by lucy77 » Tue Apr 14, 2009 06:13 pm
Hello,
Right now I'm thinking to apply for a life insurance. But I'm still wondering, if there's any insurance that also enable us to invest some of our fund in stock share.
If there's one, it will be great. I mean instead of getting a benefit from it we can make our money grow this way.
:lol:
Right now I'm thinking to apply for a life insurance. But I'm still wondering, if there's any insurance that also enable us to invest some of our fund in stock share.
If there's one, it will be great. I mean instead of getting a benefit from it we can make our money grow this way.
:lol:
Posted: Thu Apr 16, 2009 09:34 am Post Subject:
I don't like VUL, but it should at least be described correctly.
In your example, when the insurance company is "taking back" the $200,000, that's not what is happening. Instead, the client is only paying for $300,000 of life insurance. If the client wanted to keep paying for $500,000 of life insurance, the death benefit would be $700,000.
Posted: Thu Apr 16, 2009 01:18 pm Post Subject:
I don't like VUL, but it should at least be described correctly.
In your example, when the insurance company is "taking back" the $200,000, that's not what is happening. Instead, the client is only paying for $300,000 of life insurance. If the client wanted to keep paying for $500,000 of life insurance, the death benefit would be $700,000.
I understand that, but it's easier for clients to understand it in the scenario described.
Posted: Thu Apr 16, 2009 01:52 pm Post Subject:
If a client is understanding something that isn't correct, what is it that they are understanding?
Posted: Thu Apr 16, 2009 02:09 pm Post Subject:
It helps illustrate the point that they're not getting their money + the benefit.
Posted: Thu Apr 16, 2009 02:27 pm Post Subject:
Except for the fact that they are getting their money and the insurance. It's just that the amount of insurance decreases as the cash increases.
Look at your scenario. A UL/VUL policy has a death benefit of $500,000 and a cash value of $200,000. The insured isn't paying for $500,000 of coverage. They are only paying for $300,000 of coverage. If they die, the beneficiaries will get all of the life insurance, $300,000, + all of the cash, $200,000, for a total of $500,000.
They could always elect to take an increasing death benefit in which case, they will keep paying for $500,000 of insurance and at death, they will get $500,000 + the cash value.
I know that you know this. Your clients should know this also as should anyone who is reading what you write. It's simply not true that the insurance company is taking any of the insured's money.
Posted: Thu Apr 16, 2009 06:02 pm Post Subject:
I understand exactly what you are saying, it's just a way of illustrating the fact that if you have $200k in cash value and the insured dies, you're not getting $700k, you're still only getting the same $500k that you had when the policy started. It just cost you a hell of a lot more money to get to that point.
Posted: Thu Apr 16, 2009 06:16 pm Post Subject:
Let's follow your logic a little further. If someone dies with a $500,000 UL/VUL, the family will only get $500,000. The extra money is basically vanishing. Therefore, they should minimally fund a UL policy. This extra money, the difference between the VUL policy and the minimally funded UL policy, could be invested, and at death, the client will get both the $500,000 and the side fund.
Anyway, following this logic, shouldn't they just buy term insurance? The insurance costs will be even less. Thus, there will be more money invested, thus, the side fund will be bigger and there will be more money at death. There will also be money "at life" if the person ever decides to not keep the coverage.
Posted: Thu Apr 16, 2009 06:24 pm Post Subject:
Let's follow your logic a little further. If someone dies with a $500,000 UL/VUL, the family will only get $500,000. The extra money is basically vanishing. Therefore, they should minimally fund a UL policy. This extra money, the difference between the VUL policy and the minimally funded UL policy, could be invested, and at death, the client will get both the $500,000 and the side fund.
Anyway, following this logic, shouldn't they just buy term insurance? The insurance costs will be even less. Thus, there will be more money invested, thus, the side fund will be bigger and there will be more money at death. There will also be money "at life" if the person ever decides to not keep the coverage.
If the client is looking for pure death protection, the cheapest UL from a good carrier with minimal cash value would be the way to go. However, some companies (like Sun Life) suck out nearly ALL of the cash value and there may be another carrier for only a few bucks more a year that will build more cash value over time. In that case, I'd go with the other carrier.
Sure, they could buy term insurance, but what happens when they have that heart attack in year 28 of their 30 year policy? Conversion option may be gone, and even if it's not, you're 28 years older and paying a ridiculous premium for the conversion. The best solution for most people is a combination of term and permanent to leave a "safety net" of sorts for once the term coverage drops off (if not converted or re-written). If they have 100% term and they outlive the term, become uninsurable, or can't afford the premiums for a conversion, they're screwed. Having that safety net avoids that trap from the beginning. Only ~2% of term policies ever pay a claim, which I'm sure you already know. Would you want to take the chance that you'll be in that 2%, or pay more up front to guarantee that you WILL get the death benefit as long as those premiums keep getting paid?
Posted: Thu Apr 16, 2009 06:58 pm Post Subject:
(I'm assuming a 6% investment return.)
A healthy 30 year old male should be able to buy a $1,000,000 guaranteed UL product for $3500/year. A 30 year term product would cost $670.
If that heart attack kills him, his family will end up with over $200,000 additional if he went with the term insurance instead. The UL will end up better for our mythical person only if he dies between the ages of 60 and 83. If he dies before the term expires, he would have been better off with the term insurance. If he lives past 83, the death benefit will be less than the side fund.
The UL only wins if he dies between the ages of 60 and 83 AND nothing ever happens that causes him to cancel his policy.
By the way, I happen to agree that the best solution for many people is a combination of term insurance and permanent insurance. I just think that the permanent insurance should be a participating whole life policy.
If death occurs early, term insurance is the best. If death occurs "late", whole life insurance is the best.
(I do like guaranteed UL policies, but only at older ages.)
P.S. It's easy to show that a combination of WL/Term will beat a GUL at all ages if the insured isn't old at time of purchase...based upon identical premiums.
Posted: Thu Apr 16, 2009 07:16 pm Post Subject:
A U/L funded with the minimum premium is sometimes referred to as a "Power Term" policy. In some cases, this type of plan will be less expensive than a pure term policy - especially when a person's health has drastically worsened, their responsibilities have changed, or their budget won't support keeping a term policy until age 90.
I've found that in order to keep a Power Term policy over a long period of time (20 years or more) a policy owner SHOULD have at least a basic understanding of the product. He/she needs the ability to monitor both the policy's cash value (keeping it just above zero) and ever-increasing cost of insurance. It a delicate balance but it can be done successfully.
It would certainly make sense for an agent to keep in touch with the policy holders and continue to service the policy over that 20 year period, but seriously, how likely is that?
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