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So when you use the term whole life, you are referring to "Cash Value" insurance.
When I use the terminology "whole life" I am referring to life insurance that is in force for the "whole" of your life. I fail to see how cash value makes any difference.
In the case of traditional whole life insurance, with traditional cash values, cash SURRENDER values mean NOTHING to the death benefit - absolutely nothing.
Now if I am buying a life insurance product to deliver a death benefit to my estate when I die, how does cash value make any difference to that purpose?
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You have to be very careful about putting "extra" money in a no lapse guarantee policy, over and above the guarantees that you originally purchased. The fact is that the extra money can end up in a black hole, filling up a deficit in reserves in the policy. If that happens, then you would have been bettern to have paid the minimum premium, and only the minimum premium, and put the money into a separate investment.
Another alterative is that you could purchase a quicker paying no lapse UL, such as a 20 pay, and get a guarantee for that. There will be higher cash values, because you are pumping more premiums into the policy than the actualy cost of the annual protection, but those CSV's can also dwindle in later years. I would do that only because I would prefer to remove the chance I could accidentally miss a future premium, and lose my guarantee.
Frankly, I think the preoccupation with cash value is a distraction to the purpose of the product - which should be to deliver a death benefit to your estate WHEN you die.
Many years ago I put my money where my mouth is. In Canada in the 1980's there was a product introduced called term to 100 - whole life insurance with no cash value. The product had lower premiums because it was assumed that lapsed policies would leave any reserves for those lapsed policies in the pool for the those that hadn't lapsed - meaning the surviving policies were lapse subsidized.
In the early days the lapse assumptions for those products were based upon traditional whole life. The problem is that so many whole life policies are sold to consumer with the idea that they will have protection in the earlier years, and then later on, such as at retirement, you would quit and cash them out. Once again, that is a sales strategy I disagree with.
Anyway, the problem with the lapse assumptions being applied to Term to 100 was that why would people quit to get the cash - THERE WAS NO CASH!
The initial term to 100 policies were a bargain, TOO CHEAP. That when I bought mine, one for $150,000 from one company and $200,000 from another company. Sure enough, as time has gone by, prices for Term to 100 have gone up.
Then in the U.S. the no lapse thing began and I thought, deja-vu all over again. And sure enough, prices for no lapse UL products have been going up, and they are going to keep going up.
Today, if you are a 50 year old male non-smoker in Canada, the best premium for $1,000,000 of Term to 100 is: $9,000 per year
In the U.S., a 50 year old male non-smoker would find the best premiums for a no-lapse UL, with premiums guaranteed paid up at age 100 (which is how Canadian T100 works), would be: $7,864 per year
NOTE: Exchange rates have NOTHING to do with the difference.
It is my contention that no lapse UL policies, in addition to being a perfect whole life product for those doing estate planning, and who are wanting a whole life product to deliver money to their estate WHEN they die, are currently underpriced. Prices for these products will continue to go up and if you have clients that possibly need this coverage, they should RUN and not walk to buy them. Get them while they are hot.
Of course if you sell whole life insurance for cash values, none of this really applies. But if you have a serious estate planning case, you may want to pay attention.
And you can quote me to your clients on all of that.
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Peter,
First, I want you to know I appreciate your business.
Second, please don't get too thinned skin on these debates. I keep hearing over and over again how agents present all these product alternatives to their clients, and let them pick. Well if that's the case, how do my comments in anyway impact negatively on what is going on in the sales that you folks are making?
While I no longer sell life insurance, I do take a fairly routine stream of calls from consumers who are looking for advice. All too frequently I continue to hear the same stories I heard when I was selling. Too many people are underinsured and over premiumed in the market.
As to tailoring my beliefs to my software, I think it is the other way around. In the beginning I thought agents would benefit from an objective, third party source of competitive rates in the market, for what are arguably the most competitively marketed types of life insurance in the market.
If you don't compete when you sell life insurance, you won't need Compulife - I mean that. But someday you will be in competition with someone, and you will realize the handicap you have. If you treat it like poker, where sometimes you just have to fold and walk away, you'll be able to keep your spirits up. For me, I would prefer to fly into a WWII dog fight with an F-16.
When I started Compulfe I believed that an emphasis on shopping and comparisons would tend to move the market toward more people being properly covered and paying competitive prices for their insurance.
As to more complex products, you can't easily compare prices for policies that do different things. How do you compare the premiums for a vanishing premium whole life with a non-par, whole life product which is guaranteed paid up at 65. Do you calculate the cash value into the cost assumption, and if you do, how do you account for the fact that the CSV is dust if you die? TOO COMPLEX, and not suited to the kinds of comparisons anyone can do with a computer. Oh I know there are comparisons out there, but none I would put my name on. But if you have one you like, don't let me slow you down.
But then I don't own any complex policies, and wouldn't own any complex policies.
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