Whole Life or IUL

[wing chun]

Not a question of a winner. Wl is for death benefit guarantees nothing better but its is not the vehicle for maximum cash and income potential.

I do not read it that JS44 is worried about a 3% return he seems worried that at 3% the illustrations run out. Every properly designed IUL should look fine at 3% and current charges. He is focusing on the minimum interest and maximum charges. Which is wrong from day 1 since the first year charges are current and not max. If 3% and max charges is a concern then all he needs is a waiver of surrender policy and then if at some point in the near future the company does go to max charges he can just pull all his cash. Also depending on index returns he can be at positive cash value in the 13 month. He cant achieve these things with any whole life he would have access to.There is a whole life that could do it but it is not something available to the general public and a good IUL is still better IMO due to policy construction if you want Max cash potential.

 

[js44]

for Example JS44 is worried about a 3% return on an IUL. Therefore WL could be something he should look at.. He just has to know that the potential return are lower in he so choses. But WL will take away that concern.

No, no. WL is not what I want. I want a bank account or a bond or whatever you call it to hold my cash, does not lose it to COI as I get older, gives me a guaranteed 3% per year (true up after 8 years is ok) with a chance to make even more based on the stock market. DB is there to make it a life insurance so the withdrawals are tax free. That's it, in a nutshell.

 

[js44]

Wing chun, is it possible to pay premium for x number of years and after that start borrowing, maybe the entire premium, and still hold the policy and generate positive cash flow?

 

[wing chun]

You can borrow the entire surrender value . the value may be greater or less than the premium paid depending upon year and cash growth. For the last few years positive surrender cash above premium has hit the first 3 to 5 years depending assuming minimum Death Benefit.

You can still hold the policy. The policy remains in force as long as there is enough cash to pay the insurance charges. If there is not enough cash then you will have to pay the insurance charges to keep the policy alive until your over loan protection kicks in.

I have a large real estate development company client that pulls max cash every other year it seems. When their deals sell they pay back the loan. The last few years they have been earning the cap from 14% to 18% on the loaned value from the insurance company and then earning over 25% on their real estate deals they invest the loan proceeds in. Due to market volatility I expect there life insurance return will be 6% to 7% this year but loan cost is 4% so still positive arbitrage. Also since Jan 31 we have moved to zero net cost loans and expect to move back to arbitrage loans in May or June. No reason to have negative arbitrage if you can avoid it.

 

[js44]

You can borrow the entire surrender value . the value may be greater or less than the premium paid depending upon year and cash growth. For the last few years positive surrender cash above premium has hit the first 3 to 5 years depending assuming minimum Death Benefit.

You can still hold the policy. The policy remains in force as long as there is enough cash to pay the insurance charges. If there is not enough cash then you will have to pay the insurance charges to keep the policy alive until your over loan protection kicks in.

I have a large real estate development company client that pulls max cash every other year it seems. When their deals sell they pay back the loan. The last few years they have been earning the cap from 14% to 18% on the loaned value from the insurance company and then earning over 25% on their real estate deals they invest the loan proceeds in. Due to market volatility I expect there life insurance return will be 6% to 7% this year but loan cost is 4% so still positive arbitrage. Also since Jan 31 we have moved to zero net cost loans and expect to move back to arbitrage loans in May or June. No reason to have negative arbitrage if you can avoid it.

Thanks the problem is how much DB to start with to keep the COI at a minimum? I don't want to commit to a set premium every year. Can we increase or decrease the DB as needed to keep the costs at minimum? First I have to design this to perform at 3% and then start borrowing.

 

[pfg1]

wing , yes with some companies you actually can design a WL policy that will illustrate over 5% long term. Many will illustrate mid 4's. Maybe it will hit that, maybe it won't.... its obviously a long term deal and we can't predict the future. But to say it can't be done.... ??
Well, YOU might not know how to do it but that doesn't mean it can't be done. And yes, designing properly with a term as part of the policy typically increases IRR. Even if dividends continue to slide for companies...and they may due to the environment we're in, a highly performing WL policy will still do very well long term.

And yes, IUL's are great tools also. You can get excellent returns potentially and many have capped out recently... but again they are both insurance products that have a few x factors that we can't control. Funding by client, and performance of company and/or market.

 

[REI_Velocity]

After looking at both WL and IUL, I chose WL to hold my cash. It's a non-investment banking system, and then I take said cash and make the real returns. I don't trust IUL, and every IUL agent that I've talked to (yes, subjective to me) has BS'd me. One told me IUL has stood the test of time... lol I reminded him the first IUL policy was written in 1997 (~20 years ago). WL isn't an investment, though it still beats many of them. The concern I have with IUL is the longevity of it, and if it avoids the issues of VUL or other policies that have imploded (the stuff you don't figure out until 20 years down the road). Seems to be a lot of hype (ie, warning signs) that is spewed all over the place with IUL. It's in vogue now, and I run into so many agents pushing it. I'd be careful and really test the waters... WL is great with a really good agent who knows what he or she is doing. I've gone through several... It's too much of a personal investment to pick the wrong one, so take your time vetting the various agents out there. Compare, compare, compare. I already had to 1035 once.

 

[Allen Trent]

Not so it also did 50/50 term and whole life and the IRR was worse for every company. Which is logical since you have to pay for the term insurance cost until your paid up adds replace the term portion. I have the last published report and also have the last non published report done before he died in 2013

 

[Allen Trent]

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.

I believe you are quoting the Minnesota Life Orion cap & rate. Ironically, the 12.5% cap was dropped last week to 11.75. Anyway, you state it has an internal rate of return of 7.13%. That is not the internal rate of return after the COI, loads, fees are deducted. The 7.13 would be the average credited interest rate prior to expense deductions.

Both IUL & WL products have their place, I just think you are mis-stating the IRR as 7.13% in your statement if I am right on the product you are using as the basis of your point.

 

[pfg1]

Most caps are coming down due to the environment we are in, just as dividends have for many wl carriers. Also, IUL hasn't been around for 30yrs to have an actual track record for ror, but they can project what it would have done. With so many crediting strategies...depending on how the clients policy is allocated and their policy anniversary date, they could do better or worse than the stated return any given year. I think 6-7% is a reasonable expectation over the long haul for IUL, and 4-5% for WL. Agreed, they both have their place, as well as pros and cons.