by sumitseoleaderindia » Thu Jul 26, 2012 10:26 am
1) Access to Cash
A policy’s cash value can be surrendered, in total or in part, for cash that can be put toward important uses like a child’s education, a business opportunity or supplemental retirement income. Also, you can borrow from your insurer at relatively low interest rates and use the cash value as collateral. The loan is not dependent on credit checks or other restrictions like loans from most financial institutions. Keep in mind that borrowing or withdrawing funds from your policy will reduce its cash value and death benefit if not repaid.
2) Flexibility
If you need to stop paying premiums, the cash value can keep your insurance protection in force for a period of time.
3) Tax Advantages
Cash value accumulates on a tax- deferred basis, similar to assets in most retirement and college savings plans. Death benefits paid to the beneficiary generally are not subject to federal income tax.
4) Guaranteed Coverage
As long as you don’t allow your policy to lapse, you’ll have the coverage for life and won’t need to worry about being unable to afford coverage if your health deteriorates.
5) Stable Premiums
With many types of permanent insurance, premiums will remain constant or stable over your lifetime. With term insurance, premiums often increase as you age.
A policy’s cash value can be surrendered, in total or in part, for cash that can be put toward important uses like a child’s education, a business opportunity or supplemental retirement income. Also, you can borrow from your insurer at relatively low interest rates and use the cash value as collateral. The loan is not dependent on credit checks or other restrictions like loans from most financial institutions. Keep in mind that borrowing or withdrawing funds from your policy will reduce its cash value and death benefit if not repaid.
2) Flexibility
If you need to stop paying premiums, the cash value can keep your insurance protection in force for a period of time.
3) Tax Advantages
Cash value accumulates on a tax- deferred basis, similar to assets in most retirement and college savings plans. Death benefits paid to the beneficiary generally are not subject to federal income tax.
4) Guaranteed Coverage
As long as you don’t allow your policy to lapse, you’ll have the coverage for life and won’t need to worry about being unable to afford coverage if your health deteriorates.
5) Stable Premiums
With many types of permanent insurance, premiums will remain constant or stable over your lifetime. With term insurance, premiums often increase as you age.
Posted: Thu Jul 26, 2012 11:56 am Post Subject:
5) Stable Premiums
With many types of permanent insurance, premiums will remain constant or stable over your lifetime.
This is only true with WHOLE LIFE and VARIABLE WHOLE LIFE. It is NOT TRUE with universal life.
With a so-called "Guaranteed" UL policy, your "guaranteed" minimum premium might not change over time, but the internal Cost of Insurance per $1000 of net amount at risk will increase every year based on your age, eroding what little cash value you may have. Miss just one payment in some policies, and you could be forced to pay that higher COI in order to prevent a lapse. And don't think about a partial surrender or borrowing from that kind of policy -- you will lose almost certainly have to give up the minimum premium guarantee.
Posted: Thu Jul 26, 2012 10:04 pm Post Subject:
It isn't so called "guaranteed" ul. It is guaranteed.
With term insurance, miss one payment and the policy will lapse. That's the same with GUL (with a chance that it won't).
The comment wasn't about COI. It was about premium. With a GUL, the premium stays the same.
Posted: Thu Jul 26, 2012 11:37 pm Post Subject:
With a GUL, the premium stays the same.
Until you screw it up and lose the guarantee. Then, suddenly, the COI will catch up with the Net Amount at Risk, which will be almost 100% of the face amount of insurance, since the minimum-premium GUL policy is not going to ever have any significant cash value. A few thousand dollars, maybe.
At that point, just like all the folks who have purchased "plain vanilla" UL policies in the past, when the lapse notice comes, the answer is a very expensive term policy.
All the marketing literature the insurance companies create and circulate mention this in small footnotes.
With term insurance, miss one payment and the policy will lapse.
No argument there.
Posted: Fri Jul 27, 2012 07:04 pm Post Subject:
It does not matter if it is WL policy or a GUL policy. Both policies have a guaranteed level premium. With both policies, if a premium is not paid, the policy will lapse.
This isn't a push for GUL from me. I think that unless someone is 60+, WL or WL and term combo is much better than GUL.
Posted: Sat Jul 28, 2012 12:34 am Post Subject:
It does not matter if it is WL policy or a GUL policy.
I beg to differ. A WL premium is guaranteed to age 121. A GUL policy's "no lapse" premium is generally only guaranteed for 20 or 30 years. Here's what Prudential has to say about that in one of their current marketing pieces:
Why is it important to pay the scheduled premiums when they are due?
Missed or late premium payments may shorten or eliminate the policy’s guarantee. Payments to restore the guarantee may be higher than those you were originally paying. If you pay only the Short-Term or Limited No-Lapse Guarantee Premium, you will need to make additional premium payments to keep the policy in force if, at the end of the No-Lapse Guarantee Period, the policy’s cash value is zero or less. Also, by paying only the premium required for the No-Lapse Guarantee, you may be foregoing the advantage of building tax-deferred cash value.
KEEPING THE POLICY IN FORCE
For the policy to remain in force for life, the policy's cash value must continue to be enough to pay for the policy's benefits and expenses. This is not guaranteed.
=========================================
Those descriptions do not in any way equate to a WL policy. It is very clear that after the no lapse period has expired, the UL policy can too -- even if the insured/owner is paying their "guaranteed level premium".
With WL, as long as the premiums continue to be paid, the policy will continue in force, and no one will ever be asked to pay more for the privilege. When it comes to using the cash value to pay future premiums (via policy loans), the WL policy will continue to deduct only the same level premium that has been paid all along (and reduce the death benefit by the amount of the unpaid loan principal and interest, compounded over time). The UL policy could be deducting a COI higher than that on Day One by a factor of thousands of percent more [those percentages can be greater than 500,000% more very late in the policy].
This isn't a push for GUL from me. I think that unless someone is 60+, WL or WL and term combo is much better than GUL.
That's good to know. And it deserves awarding a "plus" to you.
Posted: Sat Jul 28, 2012 07:48 pm Post Subject:
Why are you looking at GUL policies in which the guaranteed premium only lasts 20 or 30 years? These policies, from a consumer standpoint, are identical to 20 or 30 year term. For instance, if someone goes on line looking to get the cheapest quotes for 20 years of coverage, some of the quotes would be for GUL products.
However, if someone is looking for a LIFETIME level premium, this isn't what would be used. Many companies have UL products with guarantees that will keep the death benefit to age 121.
Posted: Mon Jul 30, 2012 11:52 pm Post Subject:
Ok, there are a few pieces of bad information here:
With both policies, if a premium is not paid, the policy will lapse.
This is not true. Both are nonforfeiture products that have a 60 day grace period under SNFL.
The nonforfeiture options that would follow are: extended term, reduce paid-up, or cash surrender.
Whole life would also have premium loan as an option. GUL would deduct expenses from cash values (if there is any) to remain in force.
Max,
Your example from Pru is from current assumption UL with a secondary guaranteed period. This is not what we would colloquially refer to as GUL within the industry.
With a so-called "Guaranteed" UL policy, your "guaranteed" minimum premium might not change over time, but the internal Cost of Insurance per $1000 of net amount at risk will increase every year based on your age, eroding what little cash value you may have. Miss just one payment in some policies, and you could be forced to pay that higher COI in order to prevent a lapse. And don't think about a partial surrender or borrowing from that kind of policy -- you will lose almost certainly have to give up the minimum premium guarantee.
This comment tries to capture wat too much without accepting a lot of the variation that exists for Secondary Guaranteed Universal Life. The biggest issue would be for those contracts designed under Principle Based Reserves and those that are not.
The big take away, to emphasize, however is that GUL can be put in peril if premiums are missed. It's not usually as much of a crisis as is sometimes suggested, but it is a very important fact of which to be mindful.
Miss just one payment in some policies, and you could be forced to pay that higher COI in order to prevent a lapse.
You did very wisely use the phrase "some companies" but we should note here that for contracts using shadow accounts, it is possible to to fund the policy after missing premiums to keep the shadow account positive. This would keep the policy in force.
It's not necessarily a good road to go down, and would almost certainly require an increase in premium, but if done earlier, it could prevent huge spikes from COI increases.
Posted: Tue Jul 31, 2012 05:59 am Post Subject:
Your example from Pru is from current assumption UL with a secondary guaranteed period.
The Pru policy is not "current assumption" UL, it is their latest and greatest PruLife Index Advantage UL policy. And, yes, it is probably better to characterize it as SGUL, but it is still a form of GUL -- which is the concept the agents push regardless of the actual mechanics, to the detriment of clients.
Posted: Tue Jul 31, 2012 10:56 am Post Subject:
This is not true. Both are nonforfeiture products that have a 60 day grace period under SNFL.
I didn't say that if a premium was late, the policy would lapse. I said if it wasn't paid, it would lapse. I was not trying to indicate the lack of a grace period.
With at least some companies in some states, after 31 days, can't they make you sign a statement of good health to keep the policy in force?
Posted: Tue Jul 31, 2012 10:59 am Post Subject:
which is the concept the agents push regardless of the actual mechanics, to the detriment of clients.
Max, one of these days you should leave your office and actually sell products. The GUL products that mimick 20 and 30 year term are sold the same way term products are sold. The GUL products that will stay in force for a lifetime are sold as lifetime term insurance. "Pay the premium and have coverage for life. Don't pay the premium and the coverage will lapse."
Clients understand the concept that they will have coverage only as long as they pay their premiums.
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