Advisor Calls Out ‘Critical Flaws’ in Universal Life Policies

[Lloyds of Lubbock]

He never said no medical.
I do find it a bit hard to believe that every ul he comes across is underfunded and the client would be better served with a replacement rather then just increasing the funding.

 

[DHK]

David McKnight dropped this video today:

 

[Allen Trent]

David McKnight dropped this video today:

good stuff.

I cant believe how many people, including some big time WL producers say " the insurance carrier keeps all the positive returns of the stock market over & above the cap"....Duh, none of the money is even in the stock market & part of the reason agents dont need securities licenses. So, if none of the money is even in the market, how can the carrier keep the upside returns over & above the cap? If it was actually invested in the market, like many believe, they couldnt achieve the guarantee of 0% floor as that comes almost entirely from the 90%+ of the money being invested in the carrier general account of Bonds/Mortgages, etc

 

[DHK]

One of my 'group experts' in the Facebook group does a lot of COLI cases and has actually done political advocacy work to preserve those benefits. He probably knows more than I've ever learned. I didn't ask his permission to post his response, so I just blocked his name.

Here was his response regarding this guy's book:

 

[DHK]

I had some fun with Elan Moas today on LinkedIn. I'd post a link to the thread, but he blocked me. I guess the truth hurts.

Elon Moas, author of "Lapsed: The Universal Life Insurance Whistleblower" is a clown and pretty much admitted it on his own LinkedIn thread.

His latest post is when he's talking about the "dangers of IUL DB option B." Here it is:

Universal Life Option A vs Option B Death Benefit.

Note: This is really bad news for Option B policyholders. You may as well flush your money down the toilet right now.

Option A is called a level death benefit
Example:
Death Benefit (DB) = $100K
Cash value (CV) = $10k
Net at Risk (NAR) = DB - CV = $90K

If anything happens the insured, the widow receives $100K. The CV is part of the DB. Easy to understand.

The cost of insurance (COI) at any given time is based on the net at risk at the attained age. As the CV increases, the NAR decreases.

High, aggressive and unlikely investment hypothetical assumptions show far greater cash in the advanced senior years (ages 85-95). This minimizes the sales illustration’s net at risk and forecasts a successful policy.

Real world investment returns in UL, IUL and VUL mean lower cash value, higher net at risk and higher COIs. This could be problematic.

At least with Option A as your cash value grows, the net at risk decreases. Option B in my experience is used less, but awful for those that own it.

Option B is called “growing” death benefit which equals
Death Benefit = Original DB + CV

If there is $10K in CV, the death benefit is $110K.

Option B is often associated with having:
1. The death benefit “keep up with inflation” (yeah, right)
2. “Overfunding” the policy (yeah, right again).

Since advisors earn only 2-3% of total compensation by overfunding a policy (vs 100%), my research and logic suggests this overfunding occurs possibly 2% of the time, but I will use 5% for the naysayers. That means 95% of the time it’s a “target” funded policy or poorly funded policy. That’s bad news.

With every year, the Option B policy asks the question, “what’s it cost to insure the policyholder for $100K who is 85-years old” (then 86, 87….) who has outlived the census design of the policy currently using the 1980, 2001, or 2017 CSO (census) that suggests death at 77-78, and people are routinely living until their 90s and beyond (Henry Kissinger-100, Charlie Munger = 99).
You are literally outliving the (very flawed) design of the policy by a decade or more

So, what’s it cost to insure a 90-year-old who was supposed to be dead a decade earlier. More than enough to BK your policy.

There is also something called Option C, which is in the Option B family (awful) which is rarely used, so I treated it as negligible here.

Order an in-force illustration, that’s the current projection.
1. UL at current rates
2. IUL at current allowable rate
3. VUL at 5% & 6%
If you see a zero in the DB column, that means your policy has lapsed.
Note: I would also get the same illustration paying until age-70, since in retirement you are on a fixed budget an don't want any outgoing premiums

I hope Option B's have some Imodium nearby. Sorry.

My response: Option b death benefits on the guaranteed columns outlast option A guaranteed columns. In my illustrations... by 20 years

His response: Your net at risk is always the original death benefit in Option B. When cost of insurance always equals the death benefit (COI=DB) at advanced ages > 80 policyholders are going to be in a world of hurt

My response: you've NEVER run an IUL illustration in your life. This is the proof because option B is about 1/3 the db of option A for the same premium.

I then posted with IUL illustrations showing a max-funded Option A vs Option B guaranteed columns (that I'll post in the comments).

His excuse: That’s right . I’ve never run an IUL illustration ,that’s how it will remain.

My final response: I hope your E&O is paid up if you are advocating any policy replacements on incorrect and false pretenses.

I have serious concerns about IUL as well... but at least I (mostly) understand the mechanics of the various ways to illustrate and fund them.


He just responded:
Your words “ incorrect and false “
Actuarial Guideline 49 ( AG49) from 2015
AG49A from 2020
AG49B from May 2023
Regulators determined that illustration were incorrect, unlikely and aggressive …thats why they implemented them
Looks like you were using an illustration that was incorrect all these years .
Best of luck to your clients.
They probably need divine intervention

My response:
Oh I know what I'm doing. You don't understand the economics of the levers available. Forget the laws for a minute. You don't know the fundamentals. I just showed you the GUARANTEED columns and proved your ignorant self wrong.
You have the problem, not me. Good luck to you.

 

[DHK]

Just left him a review for his book too: