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Started By
Message
re: Cash value life insurance
Posted on 10/26/22 at 11:24 pm to LSURoss
Posted on 10/26/22 at 11:24 pm to LSURoss
quote:
$73.53
Thanks.
So he pays $73.53 for 20 more years and gets a refund check for $26,470.08.
Ignoring the life insurance component, that is a guaranteed annual rate of return at 3.79%.
Assuming a monthly life insurance payment at $28/month, that leaves $45.53 as the "invest the rest" argument. The $26,470.08 refund would be a guaranteed rate of return at 7.829% over the next 20 years.
So there is your guaranteed basis to compare your opportunity costs.
If you die (which we hope doesn't happen), your beneficiaries get $250,000.
If you survive the policy, you are getting roughly a 7% guaranteed rate of return on your monthly cash flow to the insurance company.
Can you do better? Maybe.
But this is guaranteed so long as you keep the monthly payments. That is a tough number to beat with a guaranteed rate of return.
3
Posted on 10/27/22 at 7:22 am to meansonny
His annual rate is 0% since policy inception, however, which proves that return of premium policies are not good policies.
Which is simply the point I was making.
Which is simply the point I was making.
Posted on 10/27/22 at 9:02 am to meansonny
quote:
meansonny
You’re wrong on all of this.
This State Farm policy is not a smart choice. Surrender the policy, buy level term, and invest the rest. Don’t believe the sales pitch.
The big winner with the State Farm policy is the agent.
Posted on 10/28/22 at 5:50 am to meansonny
quote:
So he pays $73.53 for 20 more years and gets a refund check for $26,470.08. Ignoring the life insurance component, that is a guaranteed annual rate of return at 3.79%. Assuming a monthly life insurance payment at $28/month, that leaves $45.53 as the "invest the rest" argument. The $26,470.08 refund would be a guaranteed rate of return at 7.829% over the next 20 years.
Holy.
fricking.
shite.
Posted on 10/28/22 at 5:58 am to Grinder
quote:
You’re wrong on all of this.
He’ll never see it that way.
quote:
This State Farm policy is not a smart choice. Surrender the policy, buy level term, and invest the rest. Don’t believe the sales pitch.
This.
quote:
The big winner with the State Farm policy is the agent.
This again.
He sells mostly Protective, which is a great company, highly rated, and quite cheap many times. Kudos to him for being contracted with them but holy smokes, he’s borderline mentally challenged given the things he has said in this thread. He is calling me out for giving truthful, honest, and simple advice for those who may not know much about how life insurance works yet he can’t even read a State Farm life insurance statement. I’d love for him to be my direct competition
Posted on 10/28/22 at 6:07 am to meansonny
quote:
think it is hilarious that you shite on a return of premium policy but promote whole life policies.
Hold up.
I have said repeatedly here and to every customer that whole life is a joke for 99% of the population. Don’t fricking pretend I’m advocating for whole life. It’s a terrible product for almost everyone unless you are in a few very select situations. If you, as an agent, can’t understand or comprehend that then I’m not surprised given the rest of your posts.
Posted on 10/28/22 at 7:52 am to BamaCoaster
quote:
His annual rate is 0% since policy inception
No. You are ignoring the entire point of the life insurance.
Subtract the cost of the life insurance from his payment (gumbo estimated about $28 today. I don't know what it was at inception.) Then you can calculate a return of his premium payments off the difference.
quote:
which proves that return of premium policies are not good policies.
They aren't good policies because the benefits are 25 to 30 years down the road.
If someone claims that their goal is to get $250,000 life insurance and a $25,000 burial policy at one time, the return of premium does that (cash at 30 years is better than a whole life benefit)
quote:
Which is simply the point I was making.
There are arguments against policies with long term benefits. As I said, they are like a marriage. If you divorce from the policy, you just paid triple for a life insurance policy for no reason.
Posted on 10/28/22 at 7:58 am to Grinder
quote:
You’re wrong on all of this.
This State Farm policy is not a smart choice. Surrender the policy, buy level term, and invest the rest. Don’t believe the sales pitch.
My math is good.
The only part I left out is opportunity cost with the current cash value. There is opportunity to cancel the policy and do something with the current cash.
quote:
The big winner with the State Farm policy is the agent.
State farm wins when someone buys the policy and cancels early. That is their windfall (no death benefit, and the returned cash is a small percentage of the full refund on paid premiums).
Again, one is better to avoid the policy than to start it and quit midway through.
The State farm agent made a term commission on the policy. Gumbo could tell us what the term commission percentage is for State farm. I don't have a clue. But for anyone not in sales, the term commission is the smallest out of any product.
The comments implying that the agent is going on a cruise is laughable.
I wouldn't be shocked if the agent made less than $200 on the policy (captive agents at p&c shops don't make much).
Posted on 10/28/22 at 8:07 am to TDsngumbo
quote:
yet he can’t even read a State Farm life insurance statement
Point taken.
I've never been sold a State farm life insurance policy, and my phone screen isn't the best for reading contracts and statements.
You got me.
Posted on 10/28/22 at 8:18 am to meansonny
quote:
quote:His annual rate is 0% since policy inception
No. You are ignoring the entire point of the life insurance. Subtract the cost of the life insurance from his payment (gumbo estimated about $28 today. I don't know what it was at inception.) Then you can calculate a return of his premium payments off the difference.
Baw, there is zero annual return on a return of premium policy. Zero. You get back 100% of the money you paid if you keep it the entire term. The actuarial cost of insurance is far less than the cost of the policy. This is so the company (State Farm in this case) can both afford to pay out the amount of claims expected in any given year plus invest the difference between the actual cost of insuring his life and what they’re charging him ($73/month in this case). The actual cost of insuring his life is actually much, much lower.
I didn’t estimate the cost of insuring his life to be $28/month — I was telling him that at his age, assuming good to great health, he could get the same coverage for another 20 years (assuming he cancels now, takes his losses, and starts a new cheaper policy and invests the difference in cost between the two policies) then he can expect to pay anywhere from $15/month to $28/month - depending on standard to best class rates). Even with 15-28/month, the actual cost of insurance is still considerably lower than that.
State Farm’s agent contracts have changed greatly over the years so it’s hard to guess what the new contracts are paying for life policies. I’d estimate that a State Farm agent is probably making around 50%-80% commission on their life products but that’s variable depending on the type of life product (term, ROP term, while life, UL, Variable UL, etc.). The older contracts are much more lucrative than the new contracts. The commission may even be lower than that though because they have lots of bonus opportunities based upon the annual premium and other metrics (see why they push these expensive ROP and permanent products?).
Either you and I are greatly misunderstanding each other or you have no idea how life insurance actually works. I’m hoping it’s that we are just misunderstanding each other and that you explain things better to your customers.
This post was edited on 10/28/22 at 8:21 am
Posted on 10/28/22 at 8:35 am to TDsngumbo
I am discussing opportunity cost in the thread.
The opportunity to cancel the current policy and buy a $250,000 term insurance for 20 years.
The opportunity to continue the current policy and receive the $26,470.08.
It is a return of premium policy. There is no rate of return on the paid premium. This is not an investment vehicle. But to ignore the concept that this includes an actual life insurance policy which requires an actual monthly premium obligation is absurd.
There is a rate of return on the funds paid into the policy in excess of what a $250,000 life insurance. That is 100% the entire concept of "buy term and invest the rest". Making a half truth argument against that (not you, gumbo) is disingenuous.
The OP is asking for advice on what to do going forward. My math is good. My only "half truth" is ignoring the concept that he has a current cash value with opportunity elsewhere. I don't hide from that. I'm allowing you or others to fill in that gap.
Going forward (assuming a $250,000 twenty-year term is $28), his return of premium nets over 7% on the excess cash flow paid into the policy. That is the benchmark that he considers other options (for better or worse).
The opportunity to cancel the current policy and buy a $250,000 term insurance for 20 years.
The opportunity to continue the current policy and receive the $26,470.08.
It is a return of premium policy. There is no rate of return on the paid premium. This is not an investment vehicle. But to ignore the concept that this includes an actual life insurance policy which requires an actual monthly premium obligation is absurd.
There is a rate of return on the funds paid into the policy in excess of what a $250,000 life insurance. That is 100% the entire concept of "buy term and invest the rest". Making a half truth argument against that (not you, gumbo) is disingenuous.
The OP is asking for advice on what to do going forward. My math is good. My only "half truth" is ignoring the concept that he has a current cash value with opportunity elsewhere. I don't hide from that. I'm allowing you or others to fill in that gap.
Going forward (assuming a $250,000 twenty-year term is $28), his return of premium nets over 7% on the excess cash flow paid into the policy. That is the benchmark that he considers other options (for better or worse).
Posted on 10/28/22 at 12:15 pm to meansonny
quote:
meansonny
Your collective responses have been a train wreck dude. It’s tough to watch/read.
Posted on 10/28/22 at 12:23 pm to BamaCoaster
Not taking a side, but if the OP was to surrender the policy, he would need to earn 7% on the "invest the difference" to yield the ROP equivalent. That's not debatable.
Certainly not impossible, but impossible without taking on certain risks.
Certainly not impossible, but impossible without taking on certain risks.
Posted on 10/28/22 at 5:35 pm to iknowmorethanyou
Well now I'm confused.
I'll just cash it and put it in black. That seems to be the middle ground between both side here
I'll just cash it and put it in black. That seems to be the middle ground between both side here
Posted on 10/28/22 at 8:06 pm to LSURoss
Look it boils down to this:
1. Do you want the safest possible thing? A rop term like you have would be it. You pay more and lose out on additional savings/investment returns BUT you are guaranteed to get it all back if you don’t die. Problem is you get it all back decades from now when it’s going to be worth a hell of a lot less.
2. Do you want to maximize you earnings potential and take advantage of compound growth for the next 20 years? If so, secure a flat term for 20 more years then cancel the rop policy.
1. Do you want the safest possible thing? A rop term like you have would be it. You pay more and lose out on additional savings/investment returns BUT you are guaranteed to get it all back if you don’t die. Problem is you get it all back decades from now when it’s going to be worth a hell of a lot less.
2. Do you want to maximize you earnings potential and take advantage of compound growth for the next 20 years? If so, secure a flat term for 20 more years then cancel the rop policy.
Posted on 11/2/22 at 12:04 pm to BamaCoaster
quote:
Your collective responses have been a train wreck dude. It’s tough to watch/read.
Point vs counterpoint.
If you have one, make it.
I don't have a dog in the fight.
I'm just laying out what happens to the policy if he keeps it.
I've yet to see a counterpoint other than "you dumb".
If he cancels the policy and does something great with the cash, good on him. He bought the wrong product and paid a serious cost for that mistake (total paid in $8823.60 over 10 years for a $250,000 term policy that could have been purchased about $20-$25/month 10 years ago but now nets a refund of $4043.53. If the cost for the basic 30 year term policy was $25/month ten years ago, then his "invest the rest" amount paid in was $5,823.60 and nets a return of $4043.52).
But the hope is that he can make it better going forward. I don't mind that kind of hope. It just sucks to be in his current position. Expensive divorce.
This post was edited on 11/2/22 at 12:05 pm
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