Tax Free Retirement WL W/riders Vs IUL?

[LaughDontCry]

I have been trying to get to the bottom of (or the truth) about recommending to my clients the tax free retirement strategy using Patrick Kelly or the RAFT vs what Pan Yellen and Nash propose as ONLY viable with Whole Life and PUA's and some term.
I hate the arguing and bickering, that only One of these is truly safe and dependable.
The WLife idea I am more attracted to, mainly cause I prefer Mutual Companies, but my upline insists that IUL can be trusted and the results are much better.
The illustrations seem to agree.
Can anyone or has anyone researched this and can point me in the right direction?
Please stay neutral.....I realize thats asking alot.
I really need facts!

Thanks

 

[pfg1]

Both have their place. IMO, max funded is the only way to go on either...especially in regard to building cash for future income streams.

WL gives slow and steady growth. Long term IRR 4-5%.
No contractual surrender charges.
Majority of cash value can be accessed early through loans if needed.
Guaranteed growth, plus non-guaranteed dividends (most mutuals have paid for 100+yrs).
Typically there is less death benefit on a WL than on an IUL with similar premium.
Premium / costs are locked in, policy becomes more efficient every year.
Premium payment options are typically limited with much less flexibility than IUL. (some companies and policy designs have more flexibility than others).
Some WL policies have nice living benefit riders. Most are typically not as good as IUL's, from what I've seen.
Bottom line, WL is kinda plain - no frills or big gains, but it will deliver what you say.

IUL has more potential growth, some caps are 13-14% annually.
But, there are no real guarantees.
IUL typically has 10+yrs surrender charges.
Less available cash to access via loans during surrender charge period.
You typically get more death benefit on IUL, than on a comparable premium WL.
Internal costs increase annually, thus making it less efficient as clients get older.
More potential income stream (tax free retirement) due to potential higher growth.
Most IUL's have nice living benefit riders.
IUL's offer extremely flexible premium payment options, much better than WL.
Bottom line, IUL offers alot of bells and whistles and potentially huge gains...but comes with an element of risk due to the lack of guarantees.


I offer both, but sell much more WL than IUL. Personally I like it better, but each has their place. Some folks are a better fit for IUL, especially if they have big swings in income. The other thing is.... commissions can vary widely on each product, based on product & policy design. Again, max funded is best for the client, imo.

Hopefully some others will chime in. Alot of folks far more experienced that I am. Hope this helps some.

 

[DHK]

pfg1 outlined it pretty well.

A couple of things I'll point out:

Disability Waiver of Premium

Whole Life with Disability Waiver of Premium does NOT cover any additional 'cash dump in' riders.

However, an IUL with a Disability Waiver of Stipulated Premium will continue to contribute cash contributions as stated (I believe to the target premium?). Not every company offers this to the full stated premium, so check on the carriers you have access to. The carrier I KNOW offers this (even in California) is American National.

The difference to me is this:
- $10,000 WL premium, but $6,000 is VER/PUA rider and $4,000 is the base. Only the $4,000 is covered in the event of disability.

- $10,000 IUL maximum target premium, but all of it is covered in the event of disability with a disability waiver of stipulated premium.

Agent Compensation

Your compensation on the Maximum Funded WL is primarily based on the base policy and other riders, but the VER/PUA riders have TINY commissions. So if you sell the same above policy... your compensation is based on the $4,000 annual base policy.

The IUL compensation is based on the target premium. If you sell a $10,000 target premium, your upfront compensation is based on that entire premium.

Long-Term Compensation

I've noticed that WL renewals are much higher to the agent than an IUL... so if you compare compensation over a 10-year period, WL works out much better over IUL.

Cash Value Banking

IUL isn't great for "banking" due to the surrender charge schedule and a minimal amount you can fund over the target to avoid a MEC. It'll take a minimum of 5 years before there's anything worth working with. However, nearly ALL IUL policies offer a variable loan, so the original cash values can continue to grow as though you never touched it... as long as the annual interest is still paid "out of pocket".

WL is fantastic for cash value banking - almost immediately. You can structure a WL policy to have at least 50% cash values with the first 1-2 years. This will also make annual reviews a lot less painful and clients can see the growth and access that they will continually have as they keep the plan. And some companies offer 'non-direct recognition' loan options, so you can have the same variable loan as the IUL. Even then, some 'direct recognition' company loan illustrations also look very good as well.

Illustrations and the Concept

As you said, the illustrations look compelling. However, most companies illustration software... well, they leave a lot to be desired. But the ability to have market-linked gains (not including dividends) is very compelling. Remember that even with surrender charges, as long as they are leaving it alone, that account value can earn interest according to the movements in the underlying index.

Whole Life... well, the story isn't as compelling. It's boring, but it's steady and works well.

What should you choose?

Why not use both and sell both? Every client is different and has different needs. As you know through the "banking" scenarios, if you can cut out the bleeding to the other outside financial institutions, I think that's the first step.

I would use the Par WL with the VER/PUA rider until it has grown enough in cash values to help fund whatever their spending needs are - to avoid new credit card debt and auto loans.

Then later, you can STOP paying on the VER/PUA rider (keep the base WL policy) and contribute THAT (and probably more) into an IUL and maximum fund that as well.

In a sense, it's "Save first... then "invest" for the future" as the IUL has more risk than a WL.

Just my ideas as I've had to wrestle with this as well.

----------

Heck, with that idea, I might take a look at American National's WHOLE life product too... so I can convert a TERM policy to either WL or IUL from the same company. The only real reason I wasn't keen on ANICO's whole life was because their PUA rider is only good for 15 years.

 

[scagnt83]

DHK,
A LOT of what you just said about IUL is completely incorrect.


First,
You should NEVER fund an IUL just at Target Premium. Target Premium is a compensation figure. It is the same as base premium on a WL. It is based on the chosen DB, nothing more.

If you are solving for Target and funding at that level, you are not over-funding the policy.

So there is no such thing as "Maximum Target Premium" as you stated. There is Target Premium, then there is a Maximum Non-Mec that will be anywhere from 50%-100% higher than the Target Premium.

Disability Waiver of Premium

However, an IUL with a Disability Waiver of Stipulated Premium will continue to contribute cash contributions as stated (I believe to the target premium?). Not every company offers this to the full stated premium, so check on the carriers you have access to. The carrier I KNOW offers this (even in California) is American National.

The difference to me is this:
- $10,000 WL premium, but $6,000 is VER/PUA rider and $4,000 is the base. Only the $4,000 is covered in the event of disability.

- $10,000 IUL maximum target premium, but all of it is covered in the event of disability with a disability waiver of stipulated premium.

Most Waivers of Stipulated Premium do not go up to the max non-mec premium. It is usually a set multiple of the minimum premium.

The IUL compensation is based on the target premium. If you sell a $10,000 target premium, your upfront compensation is based on that entire premium.

If the Target Premium is your clients entire premium then you are screwing your client and not overfunding the policy. This is a gross misstatement about overfunded IUL compensation.

You are paid on Target Premium, which again, is the same as the Base Premium on a WL.

Usually the Target will be between 30%-60% of the Max Non-Mec Premium.
So on a $10k Premium, the average comp would be around $5k + $200-$300 for the amount over target.

I have compared IUL to WL policies using the same premium and the WL would have paid more.

Long-Term Compensation

I've noticed that WL renewals are much higher to the agent than an IUL... so if you compare compensation over a 10-year period, WL works out much better over IUL.

This is true. Except for Midland which gives you the option of taking trails based on the CV. It will pay much more than a WL over a 20 year period.

IUL isn't great for "banking" due to the surrender charge schedule and a minimal amount you can fund over the target to avoid a MEC. It'll take a minimum of 5 years before there's anything worth working with.

WTF are you talking about???? Dude, you are doing something seriously wrong when you are running IUL illustrations.....

The last IUL I sold had a $20k/y premium and a $7k Target.
Based on a 7% crediting rate, at year 3 it is at $48,000 SV / $58,800 CV.

And that is on a traditional IUL. If I used an ECV IUL it would be more than that. I can even throw a waiver of surrender charge rider on it and not worry about surrender charges at all...

Again, you are doing something seriously wrong.... and you are way off on how an IUL can be utilized.

Here are 2 pics of the first 10 years of a properly designed IUL:

..............

 

[DHK]

I'm okay being wrong, especially with you because I KNOW that you know what you're doing.

I also like your illustrations above. When you have an increasing death benefit, it does allow for more contributions and it does accelerate the available cash surrender values in the earlier years. I am concerned about increasing policy costs, but that's secondary compared to the early cash values you can have. As long as the policy is actually managed, I don't see it being a problem.

I rarely illustrate "Super Preferred" rates though.

Not every carrier (it seems) will help illustrate maximum non-mec amounts in an IUL... at least not ANICO. Maybe I'm missing something in the illustration software.

I'll keep messing around with it. I would HOPE that I could create similar illustrations using ANY company's product... but I think I'm at a loss with ANICO's illustration system.

 

[scagnt83]

I'm okay being wrong, especially with you because I KNOW that you know what you're doing.

I also like your illustrations above. When you have an increasing death benefit, it does allow for more contributions and it does accelerate the available cash surrender values in the earlier years. I am concerned about increasing policy costs, but that's secondary compared to the early cash values you can have. As long as the policy is actually managed, I don't see it being a problem.

I rarely illustrate "Super Preferred" rates though.

Not every carrier (it seems) will help illustrate maximum non-mec amounts in an IUL... at least not ANICO. Maybe I'm missing something in the illustration software.

I'll keep messing around with it. I would HOPE that I could create similar illustrations using ANY company's product... but I think I'm at a loss with ANICO's illustration system.

I rarely illustrate super preferred too. I just threw something together real quick for you.

Anico has one of the most archaic illustration systems I have ever used... well maybe after Cinci Life. They also have just a so-so product imo.


The way to maximize the CV over the long term in an IUL, is to use GPT Testing and an Increasing DB (opt 2) until you stop paying premiums.
Once premiums stop, you switch to a Level DB (opt 1). Some companies have this option to do it automatically now I believe.

Using GPT Testing actually keeps the internal costs low, even with an increasing DB. CVAT has a higher COI as it will grow to a higher DB (using opt 2).

To keep the policy a life insurance policy, the policy adjusts the internal values based on different factors depending on if you chose GPT or CVAT.

CVAT, is the Cash Value Accumulation Test.
CVAT increases the Death Benefit if the Cash Value gets too close to the DB.
This is the automatic internal adjustment to keep the policy classified as a life policy. WL uses CVAT.

GPT, is the Guideline Premium Test.
GPT reduces the maximum premium allowable when the CV gets too close to the DB.
This is why you use Opt2 during the years you pay premiums. It allows you to pay premiums up to the Non-Mec Max so the GPT test does not limit your premium.
Then once the premiums stop, you change the DB option to Level. At that point the CV will become extremely close to the DB, much much closer than it ever will when using CVAT.

Here is one at Standard:

----------

I'll keep messing around with it. I would HOPE that I could create similar illustrations using ANY company's product... but I think I'm at a loss with ANICO's illustration system.

Get a better grasp on the basics of UL and the illustrations will come. Try messing around with the DB solves.

 

[pfg1]

If you are solving for Target and funding at that level, you are not over-funding the policy.

I believe that's one of the biggest problems with some of the folks selling IUL. They sell at target or below, get the max commission for their case, and set the client up for potential disaster down the road.
I've seen several of these MLM IUL peddling groups that teach their agents to do just that. If the client can only afford $300/mo, then that is the target.

 

[scagnt83]

Here is the end stage of that last illustration at Standard. Notice how close the CV is to the DB. That is because it is using GPT and at this point a Level DB.

By the way. At age 91 the COI becomes the most expensive (it actually drops from there). And the COI and policy fee (the only two expenses at that point in the policy), are at 0.50% of the CV.

 

[DHK]

I was finally able to get something close by choosing "Minimum" death benefit and option B for a stated premium. I had about 50% available cash surrender values in year 2.

Thanks for your help.

 

[LaughDontCry]

Wow, you guys have been most helpful. Please keep up the discussion.
As stated. I say this and mean it. My commission is last on the list of importance, since these are friends who I want to help not get deceived. I would rather have a low commission sale than nothing. Better yet, make em happy, sleep at night.
I just really appreciate you all for being this helpful! I just really want to learn this.
Thanks again