Looking For a Whole Life Policy

[stevew7]

I've read several posts started by others and greatly appreciate the time other people have put into educating us consumers. My situation is similar to threads started by mx_599, johnyblu, slick_spe3, and luxlux. Quick background:

- Married healthy male 31, one child, a second on the way (might qualify for the highest tier, definitely should qualify for the preferred tier, using term4sale's mini calculator).
- Have an emergency fund, and am maxing out 401k and Roth IRA.
- Plan to keep this new policy long term.
- Cash value accumulation is of primary importance, death benefit is an important but secondary benefit.
- Would like to "front fund" the policy as much as possible without triggering MEC.
- In 10 years or so, I would like the flexibility to stop paying all premiums (primary concern). If possible, would like the option to continue funding to grow the cash value as well.
- Basically, will treat the WL policy as a conservative part of my after tax investment portfolio, so cash value accumulation (and associated IRR) is the most important factor for me.

From what I've read, a 10 pay WL policy with a term rider and the maximum amount of paid up additions is the route I should go. Does anyone have any other suggestions for my situation?

Specific questions:

1) What happens at the end of a 10 pay WL policy? Am I able to continue to add to the policy? How do I make sure I don't put too much into it and make it a MEC?
2) How important is a disability rider? Would it be less expensive to get a separate disability policy?
3) I haven't been able to find much on the variance in the IRR from different companies. Shouldn't I focus on companies that have historically had a higher IRR?

Thanks for your help!

 

[VolAgent]

Specific questions:

1) What happens at the end of a 10 pay WL policy? Am I able to continue to add to the policy? How do I make sure I don't put too much into it and make it a MEC?
2) How important is a disability rider? Would it be less expensive to get a separate disability policy?
3) I haven't been able to find much on the variance in the IRR from different companies. Shouldn't I focus on companies that have historically had a higher IRR?

Thanks for your help!

1. No more premiums will be accepted. If there is an outstanding loan, you can pay it off, that is it. The contractually cannot accept anymore premiums. It is the agent's job to make sure it is not a MEC when designed. The Home Office monitors it periodically, and will inform you if it is about to become one.
2. Personally, I think it is very important. It makes the policy self-fulfilling. Nothing else can do that. And you should have a separate disability policy anyway, to replace your income. Together you replace your income now, and insure your life policy to supplement retirement is funded.
3. I wouldn't get too caught up on it. These numbers will change. I would focus on finding an agent that listens to what I'm saying. Then take his recommendation. There are a number of great whole life companies out there and every agent has their favorite. Just make sure he's listening to your situation and desires when he develops a strategy for you.

 

[stevew7]

1. No more premiums will be accepted. If there is an outstanding loan, you can pay it off, that is it. The contractually cannot accept anymore premiums. It is the agent's job to make sure it is not a MEC when designed. The Home Office monitors it periodically, and will inform you if it is about to become one.

BNTRS made the below comment (post 28 in the thread titled "Whole Life Questions") which I didn't understand which conflicts with what you are saying: "No, Guardian is the only carrier that offers PUA's after the base policy is paid up."

So generally, once the policy is paid up, you are done. But does guardian have something unique here where you can continue to purchase PUAs? Or does this feature not apply to 10 pay policies?

2. Personally, I think it is very important. It makes the policy self-fulfilling. Nothing else can do that. And you should have a separate disability policy anyway, to replace your income. Together you replace your income now, and insure your life policy to supplement retirement is funded.

How does this vary from having a separate disability policy? Is the thinking if I get disabled, I don't want to have the payments from my disability insurance going to pay my WL policy, so I should get a disability rider on my WL policy as well?

3. I wouldn't get too caught up on it. These numbers will change. I would focus on finding an agent that listens to what I'm saying. Then take his recommendation. There are a number of great whole life companies out there and every agent has their favorite. Just make sure he's listening to your situation and desires when he develops a strategy for you.

I can't find the post, but someone posted a screen shot that had the actual IRR for several different firms. The difference was large - a 234 basis point spread for 20 year total cash value. SBLI and NWML were the best at 5.11% and the worst was Security Mutual at 2.77%. At 10 years total cash value, the variance was worse - Security Mutual at (2.99) and SBLI at +4.24, a 723 basis point spread.

The school of thought here seems to be that this is something that will vary in the future, so worry more about getting the right policy?

Thanks for the thoughts.

 

[VolAgent]

BNTRS made the below comment (post 28 in the thread titled "Whole Life Questions") which I didn't understand which conflicts with what you are saying: "No, Guardian is the only carrier that offers PUA's after the base policy is paid up."

So generally, once the policy is paid up, you are done. But does guardian have something unique here where you can continue to purchase PUAs? Or does this feature not apply to 10 pay policies?

There might be an exception here from Guardian. But I gave you the general rule. The base policy is paid up, and generally you can't put anymore money into riders.

How does this vary from having a separate disability policy? Is the thinking if I get disabled, I don't want to have the payments from my disability insurance going to pay my WL policy, so I should get a disability rider on my WL policy as well?

Bingo! Why take money you need to run your household in a time of emotional and financial stress to pay for your life policy?

I can't find the post, but someone posted a screen shot that had the actual IRR for several different firms. The difference was large - a 234 basis point spread for 20 year total cash value. SBLI and NWML were the best at 5.11% and the worst was Security Mutual at 2.77%. At 10 years total cash value, the variance was worse - Security Mutual at (2.99) and SBLI at +4.24, a 723 basis point spread.

The school of thought here seems to be that this is something that will vary in the future, so worry more about getting the right policy?

Thanks for the thoughts.

Past results is not indicative of future performance. Just because SBLI rocked in the past doesn't mean they will in the future. Of course, they may turn around and rock again. Who knows.

 

[BNTRS]

I have to be careful about what I say around here as people have a fondness of searching and quoting me

Hi Stevew7, welcome to our forum, and welcome to the shark tank (HAAA!)

Let's answer your questions, Vol did a good job, but I have more to add as this is an area in the insurance field that I'm am deeply entrenched as you might have come to suspect based on past forum participation on my behalf.

I'll address specific questions first and then make some additional comments:

1) What happens at the end of a 10 pay WL policy? Am I able to continue to add to the policy? How do I make sure I don't put too much into it and make it a MEC?

This depends on the carrier. You are correct in pointing out that Guardian allows PUA (read over funding, we'll dig deeper on what that means in a bit) past the 10th year. There are rules and--while their aren't really complex--it's a bit to remember for someone coming in off the street. Guardian is not unique in this as other well known carriers do allow this (Massmutual), but known in my experience allow it with the same degree of flexibility as Guardian (back to the rules, a little later).

When a policy is designed, modern computing technology allows us to look and see if a planned outlay will create a MEC, but rarely is a planned illustration carried out precisely as designed (in fact it never happens). MEC testing is performed frequently by the insurance company, usually everytime money comes into the contract and if the MEC trigger has been hit a notice is sent immediately to the agent of record and the owner of the contract (there is a window of time in which money must be removed to avoid the reclassification of a MEC). To be clear, it's constantly taking place at every insurance company that deals in cash value life insurance, so this is of lesser concern I would say.

2) How important is a disability rider? Would it be less expensive to get a separate disability policy?

If you can get it is usually a very good idea. Personal disability coverage is also imperative (that's a different topic though). I've never been in a situation where a stand alone policy was cheaper than the rider, though I have been in situations where due to certain health issues, the rider wasn't available when a stand alone policy was, so that's the option we took. The Circumstances dictate the best course of action

3) I haven't been able to find much on the variance in the IRR from different companies. Shouldn't I focus on companies that have historically had a higher IRR?

It's referred to as many different things, but it's rather easy for us agents to get a hold of the most recent release of data. You should learn some other critically important concepts in the world of this sort of financial plan that will make simple IRR somewhat secondary of a concern. NML, for example, does boast a great 20 year IRR, but the majority of that comes from the first 10 years while the last 10 have been less impressive, they've been trending down, but still very happy to talk about what they were doing more than a decade ago...big deal.

From what I've read, a 10 pay WL policy with a term rider and the maximum amount of paid up additions is the route I should go. Does anyone have any other suggestions for my situation?

When it comes to building cash value in a life policy, nothing beats term blended 10 pay Whole Life, nothing.

The use of Paid Up Additions (PUA) accelerates the cash growth, and the deal get's sweeter as you move into a period where the only money you add is PUA (after year 10).

The use of PUA's does come with some restrictions. For example Guardian allows PUAs until the PUA death benefit (yes there is a death benefit granted on the additional money and depending on your age this might be something like $2 in db for every $1 you put in or more or less) equals the term db. Out side of this provision (you've already maxed PUA db to term db let's say) it's 3 times base WL premium in years 1-10 and 1 times base WL premium after that. Any additional PUA would require underwriting (they don't want you to grow the death benefit indefinitely).

Massmutual on the other hand sets the amount at issue and allows for a certain percentage increase every year, with a 3 year look back (you can skip the increase for 3 years and then make it up or forfeit the ability to put that amount in and essentially forfeit the increase).

There are benefits outside of just tax deferred (and very likely tax free) growth. The payment of dividends regardless of loans (this is true of both direct and non-direct recognition, these two concepts only worry about how much dividend is paid on a loaned value and neither really has an advantage over the other) is probably the most powerful feature behind a WL contract. Mechanically, when you take a policy loan, the insurance company lends the money, the money in your contact stays put and continues to grow. This is the primary magic bullet driving planning designs like Bank On Yourself, Circles of Wealth, LEAP, etc.

There's a lot more to be said, but I don't want to write a book, right now.Ask question; we can help.

 

[VolAgent]

Whole life sucks...its expensive and inflexible. If you want cash value using life insurance get a VUL using LIRP (life insurance retirement plan) strategy. Min death benefit, max $ in sub accounts. Money comes out tax free...

What is the catch? The $$$ has to be in the insurance contract for 10 years min, and go in and out of the contract (so not to become at MEC) evenly. Can you say Super Roth with a death benefit?

Questions...please ask.

Jethro Acosta
[email protected]
Hartford Wholesaler
California
805-453-3036

Ah, the wholesaler who really doesn't know what he's talking about. Welcome. I'm sure your advice is completely impartial. The fact that Hartford lacks a participating whole life, but has a VUL that they like to push, that wouldn't have any bearing upon your advice, would it?

Also, you just recommended a securities purchase to someone across state lines. Are you licensed in Illinois, does Hartford's B/D allow using social media to solicit securities transactions?

 

[Larry Tew]

Whole life sucks...its expensive and inflexible. If you want cash value using life insurance get a VUL using LIRP (life insurance retirement plan) strategy. Min death benefit, max $ in sub accounts. Money comes out tax free...

What is the catch? The $$$ has to be in the insurance contract for 10 years min, and go in and out of the contract (so not to become at MEC) evenly. Can you say Super Roth with a death benefit?

Questions...please ask.

Jethro Acosta
[email protected]
Hartford Wholesaler
California
805-453-3036

Jethro, what you know about whole life couldn't fill a tea cup. You've come on here and spammed 11 or 12 posts in about an hour. Let's see... when I think of experts in life insurance, who comes to mind? Not Hartford. It's tough to make a first impression twice. That's unfortunate for you.

 

[BNTRS]

It's tough to make a first impression twice. That's unfortunate for you.

Except now, he is going to have to make his 12th attempt.

Nice to know someone got a new job in the crappy economy. But looks like the Hartford still hires people who completely lack knowledge of both technical and applied basics--that's always been my experience.

Good luck with the VUL sales, and remember, it's better to be fired than quit...that way you can collect unemployment.

 

[stevew7]

I can't find the post, but someone posted a screen shot that had the actual IRR for several different firms. The difference was large - a 234 basis point spread for 20 year total cash value. SBLI and NWML were the best at 5.11% and the worst was Security Mutual at 2.77%. At 10 years total cash value, the variance was worse - Security Mutual at (2.99) and SBLI at +4.24, a 723 basis point spread.

Found it! I attached it. This forum won't let me post a link, but it is from lifeandhealthinsurancenews.com's 5/17/2010 article entitled "Full Disclosure Whole Life Report."

I understand past performance doesn't predict future results, but in the mutual fund world, before I select a fund (even comparing say the dozen SP 500 index funds out there), I check expenses, short term past performance, and long term past performance. There are many very bad SP 500 index funds (high expenses, underperform the index, etc) so I avoid those. Similarly, if a life insurance company consistently has underperformed others, I would like to avoid those (past chronic underperformance makes it more likely to me that they will continue to underperform).

That's the way I view the IRR - since I can't directly compare the expenses and dividend history (why is it such a burden to publish the actual credited dividend rate, instead of these useless dividend scale numbers), I don't see a better metric than the IRR. Basically, I look at the dollars I've put in (premium outlay) and compare to the cash value of the policy, especially for the first few years. Any policy strategy that lets that IRR get positive as quickly as possible will be a good fit for me.

So, with that said, wouldn't an ideal policy (for me), have the highest cash values?

 

[DHK]

Whole life sucks...its expensive and inflexible. If you want cash value using life insurance get a VUL using LIRP (life insurance retirement plan) strategy. Min death benefit, max $ in sub accounts. Money comes out tax free...

What is the catch? The $$$ has to be in the insurance contract for 10 years min, and go in and out of the contract (so not to become at MEC) evenly. Can you say Super Roth with a death benefit?

Questions...please ask.

Jethro Acosta
[email protected]
Hartford Wholesaler
California
805-453-3036

Jethro,

You don't know this... but we've met before. Hell, I had a Hartfort 10-year term policy through Hartford's express underwriting. You were my wholesaler when I was at a credit union in Thousand Oaks.

Jethro, insurance is all about protection and savings. If you want to gamble with your life insurance, go ahead and sell VUL to everyone who fogs a mirror. I happen to like policies that continue to grow regardless of market performance... or at least don't LOSE money due to market performance.

I do know that Hartford has a couple of Index Universal Life policies that might be worth working with... maybe.

Have you ever looked at the GUARANTEED side of your VUL illustrations? Try comparing that to an Index UL or a WL. (You couldn't help me understand it either when you were my wholesaler.)

If you really want to join the big boys, you need to read some history on life insurance, and some books by real producers who are KATN: Irwin Burt Meisel, John Savage, Ben Feldman and others. In fact, you might as well read anything by Lew Nason, Ed Morrow, Robert Castiglione, Nelson Nash, Douglas R. Andrew.

Once you learn how to think "Macro-Economically", you might have a better chance of selling more life insurance, protecting the consumer and doing a better job for them and you.

BTW, Jethro... have you run those illustrations and seen what happens with your total costs of insurance between the ages of 70 and 90 in a VUL policy? How can you have a policy with an increasing cost that grows HIGHER than the remaining cash surrender values? (You couldn't answer that one satisfactorily before either...)

Sorry to bash on you, but you haven't learned anything new since I've met you based on your posts.
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BTW, for everyone else on the forum, apparently Jethro has been with The Hartford for at least 4 years.

Just hasn't learned much from them.

Also, it's not "whole life sucks"... it's Hartford's whole life that sucks.