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whole life is never an investment ... your premium is 100% the price of insurance . there is no investment aspect to it at all .
the cash value is merely an agreement on a refund amount if you cancel , the same as an un-used gym membership would be refunded . in fact it comes from the company cash register as there is no such thing as a cash value account in your name . no one should ever buy whole life for anything but 100% certain pay out at death .
This ^^^
Insurance and investments should never be confused.
There is at least one other potential benefit to whole life that no one has mentioned and that is you can get a LTC rider that pays you the death benefit or at least 90% of it, if you need long term care.
i would avoid hybrids like the plague .. those hybrid policies can be the most costliest way of getting some ltc coverage .. i have discussed why quite a few times .
if you want life insurance buy life insurance . if you want ltc insurance get a plan . unless you have no choice because of health issues these hybrids are extremely costly for what you get and end up costing more then a full blown ltc plan .
here is the problem with them , the reality is that the guarantee of LTC premiums in a hybrid policy are usually offset by the fact that the insurance company controls the cash value, and is under no obligation to pay a going rate of return, especially if interest rates rise.
In other words, it doesn’t really matter that the insurance company can’t increase the premiums on the policy by $4,000/year, when the company can simply under-pay on the interest rate by $4,000/year to accomplish the same result!
And while the cash value of a hybrid LTC policy generally does remain liquid, taking a withdrawal to reinvest to get better, higher rates would entail surrendering the policy and forfeiting the LTC coverage!
In fact, for some types of hybrid LTC policies, the arrangement contractually provides no rate of return to you at all, and is essentially the equivalent of you selling a call option on interest rates to the insurance company, where the more rates rise the greater the company wins at your expense
i would avoid hybrids like the plague .. those hybrid policies can be the most costliest way of getting some ltc coverage .. i have discussed why quite a few times .
if you want life insurance buy life insurance . if you want ltc insurance get a plan . unless you have no choice because of health issues these hybrids are extremely costly for what you get and end up costing more then a full blown ltc plan .
here is the problem with them , the reality is that the guarantee of LTC premiums in a hybrid policy are usually offset by the fact that the insurance company controls the cash value, and is under no obligation to pay a going rate of return, especially if interest rates rise.
In other words, it doesn’t really matter that the insurance company can’t increase the premiums on the policy by $4,000/year, when the company can simply under-pay on the interest rate by $4,000/year to accomplish the same result!
And while the cash value of a hybrid LTC policy generally does remain liquid, taking a withdrawal to reinvest to get better, higher rates would entail surrendering the policy and forfeiting the LTC coverage!
In fact, for some types of hybrid LTC policies, the arrangement contractually provides no rate of return to you at all, and is essentially the equivalent of you selling a call option on interest rates to the insurance company, where the more rates rise the greater the company wins at your expense
The policy has a floor rate of just over 3% and have you priced a stand alone LTC policy lately? A couple hundred bucks a month for a million in coverage blows the doors off what the same coverage costs for a LTC policy, by more than half.
you need to read the fine print on hybrids , they are the most expensive way to get coverage also hybrids are not tax deductible like long term care policies are .. plus many states give tax credits . We get a 1600 dollar tax credit from ny for our plan .. that is not a deduction ,that is a credit... so we get a 1600 dollar state credit and a 8k federal deduction that gets added to all our medical and dental
as kitces points out "
200,000 into a hybrid life/LTC policy, that will pay a $400,000 death benefit if the client passes away, provide $400,000 of long-term care insurance benefits if he/she gets sick and needs care, and in the meantime the $200,000 of cash value remains invested in the policy and eligible for a modest rate of return (e.g., 1% to 3%).
Notably, most/all of the growth in the policy at those interest rates will likely be eroded by the life and long-term care cost-of-insurance charges, but hybrid life/LTC policies typically provide a guarantee that no matter what, the client’s original $200,000 remains assured, liquid and available without surrender charges or penalties (though withdrawals would impact available amounts for claims, and claims may affect the amounts available at surrender or death as well). Thus, in essence, the client gets a long-term care benefit if needed, a death benefit if the long-term care claims never manifest, and a guarantee for liquidity in the meantime.
if a client puts $200,000 into a hybrid LTC policy, and interest rates rise to 5%, the hybrid policy might only pay out 3%, and the client “loses” $4,000/year of return as an indirect “cost” of holding the policy. In fact, the whole reason hybrid LTC policies can guarantee the LTC insurance costs is BECAUSE they are NOT guaranteeing to pay fair market returns when rates rise! Of course the company can guarantee that the LTC costs in your hybrid policy won’t be increased by $4,000/year (or at all), when the company can simply under-pay on the return by $4,000/year to get the same result with impunity, because they control the money!"
you need to read the fine print on hybrids , they are the most expensive way to get coverage also hybrids are not tax deductible like long term care policies are .. plus many states give tax credits . We get a 1600 dollar tax credit from ny for our plan .. that is not a deduction ,that is a credit... so we get a 1600 dollar state credit and a 8k federal deduction that gets added to all our medical and dental
as kitces points out "
200,000 into a hybrid life/LTC policy, that will pay a $400,000 death benefit if the client passes away, provide $400,000 of long-term care insurance benefits if he/she gets sick and needs care, and in the meantime the $200,000 of cash value remains invested in the policy and eligible for a modest rate of return (e.g., 1% to 3%).
Notably, most/all of the growth in the policy at those interest rates will likely be eroded by the life and long-term care cost-of-insurance charges, but hybrid life/LTC policies typically provide a guarantee that no matter what, the client’s original $200,000 remains assured, liquid and available without surrender charges or penalties (though withdrawals would impact available amounts for claims, and claims may affect the amounts available at surrender or death as well). Thus, in essence, the client gets a long-term care benefit if needed, a death benefit if the long-term care claims never manifest, and a guarantee for liquidity in the meantime.
if a client puts $200,000 into a hybrid LTC policy, and interest rates rise to 5%, the hybrid policy might only pay out 3%, and the client “loses” $4,000/year of return as an indirect “cost” of holding the policy. In fact, the whole reason hybrid LTC policies can guarantee the LTC insurance costs is BECAUSE they are NOT guaranteeing to pay fair market returns when rates rise! Of course the company can guarantee that the LTC costs in your hybrid policy won’t be increased by $4,000/year (or at all), when the company can simply under-pay on the return by $4,000/year to get the same result with impunity, because they control the money!"
I have way, way less than $200,000 in the policy that pays $1,000,000 in death benefits and $900,000 in LTC benefits. And I can tap the cash if I want at any time. Try that with a stand alone LTC policy. You die, it’s gone. You don’t need it, it’s gone.
I have way, way less than $200,000 in the policy that pays $1,000,000 in death benefits and $900,000 in LTC benefits. And I can tap the cash if I want at any time. Try that with a stand alone LTC policy. You die, it’s gone. You don’t need it, it’s gone.
usually the ltc benefit is 2x what you put in . in your case it is 1/2 of what you put in , that is why . but these deals still are poor value.
we went with the ltc plan simply because we could keep that lump some invested and with just a small piece of what the hybrid cost you in lost gains we can pay the premium and have lots more left over . you can argue all you want but hybrids are the most expensive way at the end of the day to try to get ltc coverage.
i would need to see your policy to really tell you what you got and the costs involved
usually the ltc benefit is 2x what you put in . in your case it is 1/2 of what you put in , that is why . but these deals still are poor value.
we went with the ltc plan simply because we could keep that lump some invested and with just a small piece of what the hybrid cost you in lost gains we can pay the premium and have lots more left over . you can argue all you want but hybrids are the most expensive way at the end of the day to try to get ltc coverage.
i would need to see your policy to really tell you what you got and the costs involved
My policy death/LTC benefit as it stands today is actually about 11x my premium payments, which is a great value. It’s even a better value in that about 85%-90% of my premiums paid are withdrawable from the policy. Can’t do that with a standard LTC policy. Here’s the kicker, in about 2-3 years the policy will actually start paying for itself with dividends/interest. Yes, my cash goes down inside the policy, but in retirement my cash flow goes up.
the premiums we pay over time are actually the smallest make up of what you pay . the compounding interest that feeds the policy too actually eclipses the premiums .
permanent life insurance is priced to be all your own money , both premiums , interest and dividends that make up the death benefit one way or another by age 100-105 .
that is pretty standard , you are self insuring at those ages less all the insurance fees and commissions . in fact , like i said many companies just mail you back a check dead or alive at age 100 of your own money ..
again , without reading your policy i can't confirm anything you are telling us is the actual deal as it unfolds usually when insurance sounds to good there is a catch in it just like variable annuity products . what you think you know , ain't always so , as they say
Last edited by mathjak107; 01-22-2019 at 06:59 AM..
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