Indexed Universal Life Insurance

[jpg7n16]

JPG,

On the first case, I agree with you that it's because he has more insurance. I was using his scenario and that's why it looks like that. Now for your second scenario lets look at it more closely with actual numbers.

...

Brother A
$1,000,000 coverage is 84.21 a month = 1010.52 per year
Leaves him with $3989.48 to invest
1 year at 10% = 4,388.43 total
If he dies after the one year his family will get $1,004,388.43

Brother B
$1,000,000 coverage is 84.21 a month = 1010.52 per year
Leaves him with $3989.48 to buy a permanent life (cash value) policy.
This equates to $576,446 death benefit with an Index Universal Life Policy.
If he dies after one year his family gets 576,446 + 1,000,000 = $1,576,446

See, even with real quotes using the same $5,000, same age, same health...Brother B is way better off.

You did it again.

In other words, Brother A is covered at $1 million, and Brother B is coverd at $1.58 million. If they each die today, whose family will be better off? Obv Brother B, because he had higher coverage amounts.

Assuming your examples use figures that are justified by actual data (and I fully believe you on the prices, no dispute there) Then in order for Brother A to get the same coverage level of Brother B, it should cost approximately:

84.21 * (1,576,446/1,000,000) = $132.75/month = $1,593/year

Giving him the same coverage amount, and $3,407 extra to invest each year.

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Wayde, I believe there's some disconnect that you have with the extra funds. Using them to buy additional life coverage is lopsided.

If you know you're going to die in 1 year, I'll agree that it's better to buy a whole life policy, than to invest. But it's also better to buy a term policy, than a whole life one.

If literally guaranteed to die in 1 year: Term + invest > Whole life > invest

[dczech09]

Using your numbers, and assuming that term coverage stays consistant with the more you buy, brother A could do this:

Purchase a $1.6 million term life policy for $134.74/month = $1617/yr
Leaves him with $3383 to invest
1 year @ 10% = $3721 total
If he dies after one year his family gets $1,603,721

This brings me to another point Wayde. If you are going to try to use logic to prevail, at least make the comparisons apples to apples.

I know what you are thinking- "yeah but term only covers for a certain period of time, while UIL is permanent."

We will fight that by saying life insurance is not a permanent need for the overwhelming majority of people.

[jpg7n16]

Or just to make things interesting, since Wayde wants to let Brother B use his extra funds to buy more life insurance, let's assume Brother A uses all of his $5,000/year to buy term.

$1,000,000 * (5,000/1,010.52) = $4,947,948 worth of term coverage

Way better than $1.58 million.

[kv968]

Or just to make things interesting, since Wayde wants to let Brother B use his extra funds to buy more life insurance, let's assume Brother A uses all of his $5,000/year to buy term.

$1,000,000 * (5,000/1,010.52) = $4,947,948 worth of term coverage

Way better than $1.58 million.

Sure, let's go ALL IN. Why not?

[jpg7n16]

I know what you are thinking- "yeah but term only covers for a certain period of time, while UIL is permanent."

We will fight that by saying life insurance is not a permanent need for the overwhelming majority of people.

I'd actually fight it by saying, you could have built up enough by buying term and investing the difference, that you wouldn't need the policy at all.

Brother B
$1,000,000 coverage is 84.21 a month = 1010.52 per year
Leaves him with $3989.48 to buy a permanent life (cash value) policy.
This equates to $576,446 death benefit with an Index Universal Life Policy.
If he dies after one year his family gets 576,446 + 1,000,000 = $1,576,446

Using Wayde's figures, and a market return of only 8% on average (the actual stock market average is 9.4%), let's compare two people who buy whole life coverage of $576,446 vs someone who bought term for the same coverage level and invested the rest. Each have $3,989.48/year extra cash to consider.

Mr. Wholelife
Uses all of his $3,989.48/year to buy a whole life policy, and gets coverage of $576,446. Not able to invest anything, due to no excess cash.

Mr. Term
$1,010.52 * (576,446/1,000,000) = $582.51/year
Uses $582.51 of his $3,989.48 to buy a 30 year term policy. Able to invest extra $3,406.97/year. And does so monthly.
$283.91/month @ 8% for 30 years = $423,134.13

After 30 years, is able to invest all of his $3,989.48. And will have $576,446 in 3.5 more years. (To account for taxes, would actually need $656,593, which after 15% cap gains tax - on gains only - would leave $576,446; this would take only 5 years)
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After 35 years, Mr. Wholelife is paying an insurance company to guarantee he'll have $576,446 when he dies. But Mr. Term already has $576,446 (well before he dies, hopefully)

Oh and if they each live another 30 years, Mr Wholelife will still be paying an insurance company to guarantee he'll have $576,446, and Mr. Term will have $6,560,725 (after tax)

Moral of the story: buy term and invest the difference

[dczech09]

I'd actually fight it by saying, you could have built up enough by buying term and investing the difference, that you wouldn't need the policy at all.



Using Wayde's figures, and a market return of only 8% on average (the actual stock market average is 9.4%), let's compare two people who buy whole life coverage of $576,446 vs someone who bought term for the same coverage level and invested the rest. Each have $3,989.48/year extra cash to consider.

Mr. Wholelife
Uses all of his $3,989.48/year to buy a whole life policy, and gets coverage of $576,446. Not able to invest anything, due to no excess cash.

Mr. Term
$1,010.52 * (576,446/1,000,000) = $582.51/year
Uses $582.51 of his $3,989.48 to buy a 30 year term policy. Able to invest extra $3,406.97/year. And does so monthly.
$283.91/month @ 8% for 30 years = $423,134.13

After 30 years, is able to invest all of his $3,989.48. And will have $576,446 in 3.5 more years. (To account for taxes, would actually need $656,593, which after 15% cap gains tax - on gains only - would leave $576,446; this would take only 5 years)
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After 35 years, Mr. Wholelife is paying an insurance company to guarantee he'll have $576,446 when he dies. But Mr. Term already has $576,446 (well before he dies, hopefully)

Oh and if they each live another 30 years, Mr Wholelife will still be paying an insurance company to guarantee he'll have $576,446, and Mr. Term will have $6,560,725 (after tax)

Moral of the story: buy term and invest the difference

I follow ya jpg. However one small thing:

The whole life person buys their coverage with AFTER-TAX dollars. So to make things equal, the term guy would buy with AFTER-TAX dollars as well. So the investment options would be...

A taxable brokerage account where taxes will certainly be a factor.

OR

A Roth IRA which is contributed to with AFTER-TAX dollars and eliminates taxes on growth after all criteria have been met. That $3,406.97 per year would be available for most people assuming they did not make too much money.

Either way though, the term guy comes out ahead.

But just wait, Wayde will somehow find a way to make more money sound like a bad thing

[disneysteve]

Lets assume the client is 25 years old and has no health issues rated the best.
Lets assume we use only $5,000 of total premiums for both Brother A and B.
Now since I have access to actual costs of insurance I will run some illustrations. Not estimates but real time quotes.

Brother A
$1,000,000 coverage is 84.21 a month = 1010.52 per year
Leaves him with $3989.48 to invest
1 year at 10% = 4,388.43 total
If he dies after the one year his family will get $1,004,388.43

Brother B
$1,000,000 coverage is 84.21 a month = 1010.52 per year
Leaves him with $3989.48 to buy a permanent life (cash value) policy.
This equates to $576,446 death benefit with an Index Universal Life Policy.
If he dies after one year his family gets 576,446 + 1,000,000 = $1,576,446

See, even with real quotes using the same $5,000, same age, same health...Brother B is way better off.

As others have pointed out, your example is still not apples to apples. Yes, I totally agree with you that someone with $1.57 million in coverage is going to come out ahead of someone with only $1 million in coverage, especially if they die soon after taking out the policy. But that doesn't prove your point.

Let's see an illustration using actual numbers if Brother A and Brother B each buy the SAME amount of covereage but one does it with term and the other does it with whole life. You said you'd assume $5,000 for premiums. So give brother B a permanent policy that costs $5,000. Give brother A the exact same amount of death benefit but with term. How much would that cost and what would he be left with from his $5,000? Then have him invest that difference.

Since term is cheaper dollar for dollar coverage-wise, the brother with term has to come out ahead. There is no possible way that he can't. $1 million of term is cheaper than $1 million of whole life. If you compare equal death benefits, term always wins.

[jpg7n16]

A Roth IRA which is contributed to with AFTER-TAX dollars and eliminates taxes on growth after all criteria have been met. That $3,406.97 per year would be available for most people assuming they did not make too much money.

Either way though, the term guy comes out ahead.

Good point! I was just thinking about a standard taxable account, and taxing the gains. With a Roth, it would be $7.68 million.

But just wait, Wayde will somehow find a way to make more money sound like a bad thing

My money's on that he'll say that Mr. Term would have been better off using the excess funds to buy a whole life policy.

[dczech09]

Wayde's next argument:

"Cash value is safer than investing in stocks!"

This is a common argument. So, I will break that down right away. No its not! There are two types of risk: making too little and losing too much.

Cash value return, assuming that it can even legitimately be consider a return, is pathetically low. So low that inflation will knock it out. Sure they may not be taxes on it, but that is only because the cash value almost never exceeds the amount of premiums paid.

Also, the stock market is not as risky as the media reports it to be. The stock market fluctuates over the short term because its based on perception. Over the long run, it goes up. If it did not go up, it would not exist.

"Insurance companies are safer investment than stocks." Lets assume that life insurance could be considered an investment (which it is not). Where do you think life insurance companies invest their money? Typically in bonds and money markets. They usually do not do stocks, but even so, bonds are about as risky as stocks (just a different type of risk to consider).

I argue that comparing cash value life insurance with "buy term and invest the difference" falls short of an apples to apples comparison. Why? Because cash value is not an investment in the first place and should never to be compared to one. Even so, I understand that we must entertain this Afterall Wayde still seems to insist some sort of "living benefit" and is trying to use apples to oranges comparisons (as if we would not catch on)

[Wayde]

[QUOTE]

So its a win/win to pay interest into a fixed account that is not even really mine IN THE FIRST PLACE?! How is that any different that just paying interest. (Rhetorical question)

Please again, show me where it says the money doesn't belong to me. I do agree with you that it feels like it is not...but again, I don't go on feelings. If I need the money, I call them and if I have available cash value I can get access to it within 24rs. No, it's not as fast as an ATM card where you can withdraw it within an instant but I can still get it.

Also, 4% is not a lot of money to get a "return" even if it was actually your money. Some critics dislike permanent life insurance because the returns are horrible. Howver the truth with permanent life insurance is that the returns are irrelevant.

Agreed, 4% is not a lot but it may be enough to wash out my Loan that I'm taking. So, in essence, I was able to take out a loan with no cost. Let's take it a step further. What if my interest credited was higher than they are charging me? Well, that means I'm making money to borrow my own money. Isn't that an interesting concept?

T

his is what annoys me: you do not seem to understand the central argument. Cash value is not the policy owner's property. This is why it is a gimmick in the first place.

I do understand you. I'm just asking you how you came to that conclusion, simply because I have access to my Cash Value in my policy. What you are saying is completely the opposite of what I have been able to do with my policy.

If you can prove me wrong, then please do so. But until you can somehow logically break my argument, then you have nothing to run on. The fact that the cash value is not the policy owner's property will all by itself destroy any argument you have about the cash value being good "if you use it the right way."

My task is not to prove you wrong. It's to ask you how you came to that conclusion because in my reality I have been able to access my cash.

Well I suppose if I dress a wolf in sheeps clothing, then it must be a sheep?

Just because it is called "cash value" does not mean it is actual cash. If it were, then any Jo Schmo with a cash value could go into the insurance company tomorrow and say "I want my cash." Last time I checked, you can do that at a bank because IT IS your money, but not with a life insurance policy.

Yes, again...I agree with you that the banks you can walk in and grab your money when ever you want to. And with Life Ins policies you have to wait 24 hrs. What's the difference...you are still accessing it. I'm not sure if you read my replies above but this is due to Ins Regulations because of Money Laundering.

Cash value is so horribly illiquid that it takes like 60 days with withdraw from it. Even when you do, you pay interest on it. How is that cash, Wayde?

I guess you haven't read my posts above. It does not take 60 days. Not sure where you got your information. With my Insurance company, I can get direct deposited to my account within 24hrs. So where did you get the 60 days? Now, again on me paying interest. One more time..."If I'm paying 4% for the loan but getting the same or more credited back...isn't that a good thing?"

As I said before, the only time you get the money is once you surrender and the insurance company takes a big bite of the money that was supposedly yours in the first place. And that is supposed to be a good deal? Clearly you and I have different ideas as to where we should put our money.

Yes, I agree with you on the surrender charges. If I or my clients want this product, I always inform them of the surrender charges. If they don't understand, I won't let them purchase it. Many vehicles out there have some sort of penalties. Usually if you want more benefits, there are bigger penalties. Take for example 401ks. If you put money into it, there are restrictions and penalties for early withdrawal..etc... Now, if you invest directly into a mutual fund without the 401k Umbrella, you will have more liquidity but have lest benefits. Your money won't grow tax deferred, no pre-tax money, etc...With everything in life, more benefits means usually comes with more costs.

I will respect your decision to sink your money into this black hole if you would like. How you handle your money is you business. But for you to tell others, on this forum and in person, this garbage about the greatness of cash value policies is something I will not stand for.

Calm down now. I'm not saying for people to put all their money into a Life insurance product. I never have in my 15 years and never will. I respect your feelings, but lets stick with the facts here. Again, I'm just pointing out that some statements on here about Permanent policies are incorrect. That is all.

You are some piece of work. You just got done saying "life insurance is not an investment" and all the while you have been defending it as an investment. You have never actually said it was an investment, you have just gone about it a different way.

You have been mistaken and you are beating a dead horse. Life insurance permanent policies are not investments. Again, we are just discussing how they work and not if they are investments.

You are not clarifying anything about cash value. You are the one making untrue statments. Your statements all operate under two ideas: cash value is the property of the policy owner and cash value is an investment.

I am making true statements. Sorry to say, but that's how a cash value policy works. Again, stop beating a dead horse with the Investment thing.

Please try to rebuttal my "cash value is not the polcy owner's property" argument. You cannot do it. How do I know? Because you would have done so a long time ago.

Why do I need to prove something to you when what you are stating is only your opinion? Now if you can show me on my policy or anyone's policies that it states clearly that it is not mine or theirs...then I will definitely need to find a counter proof which wouldn't be needed cause it's already in my policy (which is a legal contract). Not sure if that makes sense. It's like saying, hey you weigh only 150 lbs, but the fully functioning scale says you weigh 200 lbs. I'm not sure if that was a good comparison but I believe you get the point.

[Wayde]

[QUOTE=dczech09;319295]Wayde's next argument:

"Cash value is safer than investing in stocks!"

Well, logically that is correct cause your cash value is not invested in the stocks. Stocks have risks of lost while your cash value can only be decreased from cost of insurance and not how the stock market performs. But comparing the two is not apples to apples

This is a common argument. So, I will break that down right away. No its not! There are two types of risk: making too little and losing too much.

Why are we comparing Apples with Bananas? Life Insurance with cash value are not investments so I'm not even going to compare them. Now if you want to talk about how each vehicle works, that's more relevant.

Cash value return, assuming that it can even legitimately be consider a return, is pathetically low. So low that inflation will knock it out. Sure they may not be taxes on it, but that is only because the cash value almost never exceeds the amount of premiums paid.

Wow, where do you get the stats that "cash value almost never exceeds the amount of premiums paid"? You are so way off base here. Simple math will clarify your statement.

Also, the stock market is not as risky as the media reports it to be. The stock market fluctuates over the short term because its based on perception. Over the long run, it goes up. If it did not go up, it would not exist.

Agreed, but again...you are assuming that all people have time to wait for it to come up. Remember, every client is different from case to case. Risk tolerance, age, goals...etc...

"Insurance companies are safer investment than stocks." Lets assume that life insurance could be considered an investment (which it is not). Where do you think life insurance companies invest their money? Typically in bonds and money markets. They usually do not do stocks, but even so, bonds are about as risky as stocks (just a different type of risk to consider).

Agreed. Bonds and money markets most of the time will not keep up with inflation and that is the risk.

I argue that comparing cash value life insurance with "buy term and invest the difference" falls short of an apples to apples comparison. Why? Because cash value is not an investment in the first place and should never to be compared to one. Even so, I understand that we must entertain this Afterall Wayde still seems to insist some sort of "living benefit" and is trying to use apples to oranges comparisons (as if we would not catch on)

If you would open your mind and really do the numbers and research you will be quite frank...surprised. I would never use or sell a Life Ins Policy as an investment. I do use it for other purposes that you probably won't ever see because your mind is closed and no room for more info on the topic. What's that saying? "You can bring a horse to the water hole but you can't make it drink."

[Wayde]

[QUOTE]

As others have pointed out, your example is still not apples to apples. Yes, I totally agree with you that someone with $1.57 million in coverage is going to come out ahead of someone with only $1 million in coverage, especially if they die soon after taking out the policy. But that doesn't prove your point.

It is an illustration only. There are many variables that can be done.

Let's see an illustration using actual numbers if Brother A and Brother B each buy the SAME amount of covereage but one does it with term and the other does it with whole life. You said you'd assume $5,000 for premiums. So give brother B a permanent policy that costs $5,000. Give brother A the exact same amount of death benefit but with term. How much would that cost and what would he be left with from his $5,000? Then have him invest that difference.

Term insurance is always less costs than a permanent policy. There is no question on that topic. WE are not debating which costs less. We are debating if we took $5,000 and used it in different ways, what are the final outcomes.

Since term is cheaper dollar for dollar coverage-wise, the brother with term has to come out ahead. There is no possible way that he can't. $1 million of term is cheaper than $1 million of whole life. If you compare equal death benefits, term always wins.

I agree with you. We can buy more coverage with a term with the same amount of money than you can buy a permanent policy.

[Wayde]

Sorry

Sorry everyone. I don't have the time to reply to everyone's post on our Brother A and Brother B examples. So I will do it with this post. It may not address all your questions but it's quite simple.

Brother A
$1,000,000 coverage is 84.21 a month = 1010.52 per year
Leaves him with $3989.48 to invest
1 year at 10% = 4,388.43 total
If he dies after the one year his family will get $1,004,388.43

Brother B
$1,000,000 coverage is 84.21 a month = 1010.52 per year
Leaves him with $3989.48 to buy a permanent life (cash value) policy.
This equates to $576,446 death benefit with an Index Universal Life Policy.
If he dies after one year his family gets 576,446 + 1,000,000 = $1,576,446

See, even with real quotes using the same $5,000, same age, same health...Brother B is way better off.

In this example it works. Yes, I agree with all of you that if you took the same money and bought more term you will be ahead. And yes you will be. I was simply breaking down the numbers for that particular question of "If I die, my family doesn't get the cash value but only the death benefit." My purpose was to show that you get more for what you've paid into it. That's life insurance.

Again, I agree with all of you that if you bought the most insurance and invest the rest that you will come ahead if that person dies...assuming Brother A and bother B bought the max insurance that they can qualify for with term.

[Wayde]

[QUOTE]

Good point! I was just thinking about a standard taxable account, and taxing the gains. With a Roth, it would be $7.68 million.



My money's on that he'll say that Mr. Term would have been better off using the excess funds to buy a whole life policy. [/Q

Your assumptions are wrong. I do not believe in your quote, "My money's on that he'll say that Mr. Term would have been better off using the excess funds to buy a whole life policy." Wow, you really think I'm that uneducated after 15 years in the industry? With all due respect, like you and most people stated...you can't compare apples to oranges.

Again, you and everyone here are beating a dead horse. I'm not debating that permanent policies are investments. I'm correcting statements that are not true about cash value policies. Boy, I've said this too many times.

Haven't you noticed that when you guys state things about Investments, I mostly agree. It's only when you state incorrect things out of feelings, without valid research, that I step in and try to clarify. It doesn't matter if it's in the Investment world or the Life insurance world.

[Wayde]

Using your numbers, and assuming that term coverage stays consistant with the more you buy, brother A could do this:

Purchase a $1.6 million term life policy for $134.74/month = $1617/yr
Leaves him with $3383 to invest
1 year @ 10% = $3721 total
If he dies after one year his family gets $1,603,721

Agreed, if that was the scenario.