Future Outlook on IULs?

Discussion in 'Indexed Universal Life Forum' started by BYSFG, Feb 3, 2016.

  1. BYSFG
    Offline

    BYSFG Well-Known Member

    Posts:
    214
    Likes Received:
    0
    State:
     
    The past isnt an indicator of the future but that being said, how comfortable is the community here with the outlook/performance of IULs?

    We're looking at potential upswing rewards (IUL) vs safety (WL) at the cost of $20-$40 for the possibility of using the CV to help supplement income and other purposes, but between the two when illustrated, the numbers are not that far off.

    Not sure what the majority/consensus is on running IUL illustrations but Im running them at 4% - 5% to make it more realistic, barely beating out WL illustrations depending on their crediting rate. I start with premium (target/input) to get a ball park estimate then go from there and max fund while avoiding MEC guidelines.

    Starting to think I ultimately need to get myself a WL policy. Maybe Im just losing my marbles too early here. :1eek:

    --If anyone has public articles or links to structuring IULs and what not, it would be much appreciated. Wouldnt mind soaking up new information for reaffirming my understanding etc.
     
  2. DHK
    Offline

    DHK Well-Known Member

    Posts:
    6,084
    Likes Received:
    27
    State:
    California
    IUL is about the underlying index segment volatility not including dividends. There will be some years where you won't have a gain. That's why, in the end, both an IUL and a WL will be about the same in terms of overall cash values (assuming they are structured the same way).

    IUL is truly a CONCEPT product... not one that you can really "backtest" to determine viability. It will succeed as long as you are an agent that will review your policy performance with your clients on a regular basis. (You'd want to do that anyway.)

    Think of it this way: if an IUL got a 10% return in one year, and 0% the next... and if WL earned 5% for both of those same years... you're about the same in terms of overall return and performance. Both still need to be managed by the agent with the policyholder over time to maximize its performance and impact on a family's personal economy.

    There's lots of information regarding how to properly structure an IUL policy. Look up scagnt83's posts. It's there. Search for CVAT and CPT. He explains it far better than I would.

    One big difference between WL and IUL is on the base policy WL vs target premium IUL: During the first 2-3 years, WL shows almost zero cash value. Yet, IUL will show an ACCOUNT value that's higher and working for them. Showing that account value when reviewing the policy can be much more encouraging to someone to keep putting money into it rather than showing nothing with the WL. Again, that's just on the base policy only.

    Yes, the first 2-3 years of premiums on a WL are paying for the permanent death benefit and the riders, and after that, it's practically $1 for $1 being deposited into the contract.

    Now, think about client perception. For them, the highest risks was in buying the contract and then watching the money go into the contract for a while... and then not seeing anything for it?

    Brian Tracy has often recommended to sales people to "be the lowest risk provider of your products and services." For a target premium only policy, at least you have an account value that's working for you to earn indexed interest credit... when the base WL doesn't.

    Granted, if you structure both of them properly, it really won't matter as much since you'll have PUA riders in the WL, or overfund the IUL above the target premium... but where ever you can, you want to have the client WANT to put more money into the contract and reaffirm that they are on their way to the future they want.

    ----------

    Now, the REAL fear... is that the stock market indexes would remain FLAT or decline for multiple consecutive years in a row.

    Well, the S&P 500 (the most common index) is a managed index. There's 505 stocks in it now (5 companies have two classes of stock shares, so they are counted twice).

    Go down this list and you can see how recently companies were added. Go further down and you can see which companies replaced other companies.

    https://en.wikipedia.org/wiki/List_of_S&P_500_companies

    So while there will be a couple of years of no gains or losses in a row... I wouldn't necessarily worry about it long-term.
     
  3. ATM
    Offline

    ATM Well-Known Member

    Posts:
    96
    Likes Received:
    0
    State:
    Alabama
    So if an IUL and a WL have the same amount of cash value at retirement, which one will produce more tax-free income?
     
  4. DHK
    Offline

    DHK Well-Known Member

    Posts:
    6,084
    Likes Received:
    27
    State:
    California
    Your question is like asking "Which will produce more investment income? Mutual Funds or CDs?" Unless we have a crystal ball to determine the negative years and manage the mutual funds to negate that, we simply won't know.

    It really depends on the underlying index performance for the IUL as well as how dividends are attributed to policies with outstanding loans.

    One nice thing about an IUL is that you don't have to "lower your investment risk and have lower returns" to preserve your asset from the downside volatility inherent with securities.
     
  5. scagnt83
    Offline

    scagnt83 Well-Known Member

    Posts:
    6,531
    Likes Received:
    32
    State:
    South Carolina
    Given the same crediting rate, similar loan rates, and assuming the IUL is using GPT with a 2/1 switch... then the IUL will create a higher income because of the GPT combined with opt1.
     
  6. BYSFG
    Offline

    BYSFG Well-Known Member

    Posts:
    214
    Likes Received:
    0
    State:
     
    A bit off the discussion but doubt it warrants its own thread, but how often, for comparison purposes between similar products do you guys use/even look at IRR? The number in a way showcases itself in the illustrations but worth it to look through?

    Was taking a quick look at IUL illustrations and notice some products, although illustrated at similar % rates, there are gaps in IRR and Value. Example, Carrier A's product illustrated at 100k at policy age 40, but Carrier B's product illustrated at 175k.

    Im sure fees and other expenses play a role, just havent gotten down to the nitty gritty in looking at it for further comparison purposes.
     
  7. DHK
    Offline

    DHK Well-Known Member

    Posts:
    6,084
    Likes Received:
    27
    State:
    California
    IRR is not how I sell or position permanent life insurance.

    My view on permanent life insurance is to use it as the foundation of a total economy - for more efficient saving, spending, and insuring, compared to doing everything separately.

    I still look at "break even" points as to when the policy's cash surrender values exceed premiums paid with certain assumptions... but it's less about comparing "policy performance" as it is just setting expectations with clients.

    Typically IUL will "break even" between 8-13 years, depending on funding and underwriting.

    WL is about 12-15 years with over-funding... and 30 years on the guaranteed side.

    But "best" in this case isn't always about the highest IRR, but about the total package of savings, college savings exemption, no market losses, income tax-free access, disability waivers of premium, and doesn't cause social security benefits to be included in taxable income, etc., that make life insurance a superior method of savings.
     
  8. heynow5
    Offline

    heynow5 Well-Known Member

    Posts:
    66
    Likes Received:
    0
    State:
     
    Whole life is not 12-15 years. I just sold a Penn WL...guaranteed to break even in year 9. Break even based on dividends in year 6.
     
  9. Tahoe Ray
    Offline

    Tahoe Ray Well-Known Member

    Posts:
    2,279
    Likes Received:
    2
    State:
    Nevada
    Again...based on funding. Using early cash value riders, you could have free cash values practically from day one with a UL.
     
  10. heynow5
    Offline

    heynow5 Well-Known Member

    Posts:
    66
    Likes Received:
    0
    State:
     
    Right but my point was that it was a standard overfunded policy structure, no special riders other than pua. So he's telling people wrong info when he says it wont break even in the guranteed side for 30 years. That would really bad design if so.
     

Share This Page