Whole Life or IUL

[GreenSky]

What have you been doing this morning?

Thanks for asking.

I took my dog to day care. Went to the bank to mail a check for buying my "new" airplane. Decided US Bank will no longer get my business.

Now I'm on my way to the casino to make a small fortune into an even smaller fortune.

Rick

 

[pfg1]

Both are good, both can do very well if structured properly and more importantly...funded properly. The real difference, par WL is slow and steady with guarantees... IUL has the opportunity to grow bigger and faster, but no real guarantees. If a par WL is structured and funded correctly it can do very well long term (5%+), but will never have a 10% year like an IUL can. Most companies these days are on the IUL bandwagon...its very popular. That doesn't mean its bad, they both are good and have their spot in the market.

 

[eersfan]

Hello what would you go with to build long term cahs value? Which one would build the most cash value ?

As others have stated, the level of funding will be key to long-term cash accumulation. I personally would look first at an over-funded participating contract from a company such as Mass Mutual. Simply over-funding it for a few years will not provide the results you're looking for. It's a long-term process that requires the funding for at least 10 years to get the desired result.

In addition, proper ownership of the contract is important as well.

 

[wing chun]

It seems as though people that sell whole life do not understand how whole life works and that is a shame. There is no whole life policy that has an IRR 5% or higher. In the last Brease report published by National Underwriter that compared all the major whole life polices the best IRR on cash value after 30 years was 4.89% . Northwestern, Mass,NYL Guardian were all lower. Interest rates have only gone down since then so IRR's have only gotten lower.

Mass has lowered its declared dividend rate 4 times in the past 9 years. Northwestern has dropped their dividend rate 12 times over the past 20 years. The only thing a whole life policy guarantees is the death benefit if all the scheduled premiums are paid. Dividends are not guaranteed! Dividends are not a guaranteed interest rate. Dividends are that portion of a companies profits that are shared with policy holders. If the company is not profitable then dividends will not be paid. One way companies can make up for poor investment performance is that they can increase the insurance charges . Thus making themselves profitable by charging policy holders more for the insurance coverage. This is a nasty backdoor. Further many companies have taken extra risk to help with their investment returns. Mass for example has 10.6% of its portfolio in common stocks. The industry average is 2.3%. It has 14.5% in mortgages . The industry average is 11%. Mass is not a company I would use for long term cash growth.

 

[eersfan]

It seems as though people that sell whole life do not understand how whole life works and that is a shame. There is no whole life policy that has an IRR 5% or higher. In the last Brease report published by National Underwriter that compared all the major whole life polices the best IRR on cash value after 30 years was 4.89% . Northwestern, Mass,NYL Guardian were all lower. Interest rates have only gone down since then so IRR's have only gotten lower.

Mass has lowered its declared dividend rate 4 times in the past 9 years. Northwestern has dropped their dividend rate 12 times over the past 20 years. The only thing a whole life policy guarantees is the death benefit if all the scheduled premiums are paid. Dividends are not guaranteed! Dividends are not a guaranteed interest rate. Dividends are that portion of a companies profits that are shared with policy holders. If the company is not profitable then dividends will not be paid. One way companies can make up for poor investment performance is that they can increase the insurance charges . Thus making themselves profitable by charging policy holders more for the insurance coverage. This is a nasty backdoor. Further many companies have taken extra risk to help with their investment returns. Mass for example has 10.6% of its portfolio in common stocks. The industry average is 2.3%. It has 14.5% in mortgages . The industry average is 11%. Mass is not a company I would use for long term cash growth.

While you are certainly entitled to your opinion, as I am, I will stand behind a Mass contract over the long-haul, just as I would a NML contract. What you didn't do was provide any guidance to the OP's question. To that end, your advice would be?

 

[DHK]

One way companies can make up for poor investment performance is that they can increase the insurance charges . Thus making themselves profitable by charging policy holders more for the insurance coverage.

I'm going to ask this question very sincerely:
- What part of guaranteed premiums don't you understand about whole life?

If I'm reading this part of your post correctly, you are assuming that minimum guaranteed premiums on whole life will increase because of poor investment performance? You DO know that it's far easier for that same argument to apply to UL and IUL policies, right?

If the company is not profitable then dividends will not be paid.

I guess you have doubts of the long-standing history of these mutual companies to pay dividends? Look, I know that we've had a nearly flat bond yield curve, and the long-term bonds of the 80's have all but matured by now. And I know that declared dividends are NOT the same thing as a policy rate of return (most new agents don't make that distinction). While the dividend SCALE will fluctuate, I feel quite confident that dividends will continue to be paid year-in and year-out, partly due to external business interests that these mutual companies have.


My contention to you, is that, while you seem to understand the workings of a mutual insurance company.. you don't understand the word 'guarantee' - at least as it applies to existing policies.

 

[DHK]

Oh, and you can't do a RPU (reduced paid up) as easily on an IUL as you can do on a WL.

 

[BIG one]

If I had to pick one and only one that I could offer my clients it would be the IUL. The flexibility of premiums, being able to set it up to change from a ULB to a ULA when it makes the most sense. Just to many options to compare to the OLD Par WL that hauls in a decent fixed rate in the long run. If your looking for growth it's IUL with large sums of money, if you're looking for face amount the UL is usually cheaper then a Par WL. I will take Minnesota Life's Annexus for myself, not mass, not northwestern, not NYL.

 

[wing chun]

What you didn't do was provide any guidance to the OP's question. To that end, your advice would be?

If Your goal is maximum lifetime income at retirement age then there is no whole life policy that is going to get you a 5% internal rate of return on cash value based on historical facts. The past 30 year Internal CV rate of return for an IUL with a 12.5% cap is 7.13%. That is a return 43% greater than WL with a 5% return. Add to that the premium flexibility the chronic care riders,the over loan protection, the fact that you can now get uncapped S&P indexes and the fact that the product is clean. You can get a print out of the annual insurance charges for example, trying doing that with a WL, and the potential loan arbitrage which is huge for someone that understands and I don't think there is any doubt what policy to get . OH and almost forgot your IUL should have no surrender charges. Nothing better than that first anniversary meeting when a client says WOW! I paid a $20,000 premium and I can surrender right now and get a check for $22000!

 

[wing chun]

Sorry DHK you did not understand what I wrote.

One way companies can make up for poor investment performance is that they can increase the insurance charges . Thus making themselves profitable by charging policy holders more for the insurance coverage.

This has nothing to do with guarantee . It means that insurance companies can, have and do increase the insurance charges on their policies to make up for lower interest rates so they can maintain their dividend.

Dividends have 3 parts .Investment earnings, policy expenses charged and mortality expenses . WL companies can change expenses or mortality every year if they want to. The charges come out of policy premiums that is why premiums must be paid every year. If the company has a 3% investment return and wants to pay a 6% dividend it can increase the expense and mortality charges to make up the difference. This is why some companies cut their dividend rate often and other hold it or increase even though they all invest in the exact same things.. With IUL the expense charges and mortality costs can be provided to the consumer as part of every illustration. WL companies never let you know what these costs are because they reserve the right to stick it to the policy holder as needed yet maintain their good PR by maintaining their dividend.


Whole life premiums are guaranteed. Insurance charges are not! How you or I feel about a company paying dividends is not material. WL companies produce illustrations and agents use these illustrations to sell a questionable concepts like" bank on yourself" knowing from day one the dividend illustrated will not be met. That is just wrong!
I know this to be true because I have gotten full premium refunds from whole life companies for clients that bought WL based on 'Personal banker" and college planning sales concepts.
The premium refunds have all been on policies at least 2 years old.