Whole Life - We're doing it. What to look for?

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HomerJ
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Re: Whole Life - We're doing it. What to look for?

Post by HomerJ » Wed Jul 11, 2018 12:48 pm

BogleMelon wrote:
Wed Jul 11, 2018 11:10 am
SwampDonkey wrote:
Wed Jul 11, 2018 1:25 am
BogleMelon wrote:
Tue Jul 10, 2018 10:12 am

1- Insurance is a tax for being poor.
That's not a fair statement. Many people maintain insurance for the security and peace of mind it provides, regardless of financial status. For example, even though I have no need for comprehensive coverage of my vehicles, I still pay for it as it provides peace of mind. Everyone has their own biases, often shaped by conditioning and their own personal experiences; obviously our experiences differ (not a bad thing!).

Appreciate your thoughts!
- How much is your car worth comparing to your net worth?
- If you won a $10 million lottery, would you keep the comprehensive insurance for the peace of mind? Would you really still care if a tree fell on your car roof and damage a car that is worth $30000 or even $60000?
- I don't insure my cell phone, because replacing a $250 cell phone doesn't worth a $10 premium, but I know a lot of folks who is doing it, and call it "peace of mind", I know also that they are broke and can not afford to pay $200 without adding more debts to their credit card.

being poor is relative. What I meant, is the relative meaning of wealth to the commodity you are insuring.
"poor" may have been a poor choice of words.

He meant once you have a certain amount, you don't need insurance. If, by your 60s, you'll have $2 million in investments, a pension, kids are gone, and Social Security checks coming in, do you really think that $100k insurance policy is going to be that significant?

Now, in your 30s, with 2 kids to feed, with $200k in investments, no pension, and no Social Security, that $100k life insurance payout is pretty big.

But I wouldn't say you were "poor". But the $100k is definitely worth something to you.

But, our point here is you ALREADY have $250k insurance policy right now and for the next 25 years where the $250k really means something.

Paying more now so that you can keep $100k of the $250k going after 60 when you will no longer need it doesn't make a lot of sense.
The J stands for Jay

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sergeant
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Re: Whole Life - We're doing it. What to look for?

Post by sergeant » Wed Jul 11, 2018 1:21 pm

SwampDonkey wrote:
Wed Jul 11, 2018 2:08 am
sergeant wrote:
Tue Jul 10, 2018 12:38 pm
As far as the policy, based on OP's posted graph I agree that it is the least bad WL policy that I have seen.
"...the least bad WL policy that I have seen"
That's funny. Appreciate your thoughts!
I'm changing my assessment as you continue to provide more information. I think you're making a mistake trading in a portion of the term for this WL policy. Just stick with your current term policy and increase your emergency fund if you desire an extra 100k around IF your SO dies before you.
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inbox788
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Re: Whole Life - We're doing it. What to look for?

Post by inbox788 » Wed Jul 11, 2018 1:25 pm

HomerJ wrote:
Tue Jul 10, 2018 10:33 am
JBTX wrote:
Tue Jul 10, 2018 6:45 am
But based on the term quote above, for standard risk is annual premium of $175 vs $920 whole life. Basically $750 per year difference, which in theory goes towards cash value investment.

In 20 years the guaranteed cash value is $31440. Using 20 years annual pay in of $750 year, that is better than a 7% annualized rate of return, which is shockingly good for a whole life. Good enough that it makes me think I've made an error here, although I don't know what it would be.
Umm... I've never seen a whole life schedule that looks like this.

Usually, by the end of year 6, you will have paid in $920 a year for 6 years, and the cash value will be something like $4000 (from the $5520 you've paid in). In this case, the cash value is actually equal to all the money you've put in (plus one dollar!).

A rate of return of 0% in the first 6 years is actually the BEST whole life policy I've ever seen.

This policy apparently gives you free life insurance, and starting in year 7, starts giving you pretty high returns. In the guaranteed column (which is the only one you should pay attention to).

Year 7 pays 5.9% guaranteed.
Year 8, it pays 8.7% guaranteed.
Year 9, it pays 7.8% guaranteed.

At year 20, it looks like you will have gotten about 5% annual return on the $920 premium over 20 years (those 6 years of 0% drag you down).

5% guaranteed is quite good, especially with the free life insurance. But 5-year CDs are paying 3% now, and it appears to be trending upwards.

Not sure if I would buy a 5% 20-year CD at this point. Still this policy isn't terrible.

Year 21 and beyond, it looks like the guaranteed returns drops to 3.5% a year.
I'm not sure if it makes any difference to these computations, but this is an upsell policy to a 30 year policy that has passed 5 years. There are guarantees (30 year premium costs) that are non-recoverable if policy is cancelled. COI is already covered by the 30 year terms, so death benefit doesn't seem relevant for the next 25 years. The premium $920x20 years needs to be adjusted for the current premium x 25 years. Let's assume current 250k term costs $250/year for simplicity; that means $100k costs $100/year. If you BTIR (OP has essentially already been doing that indirectly growing retirement savings about $920/year more for the last 5 years not having bought a whole life policy), that means you could invest $820x20 years yourself vs investing in the whole life policy. Coverage wise, the policy example would be in the same situation for the next 25 years (WL vs BTIR). Investing yourself you'd have $820x20=16.4k + gains in an investment account. Looking at age 60 line, guaranteed cash value is $38.4k + non-guaranteed. And if you kept invested in the insurance company for the next 20 years, age 80 line, $67.3k + non-guaranteed.

If my estimates are correct, you'd need to beat 6.5% returns to reach age 55, 32.5k guaranteed value. And besides the unknown non-guaranteed variance, there may be tax differences. Getting from 32.5k to 38.4k in 5 years is around 3.25%, and 20 years later to 67.3k around 3.35%.

I'm still trying to figure out how their CIO is going to manage these guarantees, but these numbers are reasonable. The non-guaranteed portions are self-supporting, and risks are passed on. And as far as the insurance, sales and administrative costs, they're all borne out by the 30-year term with a built in profit margin, which could balance a little investment loss in the worst case.

afan
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Re: Whole Life - We're doing it. What to look for?

Post by afan » Wed Jul 11, 2018 3:24 pm

For some reason it appears everyone else can see the illustration. For me all I see is "image" which does not display anything.

So I am going by what others are saying they saw.

They are saying that the premium is $920/year, guaranteed. They are saying that, from year one, the cash value is equal to or greater than the sum of premiums. That is, the first year of insurance is free and subsequent years have premiums so low that they are funded by the insurance company's return on the premiums paid.

They are saying that these cash value figures people are quoting are also guaranteed.

They are implying there are no surrender charges.

Now someone has said the policy also includes 60 months of some amount of LTC insurance, how much not specified. Added to the essentially free life insurance this would make for the best deal ever.

Usually the full illustration on an insurance policy goes on for many pages and includes things like whether the premiums are enough to guarantee continuation of the policy.

Since I cannot see the figures my comments are based on the above.

If what I have gathered is true, then this is basically free life and LTC insurance, with an excellent guaranteed rate of return on the cash value. Even with a seven or ten year surrender period it would be a great deal. If SO's condition could lead to a need for LTC, all the better.

But the deal sounds too good to be true. Most insurers have had to increase premiums for LTC. How can a company stay in business giving it away for free?

Maybe I missed something in the actual illustration that would explain, but I don't get the distinction between "no need for insurance" and "no mathematical need for insurance". These are numbers. One describes the relationships among them with math. How else could this be done?
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

Nate79
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Re: Whole Life - We're doing it. What to look for?

Post by Nate79 » Wed Jul 11, 2018 4:09 pm

afan wrote:
Wed Jul 11, 2018 3:24 pm
For some reason it appears everyone else can see the illustration. For me all I see is "image" which does not display anything.

So I am going by what others are saying they saw.

They are saying that the premium is $920/year, guaranteed. They are saying that, from year one, the cash value is equal to or greater than the sum of premiums. That is, the first year of insurance is free and subsequent years have premiums so low that they are funded by the insurance company's return on the premiums paid.

They are saying that these cash value figures people are quoting are also guaranteed.

They are implying there are no surrender charges.

Now someone has said the policy also includes 60 months of some amount of LTC insurance, how much not specified. Added to the essentially free life insurance this would make for the best deal ever.

Usually the full illustration on an insurance policy goes on for many pages and includes things like whether the premiums are enough to guarantee continuation of the policy.

Since I cannot see the figures my comments are based on the above.

If what I have gathered is true, then this is basically free life and LTC insurance, with an excellent guaranteed rate of return on the cash value. Even with a seven or ten year surrender period it would be a great deal. If SO's condition could lead to a need for LTC, all the better.

But the deal sounds too good to be true. Most insurers have had to increase premiums for LTC. How can a company stay in business giving it away for free?

Maybe I missed something in the actual illustration that would explain, but I don't get the distinction between "no need for insurance" and "no mathematical need for insurance". These are numbers. One describes the relationships among them with math. How else could this be done?
Something smells.

There is no way this policy contains additional 60 months of LTC coverage (ok, that alone is a meaningless term anyways). How much LTC coverage? Is it only paying out the cash value and then what?

SwampDonkey
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Re: Whole Life - We're doing it. What to look for?

Post by SwampDonkey » Wed Jul 11, 2018 7:24 pm

[quote=Nate79

Something smells.

There is no way this policy contains additional 60 months of LTC coverage (ok, that alone is a meaningless term anyways). How much LTC coverage? Is it only paying out the cash value and then what?
[/quote]

Additional info on the LTC:
1. It can only be used after 5 years of having the policy.
2. The funding for the LTC is up to the entire amount of the total death benefit.
3. There are three health questions asked of my SO before they will issue the WL policy; all three are directly related to an immediate need (e.g., SO needs LTC right now) for LTC. If a “yes” is given to any of these questions, the LTC portion of the policy is removed.

SwampDonkey
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Re: Whole Life - We're doing it. What to look for?

Post by SwampDonkey » Wed Jul 11, 2018 7:27 pm

inbox788 wrote:
Wed Jul 11, 2018 1:25 pm
HomerJ wrote:
Tue Jul 10, 2018 10:33 am
JBTX wrote:
Tue Jul 10, 2018 6:45 am
But based on the term quote above, for standard risk is annual premium of $175 vs $920 whole life. Basically $750 per year difference, which in theory goes towards cash value investment.

In 20 years the guaranteed cash value is $31440. Using 20 years annual pay in of $750 year, that is better than a 7% annualized rate of return, which is shockingly good for a whole life. Good enough that it makes me think I've made an error here, although I don't know what it would be.
Umm... I've never seen a whole life schedule that looks like this.

Usually, by the end of year 6, you will have paid in $920 a year for 6 years, and the cash value will be something like $4000 (from the $5520 you've paid in). In this case, the cash value is actually equal to all the money you've put in (plus one dollar!).

A rate of return of 0% in the first 6 years is actually the BEST whole life policy I've ever seen.

This policy apparently gives you free life insurance, and starting in year 7, starts giving you pretty high returns. In the guaranteed column (which is the only one you should pay attention to).

Year 7 pays 5.9% guaranteed.
Year 8, it pays 8.7% guaranteed.
Year 9, it pays 7.8% guaranteed.

At year 20, it looks like you will have gotten about 5% annual return on the $920 premium over 20 years (those 6 years of 0% drag you down).

5% guaranteed is quite good, especially with the free life insurance. But 5-year CDs are paying 3% now, and it appears to be trending upwards.

Not sure if I would buy a 5% 20-year CD at this point. Still this policy isn't terrible.

Year 21 and beyond, it looks like the guaranteed returns drops to 3.5% a year.
I'm not sure if it makes any difference to these computations, but this is an upsell policy to a 30 year policy that has passed 5 years. There are guarantees (30 year premium costs) that are non-recoverable if policy is cancelled. COI is already covered by the 30 year terms, so death benefit doesn't seem relevant for the next 25 years. The premium $920x20 years needs to be adjusted for the current premium x 25 years. Let's assume current 250k term costs $250/year for simplicity; that means $100k costs $100/year. If you BTIR (OP has essentially already been doing that indirectly growing retirement savings about $920/year more for the last 5 years not having bought a whole life policy), that means you could invest $820x20 years yourself vs investing in the whole life policy. Coverage wise, the policy example would be in the same situation for the next 25 years (WL vs BTIR). Investing yourself you'd have $820x20=16.4k + gains in an investment account. Looking at age 60 line, guaranteed cash value is $38.4k + non-guaranteed. And if you kept invested in the insurance company for the next 20 years, age 80 line, $67.3k + non-guaranteed.

If my estimates are correct, you'd need to beat 6.5% returns to reach age 55, 32.5k guaranteed value. And besides the unknown non-guaranteed variance, there may be tax differences. Getting from 32.5k to 38.4k in 5 years is around 3.25%, and 20 years later to 67.3k around 3.35%.

I'm still trying to figure out how their CIO is going to manage these guarantees, but these numbers are reasonable. The non-guaranteed portions are self-supporting, and risks are passed on. And as far as the insurance, sales and administrative costs, they're all borne out by the 30-year term with a built in profit margin, which could balance a little investment loss in the worst case.
Awesome analysis, even though I had to reread it several times to fully understand everything. Thank you.

SwampDonkey
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Re: Whole Life - We're doing it. What to look for?

Post by SwampDonkey » Wed Jul 11, 2018 7:29 pm

HomerJ wrote:
Wed Jul 11, 2018 12:48 pm
BogleMelon wrote:
Wed Jul 11, 2018 11:10 am
SwampDonkey wrote:
Wed Jul 11, 2018 1:25 am
BogleMelon wrote:
Tue Jul 10, 2018 10:12 am

1- Insurance is a tax for being poor.
That's not a fair statement. Many people maintain insurance for the security and peace of mind it provides, regardless of financial status. For example, even though I have no need for comprehensive coverage of my vehicles, I still pay for it as it provides peace of mind. Everyone has their own biases, often shaped by conditioning and their own personal experiences; obviously our experiences differ (not a bad thing!).

Appreciate your thoughts!
- How much is your car worth comparing to your net worth?
- If you won a $10 million lottery, would you keep the comprehensive insurance for the peace of mind? Would you really still care if a tree fell on your car roof and damage a car that is worth $30000 or even $60000?
- I don't insure my cell phone, because replacing a $250 cell phone doesn't worth a $10 premium, but I know a lot of folks who is doing it, and call it "peace of mind", I know also that they are broke and can not afford to pay $200 without adding more debts to their credit card.

being poor is relative. What I meant, is the relative meaning of wealth to the commodity you are insuring.
"poor" may have been a poor choice of words.

He meant once you have a certain amount, you don't need insurance. If, by your 60s, you'll have $2 million in investments, a pension, kids are gone, and Social Security checks coming in, do you really think that $100k insurance policy is going to be that significant?

Now, in your 30s, with 2 kids to feed, with $200k in investments, no pension, and no Social Security, that $100k life insurance payout is pretty big.

But I wouldn't say you were "poor". But the $100k is definitely worth something to you.

But, our point here is you ALREADY have $250k insurance policy right now and for the next 25 years where the $250k really means something.

Paying more now so that you can keep $100k of the $250k going after 60 when you will no longer need it doesn't make a lot of sense.
That makes sense. Thanks for the clarification.

SwampDonkey
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Re: Whole Life - We're doing it. What to look for?

Post by SwampDonkey » Wed Jul 11, 2018 7:36 pm

Double post
Last edited by SwampDonkey on Wed Jul 11, 2018 7:42 pm, edited 1 time in total.

SwampDonkey
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Re: Whole Life - We're doing it. What to look for?

Post by SwampDonkey » Wed Jul 11, 2018 7:41 pm

afan wrote:
Wed Jul 11, 2018 3:24 pm
For some reason it appears everyone else can see the illustration. For me all I see is "image" which does not display anything.

So I am going by what others are saying they saw.

They are saying that the premium is $920/year, guaranteed. They are saying that, from year one, the cash value is equal to or greater than the sum of premiums. That is, the first year of insurance is free and subsequent years have premiums so low that they are funded by the insurance company's return on the premiums paid.

They are saying that these cash value figures people are quoting are also guaranteed.

They are implying there are no surrender charges.

Now someone has said the policy also includes 60 months of some amount of LTC insurance, how much not specified. Added to the essentially free life insurance this would make for the best deal ever.

Usually the full illustration on an insurance policy goes on for many pages and includes things like whether the premiums are enough to guarantee continuation of the policy.

Since I cannot see the figures my comments are based on the above.

If what I have gathered is true, then this is basically free life and LTC insurance, with an excellent guaranteed rate of return on the cash value. Even with a seven or ten year surrender period it would be a great deal. If SO's condition could lead to a need for LTC, all the better.

But the deal sounds too good to be true. Most insurers have had to increase premiums for LTC. How can a company stay in business giving it away for free?

Maybe I missed something in the actual illustration that would explain, but I don't get the distinction between "no need for insurance" and "no mathematical need for insurance". These are numbers. One describes the relationships among them with math. How else could this be done?
afan, the original quote didn’t use the word “need,” it used “reason”.
If the word were “need,” I agree, the addition of “mathematical” would not make sense.

SwampDonkey
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Re: Whole Life - We're doing it. What to look for?

Post by SwampDonkey » Wed Jul 11, 2018 7:55 pm

JBTX wrote:
Wed Jul 11, 2018 9:04 am
574 seems kind of high.
Based upon best case scenario (Table 8), 574 seems right (says Google).

Thanks for your thoughts.

mhalley
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Re: Whole Life - We're doing it. What to look for?

Post by mhalley » Wed Jul 11, 2018 9:27 pm

Perhaps tax on the poor should be rephrased as tax on the financially gullable. I remember as a child the insurance man coming to the house once a month to collect money from my mom, included in this was whole life insurance for us kids. Once I grew up and realized what a bad deal it was, I had my mom let me cash the policy out and I gave her the cash. Don't get me wrong, we were church mice poor, but my parents had zero financial sense.

calmaniac
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Re: Whole Life - We're doing it. What to look for?

Post by calmaniac » Thu Jul 12, 2018 6:32 am

Quotes below selectively clipped and bolded for emphasis:
SwampDonkey wrote:
Tue Jul 10, 2018 12:43 am
The "issue": We are currently in a situation in which close family (who are financially secure) had their world turned upside down by an unexpected loss. If a fictitious disinterested party reviewed their finances, they would (probably) also agree the widow has nothing to worry about (solid middle-class). However, as we are learning, unexpected losses lead to worries that aren't necessarily justified. A small insurance policy, while not substantial enough to save a widow from financial ruin, would still be significant enough to either eliminate or greatly reduce any unnecessary (and irrational) fears of financial health.
SwampDonkey wrote:
Tue Jul 10, 2018 12:51 am
Is the concern that the $250K you have on your spouse is not enough?
A. No. $250k is sufficient. My response directly above this one better describes why we are purchasing a WL policy.

Is the concern that the term only goes for 25 more years, and there will be no payout for a death after that point?
A. Yes. Kind of...

Is the concern that the Term may not pay our immediately but the whole life would?
A. No. Not at all. As far as I know, term and WL's payout timelines are the same.
SwampDonkey, I wonder if the number of questions you are getting is because you are seeking WL insurance to mitigate worry and/or address the unknowns of 25+ years into the future, rather than a specific financial issue. You have had a close family member die and seen your SO diagnosed with a medical condition that may require future "serious surgery". Understandably you are concerned about the potential for death and infirmity. However, unless there are specific financial issues that you foresee that WL is uniquely poised to address, I don't see the sense in getting it.

WL insurance is not going to alleviate the pain of a loved one's death or magically reduce worry. You have indicated you already have sufficient term insurance, so you either need to more clearly define what gap WL would address or think more about non-financial ways to address the worry. Whatever you do, don't rush into this.

Thank you for sharing with us. My best wishes for a wonderful and plentiful future.

bearwithbear
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Re: Whole Life - We're doing it. What to look for?

Post by bearwithbear » Thu Jul 12, 2018 7:37 am

In reading this thread it feels like the Whole Life policy is part of the "what helps me sleep at night" answer that is different each of us.
If that is correct, then do it. Death in the immediate family is hard. Always. And a tough health diagnosis for a loved one is too. Always.
Do what helps.

Bear

inbox788
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Re: Whole Life - We're doing it. What to look for?

Post by inbox788 » Thu Jul 12, 2018 5:08 pm

bearwithbear wrote:
Thu Jul 12, 2018 7:37 am
In reading this thread it feels like the Whole Life policy is part of the "what helps me sleep at night" answer that is different each of us.
If that is correct, then do it. Death in the immediate family is hard. Always. And a tough health diagnosis for a loved one is too. Always.
Do what helps.
Sometimes, doing what helps doesn't coincide with "helps me sleep at night". There are "feel good" actions that don't really help much or at all (i.e. expensive single flight insurance). OP already has 25 years left of term life insurance. Getting more insurance at a discount (to risk) for these 25 years might make sense if needed. As good a WL policy this appears to be relative to 99% of the horrible ones, you have to ask yourself, do you really need to be thinking about adding insurance needs 26+ years from now? Especially if a health condition puts worse odds of reaching that decision point? With term or whole life, if something happens in the next 25 years, policy pays full face value (+ non guaranteed for WL), but you've sunken almost $900/year more into the policy that you're not getting back that you would have been saving up and investing. In 25 years, I would rather have the $30-40k in cash and keep investing it in hopes of living long enough to exceed the $100k face value than giving that up for the guarantee of up to 60-70k more (difference and diminishing).

I thought there was a calculator that generated these types of comparisons (WL vs BTIR), but can't find it now. This example is overwhelmingly favoring BTIR. https://gfmasset.com/2017/11/whole-life ... lculation/
In OPs situation, it's likely the yellow line (BTIR) is below the red line (WL) for a longer period of time starting at year 25 for maybe around 10 years before it crosses over and there is market risk. Still, the key factor to look at is the lowest point of the yellow line. If a minimum of 30k in the worst case at the worst timing is acceptable, and you consider the 2 likely outcomes of an illness that isn't cured and leads to an early death vs a cure that allows one to live to life expectancy, those choosing the yellow graphs are likely to fare better on average. For these reasons, I wouldn't trade-up the 30 year term for the WL.

bearwithbear
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Re: Whole Life - We're doing it. What to look for?

Post by bearwithbear » Thu Jul 12, 2018 7:21 pm

this just shows how much Whole Life is a hot button.
SwampDonkey - do what helps you sleep at night.

SwampDonkey
Posts: 152
Joined: Sun Dec 26, 2010 8:49 pm

Re: Whole Life - We're doing it. What to look for?

Post by SwampDonkey » Thu Jul 12, 2018 8:56 pm

calmaniac wrote:
Thu Jul 12, 2018 6:32 am
SwampDonkey, I wonder if the number of questions you are getting is because you are seeking WL insurance to mitigate worry and/or address the unknowns of 25+ years into the future, rather than a specific financial issue. You have had a close family member die and seen your SO diagnosed with a medical condition that may require future "serious surgery". Understandably you are concerned about the potential for death and infirmity. However, unless there are specific financial issues that you foresee that WL is uniquely poised to address, I don't see the sense in getting it.

WL insurance is not going to alleviate the pain of a loved one's death or magically reduce worry. You have indicated you already have sufficient term insurance, so you either need to more clearly define what gap WL would address or think more about non-financial ways to address the worry. Whatever you do, don't rush into this.

Thank you for sharing with us. My best wishes for a wonderful and plentiful future.
Thank you for your thoughts - they are well-measured and seem incredibly sincere.

SwampDonkey
Posts: 152
Joined: Sun Dec 26, 2010 8:49 pm

Re: Whole Life - We're doing it. What to look for?

Post by SwampDonkey » Thu Jul 12, 2018 9:03 pm

bearwithbear wrote:
Thu Jul 12, 2018 7:37 am
In reading this thread it feels like the Whole Life policy is part of the "what helps me sleep at night" answer that is different each of us.
If that is correct, then do it. Death in the immediate family is hard. Always. And a tough health diagnosis for a loved one is too. Always.
Do what helps.
"In reading this thread it feels like the Whole Life policy is part of the "what helps me sleep at night" answer that is different each of us."
Exactly. This is a great response to the multitude of "there is no mathematical need for the WL policy" responses that have peppered this discussion. To be clear, I don't disagree with the financial assessments being presented by the various posters (for the most part).

Thank you for your thoughts.

SwampDonkey
Posts: 152
Joined: Sun Dec 26, 2010 8:49 pm

Re: Whole Life - We're doing it. What to look for?

Post by SwampDonkey » Thu Jul 12, 2018 9:07 pm

inbox788 wrote:
Thu Jul 12, 2018 5:08 pm
bearwithbear wrote:
Thu Jul 12, 2018 7:37 am
In reading this thread it feels like the Whole Life policy is part of the "what helps me sleep at night" answer that is different each of us.
If that is correct, then do it. Death in the immediate family is hard. Always. And a tough health diagnosis for a loved one is too. Always.
Do what helps.
Sometimes, doing what helps doesn't coincide with "helps me sleep at night". There are "feel good" actions that don't really help much or at all (i.e. expensive single flight insurance). OP already has 25 years left of term life insurance. Getting more insurance at a discount (to risk) for these 25 years might make sense if needed. As good a WL policy this appears to be relative to 99% of the horrible ones, you have to ask yourself, do you really need to be thinking about adding insurance needs 26+ years from now? Especially if a health condition puts worse odds of reaching that decision point? With term or whole life, if something happens in the next 25 years, policy pays full face value (+ non guaranteed for WL), but you've sunken almost $900/year more into the policy that you're not getting back that you would have been saving up and investing. In 25 years, I would rather have the $30-40k in cash and keep investing it in hopes of living long enough to exceed the $100k face value than giving that up for the guarantee of up to 60-70k more (difference and diminishing).

I thought there was a calculator that generated these types of comparisons (WL vs BTIR), but can't find it now. This example is overwhelmingly favoring BTIR. https://gfmasset.com/2017/11/whole-life ... lculation/
In OPs situation, it's likely the yellow line (BTIR) is below the red line (WL) for a longer period of time starting at year 25 for maybe around 10 years before it crosses over and there is market risk. Still, the key factor to look at is the lowest point of the yellow line. If a minimum of 30k in the worst case at the worst timing is acceptable, and you consider the 2 likely outcomes of an illness that isn't cured and leads to an early death vs a cure that allows one to live to life expectancy, those choosing the yellow graphs are likely to fare better on average. For these reasons, I wouldn't trade-up the 30 year term for the WL.
Your numbers make financial sense, there's no refuting them. Also thank you for the linked website.

SwampDonkey
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Re: Whole Life - We're doing it. What to look for?

Post by SwampDonkey » Thu Jul 12, 2018 9:15 pm

BL wrote:
Wed Jul 11, 2018 10:31 am
SwampDonkey wrote:
Wed Jul 11, 2018 1:57 am
NotWhoYouThink wrote:
Tue Jul 10, 2018 11:10 am
I assume both OP and spouse will be getting whole life policies. If it's a good idea to have guaranteed money coming in any time the spouse dies from now to forever, it's also a good idea for OP's spouse to have money coming in any time OP dies from now until forever.
100% agree. SO will be receiving a portion of my pension for life, should I pass first.
Just some thoughts on this:

Does SO also have a good pension? Otherwise, if she is only getting 55% of your pension, I would consider what her income is compared to yours as a survivor. My thought is that she will have a sudden drop in income for the rest of her life. Your 100% pension may well be adequate along with SS to maintain your standard of living even without insurance on her. But she may be required to cope with a lower standard of living based on the decreased pension, so she might have greater need for your additional insurance than you would for hers. Without knowing your circumstances, this is just a gut reaction based on likely having a similar pension plan. Actuarially, she would also have a greater life expectancy as well.

Anyway it is likely that you will have plenty of retirement money saved by that time to take care of either survivor, so the insurance is somewhat redundant anyway. Just wanted to raise this issue so you can consider the value for both of you here.

Also do you plan to take out the money before it starts decreasing its gains so it can be invested at that time for either survivor?
"But she may be required to cope with a lower standard of living based on the decreased pension, so she might have greater need for your additional insurance than you would for hers. Without knowing your circumstances, this is just a gut reaction based on likely having a similar pension plan."
We're relatively thrifty people and our monthly budget in retirement is expected to be around $5k. 55% of my pension and SO's SS should achieve this. And this doesn't include dipping into any savings. Thank you for your thoughts though as it has made me question whether or not she would still be able to live a comfortable lifestyle.

"Also do you plan to take out the money before it starts decreasing its gains so it can be invested at that time for either survivor?"
To be honest, because I had never considered WL until a few days ago, I haven't done enough research to fully understand what the most efficient means of "taking money out" would be. Do you have an example of an efficient method?
Last edited by SwampDonkey on Thu Jul 12, 2018 9:21 pm, edited 1 time in total.

SwampDonkey
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Re: Whole Life - We're doing it. What to look for?

Post by SwampDonkey » Thu Jul 12, 2018 9:20 pm

djpeteski wrote:
Wed Jul 11, 2018 6:58 am
Whole life gets a bad wrap because of the fees and poor investment returns. However, much like yourselves, we just advised a couple that should keep the whole life on the husband. He is basically uninsurable. In their case it is better to have whole than nothing.

As others have said, I would check the term rates and see what they say.

However, here is another thought: See if you can move your whole life to a universal life. Universal life, is a whole life policy but you can vary the amount that goes towards investments. By minimizing the amount that goes towards investments, you then make it behave much like a term product, although it is more like an annual renewable term (ART). Under the hood a whole life policy is an ART, so no real change there.

By doing a universal life with minimal payments you remove much of the rightful complaints about whole life. It is not as good as a level term policy, but a lot better than whole life.

As you first expressed, the goal would be to do this switch without a medical exam.
Asked about UL vice WL and they said WL is the only product offered for the purposes of converting term. Thank you for the idea, though; it seems like it would have saved me some money while still supplying lifelong insurance.

SwampDonkey
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Re: Whole Life - We're doing it. What to look for?

Post by SwampDonkey » Thu Jul 12, 2018 9:33 pm

2cents2 wrote:
Wed Jul 11, 2018 10:26 am
I am confused about what you are proposing.

Does your wife currently have a 250k level term life insurance policy that is in force for another 25 years that would bring her up to age 60?

You want to convert this policy to less than half the current policy value and pay more for it? (And, you don’t care about the cash value of the policy. )

It seems that you are willing to trade a much smaller benefit in exchange for covering age 60 and beyond. This is where I am getting confused. In 25 years, the 100k policy will seem trivial compared to your other assets.

It seems like you are trading away security in the years when you most need it in exchange for something that you could possibly create for yourself. You could beef up your EF for after age 60 when the policy expires. You will have retirement assets. You will have a pension. And, social security will be right around the corner.

Have you calculated how much you would have over a 25 to 75 year time horizon if you invested the difference in premiums?

I am sincerely curious about the need you are trying to cover. Maybe I have a blind spot which would be nice to know about since DH and I are at a point where we are phasing out our life insurance.
"Does your wife currently have a 250k level term life insurance policy that is in force for another 25 years that would bring her up to age 60?"
Yes.

"You want to convert this policy to less than half the current policy value and pay more for it? "
No. We will convert $100k of the term to WL. This means we will still have $150k of the term for another 25 years. End state: $250k of combined term/WL insurance for the next 25 years; $100k in WL that will continue after 25 years.

"Have you calculated how much you would have over a 25 to 75 year time horizon if you invested the difference in premiums?"
No, but I'm certain any model using average market returns will show BTIR as having superior returns (others have calculated this to be several percentage points). For such a small investment in WL (~$19k), and the peace of mind it will bring us, we are okay with this.

"I am sincerely curious about the need you are trying to cover."
There is no mathematical "need" per se. However, our recent experience has shown us how much value could be provided by even having such a small policy in force to reduce any immediate "oh no, what do I do?" types of reactions. Granted, I suspect most BHs may not have these reactions if they've been practicing what they've preaching.

Miriam2
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Re: Whole Life - We're doing it. What to look for?

Post by Miriam2 » Thu Jul 12, 2018 10:15 pm

afan wrote: For some reason it appears everyone else can see the illustration. For me all I see is "image" which does not display anything.
Afan - log into Bogleheads.org from a different browser. That often solves the problem with a little "image" square without the actual image.

Miriam2
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Re: Whole Life - We're doing it. What to look for?

Post by Miriam2 » Thu Jul 12, 2018 10:25 pm

SwampDonkey wrote: . . . due to my SO's medical condition, which limits a future term policy, and our desire to have a guaranteed (and stress-free/immediate) payout, we are going to purchase a WL policy.

Thoughts?
SwampDonkey - why don't you send a copy of your current term policy and this prospective whole life insurance information to an independent life insurance evaluator to review and make recommendations to you?

We have an old permanent life insurance policy, a variable universal life policy (VUL), that we had evaluated by James Hunt at www.evaluatelifeinsurance.org several years ago. He was very helpful, spent over an hour with us on the phone explaining the details of the policy page by page, the pros and cons, how to decipher the insurance "code," made suggestions, then followed up with more thoughts by email, then a written evaluation. Well worth every penny ($100 or so). He knows a lot about life insurance and can explain it in as much or little detail as you prefer.

Although VULs are often lousy policies, after examining our policy, he concluded it was a pretty good old policy, actually called it "valuable" or "golden," for what we needed.

Another life insurance policy evaluator is Glenn Daily at http://www.glenndaily.com. We never used him, but he writes many articles about life insurance and provides a fee-only policy evaluation service.
Question:. . . Are PUAs a good or bad idea?
My understanding is that PUAs are good in the sense they "cover" or "help make up for" the loss of the value of the life insurance benefit due to inflation. You can buy a $100,000 WL policy now, but when it pays out in the bitter end, it will only be worth its face value less inflation, who knows, perhaps $80,000. By purchasing PUAs, you increase the death benefit, sort of compensating for inflation.

letsgobobby
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Re: Whole Life - We're doing it. What to look for?

Post by letsgobobby » Fri Jul 13, 2018 12:55 pm

If I understand, your motivation for getting WL is the attraction of a permanent death benefit, ie, one that exists even after your current term policy expires. Is that correct? If so, that is a perfectly valid reason to get WL.

Many will decide they don't need or want that, for example, they plan to be FI by the time the term policy lapses and part of their FI is having liquid assets such as a cash position, or fund or stock investments which can be quickly liquidated and then transferred to your bank account. This process should take no more than a few days

In contrast, in my recent experience receiving a whole life payout took closer to a month. The insurance company will need to verify the identity of the beneficiary, the identity of the executor and/or trustee, the death of the insured, and possibly the terms of the will and/or trust. I provided utility bills, driver's license, death certificate, will, trust, bank statements. Then they needed to review these documents. This is not an immediate process.

In short, I would not look to an insurance policy to provide immediate cash.

SwampDonkey
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Re: Whole Life - We're doing it. What to look for?

Post by SwampDonkey » Fri Jul 13, 2018 2:57 pm

Miriam2 wrote:
Thu Jul 12, 2018 10:25 pm
Another life insurance policy evaluator is Glenn Daily at http://www.glenndaily.com. We never used him, but he writes many articles about life insurance and provides a fee-only policy evaluation service.
Thanks Miriam2, I wasn't aware of these services; I just sent Glenn a note. If he's willing to review at a reasonable rate, I'll update this thread with his advisement.

Update: Glenn was quick in his response; he offered a 1.5 hr review for a total cost of $495. We passed on his offer considering his review was going to be >5% of the total cost of the policy.
Last edited by SwampDonkey on Fri Jul 13, 2018 3:42 pm, edited 1 time in total.

SwampDonkey
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Re: Whole Life - We're doing it. What to look for?

Post by SwampDonkey » Fri Jul 13, 2018 3:00 pm

letsgobobby wrote:
Fri Jul 13, 2018 12:55 pm
In contrast, in my recent experience receiving a whole life payout took closer to a month.
Thanks for sharing your experience.

SuzBanyan
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Re: Whole Life - We're doing it. What to look for?

Post by SuzBanyan » Fri Jul 13, 2018 3:14 pm

OP: Maybe I missed it, but are you also planning to convert Term to WL on you life for the benefit of your SO? The “peace of mind following the death of a loved one” argument seems to apply more to the least financially savvy spouse. You appear to be more financially savvy and thus, getting WL on your life might make more sense than getting WL on your SO’s life.

SwampDonkey
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Re: Whole Life - We're doing it. What to look for?

Post by SwampDonkey » Fri Jul 13, 2018 3:54 pm

SuzBanyan wrote:
Fri Jul 13, 2018 3:14 pm
OP: Maybe I missed it, but are you also planning to convert Term to WL on you life for the benefit of your SO? The “peace of mind following the death of a loved one” argument seems to apply more to the least financially savvy spouse. You appear to be more financially savvy and thus, getting WL on your life might make more sense than getting WL on your SO’s life.
Hi Suz,
I agree with your logic and as a result of this thread (and the many off-ramps of thought it has led me down), we may pursue an additional policy (possible UL) for myself.

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