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In Reply to: example of cash value life posted by Mike on March 30, 2004 at 15:26:03:
"Provide an example of a cash value policy vs a term policy and saving the difference.(illustrate 5, 10, 15, 20, 30 & 50 year time frames)"
Here is some data from one of my clients that had a whole life policy which I replaced with Term.
Whole Life policy
=================
Coverage: Him: 100,000 Her: 50,000 Total: 150,000
Combined Cost: $130/month ($1,560/yr)
Avgerage ROR: 5%
yr1: 0
yr2: 0
yr5: 2,518
yr10: 7,653
yr15: 14,242
yr20: 22,698
yr30: 47,477
yr50: 155,506
30 Year Level Premium Term
==========================
Coverage: Him: 358,000 Her: 316,000 Total: 674,000
Combined Cost: $54/month ($648/yr)
Savings: $76/mo (invested below)
Avgerage ROR: 12% (Aggressive/Value split mutual funds)
yr1: 963
yr2: 2,050
yr5: 6,206
yr10: 17,482
yr15: 37,968
yr20: 75,183
yr30: 265,617 (insurance ends here, savings goes from 76/mo to 130/mo from here to 50)
yr50: 3,021,850
Other advantages to Term:
1) With the WL, the couple didnt even have adequate coverage to begin with to cover their lives. This is the ENTIRE point of owning insurance in the first place - to replace the loss of income of the dead spouse. With only 100k (or 50k), the surviving spouse was screwed. With the Term, they could afford what they NEEDED in order to pay off all their debt *and* create an annuity which would provide the survivor with income replacement for the lost spouse, so they can live their life as close to what it was prior to the death as possible. (Note: this is the major benefit, the rest is just icing on the cake.)
2) With WL, if you need some of the money in an emergency, you borrow it, but then owe it back with interest (which the insurance company keeps). In mutual funds, its your money, do what you want with it.
3) If you die with Whole Life, you lose all the savings. If you live, you can take the savings out but then the policy is cancelled. But you cant have both. If you die with the Term, you get the death benefit plus you keep all the savings. You get both.
As you can see (hopefully), $3 million is more than $155,000.
Any other questions?