by Guest » Sat Feb 19, 2011 11:13 pm
Mr. Herr,
Thank you in advance for taking the time to answer my question. I read with interest your posts at the end of the thread, "Why Did I get a 1090R". My dad gave me permission to talk to the insurance company representative.
My dad put $500,000 into a universal life insurance policy. The death benefit is around $1,400,000. I noticed that the cash value decreases every year. He is 70 and has no health problems. He even runs me ragged on the tennis court.
By the time that he is 81, the surrender value is projected to be zero. I asked my dad about this and he didn't seem overly concerned. He said that he doesn't care about cash. He just wants to leave the life insurance for me. I was under the impression if a policy doesn't have any money, more premiums have to be paid. I was a life insurance selling failure after about 3 months, but this was 15 years ago.
When I spoke to the agent, he didn’t really want to talk to me. He said my dad was right that the cash didn’t matter. The policy would pay a death claim as soon as my dad died and it would be the same regardless of how much or little cash was in the policy at the time even if it was $0. This doesn’t sound right to me. Is it possible that he is telling the truth?
No offense is intended to anyone on this board, but I’d like to hear Mr. Herr’s response because he seems to be the one who understands the best.
Thank you in advance for taking the time to answer my question. I read with interest your posts at the end of the thread, "Why Did I get a 1090R". My dad gave me permission to talk to the insurance company representative.
My dad put $500,000 into a universal life insurance policy. The death benefit is around $1,400,000. I noticed that the cash value decreases every year. He is 70 and has no health problems. He even runs me ragged on the tennis court.
By the time that he is 81, the surrender value is projected to be zero. I asked my dad about this and he didn't seem overly concerned. He said that he doesn't care about cash. He just wants to leave the life insurance for me. I was under the impression if a policy doesn't have any money, more premiums have to be paid. I was a life insurance selling failure after about 3 months, but this was 15 years ago.
When I spoke to the agent, he didn’t really want to talk to me. He said my dad was right that the cash didn’t matter. The policy would pay a death claim as soon as my dad died and it would be the same regardless of how much or little cash was in the policy at the time even if it was $0. This doesn’t sound right to me. Is it possible that he is telling the truth?
No offense is intended to anyone on this board, but I’d like to hear Mr. Herr’s response because he seems to be the one who understands the best.
Posted: Tue Feb 22, 2011 07:27 pm Post Subject:
Bump for Mr. Herr
Posted: Thu Feb 24, 2011 01:55 am Post Subject:
I'm not Mr. Herr, but I know the answer here. If this UL has a secondary guarantee that lasts beyond age 81 than yes, zero cash value means policy stays in force, as long as the planned (target) premium is paid (Note well: target premium to satisfy the secondary guarantee).
If this is missing, then this policy crashes at age 81.
My assumption, if this is new, and Dad put $500k into this, he endowed a Secondary Guaranteed UL by paying the premium required in year one to satisfy the secondary guarantee in year one.
Assuming this is the case, the $500k is locked in so far as you are interested in keeping the death benefit in force.
The one area you'd be wise to research is: assuming there is a secondary guarantee how long does it last?
Some go to age 100, some age 121, some for basically any period in between, or sooner.
It would be a big slip up for an agent to sell a plain UL that was projected to fail just a little over a decade after issue, especially with this much money at stake. I'd say give the agent the benefit of the doubt and assume he's not either really dumb or a crook, but be wise and diligent. If there is anything else we can do for you (e.g. any other questions we can answer) be sure to let us know.
Posted: Sun Feb 27, 2011 05:45 am Post Subject:
Sorry to be responding late on this. Teaching and a major book project have been a distraction in the last couple of weeks.
It would be a big slip up for an agent to sell a plain UL that was projected to fail just a little over a decade after issue, especially with this much money at stake
We don't exactly know when this policy was sold. If prior to 2000-2004, it probably does not have a secondary guarantee provision at all, as this is something added to UL only in the last 5-10 years. So it would not have been a "slip up" on the part of the agent, merely the sale of the product that existed at the time.
Then again, with a seed of $500,000, and $0 CSV at age 81, chances are good that the policy is less than 5 years old. It's unfortunate that all that money will be lost due to either (1) no payment of premium since policy issue, or (2) a policy specifically designed NOT to have cash accumulation, as most SGUL policies are. Worse yet, failure to pay just one scheduled premium means 100% loss of both the cash value AND the death benefit guarantee. A win-win for the insurance company, and the loss of $500,000+ for the heirs of the OP's father.
That same money in an index mutual fund or ETF, with a separate premium paid to an insurance company for a whole life policy, could have generated considerably more than the OP's father will apparently have at age 81.
If the policy was written on someone in their mid to late 60s, the premium on $1.4 million will not be inexpensive -- I'm guessing somewhere in the neighborhood of $25,000 or more per year (given the fact that $500,000 of initial cash value will be gone in 11-16 years or some more). What a waste!
And this is the sad thing about UL . . . that it's built on a framework of Annual Renewable Term, and the cost of insurance begins to escalate dramatically after age 40-45. Even worse, the policy could have been issued under the 1980 CSO mortality table, with "endowment" at age 100. This would increase the COI acceleration about 20% compared to newer policies written under the 2001 CSO mortality table.
But what the heck. The agent got his 90% commission on the first year premium, plus a significant share of the $500,000 seed. And I'll even bet he DIDN'T put his commissions into his own UL policy.
Maybe Mark Colbert would like to take a bite on this one, too.
Posted: Sun Feb 27, 2011 02:34 pm Post Subject:
I'm not so sure I'd be so quick to get the pitch fork and torch.
SGUL isn't a new product, and as along as they know not to miss a payment there's nothing necessarily wrong with what has taken place here.
Where there potentially better options? Possibly, but what's done cannot be undone at this stage in the game.
The important thing to do right now is to take a look at the ledger for the policy and ensure that despite a 0 in the cash value column a death benefit remains and the ledger continues with that death benefit.
They may also want to call the insurance company and ensure that this is a secondary guaranteed UL.
But what the heck. The agent got his 90% commission on the first year premium, plus a significant share of the $500,000 seed. And I'll even bet he DIDN'T put his commissions into his own UL policy.
I'm going to give you a finger wag every time you do this. It's inappropriate, and not good for the industry, and you know what I'm talking about. Bad Max, bad.
Posted: Sun Feb 27, 2011 09:35 pm Post Subject:
Listen to BNTRS and ignore Max Herr on this one. Once again, Max is showing that he doesn't understand the products.
If the cash surrender value is $0 but the life insurance is still in force, the product has a secondary guarantee.
Based upon the numbers that you have presented, I bet that this was a single premium policy.
Basically, the policy's cash surrender value will quickly go to $0, but the death benefit will stay at $1,400,000 all the way until age 120 or so even at guaranteed levels.
If it is designed as I suspect it is, future insurance costs are irrelevant as is the cash surrender value since it is based solely on the death benefit.
Max, Mark will only chime in if he doesn't understand the product. No agent who sells the product is going to step in and say I'm wrong, because I'm not.
Posted: Tue Mar 01, 2011 02:16 am Post Subject:
Wag your finger all you want, but . . .
When I spoke to the agent, he didn’t really want to talk to me. He said my dad was right that the cash didn’t matter.
What's more unethical? Failing to answer a client's questions or depositing a commission check for a sale the client did not understand?
Both of those behaviors give all of us a black eye. And the insurance companies are pushing us to look for the "wealthy" clients, aren't they?
As for a $500,000 single premium, for someone 65 years of age, a $1,400,000 death benefit is going to run higher, about $700,300 to assure a death benefit of $1,400,000 to age 121 (Aviva UL Solution Series II -- CA issue -- what other companies do you need illustrated?), with a guideline annual premium of $73,300, or a 7-pay premium of $127,300.
It illustrates with a minimum premium of $54,350, which would have to be paid every year for most of 48 years, or a total of $2,565,882 if the insured lives to the ripe old age of 121 (no premiums due after age 113 or 114). Non-guaranteed CV at age 121 is just under $699,000 at the current 4.75%. No CV by age 85 under the guaranteed column. Not so hot for someone who only wants to pay a minimum premium.
Of course, the argument is who plans on living to age 113 or 114, let alone 121? But if the 65-year-old only pays minimum premiums for their life expectancy -- to about age 85 -- will pay about $1,086,853, and will still have to keep paying to guarantee the $1,400,000 death benefit beyond that. By age 95, they will have paid $1,630,279. And if they die at that age, the beneficiary gets $1,400,000 -- a net loss of almost a quarter million dollars -- all for the privilege of owning a SGUL policy. All that money in a Wells Fargo CD at 1% would have done better over 30 years.
Such a deal! If someone wants to try to qualify for that, who am I to stop them? I can't according to state law. But you can bet I'm going to show them the ledger pages of the illustration and make sure they understand what they are getting into. Unlike the OP and his father.
If the question is about ESTATE PLANNING uses of life insurance, the discussion is ENTIRELY DIFFERENT. But it's still going to be solved properly with a single premium or the full 7-pay premium -- both of which will cost more up front, but cost significantly less over time -- not with a minimum premium as far as I'm concerned.
And now I'm sure I'm going to get an argument about paying all that money up front if the insured dies too soon. Well, that's what insurance is all about -- when we pay minimum or monthly premiums, we bet we live a short time, they bet we die later. Single premiums put only a slight hitch in the equation. But the insured has what he wants, and he was willing to pay for it.[/i]
Posted: Tue Mar 01, 2011 02:24 am Post Subject:
what's done cannot be undone at this stage in the game.
And while we're at it, who bears the liability for this? Sure, the court might say, "Mr. Old Person, they gave you a contract, and they gave you 30 days to read it, if you didn't understand it, you could have sent it back for a refund."
But I take my responsibility as an agent a bit further, and make sure the client truly understands what he has, how it works, and what his responsibilities to the contract are (for its long term performance). Ad that's not common behavior for most other agents.
Posted: Tue Mar 01, 2011 06:51 pm Post Subject:
What's more unethical? Failing to answer a client's questions or depositing a commission check for a sale the client did not understand?
Max, based upon the numbers, the client understood it. It is Max who doesn't understand it.
Posted: Tue Mar 01, 2011 07:01 pm Post Subject:
Max, I know that you think that I'm an A-hole to you, just like I used to be to SDCharger fan. She was clueless and couldn't understand some basic stuff and that's fine because she isn't in the industry.
You, on the other hand, should be an expert on this stuff, and you just don't seem to get it.
Such a deal! If someone wants to try to qualify for that, who am I to stop them? I can't according to state law. But you can bet I'm going to show them the ledger pages of the illustration and make sure they understand what they are getting into. Unlike the OP and his father.
The father gets it. You don't.
Posted: Tue Mar 01, 2011 07:19 pm Post Subject:
As for a $500,000 single premium, for someone 65 years of age, a $1,400,000 death benefit is going to run higher, about $700,300 to assure a death benefit of $1,400,000 to age 121 (Aviva UL Solution Series II -- CA issue -- what other companies do you need illustrated?), with a guideline annual premium of $73,300, or a 7-pay premium of $127,300.
Max, you truly need to get out of the classroom. It's obvious that you simply aren't familiar with these products. Aviva may do it for $700,000. Many companies will do it for around $400,000.
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