Still Trying to Fully Understand the VAlue of Whole Life

[insurancemet]

I was exposed early on and believed in buy term, invest difference..through this forum etc understanding more the value of whole life, however sometimes I seem to lose sight of it and still question it. Being thatwhole life is more expensive and if one already has term, is it wise or should i say would there be a benefit or urgency in buying a whole life or is it something that can be put off without much consequences say if your still fairly young like in your 30s. I understand about locking in a price but is it wise to buy whole life just bec of the cash value.. Still plays with my mind that if you hold on to it to the end you get mainly just the death benefits and lose the cashvalue but for those who buy it for dividend savings, whats the point since you canttake it out anyway without being penalize. I also just learned of the policy fee so that alone probly eats up more than dividend. Still trying to learn all yhis and believe in it so i can talk with confidence.

 

[Newby]

You just have to ask yourself how much insurance you need if you live a long life and how much more you need if you died young (like today.)

You usually need some term (temporary insurance) and some whole life.

You are thinking about the cash value wrong. If you have $100,000 WL policy, it starts as $100,000 of insurance an no cash value.

Later it will be $20,000 of cash value and $80,000 insurance= $100,000 death benefit.

Later yet it will be $60,000 cash value and $40,000 insurance= $100,000 death benefit.

As you get older, the insured amount reduces and the cash value makes up part of your death benefit. This is how they keep the premium level your entire life.

Those examples are straight whole-life that don't increase. Some policies have increasing benefit (through policy design or through dividends). The concept is the same but everything goes up and is more complicated to follow the numbers.

There is also GUL which is basically lifetime term. It's term that lasts to age 121. It does not have usable cash value.

And if you feel bad for the mythical Dave Ramsey fan who thought they were supposed to get the cash value AND the full death benefit on whole-life and felt screwed...think how bad all the people who paid thousands of dollars into his non-convertable but guaranteed renewable term policies for 20-years and find out their premium goes from $80 monthly to $1,150 monthly at the 20th year and they are now uninsurable because they have cancer?

They get NO cash value, NO death benefit and NO return of premium and they can't even convert to a permanent policy if they followed his advice. Who do you think feels the most screwed the most often?

 

[insurancemet]

Thanks, I don't remember ever having it explained to me that way...that is pretty clear.. Thanks. I've had agents say that you get the cash value added to the death benefits and from what I have learned you get one or the other....
Thanks for clearing that up.

I guess with dividends, it just buys up more insurance or that one is an exception I think is what you are saying.

So wouldn't it make sense to buy a term that last as long as you said GUL, would that be cheaper than a whole life..Take your savings if there are and just put in a savings account, quick access..no policy fees, no surrender charges, no interest in having to borrow your own money..am I missing something?

And as far as cash value building up tax free..but if you take it out it will be taxed so what is the point..also, as you pointed out cash value builds..subtracts from death benefits...I guess that just means more money to access as far as borrowing but if you want to keep it..say cash value $30k..death benefits 70K..face value is 100k...so that's what it would pay 100k regardless how much shifted into cash value...and if you do decide to get the cash value..policy fee and surrender charges..I guess the advantage is that you were covered to begin with, it didn't expire like a term..

But again if there are term that last for a life, would that be better than a whole life.....

Also what then really is the advantage of cash value being built..the way it is marketed really does sound like you get both..it builds cash value like a saving..also has death benefit..many agents sells it like that don't they.

Also, in regards to using life insurance as a savings vehicle for college fund etc..I guess this is where the argument is ..you just have access to it but you really only get one death benefit or cash value if you surrender it.

I just started selling with an agency and they do use whole life to say it saves for college fund so again, goes back to why would that be better than just putting it in a saving bank?

Thanks..

 

[aacards8]

Thanks, I don't remember ever having it explained to me that way...that is pretty clear.. Thanks. I've had agents say that you get the cash value added to the death benefits and from what I have learned you get one or the other....
Thanks for clearing that up.

I guess with dividends, it just buys up more insurance or that one is an exception I think is what you are saying.

So wouldn't it make sense to buy a term that last as long as you said GUL, would that be cheaper than a whole life..Take your savings if there are and just put in a savings account, quick access..no policy fees, no surrender charges, no interest in having to borrow your own money..am I missing something?

And as far as cash value building up tax free..but if you take it out it will be taxed so what is the point..also, as you pointed out cash value builds..subtracts from death benefits...I guess that just means more money to access as far as borrowing but if you want to keep it..say cash value $30k..death benefits 70K..face value is 100k...so that's what it would pay 100k regardless how much shifted into cash value...and if you do decide to get the cash value..policy fee and surrender charges..I guess the advantage is that you were covered to begin with, it didn't expire like a term..

But again if there are term that last for a life, would that be better than a whole life.....

Also what then really is the advantage of cash value being built..the way it is marketed really does sound like you get both..it builds cash value like a saving..also has death benefit..many agents sells it like that don't they.

Also, in regards to using life insurance as a savings vehicle for college fund etc..I guess this is where the argument is ..you just have access to it but you really only get one death benefit or cash value if you surrender it.

I just started selling with an agency and they do use whole life to say it saves for college fund so again, goes back to why would that be better than just putting it in a saving bank?

Thanks..

You need to look at it in a case by case basis - Why does the person need life insurance? For just temporary protection or something longer? I will say that per LIMRA 95% of insurance claims actually paid is on permanent (whole life, UL, IUL, etc.) So that tells me that if only 5% of claims are paid on term policies, people are usually outliving them or cancelling. Really the only benefit to term is that it's cheap. It doesn't build up cash value (other than ROP, and even then the money's locked up until the term is over), and it usually (about 95% of the time, anyway) expires or is cancelled before a claim is paid. Ramsay should mention that THOSE are gravy for insurance co.'s. But he already knows that - that's why he rakes in the big bucks hawking Zander ins.

 

[Third Joker]

I was exposed early on and believed in buy term, invest difference..through this forum etc understanding more the value of whole life, however sometimes I seem to lose sight of it and still question it. Being thatwhole life is more expensive and if one already has term, is it wise or should i say would there be a benefit or urgency in buying a whole life or is it something that can be put off without much consequences say if your still fairly young like in your 30s. I understand about locking in a price but is it wise to buy whole life just bec of the cash value.. Still plays with my mind that if you hold on to it to the end you get mainly just the death benefits and lose the cashvalue but for those who buy it for dividend savings, whats the point since you canttake it out anyway without being penalize. I also just learned of the policy fee so that alone probly eats up more than dividend. Still trying to learn all yhis and believe in it so i can talk with confidence.

1. BTID is a replacement strategy.
2. Whole Life is more expensive than term? How so?
3. Cash values? Icing on the cake.
4. You don't "lose the cash values" on death. That's a flawed understanding of how life insurance is built.

(It's late and I've had a cocktail or two, so my bullet point responses are all I can muster at the moment!

 

[Peace9999]

You just have to ask yourself how much insurance you need if you live a long life and how much more you need if you died young (like today.)

You usually need some term (temporary insurance) and some whole life.

You are thinking about the cash value wrong. If you have $100,000 WL policy, it starts as $100,000 of insurance an no cash value.

Later it will be $20,000 of cash value and $80,000 insurance= $100,000 death benefit.

Later yet it will be $60,000 cash value and $40,000 insurance= $100,000 death benefit.

As you get older, the insured amount reduces and the cash value makes up part of your death benefit. This is how they keep the premium level your entire life.

Those examples are straight whole-life that don't increase. Some policies have increasing benefit (through policy design or through dividends). The concept is the same but everything goes up and is more complicated to follow the numbers.

There is also GUL which is basically lifetime term. It's term that lasts to age 121. It does not have usable cash value.

And if you feel bad for the mythical Dave Ramsey fan who thought they were supposed to get the cash value AND the full death benefit on whole-life and felt screwed...think how bad all the people who paid thousands of dollars into his non-convertable but guaranteed renewable term policies for 20-years and find out their premium goes from $80 monthly to $1,150 monthly at the 20th year and they are now uninsurable because they have cancer?

They get NO cash value, NO death benefit and NO return of premium and they can't even convert to a permanent policy if they followed his advice. Who do you think feels the most screwed the most often?

Please clarify --

UL, WL & IUL - cash value is not paid to bene.. only the death benefit? If true.. then what's the point of "investing" in these contracts. Isn't it better to just buy term then invest the rest..i.e. Roth..etc.?

Please help explain. Thanks.

 

[maksim]

Run a few illustrations and see for yourself. =)

1. it is a forced savings plan. As an RIA, very few people have the discipline to actually buy term and invest the difference.

2. You can often stuff ALOT more money into a life insurance policy than a Roth IRA.

No one says that Insurance is the replacement for putting away money into a roth IRA or a 401k, however it is a good supplement.

 

[sshafran]

As you already know, there are a ton of resources out there to help you understand WL better. There are several books that people on the site will recommend, but if you want a concise good resource with practical applications, I'd recommend the blog by BNTRS. It is here (The Insurance Pro Blog). I've benefited a lot from reading it.

 

[Norwayguy]

Please clarify --

UL, WL & IUL - cash value is not paid to bene.. only the death benefit? If true.. then what's the point of "investing" in these contracts. Isn't it better to just buy term then invest the rest..i.e. Roth..etc.?

Please help explain. Thanks.

You are correct techically its only death benefit being paid out but take a Iul illuistration 100k initial death benefit option B increasing death benefit and look what happens to the death benefit when cash value builds.

Why would you want to take a loan on your money, you need to look at participating loans I love the ability to take a loan, spend that money and still have the loaned balance positivily benefit the policy.

 

[Newby]

Please clarify --

UL, WL & IUL - cash value is not paid to bene.. only the death benefit? If true.. then what's the point of "investing" in these contracts. Isn't it better to just buy term then invest the rest..i.e. Roth..etc.?

Please help explain. Thanks.

Your post makes no sense.

It is not investing, it is protecting. In order for something to be called an investment you must have your principal at risk. Straight life insurance does not fit that definition.

With WL and UL the cash value IS part of the death benefit. The insured amount reduces to keep the benefit level.

If you rely on only term and "investing" the difference, you MAY end up like most people at the end of the term with no insurance, underfunded or underperformed investments and basically broke.

Everyone has choices and levels of risk tolerance. Investing instead of insuring is high risk ...but it COULD pay off for you. We'll know in 20 years.