Lincoln Rolls out a NEW IUL Policy
I’m so frustrated with the trend of how NEW IUL policies are being designed that I wanted to offer a WEBINAR explaining the problems with these NEW designs and compare them to the old designs.
WEBINAR ON RECORDING -The Pros and Cons of New vs. Old IUL Designs
Click here to sign up (also covered will be my two favorite/recommended IUL policies):
If you have not seen my new IUL comparison software (it compares IUL to brokerage accounts and IUL to 401(k) plans in an “intellectually honest” manner), click below to learn more:
Lincoln’s New IUL-I don’t like it!
Let’s get right to it. Why might agents think this new product is worth checking out? In a few words…it illustrates really well.
The sale of IULs has, to a point, always been about which product illustrates better. But back in the old days, policy designs were simple and the illustrated rate was a function of the S&P 500 annual cap and the basic internal costs in the policy.
AG 49 was supposed to make things simpler for consumers and have less abuse in the illustration process but it’s had the opposite effect.
The new IUL policy designs are DANGEROUS!-in a nutshell, what some companies have done to get around the AG 49 illustration limitation is to put bonuses into the product. Initial designs had modest bonuses while today’s newer designs have huge bonuses (and by the way, in some policies the bonus is NOT explained (no specific rate given) and is NOT fully guaranteed).
What does the bonus do? If the default/max illustrated rate of the IUL policy is say 6.12%, the company will add a 1.5%, 2.5%, or whatever bonus internally to grow the account value. That means you are not illustrating at 6.12%, but instead at effectively illustrating at 7.62% or 8.62% in my example.
Bonuses come with HUGE internal expenses-to pay for the bonuses now offered, the internal costs in the policy are through the roof. If the policy doesn’t get the high illustrated rate of return, clients will wish they never heard of IUL policies as a retirement tool.
Let’s look at an example with the new Lincoln policy. Male, 45-years old, preferred, premium of $15,000 until age 65, borrowing from ages 66-90.
-Using the default 6.12% illustrated rate. Tax-free borrowing = $78,214 per year.
–Discount the crediting rate by only 20% and the borrowing drops to $29,958 per year.
For comparison, I ran a default illustration with my “favorite” IUL and one where I discounted the crediting rate by 20%.
-Default illustration borrowing = $61,989 per year.
-20% discount off the default rate borrowing = $42,540 per year.
If you are saying to yourself you can make more IUL sales when illustrating $78,214 per year vs. $61,989 per year, you are correct.
However, if you showed clients what can happen if the “best of all worlds” doesn’t take place and show them the 20% discounted crediting rate numbers, what would the client say? They’d want NO PART of the hugely expensive IUL and would prefer to hedge their bet with the much less expensive product design.
Full disclosure-if you are an advisor who has any kind of professional ethics, you will show EVERY client both a default illustration and one with at least a 20% discount off the default rate.
Avoiding lawsuits-if you want to avoid potential lawsuits from clients, you will show them both illustrations.
Bottom line…when you give full disclosure to your clients as to the dangers of these new huge bonus IUL policies, I would venture to say that most won’t want it. And I am certainly not recommending this policy to the advisors I work with.
For those who find this type of newsletter interesting, you will probably find the following interesting as well.
1) IUL Commission Handbook-this is for those who wonder if they are being paid what they should be getting paid by the IMOs they work with.
2) Why I Don’t Like the Pac Life IUL Policy
3) Why the Top 10 IUL Sales Report is Misleading
To download the handbook or read the newsletters above, click on the following link:
Education/Marketing Seminar-Orange County, CA-March 27-28
After not doing seminars for several years, I’m coming out of hibernation to put on a two-day education/marketing seminar. The first part of day one of this seminar is all about IUL policies. So, if you want to educate yourself on how these polices work and which ones are best for your clients, you’ll want to attend (but hurry, we have 23 signed up already and only have space for 75).
To learn more, click on the following link:
Roccy DeFrancesco, JD