Help Differentiate Between Whole Life & Universal Life

[SportsNut]

Al, we agree. Newby gave us a great post.

Then it could be said that, "Newby gives good post"

 

[Newby]

Then it could be said that, "Newby gives good post"

HEY! I'm not sure that sounds good.

 

[Winter_123]

Then it could be said that, "Newby gives good post"

Wow, that is saying something because being from SF, Al would know who gives good post and who doesnt.

Newby, we are looking out for you here. No need to thank us.

 

[maksim]

As opposed to what, the holy grail diversified portfolio plan that just destroyed a generation's retirement plans? Or the holy grail mutual funds plan that has scared another generation out of the market?

I'm not saying that whole life is the end all and be all, and that it should be a person's entire retirement plan. But it certainly seems to perform a lot better and is much safer than many of the investments pitched by Wall Street.

You cant compare to the s&p... heck, anyone buying 20 year treasuries in the 80's is making out like a bandit right now.

Even Blackrock Global All, Pimco total return, all did very well.

Insurance is for protection planning and is the backbone to any financial plan, but anyone thinking they can use a whole life policy to retire on is sadly mistaken. I have met multiple people who were sold their permanent policies that way, both whole life and UL.

What about those whole life and UL's projected at 12%?

As an aside, any financial advisor, er, investment advisor worth a damn will preach risk management.

If someone used annuities with GMAB, or any of the structured products, just not issued by Lehman. they would be doing quite well.

 

[dj5106]

Hi, A couple of questions regarding UL.

Would it be better to take Option A, level death benefit, it would seem by taking this option the policy would last longer?

Being late or missing one premium payment could trash the entire policy, how is this possible? Is there some hidden penalty for being late? It would seem that after a few years there would be enough cash value to cover a late or missed premium?

What companies offer competitive premiums on guaranteed UL?

If the premium is less than whole life, why wouldn't everyone go for the guaranteed UL over whole life?

Do all guaranteed UL go to age 120?

Sorry for all the questions, but very interested in learning what is best for my future clients.

Thanks for any responses in advance.

 

[Dave020]

I think you are all missing the point trying to point the finger at what is wrong with what you don't sell.

Yes, there are agents who sell WL on the CSV recovery at retirement model. It is wrong to do that but it ignores the one factor WL has that is better than term or UL (unless you construct the UL to mirror the WL, which would make the premiums virtually identical anyway).

The advantages of UL are flexibility in design and premium options. With UL you can create a variety of scenarios which will keep coverage in force until age 120 if necessary and keep the overall premium down.

WL, assuming one would use a quality par product like NML, is going to be premium heavy compared to that. BUT, the DB is going to be accelerated under the corridor effect when the dividends are used to buy PUAs.

So you can look at a scenario like this:

UL No Lapse $1 CSV Targeted at Age 120:

Initial DB - $1,000,000
DB at 100 - $1,000,000

WL participating mutual 6% Dividend
Initial DB -$1,000,000
DB at age 100 - $3,500,000
CSV age 100 - 1,750,000

or the WL can be bought down during the period to a reduced, paid up policy with no further premiums due and still earning dividends and PUAs.

WL participating mutual 6% dividend premiums suspended age 75 purchased reduced, paid up policy
Initial DB - $1,000,000
RPU age 75 DB - $750,000
DB age 100 - $1,750,000
CSV age 100 - $650,000

So, forget the funding retirement with CSV argument. It is not the point in discussion of the value of WL insurance. The value, with a great par plan is that the death benefit is corrected for inflation under the corridor effect and the policy can either endow to annuity at age 100 (with a higher value than the UL DB at that age) or the client can elect a reduced, paid up policy at a younger age under which the policy would continue to acrue both DB and PUAs by virtue of the annual dividend.

They do two different things, so there really is not a apples-to-apples comparison.

BTW, I used NML in my scenario. NML has paid an annual dividend on the WL portfolio without fail since 1868. And no, I don't work for them.
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Great post. What actually happens if a client is 30 days late with a monthly payment or a yearly payment. Surely there is a way to make up the payment?

When you say "missed payments" how do you define that in terms of UL?

Thanks.

Many UL are constructed to target zero CSV to keep them cheap, premium-wise. Policies with CSV usually offer APLs (premium loans) as a feature to protect against lapse. If the policy targets CSV that is too low to do an APL (or if APL is not an option or included) then the premium no received in the grace period would cause the policy to lapse.

 

[briko3]

Like I said before...zero CSV is a good thing if you ever foresee yourself in a medicaid nursing home. Keeps you from having to cash in your policy to spend down to the appropriate amount. Now, personally, I will do what it takes (LTCi) to avoid one, but for lower net worth people, that's the option they're planning for.

Just another thing to consider.

 

[Dave020]

I agree Not saying either is good or bad. Different solutions for different needs.

Someone with an large estate and estate tax problem might see the value in placing a heavy CSV WL policy paid up into an ILIT or such.

I just don't like the black and white discussions when there is a lot of gray area when it comes to life insurance.