“Someday financial markets will decline...rising stock/bond markets will no longer be government policy. QE will end and money won’t be free. Corporate failure will be permitted. The economy will turn. Someday, somewhere, somehow, investors will lose money and once again come to favor capital preservation over speculation. Someday, interest rates will be higher, bond prices lower, and the prospective return from owning fixed-income instruments will again be commensurate with risk.” Seth Klarman
Tuesday, October 6, 2015
Whole Life Insurance Policy: A Modest Proposal for Retirement Supplementation Turns into a Significant Package of Options (Excerpted from Letter to Client)
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
$1,200,000 income (4k/mo. starting at 72yo for 25
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.)
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