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Old 12-14-2012, 11:55 PM   #21
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I can't decide if I'm really under insuring my stay at home DW ($250k term).
They're always worth more alive than any of the alternatives...
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Old 12-15-2012, 04:12 AM   #22
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a better deal may be single premium life policies later in life.

if i leave my wife 1 million in my ira money thats taxable to her through rmd's.

but if i take some of that ira money and buy a spl policy of 1 million that policy is quite leveraged and wont cost me anywhere near the million bucks.

now my wife gets 1 million in totally tax free ,rmd free money. whatever is left in the ira money the kids will get and have their life time to pay the taxes on it.

the gamble of course is she dies first and then all bets are off but for the way things typically play out with us guys going first odds are it will play out as planned.
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Old 12-15-2012, 04:18 AM   #23
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Recently New York Life sent me some info about a whole life policy. The illustration sent to me is very complex. Not sure it's for me.
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Old 12-15-2012, 05:06 AM   #24
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they are very complex and the way many are marketed is really a lie.

there really is no savings aspect of a whole life policy.

nothing goes into savings like they like to talk about.

that big premium you pay is 100% premium for insurance.

you are paying for insurance right up to the grave and there is a big cost to something that can have a 100% pay off ..

the savings part is really just an agreement the insurance company makes to refund you some of that huge premium your paying if you cancel the insurance.

thats it, thats the whole deal in a nut shell.

that cash value is not even your money in your account . its the insurance companies asset not yours . it doesnt even exist until you ask for a refund.

its only a refund of SOME of your overpayment since your not going to be keeping the policy.

if you keep the policy your heirs get the face value and thats it. every benny you paid in was pure premium.

when the policy value is the same as the amount you sent in plus all the interest then usually at some ripe old age they just mail you back a check for the face value and have a nice life ,insurance is over..

basically you send them a whopper of a payment and just when it looks like your most likely to die your self insuring more and more on your own money.


great structure. when your younger and least likely to die you run on their money, as you age and more likely to die you self insure on your own.

the insurance companies had genius invention with that whole life concept.
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Old 12-15-2012, 06:35 AM   #25
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Recently New York Life sent me some info about a whole life policy. The illustration sent to me is very complex. Not sure it's for me.
+1 IIRC you're single, no kids so why would you need life insurance?
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Old 12-15-2012, 06:52 AM   #26
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they are very complex and the way many are marketed is really a lie...
They are actually very simple but the way they are pitched is often very complex.

You pay a fixed premium per period (year, quarter or month - you chose). If you die, your beneficiaries receive the face amount.

If you don't then at any point in time you can cash in the policy for its cash surrender value. The contract will include a schedule of minimum cash surrender values, but your actual cash surrender value will likely be more. The cash surrender value will be negligible in the early years of the contract and then will build.

The contract design is best for people who need life insurance protection for a very long time - which is why it is frequently referred to as "permanent" insurance. The premiums will typically be higher than term life insurance in the early years and lower than term life insurance in the later years - the entire design is to make the cost of insurance level so they collect more early and less later.

Most whole life is "participating" which means that the insurer will pay dividends based on how that group of policies performed.

That's it in a nutshell.
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Old 12-15-2012, 07:19 AM   #27
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Also, remember that before 2000, the estate tax exemption was $600k per person (and even now is $5M, with many expecting it to be reduced to perhaps $3.5M). Above that, the rate quickly rises to 40%+ - which doesn't take long for some estates. Gifting (in the 80s/90s) $10,000 or whatever it was - from each parent to each child (or even to a grandparent) - could allow quite a bit in annual premiums to be shifted into a LI policy.
My understanding is estate tax exemption drops to $1million at end of this year.

Person I know using life insurance as "wealth transfer vehicle" has one kid - I have no idea of their net worth - but I'd guess $2+ million.

Given that, there's no way you could gift enough at $13k/year.

So they'd be left with $1+million to be hit with estate tax - would pay upwards of 40% on tax.

So this person knows whole/universal life policies are "poor investments" - but if they transfer wealth tax free - even if their net return is 1/2 of a comparable "regular investment" - then the insurance could still transfer "more net wealth" because of tax advantages ?

Maybe unique case - but does seem like there's a reasonable argument.
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Old 12-15-2012, 08:10 AM   #28
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They are actually very simple but the way they are pitched is often very complex.

You pay a fixed premium per period (year, quarter or month - you chose). If you die, your beneficiaries receive the face amount.

If you don't then at any point in time you can cash in the policy for its cash surrender value. The contract will include a schedule of minimum cash surrender values, but your actual cash surrender value will likely be more. The cash surrender value will be negligible in the early years of the contract and then will build.

The contract design is best for people who need life insurance protection for a very long time - which is why it is frequently referred to as "permanent" insurance. The premiums will typically be higher than term life insurance in the early years and lower than term life insurance in the later years - the entire design is to make the cost of insurance level so they collect more early and less later.

Most whole life is "participating" which means that the insurer will pay dividends based on how that group of policies performed.

That's it in a nutshell.
i belive the dividends are a forced refund of overcharges.

when mortaility rates and markets allow the insurer to make to more money then the state boards allow they are required to return some of that overpayment in premium. they do it as a dividend.



it is a simpleconcept but one few really understand. especially the cash value part. few understand a premium is not part insurance payment and part savings.

its not at all . its all for the insurance premium . the cash value is only a refund of some premium money since the policy is front loaded and basically you payed way to much for insurance your not going to use.

if you ditch the policy that cash value is your refund for your overpayment.
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Old 12-15-2012, 08:53 AM   #29
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This is what OP is referring to: Single Premium Life Insurance - Who Should Buy It?

From the article below. The $5 million exemption (x2 for married) ends this year. So this approach for folks with $2+ million is viable ?

If youíre an affluent individual, youíre probably aware of the estate tax laws.

Letís assume youíre, 50 years old, in good health, married and have a net worth of $11 million dollars. With proper estate planning, you should only have to pay estate taxes on $1 million dollars, by using both your and your spouseís unified tax credit.

But that $1 Million is going to cost your estate $350,000! So that last million becomes $650,000 after taxes.

Hereís an idea for you. You wonít believe this. Life insurance is such an incredible leveraging tool.

If you have the liquid cash to pull this off, hereís what you could do:

Purchase a $1 million dollar guaranteed universal life insurance policy with a single premium of $133,114.
You could have the policy owned by a life insurance trust, therefore separating the $1 million death benefit proceeds from your estate.
The results:

Your taxable estate would be reduced by the amount of premium you spent on life insurance, so your new taxable estate would be $866,886 and estate tax due would be $303,410. So your estate tax is almost reduced by $50K!
Then your family takes your $1 million death benefit to pay the estate tax, which leaves them with $696,590.
Now your family inherits both your estate of $866,886 and the life insurance proceeds (after paying the taxes) of $696,590. Add them together and thatís $1,563,476.
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Old 12-15-2012, 10:29 AM   #30
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i belive the dividends are a forced refund of overcharges.

when mortaility rates and markets allow the insurer to make to more money then the state boards allow they are required to return some of that overpayment in premium. they do it as a dividend.



it is a simpleconcept but one few really understand. especially the cash value part. few understand a premium is not part insurance payment and part savings.

its not at all . its all for the insurance premium . the cash value is only a refund of some premium money since the policy is front loaded and basically you payed way to much for insurance your not going to use.

if you ditch the policy that cash value is your refund for your overpayment.
That's one way of looking at it. The premiums are somewhat redundant because if the stuff hits the fan then the insurer is on the hook to deliver the contractual benefits even if actual experience blows through the pricing assumptions - however, the redundancy is limited by market forces.

Actually, the regulator typically has little involvement in the determination of dividends, that is done principally by the insurers. Competitive pressures commonly provide and incentive to be as generous as one prudently can. In those rare cases where a company has very favorable experience and doesn't distribute it to policyholders, regulators will intervene.

While you look at the dividends as being a return of premium, the companies, regulators and others in the business tend to look at it as a return of favorable experience because if actual experience is less favorable then the dividends would be reduced. You could argue it either way (and I'm sure you will).
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Old 12-15-2012, 10:33 AM   #31
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This is what OP is referring to: Single Premium Life Insurance - Who Should Buy It?....
I think the OP was referring to recurring premium whole life insurance which could also be used in situations like that you quoted.

Either way, the idea is to have a source of cash flow to pay the estate taxes so assets that the insured owns and wants to pass to heirs (like a family business or farm or properties) don't have to be liquidated to pay the estate tax.
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Old 12-15-2012, 11:16 AM   #32
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My understanding is estate tax exemption drops to $1million at end of this year.

Person I know using life insurance as "wealth transfer vehicle" has one kid - I have no idea of their net worth - but I'd guess $2+ million.

Given that, there's no way you could gift enough at $13k/year.
....
Maybe unique case - but does seem like there's a reasonable argument.
You still need to do the math.

1) How much ins can you buy for $13K/year?

2) If you put $13K/year into a balanced fund, what return could you expect?

3) How many years would it take for the after tax value of that investment to equal/exceed the face value of the policy?


Also, though this is speculation, most of the analysis I've seen expects the exemption to be raised to $3.5M, and a lower rate (30% ?). I'm not trying to take this political, just trying to get to the facts - a significant number of Democratic Senators are in rural districts, and farmers are generally opposed to the estate tax, as it makes it hard to pass down the family farm to the next generation. I'm just pointing this out, that there is some opposition from some members of both political parties. It is not a straight partisan thing, so it seems likely, I think, that something along the $3.5M exemption will be passed.

-ERD50
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Old 12-15-2012, 11:29 AM   #33
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That's one way of looking at it. The premiums are somewhat redundant because if the stuff hits the fan then the insurer is on the hook to deliver the contractual benefits even if actual experience blows through the pricing assumptions - however, the redundancy is limited by market forces.

Actually, the regulator typically has little involvement in the determination of dividends, that is done principally by the insurers. Competitive pressures commonly provide and incentive to be as generous as one prudently can. In those rare cases where a company has very favorable experience and doesn't distribute it to policyholders, regulators will intervene.

While you look at the dividends as being a return of premium, the companies, regulators and others in the business tend to look at it as a return of favorable experience because if actual experience is less favorable then the dividends would be reduced. You could argue it either way (and I'm sure you will).

nah nothing to argue ,we both are in agreement pretty much.

i have a 40 year old universal life policy i was sold as a 19 year old kid.

its been running on itself for about 30 years now and still has the same value.

its actually handy at this point in life.

since this is a 2nd marriage and both of us are leaving everything to each other we both use insurance to leave our own kids at least something.

we didnt want each others kids to keep wondering when the surviving spouse will die so they can get their parents things.

a small policy to the kids solves that.
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Old 12-15-2012, 11:33 AM   #34
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This is what OP is referring to: Single Premium Life Insurance - Who Should Buy It?

From the article below. The $5 million exemption (x2 for married) ends this year. So this approach for folks with $2+ million is viable ? ...
An awful lot of assumptions there.

edit- sorry, missed the age, 50 yo, still need to do the math... How old are the insured? I'm guessing pretty young of the ins co is willing to accept $133K now and will pay $1M at a future date.

I think the ins premium would be taxable also. I don't think it is that easy to get money out of the estate. That is why this is usually illustrated by paying an annual premium with annual gifting - gifting below $13K per person flies under the radar (legally) of any gift taxes or estate tax exclusions.

And they don't subtract the 'opportunity cost' of that $133K, but that depends on returns and date of death. So you can't predict it, but it should not be ignored if you are trying to present an unbiased view.

It would be interesting to compare to say, a 20 year term ins of $1M - that covers you in case of early death, and would give time for the difference to be gifted each year, invested and grow.

-ERD50
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Old 12-15-2012, 03:03 PM   #35
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....i have a 40 year old universal life policy i was sold as a 19 year old kid....its actually handy at this point in life....
I hear you - I boughtwas sold a whole life policy when I was 21 and graduated college. By the time I knew better it was best to just keep it so I put the premiums on auto-pay and let it ride. The cash value is now equal to what I have paid in premiums plus 5.2% per annum interest so it could have been a worse outcome.
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Old 12-15-2012, 03:07 PM   #36
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Good question. That's what I told them, but they keep sending me stuff about their whole life products which I don't want.
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+1 IIRC you're single, no kids so why would you need life insurance?
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Old 12-15-2012, 03:09 PM   #37
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You pay a fixed premium per period (year, quarter or month - you chose). If you die, your beneficiaries receive the face amount.
If you don't then at any point in time you can cash in the policy for its cash surrender value. The contract will include a schedule of minimum cash surrender values, but your actual cash surrender value will likely be more. The cash surrender value will be negligible in the early years of the contract and then will build.
The contract design is best for people who need life insurance protection for a very long time - which is why it is frequently referred to as "permanent" insurance. The premiums will typically be higher than term life insurance in the early years and lower than term life insurance in the later years - the entire design is to make the cost of insurance level so they collect more early and less later.
Most whole life is "participating" which means that the insurer will pay dividends based on how that group of policies performed.
That's it in a nutshell.
You (and the insurance companies) kinda skipped over the part where the policy doesn't earn enough dividends to pay the cost of the premiums.

When my brother and I were born, my father bought whole-life policies on himself with us as beneficiaries. Five decades later, he had a three-inch correspondence file of all the fuss of the invested premiums not earning enough, taking loans against the policy to pay the premiums, paying off the loans, putting more money in to catch up to the higher premiums... and on and on.

Two years ago he exchanged the whole-life policies for a single-premium policy.

Ironically, after five decades of maintaining life insurance policies for us "kids", neither my brother nor I need the money. But imagine what the value would have been if he'd insured himself for just 20 years of term (until we were on our own) and then invested the difference.
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Old 12-15-2012, 03:09 PM   #38
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well i worked as a receptionist for a life insurance company when i was 19 going to school. they ended up selling me a policy .

i never even understood what i bought ,i just knew a bill came and i paid it .

this went on for decades until i learned .
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Old 12-15-2012, 03:11 PM   #39
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Just tell them that you are not a buyer and don't want them sending you materials anymore and that whatever they send you will be immediately recycled without even being looked at. With any luck they will conclude you are a waste of their time and go away. If they don't you can always call/write the insurer and complain.
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Old 12-15-2012, 03:25 PM   #40
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You (and the insurance companies) kinda skipped over the part where the policy doesn't earn enough dividends to pay the cost of the premiums.....
Whoa Nords.............specifically where did I suggest that the dividends would be sufficient to pay the premiums?

I didn't.

FWIW the most recent dividend on my whole life policy was 271% of the annual premium. The CSV at the last policy anniversary when I was 56 is 118% of the CSV at age 60 in the 1977 illustration I received (and still have).

So you're painting with a wide brush. I'm sorry that your dad had a bad experience but one bad apple doesn't spoil the whole bunch.
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