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View Full Version : WL, UL, vs Buy term Invest Difference
Cornelius
12-19-2008, 07:48 PM
Here's a good discussion on the subject. Try to read it with an open mind.
There are some very good points mentioned.
http://blog.riscario.com/2007/10/does-warren-buffett-buy-term-and-invest.html
There are some very good points mentioned.
http://blog.riscario.com/2007/10/does-warren-buffett-buy-term-and-invest.html
Raaj
12-22-2008, 02:18 AM
life insurance is meant to help reduce the financial burden faced by the beneficiary. With that in mind, you’ll need a lot less life insurance than what most insurance reps will recommend. However, every situation is different. If you have dependents, sit down with your spouse and have a chat about the worst case scenarios.
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Raaj
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Raaj
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ilg2009
02-13-2009, 01:27 PM
My husband ran a pension company (selling WL and UL in addition to annuities...) I was always surprised when folks talk about amounts of insurance- like raaj mentioned above. I am confident you are experienced and professional and I mean no disrespect...
To try and run a 'needs assesment' for life insurance is ridiculous! Ask any person how much a cell phone or mobile web plans would have cost 10 years ago when they ran their needs assesment. Couple innovation with planned obsolesence and here are just two points that show it can't be done with any hint of accuracy. And what if your estimates (on inflation, costs, etc...) are off? Insurance should be used to minimize risk. Guessing, no matter how sophisticated, at what future inventions, needs, and costs will be is a waste of time and does a horrible dis-service to your customers... in MY opinion, and I may be 100% wrong here. But this is a topic I am very passionate about.
And let's look at this from the other side of the coin... Insurance companies are not charitable businesses. They are in this to make money. They pay a lot of money for actuaries and other folks to run all kinds of tests and surveys to limit their risks....
Would an insurance company insure my 1980 ford pinto for 300,000 if I asked for the coverage? NO WAY! It doesn't make sense. If they did someone would get the policy, drive it to some bad part of town and park it with the keys in and a bat up against the outside door HOPING someone would steal it so they could get the insurance money....The insurance company will allow a customer to buy only what they think the item is valued at.
Using that logic, an insurance company will approve a person for a certain amount of life insurance (depending on what they think that person can earn over their lifetime....) If they say a person is worth XYZ dollars why should an agent talk the person down from that amount? To save them a couple bucks a month? To save a few thousand a month? Why don't they just say 'you really aren't this valuable the UWs have overstated your potential, I'd go with 50k...term insurance'?
It is like owning a ferrari and waiving telling the P&C guy you only want to insure the vehicle for 25 /50k (or whatever the state minimum is). Most folks would never do it... and the big dif is auto insurance is IN CASE you crash... life ins isn't IN CASE you die... it is WHEN you die.
The ONLY correct answer to how much insurance can I get is 'the maximum they will extend to you' (now family budget and the sort comes in to the dialogue as well.....of course). But the idea that people can buy too much is nuts!!!! In my opinion.
Think of it like this... if you were going to die in a month (you just knew because the same person that did your needs analysis told you so smileys/smiley17.gif) how much insurance would you buy? If you were going to die in a week how much insurance would you want? AS MUCH AS YOU CAN GET! At least I would, maybe I'm too greedy.... Well news flash- we are all going to die (unless you know something I don't know) so why should our insurance plan be any different? Because of the time we have to wait? I don't think so.
Tell you what if you have ever sold life insurance to someone for less than the maximum amount the UW would approve send me their information and I'll explain to them that they don't need that much because they aren't worth it.... PLEASE send me their info. :) Again if money was the issue, then let's put a plan together that will leverage coverage amounts vs type of insurance and get a strategy rolling...
Ok, that's my two cents. I love this topic and ran the company with Tim for a dozen or so years before we sold it... hope I didn't offend anyone. These are just my thoughts.
To try and run a 'needs assesment' for life insurance is ridiculous! Ask any person how much a cell phone or mobile web plans would have cost 10 years ago when they ran their needs assesment. Couple innovation with planned obsolesence and here are just two points that show it can't be done with any hint of accuracy. And what if your estimates (on inflation, costs, etc...) are off? Insurance should be used to minimize risk. Guessing, no matter how sophisticated, at what future inventions, needs, and costs will be is a waste of time and does a horrible dis-service to your customers... in MY opinion, and I may be 100% wrong here. But this is a topic I am very passionate about.
And let's look at this from the other side of the coin... Insurance companies are not charitable businesses. They are in this to make money. They pay a lot of money for actuaries and other folks to run all kinds of tests and surveys to limit their risks....
Would an insurance company insure my 1980 ford pinto for 300,000 if I asked for the coverage? NO WAY! It doesn't make sense. If they did someone would get the policy, drive it to some bad part of town and park it with the keys in and a bat up against the outside door HOPING someone would steal it so they could get the insurance money....The insurance company will allow a customer to buy only what they think the item is valued at.
Using that logic, an insurance company will approve a person for a certain amount of life insurance (depending on what they think that person can earn over their lifetime....) If they say a person is worth XYZ dollars why should an agent talk the person down from that amount? To save them a couple bucks a month? To save a few thousand a month? Why don't they just say 'you really aren't this valuable the UWs have overstated your potential, I'd go with 50k...term insurance'?
It is like owning a ferrari and waiving telling the P&C guy you only want to insure the vehicle for 25 /50k (or whatever the state minimum is). Most folks would never do it... and the big dif is auto insurance is IN CASE you crash... life ins isn't IN CASE you die... it is WHEN you die.
The ONLY correct answer to how much insurance can I get is 'the maximum they will extend to you' (now family budget and the sort comes in to the dialogue as well.....of course). But the idea that people can buy too much is nuts!!!! In my opinion.
Think of it like this... if you were going to die in a month (you just knew because the same person that did your needs analysis told you so smileys/smiley17.gif) how much insurance would you buy? If you were going to die in a week how much insurance would you want? AS MUCH AS YOU CAN GET! At least I would, maybe I'm too greedy.... Well news flash- we are all going to die (unless you know something I don't know) so why should our insurance plan be any different? Because of the time we have to wait? I don't think so.
Tell you what if you have ever sold life insurance to someone for less than the maximum amount the UW would approve send me their information and I'll explain to them that they don't need that much because they aren't worth it.... PLEASE send me their info. :) Again if money was the issue, then let's put a plan together that will leverage coverage amounts vs type of insurance and get a strategy rolling...
Ok, that's my two cents. I love this topic and ran the company with Tim for a dozen or so years before we sold it... hope I didn't offend anyone. These are just my thoughts.
Cornelius
02-14-2009, 09:06 AM
ilg2009 welcome to the board. Feel free to express yourself. Let me get you started. What is your opinion on the concept of Buy term Invest the Difference? I believe in it and I sell the concept, but the concept has been around for many years, but it seems the masses just don't save as a whole.
Do you se a backlash against term in the coming future when many people get to end of term and get hit with the renewal rates and then notice they don't have the liquid funds to replace the insurance?
As we know the industry says term only goes to claim about 2-3%, but as you said death is 100%..What's your opinion??
Do you se a backlash against term in the coming future when many people get to end of term and get hit with the renewal rates and then notice they don't have the liquid funds to replace the insurance?
As we know the industry says term only goes to claim about 2-3%, but as you said death is 100%..What's your opinion??
ilg2009
02-15-2009, 11:38 AM
Thanks for not being totally upset with my post... the more I stewed on it, it seemed a bit rough. My apologies if I offended anyone, sincereley.
I think term insurance is a great tool. It is awesome for folks that can't afford a more long term product.
I see a few problems with term insurance as a long term strategy...
1-prices get so high it is designed to be dropped...not a surprise
Invest the difference only works-
1. If you can find investments that will produce returns consistently
2. If you can fund the investment for a long period of time (what happens if you become disabled? No riders for 'invest the difference'.
3. If you don't get sued. Heaven forbid you get in an accident or are found liable in a court... all investments are exposed. Cash values are not (at least not here in UT).
4. If you can pass your investments without tax penalties- death benefits are tax free (for most cases).
5. If the government doesn't change tax rules (like that ever happenssmileys/smiley36.gif )
6. If you never want to spend any of the money... the fallicy of self insurance is a thing most people don't see. IF someone is lucky enough to have invested, continued to contribute, not lost....the difference to where they have a million dollars (or whatever amount they like) and then decide to cancel the term policy... well then they can't touch that nest egg. Why? it IS there policy. No more investments that may lose money. No spending it yourself.... anything like that would deplete your self insurance strategy.
A lot of folks I really respect use buy term invest the diff... I just don't subscribe. people are 90x more likely to become disabled than to die prematurely... how does that impact the ability to invest and fund these policies? I am a strong proponent of WL and UL policies with appropriate riders. Yeah they cost A LOT more. Yeah they pay the agent A LOT more... but I think they are genuinely better. With most policies (let's look at Mass and LSW) they become self funding in 15-20 years. Sure that is a long time and we can not guarantee dividends etc.... (Recent history shows it happening around 12 years so I padded it a bit not to be too much of a saleswoman here. At that point the policy should pay out... no more contributions needed. The problem... most folks can't afford a million dollar WL policy. So let's put a portion in WL and term (yup, I'm supporting term) and then convert the term as raises come, cars get paid off, children move...Or if folks don't want a convertable term... then sell term with a return of premium feature and they can use that return of premium to buy down WL policies...
WL policies force folks to save.
There is a reason successful businesses and people buy WL... it pays out.
It's what I own. Maybe it's not the best strategy but I have peace of mind and I know exactly what it will cost me every year for as long as I live... I like that.
I have had a great mentor with this topic (even though I don't like him much as a person, in this arena he is a flippin genius- garrett gunderson).
Google him, he also has a book (killing sacred cows) that is an easy read. If my memory serves we also have him on our company site as a speaker.. not sure if he is on the free list or if you have to subscribe...poke around. Also, I'd love to help however, whenever.
www.ilg.tv
I think term insurance is a great tool. It is awesome for folks that can't afford a more long term product.
I see a few problems with term insurance as a long term strategy...
1-prices get so high it is designed to be dropped...not a surprise
Invest the difference only works-
1. If you can find investments that will produce returns consistently
2. If you can fund the investment for a long period of time (what happens if you become disabled? No riders for 'invest the difference'.
3. If you don't get sued. Heaven forbid you get in an accident or are found liable in a court... all investments are exposed. Cash values are not (at least not here in UT).
4. If you can pass your investments without tax penalties- death benefits are tax free (for most cases).
5. If the government doesn't change tax rules (like that ever happenssmileys/smiley36.gif )
6. If you never want to spend any of the money... the fallicy of self insurance is a thing most people don't see. IF someone is lucky enough to have invested, continued to contribute, not lost....the difference to where they have a million dollars (or whatever amount they like) and then decide to cancel the term policy... well then they can't touch that nest egg. Why? it IS there policy. No more investments that may lose money. No spending it yourself.... anything like that would deplete your self insurance strategy.
A lot of folks I really respect use buy term invest the diff... I just don't subscribe. people are 90x more likely to become disabled than to die prematurely... how does that impact the ability to invest and fund these policies? I am a strong proponent of WL and UL policies with appropriate riders. Yeah they cost A LOT more. Yeah they pay the agent A LOT more... but I think they are genuinely better. With most policies (let's look at Mass and LSW) they become self funding in 15-20 years. Sure that is a long time and we can not guarantee dividends etc.... (Recent history shows it happening around 12 years so I padded it a bit not to be too much of a saleswoman here. At that point the policy should pay out... no more contributions needed. The problem... most folks can't afford a million dollar WL policy. So let's put a portion in WL and term (yup, I'm supporting term) and then convert the term as raises come, cars get paid off, children move...Or if folks don't want a convertable term... then sell term with a return of premium feature and they can use that return of premium to buy down WL policies...
WL policies force folks to save.
There is a reason successful businesses and people buy WL... it pays out.
It's what I own. Maybe it's not the best strategy but I have peace of mind and I know exactly what it will cost me every year for as long as I live... I like that.
I have had a great mentor with this topic (even though I don't like him much as a person, in this arena he is a flippin genius- garrett gunderson).
Google him, he also has a book (killing sacred cows) that is an easy read. If my memory serves we also have him on our company site as a speaker.. not sure if he is on the free list or if you have to subscribe...poke around. Also, I'd love to help however, whenever.
www.ilg.tv
