IUL Illustration Interest Rates

Discussion in 'Indexed Universal Life Forum' started by aus0417, Jan 18, 2012.

  1. aus0417
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    aus0417 Well-Known Member

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    I ran an illustration today for a 25 yo female with Lincoln's IUL. The primary goal here is CV accumulation. The projected interest rate is 8.45% based on the current cap of 13% and floor of 1% and how it would have performed (on average) in past market conditions. Then I compared this to a Guardian WL illustration using PUAs.

    I have to admit, judging by the illustration, the IUL is pretty sexy; however, I understand the difference between averaging 8.45% interest over 20 to 30 years and earning 8.45% interest every single year (which is what it seems the illustration shows). I also know the latter scenario is not very likely.

    So, how do you show a more realistic picture of policy performance? Are the projections on a participation WL more realistic? Is this why some of you guys prefer WL to IUL?
     
  2. dsimo11
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    dsimo11 Well-Known Member

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    In my opinion, the way to explain it is this:
    A whole life shows a guaranted number. Traditionally, dividends have been even higher than what is shown, but its a very safe product. IUL's have way more upside, but as well have more of a downside. The only thing you can do is run the assumed rate at a lower percentage in my opionion. Put it closer to 6 and that will help. Its a crapshoot wither way. Is the client looking to borrow the CV and get some no wash loans? Is the client looking for a tax free income later in life?
    What is the client looking to do. One thing for sure, the assumed rate most likely wont hit, especially right now where we are seeing such low interest rates.
     
  3. VolAgent
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    VolAgent Well-Known Member

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    Use a more realistic rate. Try 6 or 7 and see how it looks then. 8.45% is way too high. LFG has a piece, you have like a 99% chance or so of averaging 7%. It goes down substantially when you get into the 8s.
     
  4. AZInsurance1
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    AZInsurance1 Active Member

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    You should check out LSW's IUL. A really good product.
     
  5. scagnt83
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    scagnt83 Well-Known Member

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    Due to NAIC Indexed Product Suitability Recommendations being passed by states; LFG and most other carriers set their Default Crediting Rate at the 20 year historical value.


    LFGs current caps have a rolling 20 year value of 5.5% over 100% of the time.


    Personally I show 6% to 7.5% depending on the time horizon.
     
  6. BNTRS
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    BNTRS Well-Known Member

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    I wouldn't sell the higher IUL solely for the idea that it has a higher projected rate, in fact I'd take that discussion completely off the table.

    I'd talk IUL based on a potential to earn a higher rate of return. If the market swings up, IUL will be quicker to react meaning client will see a more immediately benefit. This works both ways though. If the market crashes, IUL is generally quicker to realize a drop in crediting rate than WL is a drop in dividend rate, emphasis on generally.

    I'll join the "drop the assumed rate" crowd, as 8.45% is definitely setting up the over promise under deliver scenario.
     
  7. rousemark
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    rousemark Well-Known Member

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    Does your proposal not show a "mid-range"? The IUL illustrations I run all show current and guaranteed assumptions based on the allocation chosen but they also show a mid-range projection based on the average of the guaranteed and current interest rates and COI.
     
  8. aus0417
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    aus0417 Well-Known Member

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    Both, potentially. She is looking for a safe way to save money, to use for any potential unexpected expenses and to be able to access some of the cash as tax-free income during retirement.
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    That is interesting to know, do you know where I can get my hands on it?
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    These are exactly the scenarios I'm trying to avoid. So realistically speaking, based upon what you guys are saying, if I show her an illustration at 6-7%, I can feel pretty confident that her CV will fall somewhere in between?
     
    Last edited: Jan 19, 2012
  9. VolAgent
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    VolAgent Well-Known Member

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    Hopefully Scagent83 can post the LFG piece. I could be wrong on the credited percentages and confidence rate of reaching that percentage. But it was a really good piece. Also, it was based strictly on their product and may not apply to other IULs.
     
  10. aus0417
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    aus0417 Well-Known Member

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    Ok...so I re-ran the LFG illustration at 7% and here is the breakdown now vs. GuardianWL:

    Level DB
    @65, CV is equivalent but Guardian DB is 75% higher and the guaranteed CV is 3x more

    Max CV Option
    @65, LFG CV is 17.6% higher, but Guardian still has a 27.3% higher DB

    So I guess the question is...what's more important to the client? Also, if she is likely to access some of the CV during the first 20 years or so, given the loan provisions of the two policies, which one would "theoretically" come out better?
     

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