re: Wife pregnant for first time...

quote:

---

Definitely possible. However, I always ask, just to play devil's advocate, what return difference would be worth zero capital exposure. I'm always curious, but what ROR on a WL policy would make it worth it to those who are against it (not saying this is you Chin, just in general).

---

More in theory here and there is a ton of math involved. Been awhile since I took the financial math actuarial exam

quote:

---

what return difference would be worth zero capital exposure.

---

This gets into a risk aversion utility function. Different for each person. If I gave you a 50-50 shot at winning megamillions or gave you 80:20 shot at winning 1 million, which would you choose? Depending on your risk aversion you choose differently. Hard to say what is the right amount of zero capital exposure. Sucks more that you personally have a hard time judging that for yourself (as in everyone). What people think is in their best interest and what is in their best interests aren't always in sync.


Essentially though, ROP investment is a depreciating asset. Inflation eats at it every year and the longer you live, the less valuable it becomes. What is interesting though, is that it has no initial value. It would be like putting money in a stock that you know drops every year by 2-3% minimum considering current FED target rates. You still have an asset you can sell off, you just know it loses money every year. For Whole Life, it gets interesting based on how you look at it. I guess technically you can look at it as an inflation adjuster for the benefit paid out as it increases the benefit every year. Pretty sure you can get an inflation rider though in most states

quote:

---

Yep, which is why comparing straight ROR's, even though the best have been comparable, isn't a great way to compare the two options.

---

Insurance is necessary for everyone in my opinion. Protecting assets/cashflows is just smart and insurance companies make money by pooling risks not necessarily at your expense. Since pooling risk is not available to an individual, insurance is a cheap way to get valuable protection. I can't see a scenario that is not a Bill Gates type individual, where the ROR exceeds the utility of decreased risk

Once you get into the riders though, that is where it gets interesting. A number of riders are very beneficial to people but not to others. With things like ROP, you are paying for a premium for that Zero Capital exposure. Good for some not for others.