There are key ratios in investing in RE and stocks like Cap rate, P/E ratio. One can quickly make decisions regarding RE or Stock in a flash. Similarly, for building CV in IULs we can have IRR/(the year it's reached) as a ratio. If an illustration shows an IRR of 5% reached in year 20, CV ratio is 5/20 = 0.25. Simply knowing an IRR is not enough, the faster it is achieved, the better. So far, the 0.25 is the best CV ratio that was shown to me. How high a CV Ratio is realistic in IULs? Can you share the best CV ratio you have designed?
Key Ratios
- Thread starter js44
- Start date
- 11,272
Three problems:
1) We won't know what future caps are due to the pricing of call options for any given index.
2) We don't know the performance of the indexes in advance.
3) The NAIC made changes to IUL illustrations to ensure they weren't being improperly or oversold on their performance.
Even if one wants to play the "my illustration (oops, I mean illusion) is better than your illustration" game... there is no guarantee of performance due to the above.
1) We won't know what future caps are due to the pricing of call options for any given index.
2) We don't know the performance of the indexes in advance.
3) The NAIC made changes to IUL illustrations to ensure they weren't being improperly or oversold on their performance.
Even if one wants to play the "my illustration (oops, I mean illusion) is better than your illustration" game... there is no guarantee of performance due to the above.
- Thread starter
- #3
The whole thing is built on "market has averaged 6% since 1883" anyway.
Even with 6% or 8% whatever assumption in the illustration, CV can build at a different rate based on DB selected and amount/timing of premium.
With this ratio, We are just checking how much DB, premiums will give higher CV as soon as possible. You can call this JS ratio
Another tool to quickly check an agent's design if it's designed to produce more CV asap or more commissions asap. lol!
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- Thread starter
- #4
I would love to see a CV ratio of 0.4 or better. That's equivalent of 6% IRR achieved in year 15.
If it takes the policy 20 years to reach 6% and the average holding period is 40 years (assuming age 45 to 85), the average return over the entire holding period is just 3%.
Better than the bank and it's tax free and you get a shot at the market to double your return but the risk you take to get this 3% return is just crazy. Just another point of view.
If it takes the policy 20 years to reach 6% and the average holding period is 40 years (assuming age 45 to 85), the average return over the entire holding period is just 3%.
Better than the bank and it's tax free and you get a shot at the market to double your return but the risk you take to get this 3% return is just crazy. Just another point of view.
Sounds like you want something that illustrates well .. One of the best selling IUL's out there is PAC life ..
I've never sold it and most of the more experienced guys on here would not recommend it..
They have a bunch of non guaranteed bonuses .. so I'm sure it probably illustrates better than most which is one of the reason why its sales are through the roof ..
Not my cup of tea ...but they do win the illustration beauty contest.
...Also not sure what you mean by the average return over the holding period?
I've never sold it and most of the more experienced guys on here would not recommend it..
They have a bunch of non guaranteed bonuses .. so I'm sure it probably illustrates better than most which is one of the reason why its sales are through the roof ..
Not my cup of tea ...but they do win the illustration beauty contest.
...Also not sure what you mean by the average return over the holding period?
- Thread starter
- #6
You have a policy which returns 2% the first 20 years and 4% the next 20 years, what is the average return over 40 years?
(2% + 4%)/2 = 3%
- 11,272
IUL doesn't have a return guarantee - only the chance of capturing the underlying index volatility on the upside, without downside risk.
You may want to take another look at whole life insurance.
http://www.becomingyourownbank.com/wp-content/uploads/2011/12/The-Truth-About-Whole-Life.pdf
You may want to take another look at whole life insurance.
http://www.becomingyourownbank.com/wp-content/uploads/2011/12/The-Truth-About-Whole-Life.pdf
- Thread starter
- #8
Premiums and DB selection is in our control and expenses are in insurance company's control. If it illustrates better, then it's expenses must be less. Maybe, worth looking but then again, maybe the company is not well financially and pricing its product aggressively.
What I meant about the CV ratio was making the illustration better by selecting DB and premiums precisely. Not by going with a cheap product.
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- #9
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- #10
Here is a crazy idea! What about a 50-50 blend? Invest first in WL, borrow from it and invest in a IUL. I think you can borrow around 5% from a WL and the dividend is around 7% in Mass Mutual WL. So, there is already a 2% arbitrage and if you invest in an IUL designed for max CV, then the combination may provide stability and growth.Yeah, I am looking into WL too but looks like I want a WIUL
Everything that WL offers plus shot at S&P of IUL. I think its a matter of time before we see those.
