IUL for a 71 Year Old?

[term2u]

Hi there,

I have a client who purchased an IUL with a $50k lump sum fund at age 71. He was rated as a Standard, and the DB is around $104k. Their advisor recommended it to them, and they just put it inforce 12/2015.

Would anyone recommend an IUL for a 71 year old? It doesn't make any sense to me, as they're looking for guaranteed DB. The policy is also with AIG and it is their Value Plus product, which, for an IUL doesn't seem like the best product.

After receiving the illustration that was sold with the policy, it looks like the policy is only guaranteed for 14 years (to age 85), although it looks to carry to age 100 on the non-guaranteed side. The non-guaranteed side was illustrated at a 6.06% IR.

My question is, would any of you recommend this product to your client?? I would think a GUL would be a much better fit.. Or, going with a more competitive company such as NA for their IUL, while also having a guaranteed DB.. Am I missing something here??

 

[DHK]

A SPIUL? Sure, I might recommend one at some point. For someone who wants a little more growth on their balance, leave their beneficiaries with 2x the money, and have similar taxation as a NQDA if they needed to access the money (interest withdrawn first and fully taxable as ordinary income).

A GUL would have ongoing premiums, while this policy was a single premium.

 

[term2u]

A SPIUL? Sure, I might recommend one at some point. For someone who wants a little more growth on their balance, leave their beneficiaries with 2x the money, and have similar taxation as a NQDA if they needed to access the money (interest withdrawn first and fully taxable as ordinary income).

A GUL would have ongoing premiums, while this policy was a single premium.

Yeah, but what would be the advantage of doing a SPIUL vs a SPGUL if they're looking for lifelong DB? Also, do you think the 6.06% illustrated rate is realistic, and aren't there better performing IULs available than AIG?

I did a SPGUL with NA last year, which was for a 70yr male at Standard rates and it turned his $100k lump sum into about $207k in DB, but it was fully guaranteed to 121.

 

[DHK]

If they really want death benefit over cash value growth, then it should've been a SPWL.

If they only want death benefit, then a SPGUL.

If they want indexed growth and a higher death benefit, even if it's only for a period of time, then a SPIUL.

I do think 6.06% is a conservative estimate, as long as they know that they won't get that every year. I'm also assuming (I hate that word) that the caps are decent.

I don't necessarily compare companies as much as I compare product strategies and agents. If I could do a better job for the client, I show them the option and let them decide.

 

[Tahoe Ray]

Yeah, but what would be the advantage of doing a SPIUL vs a SPGUL if they're looking for lifelong DB? Also, do you think the 6.06% illustrated rate is realistic, and aren't there better performing IULs available than AIG?

I did a SPGUL with NA last year, which was for a 70yr male at Standard rates and it turned his $100k lump sum into about $207k in DB, but it was fully guaranteed to 121.

You can get a SPIUL that is fully guaranteed. Most even have an ROP built in and are simple issue. There is a whole product line focused on that business.

That being said, they won't guarantee a double at 71...

There are plenty of advisors that do MEC IULs as an annuity alternative on older folks. I don't so I can't really comment one way or the other on the validity of the strategy.

If DB is the focus and there isn't a need for any cash whatsoever, I would agree that a single premium GUL is probably a better route (unless a SPIA/GUL combo looks better).

Sagicor and Pru (in addition to NA) can be really competitve on those too, FWIW.

 

[scagnt83]

Perfectly fine if the client has a need for the cash value. If no need for CV then SPGUL would be a better option most likely.

But lots of times people want to take a lump sum thats making nothing, and put it into a single premium to have it do something.

As long as it will not lapse at a 5% credited rate then the policy should be fine most likely.

 

[AndrewRoche]

You have a standard 71 year old who wants death benefit, correct? Knowing the cost of insurance and his life expectancy how in God's name does cash value come into play? The single premium is $50k and the DB is $104K so I'm not sure how any agent could recommend this type of policy for cash value. Just because the client has $50k to spend does not mean the agent should recommend spending it all at once on an insurance product. No where does term2u mention the need for extensive estate planning or tax benefits for the insured. If this was the case you would be a few zeros on the one pay and DB. I would guess that agents who rationalize using IUL's in these extreme cases have no idea what they are selling.

 

[scagnt83]

You have a standard 71 year old who wants death benefit, correct? Knowing the cost of insurance and his life expectancy how in God's name does cash value come into play? The single premium is $50k and the DB is $104K so I'm not sure how any agent could recommend this type of policy for cash value. Just because the client has $50k to spend does not mean the agent should recommend spending it all at once on an insurance product. No where does term2u mention the need for extensive estate planning or tax benefits for the insured. If this was the case you would be a few zeros on the one pay and DB. I would guess that agents who rationalize using IUL's in these extreme cases have no idea what they are selling.

I would be careful making comments about other agents knowledge when you lack knowledge on the subject as well....

I cant comment on the product design being used without more info. BUT, a single premium IUL can have significant cash value for a 71 year old if designed correctly. And it can be sustainable (not lapse) at or even below a 4% credited rate.

A high quality SPIUL that gets a 5% credited rate, can give you a 2%-3% rate of return on your premium, even at age 71. (with a good product thats correctly designed)
And if you choose the correct product that Cash Value can even be liquid from year 1.


A Single Premium Permanent Life product is essentially an Annuity without the annuitization feature. It is often used for tax-deferred savings, often with a waiver of surrender rider to make it liquid. The funds grow at a higher rate than a CD or in the bank, and their loved ones get an enhanced DB if the person passes.

 

[AndrewRoche]

SCANT83, I would be careful making comments about other agents when you are unaware of their knowledge on the subject as well....

I'm curious scagnt83, what research have you done on IUL's? Have you met with those who have designed the products? Not just the home office personnel but those who designed the product? Have you compared five-year bucket indexes to yearly returns? Have you met with independent actuaries to compare how realistic company illustrations are? Have you sold IUL products to individuals, companies and non-profits? Have you taken the time to compare twenty year ACTUAL returns and not just average returns? I have, so I'm very confident in my Index Universal Life knowledge.

My comment "I would guess that agents who rationalize using IUL's in these extreme cases have no idea what they are selling". is based upon experience and knowledge. Most agents who have done their research would know that an IUL is probably not the best option for this client. Example, there are thousands of good and honest agents who write for Transamerica. If this 71-year-old was placed with Trans, he would have received a letter last week saying his cap dropped 2 points. He's 71 years old at a standard rating! Trans may bump it up later but time is not on the client’s side, ergo this type of product should not be sold to someone at this age or underwriting classification who is looking for death benefit protection. We can't know for sure what will happen with any IUL company but we can be somewhat certain that some caps will be lowered, participation rates will change and the COI's may increase. For a forty-five-year-old, preferred risk, affluent, sophisticated customer who was made aware of the risks, IUL could be an option but selling the product to a 71-year-old proves my point that some agents have no idea what they are selling.

IUL is a great profit generating product for the Insurance Carrier, that's why Farmers just jumped in. Because of my "knowledge" I feel confident that the average Farmers P&C agent probably does not fully understand the product but the HO will pressure them to sell it. I know you are probably offended by me making that type of a blanket statement but I've done my due diligence and am confident in my knowledge.

 

[DHK]

In my personal opinion, the "TransAmerica agent network" (ie. WFG) in its various forms isn't exactly my idea of a quality network of knowledgeable agents.

AndrewRoche,

You are ASSUMING that we know exactly how the conversation went when the original agent sold the SPIUL. I try not to make such ASSUMPTIONS.

My original comment still stands: If they wanted cash value growth AND death benefit, then a SPIUL is quite appropriate. If they ONLY wanted death benefit, then a SPGUL or SPWL would be more suitable as there would be less to manage over time.

Yes, caps, participation rates, interest rates, spreads, etc., can ALL change. That's not unique to SPIUL, but all forms of indexed products.

I believe that the VAST MAJORITY of agents that sell IUL don't know a 10th of what Scagnt83 does. He has been very helpful for me over the past few years to help me understand how to properly structure an IUL.


Now, let's talks about COI issues. The COI is the SAME across the board regardless of whether it is WL, IUL, UL, VUL, etc.

How can I dare make such a statement? Because of disclosure requirements.

Whole life is a FIXED "bundled" product: fixed premium, fixed death benefit, fixed interest rates. The only variation are dividends which are not guaranteed. So why aren't costs disclosed? Because the costs are all built in to the premium.

Think of it like buying a CD at the bank. Are there costs to opening a CD at the bank? Of course. Why aren't the disclosed? Because it's all "built-in" to the rate and term length of the CD that you select. No additional disclosure is necessary.

IUL is a FLEXIBLE fixed, and UNBUNDLED product: flexible premium, flexible death benefit, and flexible interest to be credited. Costs of Insurance are disclosed because of its unbundled nature.

I compare it to a money market mutual fund. You know that it's quite rare for a money-market mutual fund to "break the buck", right? So why disclose costs? Because they affect the rate of return. It's all in the prospectus.


But that doesn't mean that IUL has a more expensive cost structure. It simply is disclosed because it needs to be managed due to its unbundled structure.


While we haven't been privy to the illustration or policy, I do know that you're trying to compare a standard IUL to a SPIUL policy. I don't know what minimum guarantees are in the product, nor do I know what the ongoing costs of insurance are and how it would affect the policy.

Oh, and your comment of "Just because the client has $50k to spend does not mean the agent should recommend spending it all at once on an insurance product." shows your lack of understanding of single premium IULs or any other single premium life insurance contract. "No where does term2u mention the need for extensive estate planning or tax benefits for the insured." You don't need to have a need for "extensive estate planning or tax benefits" to buy a SPLI product.

This product recommendation was a WANT recommendation above a "need" recommendation. Huh? Why do people buy Lexus over Toyota? It's because they WANT to, and it met all their needs as well. Sure, it costs more, but they want it, so they buy it. Same mentality here.