Can fees change

[Nir Melamoud]

Hi,

Can fees change theoretically ? be different than the illustration?
I understand that if the gap between cash value and death benefit will not be similar to the gap in the illustration, of course, the total cost of insurance will be different that year (those years) and of course it will happen every year , cause the index will not perform as in the illustration, that's not what \im talking about
so for example, can the company (and Im talking about good ones like Alianz)
decide in 10 years from now, due to some market difficulty or mortality rate or whatever, to change the cost of insurance to be X2 per 10K then it was in the illustration
or change the administration fees, etc ?


if they can (according to the regulation) , what does it take ? they can just do that ? do they need some approval from the state ?

thanks

 

[scagnt83]

Hi,

Can fees change theoretically ? be different than the illustration?
I understand that if the gap between cash value and death benefit will not be similar to the gap in the illustration, of course, the total cost of insurance will be different that year (those years) and of course it will happen every year , cause the index will not perform as in the illustration, that's not what \im talking about
so for example, can the company (and Im talking about good ones like Alianz)
decide in 10 years from now, due to some market difficulty or mortality rate or whatever, to change the cost of insurance to be X2 per 10K then it was in the illustration
or change the administration fees, etc ?


if they can (according to the regulation) , what does it take ? they can just do that ? do they need some approval from the state ?

thanks

Yes, the internal expenses can change.

There is a "Current" Expense cost, and there is a "Guaranteed Maximum" Expense cost.

The Guaranteed Column of the Illustration reflects the Guaranteed Expense Cost.

Most illustration software does not allow an agent to show maximum expenses on the illustration other than in the Guaranteed Column... which by default uses a 0% Index Credit.

The Expense Analysis portion of the illustration (hopefully you are using this or were shown this as it is not a default part of the illustration) only shows Current Expenses with most all carriers.

But you can find the Guaranteed Expenses in the actual Contract. Carriers almost always provide a "Specimen Contract" that you can use to see the difference between Current and Guaranteed policy costs.

You are right to worry about the Guaranteed vs. Current expenses. Some carriers allow for increases up to 2x-3x current costs.

And the carrier may increase costs at their discretion. The costs have already been approved by the state DOI, since it is part of the original insurance contract agreed upon.

Carriers do have to walk a fine line with increasing costs or decreasing Caps. Do it enough and eventually people are going to move funds elsewhere. And agents will stop selling the product. But if IUL is not a main revenue driver for that carrier, they might not care.

 

[Allen Trent]

With the way our federal govt is artificially keeping this sustained interest rate environment extremely low, expect that life insurers will continue to leave the marketplace, sell their existing blocks of business to hedge funds as has been happening for a decade & that the internal charges inside of UL based policies will have to change. It is just a factual component of the math problem being faced

 

[Nir Melamoud]

thanks, now I need to decide if they will do this o not as there max is 4x more than what they project \ :(

 

[scagnt83]

thanks, now I need to decide if they will do this o not as there max is 4x more than what they project \ :(

That is a gigantic difference. Not all carriers have the ability to increase expenses that much. Very scary from a client perspective.

I believe Penn can only increase expenses by about 50%. I think LFG was around 100% last I checked. AIG was around 150% last I checked.

Interest rates have dropped since I last did a comprehensive comparison. Could be worse now. But 4x is extreme and not a product I would trust.

 

[Nir Melamoud]

the way I calculate it, let me know if its the right way, I took 70 years old, and look at the fees in guarantee table , and in the regular table, and the guarantee fee was 4x

is that the right way to do it ?

 

[scagnt83]

the way I calculate it, let me know if its the right way, I took 70 years old, and look at the fees in guarantee table , and in the regular table, and the guarantee fee was 4x

is that the right way to do it ?

Yes, you are calculating correctly.

 

[Allen Trent]

the way I calculate it, let me know if its the right way, I took 70 years old, and look at the fees in guarantee table , and in the regular table, and the guarantee fee was 4x

is that the right way to do it ?

Actually, I dont believe that would be accurate. many of those fees are different in the given year you are looking at because the earlier performance or fees at worst case have caused more insurance & fees.

Without a full education in each UL element, this can be hard to explain & understand, but I will try.

The projected non-guaranteed column might be showing the current fees to cover the load fee, the cost of insurance per 1,000 of net amount of risk death benefit& say 6% index credit.

The worst case column then shows the worst of the load fees, the worst of cost of insurance per 1,000 of net amount of risk death benefit & 0% index credit.

So, if the age 70 worst case is showing say $100,000 cash value in a $500,000 level death benefit, it is showing the worst case per 1,000 COI for $400,000 of net amount at risk. the projected might be showing $400,000 CV of a $500,000 level death benefit for a $100,000 net amount at risk.

The "costs" might not be 4x difference, but the raw difference is caused by all the years of the illustration showing 0% index credit.

The real way I would calculate the difference in cost/fees between worst case & projected is to look at a given year, figure out the net amount at risk in each column & then divide the COI cost in the column that year by the net amount at risk. that will give you the per 1,000 cost of each. Lets say $65 per 1,000 in a given year in the projected & $120 per 1,000 in the guaranteed. This shows you how much they could theoretically change the "fees" per 1,000.

if performance of 0% credited lasted for a sustained period of time, you could consider paying more in or lowering the face amount of the policy to offset the performance aspect that caused more net amount at risk (premium limitations may limit how much you could pay in or reduce face based on history of the policy)

sorry for confusion, but I believe the majority of the 4x you are calculating is not how much the carrier could change fees but from having to show 0% for all those years contributing to causing way more net amount of risk insurance being charged each year at Annual Renewable term rates.

 

[scagnt83]

Actually, I dont believe that would be accurate. many of those fees are different in the given year you are looking at because the earlier performance or fees at worst case have caused more insurance & fees.

Without a full education in each UL element, this can be hard to explain & understand, but I will try.

The projected non-guaranteed column might be showing the current fees to cover the load fee, the cost of insurance per 1,000 of net amount of risk death benefit& say 6% index credit.

The worst case column then shows the worst of the load fees, the worst of cost of insurance per 1,000 of net amount of risk death benefit & 0% index credit.

So, if the age 70 worst case is showing say $100,000 cash value in a $500,000 level death benefit, it is showing the worst case per 1,000 COI for $400,000 of net amount at risk. the projected might be showing $400,000 CV of a $500,000 level death benefit for a $100,000 net amount at risk.

The "costs" might not be 4x difference, but the raw difference is caused by all the years of the illustration showing 0% index credit.

The real way I would calculate the difference in cost/fees between worst case & projected is to look at a given year, figure out the net amount at risk in each column & then divide the COI cost in the column that year by the net amount at risk. that will give you the per 1,000 cost of each. Lets say $65 per 1,000 in a given year in the projected & $120 per 1,000 in the guaranteed. This shows you how much they could theoretically change the "fees" per 1,000.

if performance of 0% credited lasted for a sustained period of time, you could consider paying more in or lowering the face amount of the policy to offset the performance aspect that caused more net amount at risk (premium limitations may limit how much you could pay in or reduce face based on history of the policy)

sorry for confusion, but I believe the majority of the 4x you are calculating is not how much the carrier could change fees but from having to show 0% for all those years contributing to causing way more net amount of risk insurance being charged each year at Annual Renewable term rates.

I took his comment to mean he was comparing fee schedules in the actual contract, not the illustration.

Most IUL expense reports do not a detailed year by year of the guaranteed expenses. So without the contract, you would have to attempt to do the math as you have explained.

IMO, it should be a regulation to make the expense report a require part of the illustration. And it should be required to show a detailed breakdown of both guaranteed and current expenses.

Same with illustration software. It should be required to show a scenario with reduced caps and increased expenses. Of course if that happened, a lot less IULs would be sold.

 

[scagnt83]

sorry for confusion, but I believe the majority of the 4x you are calculating is not how much the carrier could change fees but from having to show 0% for all those years contributing to causing way more net amount of risk insurance being charged each year at Annual Renewable term rates.

This is very true if looking at the illustration to calculate the fees. Current column shows an increasing DB. COI is charged as a "per $1k of DB". So the increasing DB will have more "thousands" being charged in general. So that must be accounted for if going on just the illustration.