,000 out of pocket interest payment = $4,000 earnings. You RESTORE your earnings and don't lose out on any wealth building that your policy can do for you.

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Okay, just looked at your spreadsheet. (Very impressive, btw.)

That policy is NOT optimized for cash value accumulation.

A policy that IS optimized for cash value accumulation has about 30-50% cash values in year ONE. By year 5, 75% or more is available as cash value to use. Often the break even is year 8-10 if properly structured for a "pay to age 100."



I wouldn't buy that policy as it is illustrated. I'd want ALIR riders (Additional Life Insurance Riders) - this is MassMutual's Paid Up Additions rider.

 

[DHK]

I have this spreadsheet posted elsewhere in the forum, but I'll reference it here for this thread. For a policy with maximum cash value accumulation, the LOWEST FACE amount for the given premium is required.

Note: This is NOT a regulated illustration.

I took a male, age 35, standard non-smoking classification with $10,000 annual premiums. I compared it to a base whole life and an IUL - both offered by the same company.

The results:
- Base whole life (not one I would recommend) but was not structured for high cash values - had an INITIAL FACE death benefit of $762,855.

It did not "break even" for 22 years! (You'll notice the bracketed cell.)

At age 65, the cash values were $356,000 compared to $300,000 in premiums paid.


- the IUL (properly structured and illustrated at a level 6.5% - which wouldn't happen either because it's based on an index segment performance) - had an INITIAL FACE death benefit of $363,164.

It broke even in year 8.

You'll also notice that in Year 5, it showed a "projected" cash values of $44,000. Remember my Year 5 & 75% cash value rule? 75% of $50,000 would be $37,500. $44,000 out of $50,000 is a projected 88% available cash value.

This had VERY LITTLE to do with the rate of return, but the structure of the policy.

At age 65 - "assuming" that 6.5% held for the entire time (it won't), the projected cash values would've been $750,000 over the $300,000 in total premiums paid.

 

[DHK]

So here's the weird thing: you're right... but I am also right, with the way that *I* structure policies.

Disclaimer: Please note that spreadsheet was not an authorized illustration and not a solicitation to purchase insurance.

 

[jboussea]

sorry to burst your bubble, by I think I do have a pretty strong understanding of this. and from what I'm seeing, all those things you listed don't seem to make sense compared to BTID...

the arbitrage in interest rates against the policy...I just got a car loan for 1.59%...that's a heck of a lot better than the either 6% fixed APR or the 4.5% variable rate I would get against the cash value of a MM policy. Why would this be any different in the future?

I understand and have read about how loans against insurance are treated for FAFSA. Chances are I will be in a tax-bracket that won't matter anyway, so it seems a 529-plan will beat these tax-advantages.

I understand the tax-free loans for retirement income. As I've said, it seems that BTID allows for greater growth and returns which will eclipse and overcome the tax advantages of this WLI policy. so what if I get tax-free income if I can earn an RoR in an after tax account that is equal or better than the WLI loans.


I'm coming here to try to figure out why and how a permanent policy is better than BTID. Ad-hominem attacks doesn't really support the case. My broker/adviser has prepared policies for myself, wife, and baby and I want to sign this stuff but I'm just not convinced it makes financial sense.

----------



I'd love to learn why my projections are failing or are incorrect. I posted a lot of stuff and DHK fixed on one sentenced and then dismissed everything, even though all the rest of my post showed that DHK's statements seemed to be incorrect.

I'd love to figure out how to structure a WLI policy that doesn't have such high load fees (sales commission) so that I get a positive return sooner than 25 years guaranteed.

I've addressed each point raised here, not ignoring any of them. Not sure what you think I've ignored.

You (the royal 'you') said that you can't compare to stocks/equities. I agreed, so I listed comparisons to bonds & guaranteed t-bills.

You (the royal 'you') said that you can't compare historical returns to projected returns. I agreed, so I listed both historical bonds vs historical WLI and projected bonds vs projected WLI and guaranteed bonds vs guaranteed WLI.

You (the royal 'you') said you must consider the bank-on-yourself value. I agreed, but I listed that current loan rates are much better than insurance loan rates. The math shows that its better to take a traditional loan.

You (the royal 'you') said that there are tax advantages in retirement. I agreed, but I listed that the math shows that at best-case scenario, WLI returns an equivalent to a 5.5% return in an after-tax account. In actuality, WLI seems to earn much less than that, which means the equivalent or better in an after-tax account will be a lower % as well.

Again, I'm trying to figure out why this is a better investment than BTID. I'm looking at a $2M policy on a baby, a $500k policy on the wife, and a $3M+ on myself. I am seriously considering these and have the tables and documents. I am just not convinced it makes sense except in the best-case scenario or I die young.

you are not trying to get info on your own WLI policy because after all this talk

- you still don't know why your WL breaks even in year 12 and we told you multiple times that it's designed incorrectly
- you're saying that I mentioned bank on yourself when I clearly did not because you seem to want open another can of worm ..
- I told you that the blease report is not for Max Funded WLI policy so the returns are designed to be lower because the Death benefits are much higher.
- I posted an actual Real life example of someone using a blended WLI policy and his return was over 7% in 2009 right after the crash. and I clearly mentioned the advantage was not the return but the fact that his principal was not at risk despite having a 7% + IRR .. If you were really looking for WLI .. you would want to inquire about how that was possible , if this was an anomaly etc... but you ignored it because it does not fit into your argument
- I clearly said earlier that you don't have to put all your money in a WLI policy .it allows you to be more aggressive in your portfolio.. rather than get those 3% bond returns that you love so much.
- I mentioned how you don't have the Sequence of returns risk in retirement.. but you won't even inquire about how is it possible that WLI is not bogged down by that 4% withdrawal rule


also good luck trying to find this great no load policiy that you speak of .. why are you even looking at Mass Mutual.. all the best WL carrier we have mentioned here pay a commission.. and even if they did not .. there are still insurance expenses that are front loaded.. if you're looking for a great short term return.. WLI is not fo you. but you should definitely be breaking eve in the 5-8 yr range . The policy I posted earlier broke even on YEAR 2 ..
and you know what some companies offer asset based comp for these policies.. and the load and expesnes are still the same

Is your baby a celebrity ...why is he/she wroth more than your wife.. what happens to you if your wife passes away.. vs if your baby passes away. if my daughter passed away.. it woudl of course be devastating but my expenses would most likely go down.

your graph means nothing to me if I know nothing about your policies..

 

[LGilmore]

2 million on a child isn't likely to happen with such a smaller amount on the wife. Not many carriers are going to embrace such a purchase.

I'm not going to try and convince you of anything, I just wish you good luck and hope things work out for you. I think everybody here has presented reasonable cases for the purchase of permanent, but entirely the OP choice. Not my client, not my care.

In my near 30 years I've yet to meet anybody whose successfully done the BTID concept. Lots start it, but not too many finish, but hey maybe the OP will be that guy?

 

[dgoldenz]

I didn't read every post in this thread but it seems like you're analyzing this way too much. Do you have a maxed out individual disability insurance policy? If not, you should. Why would your child have a $2M life insurance policy? Is this the beginning of an episode of Dateline?