Whole life vs Universal life vs VUL

[arnguy]

You're OK James, it's The New Guy I am after. BTW when I was a newby I sold UL with vanising premium concept. A few years later I almost got my ass handed to me on a platter when the policies started to vanish instead of the premiums. Since then I have concentrated on health insurance and an occasional annuity.

 

[The New Guy]

You're OK James, it's The New Guy I am after. BTW when I was a newby I sold UL with vanising premium concept. A few years later I almost got my ass handed to me on a platter when the policies started to vanish instead of the premiums. Since then I have concentrated on health insurance and an occasional annuity.

Sorry Sir. I was wondering around today, and as luck would have it, I found myself at yet another Golf Course. After 18 holes, and 5 bottles of water to replace my fluids while playing, I had to take a quick nap. I will assume the late shift tonight.

 

[James]

Sorry Sir. I was wondering around today, and as luck would have it, I found myself at yet another Golf Course. After 18 holes, and 5 bottles of water to replace my fluids while playing, I had to take a quick nap. I will assume the late shift tonight.

Than I'll try not do use any than or then statements!

 

[James]

If vanishing premium had been guaranteed, the insurer would have set up reserves, so that when interest rates dropped, the reserves would have been enough to still let the premiums vanish (instead of the policies lapsing ).

Unlike vanishing premiums, UL secondary guarantees are in the contract, so the insurers have all set up reserves. If interest rates drop, or avian flu hits, or the inside buildup gets taxed, the reserves will still back the guarantees. Of course, it's always wise to consider the co rating as well.

I don't get where you are going at all??? The Guarantees we are talking about is all about keeping the premiums level, not increasing or decreasing. I suppose it really doesn't matter though, let's us face the truth, these SGUL's or ULNL are basically sold as a Term alternative, not really as a true perm. insurance or on the other hand they may also be sold as a Cheap WL alternative.

I was just shown an old Mass Mutual whole life contract. It was around 70K face value. Do you know that when the woman wanted to cash it in, the 1099 on the dividends that went to pay the premiums exceeded the Cash Value! The 1099 was created because with the lapse of the contract, or proposed lapse the gains became taxable.

Well I suppose if she got a UL from say First Colony she wouldn't have those tax issues, geez that would be so much better! Having a policy actually accumulate CV is such a negative. Oh well, if the low ball UL actually performs and accumulates CV (unlikely scenario) and one was dumb enough to cash it in a 1099 would still be required.

 

[JMO Fan]

UL tends to be pretty expensive as term insurance. Its strength is its ability to accumulate cash tax-free. Why would you sell UL with secondary guarantees instead of level-premium term?

 

[arnguy]

The New Guy, for shame: "I was wondering around today...." However, since you will take the graveyard shift all is forgiven.:bump:

 

[James]

UL tends to be pretty expensive as term insurance. Its strength is its ability to accumulate cash tax-free. Why would you sell UL with secondary guarantees instead of level-premium term?

The main idea behind the UL is yes, to have the ability to build cash value like WL yet to have flexibility of premium and amount of DB. For this the COI or cost of policy increases, add a low premium to the mix and you have a recipe for a policy that can not last a normal lifetime much or less build any significant CV, as we have seen in several UL scenarios. Now comes along the No Lapse UL, once again in most cases Agents are selling the UL with the lure of low premium (compared against WL) with yet another guarantee that the UL premium is protected, we seen this before. The SG or the NL is there specifically to protect the premium level, nothing else yet I suspect that the large numbers of bean counters assures them that most of these policies will lapse due to non-payment, likely in the first 5 years making that very similiar to Term. Now I'm not saying that WL doesn't have the same problem with lapsing of the policies but IMHO if one is sending in 5 grand a year they are more vested in the policy compared to the lo premium UL or the Term policy.

Yet let me clear this up, I have no problem with UL just the idea of the lo premium UL and the promise of CV that can not happen. If you have a good UL and fund it properly in the range of a WL policy you have a good chance of building significant CV and for that contract to last a lifetime. The SG or NL clause is simply there to allow agents to sell a low premium UL that will never build CV. The ULNL with low premium has no chance of building CV, so I have to ask why would any Insurance Carrier want to sell them if they suspect that these policies will continue to be held by the insured?

 

[The New Guy]

The New Guy, for shame: "I was wondering around today...." However, since you will take the graveyard shift all is forgiven.:bump:

Must have been temporary Heat Stroke. When I woke from my nap, I put the Toaster in the Frig, and the Milk in the Cupboard, after making Peanut Butter Toast. My Wife was wandering around the Kitchen, wondering what I was doing.

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[Sir Ringo]

If you are interested in EIUL's, then AmerUs Life, now Aviva, has some pretty good plans, unless you don't like the CV part, then leave it alone.

 

[Guest]

Whole Life Factoid

I was just shown an old Mass Mutual whole life contract. It was around 70K face value. Do you know that when the woman wanted to cash it in, the 1099 on the dividends that went to pay the premiums exceeded the Cash Value! The 1099 was created because with the lapse of the contract, or proposed lapse the gains became taxable.

That's not quite right: dividends used to pay premiums become taxable 1099 income when the total, cumulative amount exceeds the policy's "tax basis", which is roughly the amount of all previous premiums paid out of pocket since the policy was first purchased...not when the dividends exceed the cash value. ANY policy of any type will generate a 1099 if, upon surrender, the cash value exceeds the tax basis (in other words, the owner gets back every penny they ever paid tax-free, and only the gain is taxed). Dividends used to pay premiums before a policy is surrendered reduce its tax basis (as if they were received by the owner in cash).

Just wanted to clear that up. Hope I did!