Do You Ever Suggest a MEC'd Life Policy Instead of an Annuity?

[R. Paul Aguirre]

I have an agent that is looking to compare a UL to some annuity options for some clients of his, and I just ran him a MEC'd out $25k face amount with a $200/month premium. This option looks awesome- other than the 59 1/2 rule(which is the same for an annuity) do any of you see any serious drawbacks to do this rather than an annuity?

 

[dgoldenz]

I have an agent that is looking to compare a UL to some annuity options for some clients of his, and I just ran him a MEC'd out $25k face amount with a $200/month premium. This option looks awesome- other than the 59 1/2 rule(which is the same for an annuity) do any of you see any serious drawbacks to do this rather than an annuity?

Yes....if the cost of insurance in the UL policy goes up, it will kill the cash value.

 

[padthaiforlunch]

So client is under age 59 1/2?

 

[Death Cab For Tootie]

Yes....if the cost of insurance in the UL policy goes up, it will kill the cash value.

If? Every UL policy I've seen has a COI that goes up every single year. It's based on ART. Whether or not this affects the CSV is a different story all together. I got out of the prediction business a long time ago.

 

[dgoldenz]

If? Every UL policy I've seen has a COI that goes up every single year. It's based on ART. Whether or not this affects the CSV is a different story all together. I got out of the prediction business a long time ago.

Yes, it goes up every single year. However, the insurance company reserves the right to shift the COI curve upwards all the way up to the guaranteed maximum amount. If they do that, the cash value will die very quickly depending on age. You don't have to predict anything, just take a look at the guaranteed side of the original illustration and see how quickly the cash value goes to $0. All of the insurance companies are hurting financially.....where's one of the first places they can go to increase their reserves? Yeah.

 

[SportsNut]

Yes, it goes up every single year. However, the insurance company reserves the right to shift the COI curve upwards all the way up to the guaranteed maximum amount. If they do that, the cash value will die very quickly depending on age. You don't have to predict anything, just take a look at the guaranteed side of the original illustration and see how quickly the cash value goes to $0. All of the insurance companies are hurting financially.....where's one of the first places they can go to increase their reserves? Yeah.

And therein lies the snafu with UL...

Today, more than ever, guarantees are a coveted thing. Whether it is guranteed Term (10, 20, 30, etc), or WL, at least you know what you have... UL must be managed and all too many folks have too selective of a memory for that product to suit me. Everbody has their take on the subject, and there is mine.

 

[dgoldenz]

And therein lies the snafu with UL...

Today, more than ever, guarantees are a coveted thing. Whether it is guranteed Term (10, 20, 30, etc), or WL, at least you know what you have... UL must be managed and all too many folks have too selective of a memory for that product to suit me. Everbody has their take on the subject, and there is mine.

Just keep paying the premiums and you'll have the guaranteed death benefit in place....

 

[Norwayguy]

Just keep paying the premiums and you'll have the guaranteed death benefit in place....

I'm assuming you are talking about a GUL....I think of a GUL as a term for life product...If your going to MEC out a Life policy in place of purchasing an annuity you are looking for cash value as well as death benefit.

 

[dgoldenz]

I'm assuming you are talking about a GUL....I think of a GUL as a term for life product...If your going to MEC out a Life policy in place of purchasing an annuity you are looking for cash value as well as death benefit.

Yes.....if looking at a non-guaranteed UL, I'd pay very close attention to the guaranteed side of the illustration. The "trust me, it'll work out great" approach usually doesn't work too well with insurance companies.

 

[Charpress]

Insurance training: Mec is a bad thing, mec is a bad thing...
Securities training: Mec is a bad thing, mec is a bad thing...
FMO seminar training: Mec is a good thing, mec is a good thing...

Sitting in the witness stand, judge to you: "I know nothing about insurance, but all the expert witnesses we have heard so far tell me that a MEC is a bad thing. So, explain why you sold this MEC thing to the plaintiff."

"Well, because the strategy in theory gives you a better return despite killing the tax deferred advantages, and I, umm.. are you getting this so far?"

My own observation: I have never seen a widow lose to an insurance salesman in court. Got a friend now probably going off to Club Fed with something on this order --not because of a MEC, but similar gray area stuff that is very hard to explain if what you recommended goes south.