I’m not in favor of IULs.

[DHK]

PS-- while the overloan protection is a great idea to always have on a policy, it is not a sure thing. The IRS has never ruled on it, so there is no guarantee that a person whose "overloan protection" merely kept a policy from lapsing & kicking out a massive taxable gain notice will actually function that way. Some carriers policies & illustrations state this is not a sure-fire guaranteed protection of the phantom huge tax notice.

While that is true, and there's been some spirited discussion about that, the triggering effect is having the policy lapse. If the insurance company doesn't have a lapsed policy, then there's no triggering effect.

Unless the IRS rules that the insurance company cannot manage their issued policies the way they want (IRS interfering with their business practices, yet determined to avoid a tax situation on behalf of their clients)... I don't see a problem.

 

[Allen Trent]

While that is true, and there's been some spirited discussion about that, the triggering effect is having the policy lapse. If the insurance company doesn't have a lapsed policy, then there's no triggering effect.

Unless the IRS rules that the insurance company cannot manage their issued policies the way they want (IRS interfering with their business practices, yet determined to avoid a tax situation on behalf of their clients)... I don't see a problem.

agree in theory, just wondering why so many carriers go out of their way to point this out. I believe/guess is that the triggering event is the carrier preparing the converted tiny face reduced policy to stay active to avoid the lapse as the triggering event. Like a reduced face amount that would normally force out premiums, but in this case there is no money left to force out.

I would hope it never becomes an issue, but with 80,000 more IRS auditors with a focus on businesses, high income, high net worth, it could be an item of focus. Can you imagine the tax bill on a policy that had $200k in loans that has compounded to a $1M loan after 2-3 decades. The tax bill could be substantially more than the person ever actually received from the policy.

I hope the overloan protection gets codified into law some day. likely slipped into some bill at year end like 7702 got done year end in COVID bill to update the MEC premium calculations, etc

 

[REI_Velocity]

I know with Penn, if the overloan is enacted it turns the policy into a reduced paid-up and the DB will drop significantly.

 

[DHK]

agree in theory, just wondering why so many carriers go out of their way to point this out. I believe/guess is that the triggering event is the carrier preparing the converted tiny face reduced policy to stay active to avoid the lapse as the triggering event. Like a reduced face amount that would normally force out premiums, but in this case there is no money left to force out.

I would hope it never becomes an issue, but with 80,000 more IRS auditors with a focus on businesses, high income, high net worth, it could be an item of focus. Can you imagine the tax bill on a policy that had $200k in loans that has compounded to a $1M loan after 2-3 decades. The tax bill could be substantially more than the person ever actually received from the policy.

Perhaps... but these 80,000+ agents won't be 'the best' that the IRS has to send out. I can't imagine training a large bulk of people to do anything at a high level of competence, especially at one time.

I think companies are far more cautious and don't want to be held liable in case the IRS does make some kind of determination on these riders. The best way to reduce and defend against a potential liability is to simply disclose it.

Last I checked, OneAmerica doesn't have a disclosure regarding that, but they are a rather small company by comparison.

 

[DHK]

I know with Penn, if the overloan is enacted it turns the policy into a reduced paid-up and the DB will drop significantly.

That's how they all work - IULs included, although with IUL it 'mimics' a paid up policy because they can never be truly 'paid up'.

 

[REI_Velocity]

Perhaps... but these 80,000+ agents won't be 'the best' that the IRS has to send out. I can't imagine training a large bulk of people to do anything at a high level of competence, especially at one time.

I think companies are far more cautious and don't want to be held liable in case the IRS does make some kind of determination on these riders. The best way to reduce and defend against a potential liability is to simply disclose it.

Last I checked, OneAmerica doesn't have a disclosure regarding that, but they are a rather small company by comparison.

I've seen Penn disclose that it hasn't been officially decided one way or another in tax law, but also, when the Republicans take over the house the whole 80K IRS agents thing could be reversed.

 

[Allen Trent]

I know with Penn, if the overloan is enacted it turns the policy into a reduced paid-up and the DB will drop significantly.

I believe I have read of situations where electing reduced paid up can actually cause a taxable triggering event depending on the amount of premiums paid into the policy over lifetime. IE: reduced paid up is lowering the face amount that could force out premiums that exceeded the total premiums allowed into the smaller face after reduction. Would have to dig, but that is something I recall....................but who knows, maybe that was on some UL carriers that had created contracts that allowed for 3rd death benefit option: Level, increasing & reduced paid up. The 3rd one wasnt legal because of the issues I mention above about forcing out premiums based on Tamra, Tefra, Defra, etc regulations

 

[DHK]

That is true. Which is why it's virtually guaranteed that a RPU before the 7th year is a MEC. After the 7th year, I certainly see them in the illustration - even saying "Policy becomes a MEC in year 19". I don't understand it all, but if premiums are not to be paid to the policy anymore, it's better to do an RPU and have it become a MEC than to neglect the policy.

 

[scagnt83]

As I stated earlier, I'm open to any and all arguments. I would love for you to produce an illustration I can review. As an investor I look at the numbers... and then look at the numbers in context with the larger strategy. Can you produce an illustration from the late 90's/early 2000's and compare with todays actual account values? My questions are simply looking for objective facts as opposed to "my policy is better than yours." I'm happy to compare notes.

Arguably, IULs are sold as investments. It's literally connected to volatility. I NEVER sell one of my WL products as an investment. My investment is always what I do with my cash value... and my WL isn't connected to the market. I'm clear that WL is a savings vehicle (it's just good enough to beat many investments by itself.)

Oh, and I don't design the IULs I look at... I have other agents do it. This is unbiased approach. I have probably 30 or more in a file. Each from agents saying they are the "best." And it's not that the illustrated expenses go up, it's the actual expenses... the fine print of what "can" increase (and of course will increase as insurance is more expensive the older you get.) It's the actual numbers versus the illustrated that no one seems to want to share. This has already happened with variable products.

I gave you objective facts and you have yet to address them.

If you are unable to run an IUL illustration, then you truly have no clue. So why come out here and ignore the info given and go on pretending you actually know what you are talking about?

I never said my product was better than yours. I gave you factual info about why IUL is a more efficient form of life insurance than WL is. It has nothing to do with index returns, but that is all you choose to focus on. I never mentioned index returns once. I am a life insurance expert, not an IUL expert. I sell just as much WL as I do IUL. But I know all life insurance, IUL included.

GPT vs. CVAT. The core elements of how a life insurance contract works.

$100k in CV in an UL or IUL, will create a higher income than $100k in a WL. And it has nothing to do with index returns.

If you like what WL does... IUL does it on steroids... and it has nothing to do with index returns.

 

[scagnt83]

Not just the no-lapse guarantee, but what about the level cost of the renewable term. Often that is said to remain level for X amount of years, at which time it "could" increase (it gets more expensive as we get older). These are the issues people won't care about until 20-30 yrs from now when the grenade is dropped in a letter stating "you're premium has increased due to costs." This has literally happened with other products. IULs haven't really run a full cycle from young to told.

It happened to ULs because of the ultra high interest rates. Agents did not max out those policies to the MEC limit, they drastically underfunded them. Part ignorance part greed. At a 10% interest rate, you can run it at 50% of target and it still looks great.

So all those policies that required more premiums, they were not maxed out to the MEC limit. The ones that were maxed out to the MEC limit, never needed additional premiums.

Early in my career almost all I did for 2 years was work old UL policies from the 70s/80s/90s. Most were crashing. But the ones funded over target, they were perfectly fine.

---

Regarding IUL. Current charges (talking total charges because there is more than just COI) on competitive policies are under 1% of CV in old age. Guaranteed charges vary more, but are under 2% with most carriers.

It does not seem that you have ever really looked at the expense report on an IUL illustration. Most agents who call it expensive have not.