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Old 12-15-2012, 03:32 PM   #41
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the actual premium is the 246 bucks plus a life time of interest as all you get is the face value no matter what.

when all is said and done its your premiums ,dividends and interest that consititue the policy if you live long enough to have it endow .
that interest after decades and decades can be an awful lot that goes back into the policy.
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Old 12-15-2012, 03:57 PM   #42
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Interesting point. If I took the CSV today, my average annual return would be 5.2%. If I die and DW receive the death benefit, the average annual return is 8.9%.

As I sometimes say on the golf course, "not a bad miss".
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Old 12-15-2012, 08:41 PM   #43
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Whoa Nords.............specifically where did I suggest that the dividends would be sufficient to pay the premiums?
I didn't.
Yeah, that's what I mean. You mentioned all the ways that the policy is supposed to work, and you kinda skipped over the parts that don't always work as well as advertised. That's not intended as criticism, so kindly don't take it as such. I'm just pointing out that the insurance has its flaws, like any other financial system.

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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.
I agree that one apple doesn't describe the barrel, just like FIRECalc does a bunch of data runs, but I think that 50+ years of history is worth applying to one's analysis of the decision. The reason those policy dividends couldn't keep up with the premiums is because of several recessions, runaway inflation, and an extended period of low interest rates. You started your policy a few years before the world's greatest bull market. By 1977 my Dad's policies were already well into the red.

In other words, the insurance company didn't have a clue in the 1960s what would happen to investment returns or interest rates. Neither did we. Nor do we have a clue on the future, but every historical data point helps define the boundaries of the problem. If any of the rest of you have 50+ years of experience with whole life insurance, then tell us about it.

I'm also not convinced that insurance is a "lifetime" purchase. You buy insurance to protect you from catastrophic events. It's a great idea when you're starting a career and your new family is depending on your sole income.
It's not such a great idea when your kids are grown, your spouse has some of her own income, and you have substantial assets. I don't think that people need insurance for a very long time. I think they need it to cover specific events, and the amount of coverage can vary widely over a lifetime of different situations.

I bought life insurance when I got married (1986) and cancelled it when I retired (2002). I don't think I'll ever need it again, not even for estate planning.
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Old 12-15-2012, 08:49 PM   #44
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I am a bit rusty on the exact details these days, but I know that you always want to avoid "MEC"ing a life insurance policy. MEC = modified endowment contract, which basically means you lose all the tax protection usually afforded by a life insurance policy. If you are bringing new after tax dollars to the table buying a single premium policy definitely runs afoul of the MEC rules.
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Old 12-15-2012, 09:14 PM   #45
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Yeah, that's what I mean. You mentioned all the ways that the policy is supposed to work, and you kinda skipped over the parts that don't always work as well as advertised.
I guess I'm not a mindreader. I think you're talking about policies that were sold where the premiums were supposed to "vanish" after a certain number of years and in fact, in many cases didn't because the dividends illustrated were too optimistic. The industry "paid" for those transgressions in the early/mid 1990s as a result of a number of large class action suits against many insurers. The settlements of these typically made the policyholders whole (or pretty close anyway). I'm surprised your dad's policy didn't benefit from those class actions. And BTW, only a portion of policies were sold based on the premise of vanishing premiums.

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....I'm also not convinced that insurance is a "lifetime" purchase. You buy insurance to protect you from catastrophic events. It's a great idea when you're starting a career and your new family is depending on your sole income.
It's not such a great idea when your kids are grown, your spouse has some of her own income, and you have substantial assets. I don't think that people need insurance for a very long time. I think they need it to cover specific events, and the amount of coverage can vary widely over a lifetime of different situations.

I bought life insurance when I got married (1986) and cancelled it when I retired (2002). I don't think I'll ever need it again, not even for estate planning.
I guess you missed post #17.
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Old 12-16-2012, 06:24 AM   #46
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Interesting point. If I took the CSV today, my average annual return would be 5.2%. If I die and DW receive the death benefit, the average annual return is 8.9%.

As I sometimes say on the golf course, "not a bad miss".
the longer the policy runs the less the return.

think about it ,when it endows its 100% your own money and your really self insured . its zero % the insurance companies money .

every additional year that dividends and interest goes back in reduces the return.

if you died after paying 1 years insurance your heirs get the exact same amount paid as if you died after paying 40 years of premiums,dividends and interest in.

in order to have a policy endow you have to feed in a combined total of more then the policy in order to cover expenses and reach the face value.

the highest returns would be dying early on when your on the insurance company dime. each year that ticks forward has your cost basis increasing as you pump in more and more. eventually you are self insuring on your own money..

its the exact opposite of an annuity.

an annuity has its crappiest years early on and the longer you live the more your return increases.

each year you collect another check pushes your return higher.

thats why folks who buy cash value life insurance as an investment for what if they live are buying the wrong product.

life insurance is a bet you will die,an annuity is a bet you will live.

they move opposite each other.

life insurance has the return dropping as you live , an annuity has your return increasing as you live.
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Estate Planning Life Insurance
Old 12-18-2012, 08:55 PM   #47
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Estate Planning Life Insurance

A number of years ago, when it became clear my company would be a valuable asset, my (50% business) partner and I decided to do a combination buy/sell and (respective) estate plans. This in case one of us died and the other needed to buy out the heirs. There wasn't enough cash in the business to make that happen.

We each set up irrevocable life insurance trusts and bought whole-life type policies which would effectively pay the person who died the value of the company inside a trust that couldn't be subject to the death tax. The value of half the business at the time was about $8 million, so that was the death benefit on the policies (a few for diversification).

Over 11 years between then and the time we sold the company for cash, I paid $315K in premiums. Then, I converted the policies into paid-up versions that currently have a cash value, if I choose to take it, of $300K. Figure the time value of the premiums paid and the $15K loss covered the death risk and some $$ went into the broker's pocket. The current death benefit is $900,000. The cash value increases tax free at about 5% per year.

Overall, I'm OK with what happened. During the 11 years, we were protected. When I die, the $900,000 will be used to pay death taxes. Depending upon what happens, this can be significant. I figured the other day that if nothing changes, the difference to my family of death taxes on January 1, 2013 versus December 31, 2012 would be an eight-figure number.

Luckily, we are in pretty good health, but there is no accounting for accidents. I might/probably will take out some term life policies in the trust when the dust settles to take away some of the pain from the death tax.
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