Understanding IUL Mechanics

[De-risked]

Proper, adequate, poor, etc., funding is just one problem with UL chassis products. Yes, the COI. People tend to look it after the fact, when they have a problem now. It should have been looked at, this point in time, should have been looked at 5 years ago, if not 10, or more. Yes, poor policy design is another contributory factor. Crediting rates is another. They fluctuate. They are not stagnant and linear/fixed.

Max funding can solve these issues -- but it's not guaranteed to do so. Run an illustration with max funding, and look at the guaranteed side of the illustration. See what happens then. Realistic or not, doesn't matter. It's a reference point. All the best!

Great points,

thank you.

 

[SamIam]

Yes. It is a major difference between WL and IUL/UL.
WL gives guarantees that IUL does not.

There is the risk that dividends cease on WL. Which has happened to a few over the years. But the big 3-4 have always been strong. But if that happens, they are still guaranteed to never lapse.

---

Penn Mutual and Columbus Life both use a "portfolio rate" for their IUL Caps. Meaning in-force policies get the same Cap as new policies. They are my "go to" carriers for IUL usually.

Those two also have the lowest maximum expenses on the market, that I know of.

They both have indexing options that allow for a 2% floor. And most have a minimum 4% Cap. The policy is not going to be what you want at those rates, but its better than what most provide.

---

I personally like Guardian as a "middle ground" between WL and IUL. They offer the Index Rider on their WL. You can allocate whatever % you want to the S&P 500 indexing.

It has a 4% annual floor, and a 10.5% annual Cap. Plus the guarantees of WL.

It wont beat an IUL in an illustration comparison. But its a strong option that clients seem to like.

I knew about Columbus in-force policies get the same cap as new policies, but didn't know about Penn. Does Penn have that in writing?

 

[PrivClientSG]

Yes. It is a major difference between WL and IUL/UL.
WL gives guarantees that IUL does not.

There is the risk that dividends cease on WL. Which has happened to a few over the years. But the big 3-4 have always been strong. But if that happens, they are still guaranteed to never lapse.

---

Penn Mutual and Columbus Life both use a "portfolio rate" for their IUL Caps. Meaning in-force policies get the same Cap as new policies. They are my "go to" carriers for IUL usually.

Those two also have the lowest maximum expenses on the market, that I know of.

They both have indexing options that allow for a 2% floor. And most have a minimum 4% Cap. The policy is not going to be what you want at those rates, but its better than what most provide.

---

I personally like Guardian as a "middle ground" between WL and IUL. They offer the Index Rider on their WL. You can allocate whatever % you want to the S&P 500 indexing.

It has a 4% annual floor, and a 10.5% annual Cap. Plus the guarantees of WL.

It wont beat an IUL in an illustration comparison. But its a strong option that clients seem to like.

I've never had to have the discussion where a WL product "can't" or "won't" beat an IUL illustration. It's no different than having a discussion about a mini-van beating a Corvette. First, illustration wars and discussions are a fallacious exercise. However, prior to that, it's the narrative that dictates and sets the parameters for a conversation. Second, you are exactly right -- one product is built on a series of guarantees, and the other is not. Period. Thus, any conversation that moves from that point MUST include that fact. You said it. It's a fact. Period.

There are plenty of WL products, designs, etc., that go right up to the MEC limits, if that's what someone is looking for. Outside of that, or should I say, if someone is looking to go beyond that so called performance, I look to PPLI before I look to IUL. Yes, minimums, different market, etc. But that says something about the IUL market. In addition, the eventual "internal" ROR on WL is a secondary issue. It's no different than the ROR on a stock. It's not all that's going on. There is much more that can be done. What that policy does with, for, when it's integrated and used in conjunction with other assets -- that's where you get alpha (compared to the internal ROR).

I do hear the IUL vs. PPLI debate often, primarily that candidates for IUL are often not qualified for PPLI. Some generic blanket statement can't be relied upon ALWAYS. A client, good friend of mine asked me to a favor for a friend and look at (what turned out to be an IUL) an illustration that was being "pitched" to him. Long story behind it, but the recommendation was for $100,000 annual premium for 7 years -- a period of time the client felt his income would be ample enough to pay that premium (he's a doctor) -- or a lump sum of $500,000. I said I would review the illustration, give the friend an objective, unbiased assessment, and refer him to someone who could help him with proper, true, comprehensive "planning" -- as opposed to being "pitched" a product. This is not an indictment of IUL, but of the people who "pitched" it. Too often professionals fall into "product" and not "strategy" -- and that is where products are vulnerable. Regardless, excellent points, and thanks!

 

[Allen Trent]

I knew about Columbus in-force policies get the same cap as new policies, but didn't know about Penn. Does Penn have that in writing?

no way to put that in writing as a forever guarantee...................as they may change in the future as many carriers have.

Many carriers have openly said over the years: We are different, we treat new business & renewal business the same via an overall portfolio rate design...............................then they adjusted & create new blocks on a regular basis with the newer blocks tending to receive higher cap & par rates at time of illustration until they later become a renewal block of business potentially receiving different or lower crediting methods

They can only say what they have done in the past, not what they or their successor company will do in the future

 

[De-risked]

no way to put that in writing as a forever guarantee...................as they may change in the future as many carriers have.

Many carriers have open said over the years. We are different, we treat new business & renewal business the same via an overall portfolio rate design...............................then they adjusted & create new blocks on a regular basis with the newer blocks tending to receive higher cap & par rates at time of illustration until they later become a renewal block of business potentially receiving different or lower crediting methods

To me this is the biggest risk with IUL.

I have a hard time with the idea of entering into a contract that can essentially be restructured at any point, invariably not to my benefit.

 

[scagnt83]

I knew about Columbus in-force policies get the same cap as new policies, but didn't know about Penn. Does Penn have that in writing?

None of them have it in writing. To my knowledge at least.

There is nothing in the Columbus life contract that says it gets the same Caps as newly issued policies.

They do this in practice. Not by contractual guarantee.

 

[scagnt83]

None of them have it in writing. To my knowledge at least.

There is nothing in the Columbus life contract that says it gets the same Caps as newly issued policies.

They do this in practice. Not by contractual guarantee.

To add to this.

I know Columbus has a marketing piece that talks about their portfolio rate crediting method.

But marketing pieces are not a contractual guarantee. That business practice could change tomorrow. Same with Penn.

And Penn publishes renewal rates, so you can track it.

 

[marindependent]

I have a hard time with the idea of entering into a contract that can essentially be restructured at any point, invariably not to my benefit.

LOL - Agreed!

 

[bnice1]

I need some suggestions on the best IUL's or Whole Life Products for cash accumulation. The client has New York Life and feel he can get better rates.

 

[DHK]

I need some suggestions on the best IUL's or Whole Life Products for cash accumulation. The client has New York Life and feel he can get better rates.

I'm going to put this as nicely as I can:

The client's expectations is not the basis of what is possible with life insurance.

NYL is one of the best companies out there and without seeing the policy, I have no idea if they have a death benefit-focused policy vs a cash value accumulation policy. It's not about the policy name. It's about the design of the policy.

Now, I'm assuming that you don't have securities licensing, because one way he can get 'better rates' is to purchase a variable life policy (VUL). But there are significant drawbacks in the desire for a 'better rate'.

• VUL has market risk for their mutual fund sub accounts in addition to an increasing net amount at risk charge that happens when the cash values decrease.
• IUL has performance risk for their fixed indexed segments. You may not lose money due to the market, but a 0% year in a given segment still has costs of insurance eating away at the cash values. (That's why I differentiate between market risk vs performance risk.)
• WL, while it is often shown with current dividend scales (meaning how the company is paying and treating their current policyholders with their current dividends), will perform more or less favorably than as illustrated. However, the guarantees make it great, if one knows how to harness and leverage those guarantees.

The real questions are:

• What is the purpose of their policy and what do they want to accomplish with it?
• Is their current policy designed to optimize this both short-term and long-term?

This must be answered before even entertaining the possibility of a replacement.