Is Whole Life Really a Good Product?

[uberjer]

Hi all,

Forgive my ignorance (I'm totally new to the business), but I'm hopeful some of you can enlighten me here. I've been trying to figure out the value of whole life for a while now, and I still can't see it.

My main problem with it is that there is so little cash value accumulation in the first several years and it takes forever for your cash value to match your cost basis. I'm assuming the fees and commissions are paid out of the first several years of premiums paid.

Are there whole life policies where there is good immediate accumulation and the insurance companies just tack on a surrender charge like they do with a lot of annuities to cover fees and commissions paid?

The whole buy term, invest the difference philosophy is so simple to understand and make sense of. I have yet to meet anyone who could clearly and simply articulate the value of whole life. I'm really hopeful someone here can. In terms of commissions, it seems like a great thing to sell. But I can't do it unless I can understand how it's the right thing for someone.

Jeremy

 

[VolAgent]

I can clearly and articulately state why the earth is flat. It doesn't make it so.

 

[LGilmore]

Jeremy,
There is a ton of information here, knock yourself out. Someone will answer your question, but the thing is will you understand it?

Maybe cause I'm tired, I just see a fishing trip going on here.

"IF" you are really interested in learning an answer, go through the archives for a day or so and come back to this post. It gets old answering this question which basically comes from what ever sales manager you sat in front of.


Go through the archives.

 

[agentjhc]

Try the insurance pro blog..has useful info...if you research the web with an open mind you will find WL can/should be a factor in people's long term plans...BTID claim a 12% historical avg, but if you look at what real, middle class, investors make on mutual funds it is not half that..more like 2-5% is what they actually make due to a variety of factors...WL pays about 4-6% and provides insurance for life...yes it is a long term propostion (though there are ways to build CV faster), but isn't that the point?

 

[Larry Tew]

Go to www.larrytew.com. On the Resources page there is a pdf entitled "Life Insurance - The Whole Story".

 

[Iwillpay]

Hi all,

Forgive my ignorance (I'm totally new to the business), but I'm hopeful some of you can enlighten me here. I've been trying to figure out the value of whole life for a while now, and I still can't see it.

My main problem with it is that there is so little cash value accumulation in the first several years and it takes forever for your cash value to match your cost basis. I'm assuming the fees and commissions are paid out of the first several years of premiums paid.

Are there whole life policies where there is good immediate accumulation and the insurance companies just tack on a surrender charge like they do with a lot of annuities to cover fees and commissions paid?

The whole buy term, invest the difference philosophy is so simple to understand and make sense of. I have yet to meet anyone who could clearly and simply articulate the value of whole life. I'm really hopeful someone here can. In terms of commissions, it seems like a great thing to sell. But I can't do it unless I can understand how it's the right thing for someone.

Jeremy

Whole Life provides permanent protection while at the same time it builds cash values and some have dividends. You never know what is going to happen in life, so it will help in emergencies(cash values), pays for itself with automatic premium loans, and after several years it can provide cash at retirement. But most of all the company will pay in case of death the Face Amount.

 

[BNTRS]

Ok type out all of the stuff I've said before? Sure, why not?

My main problem with it is that there is so little cash value accumulation in the first several years and it takes forever for your cash value to match your cost basis.

This will be very typical of products that are very death benefit focused. They will show cash later, but their balancing perm death benefit to try and maximize death benefit relative to outlay for the long run.

Are there whole life policies where there is good immediate accumulation and the insurance companies just tack on a surrender charge like they do with a lot of annuities to cover fees and commissions paid?

There are, and the answer is no because whole life does not have surrender charges.

The products are what are known as High Early Cash Value (HECV) Products. You'll see significantly higher first year cash values on these products.

On top of this, design is everything. You can blend whole life insurance and place additional cash into the policy via the Paid-up Additions rider to focus more on cash accumulation. Under this design, you should be able to achieve a positive return within 10 years.

Benefits include:

- Highest risk adjusted rate of return among assets

- High liquidity (there's a lot to this)

- Waiver of premium to keep contributions and policy in place if you can't

- Accelerated death benefit (including chronic death benefit in a lot of cases)

- Leverage-able death benefit (to replace lost wealth, or for sale through a life settlement)

- Tax deferred accumulation

- Tax free loans

- Creditor protected in a lot of states

The list could go on.

What it really comes down to is two focuses:

1. People who want or need permanent death benefit

2. People who want a low risk asset in their portfolio that is super flexible and pull double duty on a number of different financial priorities without sacrificing the ability to do them well.

Oh and since someone already mentioned it, and because I know you can't see my signature: the insurance pro blog

 

[Enosis]

Try running some illustrations. Start with a $100k - 20 pay Whole Life, paid up additions, for a 20 year old and you might begin to warm up to the concept?

 

[lhkorn99]

Check out www.whywholelife.com a friend's site.

 

[DHK]

You need to understand what you are paying for in a whole life contract... and explain it in SIMPLE terms so that anyone can understand it.

To simplify this post, I'm not going to talk about "high early cash value" policies, term riders, PUA riders or anything else.

Let's talk about straight whole life.

The basics: level premium and level death benefit.

The illustration: you won't see much cash accumulation until after policy year 3.

So... what are you paying for, for the first 3 years of premiums and why would someone want to do that?

The 1st 3 years are paying for mortality & expense, distribution & marketing and some basic reserves.

Correlate that to a car loan. When you are paying on a car loan that has an interest rate, most of your payments in the early years go straight to interest. The interest is "front-loaded" in the loan so the lender can get their profits FIRST.

The same is true in a whole life insurance contract. Think of it as paying all the "interest due" for the death benefit up front.

Now, you can't stop paying on the contract after 3 years. You have to continue to fund it. The difference now is that you'll generally have access to 100% of your premium contributions via loans or surrenders... on a $ for $ basis.

For example: You have a death benefit and you are paying $5,000/year for the coverage. After 3 years, you have paid $15,000 but have no cash values. The 4th year, you have access to the $5,000 cash contribution on practically a $ for $ basis.

Now it begins to build up cash reserves.

Your cash reserves continue to earn an interest rate... one that is typically much higher than what banks are paying (especially today). That interest will continue to grow your cash values and grow your death benefit.

Depending on the contract, you may receive dividends. The same thing happens with the dividends - increase cash values, increase death benefits, reduce premiums... or have it paid directly to the policyholders.


You'll find it easier to explain the benefits of whole life by equating it to a loan and how all the costs of the loan are "front-loaded" in your payments.

Now, the only question becomes: Is the money available to purchase the contract?