What product the policy can be converted to is an important issue.
Life insurance, in general, isn’t something that should be commoditized, though term insurance is the product many consumers feel has the fewest downside ramifications when spread-sheeted and sold on a cost basis.
There have always been some differences in the products of various insurance carriers, but the biggest difference, in my opinion, involves
conversion features and language. Carriers have different rules regarding conversion to a permanent policy down the road, including to what age a policy is convertible, how many years it’s convertible and to what product the term policy is convertible. For full post, click here…
A lot can go wrong if you don’t examine the numbers.
I’m getting enough questions that it seems like a reasonable idea to keep on this whole life (WL) explanation track. Immediately after writing about a recent experience regarding how direct recognition loans affect a WL policy, I was brought into another situation involving policy loans. The loans weren’t ancillary; they were the point of the transaction.
Some insurance companies practice direct recognition loans and some practice non-direct recognition loans, which means some policies will have dividends affected by a loan and some won’t.
While uncommon, there’s a carrier or two that swing both ways. With the carrier at the center of this engagement, direct recognition results in a fixed loan rate, and non-direct recognition results in a variable loan interest rate. For full post, click here…
What direct recognition is and what it’s not.
When it comes to dividend-paying whole life (WL), there are direct recognition and non-direct-recognition policy loans. Direct recognition loans allow the insurance company to set a different dividend rate for a policy with an outstanding loan. With a non-direct-recognition loan, the dividend is credited as if no loan exists and the loan is charged a separate loan interest rate.
There is a difference of opinion about which is “better,” and, as might not be surprising, each carrier touts the benefits of the way it leans. I’m not interested in wading into that debate today.
I was recently involved in an analysis in which the plan could involve a significant policy loan. This proposal was with a carrier employing direct recognition, meaning, the dividend could be different when loans are taken. The fixed 6% loan rate was being touted as a backstop to potentially higher commercial lending rates in the future. I agree that this could be an important feature and I’ve noted it myself in some scenarios. For full post, click here…
