What are the good points of Universal life and what are the not so good when presenting this product to a client?
What is the importance of no laspe premium?
What about any cash value?
Thanks Guys
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Today is the day of Salvation!
Man... what a question!
UL's with lifetime guarantees (GUL's)are very attractive for clients that have a permanent need but don't need to see cash accumulations.Trust owned, Estate tax need policies are a prime example. They are also very handy to use to "rescue" clients with said permanent need that have had a policy for a number of years that have been underfunded/permanent. WL, VUL, and UL's.
I personal don't like the accumulation type UL's that don't have the extended guarantees. Interest rates are so low.... and I doubt the companies will increase the interest on these issued policies when rates do increase out there. I would stick with a Par Whole Life or maybe... maybe an Indexed UL. Downside to the index is the company can decrease the participation rate and or cap.
We have seen many companies either increase rates or get out of the GUL market all together... and more increases and exits are coming.
For where it fits... I like the GUL's that use the indexed chasse the best.
One of the HUGE downsides of these GUL's is they helped make non-recourse premium financing much more possible and attractive.
What are the good points of Universal life and what are the not so good when presenting this product to a client?
What is the importance of no laspe premium?
What about any cash value?
Thanks Guys
There are a lot of different types of UL.
The good is it's more flexible than straight whole-life. You can over fund, under fund build up a lot of cash in it etc.
The bad is MANY people have lost their policies and all their money with UL because they didn't understand what it is and thought of it as straight whole-life. It's more complicated.
The no lapse ULs are the cheapest way to have a permanent death benefit provided you never miss a payment OR routinely pay late. My opinion is that many of these will also lapse because people are not that structured their entire life. When they get old and children take over bills, many times things have already gotten out of control. If this account overdrafted- policy guarantee is probably gone.
People go on Medicaid, people change bank accounts, people move and miss billings, people forget.
It's a 50-year old that you are selling it to and fully understands but it's a 90-year old that has to do everything just right to keep the guarantee in force (40-years later)
I would definitely educate your client about the difference in straight whole-life and guaranteed UL and let them decide. If they go UL, I would recommend they overfund it during the early years to give it a head start.
UL is not a bad product, it's just more complicated and there are more possible ways for people to lose ALL their money with it. And when that happens they ALWAYS feel like the agent screwed them.
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J Scott Burke
Funeral Preplanning
Life Insurance
Medicare Supplements
Long-Term Care Insurance
Annuities
Indiana, Kentucky, Tennessee www.newburyfinancial.com
What are the good points of Universal life and what are the not so good when presenting this product to a client?
What is the importance of no laspe premium?
What about any cash value?
The problem with UL is that consumers are expected to become little actuaries - which fits only a very, very small number of people.
Most people eventually get blindsided by skyrocketing ART rates. The reason you need to build up a lot of cash in the beginning is to reduce the need for ART in the future and/or to fund it.
If you are buying UL to deliver a death benefit to your estate (if you're not buying it for that why wouldn't you use a deferred annuity?) then no lapse UL is the way to go. Further, I would pick a limited payment period that fits your budget but I would certainly want it paid up by the time you plan to stop working in retirement.
There are a lot of good points about UL -- starting with its flexibility. You can run UL as a Term (as suggested on other posts), or a WL. Neither Term or WL can run as a UL. They are both inflexible in that sense.
No lapse guarantee simply makes the product work like WL to provide lifetime coverage, but a much lower rates. If you want a larger cash value, then pay more than the minimum. With UL you have the right, but not the obligation to do that.
I prefer an Option 2, because the cash value is in addition to the face. Option 1 is like a WL, inasmuch as the CV is included in the face amount. Customer can voluntarily over-fund the Option 2 up to Guideline Level premium. IRS has two choices -- pay me now...or pay me later. A properly structured UL can deliver up to twice the spendable retirement income than a 401(k) or IRA, particularly when it's funded above an employer match.
Some UL's have zero net cost "wash loans". Compare to WL with an 8% loan. I would never use anything except a wash loan.
With UL, the customer owns the money. In all WL contracts, the insurance company owns the money. That's why these are "transfers of capital", as opposed to "earned income". There's an old saying about "he who controls the money, controls the business relationship".
UL renews at current UL rates. Term and WL use ART rates, which are up to 50% higher. UL is cheaper to keep longer.
I understand LSW has an excellent Indexed UL, but I don't have the software to verify. pdoyle should be able to help more with specifics on that chasis, as he mentioned it's his "fit" preference.
There are a lot of good points about UL -- starting with its flexibility. You can run UL as a Term (as suggested on other posts), or a WL. Neither Term or WL can run as a UL. They are both inflexible in that sense.
No lapse guarantee simply makes the product work like WL to provide lifetime coverage, but a much lower rates. If you want a larger cash value, then pay more than the minimum. With UL you have the right, but not the obligation to do that.
I prefer an Option 2, because the cash value is in addition to the face. Option 1 is like a WL, inasmuch as the CV is included in the face amount. Customer can voluntarily over-fund the Option 2 up to Guideline Level premium. IRS has two choices -- pay me now...or pay me later. A properly structured UL can deliver up to twice the spendable retirement income than a 401(k) or IRA, particularly when it's funded above an employer match.
Some UL's have zero net cost "wash loans". Compare to WL with an 8% loan. I would never use anything except a wash loan.
With UL, the customer owns the money. In all WL contracts, the insurance company owns the money. That's why these are "transfers of capital", as opposed to "earned income". There's an old saying about "he who controls the money, controls the business relationship".
UL renews at current UL rates. Term and WL use ART rates, which are up to 50% higher. UL is cheaper to keep longer.
I understand LSW has an excellent Indexed UL, but I don't have the software to verify. pdoyle should be able to help more with specifics on that chasis, as he mentioned it's his "fit" preference.
Hope this helps.
Atlantainsguy
Good Post atlantainsguy....i agree 100%. I do disagree with others on this thread in that I think a UL is much easier to understand then a WL policy. Although that's only my opinion...ymmv.
AVIVA has a really good Guaranteed Indexed policy....for ages 70 and less it is really hard to beat. (used to be Indianapolis Life)
There are a lot of good points about UL -- starting with its flexibility. You can run UL as a Term (as suggested on other posts), or a WL. Neither Term or WL can run as a UL. They are both inflexible in that sense.
Wrong. You can't run a UL as a par WL policy. WL can function like a UL policy (i.e. extra cash dump-ins) with the utilization of a Paid-Up Additions (PUA) rider.
No lapse guarantee simply makes the product work like WL to provide lifetime coverage, but a much lower rates. If you want a larger cash value, then pay more than the minimum. With UL you have the right, but not the obligation to do that.
UL will never work like par WL because of a lack of dividends.
I prefer an Option 2, because the cash value is in addition to the face. Option 1 is like a WL, inasmuch as the CV is included in the face amount. Customer can voluntarily over-fund the Option 2 up to Guideline Level premium. IRS has two choices -- pay me now...or pay me later. A properly structured UL can deliver up to twice the spendable retirement income than a 401(k) or IRA, particularly when it's funded above an employer match.
Something we can agree on! Having permanent life insurance as part of someone's overall retirement strategy can provide a lot more income than without it. However, you are focusing your WL talk on only the guarantees and not potential dividends. When dividends are used to pay for additional insurance, the death benefit grows. Ultimately, however, the permanent death benefit is what is most important, NOT the CSV or dividend buildup.
Some UL's have zero net cost "wash loans". Compare to WL with an 8% loan. I would never use anything except a wash loan.
With UL, the customer owns the money. In all WL contracts, the insurance company owns the money. That's why these are "transfers of capital", as opposed to "earned income". There's an old saying about "he who controls the money, controls the business relationship".
Correct me if I'm wrong, but don't both UL and WL have cash SURRENDER value? In other words, isn't it only the client's money if they surrender the policy? I know this for sure on WL, not so much on UL.
UL renews at current UL rates. Term and WL use ART rates, which are up to 50% higher. UL is cheaper to keep longer.
UL and WL are based on ART. I disagree with the 'cheaper' part as well: with a quality par WL policy, the net cost will be cheapest when compared to UL and term because dividends are paid.
I understand LSW has an excellent Indexed UL, but I don't have the software to verify. pdoyle should be able to help more with specifics on that chasis, as he mentioned it's his "fit" preference.
Hope this helps.
Atlantainsguy
Look, I don't want to get into an argument, but your knowledge of par WL is causing you to mislead the OP and, I'd imagine, your clients. I don't have anything against UL and GUL - I recommend it when it's appropriate. But I wanted to set the facts straight when it comes to UL vs. par WL.
Death Cab -- I'm not sophisticated enough to cut and paste previous posts, so will just go down the line. Perhaps Marpol can fill-in any blanks I leave behind. And I agree, this is not an "argument" whatsoever. Like politics, religion, etc. -- different people have different beliefs and values (or, call them "biases" for lack of better terminology). My bias leans toward UL. I was originally trained by Mother Equitable in the '60s, and don't believe a lot has changed with WL since.
Yes, you're correct about PUA, but they are beyond the insured's control. You pay extra money for a Par WL, and part of that forced overpayment comes back to you with a 3 - 5 year time lag. The company decides how much is the PUA, not the customer. With UL, the customer decides how much to overfund, up to MEC limits of course. I don't trust insurance companies that much, and do not prefer them to make these kind of decisions. They do what's best for them, not the customer. When the customer is in total control, then they are better consumers. Obviously one of my biases.
Same with point two -- you are correct that UL and WL will never work the same. The unknown Dividend variable is always in the company's control, not the customer's.
We partially agree on point three -- except we're back to the same Dividend issue. Neither UL current rates, or Par Divs are guaranteed. The UL running at minimum to endow is as close as we'll get to a fair comparison.
Point four -- yes, both have a cash surrender value. But, it's never the client's money with WL. The insurance company legally owns the CV by contract. With UL, the customer owns the money. That was my point. Again, that's my bias against trusting insurance companies to do the best thing for their customers. I'm most comfortable when the customer is in as much control as possible.
Point five -- WL and Term renew on ART rates. ART is the most you can pay for normal Life Insurance. UL does not run on ART. UL renews at "current UL rates", which are based on today's current experience (mortality, expenses, investment income), and credited monthly. With WL there is a long time lag for Dividend payment, and it's never current.
Your conclusion is valid -- do you want the lowest starting cost, or the lowest total cost? With UL the customer can get both.
Your points are well spoken and thought-provoking. I don't think we'll agree on the conclusion, though, any more than ins.dave will soon be talked into contributing to Obama's 2012 re-election campaign. These disagreements have been going on for close to 40 years, with probably no end in sight in our lifetimes. But, at least palerider gets several points of view upon which to make a logical decision. Thanks much!!!
Yes, been licensed for almost 9 years. But not very active in the industry. This year I have only written about 28 policies.
No UL, I just don't understand enough about it to present it to clients. The main fact is it can bottom out and the client is left with nothing. I would'nt want to see that.
Thanks for all your responses, I think I will reread the posts again and again and again....
I think the important point here is that PUAs are not the only aspect of a WL policy. A base WL policy with no PUAs is basically a Guaranteed UL endowed at age 121 (or 100). WL policies are not flexible period. I know companies try to make them flexible with term blends, PUA riders, enriches options etc.....but bottom line is that a WL is an endowment policy with set premiums and hidden cost. A UL is a felable premium policy with published costs.....you can think of a UL as an account....you put money in one side and money leeks out the other in the form of M&E. If there is enough money in the account to cover the M&E then the policy stays in-force, if not it lapses. Now in the even that it is a guaranteed UL some of you might say....wait the CV in the policy is 0 so it should lapse, but it does not...why? This is because the insurance carriers play a trick...they place some of your money in a shadow account that you don't have access to that guarantees money to pay the M&E.
To argue about dividends vs. rates of return is pointless....it is simply the type of risk that your client wants to take. Its like asking what is better....currency risk or stock market risk...well who really knows..the point is your client is either taking interest rate risk (in a UL), carrier performance risk (dividends in a WL), or market risk (in a VUL).
People argue too much about which is better and there is no right answer....depends on the client situation and their particular needs.
There are a lot of good points about UL -- starting with its flexibility. You can run UL as a Term (as suggested on other posts), or a WL. Neither Term or WL can run as a UL. They are both inflexible in that sense.
No lapse guarantee simply makes the product work like WL to provide lifetime coverage, but a much lower rates. If you want a larger cash value, then pay more than the minimum. With UL you have the right, but not the obligation to do that.
I prefer an Option 2, because the cash value is in addition to the face. Option 1 is like a WL, inasmuch as the CV is included in the face amount. Customer can voluntarily over-fund the Option 2 up to Guideline Level premium. IRS has two choices -- pay me now...or pay me later. A properly structured UL can deliver up to twice the spendable retirement income than a 401(k) or IRA, particularly when it's funded above an employer match.
Some UL's have zero net cost "wash loans". Compare to WL with an 8% loan. I would never use anything except a wash loan.
With UL, the customer owns the money. In all WL contracts, the insurance company owns the money. That's why these are "transfers of capital", as opposed to "earned income". There's an old saying about "he who controls the money, controls the business relationship".
UL renews at current UL rates. Term and WL use ART rates, which are up to 50% higher. UL is cheaper to keep longer.
I understand LSW has an excellent Indexed UL, but I don't have the software to verify. pdoyle should be able to help more with specifics on that chasis, as he mentioned it's his "fit" preference.
Hope this helps.
Atlantainsguy
Do you actually expect a consumer to understand all this? That is the problem with UL - TOO darn complicated.
Do you actually expect a consumer to understand all this? That is the problem with UL - TOO darn complicated.
No lapse UL - SIMPLE to understand.
So is it too complicated or SIMPLE to understand? Are you comparing WL to UL or Current Assumption UL to No lapse UL?
I do agree though No lapse UL are very simple to understand....you pay so much and as long as you pay you have coverage....like a 121 year term policy.
I guess my concern with UL is what a lot of you consider a benefit - premium flexibility. If you're using GUL to 121, stopping premiums is a no-no. And I don't have the foresight to predict that my clients will be able to continue paying for 30, 40, 50 years, or want to. And my take is, if you want to overfund a UL, that's fine, but why not just do a par WL policy instead? If you want to stop paying on a par WL policy, there is CSV and dividends that can be used to pay premium. They can take up a RPU policy. When I present premium offset or limited pay par WL concepts, they seem to gravitate to it more than term to 121. Not all, of course, because the situation and preference of the client will dictate what we do. At the end of the day, some clients select GUL. And I am fine with that, as the permanent death benefit is the most important part of the equation.
I guess my concern with UL is what a lot of you consider a benefit - premium flexibility. If you're using GUL to 121, stopping premiums is a no-no. And I don't have the foresight to predict that my clients will be able to continue paying for 30, 40, 50 years, or want to. And my take is, if you want to overfund a UL, that's fine, but why not just do a par WL policy instead? If you want to stop paying on a par WL policy, there is CSV and dividends that can be used to pay premium. They can take up a RPU policy. When I present premium offset or limited pay par WL concepts, they seem to gravitate to it more than term to 121. Not all, of course, because the situation and preference of the client will dictate what we do. At the end of the day, some clients select GUL. And I am fine with that, as the permanent death benefit is the most important part of the equation.
Which is why I said this:
I would pick a limited payment period that fits your budget but I would certainly want it paid up by the time you plan to stop working in retirement.
And if you can't swing that, you can't afford ANY KIND of whole life and shouldn't buy it.
I appreciate the way you guys have stated your opinions, different as they are, without getting into name calling and the all too often, I'm smart and you're a dumb butt.
Civility seems to go out the window when you aren't actually sitting in front of the guy and the possibility of ever meeting them is remote.
That being said, I have a bias towards par wl, but that's because I've seen ul as complicated. I hope to learn more about ul and perhaps present it to clients in the future.
Post was written to insurance agents, Mr. Barney, not consumers. There is a much better way for consumers to understand UL. It's actually a simple product when reduced to some basic concepts.
It should be apparent from this and other threads that most agents don't understand UL. That's because the insurance industry doesn't want them to.
The insurance industry makes billions by getting people to overpay. The more product knowledge agents have (as opposed to sales skills), the harder it is to get consumers to overpay. The other product that comes to mind is diamonds. With insurance and diamonds -- almost everyone has to take someone else's word that they are getting a "good deal". Insurance and diamonds are products sold on a "trust me" relationship basis.
God forbid that consumers are ever able to use their normal buying process with Life Insurance!
My job as an agent is to help people overpay the least, rather than the most. It sounds like an oxymoron, but that's how this industry works.
The only way to change the paradigm is to not "sell" insurance -- but rather to help people buy it. Big difference!
Many agents if not most have the perception that UL is a "bad" product because of how it was illustrated years ago to run at 18% forever. That was another example of industry and producer greed overruling common sense. As an industry, we seem to continually prefer circular firing squads.
A minimum funded UL running on secondary guarantees gives both a lower starting cost and a lower total cost than WL.
UL is flexible, WL is inflexible.
In spite of a few posts to the contrary, you cannot voluntarily overfund a WL. With the right Option 2 UL, you can do that anywhere from 4 to 8 times the minimum premium, as long as you don't exceed Guideling Level and create a MEC. You have the right to do that with UL. With WL you are obligated to overpay.
One benefit of UL is that you can overfund all at once years later -- and make up for all the years you didn't overfund. Very unlike "use it or lose it" Qualified Plans. This makes it a perfect vehicle for a small business owner who wants to sell the business some day, and needs income. All the prior years of not overfunding the UL can now be done all at once to drive tax-free income.
Critical question -- how do you get the money back?
Answer -- with UL you get back all the money above basis (i.e. all the interest ever earned) with a zero net cost wash loan. With WL you pay 8%.
Post was written to insurance agents, Mr. Barney, not consumers. There is a much better way for consumers to understand UL. It's actually a simple product when reduced to some basic concepts.
It should be apparent from this and other threads that most agents don't understand UL. That's because the insurance industry doesn't want them to.
This is 100% fact. Insurance companies love WL because they get lots of premium to invest in their general account. Insurance companies love UL because they know most people won't overfund, thus have to pay a DB.
The insurance industry makes billions by getting people to overpay. The more product knowledge agents have (as opposed to sales skills), the harder it is to get consumers to overpay. The other product that comes to mind is diamonds. With insurance and diamonds -- almost everyone has to take someone else's word that they are getting a "good deal". Insurance and diamonds are products sold on a "trust me" relationship basis.
God forbid that consumers are ever able to use their normal buying process with Life Insurance!
My job as an agent is to help people overpay the least, rather than the most. It sounds like an oxymoron, but that's how this industry works.
The only way to change the paradigm is to not "sell" insurance -- but rather to help people buy it. Big difference!
Many agents if not most have the perception that UL is a "bad" product because of how it was illustrated years ago to run at 18% forever. That was another example of industry and producer greed overruling common sense. As an industry, we seem to continually prefer circular firing squads.
A minimum funded UL running on secondary guarantees gives both a lower starting cost and a lower total cost than WL.
I agree with this. The premium is higher in a par WL contract and has no dividends (typically for the first two years). Therefore, the UL will be less expensive.
UL is flexible, WL is inflexible.
If you are referring to paying premiums, UL is more flexible than WL. Can you explain why flexible premiums is always a good thing for a client? I would imagine there are quite a few people who stop paying on a UL policy and will never continue. Life always seems to get in the way.
In spite of a few posts to the contrary, you cannot voluntarily overfund a WL. With the right Option 2 UL, you can do that anywhere from 4 to 8 times the minimum premium, as long as you don't exceed Guideling Level and create a MEC. You have the right to do that with UL. With WL you are obligated to overpay.
One benefit of UL is that you can overfund all at once years later -- and make up for all the years you didn't overfund. Very unlike "use it or lose it" Qualified Plans. This makes it a perfect vehicle for a small business owner who wants to sell the business some day, and needs income. All the prior years of not overfunding the UL can now be done all at once to drive tax-free income.
Again, I ask you: how many people go back to funding after stopping for a period of time? If it's less than 100%, you can't make the case that flexibility is good and inflexibility is bad.
Critical question -- how do you get the money back?
Answer -- with UL you get back all the money above basis (i.e. all the interest ever earned) with a zero net cost wash loan. With WL you pay 8%.
Or in a par WL policy, the dividend can be taken as cash. In a non-direct recognition WL policy, a loan will not effect the yearly dividend. In other words, one year the dividend is $15k. You take a loan. The next year, the dividend is projected to be $16k. Even if you don't pay the loan back, the dividend to you will be $16k.
Which is more cost-efficient for the customer?
I can't predict the future, so I don't know which will cost more in the future.
Atlantainsguy
This is great discussion. We all benefit in the end, and so do our clients. Let's keep it up.
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