All Forum Posts by: John Perrings

@Thomas Rutkowski

You still want it both ways. You say cash value, death benefit, and mortality costs are the same in WL and UL. Then, later say UL will "close the gap faster in the real world" because of better cash value accumulation. Which is it?

UL is NOT "simply unbundled WL." This glosses over some significant differences in how the cost of insurance is calculated.

Whole Life, a "bundled" product, has mortality costs that are "baked in" from day one, using the maximum cost of insurance, and guaranteed for the full duration of the policy (121 years!).

Universal Life, an "unbundled" product, has mortality costs that are calculated annually and illustrated using current assumptions of cost. This is why ULs are also called "current assumption policies."

So you're correct - whole life is not "called ART" ...because it's not ART.

The "Renewable" of Annually Renewable Term being the key word here because as the term insurance component of UL renews every year, the cost of insurance can increase above what is illustrated, up to the contractual "maximum cost of insurance."

The cost of insurance for UL may be the same or lower than WL, as illustrated, but that's a non-guaranteed, "current assumption."

And before you reply about how it's unlikely that the costs will go up or about the elements in UL that can offset possible rising costs of insurance - That's all fine. I get it. I don't really care to debate UL vs WL. Because if you go back to my original reply to Dwight - I never said UL, ART, or any of the above was bad.

But it is certainly different than Whole Life and that was the point of my post.

@Thomas Rutkowski

I understand just fine.

The context of my post was to unclutter Dwight's understanding of whole life insurance; the incorrect assertion that WL is built on annually increasing term insurance. It's not. Simple as that.

UL is. But I never said that was bad. No need for the lecture.

If anyone is coming off as confused, it's you. In one breath you try to belittle "[my] beloved whole life" insurance. Then, in the next, say that there is no material difference between the two for cash value and death benefit. Can't have it both ways.

The BP community could benefit with less posts focused on territorial infighting and more posts focused on increasing awareness and understanding of life insurance.

 "Overcharging." A regurgitated dave ramsey quote.

Like with many things, a grain of truth is often taken out of context. The grain of truth is that dividends are, in fact, a "return of premium." 

But the full truth is: who cares?

You get a net *growth* on the cash value and death benefit, over and above what you've paid. Period. That's called a return. Just like you get with DR's beloved mutual funds. Except with whole life, the "returns" are actuarial which is why they have guarantees.

If you put your money in a mutual fund and you get some back, is that considered being "overcharged?" I could make an argument that this is certainly true when you *lose* money in a mutual fund...

What Dwight has described is more how Universal and Variable Life work. They do have a rising cost of annually-renewable term insurance.

But this is NOT the case with Whole Life*.

Whole life has the most guarantees of any life product. It's guaranteed to grow every year (with no down or 0% years), the *premiums* are guaranteed for the life of the contract, loan provision is guaranteed, and the death benefit is guaranteed to pay out by either death or endowment.

The growth of the death benefit and cash value are NET of all costs, fees, and commissions. There is nothing hidden in a Whole Life policy. The NET guaranteed dollar amounts (not a rate) of what you'll actually experience are provided, in black & white, on the illustration.

It is a unilateral contract, meaning the only party on the hook for anything is the insurance company. It is a true transfer of risk. The policy owner has the contractual right to cease premium payments in any number of ways, many of which do not cancel the policy. The so-called "non-forfeiture" options.

The only thing not guaranteed in a whole life policy are the dividends.

Also, the "borrowing your own money" idea has been put to bed many times in this forum. You are NOT borrowing your own money. A whole life insurance policy guarantees you the right to borrow the insurance company's money, collateralized by your cash value, at reasonable interest rates and no pay-back terms.

*There are term insurance riders that can be added to a whole life insurance policy. But the whole life product itself is NOT structured on annually-renewable term insurance like UL and VL. Term riders can get more expensive as time goes on so it's important that the agent understands this. Term riders are often used in conjunction with Whole Life products to increase the initial death benefit which, in turn, allows faster cash value accumulation without causing the policy to become a MEC (taxable, in short). Often the term insurance from a term rider is "paid-off" over time and converted into 100% whole life. It depends on the carrier.

Candice,

I recommend the simplest way - take earned income from your business and buy life insurance with it, privately.

Your personal financial life can then be the bank to your business, using life insurance cash value.

Use the cash flow from the above suggestions to buy dividend-paying whole life insurance. Then leverage the cash value to buy more properties.

The guaranteed, permanent death benefit replaces the value of the future taxes due when deferral ends.

Or the death benefit replaces the value of the assets themselves allowing you to use and enjoy more while still alive, and even offset taxes due on other assets such as tax-deferred retirement accounts.

Repeat forever. :)

Hey Tom. 

The cash value does not exist without the death benefit. It is the present value of a future death benefit. 

Cash value will equal the death benefit at maturity of the contract (age 121 on many WL contracts)

Thus the cash value is not unlike making payments on a mortgage. Each payment builds up “equity.” When you sell a property, you don’t get the value of the property *and* the equity. You just get the value of the property. 

WL is the same. The insurance company doesn’t take the cash value. The cash value was a function of the death benefit. A function that was usable as liquid cash, all along the way. 
 

 Which is it?

Is the cash value not really yours? Or is it yours and you have to pay interest to borrow your own money?

Both are incorrect.

Cash value *is* yours. It is the net present value of a future guaranteed cash flow (the death benefit) - therefore the cash value is also guaranteed.

As stated in your post mentioning me - you are not borrowing your own money, you're borrowing the insurance company's money with the death benefit acting as collateral for the loan. This is how you're able to *use* the cash value *without giving up the growth* on your cash value.

Leverage.

The *net* death benefit is reduced only during the period that the loan is outstanding. The death benefit is collateral against the loan. When the loan is paid back, you still get the full death benefit plus any growth that occurred in the meantime. The same goes for cash value, of course.

The reason this happens is because you're not borrowing your own cash value. The insurance company lends you money and charges interest for the loan.

 No, just a regular financial calculator should do the trick.

WL is powerful for the same reason buying an option is powerful. Leverage. 

PS - Regarding bitcoin: Lots of people made a buncha’ money on crypto because they took the time to learn about it. Just like lots of people have done, and still do, with life insurance...