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In Reply to: Re: Re: Re: Re: Re: Re: whole life posted by TVO on August 17, 2001 at 20:35:06:
: : John --
: : I hope you're not in the whole life business, as what you're saying is incorrect!
: : : excuse me for interrupting this lovefest -- with respect to WL -- you can withdraw to basis as well.
: : No you cannot. Whole life cash value is an asset of the company. They own it, technically. The only way to get the money is through a loan. With a UL, the company is the holder of YOUR money just like a bank is the holder of your savings or checking account money. You can always withdraw YOUR money (and to basis with UL...above basis is a taxable event, which is why you want to borrow above basis, and also why the loan rate is extremely important.
: : AND the biggest advantage WL has over UL -- IT'S GUARANTEED -- WHEN THE DIVIDEND PAYS -- NOTHING NOT GOD HIMSELF CAN TAKE IT AWAY -- not so with UL -- CV is ALWAYS at risk.
: : Sorry, John, this is also not true. Cash value is part of the general assets of the company either way -- WL or UL. Neither is safer than the other...but with UL you have more liquidity. Whatever has already been earned, has been earned, and cannot be taken away. In the future, you may never get another dime of excess interest, but you could never get another dividend either. Same! SAFETY is CONTROL...more than the SIZE of the carrier! hindi
: Hindi -- yes you can -- I suggest you look to your CLU cirriculumn specifically the life insurance course, and text ( McGill's Life Insurance ). Withdrawl of premiums to basis is allowed in a par WL product. PERIOD.
I'm still doubtful on this, but will do some research, TVO.
: Additionally, WL is property owned by the insured, as is UL, VUL, and term.
Of course as policyOWNER, but we were speaking about inside buildup, which is technically owned by the company in WL policies but owned by the policyowner in UL.
: Further, when one borrows froma life insurance policy ( VUL, UL, WL, ISWL et. al. ) one is NOT BORROWING THERE OWN MONEY --
True. You never borrow your own money from a life insurance policy, in spite "conventional wisdom".
one is using the current cash surrender value as COLLATERAL for a loan FROM THE INSURANCE company -
This is true in UL but not WL. In UL, you pledge part of your policy value and borrow an equal amount from the insurance company. In WL, they own the cash value to begin with, so you are simply borrowing the company's money, not your own.
- substantively there is no differnece between a life insurance loan or a home equity loan -- e.g -- one does not TAKE money from one's house -- one uses the house as collateral and the bank gives the borrower someone else's money. The difference between the two is the guaranteed growth of the life insurance, and the flexibiliy of loan repaymants in life insurance.
The similarity is that both insurance loans and home mortgages are transfers of captial and not a realization of income...hence, not subject to taxation. With insurance, the interest income that is supposed to be building to fund the death benefit can instead be used as a source of untaxed current income. If the loans aren't repaid, the cash value will never be taxed...and death benefit is simply reduced by the amount of the loan. This is, of course, a source of tax-free income. The key driver, therefore, is the loan rate, isn't it? So, which type of loan will give you the most income -- a gross loan...a net loan...or a wash loan? Another reason to consider UL rather than WL.
: Another thing -- cash value is not an ACCOUNT. Cah value is the current value of the contract after x-years. The face amount is the value at death, and paid-up additions ( if purchased with dividends ) pay along with the dealth benefit. It is not accurate to refer to CV as an account, or treat it as such. it is not.
I was using the term analogous to a bank account or savings account, wherein the bank holds your money in a responsible, almost "fiduciary" capacity. I realize by NAIC code you can't use words like "account" or "deposit" in a life insurance context. I believe I said, "...like a bank is holder of your account money...".
: Lastly, policyholders are creditors to the insurance company with respect to loans. They are also ( in the case of a mutual company )the people who have the greatest right to the money the insurance company has. Policyloans are an ASSET to an insurance company -- they want you to take policy loans -- it's good business for them, and fiscally responsible for the insured -- just pay them back.
You're correct, but I'd disagree on the "pay them back" issue. With WL gross loan, yes, because you are borrowing the early years' pre-payment/ overpayment needed to pay future premiums when mortality exceeds your fixed-level premium. But, with a properly structured, overfunded, and properly-monitored UL through a zero net cost wash loan, it isn't necessary to repay as is the case with WL.
: As for UL/WL -- ultimately as a vehicle one is just as good as the other -- if the UL is fully or max funded.
Depends, TVO, what you mean by "good". It also depends if you want to pay the least amount possible...or the highest amount possible...for the same thing. Key issue -- can you do better with the "difference"? And, there are basic differences when the company designs WL vs/ UL -- concepts like flexibility and liquidity are important benefits in the equation. Also, the timing issue of when the company gives you credit for better experience needs to be considered. So, I guess I have to disagree on the "equal goodness" of one vs/ the other.
: Consult Solomon Huebner, PhD. The Economics of Life Insurance -- 1955 edition.
Oh man, it's 12:45 am! Maybe later to sort out the withdrawl to basis issue.
Have enjoyed your posts, TVO (just curious -- are you also John?). Enjoy Rock's posts too. You guys are certainly much more stimulating than the "I hate Primerica" and "I hate the Primerica haters" crowd...but there's sure to be a reason for that too in the grand scheme of things. Thanks! hindi