A Tale of Two Policies

[LostDollar]

There was no "planning" or "preparation" that went into these, at least on my part. I took what the agent offered.

I suspect that a business class may have been the prompting for the purchases, but really don't remember why I decided to buy these policies or how I met these agents.

I was 29, in college on the GI bill and hoped to graduate and get a "real" job. Life did not work out the way I'd hoped, but I managed (barely) to hang onto these two policies in spite of all the adverse events along the way.

They are both something called a Standard Premium Class.

=====================================
Fidelity Union Life
CollegeMaster
10K Face.
Whole Life, Non Participating
Jan 1974

Ins 159.90
ADD 28.00 36 mo
Waiver of Prem 4.20 31 mo
Life ins purchase option 23.00 11 mo
Total early premium 215.10

(If I asked and interpreted correctly on the phone.)
(The girl to whom I spoke was talking to me about my "dividends" so I had to do a bit of interpretation.)

Jan 2017 Cash value $6305.
Plus cash value of 5th year payment to me of $260 held by ins co with payment of 6% annual interest $1822.00
(That's a gyration I can explain in a separate post if you need to know about it.)

==========================================

Penn Mutual
Face $10K
Whole Life, Participating.
Dividends to purchase paid up additions.
Shows a date of Feb 1974 but then says issue date is June of 74.


Ins 189.50
OPAI 18.70 To Fe 1985
WP 4.30 To Fe 2005
Total early premium 212.50

Somewhere along the way, the "real" face of the policy was changed to $14K.
Penn is nice, they are giving me an annual printed statement, just pd my premium and got the one for 2017.

Face Amt 14,000.00
Death Ben 23596.62
Cash val 14969.00

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And Buy Term, Invest the Difference?

For me personally, that was a total crock .......

I have had several term policies over the years and they were all dropped well before they ran out because "life" made them unaffordable.

For comic relief, I think the first was when a couple of guys from Combined Insurance (in tan khaki raincoats) showed up at my father's business and swept through, leaving a pile of paper in their wake. I don't remember, we'll just say I was 15 +/- at the time. No memory of how long I kept that particular policy and no idea how much of the other business stuck for any significant length of time. Good initial issue though.

 

[pfg1]

That is why I like par WL so much, they just get better and better. My wife has a tiny par WL policy from the mid 70's... the numbers (ratio) are similar to yours. Good stuff!

 

[scagnt83]

I just reviewed a State Farm WL the other day, contract date was 1973. He bought it at age 20. Only policy he has actually kept for more than 8 years I was told.

In his words "It kept growing steady, so I kept paying the premium".



I did the math. Its earned an annualized 5.2% tax-free rate of return.

Assuming a 20% tax rate (state & fed), thats equal to around a 6.5% taxable rate of return. And with no risk of loss. Plus it provided a small DB, which was needed in his young years, and will only help in his older years.

 

[LostDollar]

That is why I like par WL so much, they just get better and better. My wife has a tiny par WL policy from the mid 70's... the numbers (ratio) are similar to yours. Good stuff!

Yes. I have been watching a discussion in another thread. I have learned something and I have had an opinion reinforced about something else.

DHK recommended a life insurance book awhile back by (sort of) Ben Feldman.
One of David Baldacchi's book series is a 5 book sequence with a guy named Oliver something or another, who lives in Lafayette Park, as a central character. The third one is the best one (IMO). But... (and sorry David) the Ben Feldman book is far better. (again to keep out of trouble I should say IMO. The same impetuosity that would have gotten me killed in Vietnam is still getting me in trouble on Insurance Forums today!)

What I learned from the other thread is: That no matter how good I think the Feldman book is, No matter how much it resonates with me, I am not going to master the financial complexities of life insurance at the millions of dollar policy levels those guys were discussing. 30 years ago would have been the right time in my business life to try, today it is simply not going to happen.

However....
I freely admit I have lived a life that has suffered some from lack of self confidence and I have probably allowed myself to be beaten down some by that. But I don't think that kid in the other thread is fully recognizing that planning a 60 year future does not always make it happen the way the plan reads.

It is an amazing thing to stand in a machine shop and watch a $1.5 million CNC machine attack a block of aluminum and turn it into an airplane part for Boeing or a rocket part for Morton Thiokol--and the finished part will have precisions measured in tens of thousands of an inch.

I think it may be that the right financial plan has to have a bit more tolerance and flexibility in it than that, ie it has to be based on the concept that it can work in spite of life; rather than that life will precisely match the carefully crafted plan.

I think that kid in another thread may not be fully appreciating that. As you have commented before in other places, a major issue with the concept of Buy Term, Invest the Difference is that many people "talk it" BUT "don't do it". Some because they can't, others because they don't wish to when they look at assorted trade offs.

I know beyond any shadow of a doubt that if I had the money to buy $1,000,000 of life insurance coverage, I would NOT allow myself to be tempted away from Whole Life insurance by the concept that I MIGHT get a better financial return on SOME of that money if I put it in other financial vehicles.

 

[pfg1]

Good points LD. You are right, the best laid plans sometimes go astray. I wish I knew what I know now, 25yrs ago.

The nice thing about the cash value... it can be used if/when you ever need it, for whatever you want. Including paying annual premiums. I have a client right now that is doing just that. Cash flow was tight and there was plenty of cash value to help fill the void and keep the policy moving forward.

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I just reviewed a State Farm WL the other day, contract date was 1973. He bought it at age 20. Only policy he has actually kept for more than 8 years I was told.

In his words "It kept growing steady, so I kept paying the premium".



I did the math. Its earned an annualized 5.2% tax-free rate of return.

Assuming a 20% tax rate (state & fed), thats equal to around a 6.5% taxable rate of return. And with no risk of loss. Plus it provided a small DB, which was needed in his young years, and will only help in his older years.

Without fail, anyone I've ever come across that has a WL from 30+yrs ago....they always tell me that its one of their best financial decisions they ever made. And many times they say they wish they had bought more.

I have one client that has a State farm policy from the 60's. That thing kicks butt, even though its a small policy.

 

[scagnt83]

Without fail, anyone I've ever come across that has a WL from 30+yrs ago....they always tell me that its one of their best financial decisions they ever made. And many times they say they wish they had bought more.

I have one client that has a State farm policy from the 60's. That thing kicks butt, even though its a small policy.

Same here. Great for him, but sucked for me... LOL. How can I in good conscious tell him to put money into a FIA that might do 3%-5%... when he can put his money into that policy and get a fairly certain 5%+ per year thats tax free? No brainer on his part if he wants safe consistent returns.

Its always cool seeing old policies like that though.

 

[LostDollar]

To complete requested info (in another thread) to the extent I can figure it out from policy illustrations:

189.50 (Penn) / 159.90 (Fid) = 1.185 to approx Fid Union (Non-Par) effect of Penn Mutual Premium level.

Fid Union-Non-Par
Age 65 Proj CV $5199.70 increase by 1.185 = 6161.74 Act age 72 = $6305
Age 65 Proj 5th yr cash accumulation $1582.88 actual by age 72 = $1822 and cents.
Age 65 Proj pu ins $7910 incr by 1.185 = 9373.35 Actual age 72 unknown.

age 72 face adjustment for hypothetical premium $10,000 x 1.185 = $11,850

Penn - Par
Age 65 Proj cv $5850 actual age 72 $14,969
Age 65 Proj pu ins $7910 actual age 72 unknown

Age 72 actual face amount (increased by ins co) = $14000

So I believe I DO understand (my policies)
I believe I DO know how the real world works (in regard to my policies)
I believe I DID remember an approximation of "correct" off the top of my head

I believe I have "crossed the moat" with this one and have earned the right, with over 40 years of blood, sweat and tears, to say that Par is better than Non-Par (in my experience). Non-Par LOOKED better at age 29. Par IS better at age 72. And I stand by what I said before, I would not recommend Non-Par to a worker of any category.

(and again a reminder for someone new to the forums who might be reading this, I am not an agent, but as an agent said: I am a long time policy holder and can express an opinion based on that.)

 

[xrac]

I have a large blended term/WL policy on myself. Dividends purchase paid up additionals and the face amount and premium of the term declines each year. It is a large premium but after 10+ years the cash value added to the policy now exceeds the premium. In essence it has became a bank account with a much higher balance than any of my other accounts. When I reach 70 and have to start withdrawing some retirement money if I do not need it for living I will simply take the distribution and then roll it into the policy as paid up additionals. Do you know how nice a feeling it is to have thousands of dollars at your finger tips if you need it.

 

[pfg1]

I have a large blended term/WL policy on myself. Dividends purchase paid up additionals and the face amount and premium of the term declines each year. It is a large premium but after 10+ years the cash value added to the policy now exceeds the premium. In essence it has became a bank account with a much higher balance than any my other accounts. When I reach 70 and have to start withdrawing some retirement money if I do not need it for living I will simply roll it into the policy as paid up additionals. Do you know how nice a feeling it is to have thousands of dollars at your finger tips if you need it.

I hear ya. GREAT move. I wish I knew about this many many many moons ago. A friend of mine who is a very successful CFP, he has a large policy on himself for over 25yrs thru Guardian. In the many discussions we've had he tells me its been consistently one of the best vehicles (granted its not an investment) he's ever put his money into.

I have two, albeit not large policies by most standards. My ultimate goal is to within the next few years be in position to purchase a much larger max funded policy and pump that sucker full!

 

[cardinal93]

I'm a consumer, and wish I understood cash value life insurance earlier. I bought a couple of large policies from Brandon (insuranceproblog) about 4 years ago, and in a few months, the WL policy will reach a milestone (cash value = premiums paid). Took under 5 years since we did the back dating policy start date maneuver. When the policy break even, this thing will be my best savings account ever.

I worry about my 401k balance, but I never worry about my insurance cash values.