Tips for Buying Permanent Insurance?

[dgoldenz]

It sounds like OP wants to argue about BTID vs WL for argument's sake. If I had a client that wanted to get this in-depth analytical with all sorts of hypothetical scenarios, I'd tell them to find a new agent.

No offense OP, but you are a headache client that will ask a million questions and then not buy anything, or buy it from the guy who already quoted it for you instead of the one that actually took the time to answer your questions. If I were you, I'd pick up the phone, call DHK, have a conversation, and make a decision. There, I made it easy for you.

 

[DHK]

I'm not licensed in TX... and not looking to do so anytime soon.

There, I made it harder for him now.

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Another video talking about accumulated wealth, lifestyle wealth, and transferred wealth. It might help... but who knows?

 

[LostDollar]

Uh-Oh, that looks like one that I'm going to have to watch.

I heard the word buckets go by in a conversation with the fella that's going to help me.

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It sounds like OP wants to argue about BTID vs WL for argument's sake. If I had a client that wanted to get this in-depth analytical with all sorts of hypothetical scenarios, I'd tell them to find a new agent.

No offense OP, but you are a headache client that will ask a million questions and then not buy anything, or buy it from the guy who already quoted it for you instead of the one that actually took the time to answer your questions. If I were you, I'd pick up the phone, call DHK, have a conversation, and make a decision. There, I made it easy for you.

I can't comment on all the things you said, but my observation from the sidelines is that the op may not fully appreciate the quantity and quality of the advice he has received.

 

[atxeng]

It sounds like OP wants to argue about BTID vs WL for argument's sake. If I had a client that wanted to get this in-depth analytical with all sorts of hypothetical scenarios, I'd tell them to find a new agent.

I want to understand why WLI is a better investment than BTID. All sorts of hypotheticals? I'm looking at one really. The Current Value projections of WLI vs a Current projection of similar low-risk bonds and term. It's a pretty straight forward projection it seems.

You guys and my broker/adviser are advocating WLI and the best scenarios show that it underperforms compared to bonds. I keep pointing this out and I'm told to read a poem and think about buckets of water. That's all good and fine, but I'd like to actually discuss quantitatively why WLI might be a better choice.

Some users have actually given great input, criticism and advice like asking to adjust the policy to maximize cash value or consider market corrections that seem to happen every couple of decades or how WLI dividends more quicklyadjust to current market rates rather than locked in 30-year rates. This is the good conversation, not ad-hominem attacks and throwing your hands up when I point out that the best case scenario projections have an RoR similar to the guaranteed T-Bill rate....

Can you guys not engage in actual discussion ?
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PS, I don't know about you, but paying a 50%+ sales commission fee seems like a mighty big hole in my bucket. This is a huge unnecessary transfer of wealth that does not exist in a BTID strategy. So I'm trying to understand why making this hole in my bucket is worth it in the long run.

 

[DHK]

You bought your home, correct?

Why did you buy your home? It made more sense for the long-term, right?

What rate of return are you anticipating for your home's appreciation? I'm willing to bet around 3% - because anything higher would certainly be a bubble, waiting to burst.

Why don't you rent and save the difference? Oh, because buying a home is an emotional purchase + you have a lot of interest deduction. Well, that interest deduction isn't going towards your equity, but you "feel better" with that "sales charge" because you have something to "show off".

Won't you pay a realtor commission when you sell the house? That's 6% of the sales price. That's a big "hole" isn't it?

You don't have the same bragging power with WL as you do in buying a home, nor tax-deductible interest payments. However, WL will essentially GUARANTEE (aside from dividends) that asset will grow and receive interest and a great bet of continuous dividends. Your home will NOT pay you dividends in ownership.

Term vs WL

Rent or buy your coverage. It's up to you and makes about as much sense as it does in buying or renting a place to live.

 

[Tahoe Ray]

I want to understand why WLI is a better investment than BTID. All sorts of hypotheticals? I'm looking at one really. The Current Value projections of WLI vs a Current projection of similar low-risk bonds and term. It's a pretty straight forward projection it seems.

You guys and my broker/adviser are advocating WLI and the best scenarios show that it underperforms compared to bonds. I keep pointing this out and I'm told to read a poem and think about buckets of water. That's all good and fine, but I'd like to actually discuss quantitatively why WLI might be a better choice.

Some users have actually given great input, criticism and advice like asking to adjust the policy to maximize cash value or consider market corrections that seem to happen every couple of decades or how WLI dividends more quicklyadjust to current market rates rather than locked in 30-year rates. This is the good conversation, not ad-hominem attacks and throwing your hands up when I point out that the best case scenario projections have an RoR similar to the guaranteed T-Bill rate....

Can you guys not engage in actual discussion ?
====
PS, I don't know about you, but paying a 50%+ sales commission fee seems like a mighty big hole in my bucket. This is a huge unnecessary transfer of wealth that does not exist in a BTID strategy. So I'm trying to understand why making this hole in my bucket is worth it in the long run.

We (insurance agents) make more money on term than a properly funded WL policy assuming the same premium.

If you would stop comparing this to BTID and switch your thinking to buy term and invest in stocks, bonds, and WL, you'll likely see a more fair comparison.

I won't go into an extensive analysis for someone who isn't my client but as others have said, the original policy that you were shown is likely inefficient.

Work backwords...how much life insurance do you need to replace income should you pass away and for how long? Buy term for that (and don't buy it from Mass due to cost)

How much permanent insurance do you want and how much income do you want from it?

Fund accordingly.

Ask your Mass agent to max the LISR rider and use a policy that is paid up as quickly as you can afford (not vanishing premium, but a real 20 pay or pay to 65 as examples...). That should max your IRR.

Also, make sure you follow dgoldenz's advice and make sure that you've maxed your DI before you consider this.

Frankly, I don't think that you're making enough money to make all of this work. Pick your spots.

 

[atxeng]

www.youtube.com/watch?v=FtFnrSIY0eY

Yea, I'm not really sure what you are getting at here? Paying yourself 5% on your personal bank loan? From what I can tell, that's not how WLI works. You take a loan from the insurance company and use your cash value as collateral. You are not paying yourself that 5% interest on the loan. Your paying the lender, the insurance company that 5%. The only way it makes sense is if you are earning a higher RoR in the dividend rate. And that would be the arbitrage. The delta in the dividend rate minus the loan interest rate.

That's no different fundamentally from getting the 0% loan from the bank and keeping the money invested in your Vanguard account earning whatever interest rate.

The thing it seems we need to compare is what that arbitrage rate is. If I'm getting a 6% dividend and paying a 5% loan, that's only a 1% return.... or if I'm earning that 6% invested regularly and paying a 0% loan, that's a 5% return.

It seems that this still is not a good argument point for using insurance as your personal bank.

 

[kgmom219]

It seems that this still is not a good argument point for using insurance as your personal bank.

Yeah.

William and Phillip Wrigley thought WL was a scam, too.

Then they both died in the same calendar year and the heirs had to sell the Cubbies to pay the inheritance tax. (And did the biggest IRS screw EVER to keep an island, but that's another story)

Look. Buy it. Don't buy it. Go 50-50 on bonds. Whatever.

No one on here has any skin in the game and all you want to do is argue with people who have way more experience than you. I'm starting to think you are going to continue to argue until you get someone to agree with you.

 

[DHK]

Yea, I'm not really sure what you are getting at here? Paying yourself 5% on your personal bank loan? From what I can tell, that's not how WLI works. You take a loan from the insurance company and use your cash value as collateral. You are not paying yourself that 5% interest on the loan. Your paying the lender, the insurance company that 5%. The only way it makes sense is if you are earning a higher RoR in the dividend rate. And that would be the arbitrage. The delta in the dividend rate minus the loan interest rate.

You're wrong. Flat out wrong.

If you have $100,000 in a cash value life insurance plan earning 4%, you earn $4,000 of interest in that year, correct?

If you take out a loan of $50,000 against that life insurance policy, paying 4% interest, you will owe $2,000 of loan interest, correct?

Where do you think the insurance company collects that interest from? YOUR POLICY UP FRONT.

Where do you think you pay that interest BACK to? THE LOAN AGAINST YOUR POLICY.

If you don't pay the interest out of your pocket, then: $4,000 earnings - $2,000 loan interest = $2,000 net gain in your policy.

But if you DO pay the interest out of your pocket, then: $4,000 earnings - $2,000 loan interest + $2,000 interest payment out of pocket = $4,000.

The reason this works, is because the interest and dividends are NOT AFFECTED by the loan in calculating the amount of interest and dividends to credit the policy. However, the loan does have a cost, and it must be factored into the total policy performance.

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Now, if you're smart, you pay back your policy FAR MORE than just the minimum loan interest each year.

Part of this whole "banking" idea is that you need to THINK like a banker. Bankers expect to get principal and interest payments back within 30-45 days of issuing a loan. So don't think it's just about borrowing and never repaying. The only way to keep a plan like that alive and viable, is to THINK as a true banker thinks - and to pay as much back to your policy as possible.

 

[aureo11]

Atx,

A couple thoughts:

1. As a 30 year old, assuming you are in good health and your main objective is cash value, you should be able to get a blended policy put together that has 70-85% of your cash available after the first year,and breaks even on an IRR basis after 5-7 years. By the time the policy reaches 10 years, your annual IRR to that point should be over 4%. Once fully matured, that policy will likely generate an IRR of 5%. If rates return to the 5%+ range again, then your return might even be a bit better.

Let's focus on the 10yr IRR a bit more. Currently, a 10yr US treasury pays 2.5%. That's what you can lock in if you hold to maturity. So the blended policy will likely outperform by 1.5% (yes it's possible dividends will continue to be cut, eating away that excess return, but my favored company hasn't cut their dividend rate for the last 5+ years).

Let's say in five years we see inflation rise, and your industry goes through a recession. You lose your job and need to access your cash. With the WLI, no problem, the policy loan can be taken very easily, has no set repayment terms, and your net cost to borrow is about 1%.
Your 10yr bonds on the other hand have lost half their value because 10yr rates are now at 6-7%, and you can't borrow money at a good rate because you are out of a job.

I have most of my money invested in the stock market, but I'm a strong believer that a well designed WLI policy should replace most of your bond/cash allocation in your portfolio. It's going to produce similar returns in bull markets and vastly outperform in bear markets because it does nothing but go up every year.

I don't have a license in Texas, but if you want to reach out via PM I'd be happy to share some more info about a properly designed blended policy.