Best IUL with variable loan provision

[ATM]

Correct, but his video used a his own info & actually showed an avg mut fund expenses to be 3-4%

2018 avg actively managed equity mutual fund was .76% & bond fund .55%. avg passive index equity fund .2%. his video was stating expense ratios of 5-20x that amount. Do you think that might have a little impact on a piece of software not provided by the IUL carrier being presented. Using such software to directly compare costs & features of investments & insurance is definitely playing in an industry you may not be licensed to be.

Generic FINRA tools that a consumer can use are a different & more acceptable tool

Average mutual fud expenses are a misleading metric because they take into consideration funds that are built for the adviser market where fund level exps are only part of the total expenses investors pay.

e.g., Advisor allocates 35% of my portfolio to fidelity S&P 500 fund. Very low exp, tons of assets in it, but he layers on 1%/yr management fee.

For actively managed funds the management fees are only part of what investors pay. Investors are still charged for trading and some other costs that are not known until they happen.

A better measure IMO would be the expense that the average investor pays to invest. That number is north of 1%/yr (I want to say 1.45% but would have to go find it.)

 

[Allen Trent]

Average mutual fud expenses are a misleading metric because they take into consideration funds that are built for the adviser market where fund level exps are only part of the total expenses investors pay.

e.g., Advisor allocates 35% of my portfolio to fidelity S&P 500 fund. Very low exp, tons of assets in it, but he layers on 1%/yr management fee.

For actively managed funds the management fees are only part of what investors pay. Investors are still charged for trading and some other costs that are not known until they happen.

A better measure IMO would be the expense that the average investor pays to invest. That number is north of 1%/yr (I want to say 1.45% but would have to go find it.)

This just isn't factual any longer with the average actively managed mutual fund expense ratio around .5%.

Index fund & ETF expense ratios are essentially 0% now. Anyone allowing their fee based adviser or broker to charge 1% AUM for holding index funds would be insane. But when you consider all funds invested in Index or ETF & even include those paying 1% to an advisor in AUM, the average would still be below .5% when you consider all the balances being held in online brokerage accounts. Very few people are paying 1% in total any longer & an even more rare occurrence would be someone with 1.45% in average fees. Those numbers are quite dated & the original spreadsheet referenced in this post was even more absurd, borderline illegal, I'm the expense assumptions used to make investments look bad compared to IUL

 

[Laura D]

You know- my frustration is that the insurance companies/wholesalers don't train our salespeople what target really is. I wrote a great article about it: FUNDING UNIVERSAL LIFE INSURANCE AT TARGET? YOU’RE MISSING THE POINT: REPRINT #LIAM2019 - Wink.

If salespeople knew that target is just a pricing metric, and has nothing to do with how a product should be funded, it would really help. We need to do better on educating salespeople HOW to actually fund all UL plans, and target has nothing to do with it!

And I don't argue with your words on salespeople aiming for target because it helps their pocketbooks. However, I also hold the insurance companies/wholesalers responsible more than the salespeople. When is the last time that someone told you that adding a term life insurance rider to the IUL will often make the cash values accumulate WAY FASTER and much higher than base policy alone? It makes sense- the term insurance costs are less. Premium for premium, the cash is increasing more quickly on the base/term blend than the base/base. However, the illustration software defaults to 100% base policy. I don't think I've ever heard a wholesaler educate salespeople on this function of product performance?

Sheryl, Will you elaborate on this? How can adding a term rider to an IUL make the cash value accumulate faster and higher than the base policy alone? I am new to insurance and definitely to this function of product performance.
Great article too. Thanks.

 

[Allen Trent]

Sheryl, Will you elaborate on this? How can adding a term rider to an IUL make the cash value accumulate faster and higher than the base policy alone? I am new to insurance and definitely to this function of product performance.
Great article too. Thanks.

It allows you to make the base policy smaller to fit the same or more money in. Basically, by making the total coverage higher with the term rider, the government premium room is expanded allowing more overfunding to fit into the policy to earn interest. IE if I buy a $300k UL policy that has a Premium guideline of say $3k, I can only put $3k into it, but maybe if I do a 150k base policy & $300k 10 year term rider I could now fit 4 or 5k into it & have less overall cost of insurance long term as the term rider later falls out. Boiled down, more of the money going into the savings component & minimizing the costs for the protection

 

[ATM]

This just isn't factual any longer with the average actively managed mutual fund expense ratio around .5%.

Index fund & ETF expense ratios are essentially 0% now. Anyone allowing their fee based adviser or broker to charge 1% AUM for holding index funds would be insane. But when you consider all funds invested in Index or ETF & even include those paying 1% to an advisor in AUM, the average would still be below .5% when you consider all the balances being held in online brokerage accounts. Very few people are paying 1% in total any longer & an even more rare occurrence would be someone with 1.45% in average fees. Those numbers are quite dated & the original spreadsheet referenced in this post was even more absurd, borderline illegal, I'm the expense assumptions used to make investments look bad compared to IUL

How Much Do Mutual Funds Really Cost?

1.44% and it still holds today. We're talking about actively managed fund. That could be a simple mutual fund or a manager who is using index funds in an active allocate model.

There are expenses in funds that are not and cannot be disclosed since they are not known until after the fund actually incurs them.

The Forbes article I linked to gives a good explanation.

 

[Laura D]

It allows you to make the base policy smaller to fit the same or money in. Basically, by making the total coverage higher with the term rider, the government premium room is expanded allowing more overfunding to fit into the policy to earn interest. IE if I buy a $300k UL policy that has a Premium guideline of say $3k, I can only put $3k into it, but maybe if I do a 150k base policy & $300k 10 year term rider I could now fit 4 or 5k into it & have less overall cost of insurance long term as the term rider later falls out. Boiled down, more of the money going into the savings component & minimizing the costs for the protection

Gotcha. Thanks. But when the term rider falls off, it won't become a MEC? Would you utilize this only if you actually want a term policy or just for the ability to fund it more for the years that you have the term? Basically, in general, is it worth doing even if you don't need the extra death benefit?

 

[Allen Trent]

Gotcha. Thanks. But when the term rider falls off, it won't become a MEC? Would you utilize this only if you actually want a term policy or just for the ability to fund it more for the years that you have the term? Basically, in general, is it worth doing even if you don't need the extra death benefit?

correct, the term rider falling off is not the same as someone doing a face reduction to the base policy that could cause issues.

Couple things. I hate term riders added to permanent policies for all but 2 situations:

1. When someone already owns term coverage and is converting it to a permanent policy but they cant afford to have the entire policy be permanent. Some carriers permit the balance of the existing term policy to be brought over to the new permanent policy as a 10,20 or 30 year term rider. IE: client has $500k term that is ending or at the last chance to convert to permanent. Client can only afford for $100k of that to be WL or UL, but they dont want to lose the balance of the term & are uninsurable to buy new term. The bring the $400k or less over to a term rider

2. the exact overfunding example above you are talking about. Term rider added to permanent to expand the 7 pay premium test to allow more money to fit in a smaller policy

the reasons I dont like term riders for other situations are:

A. when clients face a job loss, divorce, bankruptcy or they hear Dave Ramsey or a Financial planner or their hairdresser friend that just hired with Primerica. When disaster happens the client wants to eliminate the large premium of the permanent policy. But the bulk of the coverage is term that they want to keep. The problem is you cant cancel the base policy & keep the riders because the riders are an add along to the base policy. without the base policy there is no rider. Sad to watch someone who is much older or uninsurable not be able to keep the affordable term

B Spousal riders--these can be a disaster in some situations of divorce or the death of the base insured. Stand alone term in many instances is the same cost as the rider, so why not have it stand alone as a separate policy

I just find that each purpose of coverage is best suited as it's own policy for the most part compared to riding along as a rider for the base insured or their spouse (not talking about child term riders or Disability waiver or CIA/LTC)

 

[Allen Trent]

How Much Do Mutual Funds Really Cost?

1.44% and it still holds today. We're talking about actively managed fund. That could be a simple mutual fund or a manager who is using index funds in an active allocate model.

There are expenses in funds that are not and cannot be disclosed since they are not known until after the fund actually incurs them.

The Forbes article I linked to gives a good explanation.

interesting. thanks for passing along, I will have to check that out. you are correct I was talking about the average, not the average of actively managed mutual funds including expenses not charged to the account

 

[hunschuld]

Sorry Allen but I think you are mistaken. The purpose of the term rider is not to increase face it is to keep the face the same but lower the compensation. This lowers the internal costs and helps the cash value grow.

The term rider usually does not drop off. Cash grows the over all net amount as risk falls. MEC issues with a policy with a term rider are the same as the issues a policy without one has.the term and base portions act the same way. Eventually if you are using level face there is very little actual life insurance as most of the death benefit is actually made up of the cash value.

 

[Allen Trent]

Sorry Allen but I think you are mistaken. The purpose of the term rider is not to increase face it is to keep the face the same but lower the compensation. This lowers the internal costs and helps the cash value grow.

The term rider usually does not drop off. Cash grows the over all net amount as risk falls. MEC issues with a policy with a term rider are the same as the issues a policy without one has.the term and base portions act the same way. Eventually if you are using level face there is very little actual life insurance as most of the death benefit is actually made up of the cash value.

Actually, the rider is indeed added to expand Tamra/Tefra/defra room. It expands the premium room without demanding that the permanent face be expanded to the same extent. Have seen it done hundreds of times