by akraemer1 » Thu Dec 04, 2008 11:27 pm
It was suggested yo me to take my cash value of a whole life insurance policy and purchase a universal paid up policy with another company.
Would this be to my advantage?
Would this be to my advantage?
Posted: Mon Dec 08, 2008 11:38 am Post Subject:
kraemer, thanks for coming back and participating.
You've given your age, 70, that's a start.
Now, are you a boy or a girl?
How much total money is in ALL of the policies?
What is the combined death benefit of the old policies?
What is the death benefit of the proposed new policy?
Are you a smoker?
Also, are you going to be paying a monthly premium into the proposed new policy and if so, how much?
Now to answer the question:
I was told the universal life would be guranteed to age 120.
That is possible with the addition of the No Lapse Guarantee or if the lump sum premium is at or near the Guidline Single Premium but I need to know each and every question I asked you so I can run a proposal, just for fun, and see if the numbers work.
Even if the numbers work there isn't any guarantee you'll get the new policy because you'll have to qualify medically.
Posted: Mon Dec 08, 2008 03:17 pm Post Subject: change whole life policy to universal paid up policy
I am a 70 year old male.The policies are ( there are 6 separate whole life)with total cash value of $48,000. The death benefit is a combined total of$78,ooo and growing each year due to accumulated dividends which are added to death benifits. I am in good health,no medications,non-smoker,non-drinker who walks approx. 30-35 miles per week. The new policy would be a one time premium of $48,000 for a death benefit of $120,000 guaranteed for 120 years of age.
Posted: Tue Dec 09, 2008 12:46 am Post Subject:
Okay, kraemer, I ran the numbers and the math works.
Worst case rate class senario is $48,000 would keep a $120,000 life insurance policy in-force on a male age 70 non-smoker until age 96. Past reasonable life expectancy. That's WORST CASE rates with the No Lapse Guarantee based on the lump sum premium of $48,000.
Best case super premier extra healthy rate class senario is at your age 120 the $48,000 cash would grow to $1,862,447 and the death benefit would equal the cash. But since you didn't die, guess what happens? Uncle Sam now wants you to pay Federal Income Tax on your $1.8 million dollar gain on your 121st birthday.
Since cash value life insurance projections are based on interest credits NEVER changing over the life of the contract the above best case super premier extra healthy rate class senario isn't reality.
With the preferred non-smoker rate class and interest projected 1.5% below the current rate at your age 100 your cash value and death benefit would equal $151,455.
The botton line here is the math works out.
So what your agent told you is feasible.
Posted: Tue Dec 09, 2008 10:14 am Post Subject: insurance
I've read ALOT about Universal Life and 'regualr Life Insurance. HOEVER...I'm STILL confused about what the 'overall' difference is. From what I've read, they give about the same kind of 'benefits.' Can someone just explain the difference between the two? Thanks.
Posted: Tue Dec 09, 2008 11:58 am Post Subject:
I've read ALOT about Universal Life and 'regular Life Insurance. HOEVER...I'm STILL confused about what the 'overall' difference is. From what I've read, they give about the same kind of 'benefits.' Can someone just explain the difference between the two?
sdchargersfan, Whole Life Insurance is a GUARANTEED contract from day one. The death benefit stays the same, the premium stays the same, the interest credited stays the same from day one.
Now because of these guarantees the insurance company has a problem. They don't know what life expectancy will be in the future (mortality rates) nor can anyone predict what interest rates will be in the future so they design the contract with extremely high internal cost of insurance rates and extremely low interest rates. But they can tell you exactly how much cash value your policy would be worth in 12 years, 5 months, 16 days and 3 hours BECAUSE all of the parts of the equation are known.
In contrast Universal Life Insurance is a combination of Annual Renewable Term (ART) and a cash value. With ART you are only charged for the "current" cost of the life insurance for your attained age each and every year and the interest rate credited to the policy is based on the company's "current" interest and investment experience.
Now some of the criticism of UL is the projections of future values are only accurate if interest stays exactly the same over the life of the contract. It's absurd to think interest rates are NEVER going fluctuate. That makes current projections nothing more than a mathematical exercise.
Just like if you decided to save $100 per week at 8% interest then projected 30 years into the future how much money you'd have. The 30 year projection is WRONG because you can't know or guarantee getting 8% for 30 years. (UL)
Now if you could go to your bank and buy a 30 year CD with a guaranteed interest rate of 1% you'd know EXACTLY how much money you'd have in 30 years, but that wouldn't be very smart. For the banker to absolutely GUARANTEE interest for that long, he'd only do that, if he knew he'd NEVER lose. (Whole Life)
Does that make sense?
Posted: Fri Dec 12, 2008 02:07 am Post Subject:
A whole life policy is an endowment policy where the cash value is equal to the death benefit at a certain age (normally 100 or 120). The only variables that are known in a WL policy is the initial face amount and the premiums. The interest and M&E are both hidden. Most WL policies are sold illustrating PUA (paid up additions) which is addininal insurance pay for by dividend (if it is a participating policy). Because dividends are not guaranteed there is no guarantee how much DB your policy will increase each year. WL policies are inflexible with there premiums and are often more expensive then UL policies.
If you are looking for pure death benefit then a Universal Life policy with a guaranteed death benefit is almost always (i have never found one not to be) cheaper then a WL Policy. A Universal life policy will always list a Guaranteed and non Guaranteed interest rate so you always know how long your policy will last even if interest rate drop significantly. The porblem in the past is that most agents where selling Current Assumption UL policies (without a guarantee) and the agents never really showed the client that at guaranteed rates there policy would only last 20 year (or whatever it is for that particular policy). This was wrong and has led a lot of people to rightly replace their failing current assumption UL policies with new UL policies with guarantees.
Posted: Fri Dec 12, 2008 11:43 am Post Subject:
A Universal life policy will always list a Guaranteed and non Guaranteed interest rate so you always know how long your policy will last even if interest rate drop significantly.
Yes, it projects both guaranteed cost of insurance (high) and guaranteed minimum interest (low) along side "current" cost of insurance (low) and the company's "current" interest rate.
The guaranteed values are just as WRONG as the CURRENT values projected 30 years into the future.
The GUARANTEED values in a Universal Life policy assume the year after you buy your policy the insurance company has to charge the very most premium allowed in the contract coupled with the very lowest interest rate and it NEVER gets any better, EVER.
Mortality rates have tracked significantly lower and lower and lower as people have been living longer and longer and longer but the since the insurance company can't know that trend won't reverse itself in the future they build adverse mortality rates into the contract.
So on the one hand the company shows highest cost of insurance coupled with lowest interest projected for 30, 40 , 50 years and on the other hand they show current cost of insurance with current interest rates NEVER fluctuating.
Both sets of numbers are not reality.
That's why I stated above if OP qualified for preferred non-tobacco rates and lowered the interest rate by 1.5% the numbers would be more in line with reality.
With the preferred non-smoker rate class and interest projected 1.5% below the current rate at your age 100 your cash value and death benefit would equal $151,455.
The botton line here is the math works out.
So what your agent told you is feasible.
Posted: Fri Dec 12, 2008 08:08 pm Post Subject:
Gary,
I agree completely. The guaranteed and current number are both unrealistic. I also agree that depending on OPs health rating this replacement could be a good move. I just want to mention that OP should also consider a 1035 to a life pay SPIA (single premium immediate annuity) to fund the Life policy. I have often seen Life pays give a little better DB then a single pay policy. Just remember that taxes need to be considered in that case. But bottom line the numbers wont lie. Which ever offers the best DB should be the way to go.
Posted: Sun Dec 28, 2008 08:21 pm Post Subject: House insurance
can i cash in my house insurance just like life insurance?
Posted: Wed Dec 31, 2008 11:39 pm Post Subject: kraemer
Kraemer,
The strategy is a good one, if you are positive you will not need the cash values in these policies during your lifetime. If what you are looking for is the highest guaranteed death benefit then this is a good idea.
Just make sure you buy from a highly rated carrier. Also, look at the cash surrender values on the illustration. Make sure the cash surrender value never goes below 40k in the first 20yrs. If it does, don't buy it you can find a guaranteed universal life policy with higher cash values and an equivalent death benefit, if not greater.
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