Variable Vs Index Annuities

[scagnt83]

Do you know anything about IUL's? I wrote one that was issued 2/11/14. On the 2/11/15 statement no money was made even though the s&p went from 1800 to 2068. It was a point to point crediting method. I know I need to call the company just wanting to know if im missing something before I do

Thanks

First guess is that you used a Monthly Point to Point and not a Yearly Point to Point.

Monthly gives the opportunity to have higher returns vs. Annual. But Monthly takes on more risk and does not perform well in a volatile market like we had the past year. For example, I had IAs using Mp2p that had 15%-20% returns from 13-14. But from 14-15 the same funds only did 0.5%.

I always use Yearly Point to Point with IUL. I never use Monthly Point to Point with IUL.... ever!
The Caps are already very high so there is no need to try to take on more risk when you can get the returns you need using a less risky method.

Monthly Point to Point will have the most inconsistent returns out of all the Index Crediting methods. And that is not a good thing for a life policy.


Peter also makes a good point. If you pay Monthly, you end up with either 12 different Crediting "buckets" or 4 different Crediting "buckets". Some allocate on a monthly basis, but others (like LFG) allocate monthly premiums to the index crediting on a quarterly basis.


Give us some more info and we can help. What company? Was it yearly or monthly Point to Point? Paying monthly or annually?

 

[Golfnut2112]

First question was it a monthly pay or annual dump in because if it was monthly only 1 month would really be reflected in that statement. Also it's likely costs are taken first before funds get to the index. And how was this set up increasing death benefit max funded to guideline premiums?

It was one single premium that made the policy a MEC

Thanks

 

[scagnt83]

It was one single premium that made the policy a MEC

Thanks

Then it should be very easy to track the gains.

Was it Monthly Point to Point (Monthly Sum), or Yearly Point to Point?

 

[Golfnut2112]

Then it should be very easy to track the gains.

Was it Monthly Point to Point (Monthly Sum), or Yearly Point to Point?

It was a yearly point to point. 30% of the premium was allocated to the fixed account and made $880. The other 70% was allocated to the annual point to point and make $0.

 

[pfg1]

You may have just gotten unlucky and your start date was on one of the highs last year, and your end date was during one of the dips. Had it happen to me on an index annuity. Check what the index was on your dates, since it was annual it was easy to do.

That is the unfortunate issue of annual premiums with most carriers, only one crediting date. I wish all the companies that offered IUL's took the annual premiums and spread them into 12 buckets, 1 mo at a time. The diversification would be much better for the client, imo.

 

[scagnt83]

It was a yearly point to point. 30% of the premium was allocated to the fixed account and made $880. The other 70% was allocated to the annual point to point and make $0.

Something is off somewhere.

Either the statement is incorrect. Or it is a monthly P2P or Monthly Average.
Based on the values you gave you should have hit the Cap on a true Yearly P2P.

Some carriers can have weird wording for crediting methods, especially the Monthly P2P and Average... Im not saying you are reading it wrong (I know your an experienced agent) ... but I would double check just in case.

What carrier is it? Can you post the statement with personal info blacked out? Or you can email it to me if you would like.

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You may have just gotten unlucky and your start date was on one of the highs last year, and your end date was during one of the dips. Had it happen to me on an index annuity. Check what the index was on your dates, since it was annual it was easy to do.
.

He stated the index values already. The index was up almost 15% for the contract year.

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That is the unfortunate issue of annual premiums with most carriers, only one crediting date. I wish all the companies that offered IUL's took the annual premiums and spread them into 12 buckets, 1 mo at a time. The diversification would be much better for the client, imo.

That is called a DCA (dollar cost averaging) account. And many IUL carriers offer it.

Personally, I dont mind the single crediting bucket most of the time. It makes it very easy to review the policy with the client. If I feel the market is just super high at that moment I might suggest DCA. But I try to keep it simple. IUL isnt about chasing gains. As long as the annualized credited return is 6%+ at years 5/10/15/20 etc. Then Im satisfied.

 

[pfg1]

He stated the index values already. The index was up almost 15% for the contract year.

Yes he did. I agree, something ain't right.

That is called a DCA (dollar cost averaging) account. And many IUL carriers offer it.

Does North American offer it? If so, do you know what its called?

Personally, I dont mind the single crediting bucket most of the time. It makes it very easy to review the policy with the client. If I feel the market is just super high at that moment I might suggest DCA. But I try to keep it simple. IUL isnt about chasing gains. As long as the annualized credited return is 6%+ at years 5/10/15/20 etc. Then Im satisfied.

I agree, simple is usually best. Good info, thx.

 

[Golfnut2112]

Thanks for all your help, and scagnt83 you are right. I went went back and actually printed the statement and it was in a monthly average account and not point to point.

 

[scagnt83]

Does North American offer it? If so, do you know what its called?

Im not 100% sure. I have never had a need for it when using them so I have never asked or researched it. I do not believe its on the illustration system...

I know Penn offers it. LFG does too, or they used to.

I dont see it as that big of a deal. If someone wants to pay annually but have it allocated monthly, then why not just ETF it? If they do not have the discipline to keep the funds in there over the course of the year then they probably are not a great IUL client in the first place.

Of course you do pay a bit more in premium for monthly ETF vs. Annual...

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Thanks for all your help, and scagnt83 you are right. I went went back and actually printed the statement and it was in a monthly average account and not point to point.

That makes sense, and your welcome. I would look at reallocating over to the Yearly Point to Point. Historically it has much better performance vs. the Monthly Average. Especially at the Caps offered for IUL. All of my IULs (including my personal policy) use the Yearly Point to Point. I recently have heard a couple of really large IMOs pushing the monthly average method.... I have no clue why because all of the historical evidence point to yearly point to point as being best, especially at the high caps offered.

If you look at the Index Annuity world, most products that offer both YP2P and YMA, the MA Cap usually is 1% or so higher than the P2P. That is because it has less of a chance of reaching that number than the P2P does.