Ohio National - Demutualization

[Allen Trent]

I don't see how ANY jury sides with the agent saying -- "well they knew what they were buying and they signed for it", no matter how much cover your ass documentation they have.

And with Best interest or even fiduciary standard for some, how do you make the case that all the protections provided by a former employer 401k or transfer to current employer 401k are not important: ie: greater creditor protection, loans from current employer & the employer & 401k provider are held to a fiduciary standard

 

[scagnt83]

Yes, you are right.

So this got me thinking.. maybe the pitstop IS a deliberate move to skirt disclosure. I mean the real source is the qualified plan, but its easy to list the annuity as SOF - since that is where the actual money will be coming from. And the fact that the pitstop pays handsomely, well its a win-win for the agent.

Ive said that all along (in other threads when this "strategy" was brought up by DHK). It is 100% an attempt to hide the true Source of Funds... plus it makes them thousands of dollars more per sale.

If the carrier knew the agent took 70% of the persons retirement savings and put it all into a 10pay... it would never pass suitability.

 

[scagnt83]

I don't see how ANY jury sides with the agent saying -- "well they knew what they were buying and they signed for it", no matter how much cover your ass documentation they have.

Especially when the agent deliberately hid the true source of funds to get around Carrier guidelines.

Especially when the jury learns the agent could have used the PDA instead of the annuity to get the same return.... but thousands less in commissions.

If you are doing everything above board, there is no need for additional CYA documentation. That in and of itself is a huge red flag.

Guys doing super complex COLI and BOLI cases dont even do stuff like that. If you are abiding by carrier guidelines and state regulations... all the disclosures you need are right there in the app/contract.

 

[scagnt83]

BUT, I've seen top producers get special treatment. I don't know if it goes on at every company, but at ON it definitely (did).

Ive seen it too. Carriers are greedy. Especially ones in financial trouble like ON.

 

[scagnt83]

And with Best interest or even fiduciary standard for some, how do you make the case that all the protections provided by a former employer 401k or transfer to current employer 401k are not important: ie: greater creditor protection, loans from current employer & the employer & 401k provider are held to a fiduciary standard

Not only that, but they are taking 70% of their liquid retirement funds and locking them up in a lifetime annuity. (lifetime because they are using the income rider)

Then taking that income stream (the 70% of retirement funds) and putting it in a product that wont even give them a return on premium until the 8-10 year mark.

AND... if the WL carrier slashes dividends.... they wont see a return of premium (the 70% of 401k funds) for 15-20 years.

And that is just a return of the original investment... zero interest, zero gains after 8 years of putting their 401k money "to work" In this SCHEME of a "plan".

I have zero respect for agents that screw over consumers with crap like this.

In the illustration posted earlier in this thread, the client lost around 40% of their premiums (401k funds), with very little hope of seeing that back anytime in the next decade.

 

[walthamny]

So March 8 is the deadline to make a decision whether to receive cash or more paid up additions, what happens if the decision is passed. If I start replacing on March 9, do they still receive the cash out check. Or should I wait until the Division of Insurance also approves the merger.

 

[Allen Trent]

So March 8 is the deadline to make a decision whether to receive cash or more paid up additions, what happens if the decision is passed. If I start replacing on March 9, do they still receive the cash out check. Or should I wait until the Division of Insurance also approves the merger.

Do you have a copy of the letter? It should have something in it saying what happens if you fail to make a selection

 

[david_lewis]

I didn't see where this was mentioned before, but the fundamental difference between whole life and universal life is that whole life is a guaranteed general account product and universal life is a non-guaranteed, assumption-driven, general account product. Those make for two very different types of products and are sold to two very different kinds of buyers.

I think that's the long and short of it.



More random thoughts and opinions I have about this:

UL does have *some* guarantees, but is fundamentally an assumption-driven product. I don't *think* this is controversial with the carriers, actuaries, product dev teams, or wholesalers. It only seems to be a controversy amongst agents.

Someone mentioned that there is such a thing as a limited pay UL. Well, yeah technically there is. Back in the day, I sold a single-pay UL policy to an individual who valued the death benefit more than the cash she put into it, and wanted a single pay product. At that time, her options were thin, and this worked great for that purpose. With that said, the cash value in that policy did not grow as illustrated (which was OK based on the client's objectives). If they wanted a cash value rich product, there would have been much better choices, but those choices came with ongoing premiums which she did not want to pay.

Most ULs don't work that way and they're not intended to work that way. They're not meant to endow or become "paid up" at any point. That's more an exception than the design rule. And, notice the dearth of such products today. It's not economically feasible or attractive to offer those products, else more carriers would be selling the daylights out of them.

Another thing is, ULs have a variable expense component. Whole life has a fixed expense component.

I think of it this way: Back when I lived in upstate New York (in a small farming town), we had the option of going on the budget with New York State Gas and Electric (NYSEG), who (at that time) was the gas and electric supplier. Smart folks went on the budget because while your summer heating bill was $20 per month, your winter bill could swell to $300-$400 per month. Instead of doing that, the budget set your year-round cost at a fixed price of, say, $150. Paying $150 per month in the summer months was a kick in the pants. But, it felt pretty smart in February.

This made it easier to budget for energy expenses, but also made things easier around Christmas time when other expenses spiked for all the goodies going under the tree.

This is analogous to level premium funding in life insurance. It's what makes whole life work so well, and to a lesser extent, UL.

I say "lesser extent" because ULs have that variable expense component that's less predictable (especially as time drags on), coupled to a low guaranteed gross crediting rate.

UL assumes expenses will stay low. In reality, they can potentially rise (and how!). We all know this because the guaranteed column in a UL policy shows the policy lapsing almost always. It's supposed to lapse to show expenses can rise above the interest crediting rate for an extended period of time, and then see what happens when that happens. And, we've all read stories about carriers who had to push that button and make policyholders mad.

This is a function of the variable expense and low guaranteed gross crediting rate. That's always a possibility with any UL product. I'm not saying it's probable, just *possible*.

In whole life insurance, this isn't even possible. The expenses are fixed at the highest rate possible, and interest crediting is sufficient to guarantee endowment. So, that risk of lapse, however small you think it is in a UL policy, is not even on the table with WL.

And, that's where the major divide between WL and UL really lies. UL is, and always has been, more risky than WL. And, there are varying degrees of risk associated with UL policies. It all depends what is layered on top of that basic UL chassis. A lot of agents disagree. Personally, I don't trust the judgment of most life insurance agents. Given the Great Replacement cycle that happens in the UL market every 10 or so years, it's pretty clear insurance agents aren't all that great at assessing the risk of these policies.

That being said, I don't think ULs are inherently bad or wrong. Even though GUL didn't work out great for the carriers, it worked out swimmingly for policyholders (assuming their products didn't have trap doors or other gotchas embedded in them). And, assuming a policyholder knew what they were doing with VUL, and comfortable with the higher risk, it seems to have worked out alright for a lot of folks.

But, that's where I think a lot of agents don't see this from the perspective of the policyholder. Someone here mentioned something to the effect of WL being a simpler product for agents to handle and sell. That's true. But, it's also a simpler product for *clients* to handle as well (they know a lot less about life insurance than agents, and a lot of agents don't know that much about these products to begin with).

UL is the Linux of life insurance, and whole life is maybe the Mac/OSX of life insurance.

If you're a computer nerd, you buy into the Linux platform. If you want a non-techy user-friendly platform, you buy Mac.

There are probably debates about that as well, and probably computer nerds who argue "Linux is not that difficult to manage". But, the bottom line is they are two different platforms that cater to two different kinds of users.

And so it is with life insurance. I have never, in my 17 years of doing this, ever been able to get a client to really and truly fully grasp how a UL works, it's wide range of crediting options, and all the risks involved. I don't know if that says something about my inability to explain things well or the client's ability to understand, or both.

Point is, whole life has always been easier for my clients to understand, and they have always preferred that to UL. So now, I just market WL, and leave ULs to other agents. Maybe UL is an "agents life insurance policy"? I don't know. Most ULs today are policies you have to actively manage. I don't see the client becoming too involved in that, frankly. And in fact, I see the opposite. I see clients becoming more and more dependent on the agent to manage it for them. And, when the agent leaves or retires or that block of business gets sold to a hedge fund, another insurer, or spun off into to a run-off company with minimal customer service?

¯\_(ツ)_/¯

Nobody really knows and, I wager, no one really cares (IWBHWIH—"I won't be here when it happens").

With whole life, your main variable is the dividend.

With CAUL, you only had 2 variables to worry about: variable expenses and variable crediting rates. With variable UL, you had variable expenses with both the direct expenses of the policy and (to some extent) the sub-accounts. With IUL, there's another layer of risk —— cap, participation, and spread rates. As of Feb 16th, the current (market rate) options budget across the industry is roughly 3.57% for carriers, which will buy a current market cap rate of 6.8% and a participation rate of 46%. Carriers showing a 10% or 8% cap rate are subsidizing their rates in the short-term, hoping they can afford a higher cap rate in the future. A more likely scenario is those cap and par rates are going to trend downward to the current market cap and par rates. A lot of agents believe rising interest rates will help the situation. I think a lot of agents are going to be very surprised when it doesn't help at all, and in fact exacerbates the falling cap and par rate problem.

As for historical earnings rate on IUL, what I see a lot of agents doing is pointing to the past 10 years, when cap and par rates were at their peak, when options pricing was a lot (a LOT) cheaper than it is now, and when the S&P500 was on a tear. What they do not show is the old Aviva book of business from 15-20 years ago, and the IUL cap rates now stapled down to the 2-3% cap minimum. Aviva used to be one of the main/major seller of IUL in the U.S. after they bought up AmerUs, and started pushing their Lifebuilder series.

Now?

They're nowhere to be found.

Agents who just came into this business probably have never even heard of them.

That's how quickly things can (and do) change in the UL space.

And it's not just Aviva. More recent entrants have come and gone in more recent years. At one time, Voya was ( I think ) in the top 13 for UL sales. Now? They don't even sell life insurance anymore. I not-too-long-ago heard in an interview with the former CEO of John Hancock that (and, I'm paraphrasing) pretty much every stock life insurance company (and probably some of the smaller mutuals) will start shrinking in size, exit the life insurance business, and try every trick imaginable to wiggle their way out of the guarantees they just sold to policyholders. I mean, how many agents are ready for that sort of scenario?

But, no one really wants to talk about that, and I don't blame them. It doesn't look pretty.

 

[Lloyds of Lubbock]

I think if you don't choose your option, there is a default.
Some of these policies are not so easy to replace.
Take a 10 pay 7 or 8 years old.
New product from Penn and NY Life are 25% more due to new reserving rates.
Guardian and Mass are closer to 50% more.
That is not even counting the fact that they are older.
Now take into account the 1035 money over and above the annual premium goes into PUA of which there is a sales charge.
This will probably cause the client to have a higher outlay on the new policy or pay for more years.
If you spreadsheet old vs new I will bet the crossover point is close to 15 years out.
Plus the client may be a bit salty you are making a new commission on him.
At the end of the day regardless of dividends a 10 pay is still a 10 pay and as much as you feel ON is treating the clients unfairly, it may be in their best interests to stay there

 

[rousemark]

You can always tell when someone is losing an argument. They abandon the facts of the discussion and rely on name calling.