Equity Indexed UL

[scagnt83]

1980's UL policies are blowing up left and right because of increased COI's and decreased interest rate crediting. .

The 80s UL debacle has been argued on here before.
They were illustrated with extremely high interest rates in what was a record setting time for interest rates with no regard as to what the rates might do in the future.
Furthermore, the COI on policies in general back in the 80s & 90s was much higher than it is today.
In general, ULs have a lower COI today than they did then, and the COI range is not as wide either.
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How's the guaranteed column look without massive overfunding and without 8% interest crediting?

The guaranteed column gets the guaranteed min rate not 8%. Guaranteed mins are usually 1 or 2 percent.

And if I was overfunding a policy, why would I care what the guaranteed column looks like without the overfunding? Its irrelevant.
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The "trust me" approach is how insurance companies are offering these products. I like written guarantees when it comes to insurance regardless of what type it is, not "trust me," but everyone is entitled to their opinion.

There is more of a "trust me" approach to traditional UL and WL than there is to IUL. With IUL, at least you have the index as an indicator of performance, with traditional UL and WL its totally arbitrary.



When chasing performance you have to lay your trust in someone/something. It might be mother mutual, it might be credited interest rates, it might be a fund manager or stockbroker, etc, etc, etc,.

IUL was not designed for the same purpose that a GUL or a 20 year term was, it would not be used in the same situations, so it should not be compared to the like.

 

[dgoldenz]

IUL was not designed for the same purpose that a GUL or a 20 year term was, it would not be used in the same situations, so it should not be compared to the like.

Tell that to the agents who sell it...

Do you think most agents are illustrating the projections at 5% or at 8%? I think you are missing my point. You're thinking about it in the cash accumulation aspect, not the insurance sense. Insurance is still for insurance and investments are still for investments. When it comes to insurance, I like guarantees. Again, just my opinion.

When chasing performance you have to lay your trust in someone/something. It might be mother mutual, it might be credited interest rates, it might be a fund manager or stockbroker, etc, etc, etc,.

If I have to trust someone to give me something that isn't guaranteed, an insurance company would probably be the last place I would look. At least the death benefit with WL is guaranteed.

 

[scagnt83]

Tell that to the agents who sell it...

Do you think most agents are illustrating the projections at 5% or at 8%? I think you are missing my point. You're thinking about it in the cash accumulation aspect, not the insurance sense. Insurance is still for insurance and investments are still for investments. When it comes to insurance, I like guarantees. Again, just my opinion.



If I have to trust someone to give me something that isn't guaranteed, an insurance company would probably be the last place I would look. At least the death benefit with WL is guaranteed.

Even in the insurance sense most overfunded IULs are Guaranteed or close to it. Even at 1% and max charges most will go out until 80 or 90 (and realistically, how likely will it be that it gets 1% for the life of the policy...??)

Permanent Insurance is a true financial vehicle, it protects more than just risk to your life, even though thats the foundation of it.
Its a wealth transfer tool; a tool to generate wealth and transfer it to someone at a later date, and PI does that in a tax advantaged manner.

IUL is just a different flavor way of doing it.
A way that focuses more on the living benefits of the product vs. the death benefits; and yes, its a method that does take on more risk vs. a traditional UL or a WL.

 

[dgoldenz]

Even in the insurance sense most overfunded IULs are Guaranteed or close to it. Even at 1% and max charges most will go out until 80 or 90 (and realistically, how likely will it be that it gets 1% for the life of the policy...??).

You are still referring to overfunded IUL's. What percentage of IUL's that are purchased do you think are overfunded to the level you're referring to? I'll bet it's minimal. Think about what your average agent selling IUL presents to their client, and think about the average consumer buying it.

In either case, I don't like the trust me approach, but as you said, the larger the overfunded amount the smaller the impact of the COI becomes.

I'd bet a nickel that a lot of people buying IUL think they have a whole life policy that's fully guaranteed.

 

[scagnt83]

If I have to trust someone to give me something that isn't guaranteed, an insurance company would probably be the last place I would look.

There are many insurance companies out there that have been consistently paying out more than what is guaranteed in the contract for years and years. Many for 100+ years, many have never once given just what was guaranteed... for over 100 years....

Most years the big mutuals give out a better rate on their policies than our federal government does on bonds.

I would say that the major mutuals and a select group of public companies would be some of the most trustworthy companies in the country to trust. Hell, most people wont even give you a guarantee associated with your money, much less money on top of that guarantee....

 

[dgoldenz]

There are many insurance companies out there that have been consistently paying out more than what is guaranteed in the contract for years and years. Many for 100+ years, many have never once given just what was guaranteed... for over 100 years....

Most years the big mutuals give out a better rate on their policies than our federal government does on bonds.

I would say that the major mutuals and a select group of public companies would be some of the most trustworthy companies in the country to trust. Hell, most people wont even give you a guarantee associated with your money, much less money on top of that guarantee....

Refer to my Jackson National example.

 

[scagnt83]

You are still referring to overfunded IUL's. What percentage of IUL's that are purchased do you think are overfunded to the level you're referring to? I'll bet it's minimal. Think about what your average agent selling IUL presents to their client, and think about the average consumer buying it.

In either case, I don't like the trust me approach, but as you said, the larger the overfunded amount the smaller the impact of the COI becomes.

I'd bet a nickel that a lot of people buying IUL think they have a whole life policy that's fully guaranteed.

There will always be agents out there that half ass it.
Your gripe is with the agents, not with the product.

Maybe I have rose colored glasses on, but I like to think that most agents sell products properly; its just that the ones that dont really stand out... lol

And lots of IUL policies are overfunded. I recently had a similar conversation with a wholesaler with LFG. He claimed that most of IULs he sees agents doing are overfunded.

But I will be the first to admit that there will always be guys out there who are looking to maximize comp at any cost.

But for the right client and the right situation, fundamentally there is nothing wrong with IUL.

Personally, I think that UL comp should be changed to a set percentage of premium, no targets. This would help eliminate the desire to not overfund and max out comp.
But I realize that from a business standpoint it would be hard for the companies to do.
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Refer to my Jackson National example.

Was it not disclosed that the cap could change? Was this really a surprise to you?? Did it go down to the guaranteed min? How big was the drop?

I dont count on marketing bits, I count on whats in the contract.

 

[dgoldenz]

Was it not disclosed that the cap could change? Was this really a surprise to you?? Did it go down to the guaranteed min? How big was the drop?

I dont count on marketing bits, I count on whats in the contract.

Of course it was disclosed, but one of the reasons the product was chosen was the fact that they had stayed true to their word and never lowered the caps in the company's history. Was it a surprise? Yes, considering they'd never lowered the caps. The drop was only 0.25% on the cap, but this is also only the first year of the contract. Even a .25% drop makes a big difference on a big case when you're talking 7-10 years. If the cap went down .25% every year would be a massive difference (unless there was no gain, that is).

It's not only a problem with in-force contracts, but with earning the trust of the public when offering these products. Same thing with LTC policies that have had rates jacked up on in-force policies. Every time the companies do it just makes it harder on the agent to sell the product.

 

[scagnt83]

Of course it was disclosed, but one of the reasons the product was chosen was the fact that they had stayed true to their word and never lowered the caps in the company's history. Was it a surprise? Yes, considering they'd never lowered the caps. The drop was only 0.25% on the cap, but this is also only the first year of the contract. Even a .25% drop makes a big difference on a big case when you're talking 7-10 years. If the cap went down .25% every year would be a massive difference (unless there was no gain, that is).

It's not only a problem with in-force contracts, but with earning the trust of the public when offering these products. Same thing with LTC policies that have had rates jacked up on in-force policies. Every time the companies do it just makes it harder on the agent to sell the product.

Good points. Thats why as agents we really need to concentrate on education and full disclosure of product features.

And of course there are different forces at work with LTC vs. PI.

It would be nice to see a historical chart of where the rate caps have been on IAs/IULs for the major players. I have never seen one.

While the 25bps reduction at JNL sucks; thats not a bad reduction at all compared to were they could have dropped it to.

 

[Franz Kafka]

Just sell all ULs at minimum DB and never sell VUL. You'll sell more because you'll have more confidence in your product.