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Whole Life Insurance Cont'd

Universal Life Insurance: The right way…

In order for UL to serve you as a “bank” it must be funded properly. That means that you have to put enough money into the policy to guarantee that it will both stay in force for your lifetime – or at least until age 100 – and generate enough cash value – uninterrupted and guaranteed year after year - to allow you to borrow and repay yourself time after time throughout your life.

Many UL policies are designed for some purpose other than cash value accumulation and are not, therefore, suited to the “banking” application.

The most common form of UL proposed by Money for Life advisors is called Indexed UL. This form of contract promises better cash value accumulations than traditional UL. The most significant risk with this type of policy is not with the policy itself. The risk is that the values illustrated during the sales process are based on unrealistic assumptions - sometimes as high as 8 percent compounded over many years.Although the “market” might perform at that level, it is not necessarily a realistic assumption. The “market” doesn’t pay your fees or commissions, isn’t faced with the life challenges that might force you to withdraw money when there’s a slump and you can least afford it, is a snapshot of every investment represented in an index at one given moment not a true moving picture of what’s really happening, doesn’t get penalized for buying “high” and selling “low”,and - finally - isn’t dealing with your money and your life.

Any ongoing assumption of returns over 5 or 6 percent is aggressive and should be viewed cautiously.

I am not implying that a higher percentage of return is not possible over the longer term. It’s just good planning practice to operate on conservative assumptions of long term returns and adjust your plans upward if the results are better than the plan.

Whole Life Insurance…

Straight whole life insurance guarantees that the premium and death benefit remain the same throughout the life of the insured person. It also guarantees that your cash value accumulations will increase every year. Cash value increases in a whole life policy are tax free when properly managed.

Participating Whole Life Insurance…

In addition to the elements noted above, an insurance company that issues a participating whole life insurance policy is committed by contract to pay policyholders at least some of the earnings in excess of those guarantees. These excess earning are paid in the form of dividends. Although dividends are not guaranteed, most companies that pay them have been able to consistently deliver on the promise to pay dividends for 150 years and longer. Dividends add significant cash value to Whole Life policies over the years. Dividends are considered a return of unused premium and are, therefore, tax free.

Current Assumption Whole Life Insurance…

Current Assumption Whole Life Insurance is also called Interest Sensitive Whole Life Insurance (ISWL). Unlike Interest Sensitive Universal Life contracts, ISWL is built on a whole life insurance chassis with a guaranteed level premium and level death benefit. An ISWL contract (policy) builds a cash value that is guaranteed to grow every year based on a stated guaranteed minimum interest rate and on the premiums you pay. In addition, however, an ISWL contract may credit a higher interest rate to the accumulated cash value on your policy if the investment portfolio backing the insurers ISWL policies performs at a level higher than the one guaranteed in the contract.

Summary…

This is just a thumbnail sketch of a few major highlights of the two forms of permanent life insurance that dominate the discussions of the “banking” capabilities of modern life insurance policies. We know there are omissions and some general statements that can be taken out of context. My apologies. If you have a question or comment we will gladly address it.

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