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Old 01-19-2012, 10:06 AM   #11
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VolAgent on IUL Illustration Interest Rates
 
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IUL Illustration Interest Rates Re: IUL Illustration Interest Rates
Originally Posted by aus0417 View Post
Ok...so I re-ran the LFG illustration at 7% and here is the breakdown now vs. GuardianWL:

Level DB
@65, CV is equivalent but Guardian DB is 75% higher and the guaranteed CV is 3x more

Max CV Option
@65, LFG CV is 17.6% higher, but Guardian still has a 27.3% higher DB

So I guess the question is...what's more important to the client? Also, if she is likely to access some of the CV during the first 20 years or so, given the loan provisions of the two policies, which one would "theoretically" come out better?
I wouldn't frame it that way. If you pick one because "its better", it will disappoint the client and you'll get blamed.

Instead, frame it as a choice for the client.

A) I have a product that has a greater upside potential. But, the market may not do what we need to get you higher credited interest.

OR

B) I have a product that is nice and steady and should crank out decent cash value growth for years to come. It will never have the highs, but then it won't have the lows either, just nice and steady.

OR

C) We can do half the premium into each and give you a bit of both.

If the client picks, he owns it and has bought into it. Plus, you aren't a named defendant down the road.

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Old 01-19-2012, 10:16 AM   #12
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IUL Illustration Interest Rates Re: IUL Illustration Interest Rates
I too would love to see the piece about a 99% probabilility of averaging 7% (I suppose we're talking at least 7% as exactly 7% would be much much less). The probability of averaging at least 7% on the S&P is much much less than 99%. Assuming we're talking Geomtetric Average (aka CAGR). We could be talking the Artihmetic Average which would be easier to achieve, and is also incredibly misleading.

Looky here (I'm becoming such a whore about this)

Ok...so I re-ran the LFG illustration at 7% and here is the breakdown now vs. GuardianWL:

Level DB
@65, CV is equivalent but Guardian DB is 75% higher and the guaranteed CV is 3x more

Max CV Option
@65, LFG CV is 17.6% higher, but Guardian still has a 27.3% higher DB

So I guess the question is...what's more important to the client? Also, if she is likely to access some of the CV during the first 20 years or so, given the loan provisions of the two policies, which one would "theoretically" come out better?
WL will traditionally outperform UL db wise (PUA's compound death benefit as well as cash). The guaranteed cash side will always go to WL (that was a point someone I know loves to bring up, forget the hypothetical lets compare the guarantee!).

Now, blend that WL contract and load it up with more PUA's and compare the two. It'll pull back the db performance, but cash will take a leap.

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Old 01-19-2012, 10:26 AM   #13
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IUL Illustration Interest Rates Re: IUL Illustration Interest Rates
Originally Posted by BNTRS View Post
I too would love to see the piece about a 99% probabilility of averaging 7% (I suppose we're talking at least 7% as exactly 7% would be much much less). The probability of averaging at least 7% on the S&P is much much less than 99%. Assuming we're talking Geomtetric Average (aka CAGR). We could be talking the Artihmetic Average which would be easier to achieve, and is also incredibly misleading.
It may have been lower, may have been in the 6% range. I just remember the piece. It showed several percentages and the probabilities of consistently averaging that return. Hopefully someone can find it and post.

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Old 01-19-2012, 10:31 AM   #14
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IUL Illustration Interest Rates Re: IUL Illustration Interest Rates
Originally Posted by aus0417 View Post
Ok...so I re-ran the LFG illustration at 7% and here is the breakdown now vs. GuardianWL:

Level DB
@65, CV is equivalent but Guardian DB is 75% higher and the guaranteed CV is 3x more

Max CV Option
@65, LFG CV is 17.6% higher, but Guardian still has a 27.3% higher DB

So I guess the question is...what's more important to the client? Also, if she is likely to access some of the CV during the first 20 years or so, given the loan provisions of the two policies, which one would "theoretically" come out better?
Same premium for both? Or, did you use "target" for the IUL?
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Old 01-19-2012, 10:44 AM   #15
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IUL Illustration Interest Rates Re: IUL Illustration Interest Rates aus0417 is the thread starter for: IUL Illustration Interest Rates

Originally Posted by rousemark View Post
Same premium for both? Or, did you use "target" for the IUL?
I used the same exact premium for both.
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Originally Posted by BNTRS View Post
I too would love to see the piece about a 99% probabilility of averaging 7% (I suppose we're talking at least 7% as exactly 7% would be much much less). The probability of averaging at least 7% on the S&P is much much less than 99%. Assuming we're talking Geomtetric Average (aka CAGR). We could be talking the Artihmetic Average which would be easier to achieve, and is also incredibly misleading.

Looky here (I'm becoming such a whore about this)



WL will traditionally outperform UL db wise (PUA's compound death benefit as well as cash). The guaranteed cash side will always go to WL (that was a point someone I know loves to bring up, forget the hypothetical lets compare the guarantee!).

Now, blend that WL contract and load it up with more PUA's and compare the two. It'll pull back the db performance, but cash will take a leap.
I'm not sure exactly what you mean here...I used a 50/50 split on base/PUA on Guardian WL...can you do more than that?
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Last edited by aus0417; 01-19-2012 at 10:45 AM. Reason: Posts merged
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Old 01-19-2012, 12:42 PM   #16
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IUL Illustration Interest Rates Re: IUL Illustration Interest Rates
Originally Posted by VolAgent View Post
It may have been lower, may have been in the 6% range. I just remember the piece. It showed several percentages and the probabilities of consistently averaging that return. Hopefully someone can find it and post.

Here you go.

As I said earlier, 5.5% is 100%.
Attached Files
File Type: pdf LFG.IUL.prob.pdf (179.3 KB, 80 views)
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Old 01-19-2012, 12:44 PM   #17
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VolAgent on IUL Illustration Interest Rates
 
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IUL Illustration Interest Rates Re: IUL Illustration Interest Rates
Originally Posted by scagnt83 View Post
Here you go.

As I said earlier, 5.5% is 100%.
Thanks. Still impressive. 92.3% chance of seeing 7%. Illustrate at 6% and you should be completely safe and still illustrate well.

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Old 01-19-2012, 01:33 PM   #18
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IUL Illustration Interest Rates Re: IUL Illustration Interest Rates
Originally Posted by aus0417 View Post
Ok...so I re-ran the LFG illustration at 7% and here is the breakdown now vs. GuardianWL:

Level DB
@65, CV is equivalent but Guardian DB is 75% higher and the guaranteed CV is 3x more

Max CV Option
@65, LFG CV is 17.6% higher, but Guardian still has a 27.3% higher DB

So I guess the question is...what's more important to the client? Also, if she is likely to access some of the CV during the first 20 years or so, given the loan provisions of the two policies, which one would "theoretically" come out better?

Its hard to really answer those questions.

Both have advantages and disadvantages.


Given the exact same CV & assuming the exact same crediting rate & the same loan provisions; Distributions from the IUL (utilizing GPT) will outperform the WL which uses CVAT.


That being said, LFG's loan provisions are much better than Guardians, its a lower fixed rate (5%) & its true NDR.

LFGs IUL is a top notch product.
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Old 01-19-2012, 01:37 PM   #19
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IUL Illustration Interest Rates Re: IUL Illustration Interest Rates
Originally Posted by scagnt83 View Post
Here you go.

As I said earlier, 5.5% is 100%.
What happens to that graphic if LNL or any other company lowers the cap rates? That's what I'd like to see...

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Old 01-19-2012, 01:40 PM   #20
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IUL Illustration Interest Rates Re: IUL Illustration Interest Rates
Originally Posted by VolAgent View Post
Thanks. Still impressive. 92.3% chance of seeing 7%. Illustrate at 6% and you should be completely safe and still illustrate well.

I usually tell people to expect 6%-7% as a long term average and that they will not average above 8.5% on a long term basis.


To me IUL is a way to be able to utilize GPT for distributions and not be locked into a low interest rate environment, and yes, its also a way to hopefully earn a bit more than a WL.
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Originally Posted by dgoldenz View Post
What happens to that graphic if LNL or any other company lowers the cap rates? That's what I'd like to see...

Common sense would dictate that it would fall to a degree.

Caps can be raised or lowered, but very seldom are. IULs are much different internally for an insurance company than IAs are.

Ever wonder why IUL caps are at 13% for Yearly P2P and IAs are at 2%?
This is because the Company makes money from IAs through arbitrage, mainly on Treasuries.

On IUL a direct portion of premiums received go towards policy expenses in addition to the GA & index options.
In other words, the companies main source of revenue from IULs is policy expenses, not arbitrage.

This is the reason the company can afford to give you 13% caps on IUL but only 2% on IAs. They arent trying to arbitrage the fixed holdings and therefore have a greater % to put towards the Indexed portion.



Indexed product caps are at a historical low.
IUL caps do have plenty of room to drop, but its unlikely it would be a significant drop.
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Last edited by scagnt83; 01-19-2012 at 02:00 PM. Reason: Posts merged
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