Whole Life Insurance Policy: A Modest Proposal for Retirement Supplementation Turns into a Significant Package of Options (Excerpted from Letter to Client)

Paul,

Well…here’s what I came up with. Significantly more than the $2k/mo. we imagined as a  retirement supplement.

I pushed this whole life insurance policy to the limit to see how much I could get out of it (fixed at today’s dividend rates going forward). I’d recommend being more conservative than this because of the risk (i.e., take less money out in a given year if it is not needed), but it gives perspective... . 

Summary: I took a 51 yo male (in excellent health) with $1M policy and had him make 20 years of payments, then drained all the benefits out of it.

Total Paid:

$568,847 (~28.4k/yr)

Benefits:

$1,200,000 income (4k/mo. starting at 72yo for 25 years)

+

then $1,151,616 LTC (long-term care) benefits for 30 months

+

then $86,510 death benefit at 99 yo.

____________________________________

$2,438,126 total monetary benefits

$2,351,616 while still living

Notice: Without the LTC (long-term care) rider if the person were to pass away at age 96 the death benefit would be $213,024, but because of the added LTC rider he now has an extra $1,151,616 of LTC benefits available at $37.5k x 30 mos. if needed, plus there is still a small death benefit of ~86.5k left, even at the end of that period. That LTC rider is something—I didn’t realize the (potential) value of it to this extent. It means you can drain most of your cash during retirement and still have large amounts potentially there for LTC, if needed.

Note: $37.5k of LTC sounds high, but $10k/mo. today x 3.3% inflation is ~38k/mo. at age 96!

Also: The other benefit not mentioned, is that if the saver were to become totally disabled before age 59 ½,  the full premium would be paid through age 99, which would increase the benefits available dramatically because of the significant cash paid by the disability insurance rider between ages 72-99.

Additionally: I checked $2M and $3M life insurance amounts. The benefits are roughly proportional (a little bit better, actually), so $2M would pay ~96k/yr, $3M ~144k/yr, etc. under similar conditions.

A whole life insurance policy is a package that is difficult to compare by piecing together options—how do you value this? It’s unique.

I don’t know…what do you think? 

(Ask some more good questions.)

Sincerely

Robert

Robert S. Park, M.D.
Life Insurance+
Seattle, Washington
(206) 395-9501
wealth | estate | business planning
“Twenty years from now you will be more disappointed by the things you didn’t do than by the ones you did.” Mark Twain

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