Whole Life Insurance

Dunkin Donuts

New Member
Obviously the Whole life is more.
But as soon as you sense that the agent inappropriately sold you on an expensive policy for no good reason, he's not gonna sell anything else to anyone due to his (new) bad reputation.
It is in an agent's best interest to have a good reputation.
 
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Matt

Administrator
Staff member
Obviously the Whole life is more.
But as soon as you sense that the agent inappropriately sold you on an expensive policy for no good reason, he's not gonna sell anything else to anyone due to his (new) bad reputation.
It is in an agent's best interest to have a good reputation.
But how would you know if you got an expensive policy for no good reason? You yourself won't reveal what makes a good candidate for it, and you admit it pays more... doesn't that lend itself to upselling whole life for no good reason?
 

kodiak jack

Level 2 Member
Obviously the Whole life is more.
But as soon as you sense that the agent inappropriately sold you on an expensive policy for no good reason, he's not gonna sell anything else to anyone due to his (new) bad reputation.
It is in an agent's best interest to have a good reputation.
Mr Dunkin Donuts, this was a somewhat odd first discussion for you to get into immediately upon joining Saverocity. Most of the folks here are inclined to help each other and give advice on a variety of situations. Some are even quite financially savvy and know inside and out what they are talking about when they provide valuable, sound advice to others.

I'm not sure what your purpose was in your last flurry of posts. It doesn't really seem like you're interested in providing much relevant information to the original poster, who asked a good question and received several fantastic answers already in the thread. Some people do like to just post in a manner that muddies the waters and doesn't add anything valuable to the discussion. You can find them on pretty much any internet board out there. I'm glad that this is a really helpful board and hope that people continue to find valuable information here and not nonsense.
 

Dunkin Donuts

New Member
Mr Dunkin Donuts, this was a somewhat odd first discussion for you to get into immediately upon joining Saverocity. Most of the folks here are inclined to help each other and give advice on a variety of situations. Some are even quite financially savvy and know inside and out what they are talking about when they provide valuable, sound advice to others.

I'm not sure what your purpose was in your last flurry of posts. It doesn't really seem like you're interested in providing much relevant information to the original poster, who asked a good question and received several fantastic answers already in the thread. Some people do like to just post in a manner that muddies the waters and doesn't add anything valuable to the discussion. You can find them on pretty much any internet board out there. I'm glad that this is a really helpful board and hope that people continue to find valuable information here and not nonsense.
I'm sure you feel this way because most have been misinformed about the value in the product. Everyone here seems to think the only 2 reasons the product is out there- either for rich people, or to make insurance salesmen rich.
 

kodiak jack

Level 2 Member
I'm sure you feel this way because most have been misinformed about the value in the product. Everyone here seems to think the only 2 reasons the product is out there- either for rich people, or to make insurance salesmen rich.
That is super-cute. And since I'm a life actuary with extensive training in how to calculate the premiums, expenses, and benefits in the product, the cool thing is that i know exactly what the value is. So that's why i post my knowledge on this forum. There has been not a single data point in this thread indicating anything to the contrary.
 

Matt

Administrator
Staff member
I'm sure you feel this way because most have been misinformed about the value in the product. Everyone here seems to think the only 2 reasons the product is out there- either for rich people, or to make insurance salesmen rich.
Just get to the facts please.

You're telling me that you think this thread is unfair and we are misinformed, but I see no facts.

Run a policy quote:

30, Salary of $70K, male, non smoker, top health.

  1. How much are the premiums for $1M Term?
  2. How much for $1M Whole?
What is the cash value of whole from years 1-30

The above age/salary are random, though they would be useful to prove your point that it isn't for rich people.

If you think it helpful, run a side by side comparison with any age and salary and anything that you like to make it a perfect example of how Whole is misunderstood.

Data please.
 

Dunkin Donuts

New Member
Just get to the facts please.

You're telling me that you think this thread is unfair and we are misinformed, but I see no facts.

Run a policy quote:

30, Salary of $70K, male, non smoker, top health.

  1. How much are the premiums for $1M Term?
  2. How much for $1M Whole?
What is the cash value of whole from years 1-30

The above age/salary are random, though they would be useful to prove your point that it isn't for rich people.

If you think it helpful, run a side by side comparison with any age and salary and anything that you like to make it a perfect example of how Whole is misunderstood.

Data please.
putting all other factors aside...
1 mill of insurance-
Say about $9500 for Whole life, $700 for 30 year Term.
After 30 years, the cash value is projected at about 650k. Death benefit grew to about 1.35 mill

What is the alternative product?
 
Now take the difference : 9500 - 700 = $8800
Invest this for 30 years in S&P 500 and you can get $831k based on average 7% S&P 500 return and a death benefit of 1 million.

If I took your 650k number, that would be a 5.5% return per year for 30 years. In this case, it looks like Whole Life is worse but that is assuming the 650k is guaranteed ?

Show us a case where whole life is better than term-life insurance.

putting all other factors aside...
1 mill of insurance-
Say about $9500 for Whole life, $700 for 30 year Term.
After 30 years, the cash value is projected at about 650k. Death benefit grew to about 1.35 mill
 

Dunkin Donuts

New Member
Now take the difference : 9500 - 700 = $8800
Invest this for 30 years in S&P 500 and you can get $831k based on average 7% S&P 500 return and a death benefit of 1 million.

If I took your 650k number, that would be a 5.5% return per year for 30 years. In this case, it looks like Whole Life is worse but that is assuming the 650k is guaranteed ?

Show us a case where whole life is better than term-life insurance.
Taxes? Fees?
Year 31 you lost the 1 mill insurance

The 650k number is not guaranteed.
How about the investment?
 
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Matt

Administrator
Staff member
Fees are already accounted for in the investment side, taxes are debatable, but possible to avoid.

What about year 2?

Earlier you said that WL was not just for the rich, but a poor/average guy might struggle with premiums like this, even if we halved the numbers and made it for $500k.

In year 2 (or 7 or 9) if the client runs out of money and cannot cover the premiums, what happens if they need their $x back?
 

Dunkin Donuts

New Member
Fees are already accounted for in the investment side, taxes are debatable, but possible to avoid.

What about year 2?

Earlier you said that WL was not just for the rich, but a poor/average guy might struggle with premiums like this, even if we halved the numbers and made it for $500k.

In year 2 (or 7 or 9) if the client runs out of money and cannot cover the premiums, what happens if they need their $x back?
This is why I said "putting all other factors aside"

The answer is- no, don't buy all 1 mill in Whole life. Split it up even if mostly term.
And if that's not possible, then all term.

But then you aren't investing the difference either.
If there is going to be a possible need for the funds in years 2 3 etc. then investing is not the way to go.
 

Dunkin Donuts

New Member
By having the life insurance in place later on, the person has the ability to spend more than he would have without having it (ie. during retirement)
Whatever will be replaced can be spent.
To whatever the person's level is obviously.
So whether you have 100k at retirement or 1 mill, you can spend it if will be replaced.
As opposed to not having the insurance- how much of your assets are you able to use if you want to leave over for someone?
How much more *can* you use if you knew it will be replaced? All of it
 

Matt

Administrator
Staff member
This is why I said "putting all other factors aside"

The answer is- no, don't buy all 1 mill in Whole life. Split it up even if mostly term.
And if that's not possible, then all term.

But then you aren't investing the difference either.
If there is going to be a possible need for the funds in years 2 3 etc. then investing is not the way to go.
The point is that in the event of an unanticipated need to slow down savings, you could do so with investments, whereas if you do that with WL you lose your principal.

By having the life insurance in place later on, the person has the ability to spend more than he would have without having it (ie. during retirement)
Whatever will be replaced can be spent.
To whatever the person's level is obviously.
So whether you have 100k at retirement or 1 mill, you can spend it if will be replaced.
Not sure I'm following here - if anything, the person with WL has less money in retirement (as the fees from WL reduce cash value) so they need to be more cautious with their spending.

It sounds like you are suggesting that they can spend everything because their beneficiaries still receive an inheritance, rather than a non WL person who needs to spend less in order to give their beneficiaries more? That's not really logical if the case, because we always look after the primary generation first, and secondly, using WL for this purpose doesn't work because it isn't as though you can just spend up everything, jump off a bridge the next day, and everything is nice. If you spend up and all you have is WL left, and you have life remaining to live, you'd need to access the policy, which (if memory serves) will impact what is left for the next generation?

Doesn't WL glidepath to very little death benefit and mostly cash value at the end, therefore if they spend cash value the guaranteed part diminishes? I could be wrong here as it has been a few years since Insurance 101..
 
Matt,
All good questions. I know you are trying to see if good reason(s) exist for a normal person to go with WL. They don't.
Other than fattening commissions for the insurance broker, it is almost always inferior to (term + invest the difference in s&p 500).
 

Dunkin Donuts

New Member
The point is that in the event of an unanticipated need to slow down savings, you could do so with investments, whereas if you do that with WL you lose your principal.



Not sure I'm following here - if anything, the person with WL has less money in retirement (as the fees from WL reduce cash value) so they need to be more cautious with their spending.

It sounds like you are suggesting that they can spend everything because their beneficiaries still receive an inheritance, rather than a non WL person who needs to spend less in order to give their beneficiaries more? That's not really logical if the case, because we always look after the primary generation first, and secondly, using WL for this purpose doesn't work because it isn't as though you can just spend up everything, jump off a bridge the next day, and everything is nice. If you spend up and all you have is WL left, and you have life remaining to live, you'd need to access the policy, which (if memory serves) will impact what is left for the next generation?

Doesn't WL glidepath to very little death benefit and mostly cash value at the end, therefore if they spend cash value the guaranteed part diminishes? I could be wrong here as it has been a few years since Insurance 101..
If you can't first save, don't invest.
Whole life is *not* an investment.
It acts more like a savings.
If a person cannot save even a small amount of his income, then he is on a path to disaster.


I think you are assuming that you are using up the cash value in retirement and depleting it even faster with fees.

Person that invested- take *all* his assets (i sure hope he has more than just his investment account). How much of it can he spend down, and leave over for his wife/kids?
At what point will it run out? Will he hold on to as much as possible?

Take the other person- he has assets, and a life insurance policy. He can spend down everything that can be replaced without worrying. And the cash value is the icing on the top. Spend all the other assets first
 

Dunkin Donuts

New Member
Matt,
All good questions. I know you are trying to see if good reason(s) exist for a normal person to go with WL. They don't.
Other than fattening commissions for the insurance broker, it is almost always inferior to (term + invest the difference in s&p 500).
they are good questions...
But you seem to block out the possibility that there is another answer out there besides for the one you keep reverting to.
 

Matt

Administrator
Staff member
If you can't first save, don't invest.
Whole life is *not* an investment.
It acts more like a savings.
If a person cannot save even a small amount of his income, then he is on a path to disaster.


I think you are assuming that you are using up the cash value in retirement and depleting it even faster with fees.

Person that invested- take *all* his assets (i sure hope he has more than just his investment account). How much of it can he spend down, and leave over for his wife/kids?
At what point will it run out? Will he hold on to as much as possible?

Take the other person- he has assets, and a life insurance policy. He can spend down everything that can be replaced without worrying. And the cash value is the icing on the top. Spend all the other assets first
How?

  • Person A (no WL) has $2M assets
  • Person B (WL) has $1M assets $1M WL
How could he spend down is $1M in assets without worry? What if he spends it down 'without worrying' and then lives 20 more years?
How is this WL situation making him better off than Person A who took Term and invested the balance?
 
they are good questions...
But you seem to block out the possibility that there is another answer out there besides for the one you keep reverting to.
Help me with another example. I just repudiated your case of 650K WL, comparing with Term Life and showing you how TL is better.. What is this other possibility you are talking about?

Since you have access to data, find me a data point where a WL is better than term insurance for a non high net worth individual . Let's discuss past data points instead of future predictions.
Find out somebody who picked WL , around 1990 and what's the premiums they were paying, the insured amount and anticipated returns. We'll compare that with s&p 500 rate of return from that year. Fair enough?
 

MickiSue

Level 2 Member
Help me with another example. I just repudiated your case of 650K WL, comparing with Term Life and showing you how TL is better.. What is this other possibility you are talking about?

Since you have access to data, find me a data point where a WL is better than term insurance for a non high net worth individual . Let's discuss past data points instead of future predictions.
Find out somebody who picked WL , around 1990 and what's the premiums they were paying, the insured amount and anticipated returns. We'll compare that with s&p 500 rate of return from that year. Fair enough?
Yes, please. This is a fairly academic exercise for me; I am old enough that WL is just silly, and term really only needs to get Husband through the shock of not having me around to earn his travel for pennies on the dollar. (I kid, I kid.)

But, you are very new here, so I'll assume that you haven't yet noticed that most of the people in this forum are really BAD at taking the word of someone they don't know on anything.

For example, I have a hard time believing someone who solidly claims a $650K return on WL premiums over the course of 30 years failed to add, until pushed, that "earnings are not guaranteed."

That seems a bit...risky to me. You ?

Of course, there's always the fact that that 30 year old in prime health could have chosen a 50 year term. More money, surely, but still significantly less than (gasp!) close to $8K/year. Still have the coverage, all through his expected lifespan, and still be able to invest in other instruments.

Say, perhaps, a self directed Roth IRA, for example.
 

kodiak jack

Level 2 Member
To ensure that we were receiving unbiased numbers and not just taking the OPs word on premiums and benefits (since he didn't post a policy illustration), i ran a quote at State Farm using Matt's parameters. Life insurance is very competitive, so these numbers won't be far off from the truth. Here's what we get:

Whole Life premium: $10,983 annually
Term Premium: $910 annually

Difference in premium: $10,073

Guaranteed cash value of whole life after 30 years: $363,660 (note the OPs cash value was not guaranteed)

Annual rate of return of $10,073 invested annually, growing to $363,660: WAIT FOR IT..... 1.17% return


No thanks. The rest of us on this board are smart enough not to pursue such an arrangement.
 
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Cliffbar

Level 2 Member
Guaranteed cash value of whole life after 30 years: $363,660 (note the OPs cash value was not guaranteed)
I agree with kodiak jack's opinion and assessment, so I'm not challenging that. But I'm interest to know...is there historical data available for how un-guaranteed cash value projections compare to actual results?
 

Matt

Administrator
Staff member
I agree with kodiak jack's opinion and assessment, so I'm not challenging that. But I'm interest to know...is there historical data available for how un-guaranteed cash value projections compare to actual results?
That's the next question.. and it leads to the question: "what is the vig?"

The unguaranteed rate must be tied to a certain performance metric - with projections you might see something like "5% rate of return assuming performance is met/subject to performance etc.." But what is the performance number they are hoping for in order to kick off 5%? If it is 5.5% then it isn't that bad.. but if it is 8.7% then it is a bit rough..

Long story short, what is the house take.. the 'Vig'?
 

kodiak jack

Level 2 Member
The unguaranteed rate must be tied to a certain performance metric - with projections you might see something like "5% rate of return assuming performance is met/subject to performance etc.." But what is the performance number they are hoping for in order to kick off 5%? If it is 5.5% then it isn't that bad.. but if it is 8.7% then it is a bit rough..
Matt,
For whole-life policies, the unguaranteed rate is not tied to specific investment performance. Instead, it is based on the level of policy dividends paid to the insured over time, which are not guaranteed, of course. Policy dividends are based on the financial performance of the issuing insurance company, not a particular investment return. As Investopedia puts it:

"Many whole life insurance policies provide dividends representing a portion of the insurance company’s profits that are paid to policyholders. In many ways, these dividends are similar to traditional investment dividends that represent a share of a public company’s profit."

AND

"In a participating policy, at the end of the year, the company does an accounting of the death claims paid, their earnings, and the expense of running the company and the premiums it collected. If they did better than their worst-case projection, they pay the policy owners a dividend."​

So, the "investment" you're making in a whole life policy is essentially 100% allocation to a single life insurer, who is also the same one providing your death benefit coverage, if needed.
 

Matt

Administrator
Staff member
Matt,
For whole-life policies, the unguaranteed rate is not tied to specific investment performance. Instead, it is based on the level of policy dividends paid to the insured over time, which are not guaranteed, of course. Policy dividends are based on the financial performance of the issuing insurance company, not a particular investment return. As Investopedia puts it:

"Many whole life insurance policies provide dividends representing a portion of the insurance company’s profits that are paid to policyholders. In many ways, these dividends are similar to traditional investment dividends that represent a share of a public company’s profit."

AND

"In a participating policy, at the end of the year, the company does an accounting of the death claims paid, their earnings, and the expense of running the company and the premiums it collected. If they did better than their worst-case projection, they pay the policy owners a dividend."​

So, the "investment" you're making in a whole life policy is essentially 100% allocation to a single life insurer, who is also the same one providing your death benefit coverage, if needed.
True - I got my WL with my VULs mixed up.. That said, I would imagine that the WL return might have a connection to investment performance somewhere along the way as insurance companies invest some of their assets in order to create income.
 
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