Interest on life insurance policy?

[SunnyD]

Being fairly new to the whole life insurance thing, I'm kind of curious... they earn interest? For what?

We just got a letter from once of our policy providers regarding an interest statement, and I had no idea that the policy earns any sort of interest and what that interest is for.

I love being new to this whole "being responsible" shit.

 

[vi edit]

Sounds like it's a whole life policy. They do gain interest, albeit very little, and very expensive interest.

 

[DaveSimmons]

Sounds like you got talked into buying one of the "investment" life policies instead of one that just pays a death benefit.

I don't know much more about them than that they exist, since I stay far away from such "investments", no annuities or such for me.

 

[SunnyD]

Sounds like it's a whole life policy. They do gain interest, albeit very little, and very expensive interest.

No, it's a term policy.

 

[vi edit]

Term doesn't gain interest. It's not an investment vehicle. It's a straight up insurance policy. You pay your premium, if you die, you get $XXX,XXX paid out. They are underwritten for 1-30 years. The longer the "term" IE 30 years, the higher the annual premiums. They do not gain interest.

It's got to be a whole life or some other kind of hybrid - universal life or something.

 

[nickbits]

It really sounds like a whole life not term policy. Term does not accrue interest nor have any cash value.

 

[SunnyD]

Term doesn't gain interest. It's not an investment vehicle. It's a straight up insurance policy. You pay your premium, if you die, you get $XXX,XXX paid out. They are underwritten for 1-30 years. The longer the "term" IE 30 years, the higher the annual premiums. They do not gain interest.

It's got to be a whole life or some other kind of hybrid - universal life or something.

Hmm... now I am confused. It IS a term policy. Now I'm wondering what kind of riders might be on it though, because it is listed as a "Universal Life" policy. I guess I need to go back through the documentation to find out what this is all about. This is my wife's policy, not mine.

Thanks!

 

[Vdubchaos]

Never let Insurance company invest your money.

Term only, Longer the better......while healthy.

 

[JPerk]

Many insurance companies are now writing their term products on a universal life "chassis". They price it so that you have a level payment for however many years you want your term to last, usually up to 30.

If you get to the end of your term and want to stop, the policy ends. No cash value. If you get sick and can't get another policy, you have the option to pay a higher premium (a lot higher) to keep it going beyond the term.

It's similar to how some term policies offer a non-underwritten option to convert to a whole life product before the term ends. It adds flexibility to the rigid term structure.

As for your dividend statement, op, might want to call the agent that wrote it to see if you have been paying more than the minimum because UL policies do have the ability to accrue cash value. Make sure the agent knows you want your policy to mirror a term policy.

 

[Blain]

* Use insurance vehicles to cover final costs and provide income for remaining family (if needed)
* Use investment vehicles for growing funds and investing for the future.

Never mix the two...
When the two are blended, the winner turns out to be the insurance company.

 

[sactoking]

Hmm... now I am confused. It IS a term policy. Now I'm wondering what kind of riders might be on it though, because it is listed as a "Universal Life" policy. I guess I need to go back through the documentation to find out what this is all about. This is my wife's policy, not mine.

Thanks!

Term is not Universal Life. If you thought you were being sold term and ended up with a UL policy then you are a victim of "twisting". Contact your state's insurance department and the company who issued the policy to help you seek redress.

 

[highland145]

* Use insurance vehicles to cover final costs and provide income for remaining family (if needed)

Can you even get a $10M policy?

 

[JTsyo]

Can you even get a $10M policy?

get a hundred $100K policies?

 

[Vdubchaos]

Universal = the biggest pile of shit EVER. Heck, most salesman won't even be able to explain to you how it works....because it's a such a fucking train wreck.

Stay FAR FAR away from such policies.

 

[jaedaliu]

Universal = the biggest pile of shit EVER. Heck, most salesman won't even be able to explain to you how it works....because it's a such a fucking train wreck.

Stay FAR FAR away from such policies.

Really? it's pretty straightforward.

1) you pay into an account every month
2) money from that account is used to buy mutual funds/stocks
3) every month money is withdrawn from that account to pay your premium

With a little luck, you pay for 5 - 10 years then you no longer have to pay for it because your investments from that account have grown enough that the premiums are paid for. I guess this is the difficult part. Everyone wants an explicit answer on how their accounts will grow, but nobody knows the future.

 

[JEDI]

Universal = the biggest pile of shit EVER. Heck, most salesman won't even be able to explain to you how it works....because it's a such a fucking train wreck.

Stay FAR FAR away from such policies.

Father Divine would agree

 

[Vdubchaos]

Really? it's pretty straightforward.

1) you pay into an account every month
2) money from that account is used to buy mutual funds/stocks
3) every month money is withdrawn from that account to pay your premium

With a little luck, you pay for 5 - 10 years then you no longer have to pay for it because your investments from that account have grown enough that the premiums are paid for. I guess this is the difficult part. Everyone wants an explicit answer on how their accounts will grow, but nobody knows the future.

Entire Universal policies are the biggest grey area of the Insurance world.

You also forgot about fees they charge you etc.......as I said, it's the biggest pile of shit EVER.

 

[highland145]

Entire Universal policies are the biggest grey area of the Insurance world.

You also forgot about fees they charge you etc.......as I said, it's the biggest pile of shit EVER.

And the cash value can very well shrink if they have more claims/poor performance/etc.

 

[JoetheLion]

I think that the interest rates in both USA and Canada are pretty low nowadays. That's why they come up with this kind of desperate hybrid solutions: http://lsminsurance.ca/life-insurance-canada/2013/06/interest-insurance-premium .

 

[kranky]

From my experiences with insurance companies, even if they came out with a fantastic new type of policy that would fit me perfectly I would still only look at term policies.

Insurers have a horde of highly paid geniuses who design complex and incomprehensible products, which means they need 60 pages of explanation to meet legal disclosure requirements. Only the people who designed the product can actually understand it. Your average insurance agent not only cannot possibly completely understand it, he/she knows it better sound simple to a prospective customer. That means a lot of important information is going to stay forever buried in the giant documentation.

Our 401k has some complex feature you can enroll in called IncomeFlex. At first glance it seems like a perfect way to maximize income in retirement. Almost too perfect. You get a huge amount of income every month compared to the amount you put in. When you start digging into it, though, you find enormous fees and instinctively you know something doesn't add up. But I have some co-workers who didn't do any digging and are jumping on this bandwagon as if they were afraid they would miss out on the opportunity.

I understand term. I understand single-premium immediate annuities. They are very simple. Those are the only two life/income policies I would buy from an insurer.