Compliance Bombshell: New Regs to Curb EIUL Illustration Abuses
To download the 3-page summary of the NEW and restrictive proposed EIUL illustration regulations, click here.
You may not believe what you are about to read. While many words come to mind when I think about the new proposed EIUL illustration regulations discussed below, the first word that comes to mind is: Ironic.
Why Ironic? I’ve been beating the drum for several years about abusive illustrations that continue to come across my desk and now it looks like those abuses are going to dramatically change the EIUL industry.
It’s also ironic that I’ve been on a heavy educational push this year trying to educate advisors so they will NOT use abusive illustrations given to them by IMOs to sell clients EIUL policies (See www.eiultraining.com).
For example, we’ve done webinars recently on the following:
-How to Properly Illustrate and Sell EIUL Policies. Click on the following link to view on recording: http://eiultraining.com/eiul-design-and-marketing-webinar/
-Back casting tool explained–what crediting rates are realistic for each carrier. Click on the following link to view it on recording: https://attendee.gotowebinar.com/recording/2007405131748728322.
It’s also ironic that I just rollout out my 2015 EIUL Special ROR report. To download, click on the following link: http://www.strategicmp.net/page/life/eiulrorreport2015.
Why is this ironic? Because even though most of the products today have back tested rates of return in excess of 8%, under the proposed regulations, you won’t be able to illustrate those rates.
Why new EIUL illustration regulations?
In two words: Abusive illustrations.
Whole life insurance companies are tired of trying to compete with 8.5% EIUL illustrations that have a 3-4% loan spread on their variable loans.
What are the highlights of the new regulation?
Maximum illustrated rate into today’s environment of 7%.
Maximum loan spread for illustration purposes is 1%.
Think about that for a minute. Most IMOs (ones I think advisors should stay away from) routinely give out 8+% illustrations showing a 4.5%-5% loan rate). These are abusive illustrations in my mind and IMOs and agents pushing EIUL based on these types of illustrations are going to be forced into compliance.
Will the new illustration regulations kill EIUL sales?
They will kill many sales that rely on a high illustrated rate and large loan spread to make the sale (which is a good thing).
In my opinion, this is significantly going to reduce the ability for most agents to sell EIUL. EIUL illustrations with the right company will still look good. However, they won’t look “unbelievably” good like they are being illustrated today by most agents.
That means the sales will be more concept based (it’s good to fund EIUL because there is no downside risk, money grows tax-free, and comes out tax free) vs. selling off a bogus illustration showing unbelievable amounts of borrowing with an 8%+ crediting rate and a 5% loan rate.
Roccy DeFrancesco, JD, CWPP™, CAPP™, CMP™
Founder, The Wealth Preservation Institute
144 Grand Blvd
Benton Harbor, MI 49022