Pacific Life Policy Performed 22%

[Tahoe Ray]

Now people like you guys think it's a complete scam that Pacific Life can generate triple-digit returns under any circumstance.

Good luck to you.

Just ask yourself this: if Paclife could do that why doesn't every carrier? They are much smaller than other companies so why don't larger carriers capatilize on this strategy?

If they could generate those returns with options (which you sound like you're new to), why wouldn't they just put all of their general account (the heart of every insurance carrier) into them?

There is no magic bullet. Insurance carriers are inherently risk averse. They may offer great guaranteed crediting strategies one day, and then nuke your whole plan with max charges the next.

I think that you're drinking your own Kool-aid. Those of us who have done this for decades know that you're going to hose your clients down the road (not intentionally) but that's how it's going to be if you tell clients and IUL will outperform the stock market. It may for a few years, it won't for the life of the policy

 

[scagnt83]

I have an investment account where I buy nothing but options.

I also understand how IUL works.

I am just going to say that if you imply to clients that they will outperform equities in an IUL over a 10-20+ year time period, you're going to have a bad time.

I only became licensed so I can sell myself IULs.

He doesnt need some expert telling him what to do or how an insurance product works.

 

[Tahoe Ray]

Good luck to you.

Just ask yourself this: if Paclife could do that why doesn't every carrier? They are much smaller than other companies so why don't larger carriers capatilize on this strategy?

If they could generate those returns with options (which you sound like you're new to), why wouldn't they just put all of their general account (the heart of every insurance carrier) into them?

There is no magic bullet. Insurance carriers are inherently risk averse. They may offer great guaranteed crediting strategies one day, and then nuke your whole plan with max charges the next.

I think that you're drinking your own Kool-aid. Those of us who have done this for decades know that you're going to hose your clients down the road (not intentionally) but that's how it's going to be if you tell clients and IUL will outperform the stock market. It may for a few years, it won't for the life of the policy

Did you know the class action lawsuit of Pacific Life is based on agents not blending IULs with an annually renewable term rider to compress the death benefit to the lowest amount possible? I would never do that because it inflates the commission and lowers future returns.

Are you trying to teach this forum how to properly design an IUL to max cash?

We already know how to do that.

Bad actors don't change the the fact that PacLife is one of the most expensive products in the industry nor does it change the fact that anyone can design an IUL to max comp or max cash.

Most on this forum choose the latter.

 

[scagnt83]

Pac Life has some of the highest internal expenses on the market. Hardly the carrier to hold up as a bright shining light. That high expense makes it one of the worst performing policies under a worst case scenario over a 20 or 30 year period.

Penn on the other hand has an excellent IUL that uses portfolio rates for Caps/Participation, instead of specific to each product line. Im sure you know why that is an advantage.

Guardian includes a 2% spread on their Indexed Option... you left that out. Its also one of the worst performing WL policies on the market right now (very expensive just like Pac IUL).

Agents who deal with clients, have to advise for a 40-70 time span... not a 2 year time span. I will bet $1m right now that your Pac Life policy will be under 15% returns by year 30.

 

[ejbarraza]

Pac Life has some of the highest internal expenses on the market. Hardly the carrier to hold up as a bright shining light. That high expense makes it one of the worst performing policies under a worst case scenario over a 20 or 30 year period.

Penn on the other hand has an excellent IUL that uses portfolio rates for Caps/Participation, instead of specific to each product line. Im sure you know why that is an advantage.

Guardian includes a 2% spread on their Indexed Option... you left that out. Its also one of the worst performing WL policies on the market right now (very expensive just like Pac IUL).

Agents who deal with clients, have to advise for a 40-70 time span... not a 2 year time span. I will bet $1m right now that your Pac Life policy will be under 15% returns by year 30.

I would be satisfied earning 6% year over year tax-free for life. So I would agree that I won't get anywhere close to 15%. But if I get lucky maybe I'll get 9%? Plus using it as collateral for a bank-secured line of credit attached to a credit card with cash back rewards at 2% seems like a good enough yield spread to me. Once again I have no customers and don't plan to other than myself.

Also, the policy charges are $160 or 13 basis points Year 11. Seems reasonable to me.

 

[ejbarraza]

Good luck to you.

Just ask yourself this: if Paclife could do that why doesn't every carrier? They are much smaller than other companies so why don't larger carriers capatilize on this strategy?

If they could generate those returns with options (which you sound like you're new to), why wouldn't they just put all of their general account (the heart of every insurance carrier) into them?

There is no magic bullet. Insurance carriers are inherently risk averse. They may offer great guaranteed crediting strategies one day, and then nuke your whole plan with max charges the next.

I think that you're drinking your own Kool-aid. Those of us who have done this for decades know that you're going to hose your clients down the road (not intentionally) but that's how it's going to be if you tell clients and IUL will outperform the stock market. It may for a few years, it won't for the life of the policy

Most carriers want to guarantee a zero percent floor rather than a negative 7.5% floor. Pacific Life is the #1 seller of IUL and has been for years. #3 is Fidelity and Guaranty with a 4% monthly cap (48% APY). You know why they don't put the whole thing into the options trading. It is not allowed by regulators. They have very strict asset liability management which is why they only use a tiny fraction to invest in index options guaranteeing the principal is safe from market volatility. They also have a contractual cap on how much they can increase insurance charges, it is not arbitrary and they are susceptible to mercenary capital leaving via 1035 exchange. Also, as the cash value shrinks your net amount at risk you end up offsetting the rising cost of insurance via the annually renewable term rider.

"The mechanics behind how carriers set participation limits involve numerous factors, none of which include the actual performance of the underlying index being tracked. In fact, the two biggest factors carriers consider in calculating the proper limits on a policy are market volatility and bond yields. In order for a carrier to hedge the risk that its general account will not generate a high enough return to cover the uncorrelated equity liability in its indexed account, it purchases options linked to the movement of the underlying index or indices. The budget that a carrier has to purchase options depends upon the general account yield needed to provide policyholders with the guaranteed minimum floor. For example, if the anticipated yield on the carrier’s general account portfolio was 3%, the carrier would allocate 97.1% of each premium dollar received towards the purchase of bonds in their general account in order to contractually guarantee the stated floor of 0%. The remaining 2.9% would go towards purchasing packaged call option spreads from an investment bank that cover equity liability between the 0% floor and the cap (see Figure 1) "

 

[Allen Trent]

negative 7.5% floor.

Is it a -7.5% floor or a 7.5% charge to get the multiplier?

It will calculate entirely different in flat years. $1M CV some day will have a flat year of zero $75k of deduction for the multiplier.

Honest question, why go through an IUL with load fees,policy fee, COI & surrender charge when you could have designed your own option strategy in a Roth IRA or Solo Roth 401k?

Remember, max borrowing is great for young people skilled to manage their own policies, but some of us will struggle to maintain our skill needed in our 70s/80s & 90s. The consequences of a policy imploding at that time will have massive tax consequences when all the promised "tax free" become really tax deferred. Overloan protection is not contractually guaranteed nor even ruled on by the IRS to date.

Because these are your own policies & your own money, I have zero problem with it. But once you start selling to others, writing books or having podcasts, that is where I see the problem. It will get used by the agents that don't understand the full extent & will get used on every day people to discourage them from saving in employer plans, 529 plans & instead to buy the magic swiss army knife that has yet to live through a flat market & low bond interest rate period. How would a 7.5% fee in flat years of the 1964-1982 time frame look, especially if the client was age 75+ at the time getting charged ART rates when CV dropped. I saw many 70-85 year olds lose their VUL 20 years ago when markets dropped heavily & they couldnt legally even put more money in to offset the new found tripled net amount at risk. Sure, a -7.5% IUL possibility isnt the same as a -50% VUL return, but what about several -7.5% years when they are 80 or 85 years old. Keep in mind, my $100k CV that loses 7.5% (plus COI, fees) will need to make almost 15% the following year to average 5% between the 2 years

 

[Tahoe Ray]

Most carriers want to guarantee a zero percent floor rather than a negative 7.5% floor. Pacific Life is the #1 seller of IUL and has been for years. #3 is Fidelity and Guaranty with a 4% monthly cap (48% APY). You know why they don't put the whole thing into the options trading. It is not allowed by regulators. They have very strict asset liability management which is why they only use a tiny fraction to invest in index options guaranteeing the principal is safe from market volatility. They also have a contractual cap on how much they can increase insurance charges, it is not arbitrary and they are susceptible to mercenary capital leaving via 1035 exchange. Also, as the cash value shrinks your net amount at risk you end up offsetting the rising cost of insurance via the annually renewable term rider.

"The mechanics behind how carriers set participation limits involve numerous factors, none of which include the actual performance of the underlying index being tracked. In fact, the two biggest factors carriers consider in calculating the proper limits on a policy are market volatility and bond yields. In order for a carrier to hedge the risk that its general account will not generate a high enough return to cover the uncorrelated equity liability in its indexed account, it purchases options linked to the movement of the underlying index or indices. The budget that a carrier has to purchase options depends upon the general account yield needed to provide policyholders with the guaranteed minimum floor. For example, if the anticipated yield on the carrier’s general account portfolio was 3%, the carrier would allocate 97.1% of each premium dollar received towards the purchase of bonds in their general account in order to contractually guarantee the stated floor of 0%. The remaining 2.9% would go towards purchasing packaged call option spreads from an investment bank that cover equity liability between the 0% floor and the cap (see Figure 1) "
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Dude...I've done this for over 20 years. I write IUL. I know how it works.

You will not get the returns that you are expecting over several decades.

I have no problem that you found a product that you like (that I have sold for years). My main issue is your positioning. If you just want to sell these to just yourself, no worries. If you start selling them to other people, your projections are not realistic long-term.

 

[ejbarraza]

Is it a -7.5% floor or a 7.5% charge to get the multiplier?

Honest question, why go through an IUL with load fees,policy fee, COI & surrender charge when you could have designed your own option strategy in a Roth IRA or Solo Roth 401k?

Overloan protection is not contractually guaranteed nor even ruled on by the IRS to date.

How would a 7.5% fee in flat years of the 1964-1982 time frame look, especially if the client was age 75+ at the time getting charged ART rates when CV dropped.

Dude...I've done this for over 20 years. I write IUL. I know how it works.

You will not get the returns that you are expecting over several decades.

I have no problem that you found a product that you like (that I have sold for years). My main issue is your positioning. If you just want to sell these to just yourself, no worries. If you start selling them to other people, your projections are not realistic long-term.

It is a 7.5% fee for the OPTIONAL multiplier which assuming you get a zero dividend would be an effective floor rate of -7.5%. You never have to use it if you don't want to; however, using it selectively after a stock market rout would be a highly accretive use of leverage. Also, you can reduce the sequence of returns risk through dollar-cost averaging every month. This greatly reduces the likelihood you go multiple years earning absolutely nothing. If interest rates increase the fixed rate account is an option as well to guarantee some returns. In fact, I just received an email from PennMutual that from July 1-December 31 they are offering a fixed 10% yield on the premiums in the DCA account. This is to lure people to buy the new IULs they are rolling out in July.

If you are using the 2-year or 5-year index option on a monthly compounding basis, what is the likelihood you will earn less than 7% over the long-term given the data I have presented straight from the marketing department which has to pass all of their materials through the California Department of Insurance. As in, they can't just make up numbers out of thin air. Also, the business credit card will be at Prime minus 100 basis points which leaves plenty of upside over a lifetime. The business interest is tax-deductible and the cash surrender value is completely untouched so the balance is never declining.

I went through the trouble of getting licensed and originating these contracts because I think they are better than any alternative investment vehicle. I can't directly invest in an index nor do I have the accredited investor status to buy the institutional index options they are buying and dynamically hedging. Why would I want to if they are only charging me a few basis points after a decade. Much cheaper than a private wealth manager and comparable to an ETF with way more upside. Where else can a CD yield 10% tax-free with zero downside risk if you invest in the stock market? I'll gladly pay the fees for the value they are providing me. And don't forget that if I put any money into a solo 401k I cannot spend that money while I am under 60 or else...This credit product is an all-in-one loan that builds tax-free cash reserves, insurance coverage, business credit, cash back rewards, lifelong line of credit, uncapped tax deductions, and tax-free retirement income at the same time. It might not be for the elderly, but it's definitely for some groups of people.

 

[marindependent]

why go through an IUL with load fees,policy fee, COI & surrender charge when you could have designed your own option strategy in a Roth IRA or Solo Roth 401k?

Exactly