A Universal Life Dilema....

[BNTRS]

Damnit I need to scroll down to the bottom of the front forum page more often. First and for most I'm going to plug this like a whore.

There's so much to talk about here, and I love to talk.

UL and AVIVA...

Yeah I'm a little direct sometimes.

I like how this ULI bit, aka IUL. So let's take a minute to understand UL because you've made some comments that restated comments from the AVIVA gal that are inaccurate and best to leave you with a real impression that you don't like than a rosey one you'll learn to hate later (the latter tends to create litigation, not good for anyone involved).

Universal life insurance is a yearly renewable form of term insurance that has a cash receptacle that pays an interest rate on it. Some UL contracts use a stated interest rate dictated by the insurance company that is competitive with other fixed assets. IUL instead uses a crediting method that copies the percent change of an indexed within a specified period of time. Note, return looked at in all indexed products with which I am familiar (and I'm very familiar with AVIVA's contracts) is the price return not the total return. This doesn't mean throw it out. Again, real impression.

Now, the actually credit amount is also dependent on two additional pieces. Participation rate and cap rate.

Participation rate is a percentage of how much of the return you actually get i.e. the participation rate is 100% and the S&P is up 6% you get 6% if the participation rate is 50% you get 3%.

The cap rate is a a point after which additional increase in the index is immaterial this is actually the 11% ceiling you mentioned already. If the move in the index is 15% you get 11, assuming your participation rate is 100%.

The expense of UL increases with time. This isn't necessarily a deal breaker. This has been discussed a few times around here. But this is something to know. The comment that you're UL premium cannot increase beyond what you sign up for is technically true in that there is an absolutely maximum, but that's not the number you are looking at in the ledger, it's much much higher than that. So yes, it can increase beyond what you've looked at.

The other tricky part with UL is the premium charge imposed. It's a load fee, and some UL contracts are unscrupulous. AVIVA is certainly not kind in this regard.

Now, is UL a viable option for you? Yes, but design is key. If your agent can't be upfront either because she doesn't know or doesn't care to tell you the truth, this calls into question for whose benefit she'll design this policy. Yes I'm being very bold here, but I'm sick of the emails from people who reach out to me after the fact.

Is whole life insurance a viable option? Yes it is. I'm a believer in honesty and I won't hide behind the fact that I vastly prefer whole life insurance over UL. You won't need to poke around this forum much to find this out.

Or you could always look here

Whole life can accomplish what you're looking for, and do it with a less volatility. Again, design is important.

I like where your heads at, this stuff works, and works well. But it can be seriously poorly implemented. That's where you need to be extremely careful.

Also, this isn't the magic bullet. There's plenty of reason to hold a complete portfolio. Cash value life insurance is a low risk asset class that beats the hell out of other low risk options when it comes to consistency and options it lays on the table. Keep the Roth in mind and contribute while you still can. Life insurance also gives you the ability to spend those other assets much more liberally later on, because you've got the life insurance to back it up.

This piece was done by a Guardian agent, so there's some shameless plugging, but it's still a great piece and the end speaks exactly to your situation I believe:

http://youtu.be/5KOy4xuXYz0

 

[Arthur Rudnick]

I like how this ULI bit, aka IUL. So let's take a minute to understand UL because you've made some comments that restated comments from the AVIVA gal that are inaccurate and best to leave you with a real impression that you don't like
than a rosey one you'll learn to hate later (the latter tends to create litigation, not good for anyone involved).

Universal life insurance is a yearly renewable form of term insurance that has a cash receptacle that pays an interest rate on it. Some UL contracts use a stated interest rate dictated
by the insurance company that is competitive with other fixed assets. IUL instead uses a crediting method that copies the percent change of an indexed within a specified period of time. Note, return looked at in all indexed products with which I am familiar (and I'm very familiar with AVIVA's contracts)
is the price return not the total return. This doesn't mean throw it out. Again, real impression.

Now, the actually credit amount is also dependent on two additional pieces. Participation rate and cap rate.
Participation rate is a percentage of how much of the return you
actually get i.e. the participation rate is 100% and the S&P is up 6% you get 6% if the participation rate is 50% you get 3%.

The cap rate is a a point after which additional increase in the index is immaterial this is actually the 11% ceiling you mentioned already. If the move in the index is 15% you get 11, assuming your participation rate is 100%.

The expense of UL increases with time. This isn't necessarily a deal breaker. This has been discussed a few times around here. But this is something to know. The comment
that you're UL premium cannot increase beyond what you sign up for is technically true in that there is an absolutely maximum, but that's not the number you are looking at in the ledger, it's much much higher than that. So yes, it can increase beyond what you've looked at.

The other tricky part with UL is the premium charge imposed. It's a load fee, and some UL contracts are unscrupulous. AVIVA is certainly not kind in this regard.

Now, is UL a viable option for you? Yes, but design is key. If your agent can't be upfront either because she doesn't know or doesn't care to tell you the truth, this calls into question for whose benefit she'll design this policy.

Yes I'm being very bold here, but I'm sick of the emails from people who reach out to me after the fact.
Is whole life insurance a viable option? Yes it is. I'm a believer in honesty and I won't hide behind the fact that I
vastly prefer whole life insurance over UL. You won't need to poke around this forum much to find this out.
Whole life can accomplish what you're looking for, and do it with a less volatility. Again, design is important.

I like where your heads at, this stuff works, and works well. But it can be seriously poorly implemented. That's where you need to be extremely careful. Also, this isn't the magic bullet. There's plenty of reason to hold a complete portfolio. Cash value life insurance is a low risk asset class that beats the hell out of other low risk options when it comes to consistency and options it lays on the table. Keep the Roth in mind and contribute while you still can. Life insurance also gives you the ability to spend those other assets much more liberally later on, because you've got the life insurance to back it up.

I'm not doubting anything you've posted above but for me, an inexpierenced life guy, this is way too technical. So, let me throw some basics at you and try to understand what you're saying.

I do not do much Life and for the policies that I do, I have my hands held by an experienced Life agent at my GA so I don't misrepresent the product & get in trouble.

But, here's my understanding and please correct me if I'm wrong.

To combat a person's fear that they will outlive a Term polcy, I recommend UL. A UL policy is "like term" but it will insure you until the day that you die, regardless of age.

I have always illustrated a UL policy with very little cash value and running to age 105 (or 121, depending upon the company).
I feel that the purpose of UL is to guarantee that the death benefit & the premium never change for the life of the policy.

Personally and as a rookie in Life, I've always had a problem showing a 50 year old prospect an illustration where their death benefit is only guaranteed to the age of 70. Yes, the "non-guaranteed" column shows the age out to 100+, but if I was that prospect my focus would only be on the word "Guarantee" and I'm thinking: "Why would I consider a policy that will run out at 70 years old"?

If, someone is looking to purchase life insurance with the purpose of buildiung up cash value, then the answer is Whole Life. And, in viewing illustrations of various WL policies, if affordable Participating WL is the way to go.

So, I've always believed in keeping things simple and the above is my simple understanding of the purpose of a UL policy.

Am I incorrect?

 

[BNTRS]

In short, no you're not correct.

We're talking about two completely different things. Details are important, and here they are:

The UL you talk about does not (by virtue of being Universal Life Insurance) guarantee the death benefit. The policy of which you speak is called Secondary Guarantee Universal Life, SGUL or GUL for short. The Secondary Guarantee part is important. A Secondary Guarantee means a guarantee by the insurance company to keep the death benefit in force even if the cash value of the policy false to zero (and event that would cause a lapse under other forms of UL, known as Current Assumption UL and Indexed UL--for others who are a little more sophisticated I completely understand that Indexed SGUL exists and that would be a GUL product that has an indexed crediting method).

Now, GUL does not bring anything to that table in the way of guarantee that Whole Life insurance does not. Where GUL does have an advantage is in lower premium. But, GUL is EXCLUSIVELY for guaranteeing a death benefit, not really the intent of the original poster. In fact, the forfeiture provisions of a Secondary Guarantee are much less attractive than those of a Whole Life contract--essentially, miss a payment on a GUL policy, and the G part disappears and now keeping the policy afloat is a game of keeping the CSV positive.

When it comes to UL like current assumption UL and a guaranteed column that goes bust at age 80 or something of that nature, it's also fair to keep in mind that it's an absolute worst case scenario situation (meaning the insurance company is charging their maximum expenses originally agreed upon at policy issue, and has reduced their crediting rate to it's guaranteed minimum--i.e. not very likely).

UL is a complex product (the most complex of them all in my opinion) with its several iterations and shear variety of companies offering it.

There's a much bigger world to Cash Value life insurance than you seem to have been exposed. Not a big problem, as you've already pointed out, it's not your forte. But as I said at the beginning, I'm talking about one thing, and you're talking about something completely different.

 

[Arthur Rudnick]

There's a much bigger world to Cash Value life insurance than you seem to have been exposed. Not a big problem, as you've already pointed out, it's not your forte. But as I said at the beginning, I'm talking about one thing, and you're talking about something completely different.

I thank you for your clarification. You're right, Life insurance is not my forte and I'm the first to admit it. And, for that reason, I network with life specialists who are a lot smarter than me on the subject.

Thanks for the insight on UL

 

[shepnerd]

Im a 27 year old non smoker with a great job making 85k/year+. Im not married and have no kids but I figure should start saving for the future as well as possibly looking into life insurance.

I came across Universal Life insurance in my research and it sounds great. Death benefit, cash loans, flexible, great payouts, guaranteed minimums every year.

So I met with an Aviva rep to discuss a few possible packages and she made it sound even more "to good to be true" then my initial research indicated which is making me kind of unsettled.

Im supposed to meet with her again this Thursaday, what are some more questions I can ask her to find out if Aviva is the right company to go through? Are there any deal breakers that I should be aware of that would indicate that either the ULI policy is not for me or that Aviva is not the company that I should be going through?

I did more research on Aviva compared to a few other companies such as North American Life, Penn Fed, and Allianz - and it seems that these other companies are a little more favored then Aviva as far as returns are considered. What would make these companies a better option than Aviva and does anyone know the actual hard numbers of fixed rate, the guaranteed rate, the cap rate, and the loan rate for these companies?

I have a background in accounting and finance so feel free to lay it down on me. The more physical numbers I have the easier it will be to make a more informed decision. And of course I am open to any and all commentary and discussion as well.

Thanks guys in advanced.

Are you talking to Aviva directly or through a representative? This sounds like FFG's pitch to over fund an IUL for retirement purposes. I looked at selling that stuff when I got started, but the pitch was more blue sky than what I was comfortable with.

To answer your question, the biggest thing to look out for is looking at ILLUSTRATIONS vs. GUARANTEES. I've seen those Aviva IUL's pitched at assumed rates that will never happen.

Kudos on the thought, though. Wish I'd have done the research at your age. I was on the Suze Ormond/Dave Ramsey kick back then. Learned a lot since.

I'm not a whole life expert like BNTRS, but I am a fan. Done right and for safe money, not much does what it does over 30 years. You've probably got 50+. Do yourself a favor and take a look at it.

 

[tjeyoyo]

Buy a 30 year term policy and invest the rest. In 30 year's you'll have a chunk of money in whatever vehicle you've chosen.

 

[Arthur Rudnick]

Buy term and invest the rest

Great idea,
I don't think I've ever heard of that concept before.

 

[Norwayguy]

Buy a 30 year term policy and invest the rest. In 30 year's you'll have a chunk of money in whatever vehicle you've chosen.

Do you have a guarantee with that?

 

[Newby]

Buy a 30 year term policy and invest the rest. In 30 year's you'll have a chunk of money in whatever vehicle you've chosen.

Yes. Savings accounts are paying 1%.

Stocks, mutuals, etc. carry market risk so definitely no guarantee there...hmmmm what is this guaranteed investment you can put him in?

 

[shepnerd]

Buy a 30 year term policy and invest the rest. In 30 year's you'll have a chunk of money in whatever vehicle you've chosen.

Because mutual funds pay 12%, right? You should also max your your 401(k), put it all in equities and buy the biggest house you can afford because it is an asset and goes up in value.

How's that advice working out for the boomers?