Pacific Life Policy Performed 22%

[scagnt83]

Can we acknowledge the fact that with ZERO crediting it lasts for 43 years before lapsing and with the fixed interest of 2.25% it won't lapse.

On the first point of zero crediting, of course. Nobody is saying it wont.

At the fixed rate of 2.25% it still could. That scenario is not assuming the carrier raised internal costs to the max. If they do, 2.25% will likely not sustain the policy.

Look dude, nobody here is saying you made a bad decision or that IUL is a bad product. It just is not the magic bullet you are making it out to be. And there are very important facts you are leaving out of your statements about IUL. That is the only reason anyone corrected you... facts are facts. Not a single person here has said IUL is bad or that you should not have bought the policy.

Personally, I love/hate clients like you. Super analytical almost to a fault (im the same way). But that creates a dynamic that makes them sometimes blind to facts being given by the expert. But you have taught yourself a lot about the product... you know more than many agents out there selling it. So I commend you on the effort you have put in to learn the product and be comfortable with it. You didnt make a bad decision, just dont expect it to beat the market... maybe it will..... but the product is not designed to do so.

 

[ejbarraza]

On the first point of zero crediting, of course. Nobody is saying it wont.

At the fixed rate of 2.25% it still could. That scenario is not assuming the carrier raised internal costs to the max. If they do, 2.25% will likely not sustain the policy.

Look dude, nobody here is saying you made a bad decision or that IUL is a bad product. It just is not the magic bullet you are making it out to be. And there are very important facts you are leaving out of your statements about IUL. That is the only reason anyone corrected you... facts are facts. Not a single person here has said IUL is bad or that you should not have bought the policy.

Personally, I love/hate clients like you. Super analytical almost to a fault (im the same way). But that creates a dynamic that makes them sometimes blind to facts being given by the expert. But you have taught yourself a lot about the product... you know more than many agents out there selling it. So I commend you on the effort you have put in to learn the product and be comfortable with it. You didnt make a bad decision, just dont expect it to beat the market... maybe it will..... but the product is not designed to do so.

Can I get your honest opinion on my idea to stagger 5 different IULs into a bond ladder thereby diversifying amongst different benefits, crediting methodologies, and expirations? The thought process is that they can't all generate zero crediting all the time. For example, F&G has a 0.25% floor, Nationwide 0.6%, PennMutual 1.15%. Starting year 11 F&G's fixed-rate account and persistency credit yield a total of 5%. PennMutual has a promotional fixed rate of 10% on the DCA account and is normally a 4% fixed interest rate. If Pacific Life can go so far on 2.25%, imagine what a 5% rate can do? We should also bring up the fact that interest rates can rise which can increase the cap rates, participation rates, fixed interest rates, and lower the spread on uncapped index options. Thereby increasing your probability of averaging 5%, but if you were to get lucky you can potentially earn 10% like my previous example. The reason I say that it is a kind of Swiss Army knife is that the cash value can be leveraged to make any other investment that generates a higher total return than would have been possible had you never invested in IULs in the first place.

Insurance float is the difference between premiums received today over claims that must be paid many years in the future. During that time, the insurer invests the money. Insurance float is so valuable that insurance companies often operate at an underwriting loss—that is to say, the premiums received are not enough to cover the eventual losses that must be paid and the expenses required to operate the business. Insurance float is like a loan and the underwriting loss is like the interest rate on that loan. Warren Buffett’s GEICO, however, is so well run that the company’s historical cost of float has been positive…meaning Warren Buffet is being paid to borrow other people’s money. In other words, Warren Buffet uses the infinite banking concept when he invests with this insurance float. Wouldn't it be cool if the average person knew that this was possible for them as well? I think an insurance-backed line of credit using IULs as collateral is the ultimate structured financial product. Then, attaching it to a secured business credit card with cash back rewards is the cherry on top. People can hedge their mortality risk, morbidity risk, market risk, inflation risk, and interest rate risk at the exact same time.

I know this is not for everybody, you would have to first teach financial literacy. Having said that, some people getting burned can't be the reason for preventing the vast majority from partaking. That would be like banning Tide-Pods because a certain percentage of the population thinks they taste good and end up dying. I love the product and it took me years to get comfortable with it because a guaranteed risk-free rate of return of 5% seems absolutely out of this world to me so I had to reverse engineer the whole thing. It won't outperform equities, but it doesn't need to if you are using it as the leverage side of the equation similar to a senior secured tranche of a CLO. It dampens the volatility of everything else in your portfolio and with zero opportunity cost from holding liquid cash in the bank. The higher risk/reward investments would be similar to the equity tranche. If I have some glaring blindspot about this I would love it if you pointed it out to me because I genuinely want to learn.

 

[Allen Trent]

Wouldn't it be cool if the average person knew that this was possible for them as well? I think an insurance-backed line of credit using IULs as collateral is the ultimate structured financial product.

The way you are presenting this with CVAT, collateralizing, getting approved by a bank to loan money to invest in other investments, getting cash back on a credit card linked to the bank loan, etc is far from being for the "average person". If it is for anyone, it will be unicorns that are extremely financially sophisticated/savvy and even more necessary, they have strong will power to stick to a long, long term plan & micro-manage it. High income, high net worth & detail oriented for sure for the context you mention.

The "average person" is broke because of spending habits & consumerism & failure to follow through, not because they are investing too much in the 2nd or 3rd best places to save. Hell, most have trouble following common sense snowball effect Dave Ramsey stuff about abusing credit & spending too much. For the average person that cant keep themselves from blowing all their disposable income (even many high income earners), forced savings in employer plans can be a god send to those types unless some person comes around & tells them they can take loans from it interest free, etc (fail to mention basically paying double income tax on same dollars having to pay it back with after tax dollars & pay tax again when used in retirement)

This concept will be for some, but more of the unicorns out there. I have several max funded contracts for myself, wife, kids & have saved in about a half dozen other various plans/investments.....but even I on a occasion wonder if I should stop the funding. I cant imagine the average person barely saving anything handling this concept for more than a few months or a couple years & losing everything they put in to the front loaded fee design of life insurance & surrender charges.

I commend your study of this & passion. I still caution you to not get others too excited as they may not be able to handle or stick with how complicated it is. The carriers price the products knowing most Americans won't stick with a 70 year plan or commitment.

you mention carriers sell at a loss to use the float, but most of those products definitely are making sizeable profits in the later years COI charges, especially for the 90% or more than are not max funded or minimizing net amount at risk

 

[Lloyds of Lubbock]

Insurance companies do not price products that lose money.
Every state will only approve a product if it breaks even in certain time frame.
I believe N.Y is 7 years.
The cash value loans that you reference @75% of cash value,pretty much is a bad deal.
You should be able to get 85-95 on an I’ll.
95% on whole life.
Look into Valley National or Dollar Bank if they are licensed by you.
In July Gracie Point will be in this business and their rates will be competitive.

 

[ejbarraza]

If it is for anyone, it will be unicorns that are extremely financially sophisticated/savvy and even more necessary, they have strong will power to stick to a long, long term plan & micro-manage it. High income, high net worth & detail oriented for sure for the context you mention.

The carriers price the products knowing most Americans won't stick with a 70 year plan or commitment.

you mention carriers sell at a loss to use the float, but most of those products definitely are making sizeable profits in the later years COI charges, especially for the 90% or more than are not max funded or minimizing net amount at risk

Insurance companies do not price products that lose money.

Let us suppose the average person makes $40k and their employer offered a permanent life insurance policy as a self-funded pension plan alternative to a 401(k) or IRA. The only way people save is when they are forced into it like IRAs, 401(k)s, and mortgages. Contributing $150 every paycheck or $300 a month for 10 years, they would have paid in $36k and would probably have more than $50k if things go well. Is the annual premium payment not like a mortgage in that if you don't pay, the asset is repossessed? I think that if a person is savvy enough to already own a permanent life insurance policy or home loan, then they are sophisticated enough to practice the infinite banking concept. Also, is this product not just an upgrade on their existing policy loan provision? Meaning that they can already lever themselves up to an irresponsible amount using an IUL, whole life policy, or HELOC. By limiting the loan to value you protect the lender and borrower from defaulting. Also, a 4% APR calculated simple interest on a $100k line of credit translates into a quarterly payment of $1,000. So refinancing from an existing amortized mortgage would yield tremendous savings.

Since we keep going back to absolute worst-case scenarios. Suppose life happens and they stop contributing or worse still they surrender the policy. If you end up with more cash than you started, how is that not better than never having begun the policy in the first place? It is just like saying mortgages are going to lead some people to lose their homes, therefore, nobody should be encouraged or allowed to get HELOCs. If you know the natural consequence of not paying what you borrow, then you should be sophisticated enough to be able to handle this product since it is just an upgrade on what we already know how to do which is bank. If people know how to spend on a credit card or withdraw from a bank account using the ATM, then this will make that even better because after it is set up and put on auto-pilot you are compounding tax-free for life with few "externalities" to derail even a modest premium payment since the line of credit can pay the premiums.

 

[ejbarraza]

Insurance companies do not price products that lose money.
Every state will only approve a product if it breaks even in certain time frame.
I believe N.Y is 7 years.
The cash value loans that you reference @75% of cash value,pretty much is a bad deal.
You should be able to get 85-95 on an I’ll.
95% on whole life.
Look into Valley National or Dollar Bank if they are licensed by you.
In July Gracie Point will be in this business and their rates will be competitive.

Firs of all the insurance float example is specifically in reference to Property and Casualty insurance. And it is indeed a fact that many of GEICO’s competitors are pricing insurance at a loss. However the loss is smaller than a loan would be hence the value in selling the service and using the float to invest in something else of higher risk/reward. The analogy is that your life insurance premiums can be used to float an investment until the day you die. Creating a very favorable arbitrage. Also, I know many banks that lend on whole life at 90-100% LTV. I only know of 2 banks that lend against IULs and it is at 50% and 75% LTV. If the lender gets more comfortable with the risk, that LTV can go up to 90%. Borrowing 90% from a third party lender is WAY safer than from the insurance carrier directly. That coupled with a fixed rate for 36 months at Prime minus 100 basis points is a huge value proposition for the borrower. If you know of a comparable product or lender, I would love to know the same of such a lender.

 

[Allen Trent]

Let us suppose the average person makes $40k and their employer offered a permanent life insurance policy as a self-funded pension plan alternative to a 401k or IRA. The only way people save is when they are forced into it like IRAs, 401ks, and mortgages. Contributing $150 every paycheck or $300 a month for 10 years, they would have paid in $36k and would probably have more than $50k if things go well. Is the annual premium payment not like a mortgage in that if you don't pay the asset is repossessed? I think that if a person is savvy enough to already own a permanent life insurance policy or home loan, then they are sophisticated enough to practice the infinite banking concept. Also, is this product not just an upgrade on their existing policy loan provision? Meaning that they can already lever themselves up to an irresponsible amount using an IUL, whole life policy, or HELOC. By limiting the loan to value you protect the lender and borrower from defaulting. Also, a 4% APR calculated simple interest on a $100k line of credit translates into a quarterly payment of $1,000. So refinancing from an existing amortized mortgage would yield tremendous savings.

Since we keep going back to absolute worst-case scenarios. Suppose life happens and they stop contributing or worse still they surrender the policy. If you end up with more cash than you started, how is that not better than never having begun the policy in the first place? It is just like saying mortgages are going to lead some people to lose their homes, therefore, nobody should be encouraged or allowed to get HELOCs. If you know the natural consequence of not paying what you borrow, then you should be sophisticated enough to be able to handle this product since it is just an upgrade on what we already know how to do which is bank. If people know how to spend on a credit card or withdraw from a bank account using the ATM, then this will make that even better because after it is set up and put on autopilot you are compounding tax-free for life with few "externalities" to derail even a modest premium payment since the line of credit can pay the premiums.

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I don't disagree with most of this. Just go out & sell one of these per week for 10 years & report back to me how it plays out, let me know how many complaints to insurance depts happen, how many are still in force, cashed out for way less than paid in, etc.

Seen it from ULs of the 1980s, the VUL of the 1990s, the WL of the 1950-2000 that have reduced dividends. They all looked good at illustration, even better on agent created spreadsheets, but only some panned out & those are those that stuck to it & modified the plan as the product & interest rate underperformed

 

[ejbarraza]

I don't disagree with most of this. Just go out & sell one of these per week for 10 years & report back to me how it plays out, lete know how many complaints to insurance depts happen, how many are still in force, cashed out for way less than paid in, etc.

Seen it from ULs of the 1980s, the VUL of the 1990s, the WL of the 1950-2000 that have reduced dividends. They all looked good at illustration, even better on agent created spreadsheets, but only some panned out & those are those that stuck to it & modified the plan as the product & interest rate underperformed

Shouldn’t the goal be to enlighten consumers rather than keep them ignorant? If I can talk other people into becoming agents and doing this for themselves, is that bad? Assuming that the illustrations are within 5-6% I don’t see the danger. I wouldn’t take on that kind of liability risk, but would hold people’s hand in order to get this done on their own.

 

[Tahoe Ray]

Shouldn’t the goal be to enlighten consumers rather than keep them ignorant? If I can talk other people into becoming agents and doing this for themselves, is that bad? Assuming that the illustrations are within 5-6% I don’t see the danger. I wouldn’t take on that kind of liability risk, but would hold people’s hand in order to get this done on their own.

If you believe in it this strongly, then do it!

I think what everyone is trying to say is just not to rely on carrier projections.

The economy changes, taxation changes, carriers change, so you have to review the policies constantly.

What you're doing (buying multiple contracts from different companies) is smart.

It would not be at all profitable to run an agency like this, however (focusing on prospects making so little money).

 

[Lloyds of Lubbock]

I gave you three sources, you want a personal referral?