Whole Life Advice

[johnyblu]

Thanks for the replies. To answer the questions asked:
moon - the benefit is helpful, maybe not 100% needed. I don't see why it's so expensive. running the numbers, assuming world stays in place, the cash value after year 10 will stay in the IRR range of 4.5% to 5.5% tax free. that seems very reasonable for my cash allocation. am i not thinking about this right?
lgilmore - i'm no rugby player... what do you mean by 'pop.' I assume you mean max out the PUAs for 5 years so premiums, in normal environment, will probably be covered from dividends. I figure after 10 or 20 years, besides for not having to fund if I don't want, I'll be able to use to borrow against if need be (to buy house or pay for education etc.).
trsecurity - yes, I'm maxing out my 401k, can't put money in an IRA anymore, and putting money in other investments as well; beneficiary may or may not need it - i like the added security of them having it;
dgoldenz - disability waiver, not a separate policy. I like whole life for the 5% tax-free return on my cash portion of my investments plus i'd get a baked in disability and death benefit. I also have some disability through work. I figure if it's something I'm going to want at some point soon, why not go for it when I'm in good health, have cash to spend and not making much in the bank.

noone has yet discussed the main questions i asked about the actual carriers?

 

[johnyblu]

BNTRS - what is 10 pay? I was looking at guardian 99 (significantly better than 90 and a bit better than 121 it seemed). You're right I've spent a lot of time on this in the past couple weeks, but didn't know anything about it beforehand. I am shocked at how little information I can find on the carriers and specific differences between them. I've seen various ones comparing the big four, but not all the details - if anyone has something that compares/contrast the details (like borrowing rates and disability details) please let me know where to find. Regarding Penn Mutual - the illustration I saw looked a lot stronger than the big four. MM and Guardian were second and NYL was much worse. I figured Penn somehow had lower fees baked into the equation while NYL was working with lowest dividend baked in (as they had low 2009 rate). I ruled out NYL, didn't see Northwestern, but based on what I've read I didn't think I'd want it. I ruled out Penn, though am not sure I should, because of the lower rating and the fact that if I can get insured at top level by the best it seems worthwhile to do. Plus, since it's essentially an investment in the company, i'm happier to be in a company that has hardest requirements to insure. So I was left with MM and Guardian - Guardian has more consistent historical returns and looked like they have better disability language.

Just to clear up, when I say cash - it's that since you can always borrow against the cash portion, I'd be comfortable having less cash in my bank account since I'd have a backup liquid cash source. I don't plan on using it unless it's needed (maybe kids college or something far down line).

Please let me know if my line of thinking makes any sense - thanks

 

[VolAgent]

10 Pay means that the contract is contractually paid up in 10 years. Now, some people will try to show you a contract "paying for itself" at some point in the future, but that is completely different than contractually paid up policy.

You can make most WL policies "self-fund", that is the point where the dividends, plus surrendering some PUAs are enough to fund the policy for the rest of the life of the policy. When that happens just depends on dividend performance. If the dividends don't come in as strong as projected, then you have to keep paying. Payments are always due under the contract, until age 100 or 121, just depends on the policy.

However, in a 10 pay, you are done in 10 years. That is it, no more money due, period. In fact, if you try to send in a payment for the 11th year, the company will return your money. Dividend performance is irrelevant to how many payments you have to make. Also, a limited pay policy (10 pay, 20 pay, etc.) will better support withdrawing money from the policy at a later date.

Hope that helps.

 

[BNTRS]

Yes, as VolAgent has said, but also with Guardian's 10 pay, term rider, and LPUA, you can continue to dump money into the policy even after it's paid up, and all of that money is extra cash drop in, and PUA cash values will grow faster than base premium cash values.

 

[johnyblu]

How's the disability benefit work with that? Is 10 pay unique to Guardian?

 

[CFP83]

Johnyblue, first of all I would like to congratulate you on taking the time you have obviously taken to give yourself an in-depth education about your decision.

At your age and with your financial position I would only be considering whole life insurance, with extra PUA's.

• Kudos for recognizing the value of the disability waiver, which if a disability occurs makes your plan "self-completing"
• Your question about "which company to choose" is a very valid one. Actual 20 year, 30 year, and 40 year historical IRR's show us that Northwestern, Guardian, and Mass are your best options.
• Don't let yourself be swayed by the size of the company in determining who is a 1st tier or 2nd tier carrier. Penn Mutual is much smaller than the "big 4" however their financial strength and balance sheet is just as healthy. However Penn Mutual's whole life historical 20 year/30yr/40yr cash value IRR is not as strong as the other three I just mentioned. Penn Mutual however has gained a good deal of finacial momentum in the past 10 years. No one can predict what company will actually have the best cash value IRR in the next 20 years. Rather than being a "2nd tier company" Penn Mutual is actually a smaller 1st tier company that ranks somewhere around #4 or #5 in historical IRR in regards to cash value returns of whole life. Now, with all that said, I personally recommend Mass Mutual for clients who are a fit for whole-life and Penn Mutual for clients where a UL or IUL (indexed universal life) make more sense.

So based upon your intial question, If I were your advisor I would recommend Mass Mutual 10-pay with PUA's....however you would be well served using the Guardian 10-pay product as well. Northwestern does not have a 10-pay product.

 

[johnyblu]

I fully plan to max PUAs for the first number of years. It looked like after 5 years at max PUA in Guardian 99 I'd most likely not have to fund anymore if I chose not too. will the 10-pay product really benefit? The company must be charging fees somehow in the 10 pay product as insurance isn't free.

Regarding Guardian vs. Mass Mutual - can you elaborate on the benefits of each?

With your point about Penn Mutual - isn't their credit rating lower? also, if a whole life policy is based on company performance, i'd feel more comfortable with a company that I know has strictest policies and my understanding is that Penn may underwrite a bit more loosely than Guardian (i could be wrong)

 

[kenbill]

BNTRS, you mentioned Guardian's 10 pay product allows PUA dump in even after the paid up date. That's a very good feature. Will these extra premiums make the policy an MEC? Usually, these 10 pay products from various companies have much higher premiums for cash value growth purpose (already very close to the MEC limit). Do you mean adding a PUA+term rider on top of the base 10 pay policy or just the base policy + PUA? If it is just the base+PUA, I don't think there is much room for extra PUA dump in after the paid up date.

I always face this problem when I help clients to figure out how to put the maximum premiums into the policy for CV growth.

 

[CFP83]

I fully plan to max PUAs for the first number of years. It looked like after 5 years at max PUA in Guardian 99 I'd most likely not have to fund anymore if I chose not too. will the 10-pay product really benefit? The company must be charging fees somehow in the 10 pay product as insurance isn't free.

Based upon your motives for this insurance why does it matter how long you put premiums in? If Guardian performs "as illustrated" in the illustration you are looking at for the Guardian 99 paying for 5 years, then yes you "could" not put any more money if you want to. I would suggest however based upon your objectives that you look at what is the 20 year cash value IRR on the dollars you put into the Guardian 99 (for 5 years then stop) as oppossed to funding a 10-pay for 10 years. At policy year 20 I would bet that your cash value IRR would be higher in the overfunded 10-pay product. All of this assumes that paying the extra five years of premium, as long as it results in a greater return, is not an issue.

Regarding Guardian vs. Mass Mutual - can you elaborate on the benefits of each?

With your point about Penn Mutual - isn't their credit rating lower? also, if a whole life policy is based on company performance, i'd feel more comfortable with a company that I know has strictest policies and my understanding is that Penn may underwrite a bit more loosely than Guardian (i could be wrong)

The scorecard for financial strength in the life insurance world is what is called a companys' Comdex rating. 100 is the best. Mass is a 99, Guardian is a 98, Penn Mutual is a 96. With these "grades" all these companies are in the A+ category in comparing finacial strength and stability rankings compared to the rest of the industry

 

[johnyblu]

So based on that - how do I really decide Guardian vs MM or PM? The illustrations for PM looked significantly better, not sure why. MM and Guardian were similar. I know you'll say illustrations aren't actual, but if it's the same cash outlay and dividend assumptions are similar, why would there be a big difference?