Is Hyper-Funding Back ? or MPI (Maximum Premium Indexing)

[scagnt83]

Is there any way to hyper fund a whole life policy?

Hypothetically you could. Bad idea all around though in my opinion. Some carriers specifically forbid taking Loans in order to pay Premiums on the policy. There is also a much lower arbitrage to work with in WL, but at least it is more consistent.

 

[krishawkins]

Hypothetically you could. Bad idea all around though in my opinion. Some carriers specifically forbid taking Loans in order to pay Premiums on the policy. There is also a much lower arbitrage to work with in WL, but at least it is more consistent.

If someone figures out a way to make a work please let me know. MassMutual averages about 7%/yearly, if we could get a loan at 4% or less, and increase those yearly dividends by a few percentage points that would be a game changer...

 

[Tahoe Ray]

MassMutual averages about 7%/yearly

Wut?

 

[scagnt83]

MassMutual averages about 7%/yearly,

That is totally incorrect.

Mass Mutuals Dividend has not been 7% for some time now.

For 2020, their Dividend Rate was 6.20%. For 2021, the Dividend Rate will be 6.00%.

But the CV rate of return is always less than the Dividend Rate. This is because of internal policy expenses.

For a 6% Dividend, most policies will be lucky to see 5% after a 10 year time span. Anyone telling you otherwise is lying. And Dividends are interest rate dependent, so they have been steadily declining over the past 20 years.

 

[Allen Trent]

MassMutual averages about 7%/yearly,

yeah, that is not how it works.

Even Mass being one of the best WL carriers out there doesnt average anywhere close to 7% IRR. Sure, if you count the premium the client is paying out of pocket for a given year, the CV may grow by 7% in some later years. Base WL policy usually credits around 1.0-1.5%, the dividend maybe another 2-2.5%, but if you count the early years it is losing money, the IRR over a 20-30 year is closer to 3.5- 4.5%

Many a consumer & many of an agent misunderstand a dividend rate declared a carrier as an interest rate. Pretty easy to look at an illustration & take the projected CV from a given year & subtract the year before CV & subtract the premium paid to figure out how much CV changes in a given year & divide by the beginning CV to get an idea between given years. but even then, it is a big disingenuous because a given year doesn't take into account the total premiums "invested" into the policy.

 

[hunschuld]

Dividend is not an interest rate. I hope kris is not an agent.
Dividend is the % of profits a company is paying out to policy holders.
3 parts of a dividend
1. interest earned on their portfolio. Everyday every company is seeing this rate drop. They are replace high interest rates on matured bonds with low interest rates on new bonds. The only thing that keeps this portion from cratering is the interest they on on loaned values. The reason why they love questionable concepts like bank on yourself. they earn 7%+ on loaned values. Why finance a car or mtge at zero to 2.8% when you can borrow from your whole life policy and pay 7% or more.
2. Mortality improvement. The longer we live the more profit from mortality charges
3. policy expenses. A potential con. If I want to keep my dividend rate high and portfolio return is falling I can increase policy expenses to maintain profits. Only problem is this hurts cash growth of policy holders.
Allen hits it on the head in a nice gentle manner.

 

[Danimal]

The Flex Method – In Pursuit of the Perfect Investment

 

[Kelvin]

Carriers can (and always do) reduce Participation Rates and Caps.

Carriers can (and often do) increase internal expenses from the minimums they start at.

If the contract states the caps and participation rates are guaranteed, the carrier shouldn't be able to change the terms for your policy... just future policies (right)?

 

[Allen Trent]

If the contract states the caps and participation rates are guaranteed, the carrier shouldn't be able to change the terms for your policy... just future policies (right)?

Please share the contract that says the current cap & Participation rate is guaranteed forever. If it says that in contract, then you are correct

 

[scagnt83]

If the contract states the caps and participation rates are guaranteed, the carrier shouldn't be able to change the terms for your policy... just future policies (right)?

All Caps and Participation Rates are guaranteed.... just much lower than the Current rate.

Most IULs have a guaranteed Cap of 2%-4%... vs. the current cap of 12%-15%.

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There are some that guarantee 100% Participation of the Index Return and no Cap.

But its on proprietary RC/VC Indexes that will never provide more than 5% a year on average. (some of those indexes have internal fees that can be increased at will. making the net return lower than the target vc return)

Great for marketing... but actual results are no different than a 5% cap on the normal S&P 500.