Whole Life Vs. Universal Life

[mariela]

Thank you all for your responses. Basically WL is better in terms of cash value and guarantees.
Can you comment on the rate of return- 7% rate of return sounds a bit steep to me. Is it possible?
Also she asked that agent : " Is there a point of time where she can stop paying $3000, say after 20 years, 25 years, etc and maintain the same face amount and only withdraw the funds?"
But if she stops paying and only withdraw funds, how long will that policy be in force?

 

[scagnt83]

Thank you all for your responses. Basically WL is better in terms of cash value and guarantees.

WL can offer more guarantees. But UL has the potential for better Cash Value than WL for multiple reasons.

 

[mariela]

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.

well, her idea is to stop paying in 20-30 years and only withdraw funds. That would make UL not the best option, right? Will the dividends from the Custom WL with 20-30 pay period carry the policy in that case (depending on how much $ she withdraws)?

 

[VolAgent]

well, her idea is to stop paying in 20-30 years and only withdraw funds. That would make UL not the best option, right? Will the dividends from the Custom WL with 20-30 pay period carry the policy in that case (depending on how much $ she withdraws)?

There are a whole lot of assumptions in that post and almost no facts.

You would need to run some illustrations and if it allows, put in withdrawals and see what happens. Get it to a level where it doesn't collapse, and then add in some extra funding for safety.

 

[scagnt83]

Can you comment on the rate of return- 7% rate of return sounds a bit steep to me. Is it possible?

Your first post mentions "custom whole life". So I assume you are comparing an IUL to NYLs CWL.

The 7% RoR is not a true ror on Cash Value. It is a Crediting Rate to the policy. Its ULs version of a Dividend Rate.

If the IUL is designed correctly and from a decent company it should average a RoR on the CV around 1%-2% less than the Credited Rate. (depending on rating, funding, etc.)

Most IULs have historical lookbacks (using current caps of 11%-15%) of 6%-8.5%.
7% is about the max credited rate I will run an IUL at to show a client.
Most IULs have a historical lookback of 5%+ 100% of the time over a 20-30 year period.

So anywhere from 5%-7%, with the very slight possibility of 7%-8%, is reasonable to expect for the Credited Rate.

 

[mariela]

WL can offer more guarantees. But UL has the potential for better Cash Value than WL for multiple reasons.

For example? if she over funds it, not skip payments, depending on the average rate of return...
What is she wants to stop paying at some point and just withdraws $$?

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There are a whole lot of assumptions in that post and almost no facts.

You would need to run some illustrations and if it allows, put in withdrawals and see what happens. Get it to a level where it doesn't collapse, and then add in some extra funding for safety.

You are right. I should have posted the exact numbers:
Fidelity&Guaranty life insurance, flex premium, adjustable death benefit, universal life with index linked interest
44 y.o female/ Preferred rating
premium $3000 annually with face amount of $100,000.
0.25% min guarantee 10-14% cap
Average rate of return 7%

She is interested in cash value and paying premiums for 20-30 years max. Interested in the insurance as investment.

 

[scagnt83]

Also she asked that agent : " Is there a point of time where she can stop paying $3000, say after 20 years, 25 years, etc and maintain the same face amount and only withdraw the funds?"
But if she stops paying and only withdraw funds, how long will that policy be in force?

Well if they withdraw or loan from either policy it will reduce both the DB & CV.

How long it will stay in force depends on how much she takes out and the credited rate to the policy.

Withdrawals/Loans can be modeled in the illustration software and can show scenarios based on credited rate/withdrawal amount/loan type/etc.

If she takes distributions based on a conservative Credited Rate, the policy would be fine.

But when you take withdrawals/loans both policies will be at risk of imploding if the distributions are too great. One advantage here is that the UL will allow more premium if it is imploding and the DB is still needed.


Your original post mentioned better loans on ULs. It is true that many ULs, especially IULs offer more competitive loan options vs. WL policies.

Also, ULs offer overloan protection, which will ensure a final expense DB for them if they implode the policy due to overloans/withdrawals.

Also, ULs offer the option for GPT testing, and to change the DB option to level once premiums stop.
This design makes the policy direct a larger % of Gains to the CV instead of to the DB. Obviously this helps with both accumulation and distribution.

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For example? if she over funds it, not skip payments, depending on the average rate of return...
What is she wants to stop paying at some point and just withdraws $$?

Well the IUL offers a higher opportunity for return. It will depend on the chosen Index and the timing of it all.

But based on historical models the IUL will average 5%-8%+ Credited Rate on the policy.


But also it comes down to the point I just made above.

GPT Testing (instead of CVAT) and the ability to change the DB to level after premiums stop, makes the UL/IUL a better design to accumulate and distribute CV.

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You are right. I should have posted the exact numbers:
Fidelity&Guaranty life insurance, flex premium, adjustable death benefit, universal life with index linked interest
44 y.o female/ Preferred rating
premium $3000 annually with face amount of $100,000.
0.25% min guarantee 10-14% cap
Average rate of return 7%

She is interested in cash value and paying premiums for 20-30 years max. Interested in the insurance as investment.

Oh God!!!!

NYL compared to F&G is no contest.... NYL all the way!!!

OR take a look at a decent IUL company such as NA or LFG or Penn. (they all can compete with NYL on a ratings/company quality basis)

 

[mariela]

Your first post mentions "custom whole life". So I assume you are comparing an IUL to NYLs CWL.

Yes. I am comparing Fidelity&Guaranty life insurance with WL (CWL) from NYL.

 

[keepgoing]

It sounds like your client wants an investment more than she wants protection. It's in trying to be both investment (meaning she is definitely planning on using the money spent now in the future) and protection (meaning it's meant to be spent only in the event of something unfortunate happening) that it's getting complicated.
I just came to insurance, but I came from selling securities, with the ability to sell insurance to protect people, totally separate from what their investments were meant to do. I can tell you right off that if she wants 7% average return over the next 20-30 years, putting in $3,000/year, she would be better off investing in dividend-paying mutual funds that will provide income in 20 years based on the accrual of compounded dividends, and buying whole life for current income protection.
The main question is, what is she wanting this money for in 20-30 years? Is it for retirement? Then fund her IRA for tax-deferred growth. If she wants to have her debts paid off in the event of her death, and cash at the end of a certain period of time if she doesn't die, buy whole life as protection.