The Visible Policy
Page 10, Final Remarks
Ok, finally! As I stated in the
, The Visible Policy
is a large site. Some of you may have jumped here directly, though,
and are curious as to "the bottom line". Those who have read or skimmed
through the site will not be surprised by the following conclusions
concerning my policy.
- I like it.
Is it the best participating whole life policy available? I don't
know. To date it has been more than meeting my expectations, and my
model shows that this should continue far into the future.
- New York Life (NYLIC) is meeting it contractual commitments.
In truth, one of the most curious things discovered is that they intentionally
do much more than the policy states. They do not even draw attention to
it in the annual policy
summaries. Extra funds are added, and without a
close comparison of two consecutive summaries there is no way to know
they did so.
I refer to
linear increase in value (LIV), which is cash
value NYLIC adds to my policy each year. LIV is not dividends, nor is
it Guaranteed Cash Value. The only mention of this money is an obscure
interest in my policy's OPP (Option to
Purchase Paid-Up Additions (PUA)) Rider. There is no mention that PUA
purchased by dividends also earns LIV. Over time, LIV became a
significant portion of the policy's cash value.
- Overfunding the policy greatly increases its value.
By overfunding, I mean periodic, regular purchases of OPP.
I have not overfunded it a lot; my extra payments have been about 1/3
higher than the required annual premium. Yet this increases the
maturation value (at age 100) by almost threefold, with only a 50% total
increase in out-of-pocket payments ($33,000 vs $21,000). Review this
chart to see what I mean.
- "Rich, after all this, you don't have anything negative to report?"
There are a couple of things I would prefer to be different, yes.
- The dividend crediting rate dropped in the sixth and seventh policy
years. (It stabilized in the eighth.) There was never a
guarantee that the rate would remain the same as illustrated. Rates do
drift over time, and I hope in the long term performance exceeds the
illustration. (Yes, I am an incurable
- Even though my health would have allowed it, I did not qualify for the
"preferred non-smoker" premium rates. My classification is that of a
normal non-smoker. If it had been a $250,000 policy, then I could have
gotten the lower rate. Two or three years after I got my policy,
NYLIC changed this rule on its new series of policies. Someone
buying a policy today would not need at least a $250k Death Benefit to qualify.
My agent informed me before buying the policy that dividend rates could
drift over time, and that there would be a better pricing tier if
I purchased a $250,000 policy. Thus I agreed to these things before
signing the contract.
- Am I getting screwed?
Not that it's any of your business, but no.
As I began this site, I was quite ignorant about life insurance. I have
learned a lot since then. It may even be accurate to
refer to myself as an "expert" concerning participating whole life insurance
policies from mutual life insurance companies or societies. (Hey,
if you author a serious 25+ page site on Russian ballet in the 18th century, I
guarantee you will become an expert on that!) I do not know much about
related issues such as sales or estate planning, but I do know how the
If I knew in May 1996 what I know now, are there things I would have done
differently? Yes, but let me state up front that, all-in-all, things
seem to have worked out quite well as is.
- Research more.
(No, I don't mean author a life insurance site before buying the
policy. ;) In my case I had a reason to need life insurance, and I phoned
a New York Life agent listed in the phone book. He came over, discussed
various NYL policies, and left me a number of brochures. I ended up
choosing whole life because it was the only permanent policy type offered
by NYLIC itself. The other policy types were from a wholly-owned
subsidiary called the New York Life Insurance and Annuity Company
(NYLIAC). For reasons that are difficult to explain, I wanted a policy
from the "real" company. Thus I phoned my agent and told him that I
would purchase a $100,000 whole life policy.
I should have also:
- Fully understood the differences between Participating Whole Life,
Universal Life, and Variable Universal Life insurance.
- Spoken with other agents of other companies. I did no price
nor benefit comparisons.
- Spoken with independent expert about the options being considered.
Basically, I lucked out. It suited my temperament and desires to
acquire a policy with strong guarantees and conservatively invested
policy reserves. This is what I got, even though I did not know it
at the time.
- Spoken with my agent more.
I have a good agent. (Actually there are two, a father and his
daughter.) After the first policy year, I have not communicated very
much with him, although he periodically gives me a call to touch bases.
Thus I have not taken full advantage of his knowledge and experience, and
for which the commission on my policy is paying.
(Once I started this
site, I gained half an excuse. One of my goals for The Visible
Policy is to document it independently. Just regurgitating what
someone else had been taught did not seem as interesting or useful as
analyzing the policy with my background and experience in
- Overfund more.
This is not a choice for everyone. Even if the option is economically
feasible, many are perfectly satisfied with funding a policy with minimal
out-of-pocket dollars. But I could have afforded to put more into the
policy from the very first year, and I would have desired the significant
gain to both death benefit and cash value.
- Buy term and invest the difference -- in whole life!
I did not realize until today (21 Sep 2010) that one could do this. Here, I'll
let an actual actuary describe it:
Your policy has performed better than a lot of regular whole life policies I have
seen because you used the OPP rider to overfund the policy. However, you could
have made it even better when you purchased the policy many years ago. What you
have been using is the unscheduled OPP rider, a better way is to use the scheduled
OPP rider combined with the DOT rider with a very small base amount. Most of the
commission and company policy fees are based on the base amount. So if you had
made the base amount as small as possible, the cash value growth would have been
much more efficient. For example, when you first purchased the policy, you can make
the whole life base amount as $25K and add a DOT rider as $225K, so that the whole
life total face amount was $250K. In that case, you might have been eligible for the
preferred class at that time. The commission and expense would be minimized.
Your base premium would be very small, and you can direct the remaining premium
dollars to the scheduled OPP. You would still pay the same total premium to the
policy, but the cash value growth would have grown much faster because of the
design of the policy.
DOT stands for "dividend option term", and it allows you to have extra term insurance
on top of the whole life (WL) insurance. Basically what 'actuary' suggests is
to buy a low amount of WL and a much larger amount of term within the WL policy.
Then you schedule OPP payments so that the WL paid up additions eventually replace
the term death benefit.
- Write less.
You are not the only one who thinks this site is a bit, well,
extravagant. I sincerely hope that you did find some of the information
to be interesting and useful. Find being the operative word
— I know I am a wordy son-of-a-gun, and for this I apologize.
If you have any suggestions, questions, or comments (positive or negative),
I would be very interested. You can click
Rich to e-mail me.
Accesses since 2 September 2002
last modified 22 November 2010
© 2002 - 2010 by Rich Franzen
Rich's Home Page
No content within The Visible Policy has been approved,
authorized, or verified by New York Life or any of its representatives.
I have attempted to fairly and accurately portray the policy, but there are
likely to be mistakes. Over time, I shall endeavor to correct any
misinformation found herein.|