No. of Recommendations: 0
Thank you for your response, JAFO. Policy A is for my wife who was 42 years old at origination. Policy B was a joint survivorship policy for my wife and I when she was 46 and I am 64. Policy A is from a $1 Trillion Mutual insurance company rated AA. Policy B is from a Captive mutual insurance company of a Fraternal society also rated AA. Both policies are dividend paying whole life insurance.


Death penalty of A: Death penalty of A is $400,000. I make 6 annual premium payments of $14,900 and the policy is paid up with no more premiums. At the end of year 13, the death penalty increases to $404,494, the dividend is $5,239, the Cash surrender value is projected to be $142K and the Guaranteed Cash Surrender value is $110K. At year 48 when my wife is 90, the death benefit is $777K, the dividend is $16,939, the projected CSV is $654K and the Guaranteed CSV is $271K. If the projected CSV is actual, the IRR is 4.5% tax free for 48 years.


Death penalty of B: Death penalty of B is $550,000. I pay a monthly premium of $973.50 for 20 years (240 payments) and then the policy is paid up. At the end of year 25 when I am 89 and ready for a nursing home, the Death Benefit is $550,000 and the guaranteed CSV is $309K but the non-guaranteed amounts are Dividend of $4,578, cumulative paid up additions of $71K, net CSV of $349K and net death benefit of $621K.

What if the dividends are less than forecast? I have tables in both that I can track on a yearly basis. If they drastically fall off plan or if the ratings of the insurance companies deteriorate, I can draw the cash value. Another option is to manage to the CSV which is the asset the children will receive at our death so use a reverse mortgage, social security, 401K and IRA's, small empoyer annuities, purchased annuities, etc. and other assets first with the CSV being the last asset in the estate. Policy B's guaranteed CSV of $309K is very attractive as a man I would normally only live three years in a nursing home on average which costs around $10K per month on average. Policy A needs to perform.

It looks like the dividends come to my account. They may be suppressed in the early years to pay the policy in full.

Policy A will be paid on time in full in 28 months. Policy B will be paid by the time I am 84. Beneficiaries will need to decide to pay up B in the event of my untimely death. My dad passed at 95 and ten months and the estate had to pay $140,000 memory unit costs in the final years. My mother is still doing ok at 92. I expect to pay policy B. The cash basis can be withdrawn tax free. Policy loans are tax free. A charges 8% fixed or a lower variable rate. B charges 4%. Also, since nursing expenses are tax deductible after 10% of AGI, taxable withdrawals may make sense.

Policy A explains why wealthy people buy dividend paying whole life insurance as if the premiums are the maximum the IRS allows, the tax free IRR is excellent

These two investments are justified by behavioral finance as the beneficiaries are not financially sophisticated. I may buy an annuity for the wife in the future for the same reason.
Redondo Beach Mike
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