Posted by American Life Insurance GuideReaders of, he heard from friends around him that the insurance company’s annual dividend is 6.x%, 7%, and it can save money and withdraw money. It sounds very moving and wants to get one.But he has a lot of questions, is this "dividend rate" reliable?Is this method of withdrawing money safe?
In aboutSavings insuranceIn all of the articles, we continue to explain that the insurance policy dividend rate (Dividends Rate) and the actual internal rate of return (IRR, Internal Rate of Return) are two completely different things.
We usually confuse the two and cause misunderstandings, resulting in the situation at the beginning of the article.At the same time, regarding fromSavings policyThe concepts and problems of withdrawing money in the account are also vague in the market. Various professional terms and classifications-such as Direct Recognition and Non-Direct Recognition-make policyholders confused.
Sales staff will either not mention it at all, or they will emphasize that this kind of insurance policy can save money and pay dividends. When you need money, you can withdraw it to pay the bills early, such as buying a car, or as a startup fund.
Many savings-type life insurances are packaged as "can quickly withdraw money from policy accounts", "build a personal banking system", and "Infinite Banking" are sold under concepts such as "Infinite Banking".These ideas have appeared for many years. People who spread these ideas include Nelson Nash and Pamela Yellin. There are many such people. Their idea is: We should use savings insurance (whole life) An account replaces a bank account to deposit money.
In this article, we will first specifically answer the first "Is the dividend rate reliable?"The question. We will use the analysis method of Matthew Decker, CEO of leveraged wealth management agency, and use the simplest mathematical calculations to help policyholders calculateThe dividend rate of savings insurance andInternal rate of returnQuestions, see exactly what they are.
We hope that through the sharing of this article, anyone can spend 5-10 minutes to figure out what the really important core part is.In the next article, we will answer whether the above concepts work or not, if they are specific to us.
Dividend Rate and Internal Rate of Return
Again, the insurance policy dividend rate (Dividends Rate) and the actual internal rate of return (IRR) of the insurance policy are two completely different things.
It is actually relatively easy to figure out the dividend rate of the policy and the actual rate of return of the policy.We just need to find the one who sells this savings policyinsurance brokerOr contact the insurance company directly,Ask for an internal rate of return account (IRR Ledger) for our policy account.
This policy statement will show the actualInternal rate of return.
The picture below shows a copySavings policy, The issuing company is the well-known M, this company has the best in the field of savings insuranceHistorical dividend record.
This insurance policy happens to have the "up to" 6.4% dividend as mentioned at the beginning of the article.Most people think that if they apply for this type of insurance policy, they will actually get a 6.4% return each year.Will it be like this?
First talk aboutDividends, If we bought the $10 stock of Ford Motor Company, Ford announced that our dividend this year is 6.4%, then our stock account will get 6400 dividend income.This is how dividends work.
But let's look at the insurance policy, and the result is quite different.
This is a 10-year savings policy. The policyholder deposits $1,4000 per year for 10 years.
The basic information about input and output of this policy is,
- In the first 10 years, the policy’sInternal rate of returnIs negative, climbs to 0
- Between the 9th and 10th years, the rate of return of the policy changes from negative to positive
- At the 10th year, the cash value of the policy account equals the invested capital
The above 3 points areSavings policyCommon features are not surprising.
And what we really need to pay attention to is to find the insurance policy based on the time of a lifetime.Highest internal rate of return.
In the picture above, we can findThe highest internal rate of return is 4.85%.This figure is a lot smaller than the 6.5% dividend rate. Why is it so?There are two reasons for this:
XNUMX. The difference between an insurance company's account book and a personal account book
The policy dividend rate is not equal to the internal rate of return, These are two completely different things, anySavings policyWhen it comes to the dividend rate, there will be a line of small characters in the contract documents that declare the dividend rate of return, not the actual rate of return of the insurance policy.
Simply put, the dividend rate is the insurance company’sCompany ledgerAccounting method, and the internal rate of return of the policy is about ourselvesPersonal ledgerThe actual accounting method.We cannot mistakenly use the market data calculated by insurance companies in accordance with the company's bookkeeping method as the rate of return on our personal accounts.
XNUMX. The reason why savings insurance is the most expensive type of life insurance
Secondly, among all life insurance types that we can apply for, savings-type whole life insurance types are the most expensive.The most expensive reason is that savings insurance provides 3 "guarantees":
- The premium to be paid is determined;
- The amount of death compensation is fixed;
- Provide a certain guaranteed cash value;
In life insurance, "certainty" is a very expensive thing.If we want to include the "determined" part in the policy, then no matter what the "determined" object is, and regardless of the type of insurance (savings insurance, investment insurance,Index insurance), the insurance policy immediately became more expensive.
Therefore, although the insurance company announced that this year’s “dividend” from the company’s account book to the policyholder of a savings policy was 6.4%, but in the end, calculated from the personal account book, the maximum lifetime benefit of this policy is only 4.85%.
Article summary
The high dividend rate figures are full of temptation, but buying insurance is not to invest to make a fortune.Blindly pursuing good-looking figures may lose the original intention of insuring. Driven by both temptation and impulse, the price may eventually be paid.
American Life Insurance GuideNet has always advocated "Learn Before You Buy”Principle, after the policyholder has mastered certain basic knowledge, through cooperation with professional insurance agents or financial consultants, he can more clearly define his core needs and avoid all kinds ofInsurance misunderstanding, So as to find products and design schemes that can truly suit and protect oneself.
