Ok, so IUL's have gotten my attention ...

[Allen Trent]

even you get guarantee to get a dividend and you know exactly what you're getting.

Not true. A dividend is not guaranteed at all. I prefer WL over IUL many times becuase of all the moving parts that IUL carriers dont control long term. Most of the returns of IUL are based on an efficient options market & good fixed interest rates. If we stay in a low fixed interest rate, the carriers wont make as much on their general portfolio, thus they wont have enough money to go buy good options with good cap & participation rates. If these dont happen, you may also see them modify their internal fees like fixed UL carriers did in terms of COI, loads, etc.

I like UL/IUL where the person needs a ton of flexibility that a WL with PUAR might not be able to provide. IE: self employed person with wide fluctuation income streams

 

[WinoBlues]

I ran some illustrations at North American using the Builder IUL and also at KSKJ looking at their underwritten whole life.

Death benefit is important to me,

As you are doing your risk v reward and comparing guarantees. Factor in Fraternal Maintenance of Reserves.

 

[DayTimer]

As you are doing your risk v reward and comparing guarantees. Factor in Fraternal Maintenance of Reserves.

Indeed. I was looking at KSKJ because I had their illustration software already downloaded. I need some additional contracts as well.

 

[pfg1]

The key is to go with a company who's in competition.. Does the company have an incentive to keep their cap rates, par rate etc.. competitive?

The biggest difference between the 2 IMO .. is that IUL allows for faster break even because of the GPT test .. on the upside for WL ... once you get to break even you get guarantee to get a dividend and you know exactly what you're getting.

The problem is, as Allen mentioned... we are in a poor rate environment. Caps keep decreasing, even with the most competitive companies. Sure, we don't know the future...however at least par WL has a track record hundreds of years old. IUL is essentially a baby that hasn't even matured yet. Also, incentive to be competitive is only part of the that equation. At the end of the day, they are in business to make money and provide longevity for their business and clients. They will most always do whats in the best interest of sustainability. Another reason I like mutuals, they have no stockholders pushing them in a direction they might not feel is good long term.

Again, not bashing it at all - I sell it... but I prefer WL personally. There are no surprises, it does what it does, and does it well. And if designed and funded properly, most of the time the breakeven is right on par with IUL. I guess my biggest issue with IUL, so many tout it as the holy grail with no down side. And while I agree it could end up being fantastic, most don't even consider that if certain changes happen (which could) it could end up being not so good. I mean caps have slid several points in just the past few years. What if coi increases happen, and caps keep sliding. Then you effectively have (at best) a WL with no guarantees.

 

[Allen Trent]

incentive to be competitive is only part of the that equation

Great point. Colorado Bankers had awesome myga rates until they were in receivership. The best cap or par rate iul company today tends to have higher jnternal charges & coi as they know most reps & consumer buy based on perception & cant dig into the underlying details

 

[jboussea]

The problem is, as Allen mentioned... we are in a poor rate environment. Caps keep decreasing, even with the most competitive companies. Sure, we don't know the future...however at least par WL has a track record hundreds of years old. IUL is essentially a baby that hasn't even matured yet. Also, incentive to be competitive is only part of the that equation. At the end of the day, they are in business to make money and provide longevity for their business and clients. They will most always do whats in the best interest of sustainability. Another reason I like mutuals, they have no stockholders pushing them in a direction they might not feel is good long term.

Again, not bashing it at all - I sell it... but I prefer WL personally. There are no surprises, it does what it does, and does it well. And if designed and funded properly, most of the time the breakeven is right on par with IUL. I guess my biggest issue with IUL, so many tout it as the holy grail with no down side. And while I agree it could end up being fantastic, most don't even consider that if certain changes happen (which could) it could end up being not so good. I mean caps have slid several points in just the past few years. What if coi increases happen, and caps keep sliding. Then you effectively have (at best) a WL with no guarantees.

You are right .. that's part of the equation and not all .. profitability is the most important ..especially with Insurance companies.. but what I'm saying is that these companies will continue to lower caps to stay profitable .. All of them will if rates continue to drop.. but what keeps that One company from drastically lowering the cap is knowing that if they do.. They will lose a lot of capital because people will move their money out.
And Insurance companies can't afford to lose capital .. it's in their best interest to keep the cap rates competitive with other carriers.

 

[jboussea]

Not true. A dividend is not guaranteed at all. I prefer WL over IUL many times becuase of all the moving parts that IUL carriers dont control long term. Most of the returns of IUL are based on an efficient options market & good fixed interest rates. If we stay in a low fixed interest rate, the carriers wont make as much on their general portfolio, thus they wont have enough money to go buy good options with good cap & participation rates. If these dont happen, you may also see them modify their internal fees like fixed UL carriers did in terms of COI, loads, etc.

I like UL/IUL where the person needs a ton of flexibility that a WL with PUAR might not be able to provide. IE: self employed person with wide fluctuation income streams

What I mean is that every dividend is announced every year.. so every given year you know what you're getting. Not that the dividend rate is guaranteed... I can see I wasn't clear in my post.

 

[Allen Trent]

You are right .. that's part of the equation and not all .. profitability is the most important ..especially with Insurance companies.. but what I'm saying is that these companies will continue to lower caps to stay profitable .. All of them will if rates continue to drop.. but what keeps that One company from drastically lowering the cap is knowing that if they do.. They will lose a lot of capital because people will move their money out.
And Insurance companies can't afford to lose capital .. it's in their best interest to keep the cap rates competitive with other carriers.

Capital is only useful if you are making a spread on it. Insurance companies still have billions on deposit in annuity from the 1990s guaranteeing the client 4 -4.5% forever. That problem then causes them to not have profit on a large portion of their capital to invest on items that have a profitable spread.

Carriers dont control the cap & par rates as much aa you might think. The options market & fixed interest rate environment does. A carrier that is leading in cap & par rates consistently over time is either charging more in internal fees or hurting their stock holders. You can only artificially buy market share temporarily until it has to be dealt with

 

[Golfnut2112]

I have seen this mentioned also recently in some of the Life Insurance FB groups.

Life insurance? Who knew what magic it is capable of doing and didn’t tell me?



Didn’t mean to imply that you hadn’t stolen it. All credit to you, the Master Thief

Don’t worry ... I’m not stealing it from you. I’m just borrowing for a time. It will be right here so you can watch anytime you’d like.

I have a contract with North American that I have never used. I logged in to their agent portal last night and I am starting their IUL course. I also believe there is a continuing education course available on ExamFX that covers or maybe even focuses on IUL’s. I’m in learning mode.

The irony in all this is that I have very good friend who is the President of a large real estate firm in the area. He called me yesterday telling me he wasn’t happy with his returns in spite of the market being up huge the past couple of years and wanted to know if I had any ideas for him. I told him I’d look into it though it wasn’t my area of focus.

I just might have “found” a very good idea for him. Ok ... I might be able to acquire a good idea for him through a bit of thievery. For now, I’m just casing the joint.



Better lay low for a bit ...

BE CAREFUL!!! If that guy was not happy in the market the last few years why would he be happy in a IUL? I just had a client’s IUL statement come in, from 8/15/18 thru 8/15/19 in the annual point to point she make a little over 1% subtract off the fees and she did not have a very good year, to make matters worst I illustrate my IUL’s at 5% and I know she is not going to do 9% this coming year to average 5%. The problem with the videos you are watching is that they are VERY biased and never show the negatives such as the effect of varying interest rates as opposed to a constant rate which most companies show. Also, there is NO WAY at the SAME RATE of return an IUL is going to beat a Roth 401k. The loans you are taking out are also charged interest, so as they credit the money to the policy you may have a wash loan but that is definitely not the same as your money earning interest even though it’s not there. For example if you have a $100,000 and being charged 5% and the company credits you 5% you made nothing. Most IUL’s have a few different loan options but you are being charged interest on all of them. I personally would look at whole life for income.

 

[DHK]

Also, there is NO WAY at the SAME RATE of return an IUL is going to beat a Roth 401k.

True... if your focus is on accumulating more money, the Roth 401k will have more. However, if you can spend $3 million as though it was $5 million... I think the trade-offs would be worth it.

The loans you are taking out are also charged interest, so as they credit the money to the policy you may have a wash loan but that is definitely not the same as your money earning interest even though it’s not there. For example if you have a $100,000 and being charged 5% and the company credits you 5% you made nothing. Most IUL’s have a few different loan options but you are being charged interest on all of them. I personally would look at whole life for income.

Yes - that's true. But in retirement taking loans against the policy as cash flow, you wouldn't borrow out 100% of the available cash values. You might take out 5%. So, out of $1 million cash values, you get a loan for $50,000. The $50,000 loan is charged interest while the $1 million continues to earn interest. And you keep doing it. Yes, the loan interest continues to compound and increase as you take out more loans, but so does the original larger balance in the policy.