Whole Life MISTAKES!
- Thread starter CLUless
- Start date
- 11,266
For what purpose? Different policies and different structures are meant to solve different things.
How a policy is designed can be very specific as DHK mentioned.
Two things I will say that aren't good...
Telling them that by having the policy, now they don't need other investments for retirement
AND
Designing with a premium too high that stretches the client too far and potentially sets them up for failure.
Two things I will say that aren't good...
Telling them that by having the policy, now they don't need other investments for retirement
AND
Designing with a premium too high that stretches the client too far and potentially sets them up for failure.
- Thread starter
- #4
Thanks DHK!
What a great throw back with Guy! I’ve only been in the business for 30+ years, compared to his 50+. A legend for sure! I got the chance to get to know him around the time this video was produced. (It was cutting edge at the time!) While I realize the design should mirror the planning goals, my question is basically “what comes to YOUR mind” as it relates to YOUR historical experience with WL.
As an example, I am not a fan of “blended” WL policies, where an agent will sell a $100k Base WL with a $900k term rider. Convenient to the client in the beginning of the policy and also helps with the client who is looking for “cheap”. Unfortunately, the term rider is too expensive-compared to a stand alone term policy, and it may pull down cash and impair future values from the base policy, especially if dividends don’t perform. In addition the term rates aren’t guaranteed within the WL policy. I would rather see a very competitive and convertible term policy, and an All Base WL policy with no term impairment added. My opinion for sure, but I’m curious what YOU think first when I ask the question.
Another example- an actuary friend of mine (Sr Actuary and Product Chair at one of our largest carriers) can’t stand when a policy is designed initially with automatic premium loan option (APL). He has had to testify in court, MANY times, as the client unknowingly had this option only to be subjected to significant phantom income late in life as a result. A total disaster. No more policy- DB is gone and he is hit with a massive tax bill. This actuary is angry at his own firm, because it is often the default of many carriers (or agents?) to the harm of the ignorant client. What say you?
What a great throw back with Guy! I’ve only been in the business for 30+ years, compared to his 50+. A legend for sure! I got the chance to get to know him around the time this video was produced. (It was cutting edge at the time!) While I realize the design should mirror the planning goals, my question is basically “what comes to YOUR mind” as it relates to YOUR historical experience with WL.
As an example, I am not a fan of “blended” WL policies, where an agent will sell a $100k Base WL with a $900k term rider. Convenient to the client in the beginning of the policy and also helps with the client who is looking for “cheap”. Unfortunately, the term rider is too expensive-compared to a stand alone term policy, and it may pull down cash and impair future values from the base policy, especially if dividends don’t perform. In addition the term rates aren’t guaranteed within the WL policy. I would rather see a very competitive and convertible term policy, and an All Base WL policy with no term impairment added. My opinion for sure, but I’m curious what YOU think first when I ask the question.
Another example- an actuary friend of mine (Sr Actuary and Product Chair at one of our largest carriers) can’t stand when a policy is designed initially with automatic premium loan option (APL). He has had to testify in court, MANY times, as the client unknowingly had this option only to be subjected to significant phantom income late in life as a result. A total disaster. No more policy- DB is gone and he is hit with a massive tax bill. This actuary is angry at his own firm, because it is often the default of many carriers (or agents?) to the harm of the ignorant client. What say you?
- 11,266
1st WL mistake: Confusing the benefits of a max-funded WL and only selling a base whole life. A base WL policy is a terrible way to accumulate cash values for future use... but at least it has guaranteed values (compared to a minimum-funded UL).
2nd WL mistake: Dividend performance selling and confusing it as a rate of return. Dividends are about the company's performance and a given sum to be distributed to participating policy holders, NOT a function of rate of return. But the COMPANIES contribute to this by placing the ads talking about their dividend performance.
Misrepresentation and Ignorance: A Dangerous Blend for Ethics
3rd WL mistake: This one is done by "termites" and that's not knowing the formula for what constitutes the total net death benefit.
Net death benefit = Cash Values + Net Amount At Risk - Any Outstanding Loans.
The insurance company DOES NOT "keep the cash values". It's a component of the death benefit (but not on top of). It would be easier if the illustrations had a column for 'Net amount at risk', but they don't. So it's easy for "termites" to believe that "you only get the face amount and the insurance company keeps the cash values". Primarily because their knowledge and terminology is amateur at best.
https://davidkinderfinancial.wixsit...e-life-insurance-company-keeps-my-cash-values
4th WL mistake: misrepresenting how loans work from insurance policies (regardless of direct or non-direct recognition). The "infinite banking" concept is great, but often misrepresented. Just talk about how loans work and what happens if you DO pay the loan interest out of pocket and what happens when you DON'T pay the loan interest out of pocket.
https://davidkinderfinancial.wixsit...al/post/2018/09/21/infinite-banking-explained
5th WL mistake: Yes, I agree with you. A 10/90 blended policy is just a minimum-funded UL policy. I like blended policies, but generally 50/50 or better. Fund the base policy to the MEC guidelines and a level term premium if not planning to convert to more permanent in the near future.
Just my thoughts.
2nd WL mistake: Dividend performance selling and confusing it as a rate of return. Dividends are about the company's performance and a given sum to be distributed to participating policy holders, NOT a function of rate of return. But the COMPANIES contribute to this by placing the ads talking about their dividend performance.
Misrepresentation and Ignorance: A Dangerous Blend for Ethics
3rd WL mistake: This one is done by "termites" and that's not knowing the formula for what constitutes the total net death benefit.
Net death benefit = Cash Values + Net Amount At Risk - Any Outstanding Loans.
The insurance company DOES NOT "keep the cash values". It's a component of the death benefit (but not on top of). It would be easier if the illustrations had a column for 'Net amount at risk', but they don't. So it's easy for "termites" to believe that "you only get the face amount and the insurance company keeps the cash values". Primarily because their knowledge and terminology is amateur at best.
https://davidkinderfinancial.wixsit...e-life-insurance-company-keeps-my-cash-values
4th WL mistake: misrepresenting how loans work from insurance policies (regardless of direct or non-direct recognition). The "infinite banking" concept is great, but often misrepresented. Just talk about how loans work and what happens if you DO pay the loan interest out of pocket and what happens when you DON'T pay the loan interest out of pocket.
https://davidkinderfinancial.wixsit...al/post/2018/09/21/infinite-banking-explained
5th WL mistake: Yes, I agree with you. A 10/90 blended policy is just a minimum-funded UL policy. I like blended policies, but generally 50/50 or better. Fund the base policy to the MEC guidelines and a level term premium if not planning to convert to more permanent in the near future.
Just my thoughts.
- 11,266
6th WL mistake: Believing that you can use the entire face amount for "permission slip spend-down" and use the policy's cash values for retirement income. Unless you figure out the future net amount at risk, that's the only amount you can safely "spend down" of your other assets. Too much confusion for me in Kim Butler's book on "Busting the Life Insurance Lies" and I think she tries to get the concept to do too much.
https://davidkinderfinancial.wixsit...-a-permission-slip-to-spend-down-other-assets
https://davidkinderfinancial.wixsit...-a-permission-slip-to-spend-down-other-assets
- 11,266
Eh... not sure how I'd feel about that. Most people should know if they have stopped paying on their policy or not. APL is just like COI on a UL policy. No major difference that I can see - except one you have to agree to (per the application) while the other just happens.
However, if payments had STOPPED, then the policy would've been cancelled and the cash values sent back to him right away, right? Causing a gain immediately. So the APL had DELAYED the phantom income - at least a few years.
InsuranceIsLife
Expert
- 73
Very great points DHK. Whole life can be great, but again depends on client objective. I am not for one or the other (WL vs IUL) but here are some things to think about before funding with a boat load of cash.
(1) Can only take loans vs partial withdrawals with an IUL
(2) Declining Dividend Performance (I'll use the "Top Dog" Northwestern Mutual in this ex)
In 2001 NWM credited 8.8%... Today it's 4.9% although I don't see going much lower
(3) Not much flexibility with premium payments in the earlier years.. If something unforeseen was to occur, you must make your monthly payment unless of course it's a SPWL or Short Pay. IUL's do offer more flexibility with premiums, but you will want to review with your advisor at least bi annually
(4) Infinite Banking Concept - If this is your plan of choice, going with carrier that offers a non-recognition for loan purposes IMO
(1) Can only take loans vs partial withdrawals with an IUL
(2) Declining Dividend Performance (I'll use the "Top Dog" Northwestern Mutual in this ex)
In 2001 NWM credited 8.8%... Today it's 4.9% although I don't see going much lower
(3) Not much flexibility with premium payments in the earlier years.. If something unforeseen was to occur, you must make your monthly payment unless of course it's a SPWL or Short Pay. IUL's do offer more flexibility with premiums, but you will want to review with your advisor at least bi annually
(4) Infinite Banking Concept - If this is your plan of choice, going with carrier that offers a non-recognition for loan purposes IMO
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