Whole Life Insurance - adding to portfolio?

[MasterBlaster]

Consumer reports (with some caveots) recommeded to NOT get long term care.

here's their analysis:

http://www.consumerreports.org/cro/money/insurance/longterm-care-insurance-1103/overview/

 

[msully76]

Hi,

It has been awhile since I responded to a post but, as a former life insurance salesman please save yourself some grief by not considering your whole life insurance an investment. Would you ever consider giving your car insurance extra money to invest for you? Would you ever consider borrowing your own money from any other account? Your death benefit is your face value minus what you have put into it. These are just not what good investment are and that is why a salesman get more commission to sell this type of insurance because it is so good for the company and so bad for the consumer.

 

[kumquat]

Are the rating companies (Moody, Best, etc.) considered reliable in the current world?

After their ratings of ABCP, isn't reliabilty now in the eye of the beholder?

 

[samclem]

Thanks for all the info. and advise. One piece of insurance that I am buying is long term care. @ ~$500/yr for an unlimited, $250/day policy is pretty good. I have had personal experience with the day's running out in Medicare and other insurance health care carriers. It's not expensive and @200/day really adds up quickly.

That is a very inexpensive premium. My guess is you are either 6 years old or the premium/policy does not include automatic increases for inflation at the same premium amount. If it is the later, go back and price the policy with a an automatic 5% annual increase in the daily coverage amount.
Also, does the policy qualify for your state's "Partnership Program?" This is a significant benefit (especialy in that they allow you to file for Medicaid coverage before you spend your last dime), and you'll want to be sure the policy is in compliance. In my state (Ohio), plans covering people younger than a certain age (??70??) that don't include inflation protection do not qualify.

 

[In-control]

I chose not to have inflation protection as every two years they ask you if you want to increase the daily $ payout amount, which increase your annual fee. The chose is in my hands then. Our polices provide $250/day w/an unlimited term with a 45 day wait period. My SO and I are in the process of underwriting and the sale man tells me ~50% of the applicants pass that. Their is no age limit, If something happens to me tomorrow, I'm 46, then it kicks in after my health insurance expires.

I unfortunately know several people my age and younger who have needed this and did not purchase it. It's one of those things that is easy to ignore, hard to qualify for when your healthy and impossible when your not.

 

[samclem]

I chose not to have inflation protection as every two years they ask you if you want to increase the daily $ payout amount, which increase your annual fee. The chose is in my hands then.

When I first started exploring LTC policies, I was going to do the same thing. Then I took a closer look at the way things would actually work, and noticed that the additional coverage I'd be buying later would all be at higher (sometimes a LOT higher) rates for individuals of that attained age. So, for example, if I'm 45 YO, my $25 per month premium is buying me $150/day in benefits. I decide to buy additional insurance every 2 years to make up for the erosion of benefits due to inflation, I'd eventually be buying this additional insurance coverage at the rate they charge every other 75 year old--which is very expensive.

Your approach is not totally without merit, but be sure you look ahead and crunch the numbers. Because of the higher cost for insurance for an oldster, your premiums will be going up a lot faster than the rate of inflation. If you are serious about keeping the policy until you need it, I think you'll find it is cheaper to buy the inflation protection at the outset.

Also, (as I mentioned previously, sorry to hit this again) be sure to buy a policy that qualifies for your state's LTC Insurance Partnership program. This is a big deal. The salesman will tell you it isn't important--that's because he wants to sell you a different policy. The Partnership-qualified policies provide you a benefit that is paid for by your state--if you get a policy that doesn't qualify, it's like turning away free money.

 

[SteveL]

As a 29 year retired insurance person, I can tell you the following. If a company sells in the State of NY, then the first year commission to the agent is 55% on standard whole life insurance. This alone is reason not to buy. If you really have a need for some, (young children, big mortgage) go to one of the direct writers such as USAA and buy term.
About the only use for whole life in a financial plan is to assist with estate planning for people with substantial assets beyond the $2million estate exemption.

 

[jimnjana]

...About the only use for whole life in a financial plan is to assist with estate planning for people with substantial assets beyond the $2million estate exemption.

Steve,

I disagree, but perhaps you can point out an alternative to my plan. I have purchased whole life policies from the Army Airforce Mutual Aid Assoc. ( www.aafmaa.com) as a way to potentially offset LTC costs for my spouse and I. They have a long term care settlement option that allows 2% of death benefit to be paid monthly for up to 50 months. They have a 4 month wait period from time of admission to nursing home or start of home care.

AAFMAA polices have a guarantee 4% crediting rate and 2008s rate is 7.2%, they have averaged near 7% for approx the last 15 years. Also, I can pull my money out at anytime and receive the cash value or the total premium paid, whichever is greater. Another plus is that they do not sell on commission so my premium pays for "term" and some modest admin charges while the bulk goes towards cash value. While I have not yet applied for LTC, my wife has already been denied coverage from the Fed group plan. I think my chances for approval are less than her's based on my health issues. I chose the 7 year pay option for my policies so in 4 years they will be paid off.

While the amount of our insurance will not cover the total expected cost of LTC, they along with expected pension and social security should come close. After reading the consumer reports article I'm debating putting off a decision to buy LTC for a few more years(I'm 45, spouse is 54). In the meantime, I'll continue hedging my bets with this strategy.

Jim

 

[samclem]

Jim,

Do you think you'll need life insurance coverage (not LTCi) until you are 80 or 90 years old? Because that coverage is built into your premium--it can't be cheap (Even through AFBA r other service-associated groups). Also, be sure that their LTCi rider allows for the normal stuff found in a true LTCi policy: At-home care, similar qualification criteria (can't do 3 "activities of Daily Living") etc. You might have hit on a good answer for your particular situation, but you certainly need to do your own due diligence and calculations once you wander off the standard path.

 

[OAG]

I have SMALL AAFMAA policy (almost forgot about it) I purchased in 1979 - stopped paying premiums about 1996 as the policy is self-paying. This is my "quick cash" & "cremation" policy for my spouse and it contains several survivor assistance aspects. However, I would not purchase life insurance at all now and if I had a need it would be term.

 

[jimnjana]

Jim,

Do you think you'll need life insurance coverage (not LTCi) until you are 80 or 90 years old? Because that coverage is built into your premium--it can't be cheap (Even through AFBA r other service-associated groups). Also, be sure that their LTCi rider allows for the normal stuff found in a true LTCi policy: At-home care, similar qualification criteria (can't do 3 "activities of Daily Living") etc. You might have hit on a good answer for your particular situation, but you certainly need to do your own due diligence and calculations once you wander off the standard path.

Sam,

No, I will not need life insurance at that age, for now with our mortgage etc yes I do need some life insurance. The LTC rider states "...unable to perform at least two daily living activities or... requires substantial supervision to protect themselves from threats to health and safety due to presensce ofcognitive impairment". I'll have to check on the "cost" of my coverage, I believe it is comparable to their term cost.

Jim

 

[In-control]

When I first started exploring LTC policies, I was going to do the same thing. Then I took a closer look at the way things would actually work, and noticed that the additional coverage I'd be buying later would all be at higher (sometimes a LOT higher) rates for individuals of that attained age. So, for example, if I'm 45 YO, my $25 per month premium is buying me $150/day in benefits. I decide to buy additional insurance every 2 years to make up for the erosion of benefits due to inflation, I'd eventually be buying this additional insurance coverage at the rate they charge every other 75 year old--which is very expensive.

Your approach is not totally without merit, but be sure you look ahead and crunch the numbers. Because of the higher cost for insurance for an oldster, your premiums will be going up a lot faster than the rate of inflation. If you are serious about keeping the policy until you need it, I think you'll find it is cheaper to buy the inflation protection at the outset.

Also, (as I mentioned previously, sorry to hit this again) be sure to buy a policy that qualifies for your state's LTC Insurance Partnership program. This is a big deal. The salesman will tell you it isn't important--that's because he wants to sell you a different policy. The Partnership-qualified policies provide you a benefit that is paid for by your state--if you get a policy that doesn't qualify, it's like turning away free money.

Thanks! I was thinking of adding the inflation protection rider. I was talked out of it because I can change the rate every few years - thus giving me control. I don't know if the rider locks the yearly premium but will check. I will also check into the LTC Partnership program.

 

[mark500]

Variable universal life insurance may be worth it if you buy no a load, low expense policy, you have maxed out all your other tax deferred savings vehicles, you might need asset protection from lawsuits, and you hold the policy until you die. Don't buy through an insurance agent. They charge a useless fee.
Check out Ameritas Direct. I don't work for them.

http://www.consumerfed.org/pdfs/vulreport0203.pdf

 

[SteveL]

Variable Universal is not regular whole life insurance

The traditional whole life policy that a company like NY Life, or Prudential would sell that has a level premium and reaches its face value at age 95 isn't the same product as a variable universal life which combines an annual renewable term life policy with some kind of investment account.

Traditional whole life isn't an investment.

Variable Universal may be more appropriate depending on the situation one is trying to fund. In considering its use to fund the equivalent of LTC, one should reflect that many people don't need Assisted Living/Nursing Home care until they are in their 80's. By this age, the Term premium charges in the Variable Universal Life Policy will be substantial. Also, if one's spouse has been turned down for LTC she is likely to be rated higher (charged more) for any life insurance. This might make the cost of a VUL. policy for her prohibitive.