Whole Life or IUL

Apr 3, 2018

  1. jboussea
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    jboussea Guru

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    I think this method will more than likely attract the wrong type of agents that are just hungry for a sale .. Someone who's in it for the long haul will see your request as a potential liability...
     
  2. js44
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    js44 Expert

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    If I am under such a scenario where insurance company just went "nuclear", I have to go find such an agent capable of pulling me out of it, right? I am just looking for that agent now. I am kind of guy who takes everything upon myself and don't blame others. Why am I a potential liability then?
     
    js44, Apr 12, 2018
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  3. jboussea
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    jboussea Guru

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    It's important that your policy is designed properly.. .However there is only so much design can do. I feel that by saying "whoever can come up with the best policy" gets the deal ..it's inviting agents to play the illustration game. The illustration that looks great 3% might not be the best at 6% ... and maybe you just want something with less internal expenses..

    but some agent might just show you an illustration at 3% that has an astronomical "non guaranteed" bonus that makes the illustration look so much better than the companies with no bonus and those with guaranteed bonuses.

    As far as liability is concerned .. I'd be worried that you d have buyers remorse ..thinking the grass is greener with a different carrier.. I might be wrong but it's good to err on the side of caution
     
  4. DHK
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    DHK "YOU CAN'T HANDLE THE TRUTH!"

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    Just to throw this out there - I always remember the rule 1 to 100: In one year, 100% of your illustrations will be wrong. They'll either be better or worse than as illustrated.
     
    DHK, Apr 13, 2018
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  5. DHK
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    DHK "YOU CAN'T HANDLE THE TRUTH!"

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    I'm going to dissect this a little bit.

    Fair enough.

    This was the perspective of IUL when I was working at MassMutual (who didn't understand nor allow their agents to sell IUL).

    IUL is a concept that would be hard to back-test, but UL has been around since the late 70's (perhaps earlier). Stock market call options have been around for a long time too. Putting them together makes sense. However, we simply can't back-test accurately due to costs of call options, computerization that would've been required in the 70's (quite expensive, I could imagine), and figuring out the interest rate environment to help determine cap rates.

    VUL has, as I'm sure you know as you seem well-versed in this, market fluctuations along with increasing costs of insurance. So, as the market goes down, costs of insurance still come out from lowered cash values in the policy. This volatility makes VUL more susceptible to lapsing.

    IUL, by contrast, is not directly invested in any stock market index, but can participate in an index segment upside or not, because of using call options on the insurance company's general account.

    It's good to be cautious. I simply wanted to show a logical component to the IUL for the points you made. Most agents can't describe how IUL really works and therefore are unable to manage customer expectations properly.
     
    DHK, Apr 13, 2018
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  6. scagnt83
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    scagnt83 Worldwide Expert of Everything

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    To my knowledge, no carrier has ever done either, much less both combined. (dropping caps to min and raising expenses to maximum)

    Plenty of carriers have lowered Caps. Some more than others. But I dont know of any in-force policies that are at the Minimum Cap rate. I know I dont have any in my book of business with the carriers I normally write.

    Plenty of carriers have increased Expenses. There might be some out there at max expense, but not in my book of biz and not with any of the carriers I normally write.

    ---

    This scenario could be illustrated. It is not that hard to show various hypotheticals.

    But just look at the Guaranteed column. It doesnt just go from humming along to bust in 1 year. Not if the policy is designed correctly.


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    Again, this is why the quality of the carrier matters greatly. Just as much as it does with WL. (when you are relying on carrier performance for the dividends).

    With WL, you trust the Carrier to maintain Dividends. With IUL, you trust them to maintain Caps. Obviously, IUL has more risk since there is no long term guarantee like WL has.



    Yes, but with a non-MEC policy, the Guaranteed Column of an IUL is ALWAYS GOING TO LAPSE. (usually within 15-25 years)

    You can MEC a policy and not have the guaranteed column lapse. But a non-MEC IUL will ALWAYS lapse on a guaranteed basis.

    This is just how IUL is designed and priced by the carrier. It is not priced or designed to provide a no-lapse guarantee.

    The client accepts more risk, in return for the opportunity of higher returns.

    If you think the Guaranteed Column has a chance of happening, then IUL is not the right product for you.

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    The Guaranteed rate varies from carrier to carrier.

    Midland guarantees 3%, over an 8 year period. But they only look at it every 8 years, and will "true up" the policy if it has not annualized 3%. That is a big difference vs. others that guarantee 1% per year minimum (like Lincoln or Penn).

    The likelihood of not receiving an annualized 3% is pretty low.

    The likelihood of having a few 0% index years, is pretty high. That is why the 1% floor is a much more beneficial method to calculate the guarantee.

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    If your hangup is the guaranteed column. IUL is not for you. It is a riskier product than WL, but less risk than VUL. You have to be ok with taking on the risk of lapse with non-MEC IUL.
     
    Last edited: Apr 13, 2018
  7. scagnt83
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    scagnt83 Worldwide Expert of Everything

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    Just to play devils advocate ;)

    Penn Mutual has kept their Dividend the same for the past 9 or 10 years. If you sold a Penn WL 8 years ago, today, it would be identical to the sales illustration.

    But you know that I know what you mean!
     
  8. jboussea
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    jboussea Guru

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    It's always important to understand what is in the best interest of a company you're doing business with.

    It doesn't benefit the carrier when they're losing no only new business but a lot of inforce business because people are trying to get out of their policies since they get much higher rates from the next company. That's why it's good to go with a company that is focused on IUL .. you know that they have a lot of inforce business in that space and they can't go pissing off their current clients.
     
  9. scagnt83
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    scagnt83 Worldwide Expert of Everything

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    This is a good point to an extent.

    It is not a company "going nuclear" that worries me. The far more likely scenario is that they are just not in the life insurance business much anymore in 20 year from now, and have no incentive to keep Caps competitive.

    Jackson National is a fantastic example of that scenario. They had very competitive life products, and great financial ratings. But life insurance was less than half of their overall business model.... and over the years, they became less and less competitive, and eventually stopped selling life insurance. Now they mainly just do annuities and investments.

    But look what happened to their life products. They went to sh*t. The rates on the old ULs are not that competitive, and the conversion options on the term are insulting.

    Not only did they screw the life clients, but they screwed the agents too. I know guys that still cuss them when Jackson is mentioned.


    Getting back on point, that is why going with a carrier who is a "life insurance first" carrier has become more and more important to me over the years.

    If Life Insurance makes up most of their assets, they cant screw the clients too bad... or they all leave and the carrier really does crash.

    Also, agents dont keep selling for carriers that screw over clients. Because it makes us look bad. Screwing clients screws agents. So if a carrier screws IUL clients, that will kill new life sales for them.


    Another aspect to look at is the corporate structure. If its a publicly held carrier or parent company, that throws extra risk into the equation. Privately held would be less risk. And Mutually Owned would be lowest risk.
     
  10. js44
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    js44 Expert

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    I know atleast one product which does not lapse but I am not interested in it as I don't want my DB to be guaranteed. I only want my CV to be earning money every year, even if it's 3%.
    Guarantee Builder IUL - nacolah-portal.com

    I am just putting it out here so you as an agent know it's an option for people who are afraid of lapsing of DB and that you don't go around making such a bold statement.

    Now, you will come out and say all kinds of negative things about this guarantee builder IUL to justify you not mentioning. That's just human nature.

    I don't know why you didn't think of this product when you made such a statement, maybe you didn't know or maybe it's commission is not worth it. Guarantees are a liability for the insurance company. Why would they pay more commission to push this product?
     
    js44, Apr 13, 2018
    #60
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