Help Me Understand My Policy!

[LGilmore]

Just a couple quick points. Having internet problems so I will keep this brief.

IF you don't understand a dividend paying whole life policy from a mutual company, please spare your comments. Professionally you look bad. You like you've never taken the time to learn about different products out there.

The advice here, given by several agents have been spot on. The few that have come on later trying to muddy the water sort of show their inexperience or lack of product understanding. These agents should stick to reading what has been posted and PM the more experienced agents to ask questions and learn something about a product they clearly don't understand.

 

[aureo11]

Here are the details:

Basic Coverage: $25,000
Current Death Benefit: $38,000
Current Cash Value: $4,500
Annual Premium: $200

2014 Dividend/Cash Value Increase: 160/350
2013 Dividend/Cash Value Increase: 95/335
2012 Dividend/Cash Value Increase: 95/320

Thanks.

Question for you experienced agents:

Why do you think the Dividend jumped from 95 to 160 in 2014, but the Cash Value only increased by 15? Also, how would the dividend have such a massive jump after no change 2012 to 2013? I don't believe NWM increased their crediting rate much if at all this year?

 

[WMG]

Just a couple quick points. Having internet problems so I will keep this brief.

IF you don't understand a dividend paying whole life policy from a mutual company, please spare your comments. Professionally you look bad. You like you've never taken the time to learn about different products out there.

The advice here, given by several agents have been spot on. The few that have come on later trying to muddy the water sort of show their inexperience or lack of product understanding. These agents should stick to reading what has been posted and PM the more experienced agents to ask questions and learn something about a product they clearly don't understand.

Excellent points, and I agree completely. Thank you.

 

[LGilmore]

well, the dividend and the cash value combine to make the total increase for each year. The cash value portion is the guaranteed section of the policy and as you can see the incremental increase is steady. The dividend side is the nonguaranteed side and can and does vary based on what others have already said in previous posts.

You need to go back and review what dividends are made of and then check NW each year to see why the dividends stayed the same or increased or decreased.... I have no desire to do so myself as I understand the concept of a insurance dividend.

The difference could be things in any given year like
fewer death claims paid
better market returns on portfolio
better operating expenses
just some examples. Could also be something else. This is why dividends aren't guaranteed. Dividends can be higher or lower each year over time depending on many things.

 

[benefitguy]

I agree with this agent. Keep it and don't roll it over, call the company ask what intetest rate you are getting, and then ask if you can contribute to it and how much before it becomes a MEC. A company representative will know what this means. Good luck.

I second keeping it. No reason to speak to an agent unless you want to add on an extra policy. But do not let an agent talk you into replacing it. Also, you might be able to increase your premiums to increase the growth of the Cash Value (CV) /Death Benefit (DB).


Explanation:
This policy will be "Paid Up" at age 65. That means no more premiums will be required after age 65 and it will stay in force for the rest of your life after that and will keep increasing in value.

The policy started out with a $25k DB and has grown to a $38k DB.

The policy started out with a $0 CV and has grown to a $4,500 CV.

Obviously $200/y is a very small premium. To get $38k in DB in your 20s would cost more than double that... assuming you are a non-smoker... and the new policy would have zero in CV.


This policy receives Dividends that are based on the performance of the insurance company. That is what increases your DB & CV.
From what you wrote, the CV increase is already more than what you are paying in premiums. So you pay $200 and they give you $350+. The CV increase will be larger each year you keep the policy.

You can access the CV by Withdrawing it, or taking it as a Loan. The CV is essentially part of the DB, so any withdrawal from the CV will decrease the DB dollar for dollar.
I would highly suggest that you do not access the CV until much later in life. And if you do I would suggest taking a Loan and then paying it back over time as you are able to. This will help the performance of the policy if done that way.

The CV grows Tax Deferred and can be accessed Tax Free with Loans.
You can Withdraw up to the Basis (the amount of premiums you have paid in) and get the money tax free. After that you must take Loans to keep it tax free.
I suggest just doing Loans. The interest is paid internally, you do not have to pay it out of pocket.


Being young, you may not see a whole lot of value in the policy right now. But in 10 years I promise that you will. You will be sorry in the future if you cash out this policy.


At some point in your life it is likely that an agent will suggest that you "transfer" or "exchange" or "1035 exchange" this policy for a larger one. They will tell you that the CV will transfer over and the policy will perform better... in short do not do this. You would be trading a policy with VERY low internal costs (what they are charging for the DB, "cost of insurance & admin fees"), for a policy with much higher internal costs. Just add on a new policy but never exchange this one into a new one.

It is true that the CV will transfer. And the Basis (the amount of premiums paid) will transfer too. But like I said, the Cost of Insurance will be MUCH higher on a new policy at an older age. This will create more of a drag (expense) on the current CV.

If you do anything with the current policy it needs to be adding extra premium. You can call the company and have them tell you how much extra you can add each year without the policy becoming what is called a "MEC". A MEC means that you loose the tax advantages of the CV. You dont want that to happen.


Long story short, keep the policy. There is no reason not to.

 

[DHK]

Question for you experienced agents:

Why do you think the Dividend jumped from 95 to 160 in 2014, but the Cash Value only increased by 15? Also, how would the dividend have such a massive jump after no change 2012 to 2013? I don't believe NWM increased their crediting rate much if at all this year?

Let's look at the bottom line on this.

Let's ignore the current death benefit and cash values. Why? Because someone else paid for this policy for 20 years.

Let's look at the here and now.

Annual Premium: $200

Cash value increase: $320 (per the OP).

Rate of return: 160%


Life insurance can be like a fine aged wine. It only gets better the older it gets.

The only problem this policy has... is that it's too small.

 

[FEX Quotes]

Let's look at the bottom line on this.

Let's ignore the current death benefit and cash values. Why? Because someone else paid for this policy for 20 years.

Let's look at the here and now.

Annual Premium: $200

Cash value increase: $320 (per the OP).

Rate of return: 160%


Life insurance can be like a fine aged wine. It only gets better the older it gets.

The only problem this policy has... is that it's too small.

Couldn't have said this better myself (well actually I did )

If one simply reads reads the original post, the young man wasn't asking if he should buy the policy, but if he should keep the policy. His folks did the heavy lifting, and turned it over to him and all he wanted to know is it better to keep it going or cash out.

Any agent with a basic understanding of a par WL policy from a company like NWM should know the answer. This does not even merit a debate.

 

[Golfnut2112]

Perhaps a visual lesson in how life insurance works?

http://vsa.fsonline.com/vsap/pdfs/1a2-01-ST.pdf

Turn to page 7 of the link above. You might remember such diagrams from your pre-licensing days.

Imagine owning a policy like this for 20 years. The insurance protection (Net amount at risk) decreases as cash values increase... yet the face amount remains the same. (This is not including dividends to increase the face amount with paid up additions.)

The Death Benefit = net amount at risk + cash value - any outstanding loans.

Please learn your industry. These childish comments really annoy and set the industry back in its intellect.

I was not going to respond to your comment but feel I must. First off I am a CLU and CHFC and been doing this since 1986, I have forgotten more than you now know. Once again it is all semantics!! If the policy states a certain death benefit, that is what it is. Why do annual reports show the death benefit and a cash value and not net amount of risk. You are right about net amount of risk, however you can call the cash value what you want but if you die the cash value on the statement is not paid out. Period!! The only reason I brought up the UL increasing cost of insurance, was to point out how off base you are in the insurance basics when considering the increasing cost of insurance is charted in every UL policy, also the virtual sales assistant does not explain anything we are talking about.

 

[DHK]

If it's all semantics... then why does yours say that the cash value is kept by the company and my semantics say that the cash value is paid out to the client?

If you were the client... which would you rather hear? I'd rather hear that the insurance company gives me the death benefit which is the cash values + the difference from the face amount (net amount at risk) rather than "you get the face amount instead of the cash values".

BTW, this is the argument that "termites" use to say that permanent life insurance is a rip-off because you (supposedly) don't get to keep your cash values, nor do your beneficiaries. I choose to turn that perspective into my advantage by showing that the cash values ARE paid out.

When you die, the cash value is not paid out IN ADDITION TO THE STATED FACE AMOUNT when you die. Gee whiz.

As far as UL with increasing costs... I said IN COMPARISON TO WL... there is no increasing costs of insurance. UL is "unbundled" and has flexible premiums and varying (not 'variable') interest rate credits, therefore the costs of insurance are disclosed... while WL is a fixed, bundled product with guaranteed interest rates, therefore no such cost of insurance disclosure is necessary in the illustrations.

Then I compared the disclosure requirements of a bank CD to a mutual fund. Bank CDs don't disclose costs because it has a fixed deposit and a fixed interest rate for a set period of time. Mutual funds have no fixed or guaranteed interest rates, and can lose values, therefore disclosures in the prospectus is given regarding management costs.

Please quote me accurately if you want to disparage whatever I've said.


BTW, while I appreciate long-time client service in the industry, I've found that most people who have decades of experience are also stuck in old ways of thinking. My old GA was like that. He kept saying "I don't know much, but I've got 25 years experience, so what does that tell you?" By not being able to back up what he said and taught, I discounted it as being tactics and strategies from a bygone era.

As far as the VSA Lesson on Life Insurance, it brings up how life insurance works. Those diagrams were taught to me back in my pre-licensing days. The longer you keep paying on a permanent policy, the higher the cash values grow and the lower the net amount at risk.

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Oh, and I have earned my ChFC designation too.

 

[OregonDave]

Does Robert Barney represent Compulife, and if so, what's a good alternative for a consumer facing quoting platform? I feel dirty just having read Mr. Barney's writing. Is he former MEGA?