by Guest » Thu Dec 18, 2008 07:15 am
Hi friends,
A few things to know..
Is the term life insurance of any real help to people? Is it possible for a consumer to opt for multiple policies at the same time?
Otherwise what would happen when the term lapses!
Purpleheaded08
A few things to know..
Is the term life insurance of any real help to people? Is it possible for a consumer to opt for multiple policies at the same time?
Otherwise what would happen when the term lapses!
Purpleheaded08
Posted: Thu Jan 01, 2009 10:01 pm Post Subject:
victor27s wrote:
Also, if you are going to use this for supplemental retirement income, I wouldn't fund the policy with such a large lump sum, because it will become a modified endowment contract (MEC).
The purpose of life insurance is the payment of the death benefit to the primary beneficiary. It doesn't matter if the policy is a MEC when the insured dies.
You could take that same lump sum and pay it over 5 yrs (5 x 14037). You will have roughly 150k at age 50 assuming a 7.95% gross rate of return and you will still be able to take out tax free policy loans.
All things being equal that strategy would COST the client $30,000 dollars of gain to avoid paying income tax IF and when the insured took a withdrawal. You could pay a lot of income tax with the extra $30,000.
Keep in mind, while your money is not in the stock market, these results would require positive stock market returns (S&P 500). In any year that the market is not up, your gross return will be zero.
That statement is INCORRECT.
The GUARANTEED interest is 2% through year 10 and 2.5% thereafter regardless of positive (S & P 500).
Please READ "Guaranteed Elements" on page 3 of the actual company proposal.
Your guaranteed cash value in Gary's example at age 50 is only 57k and at age 66 your guaranteed cash value is ZERO.
victor27s the "guaranteed values" are based on 2% interest through year 10 and 2.5% interest thereafter COUPLED with the guaranteed maximum cost of insurance. So while your statement of GUARANNTEED VALUES is CORRECT it's nonetheless DISINGENUOUS.
The GUARANTEED VALUES are just as WRONG as the "current projected" values into the future for 30 years.
If you prefer to have higher guaranteed cash values, you should look at a whole life policy.
The above is a generic statement not relative to ANYTHING. If you want to compare Whole Life (a form of cash value life insurance) to Indexed Universal Life (a form of cash value life insurance) with all things being equal that's perfectly acceptable.
However, to start touting "GUARANTEED VALUES vs. GUARANTEED VALUES is absurdly preposterous.
If you just want affordable permanent coverage with a lifetime guaranteed death benefit and you don't want to overfund a life policy for supplemental retirement income, here's another option:
You could buy a 500k guaranteed ul for about 3633/yr. Beginning in the 20th yr, if you surrender your policy for any reason, you are guaranteed at least your money back. These numbers are based on standard non-tobacco rates.
Or you could just pay the minimum premium and add the No Lapse Guarantee rider. Then REGARDLESS of market conditions or even if the policy runs out of cash or adverse mortality strikes your policy is GUARANTEED not to lapse as long as you pay your premium of $2,830 annually.
However, if money is truely not a concern, why are you buying insurance? Is it to pay for estate taxes at death? If so, you need a different strategy. If this is the case, let the board know.
victor27s...it was a hypothetical question posed by coffeeandcaramel see below.
coffeeandcaramel wrote:
Now, my question to the agents on the board, that what life coverage would you suggest to an individual in his mid thirty and with three dependants, term life or whole life? Supposing that money isn't a concern.
Posted: Thu Jan 01, 2009 11:36 pm Post Subject:
Gary wrote:
The purpose of life insurance is the payment of the death benefit to the primary beneficiary. It doesn't matter if the policy is a MEC when the insured dies.
and
All things being equal that strategy would COST the client $30,000 dollars of gain to avoid paying income tax IF and when the insured took a withdrawal. You could pay a lot of income tax with the extra $30,000.
It's important to mention that distributions above your cost basis will be taxed at your tax bracket. Depending on how high your tax bracket is, your net income after taxes may be higher on a non mec policy. I'm sure you know this, since you are in the business. If not, let me know and I'll be happy to illustrate this fact to you on your Aviva software.
Gary wrote:
Quote:
Keep in mind, while your money is not in the stock market, these results would require positive stock market returns (S&P 500). In any year that the market is not up, your gross return will be zero.
That statement is INCORRECT.
The GUARANTEED interest is 2% through year 10 and 2.5% thereafter regardless of positive (S & P 500).
Please READ "Guaranteed Elements" on page 3 of the actual company proposal.
Actually, my statement is incorrect, but only because I wasn't detailed enough in my explanation. There is a 2% guarantee. However, many clients and agents don't understand this guarantee.
If you earn 7% yrs 1-9 and in yr 10 the S&P is negative, this doesn't mean you will be credited 2% that year. In other words think of having two buckets, one is the guaranteed bucket and the other is the non-guaranteed bucket. The guaranteed bucket will earn 2% every yr (1-10). The non guaranteed bucket will earn whatever it earns indexed to the S&P. At the end of the 10 yrs whichever is higher, is the one you will get and yes the guaranteed bucket is assuming the maximum cost of insurance, which is unlikely. Many things that are unlikely have been happening recently, so I wouldn't discount the value of guarantees.
One more thing, in yrs 11+ the guarantee is not 2.5%, it's an additional .50% of the average month end account values for that year.
Quote:
If you prefer to have higher guaranteed cash values, you should look at a whole life policy.
The above is a generic statement not relative to ANYTHING. If you want to compare Whole Life (a form of cash value life insurance) to Indexed Universal Life (a form of cash value life insurance) with all things being equal that's perfectly acceptable.
However, to start touting "GUARANTEED VALUES vs. GUARANTEED VALUES is absurdly preposterous.
Here again, I think you are discounting the value of guarantees. Some clients are very conservative, and therefore an indexed ul might not be appropriate. Personally, I wouldn't buy a whole life policy for myself, but everyone is different and people on this board, I think just want to know what options are available and not have someone TELL them what is right for them.
Quote:
If you just want affordable permanent coverage with a lifetime guaranteed death benefit and you don't want to overfund a life policy for supplemental retirement income, here's another option:
You could buy a 500k guaranteed ul for about 3633/yr. Beginning in the 20th yr, if you surrender your policy for any reason, you are guaranteed at least your money back. These numbers are based on standard non-tobacco rates.
Or you could just pay the minimum premium and add the No Lapse Guarantee rider. Then REGARDLESS of market conditions or even if the policy runs out of cash or adverse mortality strikes your policy is GUARANTEED not to lapse as long as you pay your premium of $2,830 annually.
The only difference here is that you wouldn't have the guaranteed return of premium in yr 20 and all subsequent yrs, but you would be saving about $800/yr so that would be a viable option.
Posted: Fri Jan 02, 2009 11:27 am Post Subject:
Where's my red flag?
It's important to mention that distributions above your cost basis will be taxed at your tax bracket. Depending on how high your tax bracket is, your net income after taxes may be higher on a non mec policy.
I'm not sure what your point is here. The issue here, or the difference in professional opinion, is whether it would be better to simply pay the one-time single premium of $70,188 and have a MEC or pay $14,037 for five years for a non-MEC.
Your non-MEC method costs the client $30,000 in gain in 15 years at age 50. By age 65 your non-MEC method costs the client $106,045. More money is ALWAYS better.
Actually, my statement is incorrect, but only because I wasn't detailed enough in my explanation. There is a 2% guarantee. However, many clients and agents don't understand this guarantee.
Agreed.
Especially the part in BOLD print.
If you earn 7% yrs 1-9 and in yr 10 the S&P is negative, this doesn't mean you will be credited 2% that year.
Wrong.
You get 2%.
The GUARANTEED MINIMUM INTEREST.
In other words think of having two buckets, one is the guaranteed bucket and the other is the non-guaranteed bucket. The guaranteed bucket will earn 2% every yr (1-10). The non guaranteed bucket will earn whatever it earns indexed to the S&P. At the end of the 10 yrs whichever is higher, is the one you will get and yes the guaranteed bucket is assuming the maximum cost of insurance, which is unlikely.
The above is an incorrect and convoluted explanation. Because a life insurance CONTRACT is a CONTRACT the insurance company has to state within that CONTRACT the very least it will EVER credit for interest, the 2%, and the very most it can CONTRACTUALLY charge for the cost of insurance.
Those two elements combined produce the "GUARANTEED VALUES." For the GUARANTEED VALUES to come true interest credits would never be more than 2% EVER and something would have to happen with mortality whereby the company charges the maximum cost of insurance AND all this has to happen the day after you bought your policy and it NEVER gets any better....EVER.
Here again, I think you are discounting the value of guarantees.
Didn't you just write in the paragraph above?
...yes the guaranteed bucket is assuming the maximum cost of insurance, which is unlikely.
Now you don't get to have it both ways.
The only difference here is that you wouldn't have the guaranteed return of premium in yr 20 and all subsequent yrs, but you would be saving about $800/yr so that would be a viable option.
Yes...and the reason why the insurance company will and can "guarantee the return of premium" in year 20 is BECAUSE the client paid $800 dollars per year more, $16,000 dollars more over 20 years.
As I wrote on THIS THREAD:
Many times with life insurance the DISTINCTIONS ARE WITHOUT A DIFFERENCE.
Leading to confusion.
Posted: Sat Jan 03, 2009 12:08 pm Post Subject:
victor27s,... please don't stop posting,... I enjoy the sport.
I also have a passion for exactly correct information.
Not opinion, not emotion, just the facts.
You may find THIS LINKY from an independent source helpful in understanding Indexed Universal Life.
If the index is higher at the end of the policy year the interest credited to the cash value will reflect this. So, if the calculated index is higher at the end of the year the cash value will participate in a percentage of this increase.
What if the index goes down? If the index stays flat or declines the cash value is still credited with a minimum guaranteed interest rate. This is the attraction of IUL. When the index goes up the policy owner shares in the increase, but if the index goes down the policy still earns at least a minimum interest rate.
Let's say that we have an accumulated value of $10,000 and a minimum interest rate of 2%. We'll further assume that we receive 100% of the calculated index gain for the year up to a maximum of 7%. At the end of the year the calculated index gain is 10%. The accumulated value would earn 7% for the year $700. So, our accumulated value would now be worth $10,700 ($10,000 plus $700).
But what if the market dropped 10% the following year? The locked-in value of $10,700 would be unaffected by the market decline and would earn 2% or $214 ($10,700 times 2%) leaving an accumulated value of $10,914. The policy receives the greater of minimum guaranteed interest rate or the excess interest earned from the calculated index gain.
:P The above is a shameless demonstration as to why and how I have earned my *SAFE designation. :P :wink:
Posted: Sun Jan 04, 2009 03:58 am Post Subject:
Gary,
Here's how Aviva's guarantees work.
On the indexed strategies,
the policy guarantees that the interest credited will never be less than
2% compounded annually over the segment term. The guarantee will be
applied at the end of the segment term or upon lapse, surrender or maturity
of the policy.
The key statement here is
On the indexed strategies,
the policy guarantees that the interest credited will never be less than
2% compounded annually over the segment term.
Notice it says never less than 2% compounded annually over the segment term. The 2 % guarantee is a cumulative guarantee over a term. I gave you the 2 bucket example previously to try and help you understand it. At the end of a term, if you earned less than 2% compounded annually, the difference will be credited. This does not mean if you had one down year, you are automatically going to be credited 2% in that year. Feel free to call an Aviva wholesler and ask them.
Just copy and paste this URL in your browser and it will take you to Aviva's brochure avivasuccess.com/images/stories/pdfs/14888.pdf
Just in case you haven't read it. This is where you will find the interest rate guarantee wording that I quoted.
Posted: Sun Jan 04, 2009 07:20 am Post Subject:
WoW I just joined this Forum and it looks like this is where the action is!! This thread started with a question about Term Life Insurance and I think the Client left somewhat Confused.
What ever happen to the "BFO" Balanced Funding Option with Ageon Life??
Lets Get Ready To Rummmmble
Posted: Sun Jan 04, 2009 09:14 am Post Subject:
I think the term insurance is a very useful thing for those who do not afford the premiums and don't go for insurance only for this reason, as it has lowest premium rates. Unfortunately, agents do not promote this. They should at least promote to the people who refuse to take any policies after hearing heavy insurance rates.
Posted: Sun Jan 04, 2009 11:01 am Post Subject:
The Consumer Product Guide being discussed.
ABOUT AVIVA
Aviva Life and Annuity Company is part of Aviva USA, one
of the fastest-growing life insurers in the United States,
with more than 1,115,000 customers and 32,850 agents
and distributors. We offer a competitive portfolio of long term
savings, insurance and retirement income products
designed to help customers make the most out of life.
Aviva USA is part of Aviva plc, the world's fifth-largest
insurance group, with a corporate lineage dating back to
1696.
Interest Rate Guarantee
Advantage Builder II IUL provides a guaranteed minimum
interest rate of 2%. On the fixed-term strategies, the policy
guarantees that the declared interest rate will never be less
than 2%. On the indexed strategies, the policy guarantees
that the interest credited will never be less than 2%
compounded annually over the segment term.
The guarantee will be applied at the end of the segment term or upon lapse, surrender or maturity of the policy, whichever occurs first.
Account Value Enhancement
Beginning with the 10th policy year, Aviva will credit an
annual increase to the Basic Interest Strategy based on the
policy year's average monthly account value (excluding
outstanding loans and interest under the Annually Declared
(Fixed) Loan Interest Option) for that year. The account value
enhancement is guaranteed to be 0.5% per year and is
credited at the end of the year.
victor27s, just exactly what are you arguing?
Let's pretend a client has $10,000 cash in the policy and his premiums paid cover the cost of insurance and expenses. Also let's pretend the S & P 500 has ZERO positive gains for the next 10 years. At the end of year one (1) his minimum cash value is $10,200. At the end of year five (5) his minimum cash value is $11,041. At the end of year ten (10) his minimum cash value is $12,190.
There aren't two (2) buckets, only in your brain does such a thing exist.
In the policy the client pays in premium, (which is the same as money), then the insurance company subtracts from that money the cost of insurance and expenses, whatever money is left over will get credited a minimum of 2% up to the maximum for whatever indexed strategy was employed.
Obviously if a client selected the two year point to point no indexed credit could be calculated until the end of the two years AND regardless the 2% is still going to be paid, credited, kept track of...etc.
The bogus point you are attempting to make is that they don't actually pay that each and every year.
That's true, they don't, they just keep track. Just like a bank doesn't actually pay out the interest credits on rolled over bank CDs, they send you a Bernard Madoff statement that tells you how much money they'll pay you IF and WHEN you stop by to cash out, (unlike Bernard Madoff)
Now you made this statement:
If you earn 7% yrs 1-9 and in yr 10 the S&P is negative, this doesn't mean you will be credited 2% that year.
I've provided the linky to the Consumer Product Guide above. Where in that product summary do you find language that supports your assertion that there would EVER be a ZERO year?
link removed by the moderators as per the TOS.
Posted: Sun Jan 04, 2009 03:27 pm Post Subject:
Let's use 100k and forget about the cost of insurance in this example, let's just understand the minimum interest rate. If a term is 2yrs, 2% compounded annually over the term would be as follows:
yr 1, 100k x 2% = 102,000
yr 2, 102k x 2% = 104,040 - This is your guarantee over the first 2 yr term, that you will never have less than 104,040 at the end of that term. That's what 2% compounded annually over the term means.
Here's what the guarantee doesn't mean:
yr 1, 100k x 7% = 107,000
yr 2, the market was down so you get 107k x 2% = 109,140 - This is wrong, you don't get the 2% in yr 2, because you already outperformed 2% compounded annually over the 2yr term in yr 1. 107k in yr 1 is already more than 104,040, which is 2% compounded annually over the length of the term.
The explanation on your 3rd party link is incorrect and it is not coming out of any of Aviva's brochures.
Posted: Mon Jan 05, 2009 06:54 pm Post Subject:
Victor, allow me to thank you!
Victor wrote:
yr 1, 100k x 2% = 102,000
yr 2, 102k x 2% = 104,040 - This is your guarantee over the first 2 yr term, that you will never have less than 104,040 at the end of that term. That's what 2% compounded annually over the term means.
Here's what the guarantee doesn't mean:
yr 1, 100k x 7% = 107,000
yr 2, the market was down so you get 107k x 2% = 109,140 - This is wrong, you don't get the 2% in yr 2, because you already outperformed 2% compounded annually over the 2yr term in yr 1. 107k in yr 1 is already more than 104,040, which is 2% compounded annually over the length of the term.
The explanation on your 3rd party link is incorrect and it is not coming out of any of Aviva's brochures.
YOU ARE CORRECT.
:P I'm now going to have to change my *SAFE designation to *SAFe :wink:
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