Using Whole Life (Permanent) Insurance to Supplement Retirement

[Robert Barney]

The net amount of risk in a UL policy is the difference between the death benefit and the accumulated value. The number is then charged so much per thousand and then deducted from the policy. It has nothing to do with the death benefit someone will receive, that is listed on the policy schedule page. The only way to receive the cash value as part of the death benefit is to choose option B.

I understand all that, I was talking about traditional whole life and cash values. In retrospect I should have made that more clear.

UL, except for no lapse UL, is really a YRT term plan with a deffered annuity wrapped into what is often referred to as a "permanent" policy. That point is debatable.

Most UL products will NEVER be permanent because they will IMPLODE long before the life expectancy of the the insured is reached, simply as most are underfunded and the YRT term insurance component becomes ridiculously costly down the road. Lawsuits on that are only now getting rolling, where illustrations used to sell the products are turning out to have been just a little too optimistic. It's a new variation on the vanishing premiums that didn't vanish debacle.

But I digress.

The reason why (at least in the past) traditional whole life products did not use this language in the policy was to guard them from the tax hungry politicians who would like to tax the deferred earnings in life insurance products, deferred earnings that go "TAX FREE" to beneficiaries on the death of the insured. The industry has successfully defended the tax status on the premise "but this insurance" despite the fact that its sales force routinely runs around selling them as great little piggy banks.

That's why (unless I am even more ignorant than I thought) you won't see that language in an actual, traditional permanent product, unless there are companies that are using that language and I don't know about it (which would be the ignorant part).

So I may be ignorant, but I'm not stupid. If anyone can post a specimen traditional whole life policy that talks about "Net Amount At Risk", I'd love to see it.

 

[DHK]

Okay Robert - I have posted Assurity's Whole Life specimen policy.

It's not in there.

I have posted the 3 pages out of my HS311 - FUNDAMENTALS of Insurance Planning from The American College describing "Net Amount At Risk" with a visual. Yes, the term shows up more than that in the textbook, but I think this makes the point.

ALL cash value life insurance policies work this way.

 

[Golfnut2112]

You won't see it in any whole life contract because the premium is fixed and based off the face amount. In a UL the net amount of risk determines the monthly cost of the policy.

 

[DHK]

You won't see it in any whole life contract because the premium is fixed and based off the face amount. In a UL the net amount of risk determines the monthly cost of the policy.

Yep. It's like asking for the prospectus on a bank CD so you can understand the internal costs. There are costs, but they are not passed to the bank CD holder, nor is it a risk factor to the CD holder because of the fixed rate and term - just like with whole life insurance.

However, when we step back and look at how cash value policies are designed, they all have, in any (every) given year an amount of cash value and the amount at risk.

So, let's just say that I'm looking at it from an insurance company perspective, and not from a policy disclosure perspective.

 

[Golfnut2112]

I guess the bottom line is if the company pays what they say they will it's good. How they get there is really not important. Lol

 

[Robert Barney]

Okay Robert - I have posted Assurity's Whole Life specimen policy.

It's not in there.

Not surprised, for the reasons I set out above.

Having said that, I may still be ignorant.

If anyone can turn up the "net amount at risk" language in a traditional whole life specimen policy, I'd love to see it.

 

[LostDollar]

Well, you've succeeded in diverting attention from the fact that you gave your consumers poor advice.

 

[DHK]

I wouldn't necessarily go that far. Poor advice is in the eye of the beholder (consumer), the advisor (and their training)... and the jury.

I doubt anyone has ever been successfully sued for selling term insurance instead of permanent... but I'd be open to hearing about it.

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However, this article, written quite some time ago by the late Irwin Burt Meisel, CLU, ChFC may help to shed some light on why permanent is the better buy:

http://www.thinkadvisor.com/2004/07/01/why-didnt-burt-tell-us-to-buy-whole-life

 

[Robert Barney]

Well, you've succeeded in diverting attention from the fact that you gave your consumers poor advice.

Let me sum it up this way, I don't care what kind of life insurance people have, as long as they have the correct amount of coverage. Now it's just a plain fact of life that the average person cannot afford the kind of coverage their dependents need, and be able to buy permanent insurance to provide all the coverage.

NOTHING, and I mean NOTHING, pi$$ed me off more than walking into a home, where someone needed $1m of coverage, and finding out they had $150,000, because it was a great little savings plan.

Guys who do that to consumers, should be shot at dawn.

 

[DHK]

I agree with that wholeheartedly!