Whole Life 1st Year Liquidity

[scottstreet]

Following up on Brandons blog about Cash value liquidity, I can get ONL to show 84% (non- MEC)on current dividends. How does that rate vis-a-vis the big mutuals?

Life Insurance Liquidity

 

[scottstreet]

Bump....oh Brandon, Larry, CFp83 anybody?...

 

[LGilmore]

Scot? Haven't any idea, except a question?

Why would you want 1st year liquidity on a long term product? Is it a selling point or a point of contention?

Could you explain the need? I've never considered selling whole life as a short term investment as I would imagine I would get my a ss sued off. Is there a reason this is important?

 

[scottstreet]

larry, good point. I wholehartedly agree about it being long term. I'm simply looking to counter any concern about lost immediate liquidity. If your looking to structure the contract for cash accumulation rather than DB, the faster you get to "even" the faster you build IRR. After all liquidity is one of the features of the "swiss army knife"

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I think this issue would be of particular concern in premium finance cases where interest aritrage is the goal.

 

[scagnt83]

larry, good point. I wholehartedly agree about it being long term. I'm simply looking to counter any concern about lost immediate liquidity. If your looking to structure the contract for cash accumulation rather than DB, the faster you get to "even" the faster you build IRR. After all liquidity is one of the features of the "swiss army knife"

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I think this issue would be of particular concern in premium finance cases where interest aritrage is the goal.

Actually higher early CV does not always equal higher CV in later years.
Internal workings of policies (how expenses & growth are distributed over the years of the policy) can differ. Because of this, some policies are better suited for early CV growth. But that does not mean that the CV will be higher in later years vs. a different policy with lower CV to start.

You did not mention which ON product you are using. That makes a difference.

But it all really just comes down to how the expenses are distributed over the years for the policy at hand.

Most policies that are actual HECV products, just lower the expenses initially, but spread them out over a longer period to create the HECV. So while the CV is higher early on. The longer expense load detracts from the long term gains when compared to a non HECV product.

I realize that ON does not have a HECV WL. But the principle remains the same. Different policies have different expense schedules. This is why some are able to create more CV early, and others are able to later on.


On a side note, you can get UL/IUL up to a higher % earlier on (if it is an issue). This is why it is usually used for PF cases instead of WL (that and its flexibility).

 

[LGilmore]

Thanks.

"I'm simply looking to counter any concern about lost immediate liquidity. "

but here's the thing..... if this is a concern, should WL be in the discussion? If the prospect is looking to pull money or to be able to pull money at a moment's notice, are they a good candidate for a WL?

I think it is OK to tell a prospect "no" to certain questions. WL is a commitment, it's success as a product is based on people holding onto it. "how fast can I bail?" is not a person who should be in a WL.

Someone who is asking how fast they can take money out of a policy isn't a person who is going to have a policy a decade from now. So why I understand your desire to answer every question, understand it is also OK to tell a client that is not what this policy is about. If you're looking to park money for a year or so, let's look at a money market account or CD.

I realize this doesn't really answer your question, but I just think the question really doesn't match the product.

 

[scagnt83]

I realize this doesn't really answer your question, but I just think the question really doesn't match the product.

I would agree for the most part. Although I have seen instances of people wanting to pull large amounts out in loans early on (to fund something in particular) and then pay it back after a couple of years. So when you get into certain situations HECV can become relevant.


Another instance is when funding business agreements.
One sort of common objection from accountants is that using Life Insurance to fund the agreement will not equal out in the first couple of years. Or that the first years deficit between the premium and cv could be bad for the books.
This is why companies invented the Executive Riders or HECV Riders to put on Corporate Owned Policies.

But to be honest, unless some blowhard cpa is just causing an issue over having 90 something % of premiums and not 100%, not having the Exec Rider usually is best for CV growth after 10 or 12 years.

Also, if the NQDC plan has a term that is less than 12 or 15 years, then the HECV policies can be best to use at times.



But for most regular consumers the focus should definitely be on the long term.

 

[LGilmore]

scagent83,

Agree with your comments. I don't know if the OP is asking along the lines of the reasons you mentioned which are a possibility but I would venture a small percentage of plans fall into.

The "putting it back part" still really makes it a long term plan in my opinion. The liquid has more of a permanent removal in my head vs. loaning or borrowing which both imply a return of....

 

[scottstreet]

SC, thanks for the reply., my original question was motivated to better understand the power of using premium financing with interest arbitrage oportunitys to create a life long valuable contract for little or no cost. The key being HECV to pay off the financing principal at the time most advantageous to the future contract value.
To me liquidity means easily acessed, no more, no less.

I realize this is an extremely limited market.

 

[scagnt83]

I would venture a small percentage of plans fall into.

The "putting it back part" still really makes it a long term plan in my opinion. The liquid has more of a permanent removal in my head vs. loaning or borrowing which both imply a return of....

Very true on both comments.