Tips for Buying Permanent Insurance?

[atxeng]

I have this spreadsheet posted elsewhere in the forum, but I'll reference it here for this thread. For a policy with maximum cash value accumulation, the LOWEST FACE amount for the given premium is required.

Note: This is NOT a regulated illustration.

I took a male, age 35, standard non-smoking classification with $10,000 annual premiums. I compared it to a base whole life and an IUL - both offered by the same company.

The results:
- Base whole life (not one I would recommend) but was not structured for high cash values - had an INITIAL FACE death benefit of $762,855.

It did not "break even" for 22 years! (You'll notice the bracketed cell.)

At age 65, the cash values were $356,000 compared to $300,000 in premiums paid.


- the IUL (properly structured and illustrated at a level 6.5% - which wouldn't happen either because it's based on an index segment performance) - had an INITIAL FACE death benefit of $363,164.

It broke even in year 8.

You'll also notice that in Year 5, it showed a "projected" cash values of $44,000. Remember my Year 5 & 75% cash value rule? 75% of $50,000 would be $37,500. $44,000 out of $50,000 is a projected 88% available cash value.

This had VERY LITTLE to do with the rate of return, but the structure of the policy.

At age 65 - "assuming" that 6.5% held for the entire time (it won't), the projected cash values would've been $750,000 over the $300,000 in total premiums paid.

Not sure if this attachment is supposed to convince me of anything. A few things:

If you are going to look at the 30-year projections, why did you calculate BTID using a 20-year term and then buying ad-hoc term at upwards of $30k/yr for the remaining 10 years? Seems very unfair. Just compare with a 30-year term policy.

The IUL column (green). $300k paid in to get $750k out after 35 years. This is about 3.1%. This seems pretty crappy. again, it seems that BTID would return better. 3.1% is easy to get. What am I looking at here?

 

[DHK]

"Life insurance never was and never will be an investment. Savings and investments are similar words, but as Mark Twain said - 'The difference between the similar word and the right word is the difference between lightning and the lightning bug.'"

I was showing you (based on an older illustration that I did a couple of years ago - as I wasn't going to create a new proposal for you) how life insurance can provide enhanced liquidity if properly structured with maximum premium and minimum death benefit.

You're still stuck on ROR on the cash values. I'm talking about liquidity and building savings. $750,000 of policy equity on a maximum-funded policy (as an example) compared to $300,000 of policy equity on a base policy is a MASSIVE difference.

As far as 3.1%... that's still about 4x as much as what banks are paying. You keep thinking that "that's easy to get". Are you comparing "like for like"?

There's also a lot that I'm not telling you on how permanent life insurance is superior to a 401(k), IRA, Roth IRA, 529 plans, and mutual funds. And I won't reveal all that because that's my intellectual property. Let's just say that on a checklist of about 23 different points, life insurance "loses" on only 2 - No tax-deductible contributions, and you don't get losses tax-deductible at capital gains rates (because there are no losses in fixed insurance contracts).

It's not MY JOB to convince you of anything. In all actuality, that's your agent's job. And so far, he's done a poor job of it if you have to come here to ask questions about his plan & policy.

 

[atxeng]

"Life insurance never was and never will be an investment. Savings and investments are similar words, but as Mark Twain said - 'The difference between the similar word and the right word is the difference between lightning and the lightning bug.'"

This is one of my points….why would I go through all this complex permanent life insurance stuff when Mark Twain is telling me to keep it separate. BTID keeps insurance and investment separate. It seems that Mark Twain does not advocate Permanent Insurances.

… how life insurance can provide enhanced liquidity … I'm talking about liquidity and building savings.

Permanent Life Insurance seems like a lot less liquid than any after-tax account…especially with a NEGATIVE IRR for decades and complex rules in order to access the CV via loans. An after-tax investment can be liquidated on almost any single day that the market is open. And I'm pretty sure both methods build your savings....except that WLI/IUL has a negative return for many many years if you try to liquidate.

If you’re going to argue that liquidity is good, then it seems that Permanent Life Insurance is the ANTITHESIS of that.

You're still stuck on ROR on the cash values. … $750,000 of policy equity on a maximum-funded policy (as an example) compared to $300,000 of policy equity on a base policy is a MASSIVE difference. …

Dude, are we on the same planet here? IRR and RoR is the standard metric for financial and economic decisions. Are we going back to this discussion point that I should be getting WLI because it makes me feel good rather than evaluating empirical returns compared to similar investments?

And $300k-->$750k over 30 years is most definitely not a MASSIVE difference. That is a 3.1% difference. That’s pretty terrible, especially considering that you projected using best case scenarios. That’s crappy. A worst case BTID scenario returns 3.2% guaranteed. Maybe we should focus on why you are advocating that 3.1% is a massive return and why you advocate that as a good investment?

As far as 3.1%... that's still about 4x as much as what banks are paying. You keep thinking that "that's easy to get". Are you comparing "like for like"?

I have no idea what you are talking about when you say 3.1% is 4x what banks are paying and then try to advise comparing like for like. Wtf, mate? Are you trying to compare best-case IUL to placing the same amount of cash in a checking account at your local credit union? Seriously? Again, guaranteed T-Bills pay 3.2%. AAA Muni bonds pay 5%. Corporate Bonds pay 5-7%. How about we actually compare like for like here?

This is the overarching point of my post and this entire discussion. It seems that "like-for-Like" permanent insurance does not compete with low-risk investments in an after-tax account including the cost of buying term insurance. Your data, my data, all the data shows that WLI appears to trail 1-2% behind a “like-for-like” investment.

I'm trying to figure out how or why this would actually be a good investment choice? Mark Twain says its a bad mix and all the data shows it has significantly lower returns than investing in low-risk bonds and the money is not as liquid as a regular investment and I can still get DB coverage with Term insurance. Help me understand your thought process here....

 

[DHK]

I did NOT "project a best case scenario here". I showed a 6.5% level return within an IUL policy. IUL uses stock options to capture upside market volatility of the underlying index segment (without dividends which is only paid to those who actually OWN stocks in the index). Current caps are around 12%. Current regulations limit the illustration to certain returns in the illustration.

I'm not your agent. Ask your AGENT to compare "like for like". After all, your AGENT is the one to get paid for doing all this. I just happen to be sick today.

I'm done.

 

[atxeng]

I did NOT "project a best case scenario here". I showed a 6.5% level return within an IUL policy.

OK, but that doesn't actually address any of the questions and points I just listed...You're telling me its a great investment, but the numbers show that its just OK, and about the same as a regular investment....and you tell me to compare like-for-like but then try to compare to a checking account interest rate...and then say that we shouldn't be using RoR at all...and you even had Mark Twain tell me your proposal should be avoided.

I'm so confused here.

 

[DHK]

Exactly. You are confused. And in order to clarify, would require that I show you my intellectual property of how I talk about permanent life insurance compared to everything else.

There is only one person on this forum who has seen it - and he has been in the industry for 30+ years, has his designations, and was one of my biggest critics. We no longer "battle" on this anymore.

I could "cure" your confusion... but that's not my job and I'm not going to show my intellectual property. I've disclosed enough, posted enough videos and other attachments.

Your agent is the one who screwed up. If he wants the sale, it's up to him to clarify his rationale for the recommendation and the long-term plan.

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I'll give you this last link. It's not mine, but perhaps you can see how different this kind of planning is:

Prosperity Economics: An Alternative to "Typical" Financial Planning - Partners for Prosperity LLCPartners for Prosperity LLC

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[LostDollar]

Unless term insurance has some kind of option to renew without evidence of insurability, there is a potential problem for a holder of term insurance if they plan on needing life insurance beyond the term of the term.

I've been looking at buying a small policy. I finally found an agent I'd like to use and a policy that is probably as good as I can get for my situation.

One small hitch. A few days ago I made a visit to the Dr.
When I entered the office, I was insurable. When I exited the office, I wasn't.

 

[kgmom219]

I don't sell life insurance. Or annuities. Or have a 6/63/7/67 or whatever the current popular numbers are for the SEC.

What I DO is spend a lot of time in financial planning meetings. For over 15 years. And this is what I have deduced from multiple planners from multiple companies, including Life companies (NWM, NYL, Mass, One America, etc) and investment houses.

1. Is Whole Life the answer to every problem? No.
2. Does Whole Life provide a critical piece to an overall strategic plan? Yes.
3. Does Whole Life (and annuities) provide coverage from lawsuits? Yes
4. Does Whole Life have the best return on investment? NEVER.
5. Can Whole Life provide cash when its time to pay for college and the market has crashed, so the 529 is decimated or at other critical times? Yes.
6. Do I have a lot of engineer clients? Yes.
7. Are Engineers the only ones who believe 4 letter words (or acronyms) can be used in business communication? Yes.
8. Do all my engineer clients know that I think they are a PITA and we laugh about it together? Yes.

No idea of your age or engineer specialty, but it sounds like you are at the point where you need to find an FP who is going to look at the whole picture (like DHK), not just sell you a whole life policy and move on.

This is INSURANCE. Its not always logical. If you want logic, you need to look elsewhere.

 

[pfg1]

Sounds like you have your mind made up. And you are probably right, BTID is probably the best for you. As an analytical, I can relate to how you are looking at it. But as others have mentioned, its not so easily compared. Its not all numbers.


Liquidity....yes, nothing complicated about it. I borrowed $3k from one of mine last year and had it ACH into my account the next day. It was easy and certainly not hard to understand how the loans work. Btw, I paid my loan back in like 6 mos, accrued a total of about $70 interest. My policy grew by more than my premium that year, as it does every year.

Fwiw, the last policy I sold had an IRR of right at 5% at yr 20. Client could pay in for 20yrs, then cash out 3x what they paid in for 20yrs and still had a nice perm db. Interestingly, they weren't concerned with ROR at all, in fact we never really discussed it.

Good luck.

 

[jboussea]

OK, but that doesn't actually address any of the questions and points I just listed...You're telling me its a great investment, but the numbers show that its just OK, and about the same as a regular investment....and you tell me to compare like-for-like but then try to compare to a checking account interest rate...and then say that we shouldn't be using RoR at all...and you even had Mark Twain tell me your proposal should be avoided.

I'm so confused here.

The goal of IUL is not to achieve higher return than BTID .. The goal is to achieve a great Risk adjusted return .. The risk profile is slightly riskier than a CD or checking account with returns slightly trailing the market in good times (like 80's and 90's.. backtested ..IUL did not exist back then) .. and beating the market in bad times (the last 16 years or so) ... but the most important thing for retirement purposes is ELIMINATING the Sequence of Returns risk ...

My suggestion is to read up on what current retirees are dealing with now. it's hard to understand it when you're 30 years old.. but someone who is 50+ who is about to retire .. starts worrying about the cash they have in the market, they want to continue to get good returns but they worry about a market correciton significantly reducing their planned yearly income in retirement. Because of that worry they also feel like they can't withdraw any more than 4 or so % of their total asset per year. you can imagine that if you have 1mil in asset one year and there is a market correction to 30% .. your yearly income at 4% goes from 40k to 28k in one shot. That's devastating if you have bills to pay. Although you might have more cash in your market accounts.. than your IUL account .. you might be able to safely withdraw somewhere in the 5-6 % range .. keep in mind that if you withdraw 5.5% of 800k .. you're at 44k a year.. plust you don't have to deal with the headache of knowing that you hae money that's exposed to all that risk.

With all that said .. does that mean having money in the market is bad? .. No .. it's just different .. you should know the risk beyond what financial advisors typically talk about. If you still rather take the risk . .then go for it.

Like I said earlier.. I rather have both ... use IUL or WL as a more predictable income..for the expenses and be more aggressive with my market investments .. and hopefully use that as my "play moneY" in retirement..