Can Whole Life Insurance Be Paid Off in Full?

[Guest]

My current situation:
=>Me and my wife both work in a high tech company and max out our 401Ks (35K/yr + 3% match)
=>Both put $5,500 to IRA roth (11k/yr)
=>Purchased enough units to pay in-state tution for both our sons 6yr/5yr old (WA GET; 400units each)
=>Additional small contribution ($3,600/yr) to Utah 529 plan for non-tuition expenses.

Looking to invest additional money I purchased New York Whole Life insurance policies for wife (due to excellent health) and two sons for 500K each (500K x 3) through a friend-agent. I personally have a 20-yr term life for 500K (since I am a diabetic). I admit I didn't fully understand the mechanics of whole life insurance before I got the policies. I have since read quite a bit about it and I believe they are probably an OK low-risk investment for my situation since I really only see ourselves using it for death benefit or near death expenses (i.e., won't be touching it for 30+years). What I have read also suggests that I should front load my policies as much as possible.

Given the above, I spoke to my agent and he claims that if I make full OPP payments on top of my annual premiums for 6 years, I will be done and can mark the policies as fully paid (I don't want to invest anymore in life insurance since it is too low-risk/low-returns for my taste). Is he absolutely correct or is there a caveat? Almost every thread I read about whole life insurance is about people continuously paying premiums every year. I am worried about it becoming a bottomless pit for putting money each year. Can a whole life insurance be fully paid? Is there a risk that if poor returns materialize down the road that I will have to pony up more cash again?

 

[LGilmore]

pretty much. The opp rider builds the policy faster and you can reach the point where the policy can support it's self faster. I have NYL policies and I have some in premium offset. Works just fine.
I have had policies in offset over 20 years with no problems.

if you are concerned about future performance, just as them to project at 80 or 90% dividends. That usually adds a year or two into the forecast and pretty much solidifies the policy.

Started with NYL long time ago. left them a long time ago. Good company, good policies. Still have all of mine.

You're in a good place. Don't underestimate the value of what you have. When everything else takes a big dump on you in the financial world you will still have these policies doing their thing.

The problem with whole life is it does what it says it will do. It's a boring product, no excitement, no risk of loss. You will find very few other things that do such a job for you. cheers.

 

[pfg1]

Agree, you are in a good position.

I would look at a structure to pay as much as you are comfortable, for as long as you can comfortably do it. Not sure how old you are, or when you plan to retire... but if you can set up max funding to run right up to that point, it would be ideal. The cash accumulation will be very good, and that cash can be used throughout your lifetime if/when you need it, and then can then be used to supplement your retirement tax free when you do retire.

 

[Newby]

Of course you can pay off whole life insurance. You just buy limited pay life to start with. It will have a defined and GUARANTEED payment term. You can even do single premium life.

If you are talking about an existing whole life policy that was life- pay rather than limited pay, your only option to be guaranteed paid up is to convert it to reduced paid up.

 

[TwiLight]

If you are talking about an existing whole life policy that was life- pay rather than limited pay, your only option to be guaranteed paid up is to convert it to reduced paid up.

Not necessarily. The Big Mutuals live for this and at NYL they have a PUA type rider for excess cash or also will have an internal PUA rider to offset premiums for the future using the balance and dividends. NYL, NWM and MM all have this as part of their WL product. LGilmore was spot on in his post.

The big questions should be that the policy stay out of turning into a Modified Endowment Contract (MEC)area. For the OP-this would treat the Policy as an Annuity and you would loose many tax advantages to the Cash Value.

Also these PUA riders may have additional underwriting involved for the Net amount at Risk increasing for the contract.

 

[Guest]

For some reason I am not getting email notices about updates to this thread - sorry about the delayed response:

I am 38 and wife 34 and so we have ways to go before retirement. My current plan is to make the suggested 27K * 6 years (of which 1/3 is premium; 2/3 is OPP) to pay off these 3 500K policies.

LGilmore: " project at 80 or 90% dividends" - By this are you suggesting that I put in a little bit more than 6 years to serve as a buffer?

TwiLight: I recollect my friend-agent telling me that NYLI will automatically refund money back if the policies have a risk of being treated as MECs. So I doubt I will unknowingly end up with a MEC.

I guess I am still a little skeptical of the returns on my WLI policies. How reliable are the non-guaranteed current and mid projections - are these projection numbers truly based on past performance or blatant advertising by the company/agents?

 

[LGilmore]

To OP, yup just add a couple years and you should be golden.

I've owned my policies for over 25 years and I'm pretty happy with them. Haven't been with NYL for more than 15 years. Could have sold something else to myself along the way. Chose not to. Happy that I didn't.

The mutual have paid dividends for about as long as they've been open. There really isn't blatant advertising going on. Insurance is probably the most heavily regulated and overseen industry we have. Every state has there own office of the insurance commissioner. So compare that with the SEC, which is a federal oversight system. Remember not too long ago the SEC guys got caught with hard drive after hard drive filled with porn. It turned out that they spent most of their time watching porn. One office, a handful of guys supposed to be monitoring transactions, instead watching porn.

Even if 25 state offices were watching porn, there would still be 25 offices paying attention.

As I said earlier the problem with WL is that it does what it says it will. Very tortoise like, slow and steady. Not much drama, not much to talk about. It just does.... Now take everything else that you're doing, do you anything else that is as consistent and predictable and safe? I ask cause I know, I have other investments. When 2008 kicked my "ass"ets, my WL statements still moved forward, I lost nothing in cash values. it did what it was supposed to.

Let me tell you something else that you may not be thinking of now. Whole life is the only type of product YOU control. They can't raise the price, they can't take it away. it can't run it's course during your lifetime and end before you do. There's a reason it costs what it does. Couldn't be more happy to have WL when I became uninsurable several years back (type II, hypertension and Afib). I can own those policies as long as I want. I decide the outcome, not them. They can't price me out like term will.

Anyway, I have nothing at stake as to if you do this or not. If you can afford it, do it. It will be something that doesn't kick you in the nuts later when life may. One less life issue to worry about. Cheers.

 

[pfg1]

I agree with LGilmore, great post and great product.

Re: the dividends... keep in mind, we are in basically at all time lows for dividends right now. Most WL illustrations won't let you illustrate any higher than they are currently, which means you have a very good chance of getting what is illustrated, or possibly higher. We can't stay in this low interest rate environment forever.

 

[Newby]

Not necessarily. The Big Mutuals live for this and at NYL they has a PUA type rider for excess cash or also will have an internal PUA rider to offset premiums for the future using the balance and dividends. NYL, NWM and MM all have this as part of their WL product. LGilmore was spot on in his post. The big questions should be that the policy stay out of turning into a Modified Endowment Contract (MEC)area. For the OP-this would treat the Policy as an Annuity and you would loose many tax advantages to the Cash Value. Also these PUA riders may have additional underwriting involved for the Net amount at Risk increasing for the contract.

Pay a premium offset policy is not a paid up policy unless I am missing something. If anybody or anything is paying a premium, it's not paid up.

Doesn't mean it's bad. It 's just not a paid up policy.

 

[TwiLight]

Pay a premium offset policy is not a paid up policy unless I am missing something. If anybody or anything is paying a premium, it's not paid up.

Doesn't mean it's bad. It 's just not a paid up policy.

As a former life actuary, I do know that a Premium Offset Policy is actually a form of PUA rider as it does increase the death benefit of the policy. Without it designed as a PUA, than all income would be taxable to the insured as it would then be a form of cash on deposit.

As you know, a POP-rider does not get treated as a cash deposit as it is used in the future for premium offset via surrender and the increase use of the self generated dividends it receives.

The only way to receive a dividend on a POP-rider is that it is a PUA.