AIG - "Quality of Life Insurance" AGLA Flexpro

[express]

I am a 40 year Non Smoker in Excellent health. I am looking to buy Permanent Life insurance, I am currently under the evaluation period for $500000 MetLife Variable VUL (Annual premium of $6000) and it scares me. I was told that all I need to do is pay 5 premiums and then there would be enough money in the policy to pay for itself. (Would like to return it - your valuable opinions would help). I am also under the evaluation period for a 10yr term with guaranteed premiums for a Million, @$400 annual premium. (Should I keep this)

One friendly insurance agent suggested me to go for AIG "Quality of Life Insurance" - AGLA Flex pro or AGLA Flex pro plus. The package has Critical Illness, chronic illness,Terminal Illness covered in it. Is this a better product compared to the Met life Variable VUL? AIGs plan has a guaranteed 5% Interest for the first 10 yrs and 2.25% thereafter.

I would appreciate if anyone would be kind enough to guide me or point me in the right direction.

 

[Agent Jeff]

Hmmm, did you read the prospectus for the Metlife VUL? Sounds like you heard something wrong the agent who sold you made the unethical sales practice of promising an investment return. I think you were sold with a misunderstanding so probably a VUL is unsuitable.

Do you fully understand how VULs work with all their taxes, expenses, and commissions? Are you maxing out all the qualified retirement benefits 401k, IRA, Roth IRA, Keogh, you have available to you already?

If either of those are no you better get your money back before it's too late.

The other plan sounds like a universal life plan. The guaranteed rate there does not seem particularly exciting. I would not jump into it. If I were you, I would buy CONVERTABLE term insurance right now and if you want to simulate universal life, put the difference into municipal bonds that mature at about the time your term insurance expires. Then, at the end of the term if you health has declined, you can convert to universal life (and if it hasn't you can get another term policy).

In other words I think you should mainly be thinking of converting your way into permanent insurance only upon a decline in health. Otherwise you give up your options and you are at the mercy of what interest rates the insurance company is offering.

 

[Survivor]

I am with AIG, and I really love the Quality of Life. I'm with Agent Jeff on that VUL. It can be good, but it seems like it really wasn't explained well enough to you.

I've got to disagree with agent jeff on the term though. With that Quality of Life, you can accelerate the benefits on several conditions -- which is something you can't do with many policies, let alone term. Of course, your health insurance is there to take care of you with one of those major illnesses, but I like the idea of being able to get money from the face amount (not a partial surrender for you agents out there) to help bridge gaps or cover costs.

Furthermore, the guaranteed rates really aren't that great. However, those policies pay higher current rates. Sure, current rates aren't guaranteed (hence the name, current), but current rates are tied to many things like bonds and what not. Interest rates are pretty low right now, and they really aren't going to go much lower. (look at historical government bond yields to see what I'm talking about)

By the way, for a 500K Flex Pro Plus, I'm showing 340/mo ($4080 annual premium) that builds excellent cash surrender values @ the current rates.

 

[express]

Survivor, Thanks for your personal time and effort. You have a great future ahead of you, your customer service and patience will bring you the best in life

Thanks to Jeff for helping me with valuable suggestions

 

[Survivor]

No problem at all. Thanks for allowing me to help. Please give me a call if any other questions or issues arise.

 

[Guest]

I would buy CONVERTABLE term insurance right now and if you want to simulate universal life, put the difference into municipal bonds that mature at about the time your term insurance expires. Then, at the end of the term if you health has declined, you can convert to universal life (and if it hasn't you can get another term policy).

Is there a simple way to illustrate the difference between the 40 year old taking say, 15 year term and investing in a muni bond and THEN (at age 60) converting to UL as proposed above... as opposed to him buying the UL right at the start? Say he dies at 75. What method cost him less and gave his widow the better return? (assuming average rates for the bond... which is what? 4.75%)

Al

 

[James]

It is at best a crap shoot today with Interest Rates and Inflation! I have yet seen a true projection that "BTID" beats a good WL or UL if you take into account the years of payout or harvesting the money once you need it.

I hear a lot of disgruntle opinions on the cheap dollar, but everyone loves the effect of the same cheap dollar.

The idea of these secondary benefits as in "Long Term Care" will get a lot more attention once 2010 rolls around and the money coming from Annuities will be Tax Free if spent on LTC. So effectively just another reason to Roll money out of IRA's an into an Annuity do some degree at some point.

 

[Agent Jeff]

Is there a simple way to illustrate the difference between the 40 year old taking say, 15 year term and investing in a muni bond and THEN (at age 60) converting to UL as proposed above... as opposed to him buying the UL right at the start? Say he dies at 75. What method cost him less and gave his widow the better return? (assuming average rates for the bond... which is what? 4.75%)

Al

You can get average revenue bond rates if you dont have a brokerage account, for instance, at bloomberg.com. Right now, average rates YTM for AAA municipal industrial revenue bonds at about 15 years to maturity is a hair under 4.5%

UL is for people who are conservative investors, need both a death benefit and a tax break, and have exhaused their less expensive tax breaks. The way UL should be used is to stuff it with cash until it nearly becomes a MEC to minimize cost-of-insurance expenses; if you are only interested in leaving a certain fix-amount inheritance death benefit and dont need another tax break (e.g. you're not in a high tax bracket in a high-tax state or not utilizing stronger tax breaks like 401k) then WL is better because of lower expenses.

Having said all that, at certain times the interest rates for competing triple tex-exempt investments might be such that UL doesn't seem to make sense at all for really people who qualify the cheapest term policies.

1. What you can illustrate is the annual expenses inside the UL policy (cost of insurance) compared to the term premium (which are always higher).

2. In order to compensate for this, it seems to me the UL must offer an interest rate at the very least somewhat GREATER than what you can get from long-term AAA-rated municipal revenue bonds.

The problem is, that the UL is offering rates right now well below this

 

[Survivor]

Agent Jeff:

What companies are selling ULs with rates below the average AAA muni bond?

 

[slushhhpuppie]

Agent Jeff:

What companies are selling ULs with rates below the average AAA muni bond?

EIUL returns (depending on allocation of course) average substantially more that a AAA muni. The client wouldn't have to pay a b/d concession either.

I would rather put my money in the EIUL with more upside potential than a muni.