Review: Need a Second Opinion, Maybe More on a Policy

[BYSFG]

If I could get a second set of eyes, it would be much appreciated. If this isnt allowed will most definitely take it down.

So here is the situation, a family member reached out regarding a separate policy which lead into another policy they had recently gotten as well. The way it was described back to me didnt sit right with me. Honestly just dont want them to be in a bind in the long run, not familiar with the crediting strategy - point no. 3. They are over a couple hours away so I was unable to do a policy review. Going forward, most is based on screen shots/pictures.

Im not contracted with the carrier of course. Definitely not familiar with them or the product itself. Will retain from naming it at the moment.

1. Policy is titled similar to, "Universal Life Insurance with Index Linked Interest"
Is it what its called or is it an IUL? Seems to have more characteristics of a UL.

2. Planned premium is is based on the "Monthly No-Lapse Period"

Heart dropped and practically yelled out "wtf" in the office when I saw the screen shot.

So its roughly $100/mo for 200k FA with another 200k Term (it seems)

Will lapse (0s across the board in point no. 4) if premiums/contributions arent increased. -Correct me if Im wrong.

3. Non Guaranteed was illustrated at 7.5% - Based off on Real Estate Index?
Numbers are astronomical though. Just not familiar with these Index? and how it performs...

4. Guarantee goes full "0s" across the board. This goes back to the point no. 1.



So, am I feeling right about this that this is dangerous for the client? Or could I be over reacting, maybe they have astronomical returns and a strong market etc etc.? Really want to straighten this for the sake of the family.

 

[DHK]

$100/month for $400 DB ($200k IUL and $200k term rider)?

Uh... yeah, there's going to be a problem one day unless they do something to fix this.

I would guess that this is a MINIMUM-FUNDED contract. Minimum-funded means maximum insurance costs against the premium, which would mean that even if you did earn the full 7.5% index credit, it would hardly matter because of the costs.

I would take it AT LEAST to maximum target premium, or lower the base IUL to a more sustainable level - maybe $50k death benefit & $450k term rider?

However, this is based solely on your post, so you'll want to double-check everything just to be sure.

 

[octoparse]

Uh... yeah, there's going to be a problem one day unless they do something to fix this.


Yeah, you're right.

 

[pfg1]

If you post what company/product it is... probably someone here has experience with it and can advise you better. Also the age/rating of the client comes into play as well. Younger folks can get away with much lower premiums because the costs are lower, but I agree...sounds minimally funded based on what you said.

 

[BYSFG]

$100/month for $400 DB ($200k IUL and $200k term rider)?

Uh... yeah, there's going to be a problem one day unless they do something to fix this.

I would guess that this is a MINIMUM-FUNDED contract. Minimum-funded means maximum insurance costs against the premium, which would mean that even if you did earn the full 7.5% index credit, it would hardly matter because of the costs.

I would take it AT LEAST to maximum target premium, or lower the base IUL to a more sustainable level - maybe $50k death benefit & $450k term rider?

However, this is based solely on your post, so you'll want to double-check everything just to be sure.

I suggested they bring the policy with them so I can do a review this weekend. The issues of being over 2-3 hours away.

From what the screens show it definitely is a minimum funded policy.

Just also noticed it was a 2nd (B) option policy as well.

They also just purchased the policy this past February, surrender charges may come into play.

If you post what company/product it is... probably someone here has experience with it and can advise you better. Also the age/rating of the client comes into play as well. Younger folks can get away with much lower premiums because the costs are lower, but I agree...sounds minimally funded based on what you said.

Client on the policy is 24.
Carrier/Product is Fidelity/Synergy Advantage Gold.

Thanks for the input everyone. Hopefully I can do a review in person.

 

[pfg1]

Well if by Fidelity you mean F&G... just know they are a B rated company - if that matters. I don't really know their products, maybe someone else can chime in. I'd say you are probably correct, there is most likely a surrender period...as with most IUL's. 10-15yrs is typical.

Now, the good thing - even though its minimally funded, they should be able to raise the premium they pay substantially. And option B will keep growing the policy. If they do that, since they are young it may end up performing well over the long haul. The only way I will sell an IUL is max funded, even if that max funding is a small premium.

 

[scagnt83]

Need more info to really know how to fix this. Im dealing with a similar situation right now... except they are a couple of years in already and have paid a crap load more in premiums. So your client is lucky to catch this so early... this is not nearly as big of a deal as it could be in a few years.

You need more info though. How old are they? Is it using GPT or CVAT Testing? It will probably spell it out and not use the abbreviations (Guideline Premium Test) (Cash Value Accumulation Test) .


They need to either increase the Premiums or Decrease the DB, or a bit of each.

DB decreases will likely be limited to a certain % in the first 5-10 years. GPT testing could also limit how much you can decrease the DB.

Premium increases obviously depend on the clients financial ability.



For lower premium policies I am not a fan of adding a Term Rider to an IUL. At just $100/m that is probably just barely enough to max out the policy. So adding the Term Rider just increases expenses and increases the likelihood of it lapsing.


The first thing you need to do is have the client contact customer service and request 2 InForce Illustrations.

1. Showing the policy at an assumed index rate of 5%
The policy should not lapse at 5% if designed safely.

2. Showing the policy without the Term Rider, at an index rate of 5%, and at the same Premium.

I think that dropping the Term Rider will help a lot just by itself. The policy does not need a Term Rider at that small of a Premium. If the client needs $400k in DB, then they need to put $100/m into the IUL and get a separate Term policy to cover the remaining need.

But you need to get the inforce illustrations showing it all to verify these assumptions and to also prove it to the client and yourself.

----------

Also, after getting the initial illustrations, you need to order more to see what fix will work. Ask the client if they are ok with increasing the Premium each year by $10/m, just for 10 years. That will put them at $200/m from year 10+.

Then combine that with a DB decrease of 10% per year until it reaches the MEC Limit. Then the policy should be ok most likely. And that is all assuming you drop the Term Rider.


OR

Show them a much better quality policy from a much better quality company. They are only a couple of months in so its a tiny loss at this point. Personally I would pay a few hundred to get a far superior policy, especially considering its a lifetime contract.

Show them a max funded IUL from NA/LFG/Allianz/Penn/MNL. Explain how the Term is a drag on the internal return of the policy and show them how cheap a 20y term policy for $300k is (with the same carrier your showing the IUL from).

Id bet they will go with the better product if you show it to them. Tell them how to fix what they have and offer to do that. But also give them the option of the better quality product. Let them decide. You will probably have a good chance of picking up a new IUL client. Even if you just fix what they have, they will need to replace the $200k in Term. So you have a client either way.

 

[Cornelius]

Why did the family purchase Life Insurance?

 

[BYSFG]

Need more info to really know how to fix this. Im dealing with a similar situation right now... except they are a couple of years in already and have paid a crap load more in premiums. So your client is lucky to catch this so early... this is not nearly as big of a deal as it could be in a few years.

...

Thanks for the insight, specially with the work around, will definitely bring those up as well. Ill most likely attempt to meet with them for a review and see how they feel, if theyll have me at it. I have a feeling they may just move forward with a replacement, will have to see how this will be fixed.

The policy is GPT so its definitely not targeted for accumulation. Not sure what the goal of this policy was in the first place. Its a little bit of everything scrambled into one.

Id imagine the client would have to increase premiums by $200-250/mo to keep the current policy now going.

Well if by Fidelity you mean F&G... just know they are a B rated company - if that matters. I don't really know their products, maybe someone else can chime in. I'd say you are probably correct, there is most likely a surrender period...as with most IUL's. 10-15yrs is typical.

Now, the good thing - even though its minimally funded, they should be able to raise the premium they pay substantially. And option B will keep growing the policy. If they do that, since they are young it may end up performing well over the long haul. The only way I will sell an IUL is max funded, even if that max funding is a small premium.

I did not even think to check AM Best, thanks for that.

Right I do the same thing when selling IULs but this made no sense to me even with the few screen shots, especially since its unexplored territory with the carrier/product.

 

[scagnt83]

The policy is GPT so its definitely not targeted for accumulation. Not sure what the goal of this policy was in the first place. Its a little bit of everything scrambled into one.

Id imagine the client would have to increase premiums by $200-250/mo to keep the current policy now going.

Actually GPT works best for max funding a policy when using Option 2 DB. It also carriers a lower COI than CVAT does. The most efficient way to max out a policy is to use GPT/Opt2, then switch to Opt1 when Premiums end.