Insurance???

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Closer's picture
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I recently started with an insurance company  under the premise I will be able to do mainly investment side work. As expected they began encouraging me to dabble in life insurance. I never have liked the stigma associated with life insurance and really don't know If I feel comfy selling it. According to this company's "LEAP" financial planning model, it is best to sell somebody the maximum amount of life insurance. This is because of the protection offered as well as being able to spend the death benefit while still alive. This is possible because "noone understands life insurance". I have been very skeptical, and feel as if the management team usually snakes around my direct questions. I am green in the business, so please answer me this. Should life insurance be the center of a persons financial life. I know it should be a part of it, but the maximum amount? Any praise or criticism of life insurance will be helpful. 

troll's picture
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Told you so.

anonymous's picture
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I don't know if it is "the center of a persons financial life", but it is very important.  When this subject doesn't get its proper due, clients get hurt.
For someone young and healthy, life insurance can be so inexpensive.  It doesn't make much sense not to get as much coverage as possible.  This is especially true if their wants will increase in the future. 
Clients should have the proper amount of life insurance before they do any investing.  Your clients just need to be able to sign a check if they want to invest.  On the other hand, once a client's health changes, that's it for their insurance...at least at reasonable rates.
Clients also shouldn't invest before they have adequate health insurance and disability insurance.

deekay's picture
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I recently joined a firm that practices LEAP.  I can tell you I was skeptical at first, but it really does a great job of coordinating all of a clients assets, regardless whether you manage them or not. 
Yes, one of the tennants is maximum coverage (not just life) with minimal cost.  IMO, this makes alot of sense.  You insure your house and car for the full replacement.  Well, why don't you insure your life and income for full replacement as well?  Seems to me that you and your client are ALOT more valuable than a car or home from a pure economic perspective.  Don't worry though - LEAP supports investing as well.  However, don't expect it to help you get millions of AUM with it. LEAP shows why a client's "invest first, insure later" position does not make sense financially.
I'm curious though, you state you have never liked the 'stigma' associated with life insurance and you really don't know if you feel 'comfy' selling it.  If you felt that way, why did you join an insurance firm?  Also, what are these stigmas you speak of? 

nestegg's picture
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WTF is LEAP...well other than an option lol

troll's picture
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Closer wrote:
I recently started with an insurance company  under the premise I will be able to do mainly investment side work. As expected they began encouraging me to dabble in life insurance. I never have liked the stigma associated with life insurance and really don't know If I feel comfy selling it. 
 
Yep that makes sense.  I know that if I didn't feel "comfy" selling life insurance I'd be sure to hire on at a life insurance company.
Beam me up, Scotty.

troll's picture
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troll's picture
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AllREIT's picture
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joedabrkr wrote: Closer wrote:I recently started with an insurance
company  under the premise I will be able to do mainly investment
side work. As expected they began encouraging me to dabble in life
insurance. I never have liked the stigma associated with life insurance
and really don't know If I feel comfy selling it. According to this
company's "LEAP" financial planning model, it is best to sell somebody
the maximum amount of life insurance. This is because of the protection
offered as well as being able to spend the death benefit while still alive.
This is possible because "noone understands life insurance". I have been
very skeptical, and feel as if the management team usually snakes
around my direct questions. I am green in the business, so please
answer me this. Should life insurance be the center of a persons
financial life. I know it should be a part of it, but the maximum
amount? Any praise or criticism of life insurance will be
helpful.  How does one "spend the death benefit while still alive"?Borrowing out one's own money from cash value?  That's an expensive way to accumulate wealth.Viatical
settlement? Accelerated Death Benefit?  Generally you have to be
of declining health or terminally ill to make that work.

Joe, Don't say that in range of the client!!!!!
If they knew that only way to benefit from Life insurance was to die
sooner than expected, there would be only a small market for it. That
market would be mostly straight protection as found in level premium
term life.

Insurance companies have been trying to promote life insurance as an
"asset accumulation" vehicle forever. But it just doesn't work. The
costs of insurance and internal expenses cause life insurance (and
VA's) to be dominated by straight investments for the purpose of wealth
accumulation.

It's always possible to come up with great projections, but if life insurance was such a great investment you wouldn't have to go through such antics. It would be immediately obvious.

You would see many life insurance millionaires left and right, and they would be alive to tell about it.

Life insurance == Very profitable for insurco, and do you really need extra quaters when the game is over?

troll's picture
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Closer wrote:I recently started with an insurance company  under the premise I will be able to do mainly investment side work. As expected they began encouraging me to dabble in life insurance. I never have liked the stigma associated with life insurance and really don't know If I feel comfy selling it. According to this company's "LEAP" financial planning model, it is best to sell somebody the maximum amount of life insurance. This is because of the protection offered as well as being able to spend the death benefit while still alive. This is possible because "noone understands life insurance". I have been very skeptical, and feel as if the management team usually snakes around my direct questions. I am green in the business, so please answer me this. Should life insurance be the center of a persons financial life. I know it should be a part of it, but the maximum amount? Any praise or criticism of life insurance will be helpful. 
You joined a life insurance company to do investments????  And now you wonder why they are asking you to sell life insurance????
LEAP = Lifetime Economic Acceleration Process.
www.leapsystems.com
 

anonymous's picture
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Closer,
Ignore Allreit on this subject.  A little bit of knowledge is very dangerous.
Allreit, you are the only one talking about life insurance being an investment.  You don't have to die sooner than expected to benefit from life insurance.  The only one's who don't benefit from life insurance are those who cancel their policies.
Whole life insurance is a phenomenal asset that most people who are not financially struggling should own.  It is not an investment.
Borrowing money from the policy is a great way to get to cash when cash is needed.  Ex. Client has $500,000 of cash in their policy and $2,000,000 of mutual funds.  The market takes a hit and now the client only has $1,500,000 in mutual funds.  Client needs $50,000.  The life insurance allows the client to not touch their investments when the market is down.

AllREIT's picture
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anonymous wrote:Closer,
Ignore Allreit on this subject.  A little bit of knowledge is very dangerous.
Allreit, you are the only one talking about life insurance being an
investment.  You don't have to die sooner than expected to benefit
from life insurance.  The only one's who don't benefit from life
insurance are those who cancel their policies.
Whole life insurance is a phenomenal asset that most people who are
not financially struggling should own.  It is not an investment.
Borrowing money from the policy is a great way to get to cash when
cash is needed.  Ex. Client has $500,000 of cash in their policy
and $2,000,000 of mutual funds.  The market takes a hit and now
the client only has $1,500,000 in mutual funds.  Client needs
$50,000.  The life insurance allows the client to not touch their
investments when the market is down.

With a margin account/secured line, they can tap that same $50,000 off of the securities portfolio. Upon death, the securities get stepped up in tax basis, *and* the tax-free value of the DB is preserved.

As insurance against premature death, I think there is nothing quite
like life insurance. But any time life insurance gets confused with
investments, there alot of room for damage.

That said, pretty much everyone with a family needs life insurance, and
a combo stack of whole + term is usually the best way to go about it.

There's a "hump" period between 35-65 when its most needed, and a good term policy is usually the best cover.

anonymous's picture
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But any time life insurance gets confused with investments, there alot of room for damage.
That said, pretty much everyone with a family needs life insurance, and a combo stack of whole + term is usually the best way to go about it.
We're in complete agreement. 

bluestars80's picture
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You joined a life insurance company to do investments????  And now you wonder why they are asking you to sell life insurance????

 

deekay's picture
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AllREIT wrote: anonymous wrote:
Closer,
Ignore Allreit on this subject.  A little bit of knowledge is very dangerous.
Allreit, you are the only one talking about life insurance being an investment.  You don't have to die sooner than expected to benefit from life insurance.  The only one's who don't benefit from life insurance are those who cancel their policies.
Whole life insurance is a phenomenal asset that most people who are not financially struggling should own.  It is not an investment.
Borrowing money from the policy is a great way to get to cash when cash is needed.  Ex. Client has $500,000 of cash in their policy and $2,000,000 of mutual funds.  The market takes a hit and now the client only has $1,500,000 in mutual funds.  Client needs $50,000.  The life insurance allows the client to not touch their investments when the market is down.
With a margin account/secured line, they can tap that same $50,000 off of the securities portfolio. Upon death, the securities get stepped up in tax basis, *and* the tax-free value of the DB is preserved.
Hmmm....ok, put more risk on something they're already taking a risk on.  And, make it more esoteric.  Super.  I don't disagree with your logic, I disagree with the method.  Little known fact - do you know the story of how Walt Disney created Disney Land?  When all the banks in the area wouldn't give him a loan, he took the money from his WL portfolio.  Care to calculate his ROR on that one, AllReit?As insurance against premature death, I think there is nothing quite like life insurance. But any time life insurance gets confused with investments, there alot of room for damage.
I couldn't agree more.  Investments are poor insurance.  Insurance is a poor investment.  However, coordinated properly, they work significantly better than they do individually.  And I'm talking WL - term insurance is the biggest moneymaker for insurance companies (i.e. bad for holders).That said, pretty much everyone with a family needs life insurance, and a combo stack of whole + term is usually the best way to go about it.
Well, technically nobody NEEDS life insurance.  Families WANT to buy life insurance to protect their human economic value.  It is a great estate planning tool, along with trusts and the like.  It is the only savings vehicle that will self-complete in case of disability.  It can provide a competitive savings rate that's tax-free, creditor-protected, and free of market risk, among other benefits.  Can you see why I think WL is a great tool as part of a financial plan?  There's a "hump" period between 35-65 when its most needed, and a good term policy is usually the best cover.
Again, I agree with you.  However, I've encountered alot of 65+ people who would buy life insurance today if they could, for various reasons (new house, estate planning issues, etc.).  Unfortunately, insurability is a very fragile thing.  Maintaining WL as part of your plan, even at a young age, can do wonders for your future (and I'm not talking about rates of return).  Of course, affordability becomes an issue, and that's where term can make up the difference.
 

whitewlfz's picture
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AllREIT wrote:joedabrkr wrote: Closer wrote:I recently started with an insurance company  under the premise I will be able to do mainly investment side work. As expected they began encouraging me to dabble in life insurance. I never have liked the stigma associated with life insurance and really don't know If I feel comfy selling it. According to this company's "LEAP" financial planning model, it is best to sell somebody the maximum amount of life insurance. This is because of the protection offered as well as being able to spend the death benefit while still alive. This is possible because "noone understands life insurance". I have been very skeptical, and feel as if the management team usually snakes around my direct questions. I am green in the business, so please answer me this. Should life insurance be the center of a persons financial life. I know it should be a part of it, but the maximum amount? Any praise or criticism of life insurance will be helpful.  How does one "spend the death benefit while still alive"?Borrowing out one's own money from cash value?  That's an expensive way to accumulate wealth.Viatical settlement? Accelerated Death Benefit?  Generally you have to be of declining health or terminally ill to make that work.Joe, Don't say that in range of the client!!!!! If they knew that only way to benefit from Life insurance was to die sooner than expected, there would be only a small market for it. That market would be mostly straight protection as found in level premium term life. Insurance companies have been trying to promote life insurance as an "asset accumulation" vehicle forever. But it just doesn't work. The costs of insurance and internal expenses cause life insurance (and VA's) to be dominated by straight investments for the purpose of wealth accumulation. It's always possible to come up with great projections, but if life insurance was such a great investment you wouldn't have to go through such antics. It would be immediately obvious. You would see many life insurance millionaires left and right, and they would be alive to tell about it. Life insurance == Very profitable for insurco, and do you really need extra quaters when the game is over?
So where is it written that the only thing you will ever need is  some mutual funds or stocks ect.  I seriously hope you are being tongue and cheek here and I am missing it.. becaue to me this whole statemnet plus the others, gives us advisors a bad name..

whitewlfz's picture
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anonymous wrote:
Closer,
Ignore Allreit on this subject.  A little bit of knowledge is very dangerous.
Allreit, you are the only one talking about life insurance being an investment.  You don't have to die sooner than expected to benefit from life insurance.  The only one's who don't benefit from life insurance are those who cancel their policies.
Whole life insurance is a phenomenal asset that most people who are not financially struggling should own.  It is not an investment.
Borrowing money from the policy is a great way to get to cash when cash is needed.  Ex. Client has $500,000 of cash in their policy and $2,000,000 of mutual funds.  The market takes a hit and now the client only has $1,500,000 in mutual funds.  Client needs $50,000.  The life insurance allows the client to not touch their investments when the market is down.

AMEN!

AllREIT's picture
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whitewlfz wrote:So where is it
written that the only thing you will ever need is  some mutual
funds or stocks ect.  I seriously hope you are being tongue and
cheek here and I am missing it.. becaue to me this whole statemnet plus
the others, gives us advisors a bad name..

Nowhere, However insurance is in general oversold owing to the hefty comissions that it pays.

Most people need nothing more than 30y level premium term life and
maybe a small whole life policy. Of course that  is not what most
people are sold...

As a savings/investment vehicle, insurance policies are hopelessly
dominated by straight investments, owning the built in costs of
insurance, the kick back to the agent, and insurco profit margins.

anonymous's picture
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However insurance is in general oversold owing to the hefty comissions that it pays.
You have to be able to back up these types of statements.  Most people have dreams and goals for their families.  One of the goals that most people have is for their dreams and goals for their families to still happen if they die prematurely.  Most people don't have enough life insurance to allow this to happen. 
Most people need nothing more than 30y level premium term life and maybe a small whole life policy. Of course that  is not what most people are sold...  
I'm sure that you agree that life insurance for someone with a family is critical.  Almost every week, I talk to someone who needs life insurance and can't get it at affordable rates.  The one thing that almost all of these people have in common is that they could have bought insurance when they just started their working lives.  Therefore, I am a very strong advocate of life insurance for single people who expect to have a family later in life.  If they buy a 30 year policy, most of them would still need coverage when they are in their fifties.  Many of these would be uninsurable at that time.  My point is that it is easy to get screwed with level term products. 
As a savings/investment vehicle, insurance policies are hopelessly dominated by straight investments 
This is an unfair comparison.  All savings vehicles are dominated by straight investments.  Compare it to long term savings vehicles if you want a fair comparison.

troll's picture
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AllREIT wrote: whitewlfz wrote:
So where is it written that the only thing you will ever need is  some mutual funds or stocks ect.  I seriously hope you are being tongue and cheek here and I am missing it.. becaue to me this whole statemnet plus the others, gives us advisors a bad name..
Nowhere, However insurance is in general oversold owing to the hefty comissions that it pays.Most people need nothing more than 30y level premium term life and maybe a small whole life policy. Of course that  is not what most people are sold... As a savings/investment vehicle, insurance policies are hopelessly dominated by straight investments, owning the built in costs of insurance, the kick back to the agent, and insurco profit margins.
Cocksucker, did you know that everything costs money? Do you realize that commissions are legal? That's right. I said it. THey're legal.
What world are you living in? Why do you assume that people are so gullible that they will lose their impulse control, go mad, and buy something they don't want?  People are free to self-insure all they want. Why do you suppose they don't do it? Do you know that people know that we get paid commissions? Do you think that they are too stupid to figure out that we're in business to make money?
Just because YOU can't thrive in the marketplace with your bullsh*t, perpetual fees, doen't mean that your competition is doing something wrong.

AllREIT's picture
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Quote:Most people need nothing more than 30y level premium
term life and maybe a small whole life policy. Of course that  is
not what most people are sold...
  
I am a very strong advocate of life insurance for single people who
expect to have a family later in life.  If they buy a 30 year
policy, most of them would still need coverage when they are in their
fifties.  Many of these would be uninsurable at that time. 
My point is that it is easy to get screwed with level term products.

I wont say anyone got screwed, but they didn't choose the insurance
that best fit their situation. N.B I'm going to say that VUL doesn't
fit anyones personal sitation.
IMHO long duration term policies or convertable term or WL with buy
options is often the most flexiable and cheapest per $ of death
benefit. And the death benefit is what insurance is about.

Again it comes down to making up a chart of liabilites, and then
chosing assets/insurance that best matches them. In general liabilities
like mortgages, educations etc tend to roll off within 30 years or so.

deekay's picture
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AllREIT wrote: whitewlfz wrote:
So where is it written that the only thing you will ever need is  some mutual funds or stocks ect.  I seriously hope you are being tongue and cheek here and I am missing it.. becaue to me this whole statemnet plus the others, gives us advisors a bad name..
Nowhere, However insurance is in general oversold owing to the hefty comissions that it pays.
So, because insurance companies pay agents a commission, people shouldn't by through an advisor?  Huh, that's interesting logic.Most people need nothing more than 30y level premium term life and maybe a small whole life policy. Of course that  is not what most people are sold...
Please explain your logic behind your insurance strategy.  I ask because term insurance is the biggest ripoff out there.  About 1% of term policies ever pay a death claim.  So, all the premium you paid is lost.  For all the opinions you've given, this makes the least sense.  You're always up in arms about insurance companies making huge profits yet you recommend the policy that will make the insurance company the MOST profit.
I'd debate life insurance more with you, but I'm afraid it wouldn't be a fair fight.  When you get some additional knowledge, I'd be happy to discuss it with you.  Right now, you look foolish.As a savings/investment vehicle, insurance policies are hopelessly dominated by straight investments, owning the built in costs of insurance, the kick back to the agent, and insurco profit margins.
Like anon said, comparing insurance policies to investing is not an apples to apples comparision.  Comparing insurance to savings vehicles makes more sense.  When you look at all the facts, insurance products fair quite well vs. savings vehicles. 

deekay's picture
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AllREIT wrote:
Quote:Most people need nothing more than 30y level premium term life and maybe a small whole life policy. Of course that  is not what most people are sold...  
I am a very strong advocate of life insurance for single people who expect to have a family later in life.  If they buy a 30 year policy, most of them would still need coverage when they are in their fifties.  Many of these would be uninsurable at that time.  My point is that it is easy to get screwed with level term products.
I wont say anyone got screwed, but they didn't choose the insurance that best fit their situation. N.B I'm going to say that VUL doesn't fit anyones personal sitation.
I think we're in agreement.  VUL is not appropriate in almost all situations. 
IMHO long duration term policies or convertable term or WL with buy options is often the most flexiable and cheapest per $ of death benefit. And the death benefit is what insurance is about.
I'm glad you finally got around to reading our comments.  Actually, level term is not always the least expensive option.  If you have a client who intends on converting coverage within 5-10 years to WL but cannot afford it, annual renewable term is a less expensive option.
Again it comes down to making up a chart of liabilites, and then chosing assets/insurance that best matches them. In general liabilities like mortgages, educations etc tend to roll off within 30 years or so.
You look at insurance from a needs standpoint.  Which is fine, but IMO is incorrect.  Like I mentioned earlier in this thread, we do not know where the client is going to be 30 years from now. 
I can't tell you how many 60-somethings I've met who all wish they still had life insurance.  Why?  They bought a new house and need to protect the mortgage.  But they're uninsurable.  They start a new family with a new spouse.  They would like to pay off estate taxes so they're not a burden on their family.  But they cannot afford it.  They decide that instead of letting life pass them by, they are going to keep working for as long as they can.  They still need to protect their income but their term policy lapsed and they've got little options.
Do you see why having a one-size fits-all approach to life insurance design is flawed?  Can you see why a need-based approach is flawed?

AllREIT's picture
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deekay wrote:AllREIT wrote: whitewlfz wrote:
So where is it written that the only
thing you will ever need is  some mutual funds or stocks
ect.  I seriously hope you are being tongue and cheek here and I
am missing it.. becaue to me this whole statemnet plus the others,
gives us advisors a bad name..

Nowhere, However insurance is in general oversold owing to the hefty comissions that it pays.
So, because insurance companies pay agents a
commission, people shouldn't by through an advisor?  Huh, that's
interesting logic.

Now if you just stick to what I
say, you'll have plenty of grist for the mill. I said insurance is
oversold owning to the heavy incentive to sell it. Maybe I should be
more specific and say that VUL/WL is oversold.
Most people need nothing more than 30y level premium term life and
maybe a small whole life policy. Of course that  is not what most
people are sold...

Please explain your logic behind your
insurance strategy.  I ask because term insurance is the biggest
ripoff out there.  About 1% of term policies ever pay a death
claim.

So what, the purpose of insurance is risk transfer.
What percentage of homeowners policies pay out thier full value? Are
the premiums lost? They are an expense, just like everything else

With term you are buying as much life protection as you need, for only as long as you need it, and nothing extra.

So, all the premium you paid is lost.  For all the opinions you've given, this makes the least sense.

Buy a term policy with a return of premium rider.

Term is ment to do one thing (cover mortality risk for a set period) and it does it cheaper and better than any other product.

You're always up in arms about insurance
companies making huge profits yet you recommend the policy that will
make the insurance company the MOST profit.

No the most profit comes from things like VUL that are hard to price and thus not in a competative market. If term was the most profitable, it would have the highest commissions .

I'd debate life insurance more with you, but
I'm afraid it wouldn't be a fair fight.  When you get some
additional knowledge, I'd be happy to discuss it with you.  Right
now, you look foolish.

As a savings/investment vehicle, insurance policies are hopelessly
dominated by straight investments, owning the built in costs of
insurance, the kick back to the agent, and insurco profit margins.

Like anon said, comparing insurance policies
to investing is not an apples to apples comparision.  Comparing
insurance to savings vehicles makes more sense.  When you look at
all the facts, insurance products fair quite well vs. savings
vehicles. 

Not really. Insurance is often sold as an alternative to investments (via things like a VUL and VA's)

AllREIT's picture
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deekay wrote:
Quote:Most people need nothing more than 30y level premium
term life and maybe a small whole life policy. Of course that  is
not what most people are sold...
  
I am a very strong advocate of life insurance for single people who
expect to have a family later in life.  If they buy a 30 year
policy, most of them would still need coverage when they are in their
fifties.  Many of these would be uninsurable at that time. 
My point is that it is easy to get screwed with level term products.

I wont say anyone got screwed, but they didn't choose the insurance
that best fit their situation. N.B I'm going to say that VUL doesn't
fit anyones personal sitation.
I think we're in agreement.  VUL is not appropriate in almost all situations.

Good . The sale of VUL is my biggest issue with how life insurance is sold.

IMHO long duration term policies or convertable term or WL with buy
options is often the most flexiable and cheapest per $ of death
benefit. And the death benefit is what insurance is about.
I'm glad you finally got around to
reading our comments.  Actually, level term is not always the
least expensive option.  If you have a client who intends on
converting coverage within 5-10 years to WL but cannot afford it,
annual renewable term is a less expensive option.

Ok, you come up with a cheaper situation, since annually renewable term is the pureest form of life insurance. My
core point still holds that for the purposes of risk transfer over long
set periods of time level premium term is the cheapest.

Again it comes down to making up a chart of liabilites, and then
chosing assets/insurance that best matches them. In general liabilities
like mortgages, educations etc tend to roll off within 30 years or so.
You look at insurance from a needs
standpoint.  Which is fine, but IMO is incorrect.  Like I
mentioned earlier in this thread, we do not know where the client is
going to be 30 years from now. 
Do you see why having a one-size fits-all
approach to life insurance design is flawed?  Can you see why a
need-based approach is flawed?

You're
making a bit of a straw man here. People whose lives are in flux are
going to have dynamic insurance needs. But thats one of those things
that comes out in the needs based planning process.

As best I can tell, (and I could be wrong, and am very open to hearing about it ) there isn't a better way to figure out peoples insurance needs than via a needs based planning process.

(I guess
with some kind of fancy UL/Adjustable Life policy you could fit these
issues in, but UL is going to be more expensive than LPT. So you need
to be really sure than UL is needed over the standard WL/Term stack.
I'm not denying that tricky life underwriting cases exist. Just that I
think most cases are simpler than commonly thought. )

deekay's picture
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AllREIT wrote: deekay wrote:
Quote:Most people need nothing more than 30y level premium term life and maybe a small whole life policy. Of course that  is not what most people are sold...  
I am a very strong advocate of life insurance for single people who expect to have a family later in life.  If they buy a 30 year policy, most of them would still need coverage when they are in their fifties.  Many of these would be uninsurable at that time.  My point is that it is easy to get screwed with level term products.
I wont say anyone got screwed, but they didn't choose the insurance that best fit their situation. N.B I'm going to say that VUL doesn't fit anyones personal sitation.
I think we're in agreement.  VUL is not appropriate in almost all situations.
Good . The sale of VUL is my biggest issue with how life insurance is sold.
IMHO long duration term policies or convertable term or WL with buy options is often the most flexiable and cheapest per $ of death benefit. And the death benefit is what insurance is about.
I'm glad you finally got around to reading our comments.  Actually, level term is not always the least expensive option.  If you have a client who intends on converting coverage within 5-10 years to WL but cannot afford it, annual renewable term is a less expensive option.
Ok, you come up with a cheaper situation, since annually renewable term is the pureest form of life insurance. My core point still holds that for the purposes of risk transfer over long set periods of time level premium term is the cheapest.
AllReit, is cheapest always the best?  If it were, we'd all drive Yugos, only rent apartments vs. owning, and when we take our families out to eat, we'd only go to McDonalds.
Again it comes down to making up a chart of liabilites, and then chosing assets/insurance that best matches them. In general liabilities like mortgages, educations etc tend to roll off within 30 years or so.
You look at insurance from a needs standpoint.  Which is fine, but IMO is incorrect.  Like I mentioned earlier in this thread, we do not know where the client is going to be 30 years from now. 
Do you see why having a one-size fits-all approach to life insurance design is flawed?  Can you see why a need-based approach is flawed?
You're making a bit of a straw man here. People whose lives are in flux are going to have dynamic insurance needs. But thats one of those things that comes out in the needs based planning process.
I disagree.  The needs-based planning process focuses on how much is left on the mortgage, how much college will cost (estimated) and any other bills that need to get paid off.  These are calculated in terms of what those bills are TODAY.  We do not know what those bills will be in the future.  They could be more, they could be less.  To make sure we take the guesswork out of the equation, ensure for the full human economic value.  That is, how much will your insurance company give you in coverage.  That is the only way to make sure you don't attempt to guess what someone's insurance need will be in the future.
As best I can tell, (and I could be wrong, and am very open to hearing about it ) there isn't a better way to figure out peoples insurance needs than via a needs based planning process.
Again, I point you to the concept of replacing one's full economic value.  When you purchase car insurance, do you get enough to replace the full cost of the car or just enough to buy a car you 'need'?  When you purchase homeowner's insurance, do you get full coverage or just enough to fulfill your needs? 
If you said less then the full amount for replacement, we don't need to continue further.  If you did say you want to have your car and house replaced fully, why wouldn't you want to insure yourself for the full replacement value? 
(I guess with some kind of fancy UL/Adjustable Life policy you could fit these issues in, but UL is going to be more expensive than LPT. So you need to be really sure than UL is needed over the standard WL/Term stack. I'm not denying that tricky life underwriting cases exist. Just that I think most cases are simpler than commonly thought. )
With every one of my clients, we focus on getting maximum coverage first.  We do not discuss product before we are on the same page with the amount of coverage we want.  And you're right, 99% of my cases are term/WL combos.  I like to keep it simple.  Although when I show them the benefits of WL, they want to find out more (or how they can convert their term insurance in the future).  To summarize, we focus on the coverage FIRST then discuss how to fit it in their budget.

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AllREIT's picture
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deekay wrote:IMHO long duration term policies or convertable term
or WL with buy options is often the most flexiable and cheapest per $
of death benefit. And the death benefit is what insurance is about.
I'm glad you finally got around to
reading our comments.  Actually, level term is not always the
least expensive option.  If you have a client who intends on
converting coverage within 5-10 years to WL but cannot afford it,
annual renewable term is a less expensive option.
Ok, you
come up with a cheaper situation, since annually renewable term is the
pureest form of life insurance. My core point still holds that for the
purposes of risk transfer over long set periods of time level premium
term is the cheapest.
AllReit, is cheapest
always the best?  If it were, we'd all drive Yugos, only rent
apartments vs. owning, and when we take our families out to eat, we'd
only go to McDonalds.

When it comes to insurnace, paying more for the same amount of risk transfer is foolishness.

Again it comes down to making up a chart of liabilites, and then
chosing assets/insurance that best matches them. In general liabilities
like mortgages, educations etc tend to roll off within 30 years or so.
You look at insurance from a needs
standpoint.  Which is fine, but IMO is incorrect.  Like I
mentioned earlier in this thread, we do not know where the client is
going to be 30 years from now. 
Do you see why having a one-size fits-all
approach to life insurance design is flawed?  Can you see why a
need-based approach is flawed?
You're
making a bit of a straw man here. People whose lives are in flux are
going to have dynamic insurance needs. But thats one of those things
that comes out in the needs based planning process.
I
disagree.  The needs-based planning process focuses on how much is
left on the mortgage, how much college will cost (estimated) and any
other bills that need to get paid off.  These are calculated in
terms of what those bills are TODAY.  We do not know what those
bills will be in the future.  They could be more, they could be
less.  To make sure we take the guesswork out of the equation,
ensure for the full human economic value.  That is, how much will
your insurance company give you in coverage.  That is the only way
to make sure you don't attempt to guess what someone's insurance need
will be in the future.
Most
insurance companies will max you at $5 million. Most people do not need
anywhere near as much, nor is likely that would ever need so much in
the future.
I
can see the theoretical elegance of doing PV(Income stream) and saying
that is as much insurance as you need. But in many cases that could
exceed/fall short all of the persons identified insurance needs.

Over insurance has a heavy opportunity cost from all the money that went into insurance payments that could have been spent on something else while you were alive .
As best I can tell, (and I could be wrong, and am very open to hearing about it ) there isn't a better way to figure out peoples insurance needs than via a needs based planning process.

Again,
I point you to the concept of replacing one's full economic
value.  When you purchase car insurance, do you get enough to
replace the full cost of the car or just enough to buy a car
you 'need'?  When you purchase homeowner's insurance, do you get
full coverage or just enough to fulfill your needs?

P&C
insurance is different than life insurance because of the graduated
payouts, most claims will be less than for the full balance of the
policy. The full cost of the house/car is as much insurance as I need.
(excepting auto liability)
If
you said less then the full amount for replacement, we don't need to
continue further.  If you did say you want to have your car and
house replaced fully, why wouldn't you want to insure yourself for the
full replacement value? 

Because
humans don't have a quantifiable replacement value. They have
liabilities that need to be defeased. And to offset those liabilites
you can buy life insurance.

(I guess
with some kind of fancy UL/Adjustable Life policy you could fit these
issues in, but UL is going to be more expensive than LPT. So you need
to be really sure than UL is needed over the standard WL/Term stack.
I'm not denying that tricky life underwriting cases exist. Just that I
think most cases are simpler than commonly thought. )
With
every one of my clients, we focus on getting maximum coverage
first.  We do not discuss product before we are on the same page
with the amount of coverage we want.  And you're right, 99% of my
cases are term/WL combos.  I like to keep it simple. 
Although when I show them the benefits of WL, they want to find out
more (or how they can convert their term insurance in the
future).  To summarize, we focus on the coverage FIRST then
discuss how to fit it in their budget.The
main benefit of WL is that it doesn't go away. The downside is that
it's over-costed unless you break to about 75 or so. The life companies
make alot of money from lapsed WL policies. Which is why they are
crying bloody murder over life settlement investors, who are keeping WL policies in force to the bitter end.

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joedabrkr wrote:This is a good discussion, but I have to say that the colors are killing me and it's getting hard to follow.There must be a better way to structure it.Either way-thanks for taking the time to offer useful thoughts on both sides.
Haha - I was thinking the same thing.  I'll summarize:
I feel it is worthwhile to own insurance past 65 or when the mortgage gets paid/kids off at school/retirement, etc.  I disagree with the methodology behind "needs-based" insurance planning.  It leaves too many holes and doesn't properly address the future unknown insurance needs.  There is an added benefit of holding life insurance in retirement - estate and income planning.  The best plan to address these two issues is MONEY.  Therefore, life insurance provides the needs to simplify the estate planning and enhance income planning.
AllReit feels all insurance agents and insurance companies are evil because they make profits.  He feels that one should only buy life insurance to protect known liabilities.  However, he fully insures his house and car.  He constantly compares insurance to investments.  Which, any sane financial advisor knows is not a fair comparison. 
Did I leave anything out?

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AllREIT wrote: deekay wrote:
When it comes to insurnace, paying more for the same amount of risk transfer is foolishness.
I couldn't agree with you more.  However, there is a side to this I think you are missing.  It is a very important one.  To illustrate - let's say you and Mrs. AllReit are heading out to dinner in downtown San Francisco.  You encounter two parking garages equidistant from your restaurant.  One costs $10 to park and the other is $20 to park but will refund your $20 when you leave.  Which garage do you pick?  Why? 

Most insurance companies will max you at $5 million. Most people do not need anywhere near as much, nor is likely that would ever need so much in the future.
That is very incorrect.  Insurance companies vary in terms of how much they will cover you for.  Generally, it is based on your age and your current income or one times your net worth.  For example, a 30 year old making $200k per year can get insured for up to $6mm.
How do you know how much they need in the future?  Do you know where estate tax rates will be?  How about income taxes?  You are assuming alot about the future and what people will 'need'.  That is very dangerous.
I can see the theoretical elegance of doing PV(Income stream) and saying that is as much insurance as you need. But in many cases that could exceed/fall short all of the persons identified insurance needs.
Exactly.  Which is why I discuss maximum coverage with all my clients.  That is the only way I know of how to protect against future life insurance needs.

Over insurance has a heavy opportunity cost from all the money that went into insurance payments that could have been spent on something else while you were alive .
This statement, coming from you, is very puzzling.  On the one hand, you state there is a lost opportunity cost with purchasing life insurance.  On the other hand, you advise buying term insurance and invest the difference.  Is there not a lost opportunity cost with loading up on so much term insurance? 
Again, I point you to the concept of replacing one's full economic value.  When you purchase car insurance, do you get enough to replace the full cost of the car or just enough to buy a car you 'need'?  When you purchase homeowner's insurance, do you get full coverage or just enough to fulfill your needs?
P&C insurance is different than life insurance because of the graduated payouts, most claims will be less than for the full balance of the policy. The full cost of the house/car is as much insurance as I need. (excepting auto liability)
Let's focus on replacement for now instead of getting into auto liability.  You stated the full cost of the house/car is as much insurance as I need.  I interpret this as "full replacement".  Correct me if I am wrong.
You see, we as human beings have a full replacement value.  Disagree?  Well, if someone were to be negligent and either permanently disable you or kill you in, say, a car accident, how much do you think you or your family would sue for?  If you said anything less than the maximum, you're either lying or you're a fool.  The courts use a table to determine the maximum amount you could sue for (not including punitative damages).  The table is based on your age and income!  Sound familiar?  That's the exact formula most insurance companies use.
Because humans don't have a quantifiable replacement value. They have liabilities that need to be defeased. And to offset those liabilites you can buy life insurance.
Please read my above comments.
With every one of my clients, we focus on getting maximum coverage first.  We do not discuss product before we are on the same page with the amount of coverage we want.  And you're right, 99% of my cases are term/WL combos.  I like to keep it simple.  Although when I show them the benefits of WL, they want to find out more (or how they can convert their term insurance in the future).  To summarize, we focus on the coverage FIRST then discuss how to fit it in their budget.
The main benefit of WL is that it doesn't go away. The downside is that it's over-costed unless you break to about 75 or so.
Define 'over-costed'.  Compared to what?  You mean to tell me it is less expensive for someone to buy term until age 65 and then try to buy another 10YT until age 75?  I'll give you a hint - it's not.
The life companies make alot of money from lapsed WL policies. Which is why they are crying bloody murder over life settlement investors, who are keeping WL policies in force to the bitter end.
It is an absolute shame when a WL policy is lapsed.  Part of those lapses can be uncontrollable (i.e. client lost income, can't afford it).  However, the main reason WL policies lapse is they are sold incorrectly.  If they were sold properly and the client fully understood the benefits AND as long as the client maintained the means to pay for the policy, they would NEVER get rid of it.  Unfortunately, we both know this isn't always the case. 
Life settlement advisors are the scum of the earth and serve no purpose other than to suck blood from the insurance industry, clients, advisors, and humanity.  It won't be too soon that they are shut down like the viaticles were.

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ALLREIT, I agree that VUL is oversold.  WL on the other hand is way undersold.  VUL/UL is actually the most overpriced insurance that exists.  UL couples overpriced annually renewable term insurance with a poor savings vehicle.  VUL couples overpriced annually renewable term insurance with an overpriced investment vehicle. 
Participating WL policies from mutual companies are actually the cheapest way to buy life insurance.  You need to look at total cost and not initial cost.  The reason for this is that other forms of life insurance charge a predetermined "Cost of Insurance".  This COI must be high enough to cover the worst case scenario.  WL policyholders, on the other hand, ultimately pay for actual mortality.  Actual mortality has always been lower than the predetermined COI.
As for "needs analysis", it leads to people being underinsured.  People have goals and dreams.  They want their family's to still achieve these goals and dreams if they die.  It's not about having their needs covered.  It's about having their wants covered.  It's the difference between having their having survive or having them thrive.
Term insurance is so damn cheap now, especially ART policies that are sold as riders on WL policies.  It simply doesn't make any financial sense for someone young and healthy to not get as much coverage as the insurance company will give to them.  The premium is too low for the opportunity cost to have any relevance. 
 

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Well said, anonymous.  I forgot to mention the COI vs. mortality calculation.  That's a huge determining factor when looking at WL vs. term.

bluestars80's picture
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anonymous wrote:
WL is actually the cheapest way to buy life insurance.  You need to look at total cost and not initial cost.  The reason for this is that other forms of life insurance charge a predetermined "Cost of Insurance".  This COI must be high enough to cover the worst case scenario.  WL policyholders, on the other hand, ultimately pay for actual mortality.  Actual mortality has always been lower than the predetermined COI.
Keep in mind that "dividends" are really RETURN OF PREMIUM, NOT dividends.  Look at NML, they tend to rate everyone for something and get an overpriced policy started up, making it pretty easy to give 8-9% back a year........

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Keep in mind that "dividends" are really RETURN OF PREMIUM, NOT dividends.  Look at NML, they tend to rate everyone for something and get an overpriced policy started up, making it pretty easy to give 8-9% back a year........
Wrong.  What's wrong?  Just about every word of your post. 
Just because they are treated as a return of premium from a tax standpoint does not make them an actual return of premium.  Treating them as "return of premium" simply gives the internal buildup of cash favorable tax treatment.  This is not the same as actually being a return of premium.
NML rates a small percentage of people.  Don't confuse not giving super preferred rates with being rated.   If a policy does get rated, the dividend paid gets smaller.  Even if the dividend is 8%, they are not giving 8% a year back.
 

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I have yet to meet someone (including NML agents-I was one myself) who could explain just how the dividend % is calculated and what SPECIFICALLY it is.  All they tell people is 8.8% return, as their marketing pieces show.  Anyone care to explain how the 8-9% is calculated?  It is not simply a % of returned premium.

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anonymous wrote:As for
"needs analysis", it leads to people being underinsured.  People
have goals and dreams.  They want their family's to still achieve
these goals and dreams if they die.  It's not about having
their needs covered.  It's about having their wants covered. 
It's the difference between having their having survive or having
them thrive.

Anon, this is going to come down to a matter of perspective.

My take is that there are better uses of cash than spending it on life
insurance. Going for maximum DB is going to lead to higher monthly
premiums which make the policy more likely to lapse, should the assured
become unemployed disabled etc.

Far better IMHO to spend that money on top notch DI/LTC, which benefits
the living, vs excess LI which benefits the survivors at the expense of
the deceased.

What I've found is that life agents sometimes propose life insurance far in excess of the assured's identifiable needs for life insurance
(educations, mortgages, burial expenses, + Income annuity). Those
identifiable needs,  will usually present a  compelling solid
case for buying life insurance.

AllREIT's picture
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theironhorse wrote:I have yet to meet someone (including NML agents-I
was one myself) who could explain just how the dividend % is calculated
and what SPECIFICALLY it is.  All they tell people is 8.8% return,
as their marketing pieces show.  Anyone care to explain how the
8-9% is calculated?  It is not simply a % of returned premium.

No one can explain it. Please sign on the dotted line.

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I've never seen a marketing piece from any insurance company call a dividend of x% a rate of x%.  There are certainly plenty of unscrupulous or unknowledgeable agents confusing the two of them.
Dividends are a participating policyowner's share of any distribution of surplus.  There are 3 parts to dividends.
1) Investment returns that are better than assumed2) Mortality that is better than assumed3) Expenses that are less than assumed
The % that people talk about is calculated based upon what the insurance company is earning from their general account.  It is not what a policy is earning.  The company still has to pay their expenses before they can pay the dividend.  If the insurance company is crediting 8.5% and the guarantees are based upon 4%, and the mortality and expenses are the same as is assumed or less, it will create a dividend.  How do they credit this amongst various policies?  I don't know.
 

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anonymous wrote:NML rates a small percentage of people.  Don't confuse not giving super preferred rates with being rated.   
 
I beg to differ, having worked there as an agent.........we had 26 different rating classes.......
I decided to leave when I heard a senior agent say to a client to "think of the yearly dividend rate as the FIXED INCOME portion of your porftolio"..............

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AllREIT wrote: anonymous wrote:
As for "needs analysis", it leads to people being underinsured.  People have goals and dreams.  They want their family's to still achieve these goals and dreams if they die.  It's not about having their needs covered.  It's about having their wants covered.  It's the difference between having their having survive or having them thrive.
Anon, this is going to come down to a matter of perspective. My take is that there are better uses of cash than spending it on life insurance. Going for maximum DB is going to lead to higher monthly premiums which make the policy more likely to lapse, should the assured become unemployed disabled etc.Far better IMHO to spend that money on top notch DI/LTC, which benefits the living, vs excess LI which benefits the survivors at the expense of the deceased. What I've found is that life agents sometimes propose life insurance far in excess of the assured's identifiable needs for life insurance (educations, mortgages, burial expenses, + Income annuity). Those identifiable needs,  will usually present a  compelling solid case for buying life insurance.
Let me ask all of you these questions.  This could help one of your clients someday.  It may help yourselves too. 
If you were blindsided by a runaway truck, woke up in a hospital, and were told you were never able to work again, would you sue?  How much would you sue for?  How did you come up with this number?
If you were then told you have 5 days to live, how much would you counsel your spouse to sue for?  How did you come up with this number? 
I ask these questions because it gets to the heart of ALL insurance planning.  I truly believe this will get a good dialogue going and will help us all as advisors.  I thank you in advance and I look forward to reading the responses.

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Bluestar, I know this is going to sound like semantics, but any rating standard or above is not a rated policy.
ALLREIT, Let me agree with your post, but give it a slightly different perspective.
Going for maximum DB is going to lead to higher monthly premiums which make the policy more likely to lapse, should the assured become unemployed disabled etc.
The premium difference, as you will see in a minute, is too small to make a difference.  My experience has actually shown the opposite.  The more someone believes in insurance, the more that they will buy and the less likely that the policy will lapse.
Far better IMHO to spend that money on top notch DI/LTC, which benefits the living, vs excess LI which benefits the survivors at the expense of the deceased.
Again, the premium difference is too small to make a difference.   It won't even pay for one month of DI coverage.  I do believe that DI is imperative.
What I've found is that life agents sometimes propose life insurance far in excess of the assured's identifiable needs for life insurance (educations, mortgages, burial expenses, + Income annuity). Those identifiable needs,  will usually present a  compelling solid case for buying life insurance.
That's fine.  We can just look at identifiable needs.  It is really that "income annuity" that drives everything.  Unfortunately, when I read "rules of thumb" for insurance needs, it is usually in the range of 7-10 x income.  This is just way too low in most cases.  It replaces a $100,000 income with a lump sum of $1,000,000.  Using Monte Carlo analysis, this $1,000,000 will safely generate $40,000 of income before tax.  This does not allow the family to maintain the same standard of living.  What is really needed is $2,500,000 which is 25x income which, not coincidentally, is in the neighborhood of how much coverage the insurance company will issue.
(Yes, I know, that some expenses will disappear.  On the other hand, other expenses will increase.)
As for cost, a 29 year old healthy female can get $1,000,000 of term for $215.  She can get $2,000,000 for $355.  That extra $140 that she is spending is irrelevant.  It's one very fancy dinner.
For the vast majority of my clients, it does not matter if they buy $500,000, $1,000,000, $2,000,000 of coverage.  The premium is identical.  All that changes is the mix between term insurance and WL insurance.

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deekay wrote:AllREIT wrote: anonymous wrote:
As for "needs analysis", it
leads to people being underinsured.  People have goals and
dreams.  They want their family's to still achieve these goals and
dreams if they die.  It's not about having their needs
covered.  It's about having their wants covered.  It's the
difference between having their having survive or having them
thrive.
Anon, this is going to come down to a matter of perspective. My
take is that there are better uses of cash than spending it on life
insurance. Going for maximum DB is going to lead to higher monthly
premiums which make the policy more likely to lapse, should the assured
become unemployed disabled etc.Far better IMHO to spend that
money on top notch DI/LTC, which benefits the living, vs excess LI
which benefits the survivors at the expense of the deceased. What I've found is that life agents sometimes propose life insurance far in excess of the assured's identifiable needs for life insurance
(educations, mortgages, burial expenses, + Income annuity). Those
identifiable needs,  will usually present a  compelling solid
case for buying life insurance.
Let me ask all of you these questions.  This could
help one of your clients someday.  It may help yourselves
too. 
If you were blindsided by a runaway truck, woke up in a hospital,
and were told you were never able to work again, would you sue? 
How much would you sue for?  How did you come up with this number?

I'd let the lawyer handle it.
And this question isn't a good fit since being alive I now have lots of
LTC/medical costs issues ( and should have bought LTC/DI/AD&D over
life insurance ).

Life insurance is about clean deaths only.
In general the amount to sue for (compensatory damages only) would be
for LTC plus lost income. You can figure out that amount with any
lifetime annuity calculator.
If you were then told you have 5 days to live, how much would you
counsel your spouse to sue for?  How did you come up with this
number?

Same thing, let the lawyer
handle it. Again sue for Medical costs/burial costs, 5 cases of
champagne and a lifetime annuity for the net Disposable income (E.g
gross income gets marked down due to food expenses etc) I would
generate.

Use the nifty BRKdirect Spia calculator .

http://www.brkdirect.com/spia/EZQUOTE.ASP

I ask these questions because it gets to the heart of ALL insurance
planning.  I truly believe this will get a good dialogue going and
will help us all as advisors.  I thank you in advance and I look
forward to reading the responses.

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The SPIA calculator won't do it unless it is a SPIA that increases the payout with inflation.

AllREIT's picture
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anonymous wrote:Bluestar, I know this is going to sound like semantics, but any rating standard or above is not a rated policy.
ALLREIT, Let me agree with your post, but give it a slightly different perspective.

One of the problems with insurance is that so much depends on your starting assumptions.

My model.

Permanent Insurance

Burial Expenses
Income Annuity (Calculated per BRK/AIG calculators)

Term

Mortgages/debts
Educations

In general the Term side greatly outweights the permanent side. Also
note that the value of the income annuity goes down with time, as the
target annuitiant gets older. As well, I work off of a "match funding"
model, so I tend to favor matching term liabilities with term insurance
whereever possible.

----
What I do not go for is folks saying; Well the insurance companies max policy is $5 million, and surely your life is worth at least that much , so thats how much you should buy .

AllREIT's picture
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anonymous wrote:The SPIA calculator won't do it unless it is a SPIA that increases the payout with inflation.

http://www.aigretirementgold.com/vlip/VLIPController?page=Re questaQuote

anonymous's picture
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What I do not go for is folks saying; Well the insurance companies max policy is $5 million, and surely your life is worth at least that much , so thats how much you should buy .
Agreed. 
One thing that I don't like about your model is that it assumes that debts decrease over time.  In reality, debts tend to increase over time.  Go talk to a 55 year old.  Ask him how much debt he had when he was 30.  I'd bet that over 90% of 55 year olds have more debt than when they were 30.  (When they were 30, they had a $20,000 mortgage on a $40,000 house.  At 55, they have a $300,0000 mortgage on a $600,000 house.
I try to get my clients, in most cases, to buy as much WL as they can easily afford.  We never sacrifice type of coverage for amount of coverage.

theironhorse's picture
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back to the dividend.  you think only a small % of agents clarify dividend % vs. rate of return?  hardly.  i have sat in training sessions as mentioned earlier in this thread where NML 65 life is praised as the greatest thing since sliced bread and how it should be the main floor of every financial pyramid.  8.8% was the number when I was there, and it was positioned as the "guaranteed" portion of the clients portfolio, as it was compared to the S&P return in NML marketing pieces. 

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And there is a reason NML's last question in their confidential questionnaire asks what the monthly $ commitment is.  It will determine the blend of an ACL or a Perm/Term.  Max out the WL portion, which just coincidentally maxes commission.  I don't have a problem with insurance, I sell alot of it, but it is so abused it is comical.

deekay's picture
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AllREIT wrote: deekay wrote:AllREIT wrote: anonymous wrote:
As for "needs analysis", it leads to people being underinsured.  People have goals and dreams.  They want their family's to still achieve these goals and dreams if they die.  It's not about having their needs covered.  It's about having their wants covered.  It's the difference between having their having survive or having them thrive.
Anon, this is going to come down to a matter of perspective. My take is that there are better uses of cash than spending it on life insurance. Going for maximum DB is going to lead to higher monthly premiums which make the policy more likely to lapse, should the assured become unemployed disabled etc.Far better IMHO to spend that money on top notch DI/LTC, which benefits the living, vs excess LI which benefits the survivors at the expense of the deceased. What I've found is that life agents sometimes propose life insurance far in excess of the assured's identifiable needs for life insurance (educations, mortgages, burial expenses, + Income annuity). Those identifiable needs,  will usually present a  compelling solid case for buying life insurance.
Let me ask all of you these questions.  This could help one of your clients someday.  It may help yourselves too. 
If you were blindsided by a runaway truck, woke up in a hospital, and were told you were never able to work again, would you sue?  How much would you sue for?  How did you come up with this number?
I'd let the lawyer handle it. And this question isn't a good fit since being alive I now have lots of LTC/medical costs issues ( and should have bought LTC/DI/AD&D over life insurance ).
Life insurance is about clean deaths only. In general the amount to sue for (compensatory damages only) would be for LTC plus lost income. You can figure out that amount with any lifetime annuity calculator.
If you were then told you have 5 days to live, how much would you counsel your spouse to sue for?  How did you come up with this number?
Same thing, let the lawyer handle it. Again sue for Medical costs/burial costs, 5 cases of champagne and a lifetime annuity for the net Disposable income (E.g gross income gets marked down due to food expenses etc) I would generate.
Use the nifty BRKdirect Spia calculator .
http://www.brkdirect.com/spia/EZQUOTE.ASP
I ask these questions because it gets to the heart of ALL insurance planning.  I truly believe this will get a good dialogue going and will help us all as advisors.  I thank you in advance and I look forward to reading the responses.

OK, so you let the lawyer determine the amount he/she will sue for in the event you are permanently disabled.  How much do you think the lawyer will sue for?  They're going to recommend you sue for the MAXIMUM.  Why?  Lost wages PLUS COLA PLUS medical expenses PLUS inflation (personal inflation, not CPI).  This is why I also discuss DI/LTC planning with my clients.  I never just have my clients purchase life insurance.
When I ask my clients these questions, they all say the same thing - as much as I could sue for.  This is what they WANT.
Likewise, when the situation is worsened and you are about to die, my clients say they would sue for as much as they could.  Natural death, death by accident, what does it matter?  It represents a loss, both personal and economic (by the way, what the hell does "clean death" mean?)  Let's say you're an up-and-coming legal mind.  You make $200k per year.  Is it safe to say that your lost pay increases would be greater than a 3% COLA?  I, and my clients would argue, they would be.  Ergo, a SPIA with a COLA rider would not completely replace the income lost either by death or disability.  My clients WANT income replaced COMPLETELY or as close to completely as possible.
AllReit, I get the sense you have never, nor ever will, sell life insurance.  And that's ok, your expertise lies elsewhere.  I like dealing with clients on a human level; no talk about beta or correlation coefficients or yield curves.  I get to the heart of the matter, and what matters to my clients is an unwavering passion to take care of themselves and their families as best they can.  Because they or I do not know what the future holds, what interest rates will be, what their personal inflation rate will be, what college costs will be, where the market will be, or where in general they will be in life, I make sure we take as much as the guess work out of the equation.  In a nutshell, MAXIMUM COVERAGE. 
I have yet to hear of a single widow or widower remark that they received too large a death settlement.  However, I have seen countless situations where a death benefit was too small.  And I'll be damned if I EVER have to have the conversation with a family as they ask me, "Why didn't you sell my mom/dad/sister/brother/child more life insurance?"

AllREIT's picture
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Joined: 2006-12-16

DK, I don't whip clients into an emotional state for the purpose of selling life insurance.

I don't think I've ever sold life insurance, but I have helped alot of people buy life insurance.

I think financial decisions need to be made in an objective
dispassionate framework. Where you look at needs and then match
insurance coverage to those needs to get a tight fit.

But thats not the way to do things if your goal is to sell and close on lots of life insurance/annuity premium .
In that case you want to create lots of percieved need for life
insurance/annuities, and get ink on paper before the smoke clears.

And a good lawyer will not sue for "the maximum" but for what is
feasable and can be settled quickly. The only people who win in a
lawsuit are the lawyers.

Very similar to how the only people who win in an insurance contract are the insurco and the broker.

-------

What happens if you get disabled is a toatally different framework from what happens if you die.

Death means no income, disability means no income and lots of expenses.

deekay's picture
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Joined: 2007-05-15

AllREIT wrote:DK, I don't whip clients into an emotional state for the purpose of selling life insurance. I don't think I've ever sold life insurance, but I have helped alot of people buy life insurance. I think financial decisions need to be made in an objective dispassionate framework. Where you look at needs and then match insurance coverage to those needs to get a tight fit.
There are two sides to the equation - the rational side and the emotional side.  They usually don't match.  However, when I show them how permanent life insurance enhances all their other assets, they want to purchase more.  And I've got no reservations about it.  I'm proud to say I sell life insurance.  My clients love me for what I do and how I go through their entire financial picture.But thats not the way to do things if your goal is to sell and close on lots of life insurance/annuity premium . In that case you want to create lots of percieved need for life insurance/annuities, and get ink on paper before the smoke clears.
And here I was thinking you'd actually attempt a civil dialogue.  I should've known better.And a good lawyer will not sue for "the maximum" but for what is feasable and can be settled quickly. The only people who win in a lawsuit are the lawyers.
I will give you that settlements are the end result most of the time.  They will ALWAYS start with the larger number first, though.  It's what's good for them AND the client.Very similar to how the only people who win in an insurance contract are the insurco and the broker.
Again, I appreciate you attempting to drag this discussion into the gutter.  It only makes me look better and you,.....well, you kinda look like a jerk.-------What happens if you get disabled is a toatally different framework from what happens if you die.Death means no income, disability means no income and lots of expenses. No question.  Did I ever say I neglect DI?  In fact, we have that discussion before we even discuss life insurance.
Overall, I think we're going to have to agree to disagree.  But if you ever insinuate again that I am doing something dishonorable by showing my clients that they can buy maximum coverage if they wanted, our pleasant discussion will cease. 
I feel you do bring alot to this forum.  There is no need to resort to back-handed comments and accusations of dishonesty or doing less than what is in my clients very best interest.

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