Whole Life vs. Index Universal Life

[SportsNut]

Re: Whole Life VS Index Universal Life

Ooh... "comparative quantitative evaluations"

Keep in mind here Ami that you are for the most part talking to a bunch of life ins salesmen... You may want to dumb-down the responses a tick or two.

A little too much Geek-Talk.

 

[InsureGuy5]

Re: Whole Life VS Index Universal Life

In all my years, I have never seen a whole life policy implode - but universal life disasters are a dime a dozen. Might as well get term for less.

 

[dgoldenz]

Re: Whole Life VS Index Universal Life

The question is not whether responsible people can handle their own finances properly and in a timely manner but whether the unexpected (isn't that what insurance is for?) will interfere. For example, see the article on the Harvard study at Medical Bills Leading Cause of Bankruptcy, Harvard Study Finds

[snip]
Most of the medical bankruptcy filers were middle class; 56 percent owned a home and the same number had attended college. In many cases, illness forced breadwinners to take time off from work -- losing income and job-based health insurance precisely when families needed it most.

Families in bankruptcy suffered many privations -- 30 percent had a utility cut off...
[/end snip]

One of the facts of life with critical illness is that its impact - economic and otherwise - extends beyond the victim. As noted in an earlier posting, premature death often follows a period of critical illness.

Having noted that, however, this I'm not suggesting that "whole life" is necessarily a better choice than UL, particularly during the 'early' years.

IMO, one good approach to comparative quantitative evaluations is to examine the respective IRR of the compared products over the years. Comparative IRR evaluations can be done for the DB as well as the CSV and can easily be done on a year by year basis.

IRR is meaningless if all you want is the death benefit, which is the main point of the no-lapse UL. If you want to focus on cash value, buy the whole life. If you want the max death benefit with the least cost guaranteed forever, buy the UL. Simple as that.

Personally, I'd rather keep the money in my pocket than the insurance company's.

 

[VolAgent]

Re: Whole Life VS Index Universal Life

IRR is meaningless if all you want is the death benefit, which is the main point of the no-lapse UL. If you want to focus on cash value, buy the whole life. If you want the max death benefit with the least cost guaranteed forever, buy the UL. Simple as that.

Personally, I'd rather keep the money in my pocket than the insurance company's.

A reasonable thought. So I'll bite, what is your gameplan to keep the UL in force should you be in a terminal state due to sickness or injury? Since DI is an even harder sell than life, which bill should the typical family not pay, so they can keep the UL in force until the former breadwinner passes away?

 

[dgoldenz]

Re: Whole Life VS Index Universal Life

A reasonable thought. So I'll bite, what is your gameplan to keep the UL in force should you be in a terminal state due to sickness or injury? Since DI is an even harder sell than life, which bill should the typical family not pay, so they can keep the UL in force until the former breadwinner passes away?

If you were in a terminal state and saved the difference in cost versus the whole life for all those years, you'd have more than enough money to keep it going until death. Almost every carrier also has the accelerated benefit option. If you're terminal, you can usually take 25-50% of the face amount for whatever use you want, including keeping your premiums going.

 

[leolu0930]

Re: Whole Life VS Index Universal Life

i would like to thank all of yall take time to discuss this topic. But are we discussing about the whole life popicy vs Index Universal Life policy (which was created after 2003), anyone here familiar with the Index Universal Life from Western Reserve Life? the reason i ask is because recently i bought a policy from IUL policy from WRL.
The following is how i come to conclusion of buying IUL from WRL.

same face amount, i got quote from Metlife and WRL. I chose target premium instead of minimum premium from IUL, but turn out WL is still more expensive,

IUL: invest in an index account related to the movement of S&P 500 index. average about 8% interest on cash value per year base on last 20 years of the historical performance.
they put a cap limit on the account, 12.5%(that mean if market getting 20%, the company still only give you 12.5%). also the company give you a minimum guranteed interest rate 1%, even if the market is down. so there are like no risk to me.

WL: they give me a guranteed 4% interest rate on cash vulue.

IUL: WRL charge 0.75% interested on policy loan, within 10 year, after 10 years, no interest

WL: 6-8% interest on policy loan

they way i feel, IUL would build cash value much faster, because better interest return, and there is a cash value in 1st year.. where WL start build cash value on 3rd years.

maybe the agent from Metlife did not explain to me well about WL product, is there some good things i miss about WL? input please

 

[leolu0930]

Re: Whole Life VS Index Universal Life

12

 

[JMO Fan]

Re: Whole Life VS Index Universal Life

Paying minimum premium on UL is usually an expensive way to buy term insurance. The advantage of UL is building extra cash value tax-deferred (tax-free if it adds to death benefits). Par WL can have a similar advantage, but must wait until dividends build, while UL can credit interest at a relatively higher tax-advantaged rate from the beginning.

Keeping the extra cash in your pocket doesn't have tax advantages (even if the pocket's in a bank), and usually means it gets spent, not saved for a rainy day.

However, indexed UL cannot be expected to match regular guaranteed-rate UL on a long-term basis. Companies have to buy costly index hedges to keep up with the index. Regular UL gets competitive credited rates based upon the best investments the insurer can buy.

 

[dgoldenz]

Re: Whole Life VS Index Universal Life

Paying minimum premium on UL is usually an expensive way to buy term insurance. The advantage of UL is building extra cash value tax-deferred (tax-free if it adds to death benefits). Par WL can have a similar advantage, but must wait until dividends build, while UL can credit interest at a relatively higher tax-advantaged rate from the beginning.

Keeping the extra cash in your pocket doesn't have tax advantages (even if the pocket's in a bank), and usually means it gets spent, not saved for a rainy day.

However, indexed UL cannot be expected to match regular guaranteed-rate UL on a long-term basis. Companies have to buy costly index hedges to keep up with the index. Regular UL gets competitive credited rates based upon the best investments the insurer can buy.

It's an expensive way to buy term insurance in the early years, but not even close in the later years....a healthy 40 year old male can get $1M guaranteed for 30 years for $1,149 per year, or to guarantee it forever for would be $4,963 per year. Total spent after 30 years - $34,470 for the term, $148,890 for the UL.

Now, let's say our 70 year old male now has to get another term policy and is in excellent health for a 70 year old and gets a standard rate. Now he's too old to get anything more than a 15-year term, so if he wants the UL 30 years down the line to take him up to age 120, he's looking at $33,929 per year, and it would only take him less than 4 years to catch up to that total cost of the UL he bought at age 40. After those 4 years, he's now paying a whopping $29k per year more than if he had just bought the UL back when he was 40. Given the average life expectancy of 78 years, he comes out ahead by $106,000 on the UL. If he lives to be 85, he comes out $319,000 ahead.

Let's say he had a heart attack at age 67 and now is a Table 8 rate at age 70 and his conversion option expired already. He'd instead be paying close to $100k per year for a $1M policy. You can see where this is going.

 

[Ami]

Re: Whole Life VS Index Universal Life

It's an expensive way to buy term insurance in the early years, but not even close in the later years....a healthy 40 year old male can get $1M guaranteed for 30 years for $1,149 per year, or to guarantee it forever for would be $4,963 per year. Total spent after 30 years - $34,470 for the term, $148,890 for the UL.

Now, let's say our 70 year old male now has to get another term policy and is in excellent health for a 70 year old and gets a standard rate. Now he's too old to get anything more than a 15-year term, so if he wants the UL 30 years down the line to take him up to age 120, he's looking at $33,929 per year, and it would only take him less than 4 years to catch up to that total cost of the UL he bought at age 40. After those 4 years, he's now paying a whopping $29k per year more than if he had just bought the UL back when he was 40. Given the average life expectancy of 78 years, he comes out ahead by $106,000 on the UL. If he lives to be 85, he comes out $319,000 ahead.

Let's say he had a heart attack at age 67 and now is a Table 8 rate at age 70 and his conversion option expired already. He'd instead be paying close to $100k per year for a $1M policy. You can see where this is going.

Don't 4-get the time value of money. You appear to assume that the difference in premiums (using your figures), of $3,814 per year, is stashed in the pillow. Even if you consider just a 3% avg annual compounded investment return, the cumulative difference (incl investment returns) by the end of the 30th year comes to $186,896.21 (not just $148,890-$34,470).

The other matter to consider is that the purchasing power per dollar erodes over time. In other words, a dollar today is worth a heck of a lot more today than it will be 30-years from now. Even at just 2% average compound inflation (a mirage in a dreamer's paradise and quite unlikely given the record historical national deficit figures to that the Fed's have earmarked to subsidize banks and big biz), a buck will be worth only 55-cents 30 years from now. If inflation (and a biggy is to be expected shortly) hits 6%, today's buck will be worth the equivalent of a mere 17-cents in 30 years.

(using your figures), and assuming inflation at 4% (hopefully we'll only get hit at that rate, but I wouldn't bet on it), that $33,929 at age 70 would be the equivalent of only $10,461 (rounded to nearest dollar) in terms of the present.

If you disagree, just consider the price per gallon of go-go juice for your chariot 30 years ago vs what you pay to for the same gallon today or the price for a cup of coffee 30-years ago vs the price for the same cup of wake-up juice today.