Whole Life Insurance vs. Universal Life Insurance

"When is WL better than UL? Is the premium flexibilty the only advantage UL has."

I get lots of PMs. Most are of a personal situation nature and I'm always willing to take the time to answer them. Sometimes I get questions like this that are much more general. When this happens, I'll start a thread if I think that there are people who will care about the answer.

First of all, we need to make sure to understand the products.

UL=Universal Life UL combines annually renewable term insurance (ART) with a side fund. ART is term insurance that increases in cost every year. Here's an easy example. Let's pretend that the only cost is the Cost of Insurance (COI). Let's look at what happens as one gets older and is paying a constant premium. These are made up numbers.

Age Premium Payment Cost of Insurance Money going into side fund
30 $500 $200 $300
31 $500 $205 $295
32 $500 $211 $289
40 $500 $350 $150
50 $500 $500 $0
51 $500 $535 $-35
52 $500 $575 $-40
60 $500 $1300 $-1300
61 $1380 $1380 $0
62 $1450 $1450 $0
70 $3000 $3000 $3000

UL is nothing more than "Buy Term and Invest the Difference" but inside of a bundled product. The premium payment can be any amount as long as it's enough to pay for the cost of insurance. The COI increases every year, so ultimately it can become greater than the amount of money going into the policy. When this happens, money comes out of the side fund to help pay the insurance. When the side fund goes to $0, one's premium payment must then be (usually dramatically) increased to pay for the cost of insurance which will increase every year.

WL= Whole Life In general, when I am talking about Whole Life, I am referring to "Participating Whole Life from a Mutual Company". This means that the policy holders share in the profits of the company via dividends. Whole Life is an insurance product that has a guaranteed premiums, guaranteed death benefit, and a guaranteed cash surrender value. These guarantees are the worst case scenario. Once a dividend is paid, it can't be lost. A dividend will cause the death benefit and cash surrender value to always be higher than the guarantee or (owner's choice) cause the out of pocket premium to be always less than the guarantee.

A huge difference between the products is that the costs of a UL product are based upon attained age. The costs of a WL product are based upon age of purchase. This will make a UL product much cheaper in the short run, but much more expensive in the long run.

Now, back to the original question...

We are setting up a false choice. For instance, if $1,000,000 of WL cost $10,000 for a 30 year old and the COI for UL is $1500, and the owner can only afford $1500 this year, they could buy $1,000,000 of UL or $150,000 of WL. If that was the choice, UL would be far superior. We never want to sacrifice amount of insurance for type of insurance. So, in this example, instead of getting a smaller amount of WL, the owner should still purchase $1,000,000 of coverage, but it would be a combination of WL and term insurance.

For the rest of this conversation, let's assume that the premium is affordable to buy all WL or all UL. One of the "selling" points of UL is its premium flexibility. This is more illusion than reality and is probably much more of a negative than a positive. It's an illusion because one can't really decide to pay less. The cost of insurance isn't decreasing. It is always increasing. One can pay less out of pocket, but the costs haven't disappeared. All that has happened is that less money is going into the side fund or the side fund is being used to help pay the premium. When this happens, either more money has to be paid later or the policy has a much greater chance of lapsing. The reason why the flexibility is a negative is that because if money gets tight, and one isn't forced to reach into their pocket to pay their premium, human nature may allow them to make this choice despite the long term negative consequences of this action.

WL has no flexibility in the early years, but over time, it becomes very flexible. This is because of both dividends and non-forfeiture options.

Ex. Owner buys a $1,000,000 policy and is paying $10,0000 a year. At the end of the year, money is tight and they would like to pay less. They can't without lowering the death benefit. There is no flexibility.

What if this same scenario occurs 10 years into the future? The policy might have grown to the point where it has a death benefit of $1,100,000 and a cash surrender value of $100,000. Let's assume that the dividend at this point is $5,000. What flexibility does the owner have at this point? 1)If they pay out of pocket any premium of $5,000 or more, the death benefit and cash surrender value is guaranteed to grow. 2)What if they can't pay $5,000? They could pay less and surrender some of the $100,000 of additional insurance that their dividends have purchased. 3)What if they have hit really hard times and will never be able to pay premiums again. They will have three options. A)Surrender the policy for $100,000 B)Change their policy to extended term insurance. This will give them $1,000,000 of term policy for a certain number of years. The number of years will be determined by the cash surrender value. C)Change their policy to a paid up WL policy of a smaller amount. No further premiums will be paid and coverage will last forever.

Ok, since I don't find premium flexibility to be an advantage of UL, when is UL advantageous. 1)When insurance is needed for a finite period of time, but not for lifetime. There are times that it may make more sense than term insurance. These times are anomalies and don't happen too often. 2)At older ages (60+) when someone wants insurance forever and only cares about the death benefit. These policies are really lifetime term insurance. There is no premium flexibility at all because it's done at a premium that will typically cause the cash surrender value to go to $0, but the insurance company is guaranteeing that the policy will stay in force at the same premium. The situations where this makes sense is fairly frequent. Are you older? Are you fairly healthy? Can you afford the insurance premium? Do you want to leave money behind at death? If the answers to those 4 questions are "yes", a UL policy at a guaranteed premium makes sense. These policies are called GUL (Gauranteed Universal Life).

Thanks for the writeup!

but Why buy either?

both are inferioir to plain old Term life, right?

You might want to put a disclaimer like:
If Term life didnt exist

IE, in other threads you mentioned WL is not term plus investment of the excess funds. But from your detailed post, it is just because UL specifically separate out the insurance and investments. But in the WL, the difference between the WL premium and TL premium would be the investment amount. Am I missing anything?

Shandril said: Real question for me is why would one want to buy UL or WL when you could get a tailor-made term life and separately invest the remaining money?

For WL, what's the utterly compelling case for "bundling" basically a Term Life insurance with an investment? Is it cheaper in expenses? Are there tax advantages? In the past, many arguments have been made here and elsewhere that the bundling was prone to fee and real return obscuration and that most people would be better off with TL with separate investments. Has this paradigm changed any? I wouldn't think so considering how the insurance division of many insurers have been bailing out their failing investment divisions and will probably look at making up for the losses from their customers.

For the premium flexibility case, Term Life with separate investment also sounds like the best deal to me since you can always scale down (temporarily) the investment contributions without touching the life insurance policy.

I know it's a lot case by case and you tried to advise on WL vs. UL but I don't think you can have this discussion without looking at the TL + separate investment options which IMO makes sense for most people.

Again, I want to keep this about WL vs. UL. I'm glad that you posted this because this illustrates the precise problem that I have with articles that I read about WL. They talk about WL, but they describe UL. When you bundle investments with term insurance, it is not WL, it is UL.

Shandril said: Real question for me is why would one want to buy UL or WL when you could get a tailor-made term life and separately invest the remaining money?

For WL, what's the utterly compelling case for "bundling" basically a Term Life insurance with an investment? Is it cheaper in expenses? Are there tax advantages? In the past, many arguments have been made here and elsewhere that the bundling was prone to fee and real return obscuration and that most people would be better off with TL with separate investments. Has this paradigm changed any? I wouldn't think so considering how the insurance division of many insurers have been bailing out their failing investment divisions and will probably look at making up for the losses from their customers.

For the premium flexibility case, Term Life with separate investment also sounds like the best deal to me since you can always scale down (temporarily) the investment contributions without touching the life insurance policy.

I know it's a lot case by case and you tried to advise on WL vs. UL but I don't think you can have this discussion without looking at the TL + separate investment options which IMO makes sense for most people.

You raise a good point, but the answer is that the insurance industry has convinced Congress (maybe hoodwinked is a better word for any tax policy mavens out there) into giving the industry special tax breaks such that the money made investing the policy holders money and the payout to the policyholder (in the guise of "insurance") is TAX FREE. The insurance industry is not the Community Chest, of course (to put it mildly), so it slurps off of the tax bennie in the form of high commissions to its salespeople, high salaries to its executives (even mutual companies) and, of course, benefits to its policy holders (nonmutual companies). But, if you find the right policy, i.e. a "low load" UL or WL policy, it's worth it because you get to share in the tax ripoff of the taxpayers that the insurance industry has lobbied for itself. Some companies are more greedy (and invest less well) than others, so as with anything in life, caveat emptor and check out what you buy and who you buy from. But, courtesy of Congress and the tax break, I wouldn't reject out of hand in favor of term plus invest the difference.

rcmkensington said: You raise a good point, but the answer is that the insurance industry has convinced Congress (maybe hoodwinked is a better word for any tax policy mavens out there) into giving the industry special tax breaks such that the money made investing the policy holders money and the payout to the policyholder (in the guise of "insurance") is TAX FREE. The insurance industry is not the Community Chest, of course (to put it mildly), so it slurps off of the tax bennie in the form of high commissions to its salespeople, high salaries to its executives (even mutual companies) and, of course, benefits to its policy holders (nonmutual companies). But, if you find the right policy, i.e. a "low load" UL or WL policy, it's worth it because you get to share in the tax ripoff of the taxpayers that the insurance industry has lobbied for itself. Some companies are more greedy (and invest less well) than others, so as with anything in life, caveat emptor and check out what you buy and who you buy from. But, courtesy of Congress and the tax break, I wouldn't reject out of hand in favor of term plus invest the difference.At least for term life product, I don't see the current taxation rules are bad. You pay the premium with your already taxed dollars, then your death benefits is free of income tax.

WL and UL do enjoy the tax sheltering growth for their investment portions.

Insurance Expert: please collect all your threads together, including ones you didn't start but gave detailed replies to, and create a single updating thread linking them all. It's good stuff, thanks!

rcmkensington said: InsuranceExpert said: rcmkensington, can you name a low load WL policy that outperforms one that pays commissions? I can't. I'm not saying that it doesn't exist, but I don't know of one. By the same token, no load term policies aren't less expensive than load ones despite the fact that the commission on the typical term policy is in excess of 100%. It's less expensive for insurance companies to pay big commissions than to hire people on salary. Commissions are nothing more than a distribution expense and it's the cheapest way to distribute the product.

You must sell life insurance! Or you did at one time. Sounds like what stockbrokers try to tell me -- that "their" mutual funds or products they are trying to sell get better investment results than no load or low load products. In the case of financial products, that story has been largely disproved -- ask John Bogel. It stands to reason that if 90% or more of initial premiums don't go to the investment, they go to the commission, that the return is going to be hurt.

But to answer your question, I'm an observer (and consumer) relative to the life insurance industry and no, I don't know the products well enough to cite a no-load insurance policy that pays better than a high commission policy.

But, I'm not sure anyone can because the insurance industry and its returns are opaque. What financial page can I go to compare insurance rates of return? And, lessee past performance is not a guarantee of future results -- that also applies to insurance company investments, right? When all is said and done, it'll take a lot to convince me to invest in a full commission insurance product. But, as a good salesman, maybe you can Tell me the policy you recommend in a PM. Or, better yet, post it for all of us to see. I don't know of any FW member not interested in a good investment deal.

The above said, IE, you know the insurance industry pretty d..n well. But, be honest enough to admit that it is a bloated subsidized industry that sucks off of the tax break (as do other industries BTW) and that a consumer has to be careful in buying insurance products as an investment, particularly since the industry is so opaque.

I do sell life insurance and I do like high commissions. The problem with talking about commissions is that it really misses the point. Insurance companies have expenses. Commissions are an expense. The issue isn't the commissions. The issue needs to be the total expenses. Compare what happens when you buy a term policy from me from XYZ company vs. buying one directly from ABC company that doesn't pay commissions. The premium from XYZ company is $1000. They probably pay $1200 in total commissions with a nice chunck of that going into my pocket. ABC company charges $1100 and pays no commissions. Why does ABC company charge more despite paying no commissions? It costs them money to hire the salesperson. It cost them money to train them. It costs them money for their salary. It costs them money to pay for their benefits. It costs them money to replace them. There is only one reason for an insurance company to pay big commissions. It generates the most profit for them.

Here's another example. Insurance Company DEF charges $1200. Insurance Company GHI charges $1200. They are both highly rated. DEF pays $1300 in commissions. GHI pays $1400 in commissions. GHI will have many more sales and much higher profits and lower per unit costs.

The load/no load argument of mutual funds doesn't hold up here. The reason is that no-load funds are less expensive. Low load (really no such thing as no load) insurance products are more expensive.

I don't recommend a specific policy. It all depends on the individual. If a low-load product was better, I would recommend it.

The major tax break of insurance is that the death benefit is free of income tax. Our tax laws have two purposes. 1) Raise revenue 2) Control behavior It makes sense to encourage people to buy life insurance. Long term care insurance is the same way.

Let's re-name this thread "Whole Life Insurance vs. Universal Life Insurance, How to prove a point using completely made up numbers and facts"

This thread reads more like a sales pitch than useful information since the numbers and scenarios are all fudged.

Term Life FTW.

howwlovey said: I am 31, married with two kids (<1 and 3 year old) have a stable job. which is a good insurance for me? WL,UL,TL.

There isn't enough information, but most likely 100% term insurance or a combination of term insurance and WL with the bulk being term. The disability advice was excellent.

theman2 said: howwlovey said: I am 31, married with two kids (<1 and 3 year old) have a stable job. which is a good insurance for me? WL,UL,TL.Probably term life for a period long enough to get your dependants through college. And consider disability too, especially if your wife does not work.

Agreed as a start. I got 20 and 30 year level term life and have (lots of) disability insurance since the odds of being disabled are so much higher than of dying young and leaving kids stranded. Life insurance is to protect those you love who depend on you.

Term is so much cheaper than UL or WL that it's worth it to get a lot of insurance ($1 million plus, tax free to the beneficiaries) to protect your kids for pretty cheap premiums.

WL and UL have an investment component and I have found the different WL and UL policies I've gotten pitched over the years so complicated and difficult to compare, that I've never bought one. (I can be tough to sell to, if I don't fully understand the pluses and minuses, I walk away.)

The industry's WL and UL products are difficult to assess (read the fine print of an insurance policy someday -- reads like the derivative contracts that no one on Wall Street really understood). To me, the issues that have bothered me on UL and WL policies are a) what rate is GUARANTEED by the insurance company, if any; b) what rate can I realistically expect on my investment component. I've never been satisfied by the answers to those questions from salesmen, particulary b) --- in large part because this information is not generally publically available or subject to independent review.

But, that may have been a mistake because despite my critical view of the industry, the tax break is considerable and a good UL or WL policy can be a smart buy. But, I view it as something you do AFTER you get term and disability to protect your family, fill up your 401K and get your savings in place. That is, I view UL and WL as supplemental investment products, which at 31 with two young kids, you're probably not yet in a position to buy.

IE appears to be that rare animal -- a knowledgeable and honest (if protective of his high commissions) life insurance rep, so I wonder if he agrees.

InsuranceExpert said:
Again, I want to keep this about WL vs. UL. I'm glad that you posted this because this illustrates the precise problem that I have with articles that I read about WL. They talk about WL, but they describe UL. When you bundle investments with term insurance, it is not WL, it is UL.

But hang on, you just described that WL was characterized by receiving dividends based on how the insurance company itself is doing. Isn't that a stock-like investment? If one were to get a Term Life contract, and with money saved on premium buy the insurance company stock, wouldn't they also get dividends? Would a WL policy be cheaper and/or have higher returns than getting TL plus insurer stock? The only case where I could see this possibly true is IF you cannot shelter the stock from tax and/or if the cost of paying tax on stock dividends outweights the expenses of the WL policy.

From my understanding, UL and WL then becomes differentiated mostly by where the extra money on top of COI gets invested, either in insurer stock for dividends (WL) or a mutual fund (UL)? Wouldn't that be a fair representation? [Edit: my bad forgot the fixed premium of WL vs ART of UL]

Basically (aside from modifications allowed to contract) does it not boils down to:

TL = term insurance only (guaranteed death benefit, fixed premiums, no surrender cash value - although some have return of premium clauses)
WL = term insurance + invest in insurer stock (guaranteed death benefits, fixed premiums, extra money on top of TL cost practically goes into account that invests in insurer stock to pay dividend, dividend plus extra money paid form the cash surrender value)
UL = ART term insurance + invest in mutual fund (no fixed premiums, guaranteed death benefit, extra money goes into mutual fund with possible losses = no guaranteed cash surrender value)

P.S.: I agree with IE on commission vs. salaried sale force being ultimately a moot point. For the consumer, the bottom line is premium for insurance. We all know insurer will charge expenses plus profit margin for their product so whether sales expenses are in form of commissions or salary of salesperson, it makes little difference. Commission only shows more clearly what you pay the salesperson and separate that expense from other operating expenses for the insurer. The main caveat however is that outside of Term Life, UL and WL are very prone to hiding those commissions/fees and making it more difficult to compare exactly equivalent products. In turn, that probably leads to those commissions being easier to inflate and hide into poor returns on investments for UL and WL. For Term Life, since it's so simple a contract, there's basically nothing outside of insurance amount vs. annual premium comparison so I'd assume commissions may be lower for insurers to stay competitive.

InsuranceExpert said:
UL has an investment component.
WL does not have an investment component. A cash surrender value is a nice feature of the product, but it is not an investment component.

If you put your conservative money away in XYZ product, what rate of return will you get? There's no way of knowing. The same is true in whole life insurance. What should be expected is that the conservative investment will equal the same ballpark as the cash surrender value of the life insurance with the advantage of the life insurance being the amount of the death benefit above this amount.

That's what I find troublesome about WL and UL. The UL investment component is disclosed, but I've found it hard to assess. Try asking a) what guaranteed rate of return will I get at a minimum; b) what rate of return can I realistically expect based on past performance. I've never gotten satisfactory enough or verifiable enough responses from insurance industry salespeople to buy UL or WL.

As for WL, IE parrots the insurance industry line very well that there's no investment component. Baloney. Where do you think the cash surrender value comes from --- it's the insurance company investing your (high) premium dollars. But try figuring out the rate of return or comparing products. Maybe investors smarter than I am can figure it out.

Still, a good WL policy can be worthwhile and I may have made a mistake in not getting one when I was younger and the premiums less (there is a life insurance component in a WL policy, of course, if there's not, no tax break and the older you are, the higher your premium, of course) -- provided that you hold it at least 10 years (IE -- how long would you say is a realistic minimum -- something that an honest salesman, which I believe you are will tell a client?) But, if you cash it in after 2-3 years or stop paying premiums and let the WL policy lapse, you'll lose your shirt since the early premiums go into fat commissions and the investment return (oops, excuse me, cash surrender value) is minimal.

One scenario that seems to me tailor made for UL is to do a "pension max" type of
deal.

This is used when you have a pension, and don't want to take the survivor option, which would have continued the pension to your wife, after you die. By taking the "one life" option on the
pension, you get a higher pension income. Use some of that to buy an UL policy, which then provides the income when the husband dies.

Advantages:
1) as mentioned, higher pension income
2) hopefully/possibly lower out-of-pocket costs than a "survivor" penion would cost

BUT, caveats --
1) make sure you can afford the UL payments;
2) the UL policy should have low cost ("low load"), so the fees don't eat up the cash value,
in case you die early;
3) it might be a lower risk if the wife has income/assets of her own, so she
is not wholly dependent on the UL payout for income when you die;
4) this is all based on the UL premiums being lower than the cost difference
of the "survivor-only" vs "one-life" pensions;

Any thoughts on that?

mikef07 said: rcmkensington said: InsuranceExpert said:
UL has an investment component.
WL does not have an investment component. A cash surrender value is a nice feature of the product, but it is not an investment component.

If you put your conservative money away in XYZ product, what rate of return will you get? There's no way of knowing. The same is true in whole life insurance. What should be expected is that the conservative investment will equal the same ballpark as the cash surrender value of the life insurance with the advantage of the life insurance being the amount of the death benefit above this amount.



 

As far as WL is concerned, good luck getting any information on rates of return. IE is a good salesman who parrots the insurance industry line very well. That is, with WL there's no rate of return, it's cash investment value and not an investment component. Baloney. Where do you think that cash surrender value comes from -- the insurance company investing your high WL premiums (those that don't go in fat commissions and fat operating expenses and profits). That's the problem with the insurance business -- it's opaque and you can't easily compare or determine rates of return as you can with other investments.

Not real hard to find rates of return

Life insurance salespersons will indeed give you historical performance on their policies as well as projections based on your age and amount of insurance. But, how do I compare two or three companies' products? And past performance is no guarantee of future results -- so at least give me details as to what the insurance company will be doing with my money and what is guaranteed as opposed to what might happen based on (supposed) historical returns.

Maybe someone smarter than me can figure out what's best.

So the question IE poses of UL versus WL is one I can't answer because the products are so different and (to a dummy like me) relative comparisons of alternative products from different companies so difficult that "it depends" becomes the only answer. You hear that a lot from people in the insurance industry too - it all depends.

Can a good, honest insurance agent find you a good policy from a strong company (don't think insurance companies can't fail and leave you stranded)? Sure --- and if he's very honest and up front, discuss the pros and cons. Some of those I think exist, I've already commented on, but people in the business know or should know this much better than me --- things like commissions, favorable taxation, the need to hold a UL or WL policy for at least (in my view) ten years to make it a worthwhile investment, paying premiums all along. A lot of people (maybe someone knows industry stats, but this is not an industry that believes in open disclosure) are unable or unwilling to keep paying the UL or WL policy dividends and the policies lapse early, in which case, the UL or WL "investment" turns out to be a disaster. If you invest in a CD or stock or whatever and you don't make regular payments, nothing happens -- you still have what you bought and what it's worth at the time. In the case of a WL or UL policy you in effect have to commit to X years payments for the investment to be worthwhile. I've always had to pry this type of information out of insurance reps for some reason -- no salesman will easily tell you the risks or downsides of what he's selling versus other products he doesn't sell -- at least that's been my experience.

My problem is that you really can't make an intelligent decision without a good, honest insurance agent, or at least I can't when it comes to UL versus WL versus annuities versus buying term insurance (which I have done) and just investing on my own or in mutual funds. But maybe IE and others who are in the business can help educate me and other FWS as to what questions to ask, what client profiles UL works better for as opposed to WL, etc.

The insurance industry and its salespeople have long feasted off of the insurance tax breaks and difficult to understand products they sell, particularly WL, but at the end of the day, there's enough slurp slurp gravy at the trough generated by the tax breaks for consideration by a savvy consumer who finds a knowledgeable and honest insurance rep who identifies a good WL or UL policy. I haven't found it yet, but maybe I will.

FWIW -- I have come to think that a good WL policy from a company with a good track record with GUARANTEED cash value of $X after Y years is worthwhile as a conservative supplemental investment to help have cash for heirs or in one's estate and have a cash value build up that you can borrow against tax free --- and that this beats UL whose returns are not guaranteed and subject to commisions of all kinds, including investment commissions like mutual funds -- and the tender mercies of the investment advisors running the policy and, of course, the economy. But, if you can't commit to making regular payments for the Y years minimally necessary, you will lose your shirt with the WL policy in particular.

mylekiller said: 99.9% of the population should have term life. 20 year term policy. Invest the difference and in 20 years you'll have around $1.5 mil. Do whatever you can to get to the point where you can self-insure. Rich people do rich people things.

Agreed on a majority of people, particularly those under 35 with young kids. Disagree on 99.9%. Also disagree on "rich" people (whatever your definition of rich is) being different. They're not, they are subject to the same rules we all are and most got rich by applying over time the same value that drive many FWs -- hard work, not wasting money, educating themselves about finances, etc.

After you have enough (cheap) term to protect your kids, disability insurance, a house, max out on your pension contributions and have a savings cushion of, say 6 months, then you have to consider where you invest your true savings. Whether your bag is real estate, mutual funds, bonds, stocks, or whatever, I'd put UL or WL in the mix to CONSIDER for your situation. People in this position are generally upper middle class, but certainly not rich by any standard. In my case, I sometimes think that I should have bought WL or UL instead of some of the dumber mutual fund and/or stock market investments I made. Remember --- the whole insurance racket is based on their juicy tax breaks -- if it benefits you, you might as well take advantage too.

IE - I wanted to say thank you for your detailed explanation and Q&A. I may eventually have some questions, but for now I'm just happy to learn.

This post won't answer any specific questions, but is designed to help people understand why WL is usually better than UL in a way that may resonate with the FWF community. There are still times when UL is better (older ages, only concerned about death benefit).

All companies are in business for one reason. That reason is to make as much money for the owners of the company as possible. Mutual companies sell mostly WL. Stock companies sell mostly UL. Mutual companies are owned by policy holders. Stock companies are owned by stock holders. The FWF thinking is that the product that is most profitable to the company (UL) is the one that is the worst for the consumer.

Why is UL used by stock companies instead of a participating WL policy. Let's look at the pricing of the UL policy. The insurance company must price this at a high enough level that they know will be high enough to pay all of their expenses because they won't be able to raise this price.* Just like a WL policy, they must assume that more people will die than they expect, their investments will do worse than they expect, and their expenses will be higher than they expect.

What happens when this trifecta of negativity doesn't happen? The insurance company is profitable. How do the policy holders benefit? They don't. It is the owners of the company, the stockholders, who end up with the profit.

The same pricing situation occurs with WL policy. The pricing is based on everything being pretty bad. What happens when things aren't bad. The policy holders benefit because they are the ones who share in the profits of the insurance company.

Here's another way to look at it just from the mortality expense standpoint. With a UL policy the insurance costs, the COI, must be artificially high in case more people die than expected. This is to protect the insurance company. When less people die, the insurance company has more profit. In other words, the COI must be higher than the actual mortality costs.

In a WL policy, because the profits go back to the policy holders, what the policy holder ultimately pays is the actual mortality costs.

To really simplify things, in a participating WL policy, the profits go to the policy holder. In a UL policy, the policy holder doesn't get the profits. Which is going to be better for the consumer?

*Contractually, they may have the right to raise it, but financially, they won't be able to do so. If they raise rates, all healthy people will leave and unhealthy people will stay. For this reason, along with increased longevity, I don't know of any examples of a company ever raising non-guaranteed term rates or UL rates on existing clients.

nycll said: IE, in other threads you mentioned WL is not term plus investment of the excess funds. But from your detailed post, it is just because UL specifically separate out the insurance and investments. But in the WL, the difference between the WL premium and TL premium would be the investment amount. Am I missing anything?

In WL, there is no specific term premium that is being paid and there is no investment amount. One big difference between the products is that with UL the costs are based upon attained age and with WL, it is based upon age of purchase. In other words, when a 30 year old purchases a WL policy, they are still treated like a 30 year old when they are 70. In a UL policy, when the 30 year old turns 70, they are treated like a 70 year old.

This makes it much more difficult to remove money from a UL policy without having it lapse in later years.

Anyway, WL does not have an investment amount. There is simply a cash surrender value. This amount will be squat in the beginning. It will typically take 10 years give or take to achieve a 0% return. At the age that all people are assumed dead (Typically around 120 in newer policies and 100 in older ones), the cash surrender value will equal the death benefit. This amount will be much higher than the original death benefit. The exception is that if all dividends are taken in cash, the original death benefit will never increase and at age 120, the cash surrender value will equal the death benefit.

scottsd said: One scenario that seems to me tailor made for UL is to do a "pension max" type of
deal.

This is used when you have a pension, and don't want to take the survivor option, which would have continued the pension to your wife, after you die. By taking the "one life" option on the
pension, you get a higher pension income. Use some of that to buy an UL policy, which then provides the income when the husband dies.

Advantages:
1) as mentioned, higher pension income
2) hopefully/possibly lower out-of-pocket costs than a "survivor" penion would cost

BUT, caveats --
1) make sure you can afford the UL payments;
2) the UL policy should have low cost ("low load"), so the fees don't eat up the cash value,
in case you die early;
3) it might be a lower risk if the wife has income/assets of her own, so she
is not wholly dependent on the UL payout for income when you die;
4) this is all based on the UL premiums being lower than the cost difference
of the "survivor-only" vs "one-life" pensions;

Any thoughts on that?

This makes lots of sense. One must run the numbers, but it is often a superior solution. Your one caveat doesn't matter. The cash values don't matter. At death, it is the death benefit that is paid. Additionally, this will typically be done with a GUL policy which are designed to maximize death benefit and have minimal cash surrender value.

Think a little bit broader for a minute. Assume that there is no pension. Retirement planning isn't about having the most assets. It's more about having assets situated in such a way to have the most income. When we start thinking in this manner, everything becomes "pension max". What I mean is that having permanent life insurance allows people to spend more of their money in retirement because what they spend gets replaced in death.

Here's a simple example, again with made up numbers. Mr. and Mrs. Smith are retired. If they put their money into a SPIA (single premium immediate annuity), they will receive and income of $5,000 a month for as long as either one of them is alive. What happens if Mr. Smith owns a big life insurance policy? He can buy a SPIA that pays $8,000/month but only pays for as long as he is alive. Results: They get to spend $8,000 instead of $5,000 while both of them are alive. Mr. Smith will still get to spend $8,000/month if his wife dies first. If Mr. Smith dies first, Mrs. Smith gets the life insurance proceeds and she'll be able to live comfortably for the rest of her life.

The existence of a life insurance policy allows one to spend a higher % of their net worth in retirement.

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