Oh no. We have an A.L. Williams agent in the house! (Just Kidding)I started out with them. I do agree with you.But the savings is never really yours, now is it?
Buy Term And Invest The Difference
- Thread starter Atlas
- Start date
But he has IHIAA and that should be something like a cash cow unless health care reform nixes the health market.
- 11,471
Well, let's look at the perspectives:
1. According to the policy, it is "policy equity". You can access the equity in your policy though loans - just like you can access the equity in your home through loans.
But, if you surrender the policy, don't you get the cash values?
Who is in control of the policy? The policy holder.
So, as far as the client is concerned, it IS their money - as long as they know that they can access it in 2 ways:
- Policy loans and keep and maintain the policy
- Surrender the policy and have the cash values returned to you.
Third Joker
Expert
- 49
I always like to ask the BTID crowd to explain to me what happens to the cash value in a 30 year level term policy.
I get a little sick of hearing Rave Damsey talk about "how stupid it is to borrow your own money".
I get a little sick of hearing Rave Damsey talk about "how stupid it is to borrow your own money".
- 1,459
If you don't have any desire to leave money behind, then you have absolutely no need for life insurance into your retirement years unless someone is still depending on you financially. However, you don't need to be Donald Trump or have a million dollars to want to leave some money behind. In fact, when asked, most people I speak with want to leave some money behind and not die spending their last dollar. The key is to ask the client what they want to accomplish.
- 4,132
"as long as they know that they can access it in 2 ways:
- Policy loans and keep and maintain the policy
- Surrender the policy and have the cash values returned to you."
You forgot to add, surrender dividends (if a mutual wl) tax free, while keeping the policy inforce as a third option.
- Policy loans and keep and maintain the policy
- Surrender the policy and have the cash values returned to you."
You forgot to add, surrender dividends (if a mutual wl) tax free, while keeping the policy inforce as a third option.
- 11,471
You're absolutely right, BUT
That would probably be characterized best as a return ON your money in the policy... not as a return OF your money.
It's semantics, but I would guess that people would like to know how to access their cash values.
It's still prudent to point out that it's just like taking equity from your home. You can sell your home and keep the equity or you can borrow against it.
Same thing.
But the last time I checked, your home doesn't pay "dividends". It can appreciate in value, but you have no control over that. You can reduce your lifetime interest costs by paying down the mortgage and lose tax deductions over time, but YOU'RE supplying the cash to do that, not an outside financial institution.
- 1,411
I agree with you, most people would like to leave a financial legacy - but then most people don't understand money and most people don't realize that if they live long enough, they can easily outlive their money. What most people who say they want to leave something behind are really telling you is that they are ignorant about personal finances.
Generally, the asset people hang onto the tightest is their home. They will work very hard to keep from losing the family home and everything else will go before that does. And assuming most people leave their home to their estate when they die, then they will have left something, the house and the contents minus any debt. The kids should be able to pay the funeral from that.
The problem with buying whole life, planning to leave that cash behind, is that if/when you get financially strapped in retirement, you end up having to collapse the whole life policy for two reasons.
First, you can no longer afford to pay the premium.
Second, you need the cash out of the policy.
Whole life proponents will argue, "See, that's the beauty of whole life, you can cancel it and get your money back".
But had a knowledgable person sat down and reviewed the finances of the individual, that situation could have easily been predicted long before it happened. It would have been recognized that the ability to keep the whole life in force was virtually nil because the client had inadequate provision for their retirement. Given that to be the case, the money would have been better spent/invested in order to accumulate funds for retirement.
While this debate will go back and fort (it has for the 3 decades that I have been involved in this industry), what PROVES my point are the lapse numbers of whole life policies. MOST whole life policies NEVER, EVER pay a death benefit because they are cashed out before that day ever comes.
Here is more on that:
New Persistency Study Shows Lapse Rates Have Generally Declined - Life Insurance - Life and Health Insurance News
Here is a bit from that story:
By product
The study of 43 individual life insurance writers found that the overall lapse rate for whole life plans for all products and policy years combined was 3.5% on a policy basis and 4.4% on a face amount basis in 2003 and 2004, down from 3.9% and 5.8% respectively for the 2001-2002 time frame.
Now these are annual compound values. Let's assume the average is 4%, which would be close to the 5% value I have been previously given as a good average by life companies. Keeping in mind that the 4% is a compound value, you can use the rule of 72 to determine the numbers. 4 divides into 72 which gives a number of 18 years. That means every 18 years, half of the whole life policies originally sold/purchased, are gone. 18 more years and the number that are left is down to 1/4.
So most whole life policies are cashed out before they ever pay a death benefit, meaning that most whole life policies never acheive their objective, which is to pay a death benefit WHEN the insured dies.
And given that MOST people take the cash and run, then it is clear they would have been better off putting their money into a better retirement investment.
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