Bought my first house with my cash value...

[Robert Barney]

Only recently, did I help him understand that the cash values of a life policy are not "kept by the insurance company" but are a component of the total net death benefit.

Net death benefit = cash values + net amount at risk - any outstanding loans.

Question for RE. Do you understand what he just said about CSV? If you die, the CSV is in the death benefit, not in addition to the death benefit. The "insurance" is the part between the CSV and the death benefit.

You (or your beneficiary) can have one, or the other, you don't have both. You have two options until you exercise one option, then the other is gone.

 

[REI_Velocity]

Question for RE. Do you understand what he just said about CSV? If you die, the CSV is in the death benefit, not in addition to the death benefit. The "insurance" is the part between the CSV and the death benefit.

You (or your beneficiary) can have one, or the other, you don't have both. You have two options until you exercise one option, then the other is gone.

Yes, if I was to die my family gets the death benefit, less any outstanding loans. The death benefit includes the CV but isn't in addition to it, and the death benefit is far greater than the CV.

 

[DHK]

Disneyland was started with a life insurance policy loan. Just ask Walt!

I think Disneyland was finished because of a loan from life insurance. Similarly to J.C. Penney and Pampered Chef.

Also, John McCain's 2008 bid for the presidency... probably the worst use of a life insurance loan.

 

[goillini52]

Disneyland was started with a life insurance policy loan. Just ask Walt!

Well, you couldn't ask "Walt". You'd have to talk to his head.

 

[Robert Barney]

Yes, if I was to die my family gets the death benefit, less any outstanding loans. The death benefit includes the CV but isn't in addition to it, and the death benefit is far greater than the CV.

You are better informed than most consumers.

 

[REI_Velocity]

You are better informed than most consumers.

Well, thanks. It's a massive investment to put money in these policies. The thing going against the average consumer is that it can get very technical and confusing, and it's a 180 from most financial instruments out there. Plus, having mainstream gurus like Ramsey and Orman out there confusing the masses doesn't help either. Mix that in with bad agents (whether intentional or unintentional), and it's a big deal. There are lots of good agents too, but I've run into some who barely know how these work but will gladly take 10's of thousands of someone's savings to fund an inferior product and rake in a really nice commission. I've also run into fantastic agents (like the one I trust with my current policies). I'm all about professionals getting paid for their value; heck, I'm a business owner and pay is always related to value provided. I'm also about personal accountability and information, so my personal rule is to understand where I'm putting my money and leverage the agent as an advisor (and talk to multiple sources, verify information, vet the process, etc). At that point, they get paid on advising me to execute on something I understand, and I can care less if they get paid a lot for it. As long as it makes sense for me compared to all my other options, they can make $1,000,000 for all I care.

 

[Robert Barney]

The vast majority of consumers are best served by buying large term policies to protect their families against untimely death. If they spent their same premium dollars on permanent policies they would be badly under insured. In that regard Orman and Ramsey are correct and should be applauded for making people aware of that.

Unfortunately, in their zeal to make their message simple, they pitch the baby out with the bath water. The more sophisticated and wealthy client can benefit from sniffing out good deals in permanent products which have the advantage of converting tax deferred investment returns into tax free money at death. And like any other investment, the capital (and deferred growth) can be used as collateral for loans.

I spoke last week with a friend who dumped $3m from a money market fund into a par policy where the numbers made more sense than the money market funds he had been in. But he used an idea and product which most would not be aware of. Once again, the numbers in that deal made sense.

But that is NOT the average consumer, and you can't advise the average consumer based upon the strategies that make sense for the more affluent.

 

[Allen Trent]

I'm only doing 25K a year for 5 years then I don't have to put anything else in. I can choose to put 6K of premium in or I can pay it with my CV. 30 years later, when a typical term would have been long exhausted, I'll have almost a million dollars of Cash Value, and 1.7MM in death benefit. Plus, I have my other policies.

Sounds like you have a great understanding of what you plan to do with the policy. Keep in mind, unless this is a 10 pay or pay to 65 guarantee, that $6k premium must be paid to age 100 contractually. So, for you to stop paying it in 5 yrs personally, it will have to come from someplace else. If you dont proactively change your Dividend option to pay toward the premium or proactively surrender PUAR values to cover the 6k, it likely would create loans each year to cover the premium. Be proactive in managing the policy as Dividends are not guaranteed, so the values you believe will be there are projections if the current Dividend rate continues. It is best to continue to pay into the policy as long as you can to build up the greatest values. Direct the policy all the time, dont let it go on auto pilot. I have seen some greatly designed policies like this go terribly wrong long term if they are not managed by the agent & client. In some cases, it can result in horrendous tax bills in later years as the outstanding loan value can compound & can cause your policy to appear to have had large taxable gains, even if you personally received back less from the policy than you had put into it. Most consumers and many agents dont realize the interest charged for loans are considered by the IRS calcuations to be money you received because you had use of it. So, a $50,000 loan taken that compounds to $200,000 over 20 years would decrease your cost basis into the policy by the $200,000, not the $50,000 you received.

 

[pfg1]

REI....keep on keeping on! You got it, and in my experience that is a powerful thing! Kudos to you, don't let the naysayers deter you. Penn is a great company, and you have a great policy. The IRR should be really good long term, but what really determines what you earn is YOU, and how you use it.

 

[jboussea]

Question for RE. Do you understand what he just said about CSV? If you die, the CSV is in the death benefit, not in addition to the death benefit. The "insurance" is the part between the CSV and the death benefit.

You (or your beneficiary) can have one, or the other, you don't have both. You have two options until you exercise one option, then the other is gone.

Question for RE. Do you understand what he just said about CSV? If you die, the CSV is in the death benefit, not in addition to the death benefit. The "insurance" is the part between the CSV and the death benefit.

You (or your beneficiary) can have one, or the other, you don't have both. You have two options until you exercise one option, then the other is gone.

You do realize that in a WL policy designed for Cash that initial death benefit that you were quoted has been augmented by the Paid up additions which is the tool that helps increase your cash value. So if your bought a policy and you die 30 years later.. your Death Benefit should be way higher than your initial DB that you bought.
So no technically you are not getting the cash value + Death benefit ... but your Death benefit is higher because of the cash value of the PUA.

And it's actually better that it works this way because it would be a taxable even on the gains if you were getting the cash value + DB ... DB is not taxable so the net result is more money for the beneficiary