As some folks know, there has been a lively discussion here on fat wallet of whole life vs term and investing the difference. While i personally purchased some whole life through a 412i, i frequently regret having done so. Ive been looking at new financial advisors and one suggested universal life insurance as something i might prefer (how i get out of my current prb is something slightly seperate and if im successful ill let people know). My limited understanding is that there is more flexibility with UL then WL and people who push it will say its supposed to solve the prbs of whole life (no flexibility, limited investment option(s)). I was hoping we could have another nice debate (with limited name calling please) on the merits or lack there of regarding the other types of permanent life insurance on the market and who they are suited for.
id also like to thank those who contributed to the whole life vs BTID debate (even the excessively lively folks).
I have a gvul policy in addition to my term policies
It has a fixed account paying 5percent The cost of insurance Is low and if I want I only have to deposit the COI
The gvul is to have a creditor protected cash value policy that I can stash uneeded money at 5 percent
The term policies are to pay put big in case of unexpected early death
They will be renewed when the term Period is over assuming I'm still in good health, or converted to permanent policies if for some reason I come down with an uninsurable condition
InsuranceExpert
Senior Member - 3K
posted: Aug. 21, 2010 @ 6:01p
SUCKISSTAPLES said: I have a gvul policy in addition to my term policies
It has a fixed account paying 5percent The cost of insurance Is low and if I want I only have to deposit the COI
The gvul is to have a creditor protected cash value policy that I can stash uneeded money at 5 percent
The term policies are to pay put big in case of unexpected early death
They will be renewed when the term Period is over assuming I'm still in good health, or converted to permanent policies if for some reason I come down with an uninsurable condition
SIS, you have a VUL policy. You don't have a GVUL policy.
InsuranceExpert
Senior Member - 3K
posted: Aug. 21, 2010 @ 6:05p
dhodson said: As some folks know, there has been a lively discussion here on fat wallet of whole life vs term and investing the difference. While i personally purchased some whole life through a 412i, i frequently regret having done so. Ive been looking at new financial advisors and one suggested guaranteed universal life insurance as something i might prefer (how i get out of my current prb is something slightly seperate and if im successful ill let people know). My limited understanding is that there is more flexibility with gUL then WL and people who push it will say its supposed to solve the prbs of whole life (no flexibility, limited investment option(s)). I was hoping we could have another nice debate (with limited name calling please) on the merits of guaranteed universal life especially as opposed to whole life.
id also like to thank those who contributed to the whole life vs BTID debate (even the excessively lively folks).
D
I'll gladly talk about GUL. However, I'm not sure that is what you are asking about. Two things that GUL policies don't have are flexibility and investment options. If you want to talk about it, I'll take the time to explain both the very basics of it and get a little bit more in depth on how it works.
MrKlick
Member
posted: Aug. 21, 2010 @ 7:27p
There isn't really a debate.
Rather, some folks who apparently would like to sell life insurance more whole life start up new threads in the hope of roping in new customers for bad deals.
InsuranceExpert
Senior Member - 3K
posted: Aug. 21, 2010 @ 8:11p
MrKlick said: There isn't really a debate.
Rather, some folks who apparently would like to sell life insurance more whole life start up new threads in the hope of roping in new customers for bad deals.
If I was posting to sell life insurance, you could bet that I wouldn't be doing it an anonymous fashion. If you think that it is a bad idea, be helpful and go to that other thread and explain to others why it is so bad.
maybe ill rename the thead and we can discuss the pros and cons of other permanent insurance. i realize most dont feel any permanent insurance has value and while im mostly in that camp, id like to become more knowledgeable.
i have no idea why u think i sell insurance especially if u have read my posts to date.
D
InsuranceExpert
Senior Member - 3K
posted: Aug. 22, 2010 @ 11:07a
Nobody should be in the camp of permanent insurance not having value. One can certainly question the degree to which it is has value and how often it is appropriate.
InsuranceExpert said: Nobody should be in the camp of permanent insurance not having value. One can certainly question the degree to which it is has value and how often it is appropriate.
Agreed. It's all about which situations are involved.
And some of the situations in which permanent insurance is more relevant -- such as estate planning -- aren't necessarily relevant for the bulk of the FWF membership.
There are very few worthwhile estate planning threads on FWF. And most of those are from the perspective of heirs.
well if the cost was cheaper and you knew u didnt want to take loans etc from it but instead pass the money on, wouldnt that negate the problem of not having a large cash surrender value?
dhodson said: well if the cost was cheaper and you knew u didnt want to take loans etc from it but instead pass the money on, wouldnt that negate the problem of not having a large cash surrender value?
i had misread his quote, i thought he was against UL and the others bc they dont have the same cash value as WL.
InsuranceExpert
Senior Member - 3K
posted: Aug. 22, 2010 @ 11:29a
Understanding Universal Life (UL):
UL is nothing more than Buy Term and Invest the Difference (BTID) in one policy.
It combines Annually Renewable Term (ART) insurance with a side fund. ART is term insurance that renews every year and gets more expensive every year. It is possible for the price to stay level for a number of years before it starts to get more expensive. Most, however, starts to get more expensive from the very first year. For ease of understanding, let's just consider all costs to be the Cost of Insurance (COI). With traditional UL, the side fund is money that goes into the general account of the insurance company. The premium should not be confused with the cost of insurance. For ease of understanding, I'll just pretend that the cost of insurance increases by $5/month. Jim is paying $20/month.
Year 1: When Jim pays his $20, $5 is used to pay for the insurance and $15 gets invested. Year 2: Jim pays $20. $10 is used to pay for the insurance. $10 gets invested. Year 3: Jim pays $20. $15 is used to pay for the insurance. $5 gets invested. Year 4: Jim pays $20. $20 is used to pay for the insurance. $0 gets invested. Year 5: Jim pays $20. $20 is used to pay for the insurance. $5 comes from the investment to help pay for the insurance. Year 6: Jim pays $20. $20 is used to pay for the insurance. $10 comes from the investment to help pay for the insurance. Year 7: Jim pays $20. $20 is used to pay for the insurance. $15 comes from the investment to help pay for the insurance. When the side fund has no more money, Jim will have to pay $35 for his insurance. Year 8: Jim will need to pay $40 or the insurance will lapse.
Variable Universal Life is the exact same thing. The difference is that the owner of the policy will have a choice of what to do with the side fund.
InsuranceExpert
Senior Member - 3K
posted: Aug. 22, 2010 @ 11:40a
Understanding Guaranteed Universal Life(GUL):
More accurately, GUL is UL with a secondary guarantee. This secondary guarantee is a promise from the insurance company that a certain premium will guarantee that the policy will stay in force. If we use the example from above, if Jim's GUL policy is $20, that $20 will be enough to keep the policy in force even if the Cost of Insurance (COI) is more than $20 and there is no money in the side fund to pay the policy.
GUL typically only makes sense at older ages. GUL is less expensive than WL. However, at younger ages if one uses a combination of WL and term, this is almost always better than GUL. The cash surrender value is higher and there is much more in the way of flexibility.
The flexibility in a UL policy is largely fictional. The less that one pays into a policy in the early years, the greater the chance for future policy lapse. When this is combined with the fact that the insurance costs with UL are based upon attained age instead of purchase age, the flexibilty turns out to hurt people and not help them as a generality.
InsuranceExpert
Senior Member - 3K
posted: Aug. 22, 2010 @ 11:46a
dhodson said: well if the cost was cheaper and you knew u didnt want to take loans etc from it but instead pass the money on, wouldnt that negate the problem of not having a large cash surrender value?
The answer to this question is "no". The reason is that the cash surrender value is a large part of what gives a policy flexibility. Without it, there really isn't any flexibility.
A GUL policy typically has very little cash surrender value. In fact, the best way to understand the policies is to think of them as "lifetime term insurance". Made up example:
10 year term: $300 20 year term: $500 30 year term: $1000 GUL: $1700
In all 4 cases, the coverage will lapse as soon as a premium is missed and if a policy is cancelled the owner won't get any money (or very little).
well i guess my question is the following...isnt it possible to create a UL policy where it will be paid up around age 65 but not to lapse before age 100 and still be cheaper than WL or at least initially cheaper so that one could take the difference and invest that money. given that the difference is invested with a 20 year horizon, that this would make it a better deal although as u point out with limited flexibility on payments/loans.
InsuranceExpert
Senior Member - 3K
posted: Aug. 22, 2010 @ 4:07p
dhodson said: well i guess my question is the following...isnt it possible to create a UL policy where it will be paid up around age 65 but not to lapse before age 100 and still be cheaper than WL or at least initially cheaper so that one could take the difference and invest that money. given that the difference is invested with a 20 year horizon, that this would make it a better deal although as u point out with limited flexibility on payments/loans.
I am pretty certain that the answer to your question is "no". Because of logistics, I won't be able to give you a post with realistic numbers for this for a couple of days. Let me give you an example with completely made up numbers that will give you an idea of what will happen.
Ex. 35 year old Male very healthy. GUL policy with death benefit of $1,000,000 and premiums payable until age 65. Premium =$15,000
With the same $15,000, I could put together a policy that is a combination of term insurance and WL. The death benefit for both policies will be the same for a while. However, the WL/Term policy will always have a greater cash surrender value, will have more flexibility, and ultimately have a much greater death benefit.
I apologize that I can't show you with real numbers for a couple of days. It is an excellent question that you are asking.
SIS, I stand corrected. We simply are talking about two different things. You have an excellent product.
Usually, when we are talking about UL, the subject of GUL comes up and it is in the context of the "G" standing for "guaranteed". As you have correctly pointed out, it could certainly stand for "group".
2stepsbehind
Senior Member
posted: Aug. 22, 2010 @ 11:08p
InsuranceExpert said: SUCKISSTAPLES said: InsuranceExpert said: SUCKISSTAPLES said: I have a gvul policy in addition to my term policies
SIS, you have a VUL policy. You don't have a GVUL policy.
SIS, I stand corrected. We simply are talking about two different things. You have an excellent product.
Usually, when we are talking about UL, the subject of GUL comes up and it is in the context of the "G" standing for "guaranteed". As you have correctly pointed out, it could certainly stand for "group".
Can you describe how VUL works? What makes the AICPA policy excellent?
SUCKISSTAPLES said: It has a fixed account paying 5percent The cost of insurance Is low and if I want I only have to deposit the COI
The gvul is to have a creditor protected cash value policy that I can stash uneeded money at 5 percent
The COI is very low, there is a fixed account paying 5% on any extra money I choose to deposit, if I dont want to put money in the various investment funds, and as a cash value policy it offers creditor protection of assets.
i think he meant, he didnt start the thread, i did and i dont sell insurance
of course he sells insurance why else would he call himself IE
comcast
Member
posted: Aug. 23, 2010 @ 9:39p
I think the most important point is...no one but a real honest to god expert can understand the various types of whole or universal life, and manage to pick out a good policy. so, while in theory universal or whole might be better then BTID, in practice, BTID works out best for most people most of the time, because they avoid getting taken by a bad whole or universal policy
ill scan the info sheets from the WL and Universal that are both supposed to be the best and thus have real numbers. Im 39 and have the top health rating.
InsuranceExpert
Senior Member - 3K
posted: Aug. 24, 2010 @ 8:50a
2stepsbehind said: InsuranceExpert said: SUCKISSTAPLES said: InsuranceExpert said: SUCKISSTAPLES said: I have a gvul policy in addition to my term policies
SIS, you have a VUL policy. You don't have a GVUL policy.
SIS, I stand corrected. We simply are talking about two different things. You have an excellent product.
Usually, when we are talking about UL, the subject of GUL comes up and it is in the context of the "G" standing for "guaranteed". As you have correctly pointed out, it could certainly stand for "group".
Can you describe how VUL works? What makes the AICPA policy excellent?
VUL usually combines expensive insurance with overpriced investments. The insurance costs increase in cost every year. SIS's AICPA policy is good for two reasons. 1)The insurance costs are identical to the insurance costs of the AICPA policy. The AICPA policy is one of the very few group policies that isn't overpriced. 2)He isn't using it as a VUL policy. He is only putting money into the fixed account.
So, basically, he has a fairly priced term policy and the ability to put away extra money on a tax deferred basis. When looked upon in this manner, it is a good policy. If we were looking at this for insurance that lasted forever, it wouldn't be very good. This is because of the problem that exists in all UL policies of having insurance costs increase as one gets older.
InsuranceExpert
Senior Member - 3K
posted: Aug. 24, 2010 @ 9:49a
dhodson said: well i guess my question is the following...isnt it possible to create a UL policy where it will be paid up around age 65 but not to lapse before age 100 and still be cheaper than WL or at least initially cheaper so that one could take the difference and invest that money. given that the difference is invested with a 20 year horizon, that this would make it a better deal although as u point out with limited flexibility on payments/loans.
This can probably be done for about $6,000 which is much less expensive than I said in my hypothetical example. In quickly running through some numbers, at that premium level, a combination of WL and term could be put together that will always have more cash value, will have a higher death benefit if death occurs before age 69 or after age 79, but will lose if death occurs between ages 69-79.
Advantage to GUL at $6,000 premium for very healthy 39 year old male for $1,000,000 of coverage: 1)Death occurs between 69 and 79 AND premium is paid every year AND cash from policy is never used AND insurability never changes.
There are lots of "ANDs" there, but I like how you are structuring the policy.
The older that one is when they buy a GUL policy, the more likely that it will beat WL assuming that premiums are always paid and the more likely that the policy will stay in force.
isnt it true that whole life policies have a history of declining dividends regardless of company over the last decade and there is little reason to believe that u can use the current dividend in your calculation?
InsuranceExpert
Senior Member - 3K
posted: Aug. 24, 2010 @ 11:47a
dhodson said: isnt it true that whole life policies have a history of declining dividends regardless of company over the last decade and there is little reason to believe that u can use the current dividend in your calculation?
Yes, it is true that WL policies have a history of declining dividends over the past 10 years. It is also true that we can't use a current dividend to tell us how something will perform in the future. By the same token, a policy that was purchased back in 1980 has performed much better than illustrated.
When it comes to illustrations, there are a few things in which we have absolute certainty.
1)The illustration will be wrong. 2)The only exception to the above is if all dividends are ALWAYS taken in cash and if that is the case, the numbers will be EXACTLY equal to what is illustrated in the guaranteed column. 3)If a full premium is paid out of pocket every year, the cash surrender value will grow every year and the death benefit will grow or stay the same every year.
An illustration is usually based upon exactly what the insurance company is doing right now.
Over the course of the next 10 years, do you expect interest rates to go up or down? If you expect them to go up, a policy purchased today will most likely perform better than what is illustrated. A policy purchased 10 years ago has seen its dividends go down because the general trend of interest rates has been in the downward direction.
My personal GUESS is that the illustrations of today have a pretty good chance of ultimately being fairly accurate. When interest rates were much higher, I made it a practice to use illustrations with lower dividend scales than were typically being illustrated. In today's environment, I see no reason to do that.
can u explain how interest rates will always correlate with dividends?
InsuranceExpert
Senior Member - 3K
posted: Aug. 24, 2010 @ 1:19p
dhodson said: can u explain how interest rates will always correlate with dividends?
The surplus from which dividends are paid comes from three sources. 1)Mortality savings 2)Expenses 3)Investment Earnings
The insurance company has a real good handle on the first two things. The part that isn't in control is number 3, investment earnings. The insurance company has the same basic investment opportunities as every other institution. Insurance companies tend to be very conservative. Therefore, their portfolio is going to be relatively conservative. The earnings on conservative investments move right along with interest rates. The only difference is that the dividends will tend to lag behind. In other words, as interest rates rise, the dividend scale will increase but not as quickly as the rise of interest rates. As interest rates drop, the dividend scale will drop, but not as quickly as the drop in interest rates.
Easy example to understand the reason for the lag:
Prevailing interest rates are 4%. The insurance company buys a bond paying 4%. Interest rates go to 5%,but the insurance company still has investments paying 4%. Alternatively, the prevailing interest rates are 4%. If interest rates go to 3%, the insurance company will still have investments paying 4%.
Over the long haul, this lag shouldn't really do anything to impact performance other than to make changes in the dividend scale realatively smooth.
since the lag is like 6 years, wouldnt it make sense to hold off a few years on buying wl as long as u are young since really the risk of developing a medical prb is pretty low in those years. you could cover yourself with term alone.
InsuranceExpert
Senior Member - 3K
posted: Aug. 24, 2010 @ 4:04p
dhodson said: since the lag is like 6 years, wouldnt it make sense to hold off a few years on buying wl as long as u are young since really the risk of developing a medical prb is pretty low in those years. you could cover yourself with term alone.
No. Keep in my that the dividend in the first few years is pretty meaningless. For instance, after the first year, regardless of the dividend scale, the cash surrender value will be close to zero.
The issue is then that you'll always be paying the rates of 45 year old instead of the rates of a 39 year old. If interest rates go up, those increased rates on a policy that is 6 years old will be much more meaningful than on a new policy.
in that case i wasnt talking about me but somebody younger. the question is what age do u feel the need to lock in the rates. while it increases for everyone with time, there must be certain break points... im still trying to figure out how to manage my WL correctly.
I think for men,30- 35 or so is when we start seeing meaningful increases, and also happens to be n many folks start eRning enough to actually pay a large insurance premium
I would think starting at 21 or 25 etc isn't necessary, even if you can afford it at that time... but perhaps IE can tell us the time when rates start substantially increasing
DeniseMancin1
New Member
posted: Aug. 30, 2010 @ 12:39a
It is true that Universal Life Insurance costs less than Whole Life, and offers more flexibility in the timing and amount of premium payments. However, it is not without disadvantages:
1. It is expensive with a lot of overheads. This is obvious even by the fact that agents selling UL policies receive higher commissions
2. I would say that UL is NOT better than ‘Buy term life insurance and invest the difference’ because the cash values earned through a UL are not as good as what you would earn if you invested the money on your own. The fees are high, and many times insurance companies will raise the mortality charges to the max to cover their costs.
Denise
InsuranceExpert
Senior Member - 3K
posted: Aug. 30, 2010 @ 4:52a
SUCKISSTAPLES said: I think for men,30- 35 or so is when we start seeing meaningful increases, and also happens to be n many folks start eRning enough to actually pay a large insurance premium
I would think starting at 21 or 25 etc isn't necessary, even if you can afford it at that time... but perhaps IE can tell us the time when rates start substantially increasing
The issue isn't one of rates rising from one year to the next. It is what happens on the back end. For instance, let's look at the difference between buying a policy at age 25 vs age 30.
$1,000,000 policy: Age 25: Premium = $7040; Death Benefit age 85=$3.7 million; total premiums = $422,000 Age 30: Premium= $8620; Death Beneft age 85 =$3.3 million; total premiums = $474,000
The basic results are almost always the same. It doesn't matter if we are talking about waiting one year, 5 years, or 10 years. Waiting equates to a greater annual premium, greater total premiums at life expectancy, and greaa smaller death benefit at life expectancy. Additionally, waiting assumes that one's insurability doesn't change.
InsuranceExpert
Senior Member - 3K
posted: Aug. 30, 2010 @ 5:14a
DeniseMancin1 said: It is true that Universal Life Insurance costs less than Whole Life, and offers more flexibility in the timing and amount of premium payments. However, it is not without disadvantages:
1. It is expensive with a lot of overheads. This is obvious even by the fact that agents selling UL policies receive higher commissions
2. I would say that UL is NOT better than ‘Buy term life insurance and invest the difference’ because the cash values earned through a UL are not as good as what you would earn if you invested the money on your own. The fees are high, and many times insurance companies will raise the mortality charges to the max to cover their costs.
Denise
Denise, since you are posting as a life insurance professional, you deserve to be booed. In your position, you have a responsibility to post information that is more accurate or at the very least goes more in depth.
The flexibility of UL is largely a myth. Smaller premium payments today simply increase the chance for a lapse in the future. The annually increasing cost of insurance results in policies in which people aren't putting in WL type premiums every year to almost always lapse if death doesn't happen prematurely.
With a UL policy that one purchases as a 30 year old, when they are 70, they are paying the rates of a 70 year old. With a WL policy that one purchases when they are 30, when they are 70, they are still paying the rates of a 30 year old.
WL because of the build up of cash and the dividends is actually much more flexible than UL in terms of out of pocket premium payments. The caveat to this is that it is inaccurate statement for the first few years of the policy. It is true after this.
1. Denise, you are a pusher of term insurance. You are saying that it is obvious that there is a lot of overhead because it pays high commissions. Yet, this ignores the fact that if the agent sells a 30 year $1,000,000 term policy for $2,000 or sells a $1,000,000 UL policy for $2,000, the term policy will generally pay a higher commission. I agree that the expenses are high, but I'm pointing out that isn't because of the commissions. The expenses are also high on no load UL policies.
2. The cash values on UL are typically much better than what one can get on their own. There are UL policies that are currently paying 5% on the cash. Where can one get a guaranteed 5% right now? The problem isn't the rate of return. The problem is all of the expenses involved starting with overpriced cost of insurance.
Statements like the following will cause you to lose all credibility:
"and many times insurance companies will raise the mortality charges to the max to cover their costs." Can you back this up with a few examples? I can't even think of one time that this has happened. I'm not a fan of UL, but it should be portrayed accurately. I would truly appreciate any examples that you could give. I've personally have never heard of this happening and I'm a 20 year veteran of the business.
Your job is to sell term insurance, but that doesn't mean that you should be doing this by posting inaccurate information to make term insurance look good. Term insurance is a great product that does exactly what it should do.
tim01
Member
posted: Sep. 2, 2010 @ 11:55a
IE,
Will any of your clients be willing to share their policy report to prove over the last 20 years their policy has grown in terms of DB and CV? Just cross out all the personal info. I'd also like to see a policy started in the early 80s when interest rates were much higher.
tim im surprised you are still looking at this stuff, with the amount u have read and posted, i would have thought u either had a dozen policies or started selling insurance.
Skipping 16 Messages...
InsuranceExpert
Senior Member - 3K
posted: Sep. 19, 2010 @ 3:19p
It's a shame because whole life and annuities can be wonderful products when used appropriately and complete ripoffs when used inappropriately.
Disclaimer: By providing links to other sites, FatWallet.com does not guarantee, approve or endorse the information or products available at these sites, nor does a link indicate any association with or endorsement by the linked site to FatWallet.com.
Members of our community may attach files to a post in accordance with the User Agreement. FatWallet is not responsible for the content, accuracy, completeness or validity of any information contained in any attached file. Files have *not* been scanned for viruses. Be especially wary of Excel files which may contain malicious content.
