what would be the purpose of getting a TERM Life policy?

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PostPosted: Thu Jan 15, 2009 4:44 pm   Post subject:   

Taking the same 30yr old male, but converting to a UL in yr 20:



January 15, 2009

Interest Adjusted Cost Analysis



Face Amount: (1) 100,000.00 (2) 100,000.00

Product 1: Term

20yr

Product 2: Whole Life

Whole Life

Interest Rate: 5.00% Tax Rate: 0.00%(Tax Deferred Vehicle) After Tax Rate: 5.00%

Year Age Premium 1 Premium 2 1 minus 2 Premiums Saved

1 30 127.00 1,056.00 -929.00 -975.45

2 31 127.00 1,056.00 -929.00 -1,999.67

3 32 127.00 1,056.00 -929.00 -3,075.11

4 33 127.00 1,056.00 -929.00 -4,204.31

5 34 127.00 1,056.00 -929.00 -5,389.98

6 35 127.00 1,056.00 -929.00 -6,634.93

7 36 127.00 1,056.00 -929.00 -7,942.12

8 37 127.00 1,056.00 -929.00 -9,314.68

9 38 127.00 1,056.00 -929.00 -10,755.86

10 39 127.00 1,056.00 -929.00 -12,269.11

11 40 127.00 1,056.00 -929.00 -13,858.01

12 41 127.00 1,056.00 -929.00 -15,526.36

13 42 127.00 1,056.00 -929.00 -17,278.13

14 43 127.00 1,056.00 -929.00 -19,117.49

15 44 127.00 1,056.00 -929.00 -21,048.81

16 45 127.00 1,056.00 -929.00 -23,076.70

17 46 127.00 1,056.00 -929.00 -25,205.99

18 47 127.00 1,056.00 -929.00 -27,441.73

19 48 127.00 1,056.00 -929.00 -29,789.27

20 49 1,000.00 1,056.00 -56.00 -31,337.53

21 50 1,000.00 1,056.00 -56.00 -32,963.21

22 51 1,000.00 1,056.00 -56.00 -34,670.17

23 52 1,000.00 1,056.00 -56.00 -36,462.48

24 53 1,000.00 1,056.00 -56.00 -38,344.40

25 54 1,000.00 1,056.00 -56.00 -40,320.43

26 55 1,000.00 1,056.00 -56.00 -42,395.25

27 56 1,000.00 1,056.00 -56.00 -44,573.81

28 57 1,000.00 1,056.00 -56.00 -46,861.30

29 58 1,000.00 1,056.00 -56.00 -49,263.16

30 59 1,000.00 1,056.00 -56.00 -51,785.12

31 60 1,000.00 1,056.00 -56.00 -54,433.18

32 61 1,000.00 1,056.00 -56.00 -57,213.64

33 62 1,000.00 1,056.00 -56.00 -60,133.12

34 63 1,000.00 1,056.00 -56.00 -63,198.58

35 64 1,000.00 1,056.00 -56.00 -66,417.30

36 65 1,000.00 1,056.00 -56.00 -69,796.97

37 66 1,000.00 1,056.00 -56.00 -73,345.62

38 67 1,000.00 1,056.00 -56.00 -77,071.70

39 68 1,000.00 1,056.00 -56.00 -80,984.08

40 69 1,000.00 1,056.00 -56.00 -85,092.09

41 70 1,000.00 1,056.00 -56.00 -89,405.49

42 71 1,000.00 1,056.00 -56.00 -93,934.57

43 72 1,000.00 1,056.00 -56.00 -98,690.09

44 73 1,000.00 1,056.00 -56.00 -103,683.40

45 74 1,000.00 1,056.00 -56.00 -108,926.37

46 75 1,000.00 1,056.00 -56.00 -114,431.49

47 76 1,000.00 1,056.00 -56.00 -120,211.86

48 77 1,000.00 1,056.00 -56.00 -126,281.26

49 78 1,000.00 1,056.00 -56.00 -132,654.12

50 79 1,000.00 1,056.00 -56.00 -139,345.62

51 80 1,000.00 1,056.00 -56.00 -146,371.71

52 81 1,000.00 1,056.00 -56.00 -153,749.09

53 82 1,000.00 1,056.00 -56.00 -161,495.35

54 83 1,000.00 1,056.00 -56.00 -169,628.91

55 84 1,000.00 1,056.00 -56.00 -178,169.16

56 85 1,000.00 1,056.00 -56.00 -187,136.42

57 86 2,477.00 1,056.00 1,421.00 -195,001.19

When comparing the rates of two different Life Insurance products it is

important to take into consideration the "time value" or "opportunity cost"

of money. This comparison has done that for you. By taking the year by

year difference in premium costs between two products and investing the

difference at an assumed "after tax" rate of return, we can determine which

premium paying method is more advantageous in any specific year.

For this comparison, Product 2 has been measured against Product1. The

Difference column will show a positive value if Product 2 is less expensive

than Product 1. A positive value in the Premiums Saved with Interest column

indicates a lower accumulating cost difference to the credit of Product 2.

These values are to the credit of Product 1 where negative results occur.

______________________________________________________________________ ______

NOTE: Every effort has been made to ensure the accuracy of this information

but we cannot guarantee accuracy and are not liable for errors or omissions.



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PostPosted: Thu Jan 15, 2009 4:48 pm   Post subject:   

victor,



I understand you have software that runs this type of analysis, but I just don't think they mean very much to the average insured.



Could you abbreviate these figures for us and just come up with a bottom line?



Thanks



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PostPosted: Thu Jan 15, 2009 5:00 pm   Post subject:   

Bottom line is that it's cheaper to buy term for as long as you can and delay buying a permanent policy for as long as you can (when your health deteriorates - CONVERT).



There are other reasons that it may be advantageous to buy a permanent policy now, but not because it is cheaper.



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PostPosted: Fri Jan 16, 2009 5:02 am   Post subject: insurance  

From what I understand, WHOLE Life gives you more 'coverage' ( 'cash-value, etc.) TERM Life limits your 'coverage'.............what would be the purpose of getting a TERM Life policy? Cheaper isn't always the 'best'...ya know?

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PostPosted: Fri Jan 16, 2009 8:53 pm   Post subject:   

Some people chose term not because it is cheaper, it is for the time frame, right, at least that is the way that I understand it.

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PostPosted: Fri Jan 16, 2009 9:34 pm   Post subject:   

If this fictitious 30 year old male bought a $100k UL with Sun Life in perfect health, he would only be paying $404 per year guaranteed FOREVER regardless of cash value (no-lapse guarantee). It's easy to say that when your health deteriorates, you should convert. How about when the carrier gets bought out by someone else and the conversion option is limited to the most expensive whole life product they sell? How about when the insured forgets when the conversion options is set to expire, lets it expire, but has already had two heart attacks?



How many people ever invest the difference anyway when buying term? Answer - very few. Buy term and invest the difference would be a great strategy if everybody's life turned out exactly they way they expected it to. Do you know anyone whose life turned out exactly the way they expected it to? I sure don't.

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PostPosted: Sat Jan 17, 2009 2:40 am   Post subject:   

Quote:
Do you know anyone whose life turned out exactly the way they expected it to? I sure don't.
Only one... Wink and we just celebrated his birthday last month! Wink Jokes aside you are of course correct, everyone knows they will die, but few plan well for it...and most people don't expect it as early as it comes! all very good points in your post dgoldenz


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PostPosted: Sat Jan 17, 2009 6:20 am   Post subject:   

Quote:
How many people ever invest the difference anyway when buying term? Answer - very few.




I'd agree with goldenz.....more often than not people stop thinking about life insurance after purchasing one. Many consider buying life policy is a duty and they have performed it by purchasing the first one available to them. We often don't analyze our lives requirements.



Moreover, most of us don't know what the right investment options are. Hence, though the idea of buying term life and investing the difference sounds interesting it often doesn't work that way.
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PostPosted: Sat Jan 17, 2009 7:19 am   Post subject:   

Quote:
Only one... and we just celebrated his birthday last month!




Some of you probably don't know that last month was our great Lori's birthday. So, its not hard for us to guess who she is referring to Wink
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PostPosted: Sat Jan 17, 2009 12:44 pm   Post subject:   

Quote:
Some of you probably don't know that last month was our great Lori's birthday. So, its not hard for us to guess who she is referring to
OH MY GOSH! Jeorge, I'm so embarrassed...no no no I didn't mean me (forgot my birthday month too) I meant Jesus! EmbarassedEmbarassed My life certainly didn't turn out ANYTHING (much) like I planned... Wink


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PostPosted: Fri Jan 30, 2009 9:23 am   Post subject:   

This forum has answered your question quite a bit on the difference between term and whole life policies. I would recommend that you study these topics yourself. There are many unbiased resources on the Internet that can provide you with the knowledge you need to make an informed choice.



I think the bottom line is what you can afford and what your personal needs are for life coverage. If you are a young family, you may want to choose term life insurance for now because it is cheap and offers you high death benefits. There are several options even within term life policies, such as the convertability option. This option allows you to convert to a whole life policy within a stipulated time frame. There are others who want a temporary life policy to cover temporary liabilities, and would rather choose term life rather than a whole life policy. For those who wish to be covered their entire life, a whole life policy would certainly suit their needs better.



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Disclaimer: I work for AccuQuote and this is my personal opinion.


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PostPosted: Tue Mar 24, 2009 10:07 am   Post subject:   

Akhilesh,



Do you really know what you said “suggest you to go for whole life below 40 years and after that go for term policies”



If person is already holding whole life policy which is covering the HLV based value absolutely, why should he will buying another term policy and that is after 40 years, especially after 40 years the medical underwriting is on higher side and so the rate of premiums.

Dude I think you should do little homework before writing any comments in forum.

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PostPosted: Tue Mar 24, 2009 1:12 pm   Post subject:   

Walle I think what Akh. was saying was IF you had NO life policys and went to purchase them prior to 40 a whole life policy would be your best best after 40 a term policy..mostly in terms of premium..there are many companys that sell term policys with little to medical underwriting...(see them on t.v. ads all the time Rolling Eyes )...anyway I think that's what Akh. was trying to get across.



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PostPosted: Wed Mar 25, 2009 8:57 am   Post subject: hi yesterday i told about difference in term life and whole  

go for term life you are in a win win situation

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PostPosted: Fri Mar 27, 2009 6:40 pm   Post subject:   

Victor27,



Your analysis is not compleat:



1) you are amusing a 5% after tax (12.5% taxable) return in a tax deferred account. if this is the case the you need an additional column with the true after tax account value....eg in year 40 you say there is $112,070. In reality if this where tax diferred (maybe in an annuity) you would only have $80,778 after tax ($112,070 with a basis of $33,840 and a 40% tax rate)



2) You need to take into consideration the cash value of the WL policy in every year. Eg. in year 40 you may have $112,070 (pre tax) but what is the cash surrender value of the whole life policy in that year (that would technically be considered a return of premium that would need to be taken into consideration).



3) You did not account for inflation.



4) A whole life policy may not be the best bet here....a UL will be cheaper and will have definable interest a fees while a Whole life dividend rate is not guaranteed and the true expense of the policy are hidden.



5) is this a Par or Non-Par whole life. If it is a Participating policy where are the dividends. The dividends should be put into a like side-fund and accrued at the same 5% as the premium difference. (You should also take into consideration the taxes on the interest in each case)



6) Where is the total AFTER TAX death benefit. This needs to be calculated (insurance DB + after tax side-fund value).



7) Are there estate tax issues....if so the side-fund will probably no be outside of the clients estate.



8 ) conversion to a UL or WL should be taken into consideration at key points and compared to the cost of the original WL.



My point is that this can be a very a very complex calculation. Sometimes it works out to do it one way and sometimes it does not.



As insurance Maze said....there is not one answer for this question. each client needs need to be evaluated and analyzed...along with the clients emotional situation....sometime a client just feels better one way or the other regardless of price.



Also I have never actually known a client to invest the difference....they all say they will but never do. For that fact alone the WL forces them to save/invest the difference (in the policy)....which is a good thing.

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