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 Posted: Thu Apr 16, 2009 2:27 pm Post subject: |
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Except for the fact that they are getting their money and the insurance. It's just that the amount of insurance decreases as the cash increases.
Look at your scenario. A UL/VUL policy has a death benefit of $500,000 and a cash value of $200,000. The insured isn't paying for $500,000 of coverage. They are only paying for $300,000 of coverage. If they die, the beneficiaries will get all of the life insurance, $300,000, + all of the cash, $200,000, for a total of $500,000.
They could always elect to take an increasing death benefit in which case, they will keep paying for $500,000 of insurance and at death, they will get $500,000 + the cash value.
I know that you know this. Your clients should know this also as should anyone who is reading what you write. It's simply not true that the insurance company is taking any of the insured's money. |
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InsuranceExpert
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| Posted: Thu Apr 16, 2009 6:02 pm Post subject: |
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| I understand exactly what you are saying, it's just a way of illustrating the fact that if you have $200k in cash value and the insured dies, you're not getting $700k, you're still only getting the same $500k that you had when the policy started. It just cost you a hell of a lot more money to get to that point. |
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dgoldenz
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| Posted: Thu Apr 16, 2009 6:16 pm Post subject: |
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Let's follow your logic a little further. If someone dies with a $500,000 UL/VUL, the family will only get $500,000. The extra money is basically vanishing. Therefore, they should minimally fund a UL policy. This extra money, the difference between the VUL policy and the minimally funded UL policy, could be invested, and at death, the client will get both the $500,000 and the side fund.
Anyway, following this logic, shouldn't they just buy term insurance? The insurance costs will be even less. Thus, there will be more money invested, thus, the side fund will be bigger and there will be more money at death. There will also be money "at life" if the person ever decides to not keep the coverage. |
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InsuranceExpert
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| Posted: Thu Apr 16, 2009 6:24 pm Post subject: |
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| Quote: | Let's follow your logic a little further. If someone dies with a $500,000 UL/VUL, the family will only get $500,000. The extra money is basically vanishing. Therefore, they should minimally fund a UL policy. This extra money, the difference between the VUL policy and the minimally funded UL policy, could be invested, and at death, the client will get both the $500,000 and the side fund.
Anyway, following this logic, shouldn't they just buy term insurance? The insurance costs will be even less. Thus, there will be more money invested, thus, the side fund will be bigger and there will be more money at death. There will also be money "at life" if the person ever decides to not keep the coverage. |
If the client is looking for pure death protection, the cheapest UL from a good carrier with minimal cash value would be the way to go. However, some companies (like Sun Life) suck out nearly ALL of the cash value and there may be another carrier for only a few bucks more a year that will build more cash value over time. In that case, I'd go with the other carrier.
Sure, they could buy term insurance, but what happens when they have that heart attack in year 28 of their 30 year policy? Conversion option may be gone, and even if it's not, you're 28 years older and paying a ridiculous premium for the conversion. The best solution for most people is a combination of term and permanent to leave a "safety net" of sorts for once the term coverage drops off (if not converted or re-written). If they have 100% term and they outlive the term, become uninsurable, or can't afford the premiums for a conversion, they're screwed. Having that safety net avoids that trap from the beginning. Only ~2% of term policies ever pay a claim, which I'm sure you already know. Would you want to take the chance that you'll be in that 2%, or pay more up front to guarantee that you WILL get the death benefit as long as those premiums keep getting paid? |
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dgoldenz
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| Posted: Thu Apr 16, 2009 6:58 pm Post subject: |
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(I'm assuming a 6% investment return.)
A healthy 30 year old male should be able to buy a $1,000,000 guaranteed UL product for $3500/year. A 30 year term product would cost $670.
If that heart attack kills him, his family will end up with over $200,000 additional if he went with the term insurance instead. The UL will end up better for our mythical person only if he dies between the ages of 60 and 83. If he dies before the term expires, he would have been better off with the term insurance. If he lives past 83, the death benefit will be less than the side fund.
The UL only wins if he dies between the ages of 60 and 83 AND nothing ever happens that causes him to cancel his policy.
By the way, I happen to agree that the best solution for many people is a combination of term insurance and permanent insurance. I just think that the permanent insurance should be a participating whole life policy.
If death occurs early, term insurance is the best. If death occurs "late", whole life insurance is the best.
(I do like guaranteed UL policies, but only at older ages.)
P.S. It's easy to show that a combination of WL/Term will beat a GUL at all ages if the insured isn't old at time of purchase...based upon identical premiums. |
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InsuranceExpert
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| Posted: Thu Apr 16, 2009 7:16 pm Post subject: |
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A U/L funded with the minimum premium is sometimes referred to as a "Power Term" policy. In some cases, this type of plan will be less expensive than a pure term policy - especially when a person's health has drastically worsened, their responsibilities have changed, or their budget won't support keeping a term policy until age 90.
I've found that in order to keep a Power Term policy over a long period of time (20 years or more) a policy owner SHOULD have at least a basic understanding of the product. He/she needs the ability to monitor both the policy's cash value (keeping it just above zero) and ever-increasing cost of insurance. It a delicate balance but it can be done successfully.
It would certainly make sense for an agent to keep in touch with the policy holders and continue to service the policy over that 20 year period, but seriously, how likely is that?
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InsInvestigator
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| Posted: Thu Apr 16, 2009 7:25 pm Post subject: |
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| The odds of a healthy 30 year old male dying before age 60 are slim to none. The real issue here is that nobody ever invests the difference with term. People who are looking to accumulate funds in a VUL often want to dump in extra premium to accumulate tax-free, so the money is already there to be invested. Very, very few people have the discipline to set aside the difference in premium to "invest the rest" when buying term. |
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dgoldenz
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| Posted: Thu Apr 16, 2009 7:44 pm Post subject: |
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The odds of a healthy 30 year old male dying before age 60 are slim to none. The real issue here is that nobody ever invests the difference with term. People who are looking to accumulate funds in a VUL often want to dump in extra premium to accumulate tax-free, so the money is already there to be invested. Very, very few people have the discipline to set aside the difference in premium to "invest the rest" when buying term.
If the chances are slim to none, why buy life insurance? The people for whom I have paid death claims would disagree with that slim to none comment.
I'm far from being a termite. However, I think that the line that people won't "invest the rest" is a b.s. line. If they won't do the investments, why would we think that they would pay a life insurance premium forever? Regardless, a whole life/ term combo will be better than the guaranteed UL policy. The cash surrender value will be higher if the person ever wants to cancel and if the person lives a long time, the death benefit will be higher. |
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InsuranceExpert
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| Posted: Thu Apr 16, 2009 7:50 pm Post subject: |
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"A U/L funded with the minimum premium is sometimes referred to as a "Power Term" policy. In some cases, this type of plan will be less expensive than a pure term policy - especially when a person's health has drastically worsened, their responsibilities have changed, or their budget won't support keeping a term policy until age 90.
I've found that in order to keep a Power Term policy over a long period of time (20 years or more) a policy owner SHOULD have at least a basic understanding of the product. He/she needs the ability to monitor both the policy's cash value (keeping it just above zero) and ever-increasing cost of insurance. It a delicate balance but it can be done successfully.
It would certainly make sense for an agent to keep in touch with the policy holders and continue to service the policy over that 20 year period, but seriously, how likely is that?"
It should be easy to keep in force without much monitoring since they can now be done on a guaranteed basis. In fact, with these policies, the cash value is often zero. The policies are basically "life time term" or if one wants, they can be designed to stay in force until any age.
Term is designed for temporary needs. If someone is planning to keep a term policy until age 90 or for the rest of their life, they could very easily pay premiums that are higher than the death benefit. If someone wants insurance for the rest of their lives, that portion obviously needs to be permanent coverage. |
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InsuranceExpert
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| Posted: Thu Apr 16, 2009 8:44 pm Post subject: |
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You are correct. I did not think of the new guaranteed U/L products, nor did I consider the term with an ROP rider. When I was in the field, these products did not exist.
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InsInvestigator
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| Posted: Tue Apr 21, 2009 2:17 am Post subject: |
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| Quote: | Hello,
Right now I'm thinking to apply for a life insurance. But I'm still wondering, if there's any insurance that also enable us to invest some of our fund in stock share.
If there's one, it will be great. I mean instead of getting a benefit from it we can make our money grow this way. |
well, i think yes, there have this type of of life insurance with investment plan policy existed. You have take careful consideration when deciding to purchase such type of plan. The insurance company make a plan sound like you will have coverage for all the premium that you paid, but then actually part of your premium fund is used in their investment to stock, and you are not getting to full coverage as you paid. It is just like you actually buying 2 plan one for life insurance, another 1 for invesement plan.
To put it simple, let say you bount $600,000 plan, then you can ask your insurance to do adjustment for the the plan like $400,000 for life insurance and remaining $200,000 for investment plan. The good things of this type of plan is when you having financial problems in future, your investment plan profit can be used to pay for your premium, and wont cancel your policy plan. |
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eddielkk
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| Posted: Tue Apr 21, 2009 3:52 am Post subject: |
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"To put it simple" Huh?
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Please feel free to go to my website at www.markcolbert.com or, if you have a specific question, you can email me directly. I hope I can answer any questions you might have. If not, I can certainly find an answer right away. |
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InsInvestigator
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| Posted: Tue Apr 21, 2009 5:48 am Post subject: |
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| i am confused.if i give $100000 to a life insurance company then what will be return it will be $100000 or more than it.does they will pay me any profit |
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asianking
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| Posted: Tue Apr 21, 2009 6:42 am Post subject: |
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| Quote: | | i am confused.if i give $100000 to a life insurance company then what will be return it will be $100000 or more than it.does they will pay me any profit |
It depends on your policy, you should only check the terms and conditions with your policy plan before signup for the plan. Different insurer having different plan in their return profit. Some plan may not able to make you in profit, but more to insurance coverage. |
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eddielkk
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| Posted: Sun May 10, 2009 4:16 am Post subject: Mixing Insurance with investment |
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but you take insurance with investment, the most advantage is this that its tax free, whatever the cash value becomes,you can take out without paying tax on it. what other people say that we should mix up inv with insur
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