noreplysoccer[at]hotmail.com (Jim), you asked:

<< <I> Over fund? Please explain. I'll ask my agent as well.</I> >
Various life insurance contacts (particularly those that are some form of
Universal Life) allow one to pay various amounts - sometimes less, sometimes
more as you see fit. There's a certain optimum amount of premium that is paid
to have reasonable assurance that the policy will have sufficient reserves to
keep it in force for your entire lifetime (a function of how much you pay AND
how well the insurance company's investments do).

If you pay more than is required to maintain the policy, then you're over
funding it. And in many policies they can be HIGHLY over funded (or pre-paid
if you want to think of it that way).

A SPWL contract (Single Premium Whole Life) contact is also a highly over
funded contacts. You pay one large premium and that's all you every pay and
you're guaranteed you'll never have to pay a premium again (and yes . . .this
would be a MEC policy because of the 7-pay rules we talked about). A 10-pay
Whole Life contract is also over funded, where you pay premium for 10 years and
that all you every have to pay . . . .guaranteed. The main difference between
these Whole Life contracts and UL contracts are things like those kinds of
premium guarantees.

<< <I> Why would someone over fund? </I> >
There may be several reasons or combination of reasons. It may be to pay
enough into a policy so that at a point they might stop having to pay premiums
any longer. It may include wanting to take advantage of tax sheltered
compounding that would go on within the contract. Life insurance contracts
have a few tax advantage that one can use to get at cash without having to pay
any taxes and at a very low cost if any. Since life insurance policies pass
cash assets on to beneficiaries outside of probate, this can be a way to place
cash assets somewhere where it won't go through probate. It can be a place to
protect cash assets from creditors (depended on which state you might live in).
It can be a way to amplify cash gifts. It can be a way to stash away cash for
an emergency fund and not worry about being taxed on its earnings.

So, just "why" one would over fund a contract depends on just what they might
want to accomplish by using the characteristics of how a life insurance
contract works to one's advantage.

ttroberts[at]aol.com (TTRoberts) wrote in message news:<20040209142024.13477.00001373[at]mb-m24.aol.com> ...
- quote -

Over fund? Please explain. I'll ask my agent as well.
- quote -

fast as i can read.

- quote -


- quote -

Got it, thanks.
- quote -

he's a good guy and my wife thought he explained everything well when
we met. It takes me a day to come up with questions, though.

thanks again.

noreplysoccer[at]hotmail.com (Jim), you asked:

<< I understand about account building cash value. Does $389/year sound
expensive for getting $25k in coverage? That's what I meant by
expensive. (The $389 for 25k in coverage). From what I understood,
my wife's benefit would include 25k or the cash value of my policy,
whichever is greater.</i> >
Generally . . . no I would not consider this "expensive" in terms of the type
of contract you're looking at. If anything, I might suggest that one should
actually over fund it (pay into it more than this) to make if more efficient.
But that depend on a somewhat lengthy valuation of what you're trying to
accomplish.

<< <i> How does a policy like this get its original cash value? I can
understand compounding once I figure out starting point of how much
cash policy is worth.</i> >
Well, the exact answer actually varies from company to company though the
basics may be the same. You pay a premium. Of that premium there are premium
taxes to be paid, policy fees, cost of insurance and maybe some other expense
charges (to include any riders you may have). After some of these expenses,
the rest of your premium goes into the general account of the insurance company
where they are required to have a certain "reserve" to pay future insured's
claims (not necessarily YOUR claim) and basically to keep premiums level as
company mortality costs rise. Because of the large extra amounts you're paying
(compared to term for example), there are privileges allowed for access to
those reserves. The value of those privileges is what is called the Cash Value
(the amount of the reserves that would be returned to the policy owner because
they're no longer needed since the coverage is not continuing).

The more you pay in (as when you might over fund the contract) the more goes
into these reserves. And the reserves don't just sit there. The insurance
company makes investments with them in order to enhance the efficiency of the
insuring process . . . which in turns also affect the growth of the reserves
down to the policy's cash value. And so, just how the cash value might grow or
not (an be sure to understand this is not "your" account like a savings account
is "your" account - it's the insurance company's account you're dealing with)
depends on how well the insurance company investments do as well as how well
they manage their expenses.

So, you might see that you really won't be able to figure out just exactly what
you're going to have in the future as you might with a savings account or
investing in CD's and the like. The policy illustration can give you some idea
based on certain assumptions. And if you want to tract is closely, each year
you could request an "in-force policy illustration" to see what's it has done
and where it MIGHT go based on the current assumptions.

I hope this answer's your question and I know this might be a little on the
technical side so I also hope makes some sense to you.

<< <I> There were some questions I had on the contract after reading it in
detail as well. At age 78/ year 47 of policy the guarantee went from 25k
benefit to $0. Is this because I'm expected to die then by some mortality
table.</I> >
I'm not sure exactly what you're looking at. You're agent/broker should be
able to look at what you're pointing at and easily tell you. I suspect it's
probably where the policy terminates for lack of funds due to the constant
minimum returns. As long as the policy has enough in it's reserves to pay for
COI (cost of insurance), the policy will stay in force. Whether or not there's
enough in the reserves for this is a function of how much you pay in AND how
well the investments do. So, if it's as I suspect, this is showing that if the
policy only earned the guaranteed minimum 2% for the entire time, the policy
would lapse at that point. Illustrations will show this to give some idea as
to what the worst-case scenario might be.

<< <I> In addition what is a "7 pay premium"</I> >
This is what the IRS says the maximum payment that can be made each year of 7
years to keep the policy defined as a "life insurance policy." If you pay more
than that, the policy will no longer be considered a "life insurance contract"
but will be considered a MEC (Modified Endowment Contract). There are
different tax rules between the two types of contracts. If the policy is
MECed, then getting a living benefit (e.g. withdrawals and/or loans) would be
subject to ordinary income taxes. The Death Benefit would still retain it's
tax advantage to the beneficiaries.

<< <I> And can you explain the 5 year average of index movement. The insurance
agent did not explain this.</I> >
Are you sure you want another rather technical answer??? <VBG> ;-)

Equity index products have many ways how they use an index to calculate the
interest they're going to apply. Very common is an annual Point-to-Point
calculation. That is, your policy starts on Feb 1, 2004 and by Feb 1st 2005
the index has moved up 10%, you get that percentage as measured between those
two points in time within the cap of that movement (assuming a 100%
participation rate with 12% cap- you'd get the 10%). There are about 40
different methods used for such calculations. I'm trying to keep is simple for
clarity's sake.

With the 5 ear average in this contract, it's calculated much the same way . .
.. .<b> each year</b> the average rate of the annual movement in the index for
the past 5 years is calculated. What ever that rate is, is the rate that's
applied as it is within the minimum guaranteed rate and the Cap. If that
average rate should ever be negative (which it rarely has been for the S&P 500)
or less than the guaranteed minimum, the guaranteed minimum is then applied.
If you look carefully in the illustration, it will mention these things, though
it's doesn't really explain it (the agent/broker should do that for your better
understanding).

If you want to see what the 5 year averages have been like for the S&P500, you
can go to the reference section of the library and there you might find
Ibbotson's yearbook. In that yearbook, you can find the historical numbers to
give some feel as to what you might expect. There may be other books, but I
feel you'll find this to be the better one.

<< <I> I'm asking my agent all these questions next time I see him as well,
that won't be a for a few weeks though.</I> >
<grin> Don't be surprised if the your agent can't explain it all that well.
While most good experienced agents should be able to . . . .many of them are
simply not very analytical and/or so detail oriented.

ttroberts[at]aol.com (TTRoberts) wrote in message news:<20040208164051.13001.00002010[at]mb-m02.aol.com> ...
- quote -

TT-

I saw your e-mail reply before I saw this one... I haven't even seen
my original post yet... Thank You for comments.

I understand about account building cash value. Does $389/year sound
expensive for getting $25k in coverage? That's what I meant by
expensive. (The $389 for 25k in coverage). From what I understood,
my wife's benefit would include 25k or the cash value of my policy,
whichever is greater.

How does a policy like this get its original cash value? I can
understand compounding once I figure out starting point of how much
cash policy is worth.

There were some questions I had on the contract after reading it in
detail as well. At age 78/ year 47 of policy the guarantee went from
25k benefit to $0. Is this because I'm expected to die then by some
mortality table.

In addition what is a "7 pay premium"

And can you explain the 5 year average of index movement. The
insurance agent did not explain this.

I'm asking my agent all these questions next time I see him as well,
that won't be a for a few weeks though.

Thank You.

Jim

This is a very well thought out, and expressed answer
to the questions raised by the poster. I would like however
to address one portion of the answer, that being the
"access to the Cash Value". Since the policy in question
is a U/L policy, it does offer an opportunity to WITHDRAW
specific amounts from that Reserve, which result in a
DECREASE in the Face Amount equal to that WITHDRAWAL.

In liew of a witrhdrawal, one can make a LOAN from the
COMPANY, using the current cash value account as a
COLLATERAL for that loan. As with ANY loan, there is the
REQUIREMENT to REPAY, as well as a REQUIREMENT that
there be an INTEREST charge on the loan.

None of the above is intended to imply that the Insured MUST
actually repay the loan ( it can and will be deducted from any
surrender value or Death claim). The same would apply to the
interest being charged (even if it is a "wash loan) in that IF it
is NOT paid Annually, then it is simply ADDED to the
outstanding loan, which has it's own pitfalls...........

Cal Lester CLU

btw, I spent the first 13 years of my 41 year career with ILICO.............



"TTRoberts" <ttroberts[at]aol.com> wrote in message
news:20040208164051.13001.00002010[at]mb-m02.aol.com
noreplysoccer[at]hotmail.com (Jim), you asked:

<< <I> My wife and I met with an insurance agent yesterday for the first
time. We discussed needing insurance for two key aspects: paying off
each others student loan debt and making sure we had enough money for
funeral costs if the other should die.

The agent proposed two policies.

#1 is 20 year term policies for my wife and I. Policies are for $300k
each and cost about $30/month for me and $25/month for my wife. The
300k is more than enough to pay off our debt. I am 31 and my wife
will turn 30 this year.

#2 is a permanent policy with a benefit of $25k for my wife and myself
to cover funeral costs. The policy has an S&P 500 index to it, so the
policy has a cash value to it. Cost of this policy is $389/year for
me and $328/year for my wife. My understanding with this type of
policy is it pays $25k or the cash value, whichever is higher. This
account has a guarantee of increasing 2% per year, or increasing the
same amount as the S&P 500 (cap of 12% per year). this policy is
through Indianapolis Life.

My questions:

a) anything scream out as being too expensive?</I> >
#2 is an Equity Index Universal Life policy and because it IS a "permanent
type" of policy designed to pay out not matter how long you live, the premiums
are going to be much higher than a term contract, which are for shorter period
of time. The longer the period the higher the premium is going to be. That
is why you see 20 yr. level term contracts with higher premiums than 10 yr.
level term and 10 yr. level term premiums higher than 5 yr. level term.

Since much more premium is collect to last longer, such permanent contract
allows the policy owner access to the reserves resulting in cash value. The
cash value aspect of the policy has to be taken into consideration when trying
to determine whether it's really "too expensive" or not. It may not just be a
question of cash flow. If cash flow IS a problem, then sticking to term may be
the better option for now.

<< <I> b) anyone had any experience with Indianapolis Life </I> >
Indianapolis Life is part of the Amerus Life group. I like this EIUL contract
as it's based on a 5 yr. average of the index movement. And keep in mind that
the cap (which is currently set at 12%, last year at 11%) can change. While I
tend to like this EIUL contract, you need to be careful about what is being
used as a assume rate of return. Their software is currently using a maximum
of 7.9% and I feel that is just too aggressive for calculations on a historical
basis using a "fixed rate" of return. You might ask the agent to do an
illustration on 6.5%, at this may give you a better approximation of it's
return due to the variable returns it generates over time and how cash flows
(in or out) are affected. So, ask this agent about what rate is being used for
this illustration. And be sure you understand how a EIUL works so you won't
feel confused or disappointed at some later date when someone might try to
confuse you about investments IN the S&P 500.

<< <I> c) anyone know a web site to check this info by for comparisons? </I> >
It's easy enough to compare term <b> premiums</b> (though you really never know
what it's going to cost until you get the offer(s) from the insurance
company(s)). Comparisons can only really be done well through a good
experienced agent/broker or some professional who really understands life
insurance contracts. These are legal documents and they're all different from
one another as each company designs their own to compete again other companies.

So, if you're dealing with a good experienced agent, that agent should be able
to so something like this for you. Maybe ask him/her to offer some
alternatives that address the same issues and explain the pros and cons of each
so you can better understand and make an informed decision???


======================================= MODERATOR'S COMMENT:
Please trim the post to which you respond.

noreplysoccer[at]hotmail.com (Jim), you asked:

<< <I> My wife and I met with an insurance agent yesterday for the first
time. We discussed needing insurance for two key aspects: paying off
each others student loan debt and making sure we had enough money for
funeral costs if the other should die.

The agent proposed two policies.

#1 is 20 year term policies for my wife and I. Policies are for $300k
each and cost about $30/month for me and $25/month for my wife. The
300k is more than enough to pay off our debt. I am 31 and my wife
will turn 30 this year.

#2 is a permanent policy with a benefit of $25k for my wife and myself
to cover funeral costs. The policy has an S&P 500 index to it, so the
policy has a cash value to it. Cost of this policy is $389/year for
me and $328/year for my wife. My understanding with this type of
policy is it pays $25k or the cash value, whichever is higher. This
account has a guarantee of increasing 2% per year, or increasing the
same amount as the S&P 500 (cap of 12% per year). this policy is
through Indianapolis Life.

My questions:

a) anything scream out as being too expensive?</I> >
#2 is an Equity Index Universal Life policy and because it IS a "permanent
type" of policy designed to pay out not matter how long you live, the premiums
are going to be much higher than a term contract, which are for shorter period
of time. The longer the period the higher the premium is going to be. That
is why you see 20 yr. level term contracts with higher premiums than 10 yr.
level term and 10 yr. level term premiums higher than 5 yr. level term.

Since much more premium is collect to last longer, such permanent contract
allows the policy owner access to the reserves resulting in cash value. The
cash value aspect of the policy has to be taken into consideration when trying
to determine whether it's really "too expensive" or not. It may not just be a
question of cash flow. If cash flow IS a problem, then sticking to term may be
the better option for now.

<< <I> b) anyone had any experience with Indianapolis Life </I> >
Indianapolis Life is part of the Amerus Life group. I like this EIUL contract
as it's based on a 5 yr. average of the index movement. And keep in mind that
the cap (which is currently set at 12%, last year at 11%) can change. While I
tend to like this EIUL contract, you need to be careful about what is being
used as a assume rate of return. Their software is currently using a maximum
of 7.9% and I feel that is just too aggressive for calculations on a historical
basis using a "fixed rate" of return. You might ask the agent to do an
illustration on 6.5%, at this may give you a better approximation of it's
return due to the variable returns it generates over time and how cash flows
(in or out) are affected. So, ask this agent about what rate is being used for
this illustration. And be sure you understand how a EIUL works so you won't
feel confused or disappointed at some later date when someone might try to
confuse you about investments IN the S&P 500.

<< <I> c) anyone know a web site to check this info by for comparisons? </I> >
It's easy enough to compare term <b> premiums</b> (though you really never know
what it's going to cost until you get the offer(s) from the insurance
company(s)). Comparisons can only really be done well through a good
experienced agent/broker or some professional who really understands life
insurance contracts. These are legal documents and they're all different from
one another as each company designs their own to compete again other companies.

So, if you're dealing with a good experienced agent, that agent should be able
to so something like this for you. Maybe ask him/her to offer some
alternatives that address the same issues and explain the pros and cons of each
so you can better understand and make an informed decision???

My wife and I met with an insurance agent yesterday for the first
time. We discussed needing insurance for two key aspects: paying off
each others student loan debt and making sure we had enough money for
funeral costs if the other should die.

The agent proposed two policies.

#1 is 20 year term policies for my wife and I. Policies are for $300k
each and cost about $30/month for me and $25/month for my wife. The
300k is more than enough to pay off our debt. I am 31 and my wife
will turn 30 this year.

#2 is a permanent policy with a benefit of $25k for my wife and myself
to cover funeral costs. The policy has an S&P 500 index to it, so the
policy has a cash value to it. Cost of this policy is $389/year for
me and $328/year for my wife. My understanding with this type of
policy is it pays $25k or the cash value, whichever is higher. This
account has a guarantee of increasing 2% per year, or increasing the
same amount as the S&P 500 (cap of 12% per year). this policy is
through Indianapolis Life.

My questions:

a) anything scream out as being too expensive?
b) anyone had any experience with Indianapolis Life
c) anyone know a web site to check this info by for comparisons?

Thank You

Jim