THING #6: ” . . . and you’ll have to wait years to build cash value“ is next in my series of responses to “10 Things Life Insurance Agents Won’t Say” by Daniel Goldstein “Personal Finance Reporter” for MarketWatch.
If this is indeed true of the policy the agent is recommending it is almost impossible for him not to “say” this. Unless you’re in the habit of buying financial products without full disclosure. Signs of non-compliant illustrations are:
- You see the words “For Agent Use Only“, “Not For Use With Consumers” or any similar text printed anywhere
- If the pages aren’t numbered this way: “1 of 15, 2 of 15” and so on.
- If any of those pages are missing
- A summary is printed on agent letterhead rather than being identified as the insurance company’s illustration, with company logo & office location
So let’s be positive and assume you have your compliant illustration. It will show you more than you’d ever like to know. The worst case scenario will be referred to as “Guaranteed”. Be sure you understand, however, the two primary moving parts in the “Guaranteed” calculation, minimum interest earnings plus maximum mortality costs:
- Interest Rates– The Guaranteed table will assume the minimum interest rate for the entire duration of the policy.
- Mortality charges– “Guaranteed” ledgers also assume maximum guaranteed insurance costs. The company can’t simply raise these on a whim, they have to reflect actual mortality costs. Unless Ebola takes over, I think we’ll continue living longer and longer and these costs (and charges) will continue their downward trend.
If the Guaranteed part of the illustration is unacceptable to you, then you probably shouldn’t buy the policy. If all you want is a short term death benefit, term policies may be a better fit. But if tax advantaged cash accumulation, income & estate planning are your goal, a maximum funded whole or universal life policy will rapidly accumulate cash. There are good reasons many attorneys and CPAs concur.
Next time we’ll mull over Thing #7- Our Regulators Can Be Toothless.