Why sell permanent Insurance?

Discussion in 'Life Insurance Forum' started by James, Oct 17, 2006.

  1. James
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    James Guru

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    Some here have a problem with W/L or the U/L insurance and it all boils down to need and why, why W/L or Permanent Insurance?

    Now we now have the obvious, DB, CV, Access to C/V but we have the access to DB as a living benefit. Such as the LTC needs, if you don't want to buy Term, Savings Account and a LTC Policy one can easily buy W/L with the LTC option. You have Asset Care by Golden Rule but other carriers such as John Hancock and others are entering in with the W/L Ryder. Meaning once the LTC is triggered you can access your DB of 1-3% of DB payable depending upon your choice, common LTC benefit period is 3 or 5 years on these Ryders.

    So you can buy Term, place money in a safe account and purchase a LTCi policy or you can just buy W/L! Plus you have the CI Ryder along with the WP one can place within these contracts making it a partial secondary DI policy with a plan of continuence if disaster strikes.

    I'm at a lost to find another financial tool that do so much as the W/L Policy can do. Can I go out and buy a LTC policy that can fill in as a Life Insurance Policy? No. Can I invest in a MF and expect if something happens to me in 5 years that my LTC or any continuious fulfillment of that account be available? No. In other words, there is nothing to compare to the W/L Policy!
     
  2. Sam
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    Sam Founder Administrator

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    Personally, I have an overfunded indexed UL which has performed very well so far. However, I would never encourage a client to take equity out of their house or business to get such a plan so that they can generate a retirement income. It is simply not a tolerable level of risk.

    At the end of the day, it all boils down to the specific cash flow status of the individual client. You cannot make sweeping statements about the effectiveness of such a product and expect them to hold true every time. There will be cases where they fit and cases where they won't.
     
  3. James
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    I was trying to emphasize the DB and how that can be used as a Living Benefit more so then the old tired CV debate. Even though the CV side does shape up nicely as a safe money account (long term) yet there is more to it then just that. The DB of a Term policy would be hard to sell since most won't need it till they are over 65 or likely in the 70's, 80's or higher as the life expectancy grows.
     
  4. johncm
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    A term policy is a DB policy. Now, you can sell living benifits. Insurance you don't have to die to use.
    How about an EIUL that offer free riders for terminal illness, major events like heart attack, stroke or cancer, or how about riders that have a LTC or DI feature. one policy so many benefits. and Fi non of the above happen, you get a pretty nice tax free cash flow if built right.

    On the equity issue, every one has thier own tollerance. But if you can have a CV policy that has the potential to be a LOT bigger than just a paid off home, why not. Meaning, ou get to retirement, actually were one of the few who paid off thier home and no retirement income to talk about. Can you take a shingle off your home and spend it? or worse, you go backwards and do a reverse mortgage. Just seem silly to me that you have idle equity dollars tied up making a 0% rate of return when you can have it working for you.
    You don't have to believe it. The federal reserve out of Chigago just came out wiht an article showing just that. Saying in a nut shell, people are loosing .11-.17 cents per dollar, paying down their homes vs. some tax favored retirement stratagy. I'm not going to argue with that. These are the people that run the frickin world.
    soooo................
    there are many uses for perm. and in the long run is way cheaper than term. think about it. After 20 years than what. do you think you can afford it than. And I am not of the mentality that home is paid off, not real, kids are out of the home, so what, wife is in good shape. I do not buy into that camp and if you do, that's fine. But educate your clients and let them decide what is best for them without clouded judgement of your ideas.
    this can go on but I think I've got my point out.
    And if you haven't figured it out. I am all Perm EIUL camp. But do throw in term to increase DB if needed.
     
  5. indaville
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    indaville Super Genius

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    Do you have a link for this article, I would interested in reading it.

    Thanks!
     
  6. NHB_MMA
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    That's one point no one can argue. Many will say they won't need their insurance forever and if they're investing and perfectly comfortable with that situation, then fine. If you're 25 years old and have ALL your DB in a 20 or 30 year term and you understand that you'll have no death benefit at age 45 or 55, that's okay if that's what you want. There's no way you'll ever want to renew the thing when you see your new premium. I've never seen quotes on 40-year term, but I've been told if you look at the premiums and consider the probability of payout (hey, there's a reason why term usually ends by age 65, much like most car warranties end by 50,000 miles) and the difference between term and perm at that point, you'd be crazy to buy the term.
     
  7. johncm
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    johncm Expert

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    Here are a few key points taken directly from the study:

    * We show that a significant number of households can perform a tax arbitrage by cutting back on their additional mortgage payments and increasing their contributions to tax-deferred accounts (TDA).

    * We show that about 38% of U.S. households that are accelerating their mortgage payments instead of saving in tax-deferred accounts are making the wrong choice. For these households, reallocating their savings can yield a mean benefit of 11 to 17 cents per dollar, depending on the choice of investment assets.

    * In aggregate, these mis-allocated savings are costing U.S. households as much as 1.5 billion dollars per year.

    http://www.strategicequity.com/TileItems/TI182/FedStudy-Mortgage_pre-payment_tradeoff.pdf
     
  8. Guest
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    johncm

    That was a facinating article from the Federal Reserve!

    Even more awesome than the article was the fact that you knew of its existence. May I ask how you learned of it. The source from which you learned of it must be a wealth of information. Could you post your source?

    Thanks.
     
  9. James
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    James Guru

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    We live in a society that now endorses the 30 and soon to be 40 year mortgage with next to nothing down. Now that is okay, but using ones equity is to much risk? Now you have to understand that simply doesn't make sense at all!

    Now if you express that the mortgage should be done only with at least 20% down and should be no longer in duration then 20 yet 10 years is better then you have a point. If not then I have no real reason to give credence to your point of risk. Lets face it, most mortgages today make no sense at all. This idea of equity management is no more then eliminating the risk of such long mortgages.
     
  10. Atlas
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    James,

    Keep fighting the good fight. They may learn something from you one day.


    Atlas
     
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