by Guest » Sat Apr 03, 2010 01:15 am
Hello, I am new to insurance and a few years back my parents purchased a life insurance policy for me and I am trying to determine if it was a good deal or not. I tried to do the calculations accounting for inflation and other variables but the calculations are a little out of my expertise.
The background is that for 15 years (started 2005) we pay $536.25 a year and at the end of the 15 years the policy has a cash value of $25,000.
Was this a good deal or just good marketing by the salesman?
Thank you all for your expertise!
The background is that for 15 years (started 2005) we pay $536.25 a year and at the end of the 15 years the policy has a cash value of $25,000.
Was this a good deal or just good marketing by the salesman?
Thank you all for your expertise!
Posted: Sat Apr 03, 2010 02:09 am Post Subject:
Is this $25,000 cash value guaranteed? Doubtful. That would equate to about 14.5% interest. There is no guaranteed insurance policy in the world that will give that sort of interest.
Posted: Sat Apr 03, 2010 05:36 pm Post Subject:
Die quickly and it will be a great investment.
Posted: Sat Apr 03, 2010 07:28 pm Post Subject:
If I do not die would it be a good investment though? From a financial perspective...dieing as soon as it was signed would net the most cash. I intend to live through the policy's life though, so is it a good investment based on assuming I will live? I will try and find more information to post.
Posted: Sat Apr 03, 2010 09:23 pm Post Subject:
If you don't ever plan on cashing out the policy, what good does cash value do for you? There is no way your policy will have $25k in cash value in 15 years with that premium...
Posted: Sun Apr 04, 2010 12:24 am Post Subject:
With that sort of return it's got to be a variable UL. 15 years is an interesting choice. Most likely the case is the agent used historical performance to illustrate those numbers (the old problem that agents had in the 90s concerning how to illustrate better than 12% annual return was to simply use hitorical illustrations).
Is there a chance that your policy will perform as illustrated? Yes. Is there a chance that is will perform better than illustrated? Yes. Now the big one. Is there a chance that your policy will perform worse than illustrated? Yes. What's most likely to happen? 14% is a high rate of return, and definately ventures into the world of low probability of happening.
I ask you to qualify what exactly a good investment is. Seems like a dumb question with a very simple answer. But I could press on and perhaps change the way in which you view investing.
Also, please keep in mind. A lot--by which I mean most--of the people hanging out around this forum are insurance agents who do not hold investment licenses. As such, they can't legally make investment suggestions. Not even some of the investment licences enable someone the ability to give investment advice.
Posted: Sun Apr 04, 2010 02:34 pm Post Subject:
This could also be done with realistic assumptions and we know nothing about the premium that went into this policy. For example, there may have been a 1035 exchange.
Posted: Mon Apr 05, 2010 02:35 am Post Subject:
This could also be done with realistic assumptions and we know nothing about the premium that went into this policy. For example, there may have been a 1035 exchange.
May have been, sure doesn't sound like it though. Would be interesting to see the illustration they had to sign.
Posted: Mon Apr 12, 2010 08:17 pm Post Subject:
536.25 * 15 = $8043.75 in premium payments. No whole life policy, in fact no UL policy, and highly unlikely any VUL policy could reach $25,000 in the last 15 years. Are you confusing "Paid up insurance amount" with cash value?
Some children's policies are "fully paid up" in 20 years (so 15 is not impossible), but that only means no additional premiums are due. The policy's cash value will not equal the death benefit until age 100 or later. It would provide a full death benefit, less any policy loans + interest, if death occurs earlier.
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