I got a letter from another agent about WL vs. UL, having mentioned to him that UL has a "spotty" reputation these days from people who had bought it earlier... and I wanted to ask here if those of you who have a lot of experience in the life sector agree with his response.
Thanks.
Al
Whole life products are just not prevalent in the industry any longer (I have two carriers that offer a whole life products; I haven't sold a whole life product to someone other than a juvenile in years and years)- almost ALL carriers are offering guaranteed universal life products. Whole life is about 2/3 more than a universal life, both offer guaranteed funds; whole life offers HUGE cash accumulation; while the universal life offers little cash accumulation. The universal life products you refer too are no longer being sold. Those were products that were sold primarily in the 90's and that are "blowing" up now. Many clients/agents are now getting polices with the guarantees. The universal life products of today are 100% safe money products.
Whole Life is just too costly...and mixes investments with insurance. Most certified financial planners are recommending the NEW guaranteed universal life plans over whole life - this keeps the premium low while guaranteeing the death benefit.
The spotty rep from UL policies come from agents that sold the client on minimum funding. I sold many UL policies and have never had any problems. WL and VUL have similar problems when agents sold them on a vanishing premium concept.
Whole life products are just not prevalent in the industry any longer (I have two carriers that offer a whole life products; I haven't sold a whole life product to someone other than a juvenile in years and years)- almost ALL carriers are offering guaranteed universal life products. Whole life is about 2/3 more than a universal life, both offer guaranteed funds; whole life offers HUGE cash accumulation; while the universal life offers little cash accumulation. The universal life products you refer too are no longer being sold. Those were products that were sold primarily in the 90's and that are "blowing" up now. Many clients/agents are now getting polices with the guarantees. The universal life products of today are 100% safe money products.
Whole Life is just too costly...and mixes investments with insurance. Most certified financial planners are recommending the NEW guaranteed universal life plans over whole life - this keeps the premium low while guaranteeing the death benefit.
Al, since you posted this letter you recieved and your obvious knowledge of life insurance where should we start on the obvious flaws of this? Let us look at this clever line; [COLOR=darkred]Whole Life is just too costly...and mixes investments with insurance.[/COLOR] [COLOR=black]I suppose this is comparing it do a EIUL? [/COLOR]
The little cash buildup within the newer UL's, as in the SGUL and NLPG is not excessible to the client, yet I rarely run into someone that has one and knows this. In fact they swear up and down that the agent told them they could access the CV, yet if they do they forgo their Guarantee and are assured of rising premiums the moment they touch a penny of the policies CV. Now say a client over 60 and needs as much DB as possible for estate taxes or whatever may very well find that the SGUL is the best choice, just as long as they understand if they are a second late with a premium payment that is another trigger that'll forgo the Guarantee of a SGUL or NLPG and once again face the higher and higher premiums.
Now outside of that, the new and improved NLPG UL's we are seeing with premiums slightly above those of term, what if, just what if a majority of clients do not lapse? As these are being heavily sold to seniors, or at least as I can see and the likelyhood of them lapsing is small! I see a company selling to many could have serious "Reserve" issues in twenty or thirty years down the road. Yet who would believe such a thing from UL's?
[COLOR=darkred]Whole life is about 2/3 more than a universal life, both offer guaranteed funds; whole life offers HUGE cash accumulation; while the universal life offers little cash accumulation. [/COLOR]
[COLOR=black]Can you see the stupidity in this? This person is obviously selling a lot of low ball UL! Now, I'm sure this is from a GA! Only thing that matters to them is the sale of a policy and as many as possible, if that means selling poorly design products so be it! Once again, there is no Cash Accumulation within the new UL's carrying a Guarantee at prices 1/3rd that of WL, just is not possible.[/COLOR]
[COLOR=#8b0000]Whole life is about 2/3 more than a universal life, both offer guaranteed funds; whole life offers HUGE cash accumulation; while the universal life offers little cash accumulation.
[/COLOR][COLOR=black]Can you see the stupidity in this? This person is obviously selling a lot of low ball UL! Now, I'm sure this is from a GA! Only thing that matters to them is the sale of a policy and as many as possible, if that means selling poorly design products so be it! Once again, there is no Cash Accumulation within the new UL's carrying a Guarantee at prices 1/3rd that of WL, just is not possible.[/COLOR]
You are 100% right my friend. This UL will not last long at all. Then they will have to start putting more money in soon.
[COLOR=black] Once again, there is no Cash Accumulation within the new UL's carrying a Guarantee at prices 1/3rd that of WL, just is not possible.[/COLOR]
Yes and no. They accumulate cash value midway in the life of the policy but it begins to bleed down as they get older and it is used to subsidize the cost of insurance. So when the clent is older the accumulated cash value disappears. Basically, the guaranteed premium universal life policies should not be used for cash accumulation but technically there are points where cash value does accumulate if the client cashed out at that point.
The guaranteed uL's to 100 appear to be just term to 100's. They aren't designed to be cash value or db increased policies no?
The person purchasing this type of policy should be buying it for the db only. A whole life does alot more no question. I really won't talk about cash values at all with this product. It basically is for the I only want term people.
Al, here is a very simplified example of the difference between a good WL contract value and UL targeted to age 102 value as often sold:
$1M face DB age 40 $5000 WL premium vs $1200 UL targeted premium:
Age 50 WL $1.4M DB CV $35000 UL $1.0M DB CV $4500
Age 60 WL $2.1M DB CV $92000 UL $1.0M DB CV $11000
Age 70 WL $3.4M DB CV $163000 UL $1.0M DB CV $32000
Age 80 WL $4.5M DB CV $275000 UL $1.0M DB CV $22000
Age 90 WL $6.2M DB CV $450000 UL $1.0M DB CV $13000
Age 100 WL $8.2M DB CV $1M UL $1.0M DB CV $4500
Age 102 Policy Endows @100 UL Lapses with $1 CV supporting to 102
WL contract allows client to take paid up policy at any time after the first year, in this case say age 70 $163000 buys maybe $750k of paid up life insurance. Also, the client can cash out or convert to an annuity (1035) at that point and later annuitize the contract for income.
UL contract builds CV necessary to produce coverage at consistent level to age 102. If someone can run a real world example that would be great.
Also, they could bulk up the WL contract without ME by using a shorter-pay contract like NML's 65 Life - premiums will come in higher but CV at age 65 will be very high.
Are you saying that there is no way to create a UL policy that is as solid as a WL plan... assuming no loans, missed payments, etc.?
Al
As everyone has stated, if DB is the only concern and the client is getting up there in years, sure use a SGUL or a NLPG, basically term. If they are timely on their premium payment and don't dip into any cash value they'll be fine as far as the DB. Cost is substantially lower and the DB is there.
Obviously if someone is 60 and, needs a 1 million dollar DB that doesn't need to increase the SGUL is perfect. It all depends upon the person and their needs.
WL contract allows client to take paid up policy at any time after the first year, in this case say age 70 $163000 buys maybe $750k of paid up life insurance. Also, the client can cash out or convert to an annuity (1035) at that point and later annuitize the contract for income.
I'm convince it is beneficial just to use withdrawals up to the basis and loans to access cash for retirement out of the WL. Converting it to an Annuity just doesn't seem to make a lot of sense. Yet a lot of people promote the exchange, am I missing something?
I'm convince it is beneficial just to use withdrawals up to the basis and loans to access cash for retirement out of the WL. Converting it to an Annuity just doesn't seem to make a lot of sense. Yet a lot of people promote the exchange, am I missing something?
Why borrow at interest when you can receive income up to basis tax free and then taxable thereafter? Loan interest can quickly erode the value of the policy.
1035 to an annuity and client can purchase a "pension plan" with the money. Still has the death benefit but can set up the annuity payout to be very advantageous.
Say take it out lifetime with 10-year period certain. Insurance company has to pay no matter how long the client lives. If client dies before 10 year period certain, beneficiary receives continuation as a death benefit. If the client lives a long long time, it is possible to take payouts greater than the value of the annuity.
On a side note, this is another reason annuities can work well in 401(k) situations. A lot of FPs will tell you that it's redundant since the IRA/401/whatever is already receiving the same tax benefit. BUT, a person can blow through a traditional investment account and run out of money (or more common have to reduce the income stream so as not to deplete the investment account). If it's done with an annuity, you can't blow through the money - it pays out according to the selected payout option no matter how much principle is left in the account.
On a side note, this is another reason annuities can work well in 401(k) situations. A lot of FPs will tell you that it's redundant since the IRA/401/whatever is already receiving the same tax benefit. BUT, a person can blow through a traditional investment account and run out of money (or more common have to reduce the income stream so as not to deplete the investment account). If it's done with an annuity, you can't blow through the money - it pays out according to the selected payout option no matter how much principle is left in the account.
To be more specific:
A Mutual Fund Ret Account with $0 left in it pays out $0 to retiree
An Annuity Account with $0 left in it on life payout still pays $1000 a month to retiree
Funds put risk on investor, annuities put risk on an insurer.
I will have to go back and do an illustration, if you have a policy that doesn't have "DR" and the loans taken doesn't lower interest made it more then makes up for the interest rate on loan. Plus isn't the DB if anything is left in the Annuity passes taxable to beneficiary. Yet I suppose you make a good point about the Guarantee of the Annuity which is strong, no doubt about it.
Well let us use your number here; Age 70 WL $3.4M DB CV $163000, I'm thinking I may need a little more? Okay a good Par WL policy will pay 3% plus dividends. After 12-15 years the premium should of been surpassed, by Interest and Dividend, so in this case the policy should be earning, $11,410 easily. Now I'm assuming a 3% interest rate and dividends coming in aroun 4% but really should be higher at this point. Now if you are taking out $1,000 a month and had just enough to create the $1,000 the only thing touching the DB is the interest. Okay so interest rate is at 5% after 30 years, that would cost $12,000 x 5% is $600, so technically the policy would have to be paying out 12,600 dollars yearly to achieve a $1,000 monthly income that would go on forever.
Now your numbers are real close, not quite there but close. So what happens if we use an Annuity? So you take out the entire CV and place it in an Annuity, $160,000 at 4% assuming you pick life at age 70. The payout would be $4,890 a year or $407 amonth or close to that figure. I'm not sure in your exact numbers the WL policy should pay out $11,410 or $950 amonth for life with the DB passing tax free unlike the Annuity. Okay I fogot about the loan, which should be around 380 dollars yearly or 5%, so take out $570 or $50 dollars from the montly income to maintain the loan in the WL, still ahead of the Annuity in most cases I've seen.
Okay, this is straight from my head and, today that isn't saying much like it ever does. Yet I don't see how placing the money in an Annuity works out better then a good PWL?
WL vs. UL these days
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