Multi Index Universal Life Insurance

[ERD50]

Hey, if we have whole life insurance.....why not whole car insurance. I spend all that money to insure my car what about building up some cash value as well?

Yes, that's the ticket!

And Whole Life Health Insurance too! Everyone wants that product to be more complex!

-ERD50

 

[nun]

Yes, that's the ticket!

And Whole Life Health Insurance too! Everyone wants that product to be more complex!

-ERD50

.....and expensive too.

Seriously, does anyone know the interest rate that is charged if you borrow against the cash value of a WL policy?

 

[meierlde]

.....and expensive too.

Seriously, does anyone know the interest rate that is charged if you borrow against the cash value of a WL policy?

It depends on the vintage of the WL policy I think on my 1968 policy it is like 5%.

 

[nun]

It depends on the vintage of the WL policy I think on my 1968 policy it is like 5%.

I suppose the idea is that the interest on the cash value covers the interest on the load and also pays the premiums.....until you start to deplete the cash value too much and chip away at the death benefit

 

[nun]

will I get flamed if I post a good experience with regard to "permanent" LI?

my policy was "paid up" last year with a cv over $300K and a db of $1.2M - I bought the $1M policy in 2000 with $12K annual premiums

however, DW had (FI)RED and I needed to make sure she was taken care of in case I took a golf shot to the temple; if I were single i probably wouldn't have bought the LI

This seems like the $12k for 17 years to get a CV of $300k is about a 4% annual return..then if you are paid up at age 53 the $300k at 4% would compound to $1M over 30 years (ie average lifespan)

 

[nun]

I think this Pfau paper and this critic of it are enlightening reading. The things that jump out at me from the Pfau paper are the very high fees used in the investment portfolio and ignoring the COLA adjustment implicit in the SWR from that investment portfolio. Also Pfau uses SPIAs for income rather than borrowing against cash value of the life insurance policy.

https://www.oneamerica.com/wps/wcm/...&CACHEID=23b21fa6-8e9c-49c9-a49e-1a0b0ef95d91

Is Buy Term and Invest the Difference on Life Support? | Financial Planning

 

[Big_Hitter]

^ I can't find where he's using "actuarial science" in his analysis

 

[jzajzz]

I was not thinking that at all as you initially encouraged the response, but got all shy when one was offered.

I have absolutely no need for any form of life insurance as I am single with no dependents and believe that there are better ways that whole life to invest and fund retirement.

I can talk about the points that I made about LI but what I"m saying I don't want to go down the rabbit hole of what's better for you.. because that's your situation... someone is inquiring about LI in this thread.. it's important he knows about what it is and what it's not...

and don't get me wrong you can state your opinion about why you do it and why you don't .. but I'm not going to have that back and forth because that's when these discussions turn for the bad .. rather than something productive.

and what is wrong with " Life insurance has higher returns than liquid assets like cd's ... but less risky than the market" .. that's where it fits .. it's in the middle of the risk/reward chart.

 

[jzajzz]

Ok, I think that most of us are in agreement here. Once conventional tax deferred saving accounts are maxed out, then WL might be useful to some people. Of course if WL was only bought by people fully funding 401ks and ROTHs then there would be a lot of unemployed insurance salesmen. This isn't directly about insurance but it is about selling stuff that people don't need.

Trust me ... There is a lot more money .. in term insurance... if an insurance salesman thinks that permanent insurance is more lucrative.. then he must not understand how business works.

 

[jzajzz]

.....and expensive too.

Seriously, does anyone know the interest rate that is charged if you borrow against the cash value of a WL policy?

It all depends ... there are what you call wash loans... where you get credited the same amount of interest that you get charged. so the net effect is zero. Wash loans are typically found in WL and not UL .. Now to be clear a wash loan effect might still not be zero depending on when you get charged/credit the loan.

To combat that loophole, other companies have the Zero net cost loan which is a true wash loan.

Another benefit to borrowing from your cash value is that the "loan' is different than a bank loan. The insurance loan is not amortized. When you pay back the loan if the rate is 5% .. 5% of your payment goes toward the interest ..the rest to your principal.. so your bank loan interest rate needs to be a lot lower for your cost to be the same as the LI loan.

 

[pb4uski]

Let me guess. Insurance salesman?

damn proud.. ....

Trust me ... ...

Unlikely.

 

[pb4uski]

In most policy loans the interest rate charged would exceed the crediting rate...however depending on how much of the CSV is loaned, the interest credited in a policy year might well exceed the interest charged in a policy year.

IIRC my policy loan rate is 8% and currently the dividend rate is probably about 5 -5.5%.

 

[nun]

I can talk about the points that I made about LI but what I"m saying I don't want to go down the rabbit hole of what's better for you.. because that's your situation... someone is inquiring about LI in this thread.. it's important he knows about what it is and what it's not...

and don't get me wrong you can state your opinion about why you do it and why you don't .. but I'm not going to have that back and forth because that's when these discussions turn for the bad .. rather than something productive.

and what is wrong with " Life insurance has higher returns than liquid assets like cd's ... but less risky than the market" .. that's where it fits .. it's in the middle of the risk/reward chart.

Some numbers given by a previous poster indicated that it he was to die at age 83 then the value of the death benefit would be equal to the premiums paid compounded at 4%. It would be interesting to get a similar number if loans are taken against the cash value.

 

[COcheesehead]

.....and expensive too.

Seriously, does anyone know the interest rate that is charged if you borrow against the cash value of a WL policy?

I just looked at my policy docs. 0% up to what you paid in. 4.5% after that.

 

[jzajzz]

Some numbers given by a previous poster indicated that it he was to die at age 83 then the value of the death benefit would be equal to the premiums paid compounded at 4%. It would be interesting to get a similar number if loans are taken against the cash value.

which post are you referring to?

I would need a lot more info... That depends on a lot of factors ... the product the company and the features of the product... the age and health of the insured when they purchased it. if it's a long term policy for your death benefit to be only 4% compounded over 20 years or so . .that's probably not one of the products I've talked about. That would mean the cash value is even less.

 

[nun]

I just looked at my policy docs. 0% up to what you paid in. 4.5% after that.

So there's no charge to borrow money up to the sum of the premiums?

It strikes me that if you want a guaranteed death benefit for someone then it's better to buy Guaranteed Universal Insurance and if you want to get more tax deferred investments for retirement income in addition to 401k etc then you'd buy a deferred annuity.

 

[COcheesehead]

So there's no charge to borrow money up to the sum of the premiums?

Up to the sum contributing to the cash value. So premiums, less cost of insurance.

 

[jzajzz]

It strikes me that if you want a guaranteed death benefit for someone then it's better to buy Guaranteed Universal Insurance and if you want to get more tax deferred investments for retirement income in addition to 401k etc then you'd buy a deferred annuity.

GUL is the cheapest way to buy permanent death benefit. if that's all you're looking for ..especially if you're older .. GUL is the way to go...

 

[nun]

GUL is the cheapest way to buy permanent death benefit. if that's all you're looking for ..especially if you're older .. GUL is the way to go...

So it's interesting that in Wade Pfau's paper commissioned by OneAmerica he uses Whole Life in the retirement income scenario, rather than GUL, but only for the death benefit. The idea is that with a guaranteed death benefit the 401k allocation can be very aggressive and that when retirement income is required a single lifetime annuity can be purchased rather than a joint to give higher income as the death benefit will provide for the other partner if the one with the annuity dies.

While the conclusions of the paper look good given the assumptions and parameters I think it's a good example of a smoke and mirrors sales pitch for Whole Life.

 

[REWahoo]

While the conclusions of the paper look good given the assumptions and parameters I think it's a good example of a smoke and mirrors sales pitch for Whole Life.

+1

Wade Pfau's ties to the insurance industry renders any of his research conclusions highly suspect.

 

[nun]

+1

Wade Pfau's ties to the insurance industry renders any of his research conclusions highly suspect.

The conclusions are fine given the biased assumptions and things like not accounting for inflation in income and ridiculously high investment expenses in toi 401k.

I wonder if all the "wealthy folks" using whole life would be better served by guaranteed universal life and deferred annuities?

 

[COcheesehead]

The conclusions are fine given the biased assumptions and things like not accounting for inflation in income and ridiculously high investment expenses in toi 401k.

I wonder if all the "wealthy folks" using whole life would be better served by guaranteed universal life and deferred annuities?

I think you miss the point on all that WL can offer, as evidenced by this thread, so DA can replace a part of WL's benefits, but not all.
I am tired of talking about it with you because your bias has been exposed and we all know where you stand.
I am out of this thread.
Ciao!

 

[Big_Hitter]

is someone trying to change our minds about something?

 

[pb4uski]

Two of my BILs were life insurance agents with two different old-line mutual companies. Since I was making good money back in the day they both pitched WL to me and in both cases I gently rebuffed their advances.

I'm just waiting for the day that they ask me how I could retire so young... I'll respond that it was because I didn't "invest" in WL but invested in equities instead.

 

[nun]

I think you miss the point on all that WL can offer, as evidenced by this thread, so DA can replace a part of WL's benefits, but not all.
I am tired of talking about it with you because your bias has been exposed and we all know where you stand.
I am out of this thread.
Ciao!

I think I understand...as I said you'd need both GUL and a DA to get both the death benefit and the retirement income that is bundled in WL. My question is if using GUL and DA is better for the wealthy people who might actually need a life insurance policy for estate planning purposes. If you can save tax deferred in a DA for a fee of 0.5% and then take money out when you retire without having to do a loan it looks like you have all the tax advantages of the CV WL with lower fees and no loan interest to pay. Then wew need to discuss the nature of the investment....what return can we expect form a WL CV account vs a DA invested in mutual funds etc.