Insurance Agent Forum

[NoFault]

Currently am looking into Universal Life, and so far it seems to be pretty impressive. From what I understand so far, Universal Life offer the following benefit, correct me if I'm wrong.

1. Decrease or increase in DB, according to your life situation for the years to come. E.g. Now I have a $100K DB, but in five years I lost my job and cannot afford the premium of $100/month, I can reduced my DB to $75K. But within another 5 years I'm back to my normal earning, I can changed my DB back to $100K or higher.

2. Option to choose cash accumulation in addition to DB. This mean if I have a DB of $100K and when I passed away, my subaccount is $50K, my beneficiary will get $150K?

3. Withdrawn from the subaccount, with interest, similar to a WL policy, yet my DB is still the same? So let's say in 20 years my subaccount accumulate $20K, I can take out those $20K for personal need, yet when I passed away my beneficiary still get the $100K DB, if I do not pay the whole $20K back to the insurance company.

4. Flexible premium, Min, Target and Max.

But what is No Lapse and Lapse? Does lapse mean you can skip payment(s), yet still have the policy in force and when you passed away the DB is still the same? And No lapse when you cannot skip a single payment to keep the policy in force?

Still many questions but this is all I have for now. I read over and over again the numerous book I have on UL, WL, TL, and VUL yet none of them actually explain what I am seeking for. Maybe they do, but no in plain language.

[VolAgent]

1. Not quite. While you can generally reduce the DB of any type of policy, generally you have to prove insurability to raise the DB. Thus in your example, you can easily reduce the DB, but increasing it back to 100k will probably have to go to underwriting again. Some companies may be an exception, but this is the general rule, particularly when it comes to raising the DB.

2. Yes, that is usually offered as an option. It does mean higher fees and expenses, as cash value never reduces the amount of "insurance". Usually its only a big deal later in life when the cost of insurance can be quite high. You can also usually change between DB types, whether the cash value adds to the DB or not. However, it can trigger MEC status depending on the cash value amount.

3. I'm not aware of any type of policy where a withdrawal, loan, surrender, etc. will not have some effect on the DB.

4. All ULs are flexible premium, unless you are utilizing the guarantees. Minimum is the minimum you have to put into the policy to fund it. Generally it won't make it to maturity at minimum. Target is the ideal premium, assuming no changes in the illustrated assumptions, it will make it to maturity at target. Maximum is the most you can put into the policy without it gaining MEC status.

No-lapse means that the policy has certain guarantees, and as long as the guaranteed premium is paid on time, the policy is guaranteed not to lapse before a specified age. Cash value is irrelevant in such a policy, unless someone taps into it, in which case the guarantees are no longer valid. While no one refers to it as such, lapse just means it does not have those guarantees. If the cash value is not enough to carry the policy forward, then it will lapse.

[souldeux]

To expand on what VolAgent said:

1. Dead on, but remember that proving insurability can be as simple as answering a few medical questions - you don't necessarily have to go through another paramed. The amount of evidence you've got to provide is directly related to the increase in DB.

2. You're referring to the difference between Option 1 and Option 2 UL.

Option 1: Pays the face amount
Option 2: Pays face plus CV

Remember that the CV acts as a reserve of sorts against the DB, so with Option 2 UL there is no "in-policy" reserve to draw Cost of Insurance deductions from (COI). That means fees are higher and accumulation is much, much slower.

3. Policy loans and partial surrenders do effect the final DB. Also remember that the CV is where COI deductions come from, so taking too many loans will risk lapsing the policy in addition to the other factors.

We're planning a "Universal Life - In Depth" webinar at the ILIAA next week. PM me and I can send you an invitation to it. It might clear up some of your questions.

[NoFault]

I'm confused about the answer to my second question.

This is the product that I'm going to market to my community, since they are young, and does not invest.

Pertaining to my question #2, if I were to pay my target premium every single month, will I received the illustrated subaccount CV while I'm still alive, and if I passed away without taking any subacct out, will my beneficiary received the DB and CV?

[WinoBlues]

Also. You may not find a lot of no-lapse Ul that offers opt2. Or a significant Cash Value build up. An exception maybe Protective Life.

[briko3]

The way I understand it, if you choose option 2 and get the DB AND CV (ie. $100K + $20K) and have taken a $20,000 loan, you will just get the death benefit. Is that not right? So where it would be the 100 plus the 20, ($120K total) it would first pay back the loan of $20 which would leave 100?

Is that right?

[WinoBlues]

You can do a loan.
However, many times you would better off doing a partial surrender for the $20,000 and not have the loan interest to deal with. (Which wasn't as big a deal way back at the begining of time when interest rates on ULs was 8,9 gasp 10,11 percent. And zero interest loans.)
This where in force illustrations from the issuing company help.

Originally Posted by briko3

The way I understand it, if you choose option 2 and get the DB AND CV (ie. $100K + $20K) and have taken a $20,000 loan, you will just get the death benefit. Is that not right? So where it would be the 100 plus the 20, ($120K total) it would first pay back the loan of $20 which would leave 100?

Is that right?

- - - - - - - - - - - - - - - - - -
You are correct.

Originally Posted by briko3

The way I understand it, if you choose option 2 and get the DB AND CV (ie. $100K + $20K) and have taken a $20,000 loan, you will just get the death benefit. Is that not right? So where it would be the 100 plus the 20, ($120K total) it would first pay back the loan of $20 which would leave 100?

Is that right?

[Full Throttle]

The best way to think of UL is you have a bank account within the policy in which the cost of insurance is deducted out each month. The cost of insurance increases along with your age each year. If the bank account within the policy runs out, so does your coverage.

If you chose an Option 2 death benefit, you get more coverage if you die with it inforce, however, the cost of insurance coming out of your account value increases as well, leading to a higher lapse risk unless you over fund the policy (ie pay higher premiums, sorry, no free lunch except in a mouse trap).

My progression coming into the business was this:

1. Coming in, big believer in buy term, invest the difference.

2. I then realized the down falls of the strategy and liked UL for the flexibility and perceived lower cost (which turned out to be incorrect and the flexability is often times the products down fall).

3. After really learning how all the different types of insurance work, WL is virtually the only type of permanent coverage I sell except for minimum funded NLG UL policies when its the right fit for the situation.

[Dave020]

Originally Posted by Full Throttle

The best way to think of UL is you have a bank account within the policy in which the cost of insurance is deducted out each month. The cost of insurance increases along with your age each year. If the bank account within the policy runs out, so does your coverage.

If you chose an Option 2 death benefit, you get more coverage if you die with it inforce, however, the cost of insurance coming out of your account value increases as well, leading to a higher lapse risk unless you pull more out.

My progression coming into the business was this:

1. Coming in, big believer in buy term, invest the difference.

2. I then realized the down falls of the strategy and liked UL for the flexibility and perceived lower cost (which turned out to be incorrect and the flexability is often times the products down fall).

3. After really learning how all the different types of insurance work, WL is virtually the only type of permanent coverage I sell except for minimum funded NLG UL policies when its the right fit for the situation.

Well done, Grasshopper.

[ATM]

Originally Posted by WinoBlues

Also. You may not find a lot of no-lapse Ul that offers opt2. Or a significant Cash Value build up. An exception maybe Protective Life.

Midland National and probably it's sister company North American also has no lapse products that can be sold with Option 2 and have cash values. I know Midland has two fixed and at least one indexed based product like this.

[Full Throttle]

Well done, Grasshopper.

Thanks. I personally think UL can be a great fit for the right situation, but in general, it looks better in a lab environment than in real life. In real life, clients under fund the program and can get hit with a big tax liability later on, clients take out loans on the policy at "0% interest", but don't realize they are destroying the policy when they don't pay them back or at a minimum, lose the compounding growth on the loan while before it was paid back.

WL isn't a perfect product, but for someone younger, buying a quality product with a PUA rider can lead to a nice growing death benefit that will give them a lot more financial options in the future. If they quit funding the policy, there won't be any suprises later. They can forfeit the policy or take a reduced paid up policy.

[Franz Kafka]

Originally Posted by Full Throttle

Thanks. I personally think UL can be a great fit for the right situation, but in general, it looks better in a lab environment than in real life. In real life, clients under fund the program and can get hit with a big tax liability later on, clients take out loans on the policy at "0% interest", but don't realize they are destroying the policy when they don't pay them back or at a minimum, lose the compounding growth on the loan while before it was paid back.

WL isn't a perfect product, but for someone younger, buying a quality product with a PUA rider can lead to a nice growing death benefit that will give them a lot more financial options in the future. If they quit funding the policy, there won't be any suprises later. They can forfeit the policy or take a reduced paid up policy.

Very nicely put. In my opinion, the ONLY time UL should be used is when the policy absolutely requires premium "flexibility" - e.g. employee bonus plans, deferred compensation etc. NLG UL is just another name for lifetime term. People always think they can have the cake and eat it too - i.e. having both the flexibility and the guarantees. One can't have both. One has to pick.

[dgoldenz]

We sell a lot of UL with NLG. Most people that only want term really want permanent coverage, but think it is cost-prohibitive for the amount they need. So, here's the question for your average 40-year-old person:

A: Do you want $1 million of term insurance guaranteed for 30 years?
B: Do you want $250k of no-lapse UL guaranteed for life?
C: Do you want $100k of whole life?


Most people want the $1 million guaranteed for life, but the cost forces them to choose A instead of B with a higher benefit. A mix of term and permanent is suitable for most people with the no-lapse UL acting as a safety net in case they outlive the term. Your average 40-year-old would not write the check for $250k of whole life, let alone $1 million.

[Full Throttle]

Dgoldenz,

In the right situation, I really like UL with a NLG. If looked at in a vacuum, the client only wants the highest permanent death benefit, isn't concerned about forfeiture values, and wants to lowest premium, the UL with a NLG rider is a great fit.

In general, when discussing life insurance, it is most useful when it meshes with their other financial objectives/resources. Here is what I mean by that, let's say you meet a 40 year old that has $1200 per month to accomplish their financial goals. Hypothetically, let's say their objectives are:

1. Have a $6000/month stream of income at retirement.
2. Pay a portion of the kids college costs.
3. If they get sick or hurt, be able to still accomplish those goals.
4. If they pass away prematurely, they still want their loved ones to accomplish #1 and #2.
5. If they make it to retirement, would like to leave a modest amount of money behind, not have the funeral home check bounce.

Knowing nothing else about them, we know they need some sort of disability coverage, life coverage, and savings vehicles for retirement/college costs. Now, let's look at the life insurance options:

1. Term insurance: If they didn't care about #5, neither UL with a NLG or WL would matter, term would likely fit by accomplishing #4. The only exception may be a small $15,000 final expense policy to pay funeral costs.

2. NLG UL: This accomplishes #4 and #5 effectively. For the same premium a NLG policy will purchase a higher death benefit than the same WL policy. No arguement there. However, it does have a limitation which may or may not be an issue, what if the insured changes his or her mind about leaving an inheritence or times get tight. They over payed for life time term.

3. WL: Two reasons I like it here:

Reason #1: Even though it would be a lower death benefit up front for the same UL NLG premium, the gap can be made up for cheap with a term policy. The death benefit on the WL will grow with PUAs and eventually lap the UL policy.

If the insured died before the death benefit caught up to the UL NLG policy, the family gets the same death benefit in both circumstances (with the term gap policy in place). The WL policy also has a cash forfeiture option if the situation changes. If they can no longer afford the premiums, a reduced paid-up WL policy would make sure they got something for their premiums unlike the UL policy. If their kids end up in jail and they no longer want to leave an inheritance, they can surrender the policy.

Reason #2: I believe people should have at least 10% to 20% of their annual savings contribution in a a safe savings vehicle guaranteed to increase each year. For this purpose, if there is a desire for life coverage and to leave an inheritance, then WL can accomplish this effectively. If I didn't believe this, I would recommend UL with a NLG rider much more often.

A couple caveots:

1. The amount of coverage is more important than the type. If term is all that is affordable, term it is going to be.

2. To sell more than a small final expense policy, the Roth IRAs (if eligible) need to be max funded and if a match is availble at work, the match needs to be utilized before recommending whole life.

3. The insured has to want to leave money behind, not spend every last dollar. Otherwise, they could forget the WL or UL NLG coverage, put most of their retirement savings in a SPIA at retirement for max income and forget everything else.

This is why I like WL in many situations. If they wanted to accomplish all five objectives, but didn't have the budget for WL right now, I would sell convertable term into a solid WL carrier so that as their situation changes, they can get convert their coverage without having to prove insurability.

[dgoldenz]

It's easy for us as agents to go back and forth about what people should do. Unfortunately, most people don't do what they should. There's a lot of people out there who should have a disability policy, but think the premiums are insane, so they don't buy it and take the risk.

When you die, the beneficiary gets the death benefit. If you have a $250k death benefit on a UL policy, the beneficiary gets $250k. If you have a $250k death benefit on a whole life policy, the beneficiary gets $250k. If you have $100,000 cash value in a $250k whole life policy when you die, the beneficiary gets $250k. If you have $0 cash value in a no-lapse UL when you die, the beneficiary still gets $250k. If you took the difference in premium between the no-lapse UL and whole life and invested it, then died, the beneficiary would have $250k and whatever is left of the investment on top of that. Which would the beneficiary rather have?

[Full Throttle]

It's easy for us as agents to go back and forth about what people should do. Unfortunately, most people don't do what they should. There's a lot of people out there who should have a disability policy, but think the premiums are insane, so they don't buy it and take the risk.

That's why we owe it to our clients/prospects to be good salesman.

When you die, the beneficiary gets the death benefit. If you have a $250k death benefit on a UL policy, the beneficiary gets $250k. If you have a $250k death benefit on a whole life policy, the beneficiary gets $250k. If you have $100,000 cash value in a $250k whole life policy when you die, the beneficiary gets $250k. If you have $0 cash value in a no-lapse UL when you die, the beneficiary still gets $250k. If you took the difference in premium between the no-lapse UL and whole life and invested it, then died, the beneficiary would have $250k and whatever is left of the investment on top of that. Which would the beneficiary rather have?

You're still missing the point of my previous post. First, do you believe people should put around 10% to 20% of their savings in a conservative savings vehicle guaranteed to increase in value each year?

Second, if you tell me when someone is going to die, I can design the most cost efficient policy for them. If you can't, we don't know in advance what will be the best strategy.

If I die in a short time frame, term would have been the best. Any "invest the difference" would be very minimal, the client's family is just happy to have the $250,000 death benefit.

As far as "invest the difference" in the long term, where am I going to invest it? My Roth IRAs have my agressive money (no room there for my safe money), should I put it in my 401(k)? Maybe. Remember, RMDs and a lack of a tax free transfer at death (remember goal #5 in the previous post) can be issues. Plus, in the long term, my WL death benefit will likely far exceed the UL w/ NLG rider as the PUAs compound.

That's why I still like my safe money growing in a WL for options if I change my mind about permanent coverage, a growing DB that will likely far exceed the minimum funded UL NLG policy in the long run, and a tax free transfer at death.

*I can run illustrations, life expectancy lengths, and market scenerios that can make any of the three options look the best: term, UL, or WL. The reality is hedging our bets and going with the option(s) that give us the best odds for the least risk to accomplish the client's financial objectives. No one size fits all.

I like WL in the above scenerio.

[NoFault]

What if you choose a "level" premium with Option 2, this will not raise the premium right?

I got Assurity, Aviva, Forester and WCL and just really want to understand this UL product, before introducing them to clients.

[Full Throttle]

What if you choose a "level" premium with Option 2, this will not raise the premium right?

Correct. But it may cause the policy to lapse, lot of unknowns. The cost of insurance goes up each year within a UL policy, the higher the amount of life insurance (Option 2 has more life insurance than Option 1), the higher the cost deducted out each month. There in no free lunch except in mouse traps, you pay for the insurance one way or another.

That being said, when you are younger, the cost of insurance is not going to be nearly as high with an Option 2 than someone further along in years. You could potentially do an Option 2 the first few years of the policy and go back to Option 1 without a big dip in the account value. Just be careful and make sure you know what you're doing if you feel this is in the client's best interest.

[VolAgent]

Originally Posted by Full Throttle

You could potentially do an Option 2 the first few years of the policy and go back to Option 1 without a big dip in the account value. Just be careful and make sure you know what you're doing if you feel this is in the client's best interest.

Be careful in doing this. If the client was aggressive in overfunding the policy, the change in DB could give it MEC status.

[Full Throttle]

Be careful in doing this. If the client was aggressive in overfunding the policy, the change in DB could give it MEC status.

I personally wouldn't do it at all. If the client is worried about the difference in a $20,000 death benefit, sell the correct sized policy to begin with. If they can't afford the correct sized policy, they shouldn't own this type of coverage anyway.