Life Insurance Vs. Savings Plan?

[DHK]

And those graphs are part of that "lesson on life insurance" link I put earlier. What we haven't talked about much is that the death benefits can increase over time with par-WL, UL, and IUL. It all just depends on interest &/or dividend payout options that are chosen.

 

[LostDollar]

OP, you should see if you can switch the div option to purchase PUA's...

I found the original policy paper from Fidelity. It is a non-participating policy.
The total annual payment started at a high of $215.10 because it included some riders at additional charges. Those have all dropped off now.

So what I think I have is a $10K non-participating policy for $159.90 per year with a current cash value of $6300. During the first 20 years there were some death benefit increases over the $10K amount, but I believe those have all dropped away now. I am not absolutely sure, I would have to ask for more information, but I think the cash value is increasing by close to the amount of the premium. There is, in addition, a "special deal" side amount of $1.8K+ drawing (taxable) interest at 6%. I believe that comes to me or beneficiary in addition to policy face amount or policy cash value-whichever option is exercised. Seeing as how this did not reward me in the way posters have suggested differently structured policies of this age might, it probably rewarded the company and the salesman pretty well.

 

[pfg1]

I found the original policy paper from Fidelity. It is a non-participating policy.
The total annual payment started at a high of $215.10 because it included some riders at additional charges. Those have all dropped off now.

So what I think I have is a $10K non-participating policy for $159.90 per year with a current cash value of $6300. During the first 20 years there were some death benefit increases over the $10K amount, but I believe those have all dropped away now. I am not absolutely sure, I would have to ask for more information, but I think the cash value is increasing by close to the amount of the premium. There is, in addition, a "special deal" side amount of $1.8K+ drawing (taxable) interest at 6%. I believe that comes to me or beneficiary in addition to policy face amount or policy cash value-whichever option is exercised. Seeing as how this did not reward me in the way posters have suggested differently structured policies of this age might, it probably rewarded the company and the salesman pretty well.

Im confused now.

You say its paying you dividends at ~ $70/yr...
I guess a non-par policy could do that (sounds like it obviously is) so I would ask if you have an option to purchase PUA's with the div $. Sounds like you def have some q's to get answers to.

Regardless, its been good to you over time for sure. At the end of the day, that is what matters most. I have run into a few folks over the years that have said to me that their Par WL policy was the best $ they ever spent, and they wish they had bought more. Heck, I wish I could go back twenty five years and buy big policies on myself and my wife. Need a time machine...

 

[LostDollar]

Im confused now.

You say its paying you dividends at ~ $70/yr...
I guess a non-par policy could do that (sounds like it obviously is) so I would ask if you have an option to purchase PUA's with the div $.

Because I was confused. Not knowing exactly what was going on, I called it dividends. The annual income from the company is interest, not dividends. The policy is non-participating. Unless Allianz made drastic changes in the policy structure, which I doubt, there are no dividends. The riders were for accidental death, guaranteed insurability, and waiver of premium-for specific time frames which have long since expired. I never used any of those things.

I have absolutely no memory of the sales talk, just looking at a paper with the policy: As part of the gyrations to get me to purchase the policy, they took a note for most of the first year premium of $215.10. At the five year point, they "gave me back $260" to help in repaying the note if it was still outstanding. That money, and that money only, accrues annual taxable interest at a minimum of 6% (and I don't think they have ever volunteered to pay more). The $260 has accrued to $1800 plus, and I believe it is a payout in addition to cash value or death benefit of the policy.

The only additional purchase options in the policy were the ones at specified time periods relating to the rider I paid for for a few years. There is nothing about being able to purchase additional insurance with the "cash refund" amounts. So it is just a $10K policy at premium of $160 per yr with an additional small amount on the side.

 

[Edwardfin]

I think what your friend is really trying to say is if someone uses a savings account and they die earlier than expected, they won't have enough in that savings account to cover everything. In other words, if they save $50 per month it will be quite some time before they would save the same face amount that $50 per month in an insurance policy would get them.

You really can't compare them because they should be used in different ways, for different reasons. A client should really have both.

I think this answer is the best one for his skill level.

 

[LostDollar]

Earlier in the thread, there were discussions about participating whole life policies and provisions that allowed the dividends to purchase additional paid up life insurance. Is $10K a minimum amount for that type of policy or can they be purchased for smaller face amounts?

 

[DHK]

$10k is the minimum face amount for Assurity life. Every company has different minimum face for their various products.

 

[Cameron Lane]

Life Insurance and Savings Plan are totally different. I think you need both.

 

[LostDollar]

Life Insurance and Savings Plan are totally different. I think you need both.

I'm trying to look at that a little right now. Not so sure but what the fast food mantra "supersize it" hasn't carried over into life insurance too.

 

[KenP]

I sent you a PM, but let me address that last part. First, it depends on the policy design by the company. Guardian's whole life policies have a fixed 8% loan rate, which isn't exactly competitive in today's interest rate environment.

Let's assume you have $100,000 in cash value, non-direct recognition policy earning 5%. Let's ignore the fact that the policy may still require ongoing premium payments, and these numbers are hypothetical, etc. That policy will earn $5,000 per year.

Let's say that you want to buy a new Lexus SUV for about $50,000 and you have excellent credit. You could buy it from the dealer at 0%, or you could borrow $50,000 from your policy ALSO at 5% loan cost for $2,500 per year.

If you DON'T pay the loan interest every year, then the policy earnings ($5,000) will pay for the loan interest cost ($2,500) leaving a $2,500 net earnings on the policy.

If you DO pay the loan interest every year, then you RESTORE your policy earnings. ($5,000 - $2,500 + $2,500 = $5,000.)

Now, why would someone want to borrow from their life insurance policy at a cost of 5% instead of paying 0% from the dealer?

1) "Required" minimum payments are LOWER. ($50,000 / 5 years = $10,000 per year in payments vs $2,500 loan interest only "required" payment.) And technically, you don't even have to pay that... but it certainly is a good idea to keep the policy afloat and viable.

2) Additional payments above the annual loan interest amount restore borrowing capacity for future purchases or other needs.

3) Protects credit in the event of a gap in employment and cash flow. Life insurance loans are not reported to credit bureaus. This is key because getting hired for a new job often requires a credit check, and this protects your credit standings.

4) No collection calls... ever.

5) Worst case scenario... your car is never repossessed because you own it (and the title) and provided your own financing.

Rate paid on the note is the biggest comparing factor, so I agree that an 8% rate on cash you've already accumulated in is a little silly. If the rate differential were the other direction, it can be a dream (like if your credit took a nosedive and the only auto loan you can find is a Santander 18%+ kind of thing).

Points 3, 4, and 5 I love as well. Nuanced things once we start talking about promissories and their terms... In sum, the benefits of what will happen if you go delinquent. Not giving lien to the property can be a huge lifesaver if things go south, and not having to run a hard pull on your credit for the loan / have your credit rating affect the rate, all are great benefits.

I believe some lenders will offer credit and use a WL policy as security, which would give you a very similar net effect (other than putting your credit rating at risk) but at a potentially better interest rate.


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Finally, someone mentioned that WL was great for savings because it was designed for it....I'd disagree. The original design of the product was to find a way to manage the risk for an insurer to take on the only policy that is guaranteed to have a claim on it. For lack of a better term, a way to have a policy designed so that the insured is progressively self-insuring while at the same time covered for if the unfortunate happens and they kick the bucket much earlier than the average.

With that, they realized there's some level of incentive needed, so began the allowing access to the cash/offering loans, while giving some amount of bond-like return on the cash contributed