Stock Insurance Companies?

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Still@jones's picture
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Joined: 2009-03-22

When it comes to whole life, I believe the first priority should be the stability of the company. Who knows when I will die...so I want a company that is built to last.  I like the mutual model for this type of insurance because I believe the priorities are in order. It puzzles me that policyholders approved the switch to a stock (public) company for Pru & MetLife. I read somewhere that like 90% of policyholders approved the switch. The only purpose of issuing stock is to take on greater risk. Why would someone want greater risk on the insurance side? I can understand wanting a stock (public) company for Auto and Homeowners, where changing policies is easy...but for Life, LTC and Disability (and even Health) it doesn't make sense to me. Does anyone here have any reasons why someone would want a stock (public) life insurance company?

anonymous's picture
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Joined: 2005-09-29

They approved it because they received stock.
 
In general, I would have no problem with a stock insurance company for term life insurance or for disability insurance.  I also wouldn't have a problem with UL sold on the basis of a secondary guarantee.
 
I would typically not want to be with a stock company for whole life insurance or for long term care insurance.

Still@jones's picture
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Joined: 2009-03-22

Funny...they received stock in a company where they were formerly a mutual policyholder (aka owner). This is going to take too long for me to wrap my head around this one. You've answered the important question...now, time to make some calls.  Just to point out the obvious...If you want that term insurance to be convertible with guaranteed insurability, I'd guess that would be best with a mutual company also. 

BerkshireBull's picture
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Joined: 2009-06-10

anonymous wrote:They approved it because they received stock.
 
In general, I would have no problem with a stock insurance company for term life insurance or for disability insurance.  I also wouldn't have a problem with UL sold on the basis of a secondary guarantee.
 
I would typically not want to be with a stock company for whole life insurance or for long term care insurance.....or as an agent

nonews's picture
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Joined: 2009-12-09

Personally I think one needs to have their head examined if he wants whole life. UL with lifetime guarantees are the way to go.

anonymous's picture
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Joined: 2005-09-29

nonews, you sound like someone who has just enough knowledge to be dangerous.

stalbott's picture
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Joined: 2009-10-27

why would you want to do DI with a stock company? Mutual co. pay dividends on their DI policies....

anonymous's picture
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Joined: 2005-09-29

stalbott wrote:why would you want to do DI with a stock company? Mutual co. pay dividends on their DI policies....

 
DI is about the contract.  It's not that I want to do business with a stock company.  Rather, the primary concern is using the best contract.   A dividend simply means that a client will save a few dollars.  Saving a few dollars on premium is pretty useless if a claim won't be paid.  The company that typically has the best contract for white collar employees doesn't pay a dividend. 

BerkshireBull's picture
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Joined: 2009-06-10

stalbott wrote:why would you want to do DI with a stock company? Mutual co. pay dividends on their DI policies....dumb

ChrisVarick's picture
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Joined: 2008-09-04

Anonymous,
Why are you not a big fan of ULs with no lapse guarantees? I work for a mutual carrier, but often times, I find myself selling ULs with NLG riders because of the fact that I don't like how the insurance company controls the dividend payouts for expensive whole life policies. Don't get me wrong, I sell whole life as well, but only when the situation is right. However, when someone is only concerned with a permanent death benefit, I think UL with NLG is much more efficient. Please let me know your thoughts.

anonymous's picture
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Joined: 2005-09-29

Chris, I do like them.  Read what I wrote.  I said that I have no problem with them. 
Where we probably disagree is that I only like them at older ages.  Otherwise, I would much prefer term or whole life or usually a term/WL mix.  We can discuss this more if you'd like.

ChrisVarick's picture
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Joined: 2008-09-04

Sure, because I just put a 27 year old client into a UL with no lapse guarantee a few months back when he said "I have absolutely no need for any cash value." Granted we got to take some human behavior into consideration such as bad discipline of savings and other issues, I made sure he was maxing out his 401k contributions.
 
How would a whole life policy be better off than an UL?

deekay's picture
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Joined: 2007-05-15

Ask that same client if he feels one should have conservative, long-term assets as part of his investment plan.  If he agrees, WL is one of the best options.  If not, move on.
 
It's kind of weird to see a 27 year-old purchasing GUL.  Obviously there is a reason, would you mind sharing your thought process?

ChrisVarick's picture
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Joined: 2008-09-04

Sure deekay, will post the numbers after prospecting hours =)

anonymous's picture
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Joined: 2005-09-29

When you post the #'s, we should be able to show you pretty easily how a term/WL combo should be better.
 
He's wrong that he doesn't have a need for the cash surrender value.  It's not so much that he's planning on using it.  Rather, the simple fact that he has it will allow the rest of his portfolio to be more aggressive.
 
Keep in mind that if he ever cancels the policy, the end result was that he overpaid for his insurance coverage.  For instance, if he runs into some temporary financial difficulties in 20 years, he's screwed with his GUL policy.
 
What you'll see with the same dollars going into a combination of term and WL is that the death benefit will be the same, but the WL will have more flexibility.  This is because of the cash surrender value and dividends.
 
If you are comparing putting the same dollars into just a WL vs. a GUL policy, the GUL will intially have a greater death benefit, but the WL will ultimately have a greater death benefit, greater cash, and flexibility.

ChrisVarick's picture
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Joined: 2008-09-04

27 Year Old, $500k death benefit, non-smoker rating
 
GUL: $2700/year for $500k GUARANTEED. (I never talk cash values with UL products)
 
Whole Life: $4320/year for $500k
 
Guaranteed values at age 85:
$392k cash surrender value/$500k death benefit
 
Non-guaranteed values at age 85:
$995k cash surrender value/$1.2 million death benefit
 
If I took the $1600/year difference and invested it in a 6% interest vehicle for the next 58 years, I would have another additional $850k on my side fund. $850k+$500k death benefit from the UL would still outperform the "non-guaranteed side" of my mutual carrier's whole life policy. I understand that the whole life policy would be more flexible, can be positioned as a conservative vehicle, but this client did not like the fact that the insurance company controlled the policyowner's dividend payouts. All he cared for was a permanent death benefit at the cheapest price.

deekay's picture
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Joined: 2007-05-15

Care to tell us where you will get this 6% tax-free investment over a 30 year period?  And you'll guarantee it will go up by 6% every single year?

anonymous's picture
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Joined: 2005-09-29

Chris,
 
1)As deekay  mentioned, the after tax 6% isn't realistic unless more risk is taken.  In which case, it's not an apples to apples comparison.   If 6% after tax is achieved without the additional risk, the WL policy will perform better than illustrated.
 
2) I'm not sure which WL policy that you are comparing, but your comparison doesn't look accurate.  I just ran the same illustration.  A 27 year old standard non-smoker male would cost $4170.   The guaranteed values are exactly what you posted.  However, the "non-guaranteed" (current) side shows $1.75 million at age 85 for the DB and $1.4 million for the cash surrender value.  So, the GUL + side fund ends up significantly behind even using the 6% after tax assumption.
3) Here's a more apples to apples comparison for you.  Compare $2700 into a GUL with $2700 into a WL term/mix.  This is based upon current numbers.  If death occurs between now and age 63, the products are equal.  If death occurs any year after 63, the WL/term mix gives a greater death benefit.  The WL/term mix always has a higher cash surrender value.  If he stops paying, he'll still always have some insurance.  Ex. He stops paying out of pocket premiums at age 60.  With the GUL, he'll have no cash and no insurance.  With WL/Term, he'll still have a death benefit that will be $500,000+ for the rest of his life.
 
There is no comparison.
 

ChrisVarick's picture
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Joined: 2008-09-04

I work for one of the big mutuals and our company has slashed dividends this year which is why our "non guaranteed current" side looks horrible. This is one of the main issues that I have with participating whole life if the client is an aggressive investor, sure the 6% after tax fund is not guaranteed, but neither are dividends. Don't get me wrong, I sell a lot of whole life and I am a believer, but when a client asks you "wait, i'm paying extra premiums for something that isn't even guaranteed? I rather just put my money elsewhere and have access to it from day one"

deekay's picture
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Joined: 2007-05-15

Stop selling WL based on CSV, start selling it based on the permanent death benefit and flexibility it offers, and you won't have to answer that question.  And for what it's worth, when appropriate I sell GUL.  But for a 27 year old that's looking for permanent coverage, I'm struggling with how GUL will be better than a WL/term mix.

anonymous's picture
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Joined: 2005-09-29

ChrisVarick wrote:
I work for one of the big mutuals and our company has slashed dividends this year which is why our "non guaranteed current" side looks horrible. This is one of the main issues that I have with participating whole life if the client is an aggressive investor, sure the 6% after tax fund is not guaranteed, but neither are dividends. Don't get me wrong, I sell a lot of whole life and I am a believer, but when a client asks you "wait, i'm paying extra premiums for something that isn't even guaranteed? I rather just put my money elsewhere and have access to it from day one"

Don't bother showing illustrations to clients in the selling process.  The only thing that you can do with them is promise that they are wrong.
 
Do your aggressive investors believe that all of their money should be aggressive?  If that is the case, don't bother with WL.  The reality, though, is that even aggressive investors can benefit from some conservative money.  Only use WL as part of the conservative part of their portfolio.

ChrisVarick's picture
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Joined: 2008-09-04

deekay wrote:
Stop selling WL based on CSV, start selling it based on the permanent death benefit and flexibility it offers, and you won't have to answer that question.  And for what it's worth, when appropriate I sell GUL.  But for a 27 year old that's looking for permanent coverage, I'm struggling with how GUL will be better than a WL/term mix.

 
For the record, I stopped selling on cash value a long time ago. I use to when I first started, but quickly learned my lesson. However, clients do not like the GUARANTEED column of the death benefit either. As the agent, I try to sell the guaranteed column first. Guaranteed level premium, guaranteed pay off date, guaranteed cash value. If have faith in the dividend paying ability of my mutual carrier, then I put them in WL. However, I always show UL as well (if they already believe in the value of a permanent life insurance policy).

anonymous's picture
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Joined: 2005-09-29

Chris, why do you always show UL as well?  I just showed you that for your 27 year old, a WL/term combo is equal to or better than the GUL that you sold for every single year from both a cash standpoint and a death benefit standpoint.
 
Not selling "cash value" has nothing to do with non-guaranteed rates and guaranteed rates.  It's about the fact that the strength of WL is the permanent death benefit.  You sell it based upon the death benefit and the fact that the surrender value and the death benefit will only increase and never decrease..   You really want to try to get to the point that the sale is made without an illustration and the illustration is, at most, just reinforcing what you have explained to the client. 
 
Just like selling based upon the non-guaranteed side can burn you, it also makes no sense to sell based upon the guaranteed column.  Keep in mind that the guaranteed column is based upon the worst case scenario happening every single year.   Selling based upon guarantees DOES NOT mean selling based upon the guaranteed columns.
 
Selling based upon the guarantees, to me, means promising the client that the illustration will be wrong.   When I'm explaining guarantees, I'll say something along the following (while looking at the non-guaranteed side):
 
"I already promised that this illustration will be wrong.  In general, if interest rates tend to be higher than they are now, the policy will probably perform better than illustrated and if interest rates are lower, it will perform worse.  However, let's assume for a minute that nothing changes for the next 20 years and the policy performs exactly as illustrated.  You will have exactly $331,219 for your cash surrender value and $632,421 for your death benefit.  What is GUARANTEED is that in the following year, the cash surrender value will be higher than $331,219 and your death benefit will equal or be greater than $632,421.  We just don't know if it will be higher or lower than what's illustrated."
 
"Let me also take a minute to explain the guaranteed columns.  Everything in the non-guaranteed columns is assuming that you put your dividends back into the policy.  What would happen if you took all of your dividends in cash?  The death benefit will always remain the same and the cash surrender value will equal the initial death benefit at age 121.  If just one year, you leave your dividends in the policy, the policy is guaranteed to perform better than the guarantees."

ChrisVarick's picture
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Joined: 2008-09-04

Anonymous,
 
I admire and appreciate your dedication to this forum and all the information you have provided me. I still need to respond to your previous post, but am nearly collapsing on my bed as we speak. I will post my answer in the morning, but I did want to know something...how much of your client's portfolio do you put in whole life insurance? For example, 80k household with 2 kids and a mortgage payment. I have a very hard time convincing myself to talk to them about permanent insurance given their financial and economical situation.

anonymous's picture
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Joined: 2005-09-29

ChrisVarick wrote:Anonymous,
 
I admire and appreciate your dedication to this forum and all the information you have provided me. I still need to respond to your previous post, but am nearly collapsing on my bed as we speak. I will post my answer in the morning, but I did want to know something...how much of your client's portfolio do you put in whole life insurance? For example, 80k household with 2 kids and a mortgage payment. I have a very hard time convincing myself to talk to them about permanent insurance given their financial and economical situation.

 
Thanks.  My goal isn't to sell permanent insurance.  My goal is to do what's best for the client.  For instance, the subject of permanent insurance doesn't even start to enter the conversation until they have accomplished the following:
 
1)Emergency Fund
2) No high interest debt
3) Health Insurance
4) Disability Insurance (work coverage is seldom adequate)
5) term life insurance
 
Even if they have accomplished the 5 previous things, permanent insurance might not make sense. 
 
As a guess, for your mythical $80,000 client, they probably will be buying $1,000,000-$1,500,000 of insuance with almost all of it being term insurance.  If they are buying any permanent insurance, it is going to be a small amount.
 
Ex. After taking care of all of the basics, they can afford to put away $500/month.  Based upon their risk tolerance, we determine that 20% of their money should be put away in a conservative manner.  At the most, $100/month will be going into permanent insurance.
 
Type of insurance is always handled as a secondary issue and not a primary issue.

deekay's picture
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Joined: 2007-05-15

I have a very similar philosophy to anon's when it comes to term vs. permanent.  What I will add sometimes is a small WL policy for final expenses, in addition to the term insurance.  So, even if they never convert a penny of their term, they'll have a way to pay for final expenses that is more economical than paying with 100-cent dollars.

Still@jones's picture
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Joined: 2009-03-22

Good stuff Anon.Thanks.

CFP83's picture
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Joined: 2009-11-14

Anon~
 
I like your thoughts.  Me and you have very similiar philosophies in leading clients through the planning process......your talk has a very familiar ring to it....after 5 1/2 years I recently left a very large, quite, mutual to establish my own planning firm.
 
I think you would appreciate the "Investment Philosophy" that I share with every single client and I have on the wall of the reception area in my office: 
We will not address investments until:
1.)  You have income that exceeds your debt
2.)  You currently have 4 months of living expenses in an emergency fund
3.)  You have fully addressed ALL of your risk management planning needs, to include:  Health, disability, life, and possibly LTC depending on age.
 
Regarding this conversation about whole-life, I believe cash-value life insurance through highly rated mutual companies is an asset-class that all of my clients need to evaluate.  Part of my investor risk profile ask the client to draw a circle that represents their entire investment portfolio....I then ask them to draw a slice that represents how much of this portfolio do they want to insure WILL NEVER lose anything.  After the recent downturn the slices are getting larger and larger.  I submit that for a portion of this slice we have to consider high cash-value life insurance through a quality mutual.

financeer's picture
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Joined: 2010-01-23

Great philosophies - very similar to what I believe.  I enjoy reading your guys' posts to keep an open mind to what other professionals are doing so that I am not always just looking at in-house ideas.

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