Buy Term And Invest The Difference

[Cornelius]

Wino I got you. I guess I was thinking way to deep on this. I have just seen people who got thrown curves in life and didn't save or don't save and got hit with a health issue so when they reach the end of their guarantee period they are going to be in for sticker shock.

 

[WinoBlues]

Wino I got you. I guess I was thinking way to deep on this. I have just seen people who got thrown curves in life and didn't save or don't save and got hit with a health issue so when they reach the end of their guarantee period they are going to be in for sticker shock.

Yeah, Me too. Sad, however, there is opportunity there. The difference is in the agent they run into. There is a crapload of the " close um and leave um" insurance salesmen. Fewer, Insurance Agents.

There are lots of baby boomers that listened to Jane Bryant Quinn and Art Williams. Add to that all the UL that is imploding. There is a lot of business to write and rewrite.

 

[crimsontideagent]

BTID is not a sound strategy because you can't take into consideration what the market will do. Take all the Dave Ramseyites who bought 20 yr term 15 years ago and started auto drafting into a MF - now they are 5 years left on their term and are lucky to be equal to what they put in their MFunds. Dave and others forget this little numbers tidbit when they say average 12% or 10% --

If you start with 100k for example and you get 10 every year you will wind up with x dollars...

If you start with 100k and average 10 you could wind up with way less than in scenario 1...

Which is where a lot of people are. Just met a couple who BTID and now are 6 years away from term ending and they lost 40% of their 401k's and MF's in the collapse and now can't reinsure due to health. Dave needs punched in the mouth.

I have a presentation where I lay out an asset strategy - I list the options someone would want in an asset - they always say "who wouldn't want that, that's too good to be true" - I then ... well I want share it all here, but let's just say its powerful and they don't believe it when I reveal what it is... Numbers don't lie.

 

[VolAgent]

Which is where a lot of people are. Just met a couple who BTID and now are 6 years away from term ending and they lost 40% of their 401k's and MF's in the collapse and now can't reinsure due to health. Dave needs punched in the mouth.

Heck, they are better off than probably 80% of the people who follow BTID. Most stop that mutual fund draft after a few years and never restart. Or, the market takes a dive so they move it to cash or a super conservative asset and never move back to equities.

 

[orchid]

They aren't meant to "perform" - Whole Life is an insurance product that is purchased - not an investment or annuity. And how do you help your clients whose term expires after they are diagnosed with cancer or heart disease or cannot afford the massive premiums now because of their health or age?

Wow, interesting thread. My thoughts...

Forced savings is an idea used by large life insurance companies to push whole life products. They do not perform as well as nearly any other saving alternative and are highly illiquid. Mortality costs are high, interest rates on access to cash value are high (imagine having to pay someone interest to borrow you own money), and let's not forget the possible future "surrender squeeze" that many many insured face at times when they can least afford to re-fund a depleted policy. So, forget cash value, it's a joke as far as a savings plan - a CD at my bank earns more and is far more liquid as would be a money market and that is not even getting into moderately conservative mutuals. The only value a whole life contract really has is the permanent paid-up value. And generally that only occurs with participating policies paying dividends. Besides, NAIC is pretty clear that you can't sell permanent products as savings vehicles or investments or anything else except permanent life insurance. And the only part that is really "permanent" are the paid up additions which would take many years to equal the original face value. Also, client will be upside down or sideways for at least the first few years before there is any cash value in the policy. How does you possibly explain to a client that this is a forced savings plan that will be worth nothing except death benefit for the first X number of years when they can at least see positive value on any other vehicle with each contribution? I used to laugh when I ran illustrations at NML and the CV in the first year was $0. Client would pay in $2500 in premium and get...$0. Sure at age 65 it looked a lot better but I can get better than $0 on my $2500 just about anywhere else. Maybe take $600 of that, buy some term (with a much larger death benefit) and take the other $1900 and stick it in an interest bearing account, bet I'll have more that $0 after the year.

As to need, well, certainly need will change over time but I find it very suspect to assume a person's need for $1M life coverage will be constant throughout their whole life (pun intended).

I see life insurance need as a bell curve, with low needs at both the youngest adult and oldest adult ages and largest needs in the years when a family needs to provide for children and a mortgage. No way a 22 year old just out of college needs a huge benefit policy nor does a 80 year old widow (er) (except for estate planning purposes which may or may not need to be addresses separately).

Here in CA we need high death benefits mainly to protect mortgage plus income (homes in my area start at over $500k) so it is not uncommon to write 1.5 or 2 Million dollar face on policies. These same people are usually funding 401(k) to max, stock options, a Roth or other form of IRA and perhaps an annuity or two plus bank accounts and CDs. Since they are already invested and saving, their need it pure protection for a predictible period of time, and term provides exactly that. Straight mortality curve coverage at the lowest possible mortality-based cost.

Now, I do like the idea of a blended approach to long-term need, part whole life part term. The whole life part is for the future need on a permanent basis while the term is used to cover the temporary large needs of mortgage, kids, income replacement and such. I always was fond of $25k or so of whole life with the remainder in term. The whole life could be paid up at 65 and then used for final expense.

 

[Mark]

Very few people buy term and invest the difference!

 

[allen70]

I just have two questions for you all. First, how many of you have your secruities licenses so that you can help people BTID? If you are not the one that is setting them up with it there is a good chance they won't invest. However, if you are capable of setting it up for them when you sell them the insurance they will already be on track.

My second question is for you all saying that due to life circumstances people will stop investing the difference because they need to use it. The concept is that they are investing the difference. If they weren't investing this they would be paying a perm policy with it. It is extra money that they are saving by buying term. If they are in such a tight situation that they can't invest because they can't afford it how are they going to pay the premiums on a whole life policy? If they can't afford the premiums the policy will eventually lapse and they will have no insurance anyway. At least with term the premiums are reasonable enough that they will be able to continue paying for it until they get themselves out of a bind.

Buy term and invest the differnce is a solid plan. A plan alone is not enough though . It needs to be implemented. When implemented BTID is the best scenario for most average income families. It's not your responsibility to protect people from themselves. It's your job to show them the best products and plans for their success. It is their job to follow it.

 

[germanwine1]

I agree with Mark, I went to a Primerica presentation and the presenter kept touting BTID. Let's face it most people buy term spend difference.

 

[Full Throttle]

I've never really understood this arguement. Term and permanent are two different things. If you have a need or desire for a permanent death benefit, buy permanent. If you have no plans to purchase a permanent death benefit, buy term (get a convertable policy incase things change).

Saying a term policy with a side fund can replace a permanent death benefit is completely misleading. Selling permanent primarily as an investment vehicle is also misleading. Educate the consumer, give them your opinion based on the facts, then let them decide.

 

[Norwayguy]

BTID was a Replacement sales concept...Back in the 80s when there were a lot of WL policies out there a Primerica rep could come in present his term for a lot less money and pitch the idea of saving the difference....Today an agent comes into a home that is uninsured and says BTID shows them a term price and maybe sets up an autodraft for 25-50 a month into an IRA...Even if you believe BTID works then you must at least show the permanent product cost and that same amount of money will be going out of the consumers hands every month either in a premanent product premium or term and investment dollars.