The question is not whether responsible people can handle their own finances properly and in a timely manner but whether the unexpected (isn't that what insurance is for?) will interfere. For example, see the article on the Harvard study at Medical Bills Leading Cause of Bankruptcy, Harvard Study Finds
[snip]
Most of the medical bankruptcy filers were middle class; 56 percent owned a home and the same number had attended college. In many cases, illness forced breadwinners to take time off from work -- losing income and job-based health insurance precisely when families needed it most.
Families in bankruptcy suffered many privations -- 30 percent had a utility cut off...
[/end snip]
One of the facts of life with critical illness is that its impact - economic and otherwise - extends beyond the victim. As noted in an earlier posting, premature death often follows a period of critical illness.
Having noted that, however, this I'm not suggesting that "whole life" is necessarily a better choice than UL, particularly during the 'early' years.
IMO, one good approach to comparative quantitative evaluations is to examine the respective IRR of the compared products over the years. Comparative IRR evaluations can be done for the DB as well as the CSV and can easily be done on a year by year basis.
IRR is meaningless if all you want is the death benefit, which is the main point of the no-lapse UL. If you want to focus on cash value, buy the whole life. If you want the max death benefit with the least cost guaranteed forever, buy the UL. Simple as that.
Personally, I'd rather keep the money in my pocket than the insurance company's.
IRR is meaningless if all you want is the death benefit, which is the main point of the no-lapse UL. If you want to focus on cash value, buy the whole life. If you want the max death benefit with the least cost guaranteed forever, buy the UL. Simple as that.
Personally, I'd rather keep the money in my pocket than the insurance company's.
A reasonable thought. So I'll bite, what is your gameplan to keep the UL in force should you be in a terminal state due to sickness or injury? Since DI is an even harder sell than life, which bill should the typical family not pay, so they can keep the UL in force until the former breadwinner passes away?
A reasonable thought. So I'll bite, what is your gameplan to keep the UL in force should you be in a terminal state due to sickness or injury? Since DI is an even harder sell than life, which bill should the typical family not pay, so they can keep the UL in force until the former breadwinner passes away?
If you were in a terminal state and saved the difference in cost versus the whole life for all those years, you'd have more than enough money to keep it going until death. Almost every carrier also has the accelerated benefit option. If you're terminal, you can usually take 25-50% of the face amount for whatever use you want, including keeping your premiums going.
I would like to thank all of yall take time to discuss this topic. But are we discussing about the whole life popicy vs Index Universal Life policy (which was created after 2003), anyone here familiar with the Index Universal Life from Western Reserve Life? the reason i ask is because recently i bought a policy from IUL policy from WRL.
The following is how i come to conclusion of buying IUL from WRL.
Same face amount, i got quote from Metlife and WRL. I chose target premium instead of minimum premium from IUL, but turn out WL is still more expensive,
IUL: invest in an index account related to the movement of S&P 500 index. average about 8% interest on cash value per year base on last 20 years of the historical performance.
They put a cap limit on the account, 12.5%(that mean if market getting 20%, the company still only give you 12.5%). also the company give you a minimum guranteed interest rate 1%, even if the market is down. so there are like no risk to me.
WL: they give me a guranteed 4% interest rate on cash vulue.
IUL: WRL charge 0.75% interested on policy loan, within 10 year, after 10 years, no interest
WL: 6-8% interest on policy loan
They way i feel, IUL would build cash value much faster, because better interest return, and there is a cash value in 1st year.. where WL start build cash value on 3rd years.
Maybe the agent from Metlife did not explain to me well about WL product, is there some good things i miss about WL? input please
Paying minimum premium on UL is usually an expensive way to buy term insurance. The advantage of UL is building extra cash value tax-deferred (tax-free if it adds to death benefits). Par WL can have a similar advantage, but must wait until dividends build, while UL can credit interest at a relatively higher tax-advantaged rate from the beginning.
Keeping the extra cash in your pocket doesn't have tax advantages (even if the pocket's in a bank), and usually means it gets spent, not saved for a rainy day.
However, indexed UL cannot be expected to match regular guaranteed-rate UL on a long-term basis. Companies have to buy costly index hedges to keep up with the index. Regular UL gets competitive credited rates based upon the best investments the insurer can buy.
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I thought this WAS a real job!
Paying minimum premium on UL is usually an expensive way to buy term insurance. The advantage of UL is building extra cash value tax-deferred (tax-free if it adds to death benefits). Par WL can have a similar advantage, but must wait until dividends build, while UL can credit interest at a relatively higher tax-advantaged rate from the beginning.
Keeping the extra cash in your pocket doesn't have tax advantages (even if the pocket's in a bank), and usually means it gets spent, not saved for a rainy day.
However, indexed UL cannot be expected to match regular guaranteed-rate UL on a long-term basis. Companies have to buy costly index hedges to keep up with the index. Regular UL gets competitive credited rates based upon the best investments the insurer can buy.
It's an expensive way to buy term insurance in the early years, but not even close in the later years....a healthy 40 year old male can get $1M guaranteed for 30 years for $1,149 per year, or to guarantee it forever for would be $4,963 per year. Total spent after 30 years - $34,470 for the term, $148,890 for the UL.
Now, let's say our 70 year old male now has to get another term policy and is in excellent health for a 70 year old and gets a standard rate. Now he's too old to get anything more than a 15-year term, so if he wants the UL 30 years down the line to take him up to age 120, he's looking at $33,929 per year, and it would only take him less than 4 years to catch up to that total cost of the UL he bought at age 40. After those 4 years, he's now paying a whopping $29k per year more than if he had just bought the UL back when he was 40. Given the average life expectancy of 78 years, he comes out ahead by $106,000 on the UL. If he lives to be 85, he comes out $319,000 ahead.
Let's say he had a heart attack at age 67 and now is a Table 8 rate at age 70 and his conversion option expired already. He'd instead be paying close to $100k per year for a $1M policy. You can see where this is going.
It's an expensive way to buy term insurance in the early years, but not even close in the later years....a healthy 40 year old male can get $1M guaranteed for 30 years for $1,149 per year, or to guarantee it forever for would be $4,963 per year. Total spent after 30 years - $34,470 for the term, $148,890 for the UL.
Now, let's say our 70 year old male now has to get another term policy and is in excellent health for a 70 year old and gets a standard rate. Now he's too old to get anything more than a 15-year term, so if he wants the UL 30 years down the line to take him up to age 120, he's looking at $33,929 per year, and it would only take him less than 4 years to catch up to that total cost of the UL he bought at age 40. After those 4 years, he's now paying a whopping $29k per year more than if he had just bought the UL back when he was 40. Given the average life expectancy of 78 years, he comes out ahead by $106,000 on the UL. If he lives to be 85, he comes out $319,000 ahead.
Let's say he had a heart attack at age 67 and now is a Table 8 rate at age 70 and his conversion option expired already. He'd instead be paying close to $100k per year for a $1M policy. You can see where this is going.
Don't 4-get the time value of money. You appear to assume that the difference in premiums (using your figures), of $3,814 per year, is stashed in the pillow. Even if you consider just a 3% avg annual compounded investment return, the cumulative difference (incl investment returns) by the end of the 30th year comes to $186,896.21 (not just $148,890-$34,470).
The other matter to consider is that the purchasing power per dollar erodes over time. In other words, a dollar today is worth a heck of a lot more today than it will be 30-years from now. Even at just 2% average compound inflation (a mirage in a dreamer's paradise and quite unlikely given the record historical national deficit figures to that the Fed's have earmarked to subsidize banks and big biz), a buck will be worth only 55-cents 30 years from now. If inflation (and a biggy is to be expected shortly) hits 6%, today's buck will be worth the equivalent of a mere 17-cents in 30 years.
(using your figures), and assuming inflation at 4% (hopefully we'll only get hit at that rate, but I wouldn't bet on it), that $33,929 at age 70 would be the equivalent of only $10,461 (rounded to nearest dollar) in terms of the present.
If you disagree, just consider the price per gallon of go-go juice for your chariot 30 years ago vs what you pay to for the same gallon today or the price for a cup of coffee 30-years ago vs the price for the same cup of wake-up juice today.
Don't 4-get the time value of money. You appear to assume that the difference in premiums (using your figures), of $3,814 per year, is stashed in the pillow. Even if you consider just a 3% avg annual compounded investment return, the cumulative difference (incl investment returns) by the end of the 30th year comes to $186,896.21 (not just $148,890-$34,470).
The other matter to consider is that the purchasing power per dollar erodes over time. In other words, a dollar today is worth a heck of a lot more today than it will be 30-years from now. Even at just 2% average compound inflation (a mirage in a dreamer's paradise and quite unlikely given the record historical national deficit figures to that the Fed's have earmarked to subsidize banks and big biz), a buck will be worth only 55-cents 30 years from now. If inflation (and a biggy is to be expected shortly) hits 6%, today's buck will be worth the equivalent of a mere 17-cents in 30 years.
(using your figures), and assuming inflation at 4% (hopefully we'll only get hit at that rate, but I wouldn't bet on it), that $33,929 at age 70 would be the equivalent of only $10,461 (rounded to nearest dollar) in terms of the present.
If you disagree, just consider the price per gallon of go-go juice for your chariot 30 years ago vs what you pay to for the same gallon today or the price for a cup of coffee 30-years ago vs the price for the same cup of wake-up juice today.
Try explaining this all to a client and their eyes will glaze over. Usually, they want to know what their cost is and that's it. As everyone knows, most people won't invest the difference, they'll go spend it on something else, so I'm comparing apples to apples. You also can't assume that these products and guarantees will be around for another 30 years, so it can be a good idea to lock in your program while it's still available. I can imagine what a $1M whole life policy would cost for someone at age 70 if UL goes away...
Try explaining this all to a client and their eyes will glaze over. Usually, they want to know what their cost is and that's it. As everyone knows, most people won't invest the difference, they'll go spend it on something else, so I'm comparing apples to apples.
You're unwilling to try to explain that a dollar today is worth more than a dollar tomorrow?
You also can't assume that these products and guarantees will be around for another 30 years, so it can be a good idea to lock in your program while it's still available. I can imagine what a $1M whole life policy would cost for someone at age 70 if UL goes away...
Seems pretty short-sighted for someone selling permanent policies. UL is not "going away" any more than WL. Get a grip -- UL guarantees are just as solid as WL guarantees.
You're unwilling to try to explain that a dollar today is worth more than a dollar tomorrow?
Seems pretty short-sighted for someone selling permanent policies. UL is not "going away" any more than WL. Get a grip -- UL guarantees are just as solid as WL guarantees.
Explaining that a dollar today is worth more than a dollar tomorrow is easy - going into math analysis to point out the numbers will make their eyes glaze over.
UL might be around in 30 years, but that doesn't mean there will be no-lapse UL's at that time. Many carriers are reducing their guarantees and eliminating products that require higher reserve amounts. The current no-lapse UL guarantee is great, but what if all of the companies revert back to the traditional UL in the future? AXA has already gotten of it's UL product along with a few other companies....more will likely follow suit.
Personally, I think the only choice is between Term Life and Mutual Whole Life with Paid Up Additions. Reasons:
1. UL is simply too complicated to explain to the average person, twice as bad if it's EIUL. See above.
2. UL can lapse. Nightmare. See above.
3. Equity Indexed Annuities & Universal Life plans do not mirror the index, they merely track it. If an index does 10%, you'll be fortunate to do 7%. That ain't bad, but the customer needs to know this or they'll be furious and you must include this in your calculations.
4. As of today (June 22, 2009) if you had invested $10,000 in the Vanguard 500 Index fund ten years ago, you would have $8,351.18 today. And, there's every reason to believe that stock growth will underperform for several years. If you're going to participate in the market, active investing will be the only way to go for a while. How long does your client want to watch their cash value sit there?
5. With a Mutual Whole Life plan with Paid Up Additions (Assurity, Mutual of Omaha, etc.), you'll get your base interest rate plus dividends. Typically, this will total 7% to 9% depending on how things go. No ups and downs of the market, no sleepless nights, nice and steady. It may not be sexy, but it's an outstanding foundational asset before someone tries the crazy stuff like Short ETF's and Aggressive Growth stock mutual funds (and gets taxed as they go).
Seems to me everyone needs a solid foundation, with guarantees, before going for the more aggressive options. Whole Life does that. If it's too boring, or if they've just read some article that slams the commissions you'd make, then they're Term customers.
The funny thing is, the people who scream loudest about "Buy Term & invest the difference" are the Financial Advisors who are trying to maximize their AUM (Assets Under Management) and don't want to see you near their clients with Whole Life. For many people, WL provides a great base.
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"Hey waitress! Bring us a bottle of tequila and call the cops!"
UL seems better w/o no-lapse guarantees (which are most valuable to those unwilling or unable to take advantage of the tax-deferred growth from paying more than the minimum). If UL fits the need better, it seems silly to avoid it just because you can't explain it. I thought that was why the agent got paid.
MAC, you think that financial advisors are so hard up for "assets under management" that they care about the extra $10 a month in their fees? Actually, in today's market, you might be right.
Another thing to remember is that it's a pretty weird investment if when you die, all that money goes away. Do you tell your clients that? At least if you invest the difference you get that AND the death benefit. (or at a minimum, a lot more crap you could buy over the years)
4. As of today (June 22, 2009) if you had invested $10,000 in the Vanguard 500 Index fund ten years ago, you would have $8,351.18 today. And, there's every reason to believe that stock growth will underperform for several years. If you're going to participate in the market, active investing will be the only way to go for a while. How long does your client want to watch their cash value sit there?
This is a true statement but when you are comparing it to IUL or and Indec Annuity would be inaccurate...Yes it is true that the index is down from 10 years ago however there have been many positive years in the last ten years that an idexed product would have locked in gains, which is the whole appeal of Index products.
UL seems better w/o no-lapse guarantees (which are most valuable to those unwilling or unable to take advantage of the tax-deferred growth from paying more than the minimum). If UL fits the need better, it seems silly to avoid it just because you can't explain it. I thought that was why the agent got paid.
The problem that I see with (what we all refer to) NO-Lapse UL is that it is NOT a NO-Lapse product. Most companies will run what they call a no-lapse ul, but it is no-lapse based on current assumptions, and designed to run out of gas at age 121... Whoa Nellie... What about a true NO-Lapse product based upon worst case mortality assumptions and guaranteed interest rates...?
Oh, we don't show those becasue then no one would buy that product...
The problem with the NO-Lapse UL is that is should truly be a NO-Lapse or don't use that term. It is one of the most misunderstood and misrepresented products out there today. Yes, the product has some merits, in fact same prem as WL, a good UL will out accumulate a good WL product, but again... based on current assumptions. There is a lot of faith place in the company when buying the UL product.
Re: Whole Life VS Index Universal Life
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