SECOND THOUGHTS on Whole Life Insurance 1 Year in - ADVICE???

[frymiller]

THANK YOU everyone for the input - sorry for the delay in response (crazy holiday weekend)

We have a whole life policy through Ohio National. It pays dividends, which get re-invested to buy more death benefit. However, I did notice their dividend payments have steadily decreased over the past 20 years. The policy does pay the premium in the event of disability.

I'm concluding that the policy is a decent (but not great) retirement investment, but a bad college savings plan. Golfnut's logic makes sense on this, which is something our agent should have pointed out. For that reason, we are leaning toward dropping one of the 2 policies, and taking advantage of our unused 457b and/or a 529.

Any idea what Ohio National pays for commission, or whether dropping after 1 year would affect our agent's commission?

 

[Golfnut2112]

No you dont. You can withdraw Basis as well if you wish to do so.

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Also, the policy bought most certainly does matter. There are some very crappy participating WL policies out there that pay very little in dividends. Some even pay zero dividends despite being called a "participating" policy. No matter what, I would never recommend certain WL policies no matter what the situation is.

I have a whole life policy the only thing I can withdraw are the dividends then I have to loan it out. The reason I said it didn't matter what whole life the OP had was because of the loan interest he would have to pay while he withdrew the money for college. He could have the highest dividend product out there but paying to thousands a year in loan interest when he could have the money tax-free would not be a recommendation I would make. When you factor he said he has ample term and the fact they make $240,000 it will not help to reposition any assets for the FAFSA.

 

[DHK]

Golfnut2112,

I want to give you a shout-out because I have concluded that you are RIGHT! My terminology is 'sloppy' compared to what it should be.

When a loan is taken against a life insurance policy, there is interest charged up front by the insurance company. That's a given. At that point, there is a RISK to the policy regarding where the anticipated earnings will come from - the insurance company or the insurer who took out the loan.

You don't "keep the interest" (because the insurance company charged interest up front)... but you do REIMBURSE your policy for the interest charged on the outstanding loan when you pay at least the annual interest charges. The risk on the policy is now on the policy holder for the loan & interest charged, NOT the insurance company, so this increases the risk on the policy to keep it in force. That doesn't mean you shouldn't or can't take out the loan, but realize that that risk transferred to the policyholder to make those payments.

It's a slight difference, but terminology is everything in this business, so I will be amending my materials to reflect a more precise wording.

Thank you for the ongoing debate. You've made me think and I will adjust accordingly.

 

[Golfnut2112]

Golfnut2112,

I want to give you a shout-out because I have concluded that you are RIGHT! My terminology is 'sloppy' compared to what it should be.

When a loan is taken against a life insurance policy, there is interest charged up front by the insurance company. That's a given. At that point, there is a RISK to the policy regarding where the anticipated earnings will come from - the insurance company or the insurer who took out the loan.

You don't "keep the interest" (because the insurance company charged interest up front)... but you do REIMBURSE your policy for the interest charged on the outstanding loan when you pay at least the annual interest charges. The risk on the policy is now on the policy holder for the loan & interest charged, NOT the insurance company, so this increases the risk on the policy to keep it in force. That doesn't mean you shouldn't or can't take out the loan, but realize that that risk transferred to the policyholder to make those payments.

It's a slight difference, but terminology is everything in this business, so I will be amending my materials to reflect a more precise wording.

Thank you for the ongoing debate. You've made me think and I will adjust accordingly.

Your welcome!! Unbelievable 8 pages on this, you could tell I was bored yesterday. Lol

 

[scagnt83]

I have a whole life policy the only thing I can withdraw are the dividends then I have to loan it out. The reason I said it didn't matter what whole life the OP had was because of the loan interest he would have to pay while he withdrew the money for college. He could have the highest dividend product out there but paying to thousands a year in loan interest when he could have the money tax-free would not be a recommendation I would make. When you factor he said he has ample term and the fact they make $240,000 it will not help to reposition any assets for the FAFSA.

I never mentioned anything about FAFSA. I agree it is not a factor for the OP.

You are arguing about what is essentially phantom interest as long as the policy stays in-force. Which is better? Who cares. A quality WL Policy and a Bond Fund are going to do about the same thing. Some people like the other features a WL gives, others prefer the features a bond fund within a Roth or 529 gives. Some believe in the business model of a mutual insurer over a basket of corporations, some dont. Some feel they will likely need life insurance beyond age 60, some dont. Etc. etc.

But you said you have a NYL policy right? You can withdraw the Basis from it.

 

[Golfnut2112]

I never mentioned anything about FAFSA. I agree it is not a factor for the OP.

You are arguing about what is essentially phantom interest as long as the policy stays in-force. Which is better? Who cares. A quality WL Policy and a Bond Fund are going to do about the same thing. Some people like the other features a WL gives, others prefer the features a bond fund within a Roth or 529 gives. Some believe in the business model of a mutual insurer over a basket of corporations, some dont. Some feel they will likely need life insurance beyond age 60, some dont. Etc. etc.

But you said you have a NYL policy right? You can withdraw the Basis from it.

Whole life does not have phantom interest it is real and needs to be paid either by check or dividends. You can only withdraw the basis from a UL type policy. Whole life you can only withdraw the dividends and then it must be loaned.

 

[scagnt83]

Whole life does not have phantom interest it is real and needs to be paid either by check or dividends. You can only withdraw the basis from a UL type policy.

Obviously, Im using the term "phantom" loosely. But its not far off. The Dividends pay back any interest. You talk like you get a bill each year that you have to cut a check for out of pocket. Or that the interest is taking away from the Net return that is being used in comparisons and assumptions.

WL is going to NET (after loan interest) about the same as a bond fund. The policyholder does not have to pay the interest back, as it is paid internally via dividends and interest.

You are arguing semantics when it comes to the interest. Evaluate the NET return and the NET out of pocket costs. Thats all that really matters unless you just want to argue for the sake of arguing.

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Whole life you can only withdraw the dividends and then it must be loaned.

Incorrect. Perhaps you have a policy that does not allow it. But generally speaking, that is not how all WL works. I will put a $100 bill on it.

You can Withdraw (Surrender) the Basis on your NYL policy. I know because I used to work for NYL and sold many of their WL policies.

You can Surrender Basis from a Mass Mutual Policy.
You can Surrender Basis from a Guardian Policy.
You can Surrender Basis from an Ohio National Policy.

Instead of going back and forth about it, just go run an illustration. It will allow you to do it.


Perhaps part of your issue with WL is that you just dont fully understand the product. Because you are incorrect in your assumption. Dont get me wrong, I dont think its the end all be all financial tool. But its a solid way to grow money safely and securely. Its also a solid way to ensure you wont spend $100k+ in retirement on GUL. Neither of those are bad things imo.

 

[jboussea]

The problem with Golfnut' assessment is that the OP already has a WL policy that they're already paying premium towards..

We all can have our biases and opinions about what's better .. but it would be dangerous for any of us telling someone to forego the IRA/529 and use WL instead ... it would be just as dangerous for someone to tell the OP to forego the WL and put it in securities... especially if her policy is designed properly so why not figure that out .. instead of making blanket statements about WL not being a tool for college..

 

[Golfnut2112]

Obviously, Im using the term "phantom" loosely. But its not far off. The Dividends pay back any interest. You talk like you get a bill each year that you have to cut a check for out of pocket. Or that the interest is taking away from the Net return that is being used in comparisons and assumptions.

WL is going to NET (after loan interest) about the same as a bond fund. The policyholder does not have to pay the interest back, as it is paid internally via dividends and interest.

You are arguing semantics when it comes to the interest. Evaluate the NET return and the NET out of pocket costs. Thats all that really matters unless you just want to argue for the sake of arguing.

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Incorrect. Perhaps you have a policy that does not allow it. But generally speaking, that is not how all WL works. I will put a $100 bill on it.

You can Withdraw (Surrender) the Basis on your NYL policy. I know because I used to work for NYL and sold many of their WL policies.

You can Surrender Basis from a Mass Mutual Policy.
You can Surrender Basis from a Guardian Policy.
You can Surrender Basis from an Ohio National Policy.

Instead of going back and forth about it, just go run an illustration. It will allow you to do it.


Perhaps part of your issue with WL is that you just dont fully understand the product. Because you are incorrect in your assumption. Dont get me wrong, I dont think its the end all be all financial tool. But its a solid way to grow money safely and securely. Its also a solid way to ensure you wont spend $100k+ in retirement on GUL. Neither of those are bad things imo.

You are right about the withdrawal to basis!! I just called Ohio National and they said it can be done. I never use insurance as a savings tool and I was unaware that you can do that. That being said I'm sure I still won't use it as a primary bank on yourself kind of thing but it's good to know if any of my clients or myself needs money out of a WL it can be doing without incurring interest charges.

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The problem with Golfnut' assessment is that the OP already has a WL policy that they're already paying premium towards..

We all can have our biases and opinions about what's better .. but it would be dangerous for any of us telling someone to forego the IRA/529 and use WL instead ... it would be just as dangerous for someone to tell the OP to forego the WL and put it in securities... especially if her policy is designed properly so why not figure that out .. instead of making blanket statements about WL not being a tool for college..

The one important piece of info the OP left out was the age of his children. He is 35 his kids may already be older and WL may not have the time to show a positive rate of return.

 

[Tothetop]

Had a friend explain to me why whole life is a scam as she hears from Dave Ramsey...mind you she owns two whole life policies.

I, like you Golf, hate when people oversell whole life like its an investment but you not knowing you can surrender to basis a whole life policy should have ended your side of the debate back on page 2 maybe even page 1...no offense