Whole Life Vs. Universal Life

[mariela]

I have read some previous posts comparing UL and WL and I agree it depends on the situation.
So I have client who is interested in building cash value (not concerned that much about DB) and wants to stop paying at some point in future but still want to keep the policy in force.
She was offered UL and the agent told her the rate of return is average 7% for the past 25 years. The minimum she will make is 0.25% and a cap of 10-14%.The reason to offer UL is that
"the whole lifes are more strict, there's no flexibility; she can't really adjust the face amount and the loans tend to not be as flexible meaning she is charged a higher interest rate to withdraw the funds.
Universal lifes are flexible, she can adjust the monthly payment and the face amount and can take loans without having to pay a higher interest rate."
So, for someone who wants to build cash value and wants to stop the payments in future is UL better or Custom whole life for 20, 30 years?

 

[Jerard]

...and wants to stop paying at some point in future but still want to keep the policy in force.

There are no true guarantees with a UL. If she wants it to remain in force until her death then a WL is the only one that will.

Universal lifes are flexible, she can adjust the monthly payment and the face amount and can take loans without having to pay a higher interest rate. So, for someone who wants to build cash value and wants to stop the payments in future is UL better or Custom whole life for 20, 30 years?

She can't have both a flexible policy and a guaranteed 'till death' policy. If she had a UL and took loans out (or skipped premiums) that causes the plan to not perform as shown in your presentation. EACH premium payment that is skipped or not there due to a loan is money that is not compounded on for future cash value growth.

 

[Tahoe Ray]

There are no true guarantees with a UL. If she wants it to remain in force until her death then a WL is the only one that will.



She can't have both a flexible policy and a guaranteed 'till death' policy. If she had a UL and took loans out (or skipped premiums) that causes the plan to not perform as shown in your presentation. EACH premium payment that is skipped or not there due to a loan is money that is not compounded on for future cash value growth.

While I appreciate what you're saying in the second paragraph, your first sentence is incorrect. You've never heard of a Guaranteed UL?

 

[Jerard]

While I appreciate what you're saying in the second paragraph, your first sentence is incorrect. You've never heard of a Guaranteed UL?

Yes, I have. However, this "guarantee" is based upon strict requirements and varies from plan to plan. At the risk of being tarred and feathered then put to death for copy-write infringements, I offer the following (from this link on Wikipedia):

"No-lapse guarantees, or death benefit guarantees: A well informed policyholder should understand that the flexibility of the policy is tied irrevocably to risk to the policyholder. The more guarantees a policy has, the more expensive its cost. And with UL, many of the guarantees are tied to an expected premium stream. If the premium is not paid on time, the guarantee may be lost and cannot be reinstated. For example, some policies will offer a "no lapse" guarantee, which states that if a stated premium is paid in a timely manner, the coverage will remain in force, even if there is not sufficient cash value to cover the mortality expenses. It is important to distinguish between this no lapse guarantee and the actual death benefit coverage. The death benefit coverage is paid for by mortality charges (also called cost of insurance). As long as these charges can be deducted from the cash value, the death benefit is active. The "no lapse" guarantee is a safety net that provides for coverage in the event that the cash value isn't large enough to cover the charges. This guarantee will be lost if the policyholder does not make the premium as agreed, although the coverage itself may still be in force. Some policies do not provide for the possibility of reinstating this guarantee. Sometimes the cost associated with the guarantee will still be deducted even if the guarantee itself is lost (those fees are often built into the cost of insurance and the costs will not adjust when the guarantee is lost). Some policies provide an option for reinstating the guarantee within certain time frames and/or with additional premiums (usually catching up the deficit of premiums and an associated interest). No-lapse guarantees can also be lost when loans or withdrawals are taken against the cash values."

Anytime the word "may" is used then absolute guarantees are voided. Basically what they are saying is that if if you use the UL for what most agents sell it for (flexibly of premium and loans, etc.) then you lose the guarantee. When you lose the guarantee you will at some point lose the DB. Therefore, I stand by my original opinion.

 

[TwiLight]

I have read some previous posts comparing UL and WL and I agree it depends on the situation.

The best way to accomplish this is what is called MAX FUNDING your IUL plan.

This is when you lower the Death Benefit to the point where the Premium will be at or just below the Guideline Premium. Most WL policies are priced this way and you can accomplish this with an Indexed UL policy with significant Upside potential.

Some companies, such as LSW (Life of the Southwest) will also allow you to have a guaranteed lifetime income that is tax free (under current law) by using the loan provision of the policy to pull out Money at a certain age and take that amount for a lifetime and still maintain the Guaranteed Death Benefit and Payout at the same time.

 

[VolAgent]

While I appreciate what you're saying in the second paragraph, your first sentence is incorrect. You've never heard of a Guaranteed UL?

Yes, but she is being shown an IUL and is being sold on the flexibility. So in this case, it is quite accurate.

She can accomplish what she wants in several ways. Obviously more guarantees equals higher premium. Just as more flexibility equals more risk.

In order of most flexible/risky to least.

She can overfund or even max fund a CAUL/IUL/VUL and allow the investment returns to carry the policy. The risk is that if performance isn't there or the company decides to increase charges to the maximum it could crash.

She could use a WL and then premium offset in future years once the dividend is strong enough to carry the policy. Again, there is the risk that dividends aren't strong enough to carry the policy.

She can purchase a WL that is paid up at some point in the future. 10 year, 20 year, age 65, whatever you have available. At that point, the policy is paid up and no future premiums are accepted. As long as she pays the premiums during the premium paying years, the coverage will be there for life.

As a general rule, the more money she puts into it now, the more cash value it will have latter. Yes, this ignores differences in policies and future performance. Also, any loans or withdrawals will affect the policy and if too much is taken out it will cause the policy to collapse.

 

[Tahoe Ray]

Anytime the word "may" is used then absolute guarantees are voided. Basically what they are saying is that if if you use the UL for what most agents sell it for (flexibly of premium and loans, etc.) then you lose the guarantee. When you lose the guarantee you will at some point lose the DB. Therefore, I stand by my original opinion.

You made blanket statement. I'm not debating your accuracy in the context of this case, just that saying a UL has no guarantees and WL will be the only one in force at her death was not accurate.

I don't know any agents selling GUL for "flexibility of premiums" (maybe short pays).

----------

Yes, but she is being shown an IUL and is being sold on the flexibility. So in this case, it is quite accurate.

In this case, sure. That's why I mentioned the second paragraph and only quoted the first.

 

[Jerard]

...just that saying a UL has no guarantees and WL will be the only one in force at her death was not accurate.

So, at least you would agree that a WL has MORE guarantees than a UL?

To have a guaranteed WL all the client has to do is make the premiums. Of course the client also needs to know that any unpaid loans are subject to an interest rate if not paid back. But the loss of the CV does not effect it's build up due to the compounding of interest for that CV.

To have a "guaranteed" UL the client has to not skip any payments, not take out any loans, make sure the agent didn't sell it at a target premium that won't carry the policy to any age death, read and understand the annual statements, and not live too long because the COI never stops increasing. If a client takes out, say, a $1000 loan the the CV that is needed for compounding is gone, therefore effecting the entire future life of the policy.

 

[scottstreet]

WL with a flexible PUA rider (think Penn) will accomplish lifetime guarantees with tremendous flexability.

 

[Tahoe Ray]

So, at least you would agree that a WL has MORE guarantees than a UL?

To have a guaranteed WL all the client has to do is make the premiums. Of course the client also needs to know that any unpaid loans are subject to an interest rate if not paid back. But the loss of the CV does not effect it's build up due to the compounding of interest for that CV.

To have a "guaranteed" UL the client has to not skip any payments, not take out any loans, make sure the agent didn't sell it at a target premium that won't carry the policy to any age death, read and understand the annual statements, and not live too long because the COI never stops increasing. If a client takes out, say, a $1000 loan the the CV that is needed for compounding is gone, therefore effecting the entire future life of the policy.

Absolutely. I am a fan of WL.

GUL is a pure DB play for me...no CV discussions, no loans, no variations in premiums, etc. Just permanent term...write the check for the rest of your life (or 10 years, 20 years, however you have it set up), on time, and the DB is going to pay.