Whole Life Questions

[slick_spe3]

All:
Thanks for many of the informative threads I have read in this forum regarding Whole Life Insurance. I will give a quick summary of my situation and then post a few questions I have regarding other threads.
I am 29, married for three years and have a baby boy due in October. My wife and I have decided that she will be a full-time mother, so without her income, my annual income is about $80k gross with promotions and substantial salary increases possible in the next 5-7 years (I am an engineer). I only have life insurance through work which is 2X my salary.
I contribute quite a bit to my 401k and both my wife and I have maxed out our Roth IRAs since we graduated college (7 years). We have about $60k in cash savings and save about $1k a month net of other retirement expenses. The only debt we have is our mortgage for about $115k.
My first priority is to get life insurance with a DB of at least $500K now that I will have 2 people dependent on my income. The second priority is to develop a long term cash management strategy without creating huge cash flow constraints in the short term because having a baby in the house will be a new experience for us.
I have already met with a NY Life selling financial planner and came away underwhelmed. He didn't explain Custom vs. Traditional to me. He did not give me any tangible examples to demonstrate any of the plans (I tried and failed to memorize the numbers he quoted me). He did not tell me why a separate term policy was better or worse than a term rider on a whole life policy. And finally, to top it off, he let me leave the meeting without taking down ANY of my contact info. He will not be my agent (nice guy though).
Questions:
1) I have enjoyed BNTRS's description of the Guardian 10 Pay product. Is that something that would be affordable to me if I did a 250K/250K whole-term blend? Is 100 whole / 400 term smarter in the short term? What factors should I consider when considering this?
2) I saw one example from BNTR where the 10-Pay uses a one-year term rider. Do you pay a higher term premium every year because you get older? Are you guaranteed insurability for that term rider even if you have a change in health? Do PUAs convert the term to whole during the 10 year payment period? Any child riders to guarantee insurability to my baby boy?
3) If you use the 10 Pay plan and put money in some PUAs after 10 years, what is the mechanism for getting money out of a "paid up" plan when you enter retirement? Do you simply withdraw cash out from the cash value down to the cost basis (Premium X 10 years)? At that point, does the death benefit reduce to the original amount? How is that calculated?
4) If I like Guardian, how do I know where to get it? I live in Knoxville, TN and Guardian's website shows no agents within 50 miles of me.
5) If I don't use a local agent, who will administer the claim and deliver the DB check to my wife if I die. I want to make sure I know she'll be taken care of without any issues.

Thanks in advance.

 

[dgoldenz]

If you make $80k, your wife doesn't work, and you have a kid on the way with possibly another (or more) at some point, you "need" a lot more than $500k. If you died tomorrow, where does the next 40 years of income come from? I'll let someone else go into the deep details of whole life, but here's a pretty good "needs calculator" to figure out how much coverage you need:

Life Insurance - Life Insurance Needs Calculator - LIFE Foundation

I'd worry about getting the proper death benefit in force now and working on building your assets later. We also don't know what you consider "affordable" in terms of premiums. Some of the people I talk to think even $100/month isn't worth insuring their family's future...

 

[slick_spe3]

My wife and I have already discussed cost and we could handle $5k - $7k in annual life insurance costs.

I know the "need" amount is low, but here are my thoughts:
1) My wife is/was a degreed professional in the finance industry making ~$65k - $75k annually.
2) If I do die, I want to enable her to pay off the mortgage and supplement her income as she reenters the workforce.
3) The additional money would be used to offset the cost of daycare until my son is old enough to go to school.

Is it wrong that I would expect my wife to work again? I think her income would go pretty far if she had no monthly mortgage payments.

Thoughts?

 

[dgoldenz]

My wife and I have already discussed cost and we could handle $5k - $7k in annual life insurance costs.

I know the "need" amount is low, but here are my thoughts:
1) My wife is/was a degreed professional in the finance industry making ~$65k - $75k annually.
2) If I do die, I want to enable her to pay off the mortgage and supplement her income as she reenters the workforce.
3) The additional money would be used to offset the cost of daycare until my son is old enough to go to school.

Is it wrong that I would expect my wife to work again? I think her income would go pretty far if she had no monthly mortgage payments.

Thoughts?

That's between you and her . A straight term policy for another $500k on top of whatever else you buy would only be ~$400-500/year if you're in good health. $680-800/year for $1 million, all guaranteed for 30 years. Cheap coverage if she doesn't want to go back to work...

You can buy a Guardian policy from any agent appointed with them, they don't have to be local. As long as the agent or their agency is still around when you die, they can help process the claim. Otherwise you would need to have your wife process it with the company. We sell insurance in ~25 different states and have already paid out ~$2 million in life insurance claims this year, none of which were anywhere close to us.

Is your purpose for the whole life to maximize cash value accumulation, or just to have a policy guaranteed to be paid up forever in 10 years?

 

[slick_spe3]

I like the idea of the Guardian 10 Pay because I would like to get to a point where I know I have a growing CV and a guaranteed DB without worrying about premiums.

With a traditional policy using premium offsets, you still have to worry about the annual premiums when you're 80 years old as you pull cash from the policy.

Also, I like the idea of front-loading a policy to help improve the IRR.

The DB and cash flow concerns are more important than CV growth however. I just don't have $25K annually to load up a policy.

 

[dgoldenz]

I've attached a projection for 250/250 and 100/400 blends based on the best available risk class. You can only get the "Preferred Plus" rate with the 250/250 - the 100/400 only allows a regular Preferred rate. If you can't download them because you're new, e-mail me at david at terminsurancebrokers dot com

The 250/250 blend only guarantees the $500k benefit for the first two policy years. The 100/400 blend guarantees the $500k death benefit up to age 66. 250/250 cash value is greater on both the guaranteed and current dividend projections (much greater on guaranteed side).

Also, Guardian does not have any child riders. Once the child is born you could buy a separate whole life policy for him/her.

 

[BNTRS]

Wow, someone's a fan of my work...now I'm all sorts of excited

The right amount conundrum is an ever changing beast. Should you follow the needs calculator? What about just taking Human Life Value (the net present value of all your future earnings to a rough figure at retirement?) approximately approximately 1.6 to 2 million dollars. How did I get that? I too am about to underwhelm you...we take your income and multiply it by 20 or 25 (you're on the edge at 29 years old).

Or could run the calculation and figure $80k per year with a 5% raise going until age 70 (because who in their 20's is going to retire before that realistically?) and I get a NPV of just under 1.4 million (I'm assuming a 5% discount) yay math!

$500k may be a little low, but as you've stated you're looking to get the wife rolling with money to put most of the expenses to bed, hire someone to watch the kid, and let her take care of the rest. There's nothing wrong with this stragtegy. And who says you want the wife running off with a million bucks if you should accidently step in front of a bus, or have a heart attack, or something (the life insurance industry is about to disown me). Truth is, we have almost as many ways to calculate need as we do agents. If you are into quick rules of thumb like the people running to Barnes and Noble to buy Suze Orman's latest book, because this edition will have the life altering advice that will set you financial free I just know it, have at it.

To answer your real questions though...

1.) Assuming you are age nearest 29 means you are not within 6 months of turning 30. the 10 pay blended 50/50 i.e. 250k WL 250k term has an annual premium of 6161. I'm figuring this annually, if you have 60k in the bank, pay premiums annually and save the modal charge.

Note, this premium level will not pay down all of the Term insurance by the end of year 10, not even close. If, however you put something like 6500 into this policy for 15 years, you'd have the term gone. Alternatively you could use some money from savings to place in the life policy, rate of return is much nicer than the bank and it gets rid of the term faster. You'd then use what you were planning on paying towards premiums to place money back into bank.

Alternative the 100k WL and 400K Term could work as well. It'll actually allow more PUAs. But keep in mind the guaranteed death benefit portion not supported by PUAs remains 100k. This means withdrawals will have a different impact on net DB. I'm glossing over a bit here, sorry.

2.) Yes, it rises incrementally like yearly renewable term. Only it's a lot cheaper than most term products, and is renewable each year. Cost in the 250k with 6500 premium per year is 131 in the first year, and never reaches 170 in the 15 years. This however is not a guaranteed rate, so be aware.

You also have the choice to convert the term insurance portion to WL if you happen upon more resources in 10 years. No rider for baby boy. I'd recommend a seperate policy, it's cheap on him and can guarantee insurability later. The real reason for having it though, allowing you the ability to take time off and grieve with dignity if the most unthinkable of circumstances comes upon you. It's also not a bad little stash of money when he's grown up either. Again, better than the bank.

3.) At retirement you'd like withdraw to basis and then borrow through policy loans after that. That'll depend on a few things. Death benefit even after basis is withdrawn is highly unlikely to be a low as original amount, the additional growth in paid up additions. Though, being a blended policy relying more on PUA's to create a death benefit, the DB will drop more with withdrawals/surrenders of PUA's.

4.) As Dgoldenz mentioned sometimes it's not always about location. Even if your agent dies and the agency he or she was part of closes it's doors, there still a Guardian Life, and your name will end up on someone's desk. Or you find another agent who becomes a broker with Guardian and takes the administration of the policy over.

5.) See above, but also note that you're wife will have the information needed to file a claim even without an agent by virtue of having your policy. This is true of any company, not just Guardian.

He didn't explain Custom vs. Traditional to me.

Custom is NYLife's answer to policies like 10 pays. You pick a year for the policy to be paid up and NYLife does a caluclation and determines a premium that will make the policy guaranteed paid up whenever you've chosen. It gets a slightly better dividend rate than there traditional WL product. The traditional offers more felxibility in years you can pay into the policy.

He did not tell me why a separate term policy was better or worse than a term rider on a whole life policy.

I varies they both have their benefits. Usually using Term attached to WL is a way of getting all the DB you want in a WL product, when you don't have the money to buy it all now. But also, it's a way of increasing DB so you can place more cash in the policy without turning it into a Modified Endowment Contract (MEC).

And finally, to top it off, he let me leave the meeting without taking down ANY of my contact info.

So, what's your contact info?

 

[BNTRS]

I've attached a projection for 250/250 and 100/400 blends based on the best available risk class. You can only get the "Preferred Plus" rate with the 250/250 - the 100/400 only allows a regular Preferred rate.

That's not true, you need a new brokerage guy (haaa!). Net DB with blend must be 250k to get preferred plus.

So it would actually look like this

 

[BNTRS]

Oh and seriously, you can get as happy about life insurance as you want. Disability insurance is by far more important. If you have a group plan, should also be looking at individual to supplement. The chances of becoming sick or injured and not being able to work are much much higher than death. And you won't be saving much of anything if you can't work.

 

[dgoldenz]

That's not true, you need a new brokerage guy (haaa!). Net DB with blend must be 250k to get preferred plus.

So it would actually look like this

Good call. We use the second biggest Guardian broker in the US too...of course, you still have to qualify for the Preferred Plus risk class medically, even if it is available.