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Reply to I'm Enrolling Myself in an IUL...     
Old 05-08-2011, 08:14 AM   #21
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Larry Tew on I'm Enrolling Myself in an IUL...
 
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I'm Enrolling Myself in an IUL... Re: I'm Enrolling Myself in an IUL...
Originally Posted by Briefcaseboy View Post
...If you can read the SP500 stock market charts ( I know how, I've trading for 15 years or so ), you could move your assets from the fixed account to the interest bearing account during a market rally and then protect yourself during a correction by moving these same assets back into the fixed account. I would love that aspect of it, if that is the way it works.
On what planet do you think a client will do this? Or their agent? We can't even get traditional UL clients to read their annual statements once a year, but we could get them to time the market? Warren Buffet isn't even that good, or he would have predicted the last decade of the market and dodged the mess.

This is why the "Qauntitative Analysis of investor Behavior" (www.qaib.com) show us year after year that the index numbers (Dow and S&P) are total fiction, and the average investor NEVER realizes returns close to the performance of the indices. They don't for the same reason we see ao many ULs crashing... HUMAN BEHAVIOR.

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Old 05-08-2011, 05:21 PM   #22
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I'm Enrolling Myself in an IUL... Re: I'm Enrolling Myself in an IUL...
Mr. Tew,
You are right about the fact that most people do not follow the market or know anything about it. No one had to be a genius to know that we had a bull market in the 90's. When the markets collapsed in March of 2000, everyone knew about it, and that we were going through a prolonged bear market.
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Old 05-08-2011, 06:30 PM   #23
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I'm Enrolling Myself in an IUL... Re: I'm Enrolling Myself in an IUL...
Originally Posted by Briefcaseboy View Post
Mr. Tew,
You are right about the fact that most people do not follow the market or know anything about it. No one had to be a genius to know that we had a bull market in the 90's. When the markets collapsed in March of 2000, everyone knew about it, and that we were going through a prolonged bear market.
My point is that regardless of bull or bear, investor behavior has everything to do with their individual personal returns. Panic, emergencies, liquidity needs, unemployment, etc mean that there are VERY FEW true "buy and hold" investors - which is what the indices measure.

Dalbar and the QAIB measure ACTUAL experience acheived by real people. Clients can play around with their annuities, 401(k), or investments, but I want their life insurance to be ROCK SOLID with minimal moving parts.

BTW, call me Larry.
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Old 05-09-2011, 08:18 AM   #24
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I'm Enrolling Myself in an IUL... Re: I'm Enrolling Myself in an IUL...
IUL is not about timing the market and re-allocating on a yearly basis.

Its about the funds being positioned to possibly benefit from market gains, in a way that still guarantees a minimum crediting rate (something thats very important to cover the yearly expenses).


IULs are like IAs, they are designed to beat fixed products, they are not designed to compete with variable products, and you take on a bit more risk when it comes to Lost Opportunity Cost
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Old 05-09-2011, 11:16 AM   #25
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I'm Enrolling Myself in an IUL... Re: I'm Enrolling Myself in an IUL...
Folks in Variable Life products had to make up all of their lost gains of the past few years to participate in this year's rally. IUL policy holders had no loss of principal. That was not an "opportunity cost"!


With its performance and guarantees. IUL does exactly what many say is needed for retirement savings: providing great return without market risk and giving people retirement security with principal guarantees. For those who complain that gains are still tied to the market, history has shown that in the long term, the greatest risk is not being in the market. All-in-all, there are few better or safer retirement plans. For many boomers, IUL may very well be their last chance for retirement.
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Old 05-09-2011, 11:44 AM   #26
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I'm Enrolling Myself in an IUL... Re: I'm Enrolling Myself in an IUL...
I can see IULs maybe having merit for the "buy and hold" policyowners. But what about those who want to use their policies as "banks"... borrowing and paying back with interest over and over? At what point do loans / withdrawals cause the period yield to default to the guarantee?
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Last edited by Larry Tew; 05-09-2011 at 02:49 PM.
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Old 05-09-2011, 12:50 PM   #27
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I'm Enrolling Myself in an IUL... Re: I'm Enrolling Myself in an IUL...
Originally Posted by scagnt83 View Post
IULs are like IAs, they are designed to beat fixed products, they are not designed to compete with variable products, and you take on a bit more risk when it comes to Lost Opportunity Cost
Good point. But... there are a boat-load of ways to "go wrong" with IULs and FIAs.

1. You can pick the wrong anniversary date. The market has yearly buy/sell cycles.

2. You can pick the 'wrong' index.

3. You can EASILY pick the wrong crediting method.

4. You can screw up the allocation to various indexes (if allowed.)

The adage is that "Zero is your hero." But it's not. There are more ways to be "wrong" than there are to be "right" when it comes to these vehicles.

And you want to pay attention to the guarantee. Is it credited each year that your index is "zero" so that it will compound or is it credited at say a 5 year interval like some FIAs (surreptitiously) do it.

Do you get the guarantee on 100% of your account value or on a portion of it?

I've studied both FIAs and IULs for the past few years and I see the chances to get an extra 5% to 7% above "traditional" WL or UL plans as less than half the time meaning that client is looking at maybe 2% returns... not 2% more than traditional vehicles.

The conversation can go like this:

Mrs. Jones: I got a note from my insurance company saying my index was negative and I'm getting zero return on my money (or a 1% guarantee on 89% of my account value.)

Agent: Well, you didn't lose money.

Mrs. Jones: The insurance company had my money for a whole year. Did they lose money? I think they basically got an almost-interest-free loan that they can invest.

Agent: Well, you didn't lose money.

Mrs. Jones: Inflation is 3%. I lost money.

Agent: You still have your death benefit.

Mrs. Jones: I should have bought term and invested the difference like the guy on the radio says to do.

Agent: But you could have lost the difference.

Mrs. Jones: Not over the long term if I bought solid, high-div stocks like P&G or ATT. Your argument was that over the long term the market always goes up. So if it holds for you, it should hold for owning a market-basket of good stocks (or funds) as well.

... and if this is an argument you want to have with clients... be my guest. For those who like to gamble on the market, IULs and FIAs are good vehicles. Yes, I know. You say "Client can't lose money." Isn't opportunity-cost as well as not keeping up with inflation a form of losing money?

I think WL is still the better deal on almost every level... in real life. On paper IUL looks great. But will real-life emulate the paper? I hope so for those folks who sell and buy these indexed products.

YMMV.
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Old 05-09-2011, 01:44 PM   #28
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I'm Enrolling Myself in an IUL... Re: I'm Enrolling Myself in an IUL...
This is a good discussion, I just read an article last night that looked at actual returns on IUL's. And the IUL's at this particular insurance company only returned 50 bps over traditional fixed life. And since 2000 or 2003 have underperformed fixed life. I will post the magazine as a source later. I was also sold on IUL but historically the actual returns are not there.
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Old 05-10-2011, 09:51 AM   #29
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I'm Enrolling Myself in an IUL... Re: I'm Enrolling Myself in an IUL...
Originally Posted by melviticus View Post
Folks in Variable Life products had to make up all of their lost gains of the past few years to participate in this year's rally. IUL policy holders had no loss of principal. That was not an "opportunity cost"!
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The lost opportunity cost I was referring to is the lost opportunity of having a steady dividend from WL, not the lost opportunity of higher gains from VUL.


IUL is not VUL, even though certain carriers try to make it out to be.
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Originally Posted by Larry Tew View Post
I can see IULs maybe having merit for the "buy and hold" policyowners. But what about those who want to use their policies as "banks"... borrowing and paying back with interest over and over? At what point do loans / withdrawals cause the period yield to default to the guarantee?

Why would loans/withdrawals cause anything to fall back to the guarantees??? I dont follow you on that statement.


With most IULs withdrawals/loans are taken out of the fixed bucket. (Penn lets you take it from the indexed bucket)

I know of no IUL that adjusts crediting rates based on loans or withdrawals of a single policy.... or UL for that matter...

Can you clarify?
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Last edited by scagnt83; 05-10-2011 at 09:57 AM. Reason: Posts merged
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Old 05-10-2011, 09:58 AM   #30
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Larry Tew on I'm Enrolling Myself in an IUL...
 
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I'm Enrolling Myself in an IUL... Re: I'm Enrolling Myself in an IUL...
How does IUL work if your client wants access to the CV throughout the life of the policy?

"Joe, this IUL will receive the better of the index-based interest calculation or the guarantees... as long as you don't use the CV."

That isn't the conversation I want to have.
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