Whole Life Questions

[Mac1958]

Hi folks, new guy here. A couple of simple questions about Whole Life. The more I look into this product, the more sense it can make (depending on the situation, of course) as part of the foundation of an overall financial planning strategy.

Three hypotheticals (and yes, terribly simple questions):

1. Client has a WL policy with a $100,000 face value and a $35,000 cash value. If he died today without having accessed the cash value, does his family receive $100,000 or $135,000?

2. Same client wants to access $20,000 from his WL cash value to buy a new diamond ring for his favorite hooker. OK, let's say it's college for his kid. Does he have to set up a loan repayment schedule at the time of withdrawal, or can he just opt not to repay?

3. Same client turns 65 and decides to retire. His income will drop dramatically and he's worried about his premiums. What do you tell him? Should he cash out his cash value and use that to pay the premiums?

Thanks!

 

[Dave020]

Hi folks, new guy here. A couple of simple questions about Whole Life. The more I look into this product, the more sense it can make (depending on the situation, of course) as part of the foundation of an overall financial planning strategy.

Three hypotheticals (and yes, terribly simple questions):

1. Client has a WL policy with a $100,000 face value and a $35,000 cash value. If he died today without having accessed the cash value, does his family receive $100,000 or $135,000?

$100,000 which is the payable death benefit.

2. Same client wants to access $20,000 from his WL cash value to buy a new diamond ring for his favorite hooker. OK, let's say it's college for his kid. Does he have to set up a loan repayment schedule at the time of withdrawal, or can he just opt not to repay?

He can choose to pay it back or not, however it does carry an interest rate and if not paid back, over time could erode the policy value and cause problems.

3. Same client turns 65 and decides to retire. His income will drop dramatically and he's worried about his premiums. What do you tell him? Should he cash out his cash value and use that to pay the premiums?

If he "cashes out", the policy will be surrendered. He has a lot of other options that are better, borrow against the CSR, roll into an annuity, take a reduced, paid up policy, etc.

 

[Mac1958]

Excellent Dave, thanks.

 

[LGilmore]

1. Client has a WL policy with a $100,000 face value and a $35,000 cash value. If he died today without having accessed the cash value, does his family receive $100,000 or $135,000?

It's going to depend on what "type" of whole life you buy. A traditional whole life with the dividend mode set to paid up additions will increase the death benefit along the way. So you could start out with a 100k policy and at the time of death have it pay 135k.

I don't know if you are new or fishing, but it will depend on the policy you buy. Some increase, some don't (except for Mec corridor). It may depend on par or nonpar policies and whom you're buying from.

The words whole life have been corrupted over the years as marketing jargon. The policy you are referring to may not be a whole life at all.

2. Same client wants to access $20,000 from his WL cash value to buy a new diamond ring for his favorite hooker. OK, let's say it's college for his kid. Does he have to set up a loan repayment schedule at the time of withdrawal, or can he just opt not to repay?

Yes, to both. Again depending on the type of policy he could change his dividend election to reduce the loan and repay the debt over time. He could actually make a whole life work like term in reverse by dividend election. Going from most expensive to cheapest over time. Again, it's going to depend on what policy you are talking about.


3. Same client turns 65 and decides to retire. His income will drop dramatically and he's worried about his premiums. What do you tell him? Should he cash out his cash value and use that to pay the premiums?


Again, what type of policy did he buy? With mine I can at a certain point use dividends to offset premiums and run the policy till death. No need to cash out or borrow.


If you really are uncertain about a policy, just let us know which one it is rather than a hypotethic model. There are too many different "whole lifes" out there to give you an accurate explaination. As my explaination differs from Dave's and we could both be right... depending on the policy.
Thanks!

 

[Mac1958]

Thanks LG. It's just a hypothetical, I've never spent much time looking at WL given the terrible press it's received. I wasn't aware there were so many flavors.

I knew the death benefit can increase on a UL policy, but I didn't know it could on a WL. Nor did I know you can manipulate the dividend to either reduce premiums or actually pay them. Obviously I'll need to dig a bit more and speak with specific carriers about specific plans.

Much appreciated.

 

[LGilmore]

It's simply going to depend on what you buy.

Realize most of what you read is written without alot of research or unbiased opinion....think WMDs a few years back and where that got us.

Most of the finanical gurus are flip about whole life, they don't look at the wide variety of policies out there and take very little time to learn the details..it's just easier to paint with a broad brush.

Depending on the company and the product you can make a whole life increase in death benefit, reduce annual cost, accrue as a separate cash account, take back each year as tax free gain or pay policy premiums. It's called a dividend and it's flexible and can be changed annually.

The big trick becomes can you afford it. The best time to buy is when you're young and healthy but unfortunately too stupid to buy. By the time you wise up to how it works, it's too expensive to buy cause your old and maybe not so healthy.

 

[MDP]

Hi all,

New agent here and was wondering if anyone knows of a site or document that has done an unbiased comparison of the performance of a cash value whole life policy vs. the s&p 500. Basically looking for some sort of model showing what someone would have in their account had they bought term and invested the rest in the s&p500 vs the whole life account at 10, 20, 30 years.

I am totally fatigued with advisors pontificating how much better the hypothetical client can do buying term and investing the rest without providing any hard data!!!

It would be great if it was a college or university of course whoever sponsored the study might bias the study.

Anyway even if the study doesn't show whole life in a favorable light it would be educational for me at least.

Thank you in advance gentle forum members.

MDP

 

[AllGold]

1. Client has a WL policy with a $100,000 face value and a $35,000 cash value. If he died today without having accessed the cash value, does his family receive $100,000 or $135,000?

It's going to depend on what "type" of whole life you buy. A traditional whole life with the dividend mode set to paid up additions will increase the death benefit along the way. So you could start out with a 100k policy and at the time of death have it pay 135k.

You know this of course (and you know way more about this than me), but you happened to use the same numbers so just to avoid confusion for new agents...

Cash value and death benefit are different things. You never add the cash value of a policy to the death benefit; it just doesn't work that way.

As you said, dividends set to paid-up additions will increase the death benefit but it is increasing because you're actually buying more insurance, not because the cash value is being added to the face value.

 

[BNTRS]

Cash value and death benefit are different things. You never add the cash value of a policy to the death benefit; it just doesn't work that way.

That's not 100% accurate. There are some UL contracts that allow for an increasing death benefit option that includes original death benefit and CSV.

 

[LGilmore]

Yup. Usually with a WL where dividends are buying paid up addtions, the death benefit will be much greater than the original policy face + cv.

I was just trying to take it easy in understanding. You would have to look at specific companies and specific policies as things can be slightly different depending on product.