Whole Life vs. Index Universal Life

[RonRoberts]

Re: Whole Life VS Index Universal Life

The difference between 6 and 8% can be the nearly double the cash after 30 years...

I would love to see your last point. The -38 wouldn't necessarily kill the policy since you'd have a 0 credit that year and then could recover and cap out in subsequent years. A 2000-2002 scenario when the client is in his 70s, hasn't made a premium payment in years and is taking distributions would be very interesting.

When I am illustrating an overfunded IUL the max rate I show is 6%. I will then state the possibilities with a 6.5% but that is as high as I go. I just don't believe that I can illustrate an 8% with a clear conscience.

While I believe the product "may" work, the problem that I have is the amount of time these products have been on market, the percentage of owners/insured that have had their products long enough to actually begin taking distribution while having stopped making premium payments is an unknown, and the actual percentage that will lapse due to improper funding, improper illustrations, and/or unrealized expectations from the market is an unknown.

While I am sold, I am not drinking the koolaid with as much sugar. For this reason, I still like whole life for its guarantees a whole lot more. Then again I may be all wrong in my thinking with regard to this.

 

[Larry Tew]

Re: Whole Life VS Index Universal Life

Boy you really don't understand IUL's do you!! If you did know what you were talking about then you would know that our clients lost 0 in the years when the market lost money. They only participated in the up years and on our policy that was capped at 13% they average 6.85% growth from 1999 - 2011. And that is FACT and is verifiable!

Please don't chime in when you really don't know how something works and for the love of our father in heaven, I AM DONE BEATING THIS POOR HORSE!!!!!!

No need to be so condescending and testy. I'm the one who raised these points, not Ray. In the interest of accuracy, I've attached a pic of the years 2000-2012 (what I originally referenced) using your 13% cap, and understanding that "average" rate of return doesn't equal actual compounded ROR, the real number over those years is 6.03%, not 6.85%.

Drop the cap to 10% and the Compounded ROR drops to below 5%.

Then there's what Ron said about the relative newness of the product and expenses. What sank VUL wasn't just the market. It was the expenses that could no longer be hidden behind 15% returns over a decade or more.

If you disagree with the "expenses" point, post your best illustration at guaranteed rates and at 6% and let's dissect them.

Again, IUL fits where it fits, but it isn't magic.

 

[Norwayguy]

No need to be so condescending and testy. I'm the one who raised these points, not Ray. In the interest of accuracy, I've attached a pic of the years 2000-2012 (what I originally referenced) using your 13% cap, and understanding that "average" rate of return doesn't equal actual compounded ROR, the real number over those years is 6.03%, not 6.85%.

Drop the cap to 10% and the Compounded ROR drops to below 5%.

Then there's what Ron said about the relative newness of the product and expenses. What sank VUL wasn't just the market. It was the expenses that could no longer be hidden behind 15% returns over a decade or more.

If you disagree with the "expenses" point, post your best illustration at guaranteed rates and at 6% and let's dissect them.

Again, IUL fits where it fits, but it isn't magic.

Perfect post of someone who understands the whole picture with life insurance. Yes IUL can show nice potential returns with caps at the current rate. But watch what happens when another agent wants to blow you out of the water.

Competing agent " I agree the policy credited interest at the cap last year. Question why is the contractual guarantee on that cap ie how low does the policy let cap go"

"Interesting also your illustration is at the current expenses can you illustrate what happens if expenses rise to the max amount under the policy?"

"And finally Mr client when your taking distributions the power of Zero really is NOT a hero any more you are taking loan distributions which have an interest expense and this illustration is assuming the policy will be crediting more interest than you pay out, what happens if we have back to back years of losses you policy will be crediting Zero interest why you loan interest expense continues to go up."

 

[AIBINS]

Perfect post of someone who understands the whole picture with life insurance. Yes IUL can show nice potential returns with caps at the current rate. But watch what happens when another agent wants to blow you out of the water.

Competing agent " I agree the policy credited interest at the cap last year. Question why is the contractual guarantee on that cap ie how low does the policy let cap go"

"Interesting also your illustration is at the current expenses can you illustrate what happens if expenses rise to the max amount under the policy?"

"And finally Mr client when your taking distributions the power of Zero really is NOT a hero any more you are taking loan distributions which have an interest expense and this illustration is assuming the policy will be crediting more interest than you pay out, what happens if we have back to back years of losses you policy will be crediting Zero interest why you loan interest expense continues to go up."

"I told you this wold go round and round and everyone drinks a different flavor! Too bad people cannot get an "Unbiased" answer. I CLEARLY defined in my very first post the difference between WL, IUL and Term and NEVER said WL was bad, only that it depended on the client. You keep thinking of every different scenario you can to discredit others, but all I know as that I do NOT risk my clients hard earned money in variable products nor do I lie to them with fictious claims or intrest. With that said, I said my piece and I am done with this post. Sorry about the first interest rate I reporte (6.85%) my fingers got a little stickly on the keyboard and I should have looked over before submit, but you got my point that they earned 6%+ interest with an IUL when they "qualified" plan only earned them .85%.... Best of luck all, and I hope whatever it is you do works out for your clients in the best manner period!"

 

[BNTRS]

Well, I see what happens when I'm away for a while.

I have a few thoughts to share...

When I am illustrating an overfunded IUL the max rate I show is 6%.

Thank you for your sensibility and prudence in presenting this product, you're one of the good guys.

I've attached a pic of the years 2000-2012 (what I originally referenced) using your 13% cap, and understanding that "average" rate of return doesn't equal actual compounded ROR, the real number over those years is 6.03%, not 6.85%.

Actually the returns in COW seem to be off a bit and the real CAGR would be approximatle 5.9% once this has been adjusted. This assumes the stipulated 0% floor 13% cap on a 1 year point to point strategy.

Also, when I drop the cap to 10%, it drops to 5.12% not below 5%.

I'm sure IUL has a place, but until IUL proves itself over time like WL, I'll remain cautious. I'm still seeing IMOs and insurance companies using 6-8% interest assumptions, which is unsustainable based on the last 10 years of fixed interest returns.

One small problem here, indexed universal life isn't just about the general account in all cases. They are supported (though only to a tiny degree) by index derivatives, still your point concerning investment account yield vs. assumed return on these products is a good one as there's a strong correlation between the two.

I'll note one other consideration concerning GA yield. comparing 5 year average yield among the mutual's (including ONL especially since they have a superlative yield) against well known IUL carriers, the IUL carriers currently have a slight lead averaged among each group 5.69% to 5.56%. Looking at the standard deviation the spread is bigger among IUL carriers, so to me it really looks like they'll both likely do the same on average when it comes to investment return.

On top of that, we know that life insurers do not only pay dividend or interest on investment yield alone. So expenses and mortality experience matter.

What sank VUL wasn't just the market. It was the expenses that could no longer be hidden behind 15% returns over a decade or more.

The expense discussion is not one that tends to go well in whole life's favor. In fact, if I return to that same sample of companies and look at total operating expenses to income as a ratio I get an average among the IUL companies of 9.28% vs 9.58% for the whole life companies. But, there's an outlier in the IUL group so once we account for that the average is 6.65%

My point in all this?

It's not product type, it's specific company and specific product.

There are bad whole life policies just like there are bad IUL policies (and there are a lot more bad IUL policies out there). But for each type, there are some great products that can do really great things. As well as great companies that are fiercely dedicated to manufacturing exceptional products for their policy holders.

 

[AIBINS]

Well, I see what happens when I'm away for a while.

I have a few thoughts to share...



Thank you for your sensibility and prudence in presenting this product, you're one of the good guys.



Actually the returns in COW seem to be off a bit and the real CAGR would be approximatle 5.9% once this has been adjusted. This assumes the stipulated 0% floor 13% cap on a 1 year point to point strategy.

Also, when I drop the cap to 10%, it drops to 5.12% not below 5%.



One small problem here, indexed universal life isn't just about the general account in all cases. They are supported (though only to a tiny degree) by index derivatives, still your point concerning investment account yield vs. assumed return on these products is a good one as there's a strong correlation between the two.

I'll note one other consideration concerning GA yield. comparing 5 year average yield among the mutual's (including ONL especially since they have a superlative yield) against well known IUL carriers, the IUL carriers currently have a slight lead averaged among each group 5.69% to 5.56%. Looking at the standard deviation the spread is bigger among IUL carriers, so to me it really looks like they'll both likely do the same on average when it comes to investment return.

On top of that, we know that life insurers do not only pay dividend or interest on investment yield alone. So expenses and mortality experience matter.



The expense discussion is not one that tends to go well in whole life's favor. In fact, if I return to that same sample of companies and look at total operating expenses to income as a ratio I get an average among the IUL companies of 9.28% vs 9.58% for the whole life companies. But, there's an outlier in the IUL group so once we account for that the average is 6.65%

My point in all this?

It's not product type, it's specific company and specific product.

There are bad whole life policies just like there are bad IUL policies (and there are a lot more bad IUL policies out there). But for each type, there are some great products that can do really great things. As well as great companies that are fiercely dedicated to manufacturing exceptional products for their policy holders.

Wow! Now that's an explanation!

 

[Larry Tew]

Actually the returns in COW seem to be off a bit and the real CAGR would be approximatle 5.9% once this has been adjusted. This assumes the stipulated 0% floor 13% cap on a 1 year point to point strategy.

Also, when I drop the cap to 10%, it drops to 5.12% not below 5%.

Brandon, I checked the actual annual returns of the S&P 500 Price index with www.pinnacledata.com and I checked the actual math on my screen cap and it appears to be correct. It assumes annual compounding (which would mirror a point-to-point crediting method). Why do you assume the COW calculator is off?

The expense discussion is not one that tends to go well in whole life's favor. In fact, if I return to that same sample of companies and look at total operating expenses to income as a ratio I get an average among the IUL companies of 9.28% vs 9.58% for the whole life companies. But, there's an outlier in the IUL group so once we account for that the average is 6.65%

I'm not thinking about expenses at the company level but rather at the policy level. Example...

Same company issues a current assumption UL and a VUL on the same person with the same face, rate class, and premium. Why does it take a 6% crediting rate on the VUL to match the CAUL at 4%? The answer is higher expenses in the VUL. The most outrageous one (not counting M&E and higher premium loads) is that actual mortality charges (cost per $k of net amount at risk) for the same person is 25-30% higher in the VUL. Is the mortality experience for VUL 30% worse than for CAUL?

Another examples of initial product pricing that lacked long-term sustainability are Guaranteed DB UL and LTC. Both these products have required substantial re-pricing due to interest rate environment or actual expenses.

As I said, IUL fits where it fits. But I disagree with Patrick Kelly whose book calls IUL a "Retirement Miracle". It's not a miracle or magic.

 

[scagnt83]

I'm not thinking about expenses at the company level but rather at the policy level. Example...

Same company issues a current assumption UL and a VUL on the same person with the same face, rate class, and premium. Why does it take a 6% crediting rate on the VUL to match the CAUL at 4%? the answer is higher expenses in the VUL. The most outrageous one (not counting M&E and higher premium loads) is that actual mortality charges (cost per of net amount at risk) for the same person is 25-30% higher in the VUL. Is the mortality experience for VUL 30% worse than for CAUL?

Another examples of initial product pricing that lacked long-term sustainability are Guaranteed DB UL and LTC. Both these products have required substantial re-pricing due to interest rate environment or actual expenses.

Larry,

For you to compare IUL with the expenses in VUL shows that you just do not understand the product at all.

The expenses in an IUL are nothing like a VUL.

And I would say that they are less than a WL policy (although there is no real way of knowing this since WL policies do not break down the expenses)

For a 60 year old who buys an IUL, in year 6, the total expenses are 5.4% of the CV.
Thats the COI, expense/admin, & premium load.

Year 10 it drops to 0.95%
Year 15 it is 0.84%
Year 20 it is 0.74%
Year 30 it is 0.43% of the Cash Value (remember this is at 90 years old)



Larry, you say that IUL is expense heavy, but when overfunded it most certainly is not.
You cannot look at an IUL expense report from any of the top IUL policies (LFG, ING, NA) and honestly say that the policy is expensive.


You argue COI.
But on that same policy for that Standard 60yo, the most the COI gets is $1,588.
And that is on $300k+ of DB.


Your expense argument lacks factual evidence.

 

[Larry Tew]

Larry,

For you to compare IUL with the expenses in VUL shows that you just do not understand the product at all.

The expenses in an IUL are nothing like a VUL.

I wasn't making that comparison - not even in the part you quoted. It clearly reads a comparison of expenses between a VUL and CAUL issued to the same person by the same company.

The point I tried to make concerning GDBUL and LTC related to new products that lacked the benefit of TIME and experience. IUL is a relatively new product.

We all show our biases from time to time, myself included. What drew me into this thread was the comment:

"Whole life is the best for someone who wants "permanant" life insurance, with no lapsation and wants to keep cost to a minimum for a lifetime life product.

IUL (Indexed Universal Life) is the best product to sell to someone who has the ability to "over fund" the policy and would like a life time of tax free income in the end."

I disagree with the above assessment.

And concerning expenses for WL being high, I'm not following the real life application of what some of you are saying. All products have expenses factored into their pricing. Ultimately, what matters is what the client gets for his money. So...

The worst case scenario I can think of for a client who buys WL is for the company to NEVER EVER pay a dividend. That has never happened, but let's say it did...

I ran an illustration for 500k for a male 35 preferred. Annual premium is $4,840. Guaranteed CV year 20 is $115,680 on $96,800 total premium.

That is a GUARANTEED 1.67% ROR. Subtract the equivalent term premium of $615 and the ROR becomes 2.9%. Push that out to 30 years and the numbers just get better.

I don't know if internal expenses on WL are high or low, but I know that the results of this worst case scenario look pretty good.

And then there's this from another thread:

"There is an awesome webinar tonight being conducted by David Weiner. David is a Multi MDRT producer and teaches agents and clients how to pay off all of their debts within 13 months with the power of IUL. If you would like to register and check it out, go to: http://www.anymeeting.com/PIID=E953D78086493C His ideas and concepts can definitely help your business grow weather you are an independent or captive agent."

Am I the only one here who sees a problem with the above? I know the concept they're talking about and several IMOs are promoting it. That is the same hype that came with UL in the 80s and later with VUL.

It was never my desire in any of my posts in this thread to drill down to the sub-atomic level, but at the client level -where it counts - I'm convinced I'm in a safe place on solid ground.

 

[scagnt83]

And then there's this from another thread:

"There is an awesome webinar tonight being conducted by David Weiner. David is a Multi MDRT producer and teaches agents and clients how to pay off all of their debts within 13 months with the power of IUL. If you would like to register and check it out, go to: http://www.anymeeting.com/PIID=E953D78086493C His ideas and concepts can definitely help your business grow weather you are an independent or captive agent."

Am I the only one here who sees a problem with the above? I know the concept they're talking about and several IMOs are promoting it. That is the same hype that came with UL in the 80s and later with VUL.

I dont think I need to say that I dont agree with rip-off advertising such as that.

But that is an outside system, not the product itself.
The product itself is solid if utilized correctly.
And the product itself does more than enough to need some "system" to sell it.

Of course WL is the same. Most systems built around it (especially the new ones) are just phony marketing scams.
- - - - - - - - - - - - - - - - - -

I wasn't making that comparison - not even in the part you quoted. It clearly reads a comparison of expenses between a VUL and CAUL issued to the same person by the same company.

The point I tried to make concerning GDBUL and LTC related to new products that lacked the benefit of TIME and experience. IUL is a relatively new product.

We all show our biases from time to time, myself included. What drew me into this thread was the comment:

"Whole life is the best for someone who wants "permanant" life insurance, with no lapsation and wants to keep cost to a minimum for a lifetime life product.

IUL (Indexed Universal Life) is the best product to sell to someone who has the ability to "over fund" the policy and would like a life time of tax free income in the end."

I disagree with the above assessment.

And concerning expenses for WL being high, I'm not following the real life application of what some of you are saying. All products have expenses factored into their pricing. Ultimately, what matters is what the client gets for his money. So...

The worst case scenario I can think of for a client who buys WL is for the company to NEVER EVER pay a dividend. That has never happened, but let's say it did...

I ran an illustration for 500k for a male 35 preferred. Annual premium is $4,840. Guaranteed CV year 20 is $115,680 on $96,800 total premium.

That is a GUARANTEED 1.67% ROR. Subtract the equivalent term premium of $615 and the ROR becomes 2.9%. Push that out to 30 years and the numbers just get better.

I don't know if internal expenses on WL are high or low, but I know that the results of this worst case scenario look pretty good.

I disagree with what you quoted as well.
WL is the original CV Life Product and is a super solid policy to have. (obviously we are talking about Par WL from a solid company)


But you made the statement:
"I'm not thinking about expenses at the company level but rather at the policy level. Example..."
Then you went on to mention VUL and CAUL.
And it was all in response to Brandon talking about IUL.


I totally agree about the marketing schemes. I feel that they are disgracing a good product.

But you always mention expenses when talking about IUL.

So I dont follow you on the expense comments.


To compare an IUL to your WL you ran; it would actually take around the same dollar amount to buy the $500k.
But after year 7-10 most IULs have significant decreases in expenses even though the COI is rising.


I agree that the WL has better guarantees. That is a fact.
But run any historical scenario and a fully overfunded IUL has about an equal chance as a WL of hitting just the minimum.


Were you referring to low Treasury rates effecting the sustainability of caps or current expenses?
If so, how do you explain rising caps while rates have been falling?