Indexed Universal Life Insurance

[jIM_Ohio]

Buy insurance only from a fee-only financial planner which is compensated by the client and not the insurance company.

Whole life has uses, for the OP, if you buy term, and then invest the difference in an index fund or buy call options for the S&P 500 index. That is what the insurance company is doing with your money in a whole life/index insurance option.

Disney Steve, generally cash value (straight whole life) is cheaper than term if the insurance is needed longer than the original term. One big issue with life insurance is the need for insurance shifts as one goes through life, and its not always available when one needs it (meaning health can prevent one from getting more insurance).

Whole life also has some riders on it which are end runs around other types of insurance (long term care) for example.

[jIM_Ohio]

Timothy, tell us what happens to the cash value if the policyholder dies while the policy is in effect. Let's say he dies in year 19. How much will be paid out to his beneficiary?

Larger of cash value or the policy value.

[disneysteve]

Larger of cash value or the policy value.

So if we use Timothy's example, let's say in year 19 the cash value is at $28,000. Customer dies. Beneficiary gets $300,000, the face value of the insurance. The $28,000 in "savings" is gone. It stays with the insurance company. Is that correct?

If that individual had bought term and invested instead, his beneficiary would get the same $300,000 but would also get the investment money. Even if it was less than 28K, they still come out ahead.

[bp019j]

That is a great question, and as you may already know the cash value account are reserves set aside to pay future death benefit claims. The beneficiary receives the death benefit of 300,000 in my example above, income tax free. So the cash value is applied toward the death benefit claim to the beneficiary for years 1 - 20.

That doesn't make it a bad trade though because where else could a beneficiary end up with a 300,000 death benefit claim from cumulative premiums totaling 19,000.

A better question would be what is the probability of that occurring, and what percentage of term policies actually pay a death benefit claims. There was a 1993 study from Penn State that sampled 20,000 term policies for an aggregate of about 4 billion in death benefit, and 1% of those policies paid a claim.

Insurance company premium pricing includes a 9 to 10 lapse ratio. We know the game they are playing. In the end life insurance is still extremely important for many families with children who are financially dependent on their parent's future income.

[jIM_Ohio]

So if we use Timothy's example, let's say in year 19 the cash value is at $28,000. Customer dies. Beneficiary gets $300,000, the face value of the insurance. The $28,000 in "savings" is gone. It stays with the insurance company. Is that correct?

If that individual had bought term and invested instead, his beneficiary would get the same $300,000 but would also get the investment money. Even if it was less than 28K, they still come out ahead.

You have it right...

think backwards for when permanent insurance is needed... when is insurance needed at death?

A spouse with a pension which does not have a survivor clause... so whole life can keep insurance in effect "for life" and if spouse with pension dies, their spouse has a benefit.

Estate planning, insurance can provide money for people, such as charities, special needs children, or business.

[bp019j]

So if we use Timothy's example, let's say in year 19 the cash value is at $28,000. Customer dies. Beneficiary gets $300,000, the face value of the insurance. The $28,000 in "savings" is gone. It stays with the insurance company. Is that correct?

Yes, that is fair to say.

If that individual had bought term and invested instead, his beneficiary would get the same $300,000 but would also get the investment money. Even if it was less than 28K, they still come out ahead.

Again it comes down to probabilities and life expectancy. Mortality rates are extremely low today as people are living longer. Life insurers know that, and may use reinsurance to reduce their overall exposure. At the end of the day no one can predict what the future holds for us all, death or in the market.

Term insurance, no question can be a very efficient way to provide adequate financial protection for many young families. The cost of insurance, regardless of what type gets more expensive as we age.

[disneysteve]

where else could a beneficiary end up with a 300,000 death benefit claim from cumulative premiums totaling 19,000.

An individual needs 300,000 of life insurance protection for the next 20 years.
They have a budget of approximately 1,000 per year to allocate for insurance and investing.
or 20,000 total.

Suppose the cumulative term costs are 8,500.

It would seem from your own example that with term, they could get that 300K death benefit for only $8,500 vs. the $20,000 they paid for the cash value policy over 20 years.

Do most policies pay out? No. I agree with you there. But that's kind of the point of life insurance, isn't it? You never know if you will need it. I certainly hope that I (or my wife) never collect on my policy.

[disneysteve]

Again it comes down to probabilities and life expectancy. Mortality rates are extremely low today as people are living longer.

True, but I still fail to see how that makes the cash value policy a better deal.

The cost of insurance, regardless of what type gets more expensive as we age.

Also true, but again, I fail to see how that makes cash value a better deal.

[bigdaddybus]

I work for an insurance and financial services company.

Buy Whole LIFE/Universal LIFE/HYBRID Policies!!!

I have Term

[Petunia 100]

True, but I still fail to see how that makes the cash value policy a better deal.



Also true, but again, I fail to see how that makes cash value a better deal.

Perhaps if you would focus on what is best for the salesperson rather than what is best for the customer, you would quickly see why cash value is a better deal.

[bp019j]

It would seem from your own example that with term, they could get that 300K death benefit for only $8,500 vs. the $20,000 they paid for the cash value policy over 20 years.

Touche, my intentions were to say even with the cash value and higher premium payment it still is not a bad deal. Perhaps, if one knew they could have saved on their life insurance premiums. Which brings us to your second part.

Do most policies pay out? No. I agree with you there. But that's kind of the point of life insurance, isn't it? You never know if you will need it. I certainly hope that I (or my wife) never collect on my policy.

Exactly my point. Since this is a 'savingadvice' forum, isn't saving considered a good thing?

[bp019j]

Buy insurance only from a fee-only financial planner which is compensated by the client and not the insurance company.

Or use a life insurance expert who could charge a fee for their genuine expertise and value. Even if you buy insurance from a fee-only financial planner, the client is double paying...a fee to the planner and a sales load to someone. Term sales load are baked into the premium.

I know of one carrier that offers no load products. Maybe there is one other.

We find policies with the lowest expenses based on individual circumstance.

[bp019j]

Also true, but again, I fail to see how that makes cash value a better deal.

The ability to pay for the cost of coverage with pre-tax dollars is not a better deal?

[bp019j]

Perhaps if you would focus on what is best for the salesperson rather than what is best for the customer, you would quickly see why cash value is a better deal.

Which is generally how things are sold. Not always though and there are good life insurance agents out there. Would like to consider myself one of them.

Seriously though, do a search for Breadwinners Insurance Policy Disclosure Article. See table 10, and you will find a comparison of products, there is a BIG difference.

[disneysteve]

The ability to pay for the cost of coverage with pre-tax dollars is not a better deal?

Not if it's costing 3 times the price.