I'm just learning life insurance ... I'm focusing on FE right now ... what is another option for FE ... sometimes a client wants a higher face amount than these small whole life policies -- jody
Anyway, as you can see, there is no right answer. I think that BTID is a great concept. But so are unicorns and rainbows. BTID does work, providing:
A) you have a disciplined investor
B) the client probably will not build enough of an estate to cause an estate tax issue. The question here is after spouse #1 dies with a $1 million policy plus cash and assets, how will the estate be affected after spouse #2 dies? Could be a real problem.
C) client is younger
D) term should be convertible - God forbid he becomes uninsurable during the term and needs coverage for whatever reason at the end of the term (estate planning, etc...)
I used to think that term was the best solution in all cases. How wrong I was. With that said, to say whole-life is the "best" is applying the same one-size-fits-all mentality. There is a reason for all of these products. They were created to fill a need. If there was no need, there would be no market.
As mentioned before, WL is basically term to age 100. Actually decreasing term to 100. I think we all know that. The mortality factor is what it is regardless of the "type" of life insurance that you have. WL charges you a higher premium too offset the higher cost of mortality in the later years.
Level term does the same thing too. For a 20yr level term, you are overpaying in the earlier years to offset the cost later. Of course, without any cash values or transfer of risk. Insurance companies love term policies that are converted or replaced within the earlier years becuase the policyholder actually paid more than they need to. High profits for the insurance company.
That being said, BTID is best applied with annual renewable term, since you pay for the actual cost of insurance each year, and the difference can be invested longer, which, generally, over time works to your advantage. But the idea of an ever-increasing term policy will never market well so we are left with level term.
There certainly are benefits of WL and other perm insurance. Amongst the top of the list are the tax benefits and the fact that cash value cannot have liens attached to it.
When evaluating a client's needs, you need to analyze the best product or products to get the job done. If you push 100% term or 100% WL or 100% of any 1 product, you are nothing more than a salesman with a marketing plan, not an insurance professional IMHO.
I'm just learning life insurance ... I'm focusing on FE right now ... what is another option for FE ... sometimes a client wants a higher face amount than these small whole life policies -- jody
Sell a regular whole life policy. About 2000 companies (and more) manufacture them. You can buy them from face amounts of $10,000 up to $35,000,000 (and more).
First of all, life insurance isn't for me. I'm dead. It's for my wife and son. I have 30 year term that expires when I'm 68 - my wife will be 73 and my son will be 33. I'm trying to figure out why they would need life insurance then.
On a bad day I can destroy the returns of any perm life policy - and have been doing so.
John,
Here's another point of view. Life insurance is for your peace of mind while alive and for your loved ones upon your passing. Unfortunately, only 2% on average of all term policies pay out. According to actuarial statistics, your chances of living past the age of 68 are greater than you dying earlier and invoking your term policy.
A term policy of 1 billion dollars that is never claimed gives a 0% return, both over the term and on an annual basis.
****
Let's compare rates of return for you using some examples...
(1)
John Petrowski
41/M, healthy
30 year term policy, level premium, level face amount: $500,000.00
Premiums: 68.54/mo
Total premium paid over 30 year term: $24,674.40
Total premium paid over lifetime: $24,674.40
Policy expiry at age 68
Assume age of death: 100 Rate of return: 0%
Annual rate of return: 0%
(2)
John Petrowski
41/M, healthy
Indexed universal life policy with No-Lapse Guarantee Rider. Face amount: $500,000.00
Setup as 10-Pay only
NLG rider duration: lifetime
Premiums: $585.00/mo
Total premium paid over 10 year term: $70,200.00
Total premium paid over lifetime: $70,200.00
Policy expiry at age 121
Assume age of death: 100 Rate of return: 712.25% Annual rate of return: 12.07%, income tax free to beneficiaries
So, life insurance may not be the best individual investment as far as rates of return when compared to long-term equities or precious metals....but if you think of it as an investment for your next generation and/or favorite charity, can we dispute that a guaranteed 12.07% rate of return annually, tax free, is not a good investment? Even the most aggressive Hedge funds have problems generating those kinds of returns consistently, unless of course you're Bernie Madoff and can keep up the 16% annual return Ponzi Fund.
Plus, the money is guaranteed as long as you pay your premium and the insurance company remains solvent. Sure beats the hell out of securities, which have a 100% chance of you losing 100% of your money.
------------------------------------
BiggitySwat - Licensed Stockbroker
Life and Health Licenses, Series 7, Series 66.
****
Let's compare rates of return for you using some examples...
(1)
John Petrowski
41/M, healthy
30 year term policy, level premium, level face amount: $500,000.00
Premiums: 68.54/mo
Total premium paid over 30 year term: $24,674.40
Total premium paid over lifetime: $24,674.40
Policy expiry at age 68
Assume age of death: 100 Rate of return: 0% Annual rate of return: 0%
(2)
John Petrowski
41/M, healthy
Indexed universal life policy with No-Lapse Guarantee Rider. Face amount: $500,000.00
Setup as 10-Pay only
NLG rider duration: lifetime
Premiums: $585.00/mo
Total premium paid over 10 year term: $70,200.00
Total premium paid over lifetime: $70,200.00
Policy expiry at age 121
Assume age of death: 100 Rate of return: 712.25% Annual rate of return: 12.07%, income tax free to beneficiaries
OK... lets compare using your numbers.
He buys that terms and saves the 6200 yr for just the 10 yrs period of time, nothing more... compounded @ 7% after tax rate = $ 85,662. He is now 51. Then allow that investment to compound for the remaining 49 yrs, until age 100... it continued to earn 7% after tax, and the fund is now worth 2.358 mil. Still exempt from fed'l estate taxation today; (2009... not so in 2011, at the present time).
If he died at age 72, one yr after the term expired, the fund is worth 355K, @ age 82 698K, @ age 92 1.357 mil.
If someone doesn't have the discipline to invest, what says they have the discipline to continue a whole life policy and leave it in force for their lifetime either...? An argument based on hypotheticals, and hypthetically speaking the avg American doesn't have the discipline to do either... build the investment fund or leave a 10 pay life policy in force with lots of CV, (without borrowing and disturbing the DB).
------------------------------------
"A successful man is one who can lay a firm foundation with the bricks others have thrown at him." David Brinkley
If someone doesn't have the discipline to invest, what says they have the discipline to continue a whole life policy and leave it in force for their lifetime either...? ).
Therein lies the job of the financial professional, to help people modify their behaviors. It really is nothing more than that. I do believe that most people on their own will not BTID and will not continue paying premiums, unless they are sold on the product or concept.
After all it isn't the rate on savings that matters, it is the rate of savings that determines true wealth. We can say the devestation caused by chasing returns, just ask all the retirees that have had their net worth cut by 30% 0r more in the last year.
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Originally Posted by SportsNut
He buys that terms and saves the 6200 yr for just the 10 yrs period of time, nothing more... compounded @ 7% after tax rate = $ 85,662.
I think Madoff earned 12% a year. He did great for his clients!
Last edited by bobson : 01-05-2009 at 06:09 PM.
Reason: Posts merged
I think Madoff earned 12% a year. He did great for his clients!
Indeed he did... the only secret was, he truly only had ONE client; Himself.
Time will tell if and how many ins companies get hurt before the MBS and CMBS bottom out in the next 12 to 18 months. That shouldn't transfer to loss of principal for clients but it could effect returns, possibly to min guarantees... Of course only IF it happens.
There may be one or more BIG players who IMO are going to make some news before too long. There are some dead bodies that have yet to have been discovered... Nothing to the likes of a Madoff debacle, but it could put the industry in a bad light...
Indeed he did... the only secret was, he truly only had ONE client; Himself.
Time will tell if and how many ins companies get hurt before the MBS and CMBS bottom out in the next 12 to 18 months. That shouldn't transfer to loss of principal for clients but it could effect returns, possibly to min guarantees... Of course only IF it happens.
There may be one or more BIG players who IMO are going to make some news before too long. There are some dead bodies that have yet to have been discovered... Nothing to the likes of a Madoff debacle, but it could put the industry in a bad light...
There in lies the beauty of the insurance industry, we have yet to see anyone lose principal due to an insurance company failure. I'm not sure anyone has not received the promise of a life insurance company (although Conseco LTC policy holders might see some troubles ahead...). At least I'm not aware of anyone. Now is this a guarentee that it won't happen in the future? No.
My guess is a mutual company or mutual holding company will never have any problems.
Some of us have seen mutual companies get in trouble, I had clients with WL with one company that went into receivership and dividends were stopped. Big impact on projected performance of policy.
Some of us have seen mutual companies get in trouble, I had clients with WL with one company that went into receivership and dividends were stopped. Big impact on projected performance of policy.
I should have clarified my statement I don't think any of the mutuals will get into trouble regarding the current mortgage crisis. And I actually probably shouldn't have even said that. My apologies. I do believe the mutual companies I deal with still act like mutuals and have not jumped on the Wall Street band wagon like many of the former mutuals that became stock companies.
Your policy holders benefited from their insurance policy. They performed exactly like promised I assume. Dividends, of course, are not guarenteed. Projections are often times incorrect. No, they didn't do as well as they could have but they did no worse than promised.
I should have clarified my statement I don't think any of the mutuals will get into trouble regarding the current mortgage crisis. And I actually probably shouldn't have even said that. My apologies. I do believe the mutual companies I deal with still act like mutuals and have not jumped on the Wall Street band wagon like many of the former mutuals that became stock companies.
Whoa Nellie...
What magic elixir does a mutual company have that insulates them from default...?
I a brief review of a LARGE mutual cos balance sheet from their 07 annual statement, they have lets say 100 mil in assets, and 85% of those are in fixed income... the other 15% in equities. 25-30% of the the fixed income is in comm'l RE debt, which is very high risk right now. Fixed income will have defaults, yes, even some of those held by mutual companies. If and when this occurs, it will affect the performance of policies and/or pricing of new products out the door, mutual or public.
Can you name the mutual carrier that is following your theory? Most of the mutuals I've dealt with have less than 3% in the "market", and of their mortgage investments a very small percentage at risk. Commerical real estate is not part of the mortgage crisis by the way. That side of the coin is still growing.
I own NYL policies and you know what they do in the past when someone (like a trump) defaults on them? THEY TAKE THE COMMERICAL PROPERTY! They don't "work" a deal like a bank would, they take the assets.
The "magic" that most mutuals have is that they don't have to satisfy stockholders. They can pursue a conservative path towards their goals. Whole life is not variable life, you aren't selling return or interest rate, you're selling stability.
While term is overall a more popular product as well as more affordable whole life insurance is experiencing a resurgence in demand. Whole life insurance can act as a buffer against estate taxes and probate costs and provides a death benefit along with a living cash benefit. A whole life insurance policy also allows someone at the time of retirement to remain insured while spending the other assets they've accumulated or pursuing a more aggressive investment strategy for those assets. It's not for everybody and with all insurance must be tailored to the individuals need, however in trying economic times a whole life policy can actually end up being the better value in the long run due to the cash value feature which could be tapped into as an alternative to the three to six month living expenses most financial advisors tell people to keep in a money market fund.
Can you name the mutual carrier that is following your theory? Most of the mutuals I've dealt with have less than 3% in the "market", and of their mortgage investments a very small percentage at risk. Commerical real estate is not part of the mortgage crisis by the way. That side of the coin is still growing.
I own NYL policies and you know what they do in the past when someone (like a trump) defaults on them? THEY TAKE THE COMMERICAL PROPERTY! They don't "work" a deal like a bank would, they take the assets.
The "magic" that most mutuals have is that they don't have to satisfy stockholders. They can pursue a conservative path towards their goals. Whole life is not variable life, you aren't selling return or interest rate, you're selling stability.
I realize that you are highly skilled and informed in the insurance field, as I have read many of your posts... but I can quickly see that is not the case when it comes to the subject of comm'l RE. I know you didn't say that you were an expert in RE, but I have to call you on this one. BTW, lets say that I am more than casually acquainted with RE.
You said: "Commercial real estate is not part of the mtg crisis by the way. That side of the coin is still growing."
I would say that this is a very uninformed statement... CMBS is in a huge crisis, make not doubts about it and that is in part why the stock prices of insurance companies have been highly volitile over the past 60 days... They all own gobs of CMBS, and are highly "at risk" based on the recovery of the mkt. There are some ins cos that high exposure to this mkt and it may spell the dooming of more than one company in the next year or so... Just my well read opinion on the subject.
As example:
General Growth Partners - GGP The second largest owner of mall space in the US, currently with 27 Bn in debt. A company statement in Nov, 08 stated they thought they would need to file Bk. This is just the tip of the iceberg, IMO.
Todays investment analysis about GGP:
"Given still-turbulent conditions in the credit market, we expect GGP will have to seek additional payment extensions in early 2009 which we expect will be granted. Nevertheless, bankruptcy remains a possibility."
Your statement about the company taking the property... well lets say that isn't how it would work, especially if Bk is filed. Also, that works well when times are good, but it is a horrible strategy when times are tough. Reason... the cost of operating a comm'l property under receivership is out of site... they are far better off to keep and maintain current mgmt under these conditions. When times are good, sure... get rid of them because even a caveman could run the show then... (GEICO-LOL). Not in turbulent times and when retailers are failing.
Estimated that from 10% up to 26% of (significant) retailers have a high risk of bankruptcy in 09.
Excellant point Sportsnut. Very few financial institutions are immune from potential financial crisis. Of course the career agents with the large mutual companies are going to drink the company koolaide, and tout the strength of their company, but not so fast Wilbur!
Here is another angle to consider... LGilmore mentions NYL... so I took a peek at some of their propaganda...I mean annual report. Latest out are Dec 07 figures...
In that report it lists that 49% of their assets are in Inv Grade Bonds, and 17% in non-inv grade bonds. Only 10% in mortgages. But here is the thing... Inv Grade Bonds are described at BBB or higher rating by S&P, slightly different for Moodys. BBB aren't exactly stellar rated bonds either. Just because those bonds were inv grade on Dec 31, 07 doesn't speak to what they are today. Their ratios of inv grade and non inv grade could be drastically different today...
Now keep in mind I am not making any representation as to what their inv mix is today... because there is no way of knowing, as there is no public disclosure. But just in theory, they could be holding largely junk, due to downgrades... or what may well happen in the future. Keep in mind at the time their annual report came out, AIG's rating was AA... and they are still rated as inv grade today, single A. How much of that would you like to have...? Not.
If we could only peel those layers back of the corp shield, what we would see inside, really. The portfolio value could be substantially different today, than 13 months ago. Certainly they are more defensive than many other life companies, but not insulated completely.
I'm still trying to figure out your attempt? Where are you trying to go?
From moodys fall 2008
"New York Life’s other-than-temporary impairments (OTTI) and AVR losses were $137 million in 2007, up from $23 million reported in 2006, a modest amount for a $120 billion portfolio. Portfolio results in 2008 have held up relatively well with only $177 million of OTTI and AVR losses reported through 6 months in a very difficult market. Moody’s expects New York Life’s investment portfolio will continue to perform well and compare favorably to the industry as a whole even in a difficult environment. "
So, roughly .001475 of the portfoilio has gone into the s hiter as of this fall....
roughly 4.5% of bond portfoilio is below investment grade.
Standard and Poors 2007,
148,741.5 billion invested assets
13.4% high risk assets
Fitch 2008
"New York Life has a high-quality, liquid investment portfolio. Fitch believes that the
company’s exposure to problematic subprime and Alt-A investments, which totaled
$2.1 billion at Dec. 31, 2007, is modest in the aggregate (relative to total invested
assets and statutory capital) and very manageable"
"While credit-related investment losses and
impairments are expected to increase in 2008 due to the deteriorating credit
environment, Fitch believes losses related to New York Life’s investment in subprime
and Alt-A investments are very manageable due to the minimal exposure and
concentration in ‘AAA’ rated securities."
You'll forgive me if I continue to believe that this company can weather the storm pretty well. I don't understand by your "just saying" and all that...have you ever thought that if a company like nyl's portfoilio was going into the s hiter where the F will everybody else's be? So if you're implying that NYL is going down, wouldn't alot of other companies go before or along with?
It's not so much drinking the kool aid guys as is trying to believe what you're saying cause basically you're nuking the industry in an attempt to "prove" NWM and NYL are going down the tubes? What company do you reccommend us all to run to? If two of the giants in this business are so bad off, where the f ck are we supposed to go that's better?
It's fine you don't like whole life, but don't try and disprove it by implying the companies that sell it are going down.
We all better hope these companies can weather the storm because if they can't, things will be far worse than worrying about national health care.
by the way, I left the company a decade ago. I still own their whole life coverage and consider it to be pretty good. I was part of their purge a decade ago. I owe them no love, none at all, but they sell a good product. If I could sell it and be independent, I would. The product's fine, the company's fine. They do make their financials available, I get statements every year. Not alot of fog, not alot of mirrors. Pretty straight forward.
As far as commerical, well my bad if I was incorrect. I was going by the people in the trades here who are working which in new construction..is commerical. They're still drawing a paycheck and working full time. But maybe that's just the northwest. So if I'm wrong, it's because of too narrow a focus. My neighbors are working and that's always good.
Most of the mutuals I've dealt with have less than 3% in the "market", and of their mortgage investments a very small percentage at risk.
....
The "magic" that most mutuals have is that they don't have to satisfy stockholders. They can pursue a conservative path towards their goals.
LG: I'm not saying anything disparaging about NYL; no doubt a fine company. The only implication was that they, like every other company out there, mutual and stock, have investment risk... It almost seemed by your earlier statement that you were implying otherwise. So I was merely pointing out what NYL's potential risks could be... no more than that...
And yes, if they and others go down, the entire financial system is at risk. No prognostications on that point from me, but I remain quite bearish overall. I do personally think that we haven't seen much more than the tip of the iceberg overall, and things could get... mind you I am only speculating here, lots worse, and if so, remain that way for some time to come. Over and out.
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One more thing... We have all learned that rating agencies opinions aren't worth as much as the stock that we have all placed in them. And we can extend that sentiment to our Gov't regulatory agencies as well. Total meltdown of the system. Sad...
So no matter how great Moodys, S&P, AM Best, et al, say that any particular company might be, we have seen otherwise at a great cost financially... Their armour has been chinked. Caveat Emptor.
Last edited by SportsNut : 01-09-2009 at 09:57 AM.
Reason: Posts merged
While term is overall a more popular product as well as more affordable whole life insurance is experiencing a resurgence in demand.
This is a true statement. Just this week, I've had three clients 2 current, 1 referral, ask me to work up whole life quotes for them, or gul at my suggestion, to get a little more benefit for less money. It's funny that they all started out by telling me not to waste my breath on term quotes. They were all over 60.
Regardless of what is said here, I don't sell the idea of buy term and "invest" the rest. Invest it in what? Most people are buying term, because they need large amounts of insurance and can't afford perm policies.
Smart uses of term are young families and business owners to cover short term debt.
Does anybody really think that the majority of term buyers are savvy investors? a ludicrous assumption.
Re: Whole Life Insurance
Is this a new idea? 
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