Looking For a Whole Life Policy

[arnguy]

Sorry, Steve. I do not discuss insurance with engineers unless they sre the type of engineer that drives a train. I have engineers in my family and there is not enough time in the day to spend on the topic.

 

[BNTRS]

Sorry, Steve. I do not discuss insurance with engineers unless they sre the type of engineer that drives a train. I have engineers in my family and there is not enough time in the day to spend on the topic.

Hahah, I can remember back to my first training days as a new agent and the manager talking about Engineers and School teachers. First appointment I ever set was with an Engineer.

One time I handed an Engineer prospect of mine some life insurance quotes and his wife looked at him and asked, "You're going to spread sheet those, aren't you?" I laughed.

 

[Newby]

Engineers are a breed of their own.
Anytime you see a guy riding a BMW motorcycle you can bet he's an engineer. They are the only people who are attracted to them.

 

[Franz Kafka]

Engineers are a breed of their own.
Anytime you see a guy riding a BMW motorcycle you can bet he's an engineer. They are the only people who are attracted to them.

I just abhor their breed and we stay far from each other. No guts, no blood, only brains ..

 

[stevew7]

It depends on how you use the policy. What good is cash value if you don't use it? If you access it during your lifetime, the cost of accessing it may be more important than how much cash value there is. What's the loan interest rate? Direct or non-direct dividend treatment?

Excellent questions. The importance of the cash value is that it is an option to use it via a loan, and that the cash value gets to grow tax deferred. While I hope to not have to use it today, having to pay for two college educations at the same time in 20 years frightens me! That being said, the loan interest rate is less important to me, because at that time, the ongoing dividends on the policy will likely be more than enough to pay for the interest, which makes it essentially a "free" loan using dollars that have been able to grow tax deferred, with the interest being paid by tax free dollars (which come from the annual interest earned). Is my line of thinking off here?

Even if you don't plan to use the CV, the policy with the highest CV (or more accurately, highest IRR on the CV) may not be the better deal. For example, for equal premiums, "A" has a lower face amount and higher cash value IRR than "B". Is "A" better? Maybe NOT if you add the cost of term insurance to "A" to equal the death benefit of "B".

I agree, but in my situation, the death benefit is secondary. I am doing what most people say not to do, and trying to analyze this as I would any investment I would make in an ETF or mutual fund.

I can either keep X dollars in my savings account or put X dollars in a whole life policy. So in your scenario, I don't care that A's death benefit is lower. If its IRR is higher, that means there will be more cash value to earn dividends on, and assuming dividends are equal between A and B, A will always outperform B.

This is a great back and forth. Thanks for the opportunity to learn from all you experts!

 

[stevew7]

Steve, I'd just say we are being more honest than most stock jocks and mutual fund companies. We are willing to admit that we lack a crystal ball that can predict the future. The only prediction I am willing to make is that you will not see a major mutual (New York Life, Northwestern Mutual, Guardian, Mass Mutual, even Ohio National and Penn Mutual) miss a dividend payment in your lifetime or your children's or grandchildren's without a complete collapse of our economy. Now, buying a whole life policy is much more of a marriage than buying an index fund. Divorce is always expensive, an index fund is just dating.

But really, anyone who promises you that one whole life policy of similar design will outperform another is being dishonest to you and themselves. Now, if you take dissimilar policies, then yes there can be clear differences. Also, I know you are looking at a 10 pay, but you might even want to consider a paid up at age 65 policy, or a straight pay to age 100 with enough PUAs to get it to just short of being a MEC. It lets you put money in for more years. If you ever get to a point where you are tired of paying, you can always use the reduced paid-up option.

This is good feedback and you are reading my mind.

I agree - if an agent tells me their insurance company will outperform all the others in the future, I will run away, just like if someone told me they could pick all the right stocks and guarantee me an above market rate of return. I do appreciate that all the "big boys" in the industry have a solid track record and there is some reasonable assurance that even though the "guaranteed" illustration is done using a baseline dividend rate, I can pretty much count on the actual rate being X higher than the guaranteed rate.

When I am ready to pull the trigger, I plan to find an agent that knows this just as well as I will by the end of this thread, and I'm going to have them run illustrations both with 10 pay, and a standard age 65/100 policy (loaded up with a term rider and PUAs in the maximum "cash value" configuration), making it just short of becoming a MEC. But before I get there, I just want to make sure I am asking all the right questions. Like you said, this is a much longer term decision that buying a mutual fund, so I'm surprised that before this forum, I've been able to find very little about whole life policies and maximizing cash value.

 

[stevew7]

You're welcome. I love Engineers, they are the only ones who ask complex questions and actually care about/comprehend the answers.

Too funny. I just like to understand how things work, and if there isn't a manual, I'm going to take it apart with the pieces of info I can find and go from there. And if that information isn't published, I'm going to reverse engineer it from the illustrations that are posted and try to figure it out that way. Forums like these allow people like me to search and read the responses, so that maybe down the road, this healthy back and forth will help out some other poor lad that is trying to understand WL insurance pricing and options.

1a. Paid Up Additions

The biggy here is the charge placed on PUA's. Like a mutual fund, there is a load fee for a PUA, which varies widely among insurers.

Understood there is a load involved. But by comparing the IRR, isn't the load being factored in already? That is, if one policy has a 50% load and the other policy has a 1% load, the one with the 50% load by definition has to have a worse IRR if the dividend rates are equal? And even if the one with the higher load has a higher dividend, the dividend is going to have to be a LOT higher to overcome the higher initial load?

This is almost identical in the mutual fund industry of buying class "A" load shares, versus a no-load fund. The Vanguard crowd believes buy a low cost no load index fund, while the traditional broker/advisor community believes they will find funds that outperform the indexes, and the load is the cost of doing business. At the end of the day, I don't care - I am going to put my dollars with the fund that has performed better, will sell if it starts underperforming. And in some cases, both sides will make such compelling arguments that I will split up my dollar into two and invest $0.50 with each camp. The problem with WL is that the cost of changing my mind is very expensive, so I want to understand what I am getting myself into BEFORE I write the check.

3. Dividend Banding
Many companies pay slightly different dividends on different death benefits (i.e. they get better as the db increases). We don't really notice this with this analysis.

Now this is good information to know that I didn't know before. So, in the end if I decide to invest half with one company and half with another, this may work against me. If both companies end up paying the same amount in dividends, I may have earned more if all my dollars were in a single policy if a company paid more dividends? Is this done in aggregate across all policies? ie, 1 policy for 1M DB is may be paid at a higher dividend rate than 10 policies for 100K DB? How much difference are we talking?

A big problem here is something I alluded to before, the contracts that these analysis put under the microscope no longer exist, in essence. Sure there are products that are similar, but there were many different assumptions taking place at the time (you're going to ask what, I'll answer after you do)

You are reading my mind. Yep, you must have worked with engineers before!

Not to sound like a BOY junkie, but it definitely is a different product design, with a very different approach, and that approach is definitely not addressed with the Full Disclosure Dividend Analysis.

Sorry, what is a "BOY junkie"?

In some respects there might be an element of this going on--depends on the person. A NML agent would suggest this is why I don't like NML, because they won't let me--or anyone else--broker their product. But in truth I choose to dislike NML because their base WL premiums are really high, their load fees are insane, and their version of direct recognition (which is their only option) is terrible. There are other companies I'm personally not interested in talking about because I don't have a relationship with them. But I've taken an extremely large amount of time reviewing this stuff, and the companies I talk to clients about are, in my opinion, the companies to look at.

I appreciate your honesty here. I don't mind (and actually appreciate) the advice of an insurance agent/broker, but I strongly believe in trust but verify. It helps me understand what I might not be hearing, and it sounds like you are a true professional in this field.

Actually, that's not 100% true, at least from the IRR side. Sure having more time on your side is extremely beneficial, but that's true of any savings plan where compounding is going on. Unless you are rated, the IRR isn't going to be substantially different in most cases. Sure, there's a different between standard and preferred plus, but there's a much bigger difference between standard and rated in most cases.

Sorry, I'm not quite following here. What does "rated" mean? Is that a low "health rating," so the insurance company charges you more for the cost of insurance? That is from best to worst, super preferred, preferred, standard, rated?

 

[stevew7]

Steve. It appears you've done some of your homework on this. What part of Illinois are you in? I'm in the Chicago west subs if you would like to talk please feel free to email me at dan@interstateinsurancebrokers.com, I am the least pushy person when it comes to this. However, i would be happy to discuss your objectives. If need be I have financial partners that can help in this arena. Have a great day! Dan

Right now, I'm in the information gathering stage. Any input you have on the back and forth we have going would be much appreciated. I'm one of those crazy engineers that will be running several difference Excel simulations using canned data before I even start requesting quotes.

 

[stevew7]

Sorry, Steve. I do not discuss insurance with engineers unless they sre the type of engineer that drives a train. I have engineers in my family and there is not enough time in the day to spend on the topic.

Great community here. Ha Ha. If it makes you feel better, I care very little about politics (and other topics that have no correct answer), which is a little atypical for engineers. You can be right if you care enough about the topic - I'll just get you another beer and grill another burger for ya.

During a BBQ, I'm more likely to talk about my kid running around and eating dirt (oops need to watch him more closely) than I am about insurance. But if someone really wants to talk about 529 plans, capital gains tax questions, installing a wood floor, or one of a dozen or so random topics I've researched and executed, I'm always more than happy to explain why I did what I did, and the person on the other end usually appreciates the "reader's digest" version which usually took me weeks to gather and learn. I always provide references and background material on how I came to the decision.

Ok, I see more posts that I need to digest, but I'm running out of steam. I'll try to find time before work tomorrow or maybe during lunch to respond to the rest - I think the mods have me on lock-down because I'm posting too much for a newbie!

 

[FEX Quotes]

Just a hunch, but my guess is that Steve is not a consumer looking for insurance advice.