Am I Being Baffaled by BS?

[Moondoggy]

I thought I would start a new thread as the other thread I have out there is quite long and this question is specific to some illustrations I received in the mail today.

As background I have a $100,000 UL policy with Thrivent where today the cost of insurance has become so high that, at my current quarterly premium level of $100 and at the current return rate of 4.5%, the policy will run out of cash by age 93 instead of age 100. I have a second $60,000 policy with Country financial that's in the same situation as the Thrivent policy except it will run out of cash sooner as it does not have a significant reserve if cash values. One option available to me is to take the cash value from the Country Financial policy via a 1035 and add about $7200 to the cash value in the Thrivent policy.

I had the agent prepare some in force illustrations for me based on the above using a 4.5%, 4.25%, 4.13% and a 4.0% return and quarterly premiums of $100, my current premium, and a $150 premium. When I looked at the results some are good and some are not so good but the agent threw me a curve ball by injecting another variable into the illustrations and this is where I start wondering if I'm being baffled by BS. The extra variable is expenses on the cost of insurance side. Here's what he's illustrating:

In all if the illustrations it shows the 4.0% interest rate and what they refer to as "the maximum charges" that Thrivent can charge me for my policy. On some of the illustrations it also shows what they refer to as the "illustrated charges". When I looked at some of the other illustrations he also provided some of them showed a "midpoint charge" in place of the "illustrated charge". If you look at the "maximum charge" table things are extremely grim as even with the added $7200 I'll still be out of money by age 79. On the other hand if you look at the "illustrated charges" table, at a 4% return and retaining my $100 quarterly premium the policy will last until age 98 which is close enough. This "midpoint charge" is explained as being half way between the "maximum charge" and the "illustrated charge" and in that table at 4.25% return and a quarterly premium of $600 I run out of money and the policy terminates at age 87 which may not be good enough (I'm an optimist).

So by showing all of these different "Maximum", "Illustrated" and "Midpoint" charges on his illustrations I feel like I'm being baffled by BS. I know that the agent does not want me to keep my current UL with the 4.0% guaranteed return and wants me to take an unguaranteed variable UL based on earnings that result from investing in the stock market but I don't think that's in my best interest. I feel strongly that this agent is probably using the midpoint charges and maximum charges to generate FUD (Fear, uncertainty and doubt) so can anyone tell me more about these charges and what the likelihood is that the company would stoop to imposing a midpoint or even the maximum charges upon their policy holders? It seems to me that doing so would not be good PR and could result in a lot of policy terminations and hurt future sales if they did that sort of thing but I don't know that the trend is in the industry. So is the agent presenting realistic illustrations or is he just trying to baffle me with BS and increase my FUD level? Is it reasonable for me to even consider the "illustrated" charges or should I consider the "midpoint" charges as being more realistic of what's going to happen?

Any help will be appreciated.

 

[Golfnut2112]

The illustration showing the different scenarios is required by law with the intent of protecting the consumer, although it is confusing. I have been in business since 1986 and never seen a company raise insurance cost to the maximum allowed, however I have seen them raised. I think you would be safe with the mid point assumptions and probably the current. You may want to call each company to see what their history has been when it comes to the cost of insurance since that will have the largest impact on the illustrations.

 

[scagnt83]

You have had your policy for over 20 years now and they have not been raised to the Maximum. It would not be reasonable to assume they are suddenly going to jack them up to the max.

The "Current" or "Assumed" charges are what they are charging you after 20 years. It is safe to assume at this point that the most likely worst case scenario would be the midpoint charges.

I havent been in business as long as golfnut, but Ive dealt with a lot of old UL policies, and I too have never seen one that was at the maximum charges. I have seen the minimum interest rate before on some rare occasions, and I have seen many from the 80s that were 0.5%-1.5% away from the minimum. But I have never seen maximum internal charges before.

If it were my policy I would make my decisions based on the 4.25% and the current internal charges.

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The illustration showing the different scenarios is required by law with the intent of protecting the consumer, although it is confusing.

For new business that is true but I dont think thats true for inforce illustrations. Lincoln/JP used to send me inforce illustrations with the scenario I asked for on a single page with no alternatives unless I asked. Although Im sure it is company specific to an extent.

 

[Golfnut2112]

Your right about the inforce!! I order one every year for a client and its only 4 pages not the book you print out for new business.

 

[LGilmore]

A life insurance contract is a closed contract. That is the insurance carrier cannot create as they go the expense. They must create a maximum expense charge, which is the very limit of what they can charge. Most carriers make this about 5-10x what they think they will run in expenses. Don't sweat max charges too much. It is just the big safety net an insurer uses to tweak their policies.

 

[DHK]

Have you talked to your nephew yet?

 

[Moondoggy]

The illustration showing the different scenarios is required by law with the intent of protecting the consumer, although it is confusing. I have been in business since 1986 and never seen a company raise insurance cost to the maximum allowed, however I have seen them raised. I think you would be safe with the mid point assumptions and probably the current. You may want to call each company to see what their history has been when it comes to the cost of insurance since that will have the largest impact on the illustrations.

Wow! I can understand protecting the consumer but I think in doing so these illustrations make it so confusing to the consumer.

If I use a 4.0% return and a $150 quarterly premium and drop $7200 into the policy with a 1035 the illustrations says that I would stop paying in a premium at age 97 and at age 100 the cash value they would pay me would be $105,667. On the other hand, using the "midpoint" costs vs. the "illustrated" costs the illustration says the policy terminates when I reach 87 years old. So, even their midpoint numbers seem really high as they are going from a payout of $105,667 at age 100 to terminating the policy at age 87. Those are some pretty hefty cost increase and those are not even the max charges. Even raising the interest rate from 4.0 to 4.25% doesn't buy me anything as the illustration still says the policy terminates when I'm 87.

I'm starting to think that my gut is telling me to dump in the $7200 cash value from my other UL from Country Financial and start closely monitor the situation by asking for an in force illustration each year. Thrivent has been around for a long time and their customer base has primarily been conservative Lutherans and their board of directors seems to be made up of conservative Lutherans as well. At this point, based on what they have done in the past, I think they would actually be very reluctant to jack up the costs to their conservative client base unless the company was in financial trouble and I think that as conservative as the board has been in the past, that probably won't happen. My guess is that at some point, if the federal interest rate doesn't rise, they may be forced to stop paying 4.5% and reduce the interest rate to 4.25% and perhaps increase their expense costs a bit but probably not even to the midpoint. Does this sound like a reasonable assumption to make for now?

 

[Deepsea]

What if you pay annually ?

 

[Moondoggy]

What if you pay annually ?

I guess I never thought about it. Is there a reason I would want to do this?

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Have you talked to your nephew yet?

Only briefly. He was sick for a few days and said that he wouldn't be able to do anything for a while as he needed to catch up and was booked with a bunch of appointments.

On the other hand, I've touched base with someone else in Country Financial that is highly regarded for her ability to help people insure they are financially setup for retirement from an investment, insurance and retirement income perspective. Although she works for Country Financial she is only interested in the person's overall financial health regardless of where the individual has investments or insurance. Since I met with her before I retired, she indicated that if I ever had any financial or insurance questions or concerns she would be more than willing to help muddle thru them so I decided to take her up on that offer.

Based on my initial contact with her she's asked for copies of the illustrations prepared by Thrivent and has offered to provide me with her best insight and suggest a course of action based on what she sees. Since I just got the illustrations yesterday, I'll be sending her stuff next week and I'll see what she has to say about this as well.

 

[Golfnut2112]

Wow! I can understand protecting the consumer but I think in doing so these illustrations make it so confusing to the consumer.

If I use a 4.0% return and a $150 quarterly premium and drop $7200 into the policy with a 1035 the illustrations says that I would stop paying in a premium at age 97 and at age 100 the cash value they would pay me would be $105,667. On the other hand, using the "midpoint" costs vs. the "illustrated" costs the illustration says the policy terminates when I reach 87 years old. So, even their midpoint numbers seem really high as they are going from a payout of $105,667 at age 100 to terminating the policy at age 87. Those are some pretty hefty cost increase and those are not even the max charges. Even raising the interest rate from 4.0 to 4.25% doesn't buy me anything as the illustration still says the policy terminates when I'm 87.

I'm starting to think that my gut is telling me to dump in the $7200 cash value from my other UL from Country Financial and start closely monitor the situation by asking for an in force illustration each year. Thrivent has been around for a long time and their customer base has primarily been conservative Lutherans and their board of directors seems to be made up of conservative Lutherans as well. At this point, based on what they have done in the past, I think they would actually be very reluctant to jack up the costs to their conservative client base unless the company was in financial trouble and I think that as conservative as the board has been in the past, that probably won't happen. My guess is that at some point, if the federal interest rate doesn't rise, they may be forced to stop paying 4.5% and reduce the interest rate to 4.25% and perhaps increase their expense costs a bit but probably not even to the midpoint. Does this sound like a reasonable assumption to make for now?

Maybe I should have said those long confusing illustrations are to protect the agent and the company. I have never seen a policy perform as illustrated over the long term because of the decreasing intrest rates.