Bogleheads

Aknhoss · Joined: 29 Jul 2007 Posts: 11

I am a life insurance agent. I think that is great that everyone talks about these different products and gives their opinions. I have learned a lot from the little tome I have read what everyone has shared.

I have unfortunately ran into 3 people this week who have lost someone and one out of the 3 people had life insurance on the person they lost. It was a little policy but it is helping. Lucky none of them had young children involved. One of them is trying to sell the house to just get buy.

My point is I feel it is very important that we own life insurance especially if we have love for our spouses and families.

I know products are based on suitability. But I really would like an opinion on the different products and what you feel is the best for you.

I just want to do my job right and what is best for my families.

EmergDoc · Joined: 02 Mar 2007 Posts: 5474 Location: Home sweet home

Unfortunately, the things that will make you good money aren't very good for your clients. What 95%+ of your clients need is either 20 year level term (if they want to become financially independent and retire early...say 45-50ish) or 30 year level term (if they want a more traditional 55-65ish retirement.) If they don't have anyone depending on their income, they don't need insurance at all. Remember those two things and your clients will thank you. Your spouse won't though, because you'll be poorer than you could be if you sold universal life, variable life, whole life, or variable universal life policies. There just isn't much money to be made with term insurance. The industry is much more transparent and there is so much more competition that the companies cannot offer large commissions to the agents.

Trust me when I say we all believe that insurance has a very valuable place in most portfolios. The value of my life insurance is about 20 times the value of my portfolio. But mixing insurance with investments is usually folly.
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Zapped · Joined: 30 May 2007 Posts: 87 Location: Austin, TX

Disclaimer: IANAISTH*

Whole life, of course, is a sucker's game, so I'll be talking about term insurance.

From age 25 to early 40's I accepted life insurance from work (3x-4x salary) and supplemented with just a little extra term (maybe 2x salary). A couple of years ago I shopped around and bought a more substantial 15-year term from AIG at a very competitive rate. That length of time should be more than enough to cover our family obligations until my youngest is through college and even graduate school. After that I'll drop down to a much lower amount of insurance for my wife & I.

No affiliation with AIG, but they offered very competitive rates compared to other companies whose finances were rated as well by A.M.Best. Prudential, GenWorth, and Lincoln Benefit Life (I think) all quoted attractive rates initially, but after full health screening was completed the actual contract from AIG beat the others handily.

Books & online resource often suggested buying insurance at a certain multiple of annual income, but my salary is high enough that the resultant "need" seemed absurdly high. I'm covered for about $1.25M now and would probably drop it to half that after the kids have flown from the nest permanently.

Maybe I'm alone in this, but my wife has sizable insurance, too, even though she doesn't work outside the home now. To me that's necessary because I honestly don't see how I'd go into work anymore if she wasn't around.

Yikes, this is a morbid topic!

*IANAISTH = I Am Not An Insurance Salesman Thank Heavens
_________________
- Jim in Austin, TX

Aknhoss · Joined: 29 Jul 2007 Posts: 11

I appreciate the response. Like you said you do make more money when you sell whole life compared to term.
Unfortunately or fortunately depends how you look at it got to stay positive only about 5% of term policies pay out. Term is great for what it is for, a sense of protection for your family.
I am not trying to change your mind cause you feel what you have works great for you. Term is not always the best or only answer. If took a term policy @ $100 a month for 20 years you have just gave that insurance company $24000 for a piece of mind. If you took that same $24000 purchased a single pay life insurance policy you would own that for the rest of your life and you would have tax free death benefit (current law) for your family.
As an investment for retirement I agree it is not the greatest investment out there for retirement, and I do tell my clients that. But depending on the product it can be guaranteed to earn you 4% of your money but most important you own it for as long as you live. And if you want, in 20yrs you can cash out, but with term you really have not much choice.
It all depends on suitability and each situation. But I do agree make sure that you know your agent is doing what’s right for you.
Thanks agian[/quote]

tfb · Joined: 19 Feb 2007 Posts: 3215

Please do us a favor and stop posting insurance nonsense.

Aknhoss · Joined: 29 Jul 2007 Posts: 11

I am sorry you feel so negative about insurance. But I feel it is important that people get a little education on what the basis of life insurance is and how each product is designed to be set up for suitabilty of each client. The other thing is if you have an agent sitting there telling nothing but the positives you know who he is looking out for. Thats why you got to make sure the agent fully explains the product they are selling you. And you get some education on that product.

I was wondering if you sold investements?
Thats great that that bond earns you 5% but your family only recieves the cash value instead of a tax free death benifit that exceeds the cash value. Or if you want you can use that cash value when you need it.

To do a comparison on single pay to term all depends on age and other factors involved your right it will be more for the same death benifit. You do need to find out what your need is then figure out how you want to protect that need. Get all the pros and cons of each type of coverage and make sure it is what you want for your family. All I am saying keep an open mind on everything you do incuding your investments.

I was wondering if you're renting or purchasing your house?

Don't think I am trying to sell anybody life insurance online cause I can't even if I wanted to I can only do that in my local state. I just want people to be aware of the benifits and the drawbacks of life insurance.

Norbert Schlenker · Posted: Mon Jul 30, 2007 2:17 am Post subject:

EmergDoc · Joined: 02 Mar 2007 Posts: 5474 Location: Home sweet home

Seems like I just did this a week or so ago with another agent. See these links:

http://www.diehards.org/forum/....e+emergdoc

http://www.diehards.org/forum/....+insurance

http://www.diehards.org/forum/....+insurance

Here we go:

Live Free or Diehard · Joined: 27 Jun 2007 Posts: 375

Disclaimer: I am not an insurance agent; however, I was employed by a couple of different Life Insurance companies for nine years (term certain). I developed and maintained computer systems that projected future values (cash value, premiums, death benefits) of Life Insurance for Illustration purposes. I should also disclose that I have not been employed for any insurance company for the past nine years and, finally, I did stay at a Holiday Inn last night.

Life Insurance does offer protection to your loved ones in the event of your early demise. Both Whole life and Term can offer the same protection (death benefit). Most people would be better served with term insurance. Note: the death benefit is tax-free whether you purchase whole life or term life.

A healthy 20 year-old male can probably purchase a whole life policy with a $25,000 death benefit for about $30 a month. The same 20 years-old male could probably purchase a 20-year term insurance policy with a $25,000 death benefit for $60 per year. That’s a difference of about $300 per year. If the 20 year-old took that $300 and invested it at 5% annual return it would be worth about $10,000 after 20 years. With $7,200 investment they now have $10,000 worth if they’re still alive after 20 years. The $7,200 invested with the Whole Life policy will probably be worth less than $5,000 after twenty years (in my experience). If they still needed the insurance (and they might not need it at that point) they could purchase another 20-year term insurance policy for about $85 per year. That’s still $275 less per year than for whole life policy (at age 20). If the $275 per year is added to the $10,000 and invested for the next 20 years with 5% annual return it will be worth approximately $35,000. Note: term insurance quotes are available online at http://term4sale.com/

The purchaser of Term insurance does run the risk that they will become uninsurable for poor health reasons; but if they’re investing the difference they are also decreasing their need for life insurance. A healthy 60 year old can still purchase a 20-year term policy for about $240 per year. That’s still $20 less than the whole life policy (at age 20).

Universal Life in arguably better than whole life, but it still isn’t as good as term insurance with the difference invested (in the above manner). The problem with universal life is that the expenses are still high. Every time you pay a premium most insurance companies charge you a premium tax of around 3%. That’s like paying a 3% load on a mutual fund. There are also high surrender charges during the first ten years of the policy if you surrender the policy and try to get the cash value out.

If you want to compare term and whole life to renting or purchasing a house you have to complete the analogy by mentioning that the mortgage company is charging an inflated interest rate of 15-20%.

Whole life is not a good solution for young people who need life insurance. It may in certain circumstances be a good fit for older people who need an estate plan to pass money to family tax-free.

Note: No life insurance company was directly harmed in the above post. The same claim can not be made for the young purchaser of whole life policies for financial reasons.

LBMM · Joined: 02 Jul 2007 Posts: 153

Classic life insurance agent troll. I see them on all kinds of message boards. Initial post seems harmless and seeks opinions - then the sales pitch kicks in on the second post. They simply can't help themself. The brainwashing must be good.

jpsinjpn · Joined: 20 Feb 2007 Posts: 92 Location: Japan

Where's Ole Meph?
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-JP

Aknhoss · Joined: 29 Jul 2007 Posts: 11

RiskAverse · Joined: 20 Jun 2007 Posts: 205

Norbert Schlenker · Posted: Mon Jul 30, 2007 11:32 am Post subject:

EmergDoc · Joined: 02 Mar 2007 Posts: 5474 Location: Home sweet home

dm200 · Posted: Mon Jul 30, 2007 11:52 am Post subject: As an

informed consumer, I agree that almost all folks should buy term insurance of some sort IF they need life insurance. This might be 20 or 30 year level term, or (perhaps) some other kind of term policy that is guaranteed renewable (so that they will not become uninsurable during the time of need for insurance).

There are some (probably small in number) folks for whom other types of life insurance are appropriate:

1. Most of us will eventually not have the need for life insurance. Our children will grow up, attend college and become self-supporting. Our investments will grow, or we will retire. In a few cases, however, our need for life insurance is either indefinite or as long as we live. Perhaps there is a disabled child, or some other circumstance. In those cases, I think, some sort of permanent insurance is appropriate (such as whole life).

2. For certain very high income individuals, with certain other factors, life insurance products that may have some tax benefits and/or asset protection benefits might be appropriate. Again, I suspect those folks are relatively rare, but they probably do exist.

Finally, the statement that only a small percentage of folks with term ever have benefits paid (as an argument against it) is just crap. It provided the benefit in case we died. That was (and is for many of us) a real benefit. Just because we haven't died doesn't make it useless. We may have disability insurance and never collect. We may have fire insurance on our house and never collect. And so on. They are still a good thing, even if we never collect.

dan

Live Free or Diehard · Joined: 27 Jun 2007 Posts: 375

Allan · Joined: 21 Feb 2007 Posts: 229 Location: Houston

Live Free or Diehard · Joined: 27 Jun 2007 Posts: 375

tfb · Joined: 19 Feb 2007 Posts: 3215

Live Free or Diehard · Joined: 27 Jun 2007 Posts: 375

mephistophles · Joined: 27 Mar 2007 Posts: 1503

Would you be kind enough to answer a few simple questions for me. Your answers to these questions will help me to better grasp your insurance philosophy.

1. What is the face amount and annual premium of individually purchased term insurance you have on your life today.

2. What is the face amount and annual premium of any permanent insurance you have on your life today?

3. How did you arrive at the total face amount of insurance you own? How did you decide on the type/types of policies you own?

4. What is the average income level of your chosen marketplace? What is the average educational level of those in this marketplace?

Thank you,

ole meph

Allan · Joined: 21 Feb 2007 Posts: 229 Location: Houston

Old Meph:

If a person puts money in a UL policy, my understanding is a portion is used for pure insurance and anything in excess goes into cash value. That excess cash can be left in cash with minimal returns somewhere in the neighborhood of MMA’s, or invested in mutual funds.

My question, Old Meph (or whoever), I assume when you withdraw your principle it is not taxed, but what about the gains from your cash or investments. Are those gains taxed?

Allan

mephistophles · Joined: 27 Mar 2007 Posts: 1503

UL policies take a chunk of all new premiums paid as part of a front end load. This includes State premium taxes. What remains goes into a contract fund. Each month a variety of expenses, including mortality charges, are deducted from the contract fund. Also, each month interest, or earnings are credited to the contract fund. If you surrender the policy or take loans or withdrawals from the contract you pay a back load called a surrender charge. During early policy years little, if any, money is available to the policyholder because of this charge. Eventually, in 15 or 20 years the cash surrender value equals the contract fund. This happens when the surrender charge disappears.

Ordinarily cash surrender or withdrawals are subject to ordinary income tax to the extent of any gains. Loans are not subject to income tax but you must pay interest on the loan. Exceptions are policies deemed "cash rich" or "modified endowment contracts (MECs.) These policies have taxation rules similar to IRA's and usually involve drop ins above the scheduled premium.

Regards,

ole meph

Aknhoss · Joined: 29 Jul 2007 Posts: 11

Well you all have great valid points. The bottom line is this lfe insurance is financial positive for your heirs and you that you care for your family we can agree upon that.

I have never met a widow that said that was a term policy or that was a whole life policy. They mostly say Thank God we had life insurance.

Term is great for what it is inted for.

Term is IF you die and whole life is When.

The thing about is I have never seen an investment go bad they all make money and nobody loses money. No fees or commisions in investments either.

Buy term and invest the rest is great if you like to gamble. cause there is that chance you come of age and your investments go south and your life policy expires so you leave nothing to your heirs but debt and liabilities. Thats what I want to leave for my family.

If you get a 25yr old and have him buy a 30yr term I think he would be about 55 when that policy expires that is pretty young. so your telling me that you should hopfully have invested really good so you can afford a whole life product for estate preservation when it is alot more expensive.

Just make sure you keep an open mind and use each life insurance product for what it is intended for and that is to add to your families portfolio.

As I said before I am not trying to prospect on your website I just think you should be more open to your readers and relize that what works for you doesn't always work for them.

EmergDoc · Joined: 02 Mar 2007 Posts: 5474 Location: Home sweet home

Robert L. Barney · Joined: 29 Jul 2007 Posts: 8

The idea that term insurance is "renting" always struck me as a horrible analogy. Given the American love affair with home ownership, the analogy was intended to immediately cause a consumer to equate whole life to buying a house - which was perceived as good. In other words the analogy was prejudiced against term - which is an equally valid life insurance product.

It's been a long time since I have sold term life insurance but here's the drill I went through when explaining it to consumers who owned a lot of whole life with inadequate coverage. By the way, nothing, absolutely nothing, ticks me off worse than finding a consumer underinsured with a whole life policy. Agents who do that, should be run out of the business. Try doing that with fire insurance and see how long you last.

Here is how I explained it:

Insurance is a risk sharing venture. Let me show you. At that point I would draw a circle on a peice of paper and say that this was the "risk sharing pot", otherwise known as the insurance company. I then drew a line with an arrow pointing into the pot. I said this is the money that goes into the pot, what do we call that? They would say "premiums". I would then draw a line going out of the port and say, this is the money going out of the pot. What do we call that? I usually had to answer for them "benefits".

I then explained that all insurance worked the same way - car insurance, fire insurance, life insurance. Money came in (premiums) and money went out (benefits). The job of the company was to make sure that they got enough money coming in to match what was going out.

I then said let's use life insurance as an example. Let's suppose that we have 1,000 people, all the same age, who want to insure each of themselves for $100,000. What's the first question that the life insurance company needs to ask to figure out how much to charge for these policies? Usually I volunteered that the company needed to know how many of the 1,000 people would die this year. I then explained the company looked up that statistic from a chart called a mortality table. I then said let's suppose the table tells us that one of these 1,000 will die this year.

I would then ask, how much would the company have to pay out?

One times $100,000 = $100,000. I would right $100,000 next to the line going out of the circle.

I then asked, "Here's the trick question - how much money will need to be in the pot in order to pay out the $100,000?" They usually answered $100,000 and I then explained if the company was a charity, that would be correct. But I would say, we'll assume that they are a charity and only need to come up with $100,000 to make this work. Where will that come from?

This led to the discussion of premiums. How much premium would the company have to charge each of the 1,000 people to get $100,000 in the company. Most people could properly answer $100.

I then asked what did the person who died (their beneficiary) get? They would say $100,000

I then asked "what did the other 999 get?" They would say nothing. I said, that's not correct. The 999 had protection. At the beginning of the year we had no idea who would die, and so each person insured had the same risk of being the person who died.

The moral of the story is it that it costs money for life insurance because somewhere, someone dies and the premiums paid by the people who didn't die, was what the company used to pay that death benefit.

Now let me ask you folks on this board - does that sound like rent to you?

Does anyone care how I then went on to explain the difference between term and whole life?

Robert L. Barney
President, Compulife Software Inc.
term4sale dot com

EmergDoc · Joined: 02 Mar 2007 Posts: 5474 Location: Home sweet home

Aknhoss · Joined: 29 Jul 2007 Posts: 11

[quote="Robert L. Barney"]

It's been a long time since I have sold term life insurance but here's the drill I went through when explaining it to consumers who owned a lot of whole life with inadequate coverage. By the way, nothing, absolutely nothing, ticks me off worse than finding a consumer underinsured with a whole life policy. Agents who do that, should be run out of the business. Try doing that with fire insurance and see how long you last.

as I said before the most important thing is to have adequate coverage for their family. So if that means buy all term, then do that but if I can afford to put my money in whole I would rather accumilate cash value after I pay for the life insurance.

People rent everyday it is a choice that they make it is not a bad thing it is a choice. As far as usuing that analogy you rent a house pay someone for a roof over your head enjoy it for a few years and its done or just like leasing a vehicle. Term is set up the same way it is a protection for your family for a few years wich that is a choice.

mephistophles · Joined: 27 Mar 2007 Posts: 1503

Do you have the courage to answer the simple questions I posted to you above?

If you do find the courage to answer those questions we would soon get to the truth of the matter.

That is, if you have the courage to answer my questions you might even see the truth yourself.

ole meph

Aknhoss · Joined: 29 Jul 2007 Posts: 11

Ole Meph

I must have overlooked your question.

I am 28 married and have to young boys.
I purchased as much term to take care of my family $1.5 and it is less expensive becuase of my age and I wanted to guarantee insurability the policy is convertable so I just recently converted $500,000 to a 10pay whole life policy so the cash is not there yet but in 10 years I will own that policy and I will be given the insurance company $100,000 and they will eventually give my family atleast $500,000 WHEN I die not IF I die. You do pay fees commisions and for the life ins. but you do earn a % of the cash value and it will be equal to what you have put in and also exceed what you put in. If I decide @ the age 60 I want money back that is a possiability.

As far as the income market I work with it can range from someone making $100,000 a year to millionaires.

I do feel buy as much term as you can when your young and insurable just make sure you can convert it.

I do want to leave a good amount of money to my family and I hope they do the same for their kids.

cdwood · Joined: 31 May 2007 Posts: 84

Is it better to have a million dollars worth of coverage -- or a million dollars? When my wife and I (late 50's) hit the million dollar threshold, we canceled our term coverage. (Kids out of the nest, house paid for, fat Roths/401k's)

Do we feel snookered out of all that money that went into Robert Barney's pot that never came back to us? (We are, after all, still alive)

Of course not. We bought peace of mind with that money. And because it was term insurance, we bought the peace of mind with minimum outlay.

What to do NOW with the money NOT flowing into the pot? Well, we didn't die, but over the years we've gotten a little stiff in the back and thick in the middle. We've started attending yoga classes and mixing fruit smoothies. This has not eaten up all the unspent premium money, but a full accounting of things not to skimp on has its own thread these days . . .

-- cdwood

SoonerSunDevil · Joined: 19 Feb 2007 Posts: 2001 Location: The desert

Aknhoss · Joined: 29 Jul 2007 Posts: 11

I am not sure I see where you are coming from as far as me not having suitabilty for my family because in the event I don't make it home they will be well taken care of suitabilty is also based on affordability and it is income that is income I set aside for that need

You guys feel I am agianst term I really am not I feel it is a product that is great for what it is meant for. Just make sure your insurance policy does what you want it to do.

Its a choice if you just want coverge for a set time then go ahead.

whitemiata · Joined: 18 Apr 2007 Posts: 506

Aknhoss · Joined: 29 Jul 2007 Posts: 11

Thank you for everyones veiws on this subject.

mephistophles · Joined: 27 Mar 2007 Posts: 1503

What is the annual premium you are paying for each of your policies? This means, how much are you paying each year for each policy? After paying your insurance premiums do you have enough money left over to maximize your tax qualified plans at work and or fund individual IRA's?

Does your company really sell 10 Pay Life policies. Are you aware how the MEC rules affect 10 Pay Life policies.?

Is your insurance par, or non-par?

ole meph

Live Free or Diehard · Joined: 27 Jun 2007 Posts: 375

I would like to thank everyone for their responses on this subject. I've found it very enlightening. Everyone please keep an open mind. That's all I ask.

Zapped · Joined: 30 May 2007 Posts: 87 Location: Austin, TX

Mephistophles clearly and succinctly wrote:

mephistophles · Joined: 27 Mar 2007 Posts: 1503

Your post perfectly describes Mr. aknhoss. We can be certain that he is incapable of persuading, even the most casual reader of this forum to consider whole life insurance for family protection and savings needs.

I seriously doubt that he will be able to influence those in his chosen market and will soon move on to another occupation.

Regards,

ole meph