Underwriting - SPL vs monthy pay

May 11, 2019

  1. J2727
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    Is the underwriting for a GUL or Whole Life policy more lenient if the client is paying the premium in a single lump sum vs paying monthly for life?
     
    J2727, May 11, 2019
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  2. Robert Barney
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    Purely a guess: no.
     
  3. DHK
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    DHK "YOU CAN'T HANDLE THE TRUTH!"

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    What's the net amount at risk?

    Monthly pays have far more "amount at risk" than a single pay. If you're doing a single pay, you're probably in for about 50% of the total face amount or more. The company has far less at risk, so it *should* be easier to place.
     
    DHK, May 11, 2019
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  4. Allen Trent
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    No, there is no more leniency per we. However, they may not have to do as many requirements of the net amount at risk is lower as DHK pointed out. 50k deposited into a 150k SPWL will have requirements for a 100k as would a 100k prem paying WL
     
  5. Robert Barney
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    Years ago, when I sold single premium W/L, we never considered the face amount (including the premium/CSV) to be the coverage. If you wanted $150,000 of coverage, and the premium was $50,000 for $150,000, then really the coverage you need was $225.000 at a $75,000 premium to get the $150,000. You then compared that capital investment of $75,000 with the annual costs of an annual premium, to determine if the $75,000 was a good investment.
     
  6. Robert Barney
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    OK, all is quiet. I must have confused some folks. Let's make it easier with an example.

    I have uploaded two comparisons. The first is a life pay (to age 121) example where the best annual premium for a 60 year old preferred plus non-smoker,
    $1,000,000 of insurance is:

    $14,510 per year

    That's the premium, every year, year in and year out for the rest of your life. When the insured dies, the policy pays $1,000,000 tax free. By the way, I defy anyone to tell me where they can create $1,000,000 tax free for $14,510 per year. I think that's a great deal.

    Alternatively, our prospect can put up a lump sum investment of 423,764, which will provide a death benefit of 1,424,000. I have uploaded that quote. In this example, if the insured dies, the beneficiary will get the $1,000,000 death benefit, and the original investment of 423,764 will be returned, in addition to the million.

    Therefore, the effective rate of return being given on the single payment is:

    $14,510 / $423,764 = 3.42%

    It's not exciting or glamorous, but that's 3.42% after tax, guaranteed for the rest of the insured's lifetime.

    Now here's another way of doing it. Buy a life pay (no guarantee) annuity for $423,764 per year on our 60 year old. Take the annual payment, after tax, and use that to buy a life pay policy. How much annual (after tax) income will the annuity produce; more or less than $14.510 per year?

    Can anyone get us some numbers on the annuity? Compulife doesn't quote annuites, just the life insurance products.

    If the life pay annuity will payout more per year (after tax) than the $14,510, then better to use the annuity as the investment and take the income, pay the taxes, and then pay the premiums on the life pay policy.

    As I said in my earlier post, I never sold single pay as a pay the premium and the money is gone, it was a simple investment where the return on the investment pays the premiums.

    And last thought. A no lapse UL guarantee collapses if you miss a premium. If you make a single premium payment, that risk is gone.
     

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    Last edited: May 12, 2019
  7. pfg1
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    I agree that PLI is a great tool and can be a great fit for many folks. However, to say you can't take $14,510/yr and turn it into $1m after tax is a little misleading. You didn't specify in what time frame that needs to be done. Obviously with life ins it can be done very quickly if the insured dies early. Investing takes more time, but could be substantially higher than $1m, and if it was the full 60yrs, you would only need a couple percent annual ROR most likely to do that. They are very different products so you can't really compare them.

    To answer the OP's question, each company has their own UW rules for net amount at risk, for their products. Generally speaking, I'd say its a little less strict if the client is dumping in a lump sum like that because it lowers the net amount at risk.
     
    pfg1, May 13, 2019
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  8. Allen Trent
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    I think you are somewhat comparing apples & oranges, but maybe I am not following the specifics very well. In your 14k premium paying case, the total to beneficiary is $1M that you are not really netting $1M because of all the annual deposits of 14k. But your single pay does net 1M. A 60 year old to life expectancy will have made 15-20 years of payments totalling 215k-280k. If they live to 100 or more, they will have 560k+ in payments, meaning a net of only 440k in real insurance after premiums.

    If you are using a GUL why not just solve for min prem needed annually to guarantee $1M (likely your 14k) and prem needed in a lump sum to provide that same $1M Guarantee. I am guessing that would be less than $300k as a lump sum, not $424k.

    Maybe I am not following your analogy as good as I need to.
     
  9. Robert Barney
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    My example was a 60 year old Male. How long to do you imagine he has to live?

    You can't take insurance out of the equation. I don't care how wisely you invest, if the individual is hit by a truck the day after they invest $14,510, then all they have is that. You would have to buy term life insurance in order to cover the shortfall.

    You know, but term and invest the difference.

    And don't forget the life insurance death benefit is tax free. Any investing you are planning to do has to account for taxes on the return.

    Did you even look at the two quotes that I provided? Do you understand them.

    If the insured really wants/needs $1,000,000 of coverage with a single payment, you need to buy considerably more than $1,000,000 or you would consider the single premium lost money. And if you have $400,000, and are prepared to throw it away, whey would you need $1,000,000 of life insurance to make up the $1,000,000 when you can keep the $400,000 and just buy a $600,0000 policy.
     
  10. Robert Barney
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    You didn't follow the example.

    The example assumes that we are looking to create a new/fresh $1,000,000. We assume that the investor/buyer already has a stash of cash ($424,000) tucked away which can be used - if they don't, then Single Premium is no option.

    If we buy the annual payment GUL then the investor keeps their $424,000 tucked away and simply pays an annual premium of $14,510 per year. That gives their beneficiarly the $1,000,000 when death occurs.

    Alternatively, they could buy $1,424,000 using the $424,000 investment. If they die, they get back the $424,000, and the additional $1,000,000 that they wanted to create.

    Apples versus apples. Same outcome, we just need to compare cost.

    Is that still too difficult to follow? By the way, this is how BIG estate preservation sales are made. You have to think about "opportunity cost" and investment alternatives.

    I am still interested in how much pension a 60 year old would get from $424,000 per year, and more specifically what portion of that annual annuity payout is taxable and what portion is tax free. Can anyone get those numbers, I don't have access to annuity quotes.
     
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