Buy Term And Invest The Difference

[arnguy]

Thank you for your reply, Robert. I have been meaning to get back to you regarding the 5th Amendment and the purchase of gold. IMHO the 5th Amendment does clearly protect against abuse of governmental authority with regard to being held to answer for a crime without presentment or indictment of a Grand Jury; protect from double jeopardy; protect a person from being compelled to be a witness against himself in a criminal case (self-incrimination); and provides for just compensation when private property is taken for public use (eminent domain). The Declaration of Independence, a wonderful document notwithstanding, is not the document of legal governance in this country. However, just to be on the safe side, I will plead the 5th amendment when I buy gold!

 

[Franz Kafka]

Here is the difference. At the end of a level term period, such as 30 year term, the policy terminates (unless you pay the ART renewals).

At the end of the level period of a whole life policy, the plan endows, meaning that the face amount is equal to the cash value. How can that be? Because the excess money you were paying, over and above the costs of ART, was building a reserve so that the insurance element shrinks to nothing, and the reserve is equal to the fact amount.

In a 30 year term the reserve bubbles to a peak, somewhere around the 20th policy year, and then begins to diminish until the end of the 30 year term.

In level term, the reserve runs out, in whole life it does not. You cannot outlive the insurance coverage in whole life.

That's an interesting point about reserves on term life. The question I raised was in regard to ART. The way I understood was that there was no ART inside WL but a level term through the mortality. There's ART inside UL because the cost of insurance in a UL must cover the unpredictable gap between the reserve and the DB. The gap inside WL is always predictable on the guaranteed side.

This is actually an interesting point when it comes to UL, ESPECIALLY NO LAPSE UL.

I am being asked by some subscribers to my comparison software, to include new categories for no lapse UL where the premiums and coverage are guaranteed to age 100 or age 105, with the coverage terminating at that point. Proponents of those new categories will point out that the premiums are lower than a corresponding to age 121 plan. Yes, premiums are lower but there will be some people insured under those scenarios that will outlive the coverage.

Why?

Because in the 121 calculation the policy reserve is planned to increase and endow.

In the 105 calculation the policy reserve is planned to increase and then diminish in later years.

The client is taking the risk, in paying the smaller premium, that they will outlive the coverage. That is not a risk that I would be personally willing to take for the difference in cost.

Worse, if the client's coverage expires, due to the reserve dissapearing, then there is no chance that the client can continue the policy because at that point they would be faced with ART premiums that are so enormous, that there is no way they could afford them.

Are you saying if the insured lives more than 105 her NLG UL will simply expire? If that's the case, then it's really just a level term up to age 105.

 

[Full Throttle]

That's an interesting point about reserves on term life. The question I raised was in regard to ART. The way I understood was that there was no ART inside WL but a level term through the mortality. There's ART inside UL because the cost of insurance in a UL must cover the unpredictable gap between the reserve and the DB. The gap inside WL is always predictable on the guaranteed side.

I'm not sure of the answer either. It won't make a difference on how I operate in the field, however, intellectually I'm curious.

 

[Robert Barney]

Are you saying if the insured lives more than 105 her NLG UL will simply expire? If that's the case, then it's really just a level term up to age 105.

That is precisely what I am saying, and I agree completely with your point that no lapse UL to 105, which terminates at 105, is a term to age 105.

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The mortality costs in traditional whole life are hidden - you cannot see them. But that doesn't mean they are not there, and they are ART.

 

[Ron Van D]

This article is very good.

 

[Robert Barney]

This article is very good.

It is almost laughable reading about a 27 year old buying a $29,000 life insurance policy, and even more laughable to listen to an author discuss the comparative cost of a $29,000 term life policy - 1960's or not.

Shame, shame, shame.

The worst sin committed by insurance agents is selling coverage that is TOO SMALL.

Case in point.

Assuming the 27 year old (today) is shopping for life insurance, here is the cost of $100,000 of 10 year term (preferred nonsmoker): $90

Now increase the face amount to $250,000. The same consumer can get $250,000 for: $110.00

Is there anyone out there selling $100,000 term policies to 27 year olds?

Of course the second problem is that no 27 year old should be buying 10 year term - when will need life insurance longer. They should be buying 30 year term. Here are those prices:

$100,000 - $155.00
$250,000 - $272.50

It's easy to make whole life look like a bargain when you are selling ridiciulously small policies.

 

[xrac]

What does this article say about BTID?????!!!

The 0% Return | Despite what Ibbotson charts show, retail investors, your clients, make very litte money on their investment

 

[Crabcake Johnny]

So we invest in life - earn a "real" return of around 3%, inflation runs at 3% then you take fees into consideration and we're back at square 1.

 

[xrac]

So we invest in life - earn a "real" return of around 3%, inflation runs at 3% then you take fees into consideration and we're back at square 1.

Maybe it says that the average person doesn't make much with financial instruments. Most wealth has accumulated through saving, real estate, and business operations.

 

[lifevideos]

interested tell me more