$30K Universal life insurance policy at $125/month (credit, accounts, dollars)

[ncole1]

Originally Posted by jotucker99

Opportunity cost?

You buy insurance for peace of mind, the peace of mind that if I die within the next 30 years the daughter or two that I'm raising will get a pay out of $1 million out top of my savings accumulated to assist with the finishing of raising them as well as helping them get a start in life. Once said daughters are old enough to take care of their own daily expenses, the only thing I'm worrying about is making sure I die and leave them with a nice nest egg AFTER deducting the costs for my funeral expenses. I don't need whole life insurance benefits to assist with that.

Based on your logic of "opportunity cost", when I pay for full coverage car insurance for 5 years along with paying for a side personal umbrella of $1 million additional coverage, but never have a claim within those 5 years, then I've just racked up a lot of "opportunity cost" as I could have just bought the basic required coverage to put the car on the road and "invested" the difference elsewhere.

Yes you could have, but that is a separate matter from the added risk you'd take in doing so.

Originally Posted by jotucker99

You want to talk about opportunity cost? If you do, then you need to be examining the high amount of money going into a Whole Life policy that could have went to other investments with a higher rate of return, less FEES and a lot more efficiency.

You have to compare investments at the same risk level. Whole life insurance is, risk-wise, much like an investment-grade corporate bond (maybe even a bit safer since there are legal reserve requirements in many (most? all?) cases.)

However, it has non-investment uses as well, such as keeping some liquid assets available to heirs without having to wait for an estate to pass through probate.

Originally Posted by jotucker99

You are making the argument that people are irresponsible and stupid, thus, they should sign up for an inefficient financial product (Whole or Universal Life) because said inefficient product is going to help them become more responsible and financial savvy, which is an oxymoron, because a responsible and financial savvy person wouldn't SIGN UP for an inefficient financial product.

If your justification for signing up for this inefficient product is that, "people are too stupid and irresponsible to save," that is a very weak argument because stupid and irresponsible people would NOT stay current on financial matters in general, not just "saving" but also paying bills on time. They would be behind in premiums in no time.

Again, consider my homework analogy. That's like saying if a kid is too irresponsible to do their homework to get into college, then they are too irresponsible to do the homework to avoid being grounded by their parents. It just isn't so. It takes considerably more discipline to do something for a long-term benefit than to do it for a short-term benefit.

[jotucker99]

Originally Posted by mathjak107

the rider can cost as much as 50% extra on a term policy .

A 37-year-old nonsmoking male can get $250,000 of term coverage through AIG for $562 per year with a standard rating. If a return-of-premium rider is added on, the cost jumps to $880 per year, an increase of more than $300 per year. Without the rider, the policy owner will pay a total of $16,860 over the life of the policy. The additional rider will thus bring the total cost of the term policy to $26,400.

so yep you have the opportunity cost of investing that money on your own . maybe you will do worse ,maybe you will do better but you will never know .

of course you get only your premiums back . that can be pale compared to what you don't get back which can be 30 years of interest .

very different product then whole life where your death benefit is premiums plus interest less the expenses .

- Number one, the 37 year old should shop around for more competitive quotes. He should be able to get a solid $250k policy for about $25 a month which is $300 a year. The ROP rider also depends on the company, in general quotes I've seen are about 25% in additional costs, which would take this policy to $375 a year.

- Number two, when you buy INSURANCE you buy PEACE OF MIND, to make the argument of "lost of opportunity cost" for buying insurance makes absolutely no sense because insurance is an expense, just like your utility bills are, just like your housing costs are, you don't link an "expense" to "opportunity cost", that makes absolutely no sense.

- Number three, opportunity cost is only judged when you are comparing an investment v.s. another investment as it's based on the loss of "potential gain" between two alternatives. When insurance is used for insurance, that's counted as an EXPENSE, there's no opportunity cost calculation with that as expenses are considered liabilities rather than assets acquired for gain. HOWEVER, when you are trying to use insurance as an investment because quote, unquote "you are too irresponsible to save on your own" THIS is the only time opportunity cost is discussed because you are comparing an INVESTMENT product (Cash Value Life Insurance) to another INVESTMENT product (Balanced Funds, CDs, etc).

[jotucker99]

Originally Posted by ncole1

Yes you could have, but that is a separate matter from the added risk you'd take in doing so.

Right, when you buy insurance you are buying peace of mind over an unfortunate event. Term Life covers said event, when you buy ABOVE Term Life for a cash value investment proponent, you are now no longer talking about protecting against said event, you are talking about investment proponents.

Originally Posted by ncole1

You have to compare investments at the same risk level. Whole life insurance is, risk-wise, much like an investment-grade corporate bond (maybe even a bit safer since there are legal reserve requirements in many (most? all?) cases.)

However, it has non-investment uses as well, such as keeping some liquid assets available to heirs without having to wait for an estate to pass through probate.

A corporate bond? What? The fees, low returns and other provisions in the cash value life policy make it NOTHING like a bond.

And in terms of estate planning, there are a number of other things a person can do for that other than using whole life insurance for goodness sakes.

Originally Posted by ncole1

Again, consider my homework analogy. That's like saying if a kid is too irresponsible to do their homework to get into college, then they are too irresponsible to do the homework to avoid being grounded by their parents. It just isn't so. It takes considerably more discipline to do something for a long-term benefit than to do it for a short-term benefit.

Listen, if a GROWN ADULT lacks discipline in financial matters it will not just stop at saving/investing, they will also have issues with budgeting and paying expenses on time as well. The Insurance company isn't going to baby sit them to pay their premiums, after they miss some due dates they are going to be in serious trouble.

[mathjak107]

Originally Posted by jotucker99

- Number one, the 37 year old should shop around for more competitive quotes. He should be able to get a solid $250k policy for about $25 a month which is $300 a year. The ROP rider also depends on the company, in general quotes I've seen are about 25% in additional costs, which would take this policy to $375 a year.

- Number two, when you buy INSURANCE you buy PEACE OF MIND, to make the argument of "lost of opportunity cost" for buying insurance makes absolutely no sense because insurance is an expense, just like your utility bills are, just like your housing costs are, you don't link an "expense" to "opportunity cost", that makes absolutely no sense.

- Number three, opportunity cost is only judged when you are comparing an investment v.s. another investment as it's based on the loss of "potential gain" between two alternatives. When insurance is used for insurance, that's counted as an EXPENSE, there's no opportunity cost calculation with that as expenses are considered liabilities rather than assets acquired for gain. HOWEVER, when you are trying to use insurance as an investment because quote, unquote "you are too irresponsible to save on your own" THIS is the only time opportunity cost is discussed because you are comparing an INVESTMENT product (Cash Value Life Insurance) to another INVESTMENT product (Balanced Funds, CDs, etc).

it still is a very different product then whole life and the payout is different regardless of rates . like i said this is only getting back your premiums , whole life can be getting back up to 80 years of interest for someone starting in their 20's plus their premiums less expenses of course .
an endowed policy has the cash value = to the death benefit . that means accumulated interest ,dividends and premiums less fees go to you or heirs .

the two products are very different .

[jotucker99]

Originally Posted by mathjak107

it still is a very different product then whole life and the payout is different regardless of rates . like i said this is only getting back your premiums , whole life can be getting back up to 80 years of interest for someone starting in their 20's plus your premiums less expenses of course .

Okay, and that said guy who bought the policy in his 20's, let's say 22, and dies at 92 could have put the difference into a Balanced Fund over 70 years.

And again, I have to stress this, insurance is an expense and you can't use opportunity cost analysis for an expense category. When you add a ROP rider on an insurance product, then you are technically getting FREE PEACE OF MIND. I wish I could add an ROP rider on my other insurance policies such as home, auto, health, etc.!

When you buy insurance you are buying peace of mind, so you GOT what you paid for with the policy coverage.

[mathjak107]

like you said , people who buy life insurance buy it because they want guarantees . investing is investing and insurance is insurance . ideally you may want both .

in the end the integrated strategy of spia , your own investing and permanent life gives a retiree a very comprehensive structure that :

has produced higher , safe withdrawal rates 100% of the time vs buy term and invest the rest and 67% of the time left more for heirs assuming average life expectancy .

a couple either had to die younger or market outcomes had to be particularly good for term and invest the rest to beat the integrated strategy.

the big advantage the integrated strategy has is leveraged tax free money to the spouse , and way reduced sequence risks since insurance and spia's have zero sequence risk .

less powder has to be kept dry and unspent to allow for poor sequences when spending down a portfolio in retirement giving the integrated strategy a big benefit .

buy term and invest had a bigger balance by retirement 100% of the time but after that point it lost the edge more often then not because of sequence risk , market risk and the tax freeness of insurance money to the spouse with no rmd's .

the more conservative the portfolio the more the integrated strategy improves things .

[jotucker99]

But MathJak, don't you rail against CDs for the risks in relation to locked in rates, how would the annuity be different in that regard?

In addition, with all of the hidden fees, the agent commissions, the fact that they cap your returns, and if you run into an emergency you are going to be paying about 20% to get your money out early, how is this a good tool to use?

Nobody even understands their annuity contract, it's patted with all types of technical lingo that nobody understands but the insurance company and the insurance agent who is going to make a significant commission off of selling you this.

I'm starting to wonder if you guys are life insurance agents lol? Because you are pushing hard for Whole Life insurance and Annuities, two products which make a life insurance agent a lot of money but for the vast majority of people using said products, they could have chosen much more efficient alternatives.

A life insurance agent would hate a Tucker99, because he doesn't make hardly anything with what I recommend because what I'm recommending is actually GOOD for the client.

[mathjak107]

because insurance products represent only a small portion of the portfolio package . your own investing is the bulk of it ,.

you are creating the proverbial 3 legged stool when you have no pension . social security , your own investing and the pension like income from insurance products make up that stool so you are not totally dependent on markets and rates . you have a 3rd counter party risk sharing .


wrong again about the spia , if you understood about spia's there is nothing to know . the draw rate offered is your deal like a cd .

there are no fees ,commissions or anything else beyond the rate offered anymore then a cd has . that is the entire deal , the draw rate you sign on for is all there is to know .

you are parroting things about other annuity products and spia's have nothing to do with variable annuity's or indexed annuity's all of which are very complex and expensive products usually . .

my advice to you is if you want to keep voicing opinions about things you really need to get an education in the area's you want to argue .. you are parroting mis-informed other advice and don't understand a lot of concepts , study's and reasons things are done or calculated the way they are .

you really have a lot to learn in these areas

[ncole1]

Originally Posted by jotucker99

Right, when you buy insurance you are buying peace of mind over an unfortunate event. Term Life covers said event, when you buy ABOVE Term Life for a cash value investment proponent, you are now no longer talking about protecting against said event, you are talking about investment proponents.

Or protecting against the same event for a longer period of time (life vs. just the term).

Originally Posted by jotucker99

A corporate bond? What? The fees, low returns and other provisions in the cash value life policy make it NOTHING like a bond.

I said risk characteristics, not return characteristics. You compare returns for investments with the same risk level.

It's similar to why you don't compare the return of bonds to stocks and declare stocks unconditionally superior to bonds over all holding periods. They don't have the same volatility or risk profile. Only over long periods (20+ years) is the volatility of stocks low enough to be truly negligible for comparison to 100% bonds.

Of course if you truly hold a whole life policy for the whole life of someone who bought it when they were 30 and lived to 78, then stock mutual funds are a pretty low risk bet.

Originally Posted by jotucker99

And in terms of estate planning, there are a number of other things a person can do for that other than using whole life insurance for goodness sakes.

Depends on the objective. Whole life insurance hedges against dying the day after a term policy expires. Let's say you buy a term policy for 20 years at age 30, and then die at age 50 and 1 day. Beneficiary gets nothing. With whole life they get the full amount. Even if you had invested the difference in premiums, your investment fund would not grow large enough in 20 years to make up for it.

Even after 30 years, you'd need an 8% return post tax to do it. There are significant odds of falling short. Even with 100% stocks the 30-year CAGR has been as low as 7% pretax. The post tax return is further reduced.

With average market performance the buy term and invest comes slightly ahead after 30 years.

Originally Posted by jotucker99

Listen, if a GROWN ADULT lacks discipline in financial matters it will not just stop at saving/investing, they will also have issues with budgeting and paying expenses on time as well. The Insurance company isn't going to baby sit them to pay their premiums, after they miss some due dates they are going to be in serious trouble.

They'll get overdue notices in the mail. Again, the threat of a short term loss of policy is much more immediate than the prospect of falling short on long term investing.

There are plenty of people who pay their bills on time and don't fall behind, yet go through life basically spending what they make, or close to it, and not having much nest egg accumulated. I know people like this myself. It may seem hard for YOU to believe, but lots of them are out there.

[jotucker99]

Originally Posted by mathjak107

because insurance products represent only a small portion of the portfolio package . your own investing is the bulk of it ,.

you are creating the proverbial 3 legged stool when you have no pension . social security , your own investing and the pension like income from insurance products make up that stool so you are not totally dependent on markets and rates . you have a 3rd counter party risk sharing .

That "pension like" income from the insurance products could come from other fixed income conservative investments that will provide a significantly HIGHER rate of return is my point. Plus understand that for some of the things you are talking about (in terms of how the SPIA could work) you are going to need additional riders and amendments added. If you don't already know about such amendments, your life insurance agent isn't going to tell you about them.

Originally Posted by mathjak107

wrong again about the spia , if you understood about spia's there is nothing to know . the draw rate offered is your deal like a cd .

there are no fees ,commissions or anything else beyond the rate offered anymore then a cd has . that is the entire deal , the draw rate you sign on for is all there is to know .

Why wouldn't I just stick with my CDs then? With my CDs:

- I get FDIC insurance up to $250,000. With annunities the only protection you have are the state insurance associations but they usually only protect up to $100,000 and I think in some states they protect much less.

- I can choose to setup the CD and have the interest paid out to me monthly instead of rolled back into the CD.

Also with these SPIAs, what is the usual required age to begin receiving the "lifetime" payments? Don't you usually have to be a particular age, usually in the 45 - 50 year old range (at least) if I'm not mistaken?

Originally Posted by mathjak107

my advice to you is if you want to keep voicing opinions about things you really need to get an education in the area's you want to argue .. you are parroting mis-informed other advice and don't understand a lot of concepts , study's and reasons things are done or calculated the way they are .

you really have a lot to learn in these areas

Nope, I know exactly what I'm talking about. I've been studying/looking at life insurance products for years. If they have recently updated the fee structure that is great though.