Author Topic: LIFE INSURANCE  (Read 62980 times)

Offline Joe4007

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Re: LIFE INSURANCE
« Reply #680 on: August 11, 2022, 04:56:58 PM »
Cash value in a whole life policy can be loaned out tax free, but you will owe interest on the loan.

The interest rate might only be a little bit higher than the rate used to calculate dividends, so net interest costs could be very low (relative to ordinary loans). The spread might be as low as 1%-1.5% in some contracts. With universal life policies this is a little bit more transparent, since the loan account grows at an interest rate that can be directly compared to the account value crediting rate.

Buying WL or Universal because of the ability to borrow back your own money might make sense in some situations, but it's certainly not something that applies to all people and situations. Again, I'm not an advisor, but I scratch my head trying to understand how it would make sense for a low income family.
When rates are low, you can utilize a third party lender to actually have a net positive spread on your loan.

Offline Zalc

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Re: LIFE INSURANCE
« Reply #681 on: August 11, 2022, 06:36:09 PM »
In 1987Ö

Buy yourself a house!! (I was married with 2 kids) I looked at him, A House? In Boro Park?? it's $175k minimum...... (total purchase price)

If I may ask - 175k is how many times your earnings in the 80ís?

Offline ExGingi

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Re: LIFE INSURANCE
« Reply #682 on: August 11, 2022, 08:22:56 PM »
When rates are low, you can utilize a third party lender to actually have a net positive spread on your loan.

Indeed.
I've been waiting over 5 years with bated breath for someone to say that!
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Offline Yosel

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Re: LIFE INSURANCE
« Reply #683 on: August 14, 2022, 12:33:10 PM »
If I may ask - 175k is how many times your earnings in the 80ís?
aprox. 3 to 4

Offline Zalc

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Re: LIFE INSURANCE
« Reply #684 on: August 14, 2022, 04:33:01 PM »
aprox. 3 to 4
In that case I donít know if this particular example is still relevant.

In Brooklyn youíd need to earn at least $375k for a smaller home to be that ratioÖ
Out of town itís not much better, maybe $125k or more.

Most people donít make that kind of money, unfortunately. Especially at the beginning.

Offline ExGingi

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Re: LIFE INSURANCE
« Reply #685 on: August 14, 2022, 10:15:55 PM »

I think the best strategy is for someone to set their family up in a way not to need to be covered at 58.

While that is a wonderful thing to aspire towards, no one can guarantee achieving that (and you might be surprised to find out that even coverage is not "needed", it is still desired for the immediate tax-free liquidity and other benefits that it provides).

Yes.  After some time, with enough income and investing right, you basically 'self insure'. Your family expenses are lower than when you had a  young family and you have enough saved for the wife to live off of.
Although maybe having less, rather than $0, might be the way to go.

But this won't apply to those lower on the income spectrum.  They won't have savings to live off.  Especially if they still have larger expenses such as unmarried children.

And that might be your answer to the question
You like whole life even for people at a lower income? What's the advantage to them?

It is precisely the need for savings and larger expenses that makes a (relatively) small (overfunded) Whole Life policy as a good piece in their financial puzzle.

I would assume that we can all agree that said lower income family does need to save as part of their plan, as the larger expenses will happen (and hopefully everyone will be alive and well to take part in those) and are likely to increase. Allocating (at least) some of their annual savings towards a well-funded Whole Life policy will reduce the amount they need to spend on term (they will not be able to get all the coverage in WL) while serving as an efficient long-term fully liquid safe accumulation vehicle.

Additionally, AFAIK cash value of a WL policy is NOT countable when applying for FAFSA - something that can actually make an impact for said low-income family.
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Offline ushdadude

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Re: LIFE INSURANCE
« Reply #686 on: August 14, 2022, 10:22:13 PM »
While that is a wonderful thing to aspire towards, no one can guarantee achieving that (and you might be surprised to find out that even coverage is not "needed", it is still desired for the immediate tax-free liquidity and other benefits that it provides).

And that might be your answer to the question
It is precisely the need for savings and larger expenses that makes a (relatively) small (overfunded) Whole Life policy as a good piece in their financial puzzle.

I would assume that we can all agree that said lower income family does need to save as part of their plan, as the larger expenses will happen (and hopefully everyone will be alive and well to take part in those) and are likely to increase. Allocating (at least) some of their annual savings towards a well-funded Whole Life policy will reduce the amount they need to spend on term (they will not be able to get all the coverage in WL) while serving as an efficient long-term fully liquid safe accumulation vehicle.

Additionally, AFAIK cash value of a WL policy is NOT countable when applying for FAFSA - something that can actually make an impact for said low-income family.


That's a very expensive savings account... Especially if they miss a payment or two.

Offline ExGingi

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Re: LIFE INSURANCE
« Reply #687 on: August 14, 2022, 11:20:31 PM »

That's a very expensive savings account... Especially if they miss a payment or two.

You must be unfamiliar with how well structured blended whole life policies work.
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Offline ckmk47

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Re: LIFE INSURANCE
« Reply #688 on: August 14, 2022, 11:28:14 PM »
You must be unfamiliar with how well structured blended whole life policies work.
Please give me the basics.  I've always been wary of WL at the lower income.
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Offline ushdadude

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Re: LIFE INSURANCE
« Reply #689 on: August 14, 2022, 11:30:20 PM »
You must be unfamiliar with how well structured blended whole life policies work.


It's less expensive than a term policy + savings?
I'm curious if we can run the numbers of a blended policy vs a term policy with the difference in premiums invested in low cost index funds

Offline ushdadude

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Re: LIFE INSURANCE
« Reply #690 on: August 14, 2022, 11:31:15 PM »
Please give me the basics.  I've always been wary of WL at the lower income.


+1 previously on this forum it's been discussed that low income families can't even afford basic term insurance

Offline ExGingi

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Re: LIFE INSURANCE
« Reply #691 on: August 14, 2022, 11:37:14 PM »

It's less expensive than a term policy + savings?
I'm curious if we can run the numbers of a blended policy vs a term policy with the difference in premiums invested in low cost index funds

You are conflating savings and investing. Whatever portion should be allocated as part of a sound financial plan to low-cost index funds is not that which should be allocated to safe savings accounts.
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Offline ExGingi

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Re: LIFE INSURANCE
« Reply #692 on: August 14, 2022, 11:41:29 PM »
Please give me the basics.  I've always been wary of WL at the lower income.

IINM I've written before about Paid-Up-Additions.

There's a blog that has some decent posts explaining it. Here is one: https://theinsuranceproblog.com/the-incredible-flexibility-of-blended-whole-life-insurance/
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Offline ushdadude

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Re: LIFE INSURANCE
« Reply #693 on: August 15, 2022, 09:17:50 AM »
You are conflating savings and investing. Whatever portion should be allocated as part of a sound financial plan to low-cost index funds is not that which should be allocated to safe savings accounts.
But it should be allocated towards insurance premiums?

Offline yos9694

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Re: LIFE INSURANCE
« Reply #694 on: August 15, 2022, 10:10:11 AM »
IINM I've written before about Paid-Up-Additions.

There's a blog that has some decent posts explaining it. Here is one: https://theinsuranceproblog.com/the-incredible-flexibility-of-blended-whole-life-insurance/

Let's be clear what a blended WL policy actually is. If someone needs $1M of coverage, it is relatively expensive to buy that amount of WL, so you can cut the cost down by buying 3 insurance products at once:
1) Whole life sleeve - the core is a small piece of WL. How small will depend on many factors, and it could be 100K, or it could be 400k, etc
2) Paid up additions sleeve - single premium whole life. The premium cost is much higher than it would be for the same amount of whole life death benefit, but the cash value and dividend eligibility is also higher
3) Term sleeve - annual renewable term insurance. The premium is much cheaper than it would be for the same amount of whole life death benefit. But it might be much more than you would pay for a standalone level term policy. No dividends and no cash value.

The goal is for 1 + 2 + 3 to equal the desired $1M death benefit. It's mostly term, but every time you buy paid up additions it replaces a small amount of term, and every time you get a dividend it could also be used to displace a small amount of term. The hope/promise is that over many years the term portion will be completely bought out. Many years.

Personally, I'd rather buy a small WL policy and a standalone term policy. More cost effective and easier to understand. But this blended structure is good for maximizing cash value growth- so once again, it comes down to a question of goals - optimize cost of coverage or savings?

Offline ExGingi

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Re: LIFE INSURANCE
« Reply #695 on: August 15, 2022, 06:50:56 PM »
But it should be allocated towards insurance premiums?

Whole Life insurance is an asset (class), while it is legally insurance and therefore the payments are called premiums, it is unlike any other insurance product out there (and unlike any other asset).

If I were to take an extreme example, think of Whole Life as a Patek Philippe and term insurance as a Casio (looking at both from a purely functional and value point of view). When you buy a Casio watch you have a great item that will give you the accurate time when you need it. When you buy a Patek Philippe you buy an appreciating asset, while you have it, it can also be used to tell the time. A few years later, they might both tell time, but the Casio will be mostly worthless (resale value), while the Patek Philippe will be worth more than you paid for it.
« Last Edit: August 15, 2022, 07:07:54 PM by ExGingi »
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Offline ExGingi

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Re: LIFE INSURANCE
« Reply #696 on: August 15, 2022, 07:06:46 PM »
Let's be clear what a blended WL policy actually is. If someone needs $1M of coverage, it is relatively expensive to buy that amount of WL, so you can cut the cost down by buying 3 insurance products at once:
1) Whole life sleeve - the core is a small piece of WL. How small will depend on many factors, and it could be 100K, or it could be 400k, etc
2) Paid up additions sleeve - single premium whole life. The premium cost is much higher than it would be for the same amount of whole life death benefit, but the cash value and dividend eligibility is also higher
3) Term sleeve - annual renewable term insurance. The premium is much cheaper than it would be for the same amount of whole life death benefit. But it might be much more than you would pay for a standalone level term policy. No dividends and no cash value.

The goal is for 1 + 2 + 3 to equal the desired $1M death benefit. It's mostly term, but every time you buy paid up additions it replaces a small amount of term, and every time you get a dividend it could also be used to displace a small amount of term. The hope/promise is that over many years the term portion will be completely bought out. Many years.

Personally, I'd rather buy a small WL policy and a standalone term policy. More cost effective and easier to understand. But this blended structure is good for maximizing cash value growth- so once again, it comes down to a question of goals - optimize cost of coverage or savings?

Never heard of the components referred to as sleeves, but I guess that might be actuary talk...

As for the costs, I pointed to this before, and I think this should be stressed again. I think anyone that will see how Paid-Up-Additions work will agree that they are not a high cost product, but actually (at least in the short term, and for younger people) one of the lowest cost insurance products out there. If the entire cost is the lost-opportunity cost of 5%-10% of the premium which is fully recovered in 2-4 years, how is that costly?

As for the ART part of the blend being costlier than a level term policy, that is mostly true if talking about a short-term level term, but in comparison to a long-term level term, the ART component of a blended policy will often be cheaper in the first 5-15 years. I have used blended policies for my children, front loading them with Paid-Up-Additions so that by the time they get married they have more than 100k of FULLY PAID UP life insurance coverage (with growing cash value in excess of premiums paid).

A real-life example I just looked at today, was a client of mine who bought a blended 100k+400k policy 11 years ago and called me to drop the term portion. Dropping the term would leave the client with a death benefit of about 108k (and the rating would be lowered, as this specific policy has a minimum death benefit of 250k for best rating). I suggested lowering the term portion to 150k, and informed the client that if they would dump-in 39k, that term would be fully bought out (the client would pay a 5% sales charge on the 39k, but in 2 years that would be fully recovered by the cash value growth and dividends). So in this example (female in mid 40s), one payment of 39k buys a lifetime of 150k (and growing with dividends), where the ONE TIME cost is 1.95k which is FULLY RECOUPED in 2 years. Year over year cash value growth is slightly north of 4%.
« Last Edit: August 15, 2022, 07:15:11 PM by ExGingi »
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Offline ushdadude

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Re: LIFE INSURANCE
« Reply #697 on: August 15, 2022, 07:53:54 PM »
Whole Life insurance is an asset (class), while it is legally insurance and therefore the payments are called premiums, it is unlike any other insurance product out there (and unlike any other asset).

If I were to take an extreme example, think of Whole Life as a Patek Philippe and term insurance as a Casio (looking at both from a purely functional and value point of view). When you buy a Casio watch you have a great item that will give you the accurate time when you need it. When you buy a Patek Philippe you buy an appreciating asset, while you have it, it can also be used to tell the time. A few years later, they might both tell time, but the Casio will be mostly worthless (resale value), while the Patek Philippe will be worth more than you paid for it.


We both agree that everyone needs to be able to tell time.


A better analogy would be is someone came into a store looking for a watch and left with a microwave that has a clock in it. Sure he'll know the time, but he's also paying for a bunch of stuff he doesn't need or understand

Offline Yosel

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Re: LIFE INSURANCE
« Reply #698 on: August 15, 2022, 07:57:53 PM »

We both agree that everyone needs to be able to tell time.


A better analogy would be is someone came into a store looking for a watch and left with a microwave that has a clock in it. Sure he'll know the time, but he's also paying for a bunch of stuff he doesn't need or understand
neh!!!!!

Offline ushdadude

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Re: LIFE INSURANCE
« Reply #699 on: August 15, 2022, 08:05:05 PM »