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what does non-guaranteed cash value mean in life insurance?

how do they come up with this numbers? and why do agents always push whole life instead of the term? the quote says if for a whole life, $100,000 benefit / 30 yr, after 30 yrs the guratanteed is same 100grand, but the NON-guaranteed is gonna be $206,000 and the cash value would be 116,000. like i said, how do they come up with this numbers? how? i need numbers.

Public Comments

1. Non-Guaranteed cash value has to do with the performance of the company and the market. Assuming the company were to perform as it has been the past "X" number of years and the market continues in the same trend, then the company is assuming the cash values will be $116,000 and a $206,000 death benefit (assuming that is what you meant by the $206,000). Companies develop these numbers by estimating market trends and (if it is a mutually held company) including policyholder dividends. I'm not aware of the exact formula that is used to calculate this, but I know that is how the cash value and increase of death benefit is determined. To answer your other question "why do agents always push whole life instead of term," I can't speculate why an agent told you to buy whole life. Yes it's true that agents get paid a higher commission, but it is not about how much money your agent makes, it's about what is good for you. It depends on your current situation and what you are wanting your life insurance to do for you. Whole life policies have become more common in the last year or so because the stock market hasn't done so well. Some people want whole life as a way of getting a guaranteed return that keeps up with inflation. In my opinion, whole life is a good option when: 1. You are over 50 and have a significant amount of wealth that you would like to give to your children or grandchildren when you pass away, but don't want your family to pay estate taxes. (If you fall in this category, I personally feel that whole life is the way to go. Yes, you might be able to find term coverage for cheap, but what happens if you live past your 20 year term policy? Then you will have one heck of a time trying to find a company that will offer term coverage to someone who is 70 and it won't be cheap!) 2. You are younger and have maximized ALL other forms of retirement savings (ROTH, 401k, etc.). And when I say maximize, I mean that you are contributing the most you can to your ROTH, 401k and any other retirement account. Since most young people are not maximizing their retirement savings, I almost always do not recommend whole life to young people) There are probably other scenarios I left out, but those two came to mind. I usually recommend term insurance for people who only want insurance protection for a defined period of time. For example, someone in their 20s or early 30s, recently married with small children, a mortgage and trying to save for their child's education. This is a good example of when term coverage would come into play. Assuming you are 30 and your youngest is 3, you are likely not going to be in the same situation when you are 50, so I recommend term in that scenario. If you don't like what your agent is telling you (or you simply don't want whole life coverage), then tell them. Your agent's job is to do what is best for you, not them.
2. They make them up. "Non guaranteed" means, it might be this, it might not!! Because whole life costs about 10X as much as term, agents make 10X as much commission selling it. You can make a living selling whole life insurance - it's darned hard to make a living selling JUST term insurance. Always, always run the numbers. You don't say how much the premium is for the policy - but assuming about $150 a month, using THIS calculator: http://www.msfinancialsavvy.com/calculators/monthly_deposit_savings_calculator.php After 30 years, the value of your monthly payments is actually $344,874.40. Pay it to the insurance company, and you are guaranteed, what, less than 1/3 of that. Big whoop. Less than half of it is "nonguaranteed". If you DIE, they keep the cash value. If you BORROW the cash value, you pay THEM interest, and if you die with unpaid balance, they subtract that from the payout. That's not exactly YOUR money, is it, if you pay THEM interest to take it out!! If you're using this life insurance as an INVESTMENT, it's a rotten investment. Life insurance is for if you DIE. If you want an investment, buy a real investment. not life insurance.
3. They push whole life because it is more lucrative for them. But for most people, term is the way to go. They sell whole life as an "investment" but it's a lousy investment.
4. That does not sound like Whole Life. It sounds like Universal LIfe Insurance. Interest rates on the policy go up and down. There is a guaranteed rate of interest and a non-guaranteed rate. Life insurance is NOT an investment. If you want life insurance then just buy term.
5. The non-guaranteed value in a life insurance policy is an estimated amount of value should the interest rate average a certain percentage, or dividends accumulate at a certain rate. If the policy accumulates excess interest or dividends, it has to show what the guaranteed cash value is also. But I WILL say that more people have lost money in the stock market of late than in a Whole Life insurance policy. It's like when you buy securities, it's required by law that you receive a prospectus, showing what the company or that product has done in the PAST; not what it's going to do in the future. They can't guarantee what it's going to do in the future, except for a specified period of time, like CD's, for example. A life insurance policy is not meant to be an investment. When the Universal Life was first introduced in the early 1980's, it could have been used as an investment. The current interest rate at that time was at about 14%. (Jimmy Carter years). One could "dump" as much money as he/she wanted to into the UL, and it would accumulate at the then current rate. It was a way to invest, and a lot of people took advantage of it. The the federal government stepped in and put in some rules and regulations that say in short that if the cash value reaches a certain percentage of the death benefit, it ceases to be life insurance. In this case the amount of death benefit should be increased, or the policy could be changed to plan B, where the cash value would be paid in addition to the face amount of the policy upon death. By going to plan B, when the cash value reaches a certain percentage of the face amount, it creates a corridor, causing the death benefit to increase. After a few years, the interest rate started to decline, and the UL wasn't as attractive as it used to be. By the way, mbrcatz has a broken calculator. If the premium was $150 per month, the 30-year total outlay would be only $54,000, NOT be $344,870, as she stated. That sounds like an excellent policy to me. I would be willing to bet that in 30 years your cash value will be MORE than the guaranteed minimum. I would say that, since it is a Whole Life, the non-guaranteed cash value would include dividends, which are not guaranteed, although MANY participating insurance companies are STILL paying dividends, even in this economic time. If you would have the agent to change the dividend option to "paid-up additions", your cash value will increase substantially, if you haven't already chosen that option. A lot of the answerers on this forum say "buy Term". There is a place for Term insurance; but for a specific need for a specified period of time. According to insurance industry studies, the likelihood that a Term policy will pay a death benefit is about 1%. The reason is that the Term policy has expired, costs too much to renew, lapses for non-payment, or is converted to Whole Life prior to the death of the insured. This is the reason that Term is so inexpensive, because the insurance companies don't expect to be paying claims. In my opinion, one should have some WL to provide for the time when Term gets too expensive to renew because of age. You WILL die some day, and Term may not be there for your loved ones. Here is my recommendation. Call a LOCAL agent, and have him/her do a free personal Financial Need Analysis (FNA), or other Total Need Program, to help YOU determine in YOUR own mind what type and how much life insurance YOU need to accomplish YOUR personal short and long-term goals and objectives. Remember, it's YOUR plan and no one else's. If anyone tells you to cancel you WL policy and buy Term, without doing an FNA, he or she is not professional, and is doing you a disservice. The FNA will also help you determine if you need an Individual Retirement Account (IRA) to help you save for retirement. (All that will be there when you get there is what you send on ahead.) The FNA will also help you determine if you need Disability Income Protection, to provide an income should you get hurt or sick and can't work. According to statistics, disability is a greater risk than death prior to the age of 65. Hope this helps. Best wishes.
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