Re: an advantage of par whole life -- Insurance Forum

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Date Posted: Tue, August 06 2002, 14:27:52
Author: Brent D. Gardner, ChFC
Subject:

Re: an advantage of par whole life
In reply to: Rich Franzen 's message, "Re: an advantage of par whole life" on Tue, August 06 2002, 5:14:43

>PAR may be like what I heard MassMutual offers. The
>policyholder can purchase big chunks at once, but only
>at 5-year policy anniversaries. And I don't think
>they allow purchases past something like age 55.

PAR stands for Paid-Up Additions Rider. All of them may have slight differences, but they are all pretty similiar. The company I was illustrating allows both single and level PAR premiums, although if you stop paying and then want to add it later, you may be subject to medical underwriting (they only issue this rider through Table D, so those in poor health may not be able to get it).

The single premium version is limited to 10 times the base premium (usually for 1035 exchanges), and the level premium version is limited to 2 times the base premium, and they can be purchased through age 75.

If someone wants to cram the most cash into a policy, a UL or VUL is probably the more approriate vehicle, since they can be designed to minimize the death benefit to premium ratio at early ages so that the cost of insurance is as low as possible, with commensurately higher cash value growth. I see this done a lot in deals where a corporation is buying the policy and they want the performance tweaked to the nth degree.

For example, the policy I illustrated yesterday had a base premium of $1,197 for $100,000 of coverage at age 35. Using the PAR rider, I could max that out at $3,591 per year, but it would be a MEC with that company. On the other hand, a VUL with another company would allow $3,915 per year in premium and NOT be a MEC. The differences is in the design, pricing and mortality assumptions that give some leeway to creative actuaries and policy design people. I know you understand the differences between a MEC and a non-MEC, and the value of cramming as much cash in the policy as possible, so I'm sure you can see the value of designing a policy with the highest non-MEC premium possible. =)

Every agent has there own "method" of selling, and they often present what they think the prospect will buy. An informed consumer may actually buy something different, including paying an additional premium for OPP or PAR. The problem agents face is that the time required to fully educate a client to the level of understanding that you have may be time consuming, even unprofitable.

The most successful agents "package" their product in such a way that it has the widest appeal and then they present it to a LOT of people. This may sound too simple, or even inappropriate for some people, but on the other hand most people aren't being called on by life agents anymore, and something is always better than nothing.

I was taught to make a prospect a client first, then educate him or her, and build their portfolio of insurance and investments over time. This flies in the face of comprehensive financial planning, but I believe that most people aren't going to buy every product all at once, no matter how good the written plan is.

I ask my clients why they buy what they own when I show up, and the most common answer is "This guy showed it to me and said it was a good deal" or something to that effect. I met with the founder of my broker/dealer last fall and he was one of the first people to actively use the buy term and invest the difference replacement strategy -- way back in the early 1950s. He had been very successful selling Life Paid-Up at 65 as a pension plan to miners. Then he went around and replaced other companies whole life with term and a contractual plan mutual fund (no IRAs back then). They manually calculated the savings and used graph paper and a pencil to make a presentation.

My point is that he sold "packages" of money, which all the insurance greats like Ben Feldman, John Savage, Joe Gandolfo, and Burt Meisel, did.

One package might be plain vanilla whole life with premium offset in the earliest year.
Another package might be the same thing with OPP rider to make the offset year much ealier.
A third package might be paying the maximum OPP rider to accumulate the highest cash values at retirement income.

I have books in my office that detail literally thousands of "packages" of money, using insurance, annuities, and every investment under the sun. All I know is that this works extremely well if someone wants to sell lots of insurance to lots of people, because most people like to buy packages (think about automobiles, boats, houses, home entertainment systems). Some people want to buy the "parts" and assemble them on their own, and some are pretty good at it. Most people don't have that much time, though. =)

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Replies:

Re: an advantage of par whole life -- Rich Franzen, Tue, August 06 2002, 19:09:16
- Re: an advantage of par whole life -- Brent D. Gardner, ChFC, Wed, August 07 2002, 0:21:43