Cash Value Experts

[leo]

I was always told the cash value was the equity in the policy you don't add the cash value on top of the death benefit. But on IUL which I've never sold, I was told option B you get the death benefit and in addition you get the cash value on top of the death benefit.

Maybe I understood the person who told me this. Is it like a Prticipating WL where the DB is increasing which option B on a IUL is increasing . But they are not two separate buckets of money. The math wouldn't even make sense. Can someone clarify this with a simple explanation.

 

[scagnt83]

I was always told the cash value was the equity in the policy you don't add the cash value on top of the death benefit. But on IUL which I've never sold, I was told option B you get the death benefit and in addition you get the cash value on top of the death benefit.

Maybe I understood the person who told me this. Is it like a Prticipating WL where the DB is increasing which option B on a IUL is increasing . But they are not two separate buckets of money. The math wouldn't even make sense. Can someone clarify this with a simple explanation.

You only get the Death Benefit.

Option 2 on UL/IUL increases the DB by the same amount it increases the CV.

DB = CV + NAR (net amount at risk)

 

[PrivClientSG]

With WL, you are correct, simply put, no, you do not get the DB and the CV. However, both do have guarantees attached to them. In addition, with pure WL (no term, blends, etc.) you do get an increasing DB. While you do not get the DB and CV, unlike with UL-chassis products (which can offer the option B of "getting both" so to speak -- although you don't know what you are getting when looking into the future). In a UL-chassis product, there is no CV. It's a side fund. They may appear to be doing the same thing, serving the same purpose, but they absolutely are not.

Yes, some professionals will say with UL-chassis products (and using option B) the DB is the only mortality component, cost, etc., because the the side fund does not incur the same mortality expenses/costs as the DB. The problem I have with that statement is that it is not absolute. The side fund does have expenses, and while there may be a guaranteed rate of interest credited -- you don't know what the side fund dollars/amount will be -- because it is available to pay mortality charges if the premium paid is insufficient. This is what we see happening very often today, and yes, it's because UL products were incorrectly sold, funded, etc.

Option B is not an increasing DB. It is the DB plus whatever is in the side fund at that time. With WL once the dividend is paid, once the CV amount is credited to the policy, that amount becomes guaranteed. That is not the case with the side fund/UL. I never say that option B is an increasing DB. I will say WL has an increasing DB.

I am not sure if this really answers your question.

 

[DHK]

Memorize this formula for the rest of your career:

Net death benefit = cash values (plus dividends/interest) + (decreasing/set) net amount at risk with costs of insurance - any outstanding loans (and loan interest).

The cash values are a component of the death benefit, but they are not paid "on top of" the death benefit.

Option B policies murk up the formula a bit without clarifying. That's why I call it a 'set' net amount at risk + cash values. So if you have $200,000 set net amount at risk, that $200,000 is a set amount (until you change to option A where it decreases over time), then you add the cash values and that's your net death benefit.

Myth #1: "The Life Insurance Company Keeps My Cash Values When I Die"

First, I’m going to start with a rant and then show some understanding. The training in the life insurance profession is severely lacking, and I don’t just mean selling skills to help agents be successful. In my first agency, we had product training every Monday morning from 9am to 11am...

www.davidkinderfinancial.com

 

[Allen Trent]

I never say that option B is an increasing DB

Very true. I have seen alot of Option 2 ULs/VUL/IUL that are decreasing death benefit because the cash is shrinking from COI charges and loan interest being greater than Interest earned +Premiums each year

 

[WinoBlues]

Very true. I have seen alot of Option 2 ULs/VUL/IUL that are decreasing death benefit because the cash is shrinking from COI charges and loan interest being greater than Interest earned +Premiums each year

Yet, there are a lot of old illustrations and Annual Reports floating around that say Increasing Death Benefit or Death Benefit Option: Increasing.

 

[Allen Trent]

Yet, there are a lot of old illustrations and Annual Reports floating around that say Increasing Death Benefit or Death Benefit Option: Increasing.

They likely have to because the policy contract definitions likely call Option 2 "increasing". They could justify it I am sure, even today, by saying the death benefit is increasing over the face amount by the amount of the cash value, not that it will be increasing each year......especially with variable life which can take substantial losses in cash value.

 

[WinoBlues]

They likely have to because the policy contract definitions likely call Option 2 "increasing". They could justify it I am sure, even today, by saying the death benefit is increasing over the face amount by the amount of the cash value, not that it will be increasing each year......especially with variable life which can take substantial losses in cash value.

Oh you slicksters : -)

 

[PrivClientSG]

Yet, there are a lot of old illustrations and Annual Reports floating around that say Increasing Death Benefit or Death Benefit Option: Increasing.

Absolutely!

 

[Allen Trent]

Absolutely!

Still called Increasing in many carriers systems, illustrations & contract definitions. 5 examples below from new illustration, new contract, etc: