Any Feedback On The Nationwide Insurance IUL?

[jtow11]

I like what I hear about it, but have not been able to see an illustration. Looking for feedback.

 

[DHK]

One of many companies that created their own "composite" indexes and claims that they could have a 15.3% back-tested rate of return on said index?

@Sheryl J Moore wrote this post for the Professional Life Agent Insurance Discussion group primarily based on the Nationwide literature.

Good evening everyone!

A post about indexed insurance products has been brought to my attention. I want to provide a little more information about what I refer to as “hybrid indices” on indexed annuities and indexed life.

First of all, we need to remember that 220% of 2.00% is only 4.40%. Meaning- just because the participation rate is high, doesn’t mean the product will necessarily perform.

The case that was brought to my attention features an index that was just created on 4/8/22. The index was then added to the IUL product offering on 4/30/22.

It is VERY important to understand how such an index’s historical performance is calculated. In this particular example, there truly is no historical performance because the index didn’t exist even one month before the product launched. Disclosures on indices such as this are akin to, “this index has no history, but here are some numbers we put together, assuming it does have history.”

Some hybrid indices will use the performance of the indexes CONSTITUENTS, in lieu of actual historical performance. Again- disingenuous because standalone constituents are not identical to the constructed index.

And- current options costs are almost always assumed in the backcasting of these indexes, which is disingenuous because options costs in the past are not like they are today.

In the aforementioned case, the index has an annual 0.50% index fee. This fee has the effect of drag on the index.

Also of interest is the fact that although the indexing method has a current participation rate of 220%, it could go as low as 65%, once the contract is inforce. The insurance company has to go out and buy new options every year, so the inforce participation rates WILL change. Note that many insurance companies reduce their inforce rates, even if new options costs don’t warrant it. This is a function of independent agent distribution. The insurance company wants to give you “shiny, bright objects” to sell their product; so, they boost the rates in year one, snd then adjust them downward in years 2+.

We also need to take note of the fact that the previously mentioned indexing method has an annual 1.00% annual fee, which is deducted from the IUL’s account value. This will have the effect of drag on the IUL’s performance. And it will be deducted every year, even though the policy could earn 0.00%. Plus, this fee could increase to as much as 1.50% annually, once the case hits it’s first policy anniversary.

I have been doing this for 24 years. I am an independent expert with a history in inforce policy management, illustrations, product development, research, and expert witness work. Insurance companies WILL increase charges on inforce insurance contracts. They will also reduce participation rates/caps [increase spreads] on inforce insurance contracts. And sadly, they will distribute Illustrations that are too good to be true. What they make on the sales of these products is far beyond what they would have to pay to settle a class action lawsuit.

You have to do the research for yourself. The insurance company has a vested interest in you selling their product. Your marketing organization does too. Be careful out there.

The PDF file is below.

Also:


I'm not saying that the contract isn't good. I will say that it's up to the agent to promote them ethically and properly.

 

[jtow11]

That is interesting, thank you. I was drawn to Nationwide as they have a built in LTC rider at no additional cost along with the other benefits.

 

[DHK]

Many do the same thing. They usually have a cost once it is exercised.

 

[jtow11]

Any in particular you like over Nationwide? New with respect to IUL, so am soaking up as much info as I can.

 

[DHK]

I know the basics on IUL, but I haven't followed product development in a while - at least since the last CSO mortality tables came out.

Ask @scagnt83 for his preferences and why.

 

[PrivClientSG]

I like what I hear about it, but have not been able to see an illustration. Looking for feedback.

I am not sure if this is a new product, series, or what. I for one feel there is no one or two IUL's that work for everyone, mostly everyone, every situation, and so forth. That said, regarding the LTC rider, typically the rider is "no cost" UNTIL it is activated, exercised, or some other trigger point in time. Once the cost kicks in, you have to know how that impacts the product at that point in time and moving forward.

Be that as it may, I would treat this like I treat any new product I am giving consideration to, and that is complete, thorough, and comprehensive due diligence. I would not only look at an illustration, but I would absolutely look at numerous illustrations actually -- with numerous variables, ages, time periods, ROR's, etc. I would also see if you could "de-couple" the illustrations (from whatever index they are using, with various "chosen" rates of return). This gives you a lot of flexibility to examine the product under numerous different scenarios. Why? Because life doesn't play out like an illustration. Outside the scope of this discussion, illustrations can be worthless.

I would see if the illustration is either NAIC-conformed, and/or includes the NAIC guidelines, best practices, etc. I would absolutely ask for separate information and schedules as to the mortality charges. Remember, when a life insurance product is approved by a State Department of Insurance, it is approved with a schedule of mortality charges -- and regardless of how they structure it -- both "current" and/or "scheduled" as well as a "maximum." One has to rarely worry about the current mortality charges. It's the increases, trend, and exponential effects that increases have. Most illustrations have very limited capabilities vis a vis the mortality charges. Thus, you have to go outside the illustration. Look industry wide at the numbers of companies that have increased mortality charges on their UL products, and the other changes they've made to protect themselves over the last 20 years.

I would also absolutely look at a specimen policy. One other litmus test I look at -- and this is just a personal nuance of mine -- is the product approved in NY (as well as what other states it might not be approved in).

 

[Allen Trent]

That is interesting, thank you. I was drawn to Nationwide as they have a built in LTC rider at no additional cost along with the other benefits.

Most have that, but it isn't at "no additional cost". The cost is in the form of a fee when you file claim. That cost can be based on back end underwriting of the claimants life expectancy. So, a person with a 10 year life expectancy may be charged 30-50% discount to access death benefit early. So, filing a $100k could reduce the actual life death benefit by 130k-150k. So, that discount fee lost that portion of death benefit that can never be used for death or chronic illness as it was eliminated as a claim fee (unless the person is completely out of other assets, this would likely be a terrible place to get money to pay for care. Why deplete a tax free death benefit to your heirs & pay a discount fee to get it. Likely better to use cash from bank assets or use retirement accounts or NQ annuity accounts that would have taxes due at death. likely best to keep life insurance, roth & even step up in basis assets to pay for care in many situations. Not a horrible Plan B, but likely better to have stand alone LTC or hybrid LTC-ADB CIA that doesnt discount death benefit at claim time by an unknown actuarial life expectancy discount the carrier can arbitrarily charge)

Also, in cases the person is overfunding to build maximum cash value for supplemental & intending to use the cash for retirement, each of those cash withdrawals or loans can also reduce the chronic illness accelerated death benefit rider & thus, there may be nothing left for claim if the amount of prior distributions exceeded the Chronic illness rider. Definitely ask for a copy of the specimen rider to see how that version works

 

[jtow11]

Thank you. A lot to learn about IUL's and setting them up properly. Thank you.

 

[scagnt83]

@DHK thanks for the mention, and thanks for posting that info from Sheryl.

One thing she leaves out is the "risk control" or "volatility control" aspect of these hybrid indexes.

VC or RC indexes control the upside and downside. They have a "volatility target" that is essentially the long term objective of the fund. Most VTs are in the 5%-7% range... a few are 10%.

Im not sure the index name on the new one from NW. But take the S&P Prism Index that Securian heavily promotes now.

Marketing material shows how it could have done 10%+ in certain time periods. IMOs & Agents describe it as a "performance index". They cherry pick years to show 15% single year returns.

The Volatility Target is 5.5%.
The 3y annualized return is 5.5%
5y annualized return is 5.5%.
10y annualized return is 5.5%
(those returns are +/- because it changes daily)

By design, it is not a performance index. It is literally the exact opposite of that based on the algorithm used.

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The "performance" is not the index. Its the 185% non-guaranteed multiplier that can be reduced at will by the carrier.

And that is the real danger of IUL. When the drop those rosy participation rates and bonus rates, what will it look like then after 30 years?

Many IUL illustrations will lapse if you reduce the illustrated rate by just 2% from the current max allowed. That is the first "stress test" you should run on an IUL before selling it. Second look at their historical renewal rates on the Caps/Spreads/Participation Rates/etc.

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I use Penn Mutual for accumulation focused IUL cases. AIG if UW is an issue. AIG or MoO if its protection focused. I know of agents who really like Columbus Life, it seems similar to Penn as far as having a strong renewal history.

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LTC Riders.

First, nothing is free. As people pointed out, you either get charged on the front end before use, or the backend at use.

Not all are the same. Most require "permanent impairment" that is expected to last their entire life. That covers maybe 30%-40% of all LTC claims. Not saying thats a bad thing, its just factual info to know.

Some do not have the permanent impairment requirement. AIG & MoO fall under that category.

MoO has a "free rider" that does not require additional UW. They also have a paid rider that gives a better benefit, but requires LTC UW.

AIG has a paid rider that does not require permanent impairment.

Im not sure what the clause is on Nationwide, but I think it is true LTC that does not require permanent impairment. I also think they charge a fee, or at least they did.

I have never been able to find renewal history for Nationwide.