10 Pay Vs. L99

[johnyblu]

What are your thoughts on getting a 10 Pay vs. a standard 90-100 yr policy? It's for someone that will be maxing PUAs for the first number of years and whose interest is to have the greatest cash value and DB in later years.

From illustrations I've seen matching equal dollars, the guaranteed portion for the 10 pay is lower but in all the illustrations the value later on is substantially greater. However, you lose out on the disability rider.

Please let me know your thoughts, thanks.

 

[BNTRS]

Well, let me reiterate. You're not losing out on the disability rider because the premiums are done after 10 years meaning the cost of the disability rider is significantly less. Additionally there is a company that will allow PUA's after the 10 years if you so choose.

Again, from an internal rate of return bang-for-you-buck cash value stand point 10 pay wins hands down.

 

[johnyblu]

BNTRS - I have to say I'm confused how 10 pay works and have searched the forum a number of times and haven't found any real discussion on the topic.

Can you please explain how it works and why it would hands down win? Are there lower costs baked into the assumptions?
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Also - regarding the disability rider. If let's say in year 2 something happens, the 10 pay will pay premium for year 3-10 and L99 will pay for year 3-99. If those cases are run the IRR for L99 would be significantly higher. That's what I meant by losing out in disability rider - not that the policy would lapse, but you're losing out on a lot of money that would continually be put in.

However, I'm not sure that is a big enough factor to choose L99 over 10 pay when it seems 10 pay grows CV faster.

 

[dgoldenz]

I'm not sure why you don't just call a Guardian agent, the home office, or give BNTRS the chance to earn your business. Seems he's been incredibly helpful to you thus far.

 

[johnyblu]

I posted on the forum for two reasons a)to get different opinions from many knowledgable people b)if I have the question and can't find the answer then I'm sure others are in the same boat.

BNTRS (and many others as well!) has been extremely helpful and I'm not sure why I can't follow up on this 10 pay idea since I did learn about it on the forum and I am trying to figure out how it works.

thanks again

 

[dgoldenz]

You can certainly ask questions, but you shouldn't take what you learn from all the agents here to just run to someone else and let them get the commission on the sale without doing the work. You are asking very specific questions versus general concepts. Give someone like BNTRS your business and you will always be able to go back to him later with questions that you will inevitably have. Give someone else your business and they may not have a clue. The price is the same no matter which agent you choose, so make sure you make the right choice. Just my $0.02

 

[johnyblu]

Understood, thanks for your advice. I will make those types of decisions after I understand 10 pay as that seems to be the last piece of the puzzle.

 

[kenbill]

Just based on my past experience with many different clients, I prefer the regular whole life. If you follow our suggestions in the previous posts, you can have a well structured regular whole life policy for cash value growth purpose. Flexibility is the key here. I have seen clients with the original intention to overfund the policy in the first few years, and then things changed (got married, had kids, lost the job, etc.). With a 10 pay policy, the required premium for the base face amount is much higher than a regular WL policy. If something happens in the future, you have much more flexibility with a regular WL.

PUA is another issue. Most 10 pay policies in the market do not allow PUA payments after the policy is paid up. Guaridan’s 10 pay has this good feature that allows further PUA payments (however, the amount is lower relative to the base after the policy is paid up).

In terms of internal IRR for the cash value, 10-pay policy is a little bit higher than a term blend regular WL usually after you hold the policy for 20 years. In the initial period, the guaranteed and current assumption CV for 10-pay is usually lower. I did a research recently on a New York Life 10 pay vs regular WL. You can read the post in this forum. The guaranteed CV for the regular WL is much higher in all years. The current dividend assumption CV for the 10 pay policy is similar to the regular WL in year 20. The internal IRR for the 10-pay is about 0.3 point higher than the regular WL only after you hold the policy for 30 years. This is assuming you don’t make the regular WL a paid up policy in year 11 and continue to use dividend to pay the base premium. In reality, if you can afford to pay the base premium and scheduled PUA premium every year for the first 10 years, you can always ask the insurance company in year 11 to make the regular WL policy a paid up policy. The insurance company will lower the death benefit based on the CV in your policy at that time. Remember, the lower the death benefit, the better for CV growth and you don’t need to use the dividend to pay the base policy premium anymore. If you do that, then the IRR for the regular WL is better.

10 years later, your objective may be totally different than today. You may need more protection rather than just CV growth. No one can predict what’s going to happen in the future. The most important thing for you is to select a well structured product from a solid mutual company with flexibility. If you decide to go with Guardian, I think BNTRS is the best agent who knows their products in and out.

 

[johnyblu]

Thanks Kenbill. I just found that post and looks like you have a similar question to me at the end

"That's why I suspect they have a different dividend (or expense) treatment for their custom whole life product because their current dividend rate is only 6.11%."

Did you confirm there is different dividend or expense treatment? I'm thinking the other reason Pay 10 came out higher is just the ratio of PUA to premium which can be made higher with Pay 10 than L99.

 

[BNTRS]

While I truly appreciate the vote of confidence that dgoldenz and kenbill have placed in me, I'm going to respectfully disagree with Kenbill's analysis of 10 pay vs. a longer paid up WL contract.

Ok, this might be like drinking from a fire hose, but here goes...

Mind you some of this will seem trivial to your stated objective, but it's the mechanics and details that I think will shed light on what seems so elusive at the moment.

WL insurance guarantees a death benefit and fixes all the costs assoicated with providing you that death benefit from day one. Additionally it's a return of premium product with a guaranteed rate of return on your money. WL contracts are also endowment contracts (an old insurance contract that has gone the way of the dodo), where essentially you choose a death benefit and a premium is paid for a number of years and at age 120 the insurance company guarantees that you'll have earned enough interest on your premiums to have the original amount of the death benefit paid to you, and if you die any time in between the insurance company also guarantees to cut a check for that death benefit to your named beneficiary.

Based on this fact alone lets look at WL paid up at age 99 or paid up in 10 years. Yes the premium on the 10 pay will be higher, but will it be higher enough to mean you'll pay more than the premiums you'll pay if you are paying to age 99? Ususally the answer is no, and in your case the answer is no. In fact, you'll have more death benefit and more cash with the 10 pay than with L99. This is true in both the guaranteed and non guaranteed situation. There's no magic here, perhaps some magicians at work, but let me share with you their secret: time value of money. Just like paying your mortgage down with additional payments to save interest the insurance company can offer you greater benefits inside the 10 pay because you are fronting so much money into the contract.

Additionally if we look at cost of waiver rider, it's much more on the longer paid up product than on the 10 pay.

I think the move that makes the most amount of since in your situation, having what appears to be a significant amount of money you'd like to place in this sort of product and allow to grow tax deferred and have access to on a tax free basis (because that's really the point of using money like this inside a life insurance contract) is pre-paying premiums on a 10 pay contract. I'd also say that based on 10 pay's high cash value nature, and what I've preceived as a lack of interest in making payments to the policy in later years the PUA rider on the 10 pay is relatively useless to you. Now if you'd like to leave the window open to overfunding a WL contract with money that you are earning on a yearly basis 25 bucks per year added to the 10 pay gives you the guaranteed option to buy another policy at a maximum face amount of $250,000 with zero underwriting within a 10 year period or 6 months after the 10 pay has been completely paid up. I'll show you a comparison of illustrations later.

Guardian rolled out their 10 pay at the end of last year, since then I've been using it for a lot of executive comp cases. I received word a few months ago that they've experienced a huge increase in new business over last year and it's due in large part to their 10 pay product.

I could give you a long list of reasons why I prefer Guardian to their competition in most WL cases if you're interested. Look for illustrations later today, I have to run off to an appointment right now where oddly enough, there will be another 10 pay presentation taking place.