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In Reply to: Re: Re: Re: Re: Comparing Term Life Policies posted by hindi on August 15, 2001 at 10:11:24:
: : Do you know that only 3% of all term policies result in a claim? Talk about lost money.
: Actually, the money isn't completely "lost". You can use the basis to convert an equal amount of taxable or tax-deferred income into tax-free income.
: I recall people complaining about whole and how expensive it can be, however, over a 15 year time period, it can be reasonably assumed you'd recover your cost. Beyond that, living benefits will begin to accrue, such as increasing dividends, aiding to provide retirement income.
: MA_Agent, it seems things always loop back around to the never-ending term vs/whole life debate. So, let's take joeseph's August 8 post (RE whole life) as a case study. He has been paying $1,800/year for a $250,000 WL policy for the last 15 years. Today, his CV is $43,600...and total DB is $277,000. What could he have done differently:
: 1. BTID -- $1,800 - term premium of $280 =
: $1,520 to invest in a qualified plan. Compounding
: at 9.5% (11% long-term market average annual gain
: minus 1.5% fees) he will have $46,421 in the plan. Plus, assuming a 32% tax bracket, his tax savings will be $486.40 annually. If this is invested also, he will have $14,854 additional. In total, he will have $61,275 in his IRA, TSA, or 401(k), NOT counting any employer match.
: 2. BULID -- If he had used a minimum-funded, guaranteed UL instead of term, his annual premium would be $450 instead of $1,800. Using the same math, at the end of 15 years he will have $54,422...plus CV in UL of $4,836 running at current experience including 6.5% interest...for a total of $59,258.
: Fairly close either way, but the UL has additional advantages over the term. In either case, he has a lot more than the $43,600 WL. So, please tell my again why he is better off with WL and why it is such a good "investment".
: ...
Hindi,
In the illustrations you ran, did you remember to cost-in
the "Waiver of Premium" fee Joeseph is paying?
I know you
don't recommend people get this costly rider, so you probably
are not used to including it in the illustrations.
Also, he may not be making out-of-pocket premium payments any more, or
perhaps just partial ones like I plan to make after 12 years.
On reading his post, it looks like he is still paying the
full $1800/year out-of-pocket. I can't be sure though.
It is unfortunate you cannot set your illustration to use the
actual rates used from 15 years ago to the present. I'll grant
that the UL interest was higher in the past. On the other
hand, in the early years, he didn't have a lot of cash value
yet to be earning interest.
It is hard to do an equivalent comparison, but I know you
are trying to get the most equivalent match you can.
-- Rich
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