IUL Crediting Strategies

[BYSFG]

Ive been jumping around reading various topics and soaking in lots of info, especially such posts from DHK and Scagnt -great reads, very informative, just wanted to throw that out there should they stumble in here.

My question is, with IUL strategies, is it the "norm" to just allocate 100% into what would seem like the most aggressive growth, usually being a point to point, high cap 100% par? Assuming the scenarios with a client who would want cash accum./growth.

Or would you allocate some in a fixed strategy knowing that some years index strategy may not yield any return? Avoiding "eggs in one basket."

I know strategy allocation is going to constantly change due to the market and each policy is different but is there a general rule of thumb to follow? Especially those that have been servicing IUL for the better half of its existence, have you noticed any performance "trends?" You, "go to" method for similar cases.

I ask because each strategy tends to shine depending on the market, high market performance vs. low performance.

I understand that illustrations are just that, an illustration and no means given no one knows what the market will be like in the future. I guess Im just looking for clarity into how other agents may structure certain policies.

 

[DHK]

I suppose it can really depend on the available index segments available.

In my opinion, there are a few companies that really go to great lengths to 'over-engineer' their products with tons of index segments available. So yes, you can make an "index segment allocation" recommendation, similar to a mutual fund asset allocation strategy.

However, generally I stick with a 0% floor & 14% cap... unless we're within 10 years or so of needing access to the capital. Then I may use a 1.5% floor and a 10% cap. Each company has their own version of these with various underlying indexes.

However, I'm not selling IUL as a way to get superior performance. I'm selling IUL as a way to capture upside volatility without the downside risks. Focus primarily on that in your reviews - that if the index went down, their account didn't (aside from policy costs). If the index went up, so did their interest credited - subject to a cap.

The biggest danger to IUL is if the underlying index segments don't move upward for a while, or are negative for several consecutive years.

When investment advisors review portfolio performance, it's always in comparison to a given benchmark. With IUL, it's comparing to the S&P 500 - not including dividends.

However, in addition to that, we do have costs of insurance to manage. One way to help mitigate costs could be to lower the death benefit over time. Yes, you could allocate a certain amount to the "fixed" bucket... but you'll limit the upside potential. I'd rather allocate to the 1.5% floor/cap combination at a minimum.

Some policies also have a 3% look-back feature as well, that if the policy doesn't perform at least 3% every 8 years, that the insurance company will credit that amount.

The most important is to hold regular reviews, ensure the policy is well-funded, and have the best strategy to help optimize interest credits as markets move. I'm not an economist, nor do I play one on TV... but if everything is structured for my client's best interest, that's all that matters to me.

 

[scagnt83]

The majority of my allocations are in the Yearly Point to Point with Cap. That being said, it also depends on the premium method. An annual premium (unless you use a DCA account) only gets one chance per year to lock-in gains. Monthly will get at least 4 chances per year, if not 12. So I spread out the allocations more for annual premiums.

My standard allocation is 60% Yp2p, 20% Monthly Point to Point (monthly sum), 20% Monthly average. That is assuming they are paying on an Annual basis.

I usually do not allocate to the Fixed account. I just use Midland/NA and LFG these days. NA guarantees a minimum of 3% annualized over 8 years. LFG has a yearly floor of 1%. So I do not worry about the occasional down or flat year.

I also do not chase Caps or Participation Rates or whatever. If you compare a 12% Cap to a 15% Cap there is not a huge difference over a 30 or 40 year time span. I want a strong product from a strong carrier. I also want a carrier that has strong renewal rates. Beware of teaser rates.

 

[BYSFG]

Thank you for the quick reply you two.
Really solidified how I viewed the crediting options.

If anyone else is willing to chime in on their view points on crediting it would be great.

 

[NYinsurance417]

I suppose it can really depend on the available index segments available.

In my opinion, there are a few companies that really go to great lengths to 'over-engineer' their products with tons of index segments available. So yes, you can make an "index segment allocation" recommendation, similar to a mutual fund asset allocation strategy.

However, generally I stick with a 0% floor & 14% cap... unless we're within 10 years or so of needing access to the capital. Then I may use a 1.5% floor and a 10% cap. Each company has their own version of these with various underlying indexes.

However, I'm not selling IUL as a way to get superior performance. I'm selling IUL as a way to capture upside volatility without the downside risks. Focus primarily on that in your reviews - that if the index went down, their account didn't (aside from policy costs). If the index went up, so did their interest credited - subject to a cap.

The biggest danger to IUL is if the underlying index segments don't move upward for a while, or are negative for several consecutive years.

When investment advisors review portfolio performance, it's always in comparison to a given benchmark. With IUL, it's comparing to the S&P 500 - not including dividends.

However, in addition to that, we do have costs of insurance to manage. One way to help mitigate costs could be to lower the death benefit over time. Yes, you could allocate a certain amount to the "fixed" bucket... but you'll limit the upside potential. I'd rather allocate to the 1.5% floor/cap combination at a minimum.

Some policies also have a 3% look-back feature as well, that if the policy doesn't perform at least 3% every 8 years, that the insurance company will credit that amount.

The most important is to hold regular reviews, ensure the policy is well-funded, and have the best strategy to help optimize interest credits as markets move. I'm not an economist, nor do I play one on TV... but if everything is structured for my client's best interest, that's all that matters to me.

What carriers do you typically work with? I currently sell Pac life. My client is usally a young professional looking for max funding a retirement policy.

 

[DHK]

I'm in California. Our insurance regulation is 2nd worst... only to New York. So some of the more popular carriers that are great in most states... don't work for me in California.

I happen to like ANICO's IUL in California. In fact, just this year they are now offering Chronic and Critical illness riders on their policies. Also, they have a new uncapped IUL strategy with an index spread. I need to study up on that, but I'm looking forward to learning about it.

Other popular IUL carriers are North American and Midland National.

ANICO does have a New York company, so they may be worth looking into. I'd check with Tahoe Ray about good carriers for the New York market.

 

[pfg1]

All the companies mentioned are good. In addition, I also use LSW. They offer critical illness rider as well, and they also take annual premiums and spread them out over 12 months - if the client wants it applied that way. It mitigates the risk of having only one crediting date.

 

[scagnt83]

they also take annual premiums and spread them out over 12 months - if the client wants it applied that way. It mitigates the risk of having only one crediting date.

Other carriers offer DCA accounts as well. Thats not exclusive to LSW.

 

[pfg1]

Other carriers offer DCA accounts as well. Thats not exclusive to LSW.

Yep. Its a nice feature imo.