Whole Life Rate of Return

[Robert Barney]

I'm trying to understand my life insurance more to determine whether I should keep my whole life policy, trade to a different company, or surrender it and buy a term life policy.

Whole life insurance is like a Mack Truck. Term life insurance is like a family sedan. If you need to pull a 60' transport trailer, you need a Mack truck, and it would be stupid to buy a car. On the other hand, if you don't need to pull a transport trailer, you'd be stupid to pay all that extra money for a truck.

 

[pfg1]

i know the feeling. Need some good questions from those seeking info from the experts.

:d :d ...........

 

[InsuranceBrah]

We need more info from you. What company are you with? Some companies have better whole life than others.

Secondly Is it direct Recognition or Non direct recognition? We'll know that by the company. Basically If it's non direct recognition you can borrow your money with interest. But the sum in your account grows as if you haven't. Meaning that it may wash you technically never have to worry about that interest draining the account.

Beyond that there are riders that can have a huge impact.

Your best bet is to give us as much info as you can.

 

[Golfnut2112]

We need more info from you. What company are you with? Some companies have better whole life than others.

Secondly Is it direct Recognition or Non direct recognition? We'll know that by the company. Basically If it's non direct recognition you can borrow your money with interest. But the sum in your account grows as if you haven't. Meaning that it may wash you technically never have to worry about that interest draining the account.

Beyond that there are riders that can have a huge impact.

Your best bet is to give us as much info as you can.

Your statement on direct recognition is completely wrong, you may want to read up on exactly what it is.

 

[InsuranceBrah]

Your statement on direct recognition is completely wrong, you may want to read up on exactly what it is.

What do you mean that's not how it works? Non Direct Recognition is just that. Dividends are credited as if you haven't borrowed money. They don't directly recognize the loan. Disadvantage being that those not taking out loans are subsidizing those dividends from their own potential dividend growth.

You still owe the money. It will be subtracted from your Death Benefit.

Maybe we are just misunderstanding each other here. I don't want to thread hijack but I would appreciate you elaborating in a pm.

 

[scagnt83]

What do you mean that's not how it works? Non Direct Recognition is just that. Dividends are credited as if you haven't borrowed money. They don't directly recognize the loan. Disadvantage being that those not taking out loans are subsidizing those dividends from their own potential dividend growth.

You still owe the money. It will be subtracted from your Death Benefit.

Maybe we are just misunderstanding each other here. I don't want to thread hijack but I would appreciate you elaborating in a pm.

The Loaned funds with Direct Recognition still receive a Dividend Rate (and of course interest rate) with most Carriers. It is just a different Dividend Rate than that of the un-loaned funds.

There are some DR WL policies that will outperform some NDR policies when taking Loans. Obviously that is not always the case... you can never be accurate when making general comments that "x" is always better than "y".

But to imply that Loaned funds with a DR policy do not receive an Interest Rate or Dividend Rate is 100% incorrect.

 

[InsuranceBrah]

The Loaned funds with Direct Recognition still receive a Dividend Rate (and of course interest rate) with most Carriers. It is just a different Dividend Rate than that of the un-loaned funds.

There are some DR WL policies that will outperform some NDR policies when taking Loans. Obviously that is not always the case... you can never be accurate when making general comments that "x" is always better than "y".

But to imply that Loaned funds with a DR policy do not receive an Interest Rate or Dividend Rate is 100% incorrect.

Well I suppose in a high interest environment you would be better off taking out a loan with a direct recognition company to take advantage of your fixed interest rates. I still don't know if that justifies giving up the higher dividend yield on loaned CV that you would supposedly have from a non Direct Recognition company regardless of interest rates at the time. Especially since we don't know what the interest rate will be when the client makes a withdrawal.

And I didn't intend to insinuate that Direct recognition doesn't pay dividends at all. I merely meant that Non Direct Recognition will Fully credit Borrowers. Which generally dividend yield and loans closely mirror.

I think we can all agree that Generally Non Direct Recognition will benefits borrowers. And direct recognition is better for those that would rather let their money grow. Sure there are exceptions.

But I've dragged this too far off track.

 

[scagnt83]

Well I suppose in a high interest environment you would be better off taking out a loan with a direct recognition company to take advantage of your fixed interest rates. I still don't know if that justifies giving up the higher dividend yield on loaned CV that you would supposedly have from a non Direct Recognition company regardless of interest rates at the time. Especially since we don't know what the interest rate will be when the client makes a withdrawal.

And I didn't intend to insinuate that Direct recognition doesn't pay dividends at all. I merely meant that Non Direct Recognition will Fully credit Borrowers. Which generally dividend yield and loans closely mirror.

I think we can all agree that Generally Non Direct Recognition will benefits borrowers. And direct recognition is better for those that would rather let their money grow. Sure there are exceptions.

But I've dragged this too far off track.

If someone is just going to let the money grow then it doesnt matter which Loan type is used.

I you have a Fixed Loan Rate on a DR policy in an economic environment with increasing interest rates, then the difference between the two would likely be very minimal.

Mass offers the choice of DR or NDR Loans. The reason is that "the best" often will depend on what interest rates will do over the Loan period. Fixed DR Loan during times of increasing rates could easily be more beneficial than a NDR Loan during that time. The reason is that the variable loan rate is based on the current rate environment. So the positive spread you have on the variable loan is likely to stay about the same as rates increase (since dividends should increase with rates). But the fixed DR loans spread will just keep increasing as rates rise.

For WL, I have always found that the accumulation side is more important than the distribution side. There seems to be much larger differences in accumulation than there are with distributions from the same CV.

 

[Golfnut2112]

What do you mean that's not how it works? Non Direct Recognition is just that. Dividends are credited as if you haven't borrowed money. They don't directly recognize the loan. Disadvantage being that those not taking out loans are subsidizing those dividends from their own potential dividend growth.

You still owe the money. It will be subtracted from your Death Benefit.

Maybe we are just misunderstanding each other here. I don't want to thread hijack but I would appreciate you elaborating in a pm.

I may have misunderstood what you were saying.

 

[DHK]

We need more info from you. What company are you with? Some companies have better whole life than others.

Secondly Is it direct Recognition or Non direct recognition? We'll know that by the company. Basically If it's non direct recognition you can borrow your money with interest. But the sum in your account grows as if you haven't. Meaning that it may wash you technically never have to worry about that interest draining the account.

Beyond that there are riders that can have a huge impact.

Your best bet is to give us as much info as you can.

I wouldn't bet your license and E&O on that statement.

Let's make this simple on how non-direct recognition works:

If you have $100,000 cash values... and you earn 5%/year = $5,000

If you take out a loan for $50,000... and you PAY 5% variable rate = -$2,500

So, your return in your policy is $5,000 - $2,500 = $2,500 net gain.

However, the borrowing rate is a variable factor. In addition, we didn't talk about whether the policy was "paid up" or if we're still paying policy premiums while borrowing.

But, as you said, you can pay the interest back to the policy and it restores its earning potential and power.

$5,000 - $2,500 + $2,500 = $5,000.

Of course, there's still another $50,000 available to borrow (roughly), and so the VOLUME of interest against the earnings along with the rate variables... could be a problem.