From No IUL experience to almost 20 cases in 30 days. HELP!

Dec 21, 2017

  1. Dins
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    Dins Expert

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    Hi Guys,

    Long time lurker. Love the forums. I really should've posted this a month ago when this saga first started, but I was really trying to trust my IMO's lead and not get distracted with too many opinions. Now I'd love it if you guys can study my cases and see what I could've done better.

    Basically I went from having no real IUL experience(I'd only written 1 small 50K face amount case with F&G earlier this year) to currently working 17 cases that have all popped up within the past 30 days. 6 of the 17 haven't been written yet, so before I do, I really want your help to make sure I've been doing the best by my clients so far.

    Here's the furthest along case:
    Family of 7:
    Dad-51yo Currently Uninsurable due to having stage 2 cancer in 2015.
    Wife 36yo Good health
    Oldest kid 19yo Good Health
    4 Younger kids ranging from 9mos to 9 years old.

    They all had 150K Policies through WFG that were set up back in 2015. Dad qualified as Standard then so of course I advised him to hold on to it for now at least. They were putting about $50mo into each of the kids policies and maybe $70 into the wife's. Dad's goal was to have some money to contribute to the kids college and then have the kids use each of their policies as a bank for things like weddings, house down payments etc. He was planning to only pay into the kids policies for about 10 years.

    He wanted his and wife's policies to be used as supplemental income in retirement. He planned on paying into his until retirement(Age 65 or 67).

    He was under the impression that he'd be able to do all of this with his current plan, I felt like he was given unrealistic expectations from the agent who sold him before so I tried to adjust those. Even longer story short, here's what we ended up putting together:

    Dad: Keep current Policy
    Wife: Replace current policy with 400K Level IUL with NA @ $290mo. Pay until SHE is 65yo(29years).
    19yo: Replace current policy with 250K increasing IUL with NA @ $75mo for 5 years, then $125 for 5 years, then kid takes over and pays $200 to age 60.
    Kids: All have the same Plan. Replace Policies with 200K increasing IUL with NA @ $75mo for 5 years, then $125 for 5 years, then $150 for 5 years. Kid takes over at AGE 30 and pays $200 to age 60.


    Thoughts?
     
    Dins, Dec 21, 2017
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  2. pfg1
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    You do realize they most likely have high surrender charges on the replacements right? Meaning they will probably lose most of the money they have contributed so far. Also, its not necessarily the company/product that is bad - its likely more the design and or funding level.
     
    pfg1, Dec 27, 2017
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  3. johntrice
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    Several things to make sure of when replacing a policy:
    Is the new policy in the clients best interest? If you can not clearly demonstrate to a disinterested third party why your plan is better... don't replace. What can you demonstrate about your plan that is clearly better? From a third party point of view, any negative in replacement (like a surrender charge) must be offset by a better benefit.

    Does the policy to be replaced have features like living benefits? If yes, yours better have them too. If your policy does not have similar or better benefits and the client has cancer (as yours did) or becomes disabled, you could be in trouble.

    My gosh, she had her oldest child at 17 with a 32 year old guy? Is this the Judge Roy Moore family?
     
  4. scagnt83
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    scagnt83 Worldwide Expert of Everything

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    Lots of important info left out in that post.

    PFG is correct, being just year 3, the Surrender Charges are going to eat up most of the cash they have in these policies.

    IF, they are poorly designed policies, then the Surrender Values are likely to be even lower.

    They will be lucky if the Surrender Value is more than 50% of the Policy Value.

    They will be very lucky if the Surrender Value is more than 20% of what they have put in the policy in total Premiums.

    If you havent talked to them about the Surrender Values then you better make sure they are on board for taking a 50%-80% loss on Premiums paid. And you better make sure you have a damn good explanation for WHY this is NEEDED and HOW this BENEFITS the client. Because NA will ask this in the app on the replacement form, and they will issue a decline if you dont have a solid answer for those questions.

    Unless the policy design is just completely unsuitable and is destined to implode (which is a possibility when dealing with WFG), then I think it would be a hard thing to justify to the replacing carrier.
     
    Last edited: Dec 27, 2017
    scagnt83, Dec 27, 2017
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  5. scagnt83
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    Here is the issue I would have with this part of the plan. You are starting out with an underfunded policy. To accommodate the higher premiums in the future, you will need to increase the initial DB.

    You could use CVAT and it would allow a lower DB to start, but that creates higher internal expenses and will reduce performance in later years. (much higher COI in old age)

    So you are replacing something you call a poor policy that is not going to perform well... with something that seems like it is going to initially perform at just 30% of what it could.

    Have you compared your solution against an inforce illustration of the current policy? What is the difference in y20/y30/y50?
     
    scagnt83, Dec 27, 2017
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  6. WinoBlues
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    A couple of questions:

    How did you come up with the face amounts? Especially on the kids. How do these plans look if the kids do not increase the planned premium in the later years?

    Did you allocate any additional premium to Dad's policy to accomplish his goals?
     
  7. scagnt83
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    scagnt83 Worldwide Expert of Everything

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    Excellent point. What happens if Johhny is flipping burgers at age 30 and cant afford $20/m, much less $200? Or one of the many life circumstances that could prevent a 30 year old from having a spare $200 per month.
     
    scagnt83, Dec 27, 2017
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  8. Dins
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    Dins Expert

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    Yes, I did know there would be some surrender charges, but the way the old policies were set up, none of the kids policies had any value at this point(As per the illustration provided to the client with the policy). The only one who did was the mom, and it was less than 2K in there.
     
    Dins, Dec 27, 2017
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  9. WinoBlues
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    Sorry, Forgot to ask if Waiver of Premium included? These all seem to be very dependent on larger premiums. Disability would change those plans.

    None of this is to tear apart plans. We are just asking questions.
     
  10. Dins
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    Dins Expert

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    Yes, I confirmed that they weren't losing out on any living benefits.
    Oldest kid is from Dad's first marriage. Great joke though. :laugh:

    I want to make sure I fully understand the 1st point you are trying to make. Would you use CVAT or not, considering the cons in the later years?

    I did compare against the inforce illustrations and mine blew them away. For example:
    OLD POLICY:
    19YO-
    At Age 36: 12K
    At Age 65- 120K

    7YO-
    At Age 22:11K
    At Age 45: 97K
    At Age 65: 500K
    And that were based on the Non-Guaranteed column of the old policy.

    MY SOLUTION:
    19YO-
    At Age 36: Guaranteed 19K, Non-Guaranteed 31K
    At Age 65: Guaranteed 61K, Non-Guaranteed 458K

    7YO-
    At Age 22: Guaranteed 16K, Non-Guaranteed 24K
    At Age 45: Guaranteed 58K, Non-Guaranteed 197K
    At Age 65: Guaranteed 98K, Non-Guaranteed 944K
     
    Dins, Dec 27, 2017
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