Ohio National - Demutualization

[DHK]

David, you yourself have said that you don't sell this stuff for the death benefit. I don't care what the guaranteed side of the ledger is saying, you relied on the non guaranteed side of the leger to make your strategies work.

But I was addressing your confusion between the difference of policy expenses (costs of insurance) and dividend performance.

If I wanted to use an IUL, I want something where the policy expenses stop.

Do you think your clients are going to be excited when they say "hey wait a minute this dividend is 10% of what it was supposed to be." Are they going to feel assured if you respond with "well Mr./Mrs. client take a look at the guaranteed ledger, at least your death benefit is guaranteed!"

Insurable clients have options.

Uninsurable clients have fewer options.

Btw, a 10% dividend correction... is nothing.

A 90% reduction of projected dividends... that is a problem.

 

[Lloyds of Lubbock]

ON is getting the maximum premium it can while preventing a MEC for ten years. They crater the dividends in years 11+ not really increasing their net amount at risk after that. That's a pretty good deal for them.
While the NAR is only going up slightly (as a policy ages this gap narrows anyway) the cost of providing that spread goes up as the insured ages, I dont see how this transfers the risk of death back to the insured.
Is it more profitable to them by massively reducing your dividend...sure but they still need to provide reserves to guarantee the death benefit with no further premium coming in.

 

[Lloyds of Lubbock]

Not all that long ago Ohio National had a comdex rating 92 or 93 quite good,.
Senior management made bad decisions that put them in the position they are in today.
So they get this big influx of money and they have the same mgt that screwed up in the first place.
How do you think that is going to work out?

 

[scagnt83]

For WL, the ongoing cost of insurance is a liability on the insurance company rather than the policy holder. That's why it's not disclosed on a WL illustration.

That is 100% incorrect. Just because its not disclosed, does not mean it does not exist.

ULs are just transparent about the internal expenses. WL hides the expenses.

UL expenses are not automatically disclosed on the illustration, it is always an optional "supplemental" report.

The reason that option to see them exists, is that you can change the expenses in the policy by choosing different options. UL gives you 8 different options to design the policy, and all 8 have a different cost to the policy. WL only gives 1 single option for policy design, so there is no comparing options and the various costs associated with them.

---

I'd rather have the insurance company retain that risk rather than the policyholder.

The Client retains the risk in both cases. There is a certain COI with both policies, and the client is responsible for paying the premium needed to cover those expenses.

If the client doesnt want to keep paying ongoing premiums past a certain year. Then they are responsible for ensuring the policy is earning enough to cover the required expenses.

A WL is more "turnkey" for the agent and easier not to screw up and screw over the client. A UL is customizable and allows every option available in the life insurance code to be utilized for the clients advantage.

 

[scagnt83]

but to my clients there is no difference between an elimination of the dividend on a WL contract, and an COI increase on a universal life contract.

Both contracts have moving parts.

Bingo. Technicalities dont matter when the negative effect to the client is the same.

And I would take a COI increase on an IUL over a complete loss of dividends on a 10pay any day. A COI increase does not kill the hopes on an IUL... dropping Dividends on a 10pay is a knife to the heart.

 

[scagnt83]

If I wanted to use an IUL, I want something where the policy expenses stop.

Policy expenses dont stop with a WL.

 

[DHK]

That is 100% incorrect. Just because its not disclosed, does not mean it does not exist.

Let's figure this out:

Q. I have a paid-up policy. No more premiums are due. Who has the liability to ensure that the policy pays out upon the triggering event (ie. death)?

A. The insurance company. Whatever the "soft dollar" costs are to maintain the ability to keep the promises... are on the insurance company. It is not transferred to the policyowner. If it were, it would be a 'hard dollar' cost and it would have to be disclosed.

I don't know how much plainer it needs to be.

The Client retains the risk in both cases. There is a certain COI with both policies, and the client is responsible for paying the premium needed to cover those expenses.

It's paid up.

Try again.

If the client doesnt want to keep paying ongoing premiums past a certain year. Then they are responsible for ensuring the policy is earning enough to cover the required expenses.

The CLIENT is responsible for the policy's earnings in a WL policy?

No. That's what the GUARANTEED columns are for.

I think... you're confused.

Let me show you when you're right: When you're talking about a WL paid to age 100 or 121 AND the policyholder desires to maintain the same death benefit. If that is the case, you're correct.

However, if we're talking about a 10-pay, 20-pay, pay to age 65... as soon as the last premium payment is in... you're done. No more premiums due. (That's what "paid up" means.)

OR... the policyholder chooses to elect a RPU (reduced paid up) at a given year (ideally after the 7th year for 7-pay purposes).

You see, IUL doesn't have 10-pay, 20-pay, or pay to age 65 like WL does. Sure, you can structure it to be a 3-pay, 5-pay, or 7-pay to frontload more cash values, but that's not the same thing.

For a WL limited pay policy... once you're done... you're done.

 

[DHK]

Bingo. Technicalities dont matter when the negative effect to the client is the same.

And I would take a COI increase on an IUL over a complete loss of dividends on a 10pay any day. A COI increase does not kill the hopes on an IUL... dropping Dividends on a 10pay is a knife to the heart.

So you're about to tell me that an increase in a mutual fund's internal expenses is the same as a market loss?

You cannot confuse expenses and risk. Two separate categories to be evaluated and I wouldn't be conflating them.

 

[scagnt83]

ON is getting the maximum premium it can while preventing a MEC for ten years. They crater the dividends in years 11+ not really increasing their net amount at risk after that. That's a pretty good deal for them.
While the NAR is only going up slightly (as a policy ages this gap narrows anyway) the cost of providing that spread goes up as the insured ages, I dont see how this transfers the risk of death back to the insured.
Is it more profitable to them by massively reducing your dividend...sure but they still need to provide reserves to guarantee the death benefit with no further premium coming in.

He is not speaking in technical terms. He is speaking about the perceived risk a consumer sees and feels when purchasing.

Consumers dont buy WL for CV accumulation for the Guaranteed Values, they buy it for the Dividends. Their "risk" is the Dividends being reduced or eliminated.

This risk came true for ON policyholders.

 

[scagnt83]

So you're about to tell me that an increase in a mutual fund's internal expenses is the same as a market loss?

You cannot confuse expenses and risk. Two separate categories to be evaluated and I wouldn't be conflating them.

Im saying the increase in a funds expenses creates a lower return for the client than they originally planned around. Same as WL dropping dividends... the net effect to the client is they get less money than originally planned on.

Clients most certainly look at the two categories as having the same effect to their finances.