Do you guys think IUL's will last?

Dec 6, 2018

  1. pfg1
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    pfg1 Guru

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    Thinking about some conversations I've had the past couple months with other agents, carrier reps, and imo reps - I got the feeling that generally people feel good about IUL's now, but there is that little bit of fear in the back of their minds that they could be a bust in the future. Not so much that the product itself is a bust, but more of the caps and rates will continue to decline slowly, and/or costs will rise and you end up with a non-guaranteed product that delivers whole life performance. Or worse, a policy that more resembles a GUL. It makes you wonder when company reps that have been in this industry for 35+yrs feel uneasy. We've seen caps slide for many already and even some companies have increased charges.

    This is my biggest concern with IUL's. The story is awesome, but will it pan out long term? Most sell to overfund a policy for 20-25yrs, then take more out as tax free income for the rest of your life. But given how young IUL's are...nobody has ever actually been able pay in 20-25yrs, and take out income for another 20-30.

    How do you guys feel?
     
    pfg1, Dec 6, 2018
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  2. scagnt83
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    scagnt83 Worldwide Expert of Everything

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    I think you and I talked about this once to some extent over the phone. This is one reason I am very selective about the carriers I use when selling IUL.

    Lowering Caps and raising Expenses to unacceptable levels ... is the #1 danger to IULs!!

    That is one reason imo, it is very dangerous to sell one that is not max overfunded, or close to it.

    And I always hammer this point home with clients. I make sure they know the risks and I cover this risk big time with them and explain my philosophy around it.

    ---

    I think you have to look at the Carrier and their focus. You want a carrier with an extremely strong focus and commitment to life insurance.

    If Midland screwed over existing IUL clients, their new business would dry up... they would become an annuity only carrier by force. They have no WL to fall back on, IUL makes up a major amount of their new biz.

    Think about if Penn did that? They dont even have decent annuities to fall back on. And would agents trust them to maintain Dividends if they f*cked their IUL clients? It would devastate their new biz.

    Lincoln also has a very strong focus on Life. It is a huge part of their business. I dont know as much about Minnesota Life, but I think they would fall into this category as well probably.

    But there are some out there that could cease life sales all together and the carrier wouldnt skip a beat. Transamerica comes to mind... Ameritas... Allianz (although they have great renewals on annuities) ... Voya... Nationwide... Im sure Im leaving a few out. Those are the products that scare the hell out of me to sell.... it's not necessarily the product, its the carrier!

    ---

    I also feel that suitability and policy design will be a huge issue in 10-15 years for our industry. I expect to see class-actions against carriers for underfunded policies that they are allowing idiot agents to sell. And they wont have a decent defense like they did in the 80s with interest rates crashing.
     
  3. HealthGuy
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    HealthGuy Guru

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    SCAgent83: This is unsettling, quoting you below. If its like this why even take the risk selling IUL and be involved in a potential class action lawsuit? Isnt insurance about guarantees anyway, LIKE whole life???

    I also feel that suitability and policy design will be a huge issue in 10-15 years for our industry. I expect to see class-actions against carriers for underfunded policies that they are allowing idiot agents to sell. And they wont have a decent defense like they did in the 80s with interest rates crashing.
     
  4. pfg1
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    pfg1 Guru

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    Good points Tyler.

    I'm ok with suitability and policy design coming into play more. It will save some clients for sure.
    Yeah, the lawsuits definitely could be a big issue. I have come across reps (in competition) that design/sell policies at minimum payment and higher targets. My thought is they must feel its easier to get the sale, if they can show they can get the client more db for less $, vs the agent running max cv/min db.

    Even with WL divs flat or slightly down across the board, the guarantees are solid and they still perform quite well if max funded. IUL's illustrated with the rate down look alot like a max funded WL. Penn just lowered its div for the first time in 10yrs, but its still over 6%. Most are under that, some quite a bit under. I'm sure in our lives they will be on the rise again.
     
    pfg1, Dec 6, 2018
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  5. DHK
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    DHK "YOU CAN'T HANDLE THE TRUTH!"

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    Caps / Participation Rates / Spreads on IUL will fluctuate long-term in a downward trend just like whole life dividends have. Why? Same reasons - general investment account performance, mortality experience (death claims), and new sales.

    However, IUL has to also contend with the pricing and overhead costs of index call options. In a low interest rate environment, there is less and less to work with for index call options, so that's why we see caps lowering.

    Costs of insurance may increase, but that is helped when the policy is well-funded to begin with. Remember that UL back in the 70's and 80's was sold with the notion of "Whole life for half price" or "Twice the coverage for no additional premium" by assuming that 9% interest rates would continue indefinitely.

    IUL has proper funding on its side (if structured properly), proper client expectations in place (varying interest credits year to year), and people LIKE it. And even with NAIC IUL rate restrictions, it's a decent illustrated return.

    There is every reason for clients to over-fund these policies as it's in their best interest, if sold by the proper professional agents.
     
    DHK, Dec 6, 2018
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  6. scagnt83
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    scagnt83 Worldwide Expert of Everything

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    Ive been saying this for some time. Way too many agents do not care enough to properly learn how the product works. It takes more than just a single webinar or product brief.

    Almost every single major WL carrier has been involved in class-actions at some point over Dividends. So by the above logic, agents should stop selling WL as well.

    IUL has guarantees. Insurance products are designed to service different niches. Not everyone needs the same exact thing, because everyone situation and needs are different. That is why so many products and variations of products exist. You are approaching this as an "either/or" scenario... or that everyone has the same needs. We are talking about dynamic situations for people who usually have complex needs.


    And to think that carriers would maintain strong WL Dividends but for some reason behead IUL business.... is not sound logic at all. If industry conditions cause that type of environment, WL dividends would drop dramatically as well.


    Caps and Expenses are to be expected to fluctuate. Normal fluctuations should not affect the long term performance negatively.... if they do... the agent messed up on the design of the policy.


    I dont worry about class-actions because the policies I sell are not underfunded. They are properly designed and overfunded. My comment was directed at policies that were not designed properly from the start... and those consumers would have every right to sue imo....
     
  7. Allen Trent
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    I think it is actually #2. In reality, I think the consumer is more responsible for the #1 reason IUL could be a problem. Just like fixed UL, many consumers have very lofty plans & sometimes bail on that plan. if they get used to missing an annual premium payment or taking out a ton of cash, will they also make corresponding changes to help manage their policy costs/fees. history has taught us they likely wont & many agents & carriers wont hound them to micro manage the policy.

    this is exactly why most IUL performance looks so bad in that that 1st decade or 2. It is so front loaded with costs & fees that the majority of clients that stop early & change their plans will suffer & only the few that follow through will benefit. When I run IUL compared to WL with max PUAR funding, the WL looks tons better in the 1st 20-25 years, looks way better in Guaranteed columns & most of all, it has much lower commitment to premium long term if client changes their mind on overfunding the PUAR amount. with all that said, many clients like the IUL proposal better than the WL because WL has more bad PR & press out there.

    But I agree, the efficiency of the options market long term & the treasury rates will play a huge role in the long term performance of IUL in the form of CAPS & participation rates & sequence of returns with zeros in some multi year sequences versus 6-7% like clockwork as many IUL project in the Current projected columns.

    Great conversation
     
  8. scagnt83
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    scagnt83 Worldwide Expert of Everything

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    I do get your point.

    So lets say the WL and IUL are equal in growth. What about the distribution? Assuming thats part of the plan.

    IUL can use GPT testing, WL uses CVAT.
    IUL using GPT/Opt1 is going to distribute a higher % of Account Value vs. WL. Same lump sum, but higher income because of GPT.

    And dont forget about ability to switch from 2/1 after premiums stop. This also helps distributions vs. WL.

    There is a lot more to consider than just Index Credits vs. Dividends.
     
    Last edited: Dec 6, 2018
  9. scagnt83
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    scagnt83 Worldwide Expert of Everything

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    Then you are doing something wrong with your IUL illustrations. Or you are using a crappy IUL and comparing it to a good WL.

    Because of Testing and DB options, IUL is able to start with a MUCH lower DB vs. WL. This is why it usually blows away WL in CV in the early years.

    Something is off in your comparisons.
     
  10. jboussea
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    jboussea Guru

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    If caps , par rates etc keep going down.. that would mean that interest rates stay low .. and what's the downside of having WL type performance ... you still have the "potential" of higher performance. It doesn't mean that you always get it...

    Now if IUL's are not performing better than WL, it might hurt the marketing of the product. Is that what you mean that it would "bust " in the future? Mainly that people would rather flockto WL when the see that the "current" performance is not worth the risk?


    As someone interested in IUL for personal use, I use WL type projections with the "hope" or the "potential" of higher return. I look at it as a long term Emergency fund for myself. an emergency fund earning 5% in a low interest rate environment is not bad at all. ANd remember if IUL's are hurting so are the alternative places you can put your money .. including WL.

    I do realize that consumers might not see it that way and it may and probably will hurt the sales. However I don't think it would be eradicated.
     
    jboussea, Dec 8, 2018 at 1:27 AM
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