A neighbor has $100k in whole life, and has had it for several years. (We were chatting about our 16yr olds & college savings)
As I recall, these policies are basically "forced savings" with the death benefit tacked on.
Any comments on his policy numbers that I copied below ?
$104,000 basic whole life $2,000 yearly premium x 15yrs = $30,000 paid into policy $138,000 current value
$34,000 total from dividends $4,767 current year cash value increase $1,935 current year dividends
As you can see, from the numbers that you have posted, the Current Interest is almost equal to the current cost. However, you neglected to show the Current Increase In Cash Value. Each year there is an Increase in the Cash Value in addition to the dividend. Therefore, the TOTAL value INCREASE of the contract will EXCEED this years cost.
To have had coverage of 100K for 15 years, and at the same time to show an INCREASE in the Cash Value of over 100k seems to be too high, but if correct it is FANTASTIC....... Cal Lester CLU
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OP said current cash value increase is $4767. $138K current value I read as $100K death benefit, $38,000 cash value. If in fact the cash value were $138K, the annual return on the $2K/yr would be over 15% per year. Very unlikely. Do you read this differently? JOE
from my scribbled notes, the policy death benefit is $138k the policy cash value is $46k
$4767 cash increase this year $1935 2006 div
$2000 yearly prems for 15yrs
So - for your invested $30k, you get $46k (over 15 yrs) plus purchased death benefit. Wonder how the classical comparison looks of invested a portion of the $2000 + buying a Term policy... I think my Term is $500 per $125k of coverage.
Any general comments I can take back to him when I see him at swim team...
This is more reasonable. As you can see from your new figures, there was a RETURN on your $2000 of premium for this year ALONE of $6702 PLUS having the insurance In-Force. Next years reurned should in all probability be even higher. Cal Lester CLU
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so - in general, was this an reasonable purchase for him, or should he have gone the Term insurance + investing route....
The question is really moot. IF he had gone the Buy term/invest, and F A I L E D to make the investment E V E R Y month, he would have been a loser. If the market had turned down (which it did not, but might at any time now) he MIGHT have been a loser. Hindsight is easy, foresight a bit more difficult........ Cal Lester CLU
Hindsight is always easier. Had he invested 1900 at the beginning of each year, 1991-2005, he'd have just over $62,000 now. Even after 3 down years 2000-2 he'd have bottomed at $37K. (This is using S&P returns).
JOE
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