I’m not in favor of IULs.

[scagnt83]

That is true. Which is why it's virtually guaranteed that a RPU before the 7th year is a MEC.

A great reason to use IUL if the client wants a shorter term for premiums.

 

[DHK]

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.

I'll just add that in my CLU studies a couple of years ago, I learned that it was the insurance companies that created the illustrations and underlying assumptions, not necessarily the agents. Illustrations were not standardized until 1997. Until then, companies could show what they wanted.

So I used to blame the agent for those older policies. Now, I blame the companies back then. They created this mess with UL back then. Which is why they are rightfully sued in these lawsuits.

For IUL today... if it's not set up properly with proper expectations... I'd blame the agent.

 

[scagnt83]

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,

Thats essentially the "Recapture Ceiling" that we have discussed in other threads.

A Withdrawal would have to happen in the first 15 years assuming the RPU is a large enough reduction.

 

[scagnt83]

Interesting. When you say "literally no insurance left" for the 90 yr old, do you mean there is no renewable term needed to be paid, or that the death benefit is gone and their cash value will be all that is left (except for the minimum requirements you mentioned)?

He is essentially saying that the CV and DB are almost equal, maybe a few thousand or even a few hundred in difference.

This is the beauty of Universal Life. You dont pay for any more DB than you actually need. WL buys a ton of extra DB that is not needed if a policy is using GPT for the 7702 calculations. But WL uses CVAT.

 

[scagnt83]

I'll just add that in my CLU studies a couple of years ago, I learned that it was the insurance companies that created the illustrations and underlying assumptions, not necessarily the agents. Illustrations were not standardized until 1997. Until then, companies could show what they wanted.

So I used to blame the agent for those older policies. Now, I blame the companies back then. They created this mess with UL back then. Which is why they are rightfully sued in these lawsuits.

For IUL today... if it's not set up properly with proper expectations... I'd blame the agent.

That is an excellent point. Your right, if you listen to older agents they will tell you illustrations were not a thing for a long time. Most didnt sell based on illustrations even once they were a thing. I remember older agents still carrying rate books back in the early 2000s when I first started.

No excuse today. Either greed or ignorance.

 

[Allen Trent]

when the Republicans take over the house the whole 80K IRS agents thing could be reversed.

How would a House bill like that also get passed by Democratic controlled Senate & signed by a Democratic President that both just approved it a few months ago?

 

[scagnt83]

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.

Carriers point this out for 2 reasons:
1. IRS has not ruled, so in theory they could issue a ruling that completely negates the feature.
2. Most WL carriers dont have it, so they say anything negative they can about the competition.


I could also see this becoming an issue on an audit of a trust. I doubt it would ever be an issue in an individual audit, but if Life Insurance is the main funding vehicle of a trust, I could see it becoming a question. The industry is probably just praying that never happens. Im sure they would rather not fight it in court. DHK makes an excellent point, how does the IRS know something that the carrier doesnt report to them? Only a few situations that could happen in imo.

 

[scagnt83]

How will all the "floor" rates kicking in on IULs change things? I know the answer, but it's not a good thing and any illustrated returns get crushed. Imagine if it happens for a couple years in a row, or more. I'd love to see some in-force illustrations with today's stock market environment baked in.

You obviously have never stress tested an IUL using the illustration system.

Your OPINION is wildly off base and has zero facts to back it up.

There are IUL policies that have seen multiple years of zero returns. The sky didnt fall. Still humming away like planned. You forget that IUL returns are not based on calendar years.

You need to properly analyze and learn a product before you make factually incorrect statements about it on a public forum.

 

[scagnt83]

The annual floor of what can be the lowest credited index change usually is 0%. However, most policy contracts & illustrations state that if the lifetime of the contract from date of purchase until date of surrender/death claim produced lower than 2% annual crediting, 2% is the lowest annualized rate that would be used even though in any given year it could have been credited a 0%.

That is a bit of an over generalization.

Many carriers offer an annual floor of 1% or even 2%. Sometimes its a hard feature of the product, other times its based on the Indexing Option.

Some of the IULs that illustrate the best use a 10 or 15 year cumulative floor. But the best illustrating IUL is not necessarily the best choice for a client... usually is not, especially these days in a market full of non guaranteed multipliers and hybrid indexes.

 

[Allen Trent]

You obviously have never stress tested an IUL using the illustration system.

Your OPINION is wildly off base and has zero facts to back it up.

There are IUL policies that have seen multiple years of zero returns. The sky didnt fall. Still humming away like planned. You forget that IUL returns are not based on calendar years.

You need to properly analyze and learn a product before you make factually incorrect statements about it on a public forum.

In his mind, I think he believes if the S&P started at 1,000 on 1/1/xx & 5 years later it is back to 1,000 on 12/31/ 5years later, that the policy holder got 5 consecutive 0. In reality, they could have had 1 0% in a huge negative 40% sell off year & then gotten 4 consecutive cap years of 8-10% each.