New IUL Hits the Streets– See How it Stacks Up!
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Recently I got my hands on the information for a new IUL and it’s not only a good product, but it will arguably be the “best” product in the marketplace. I say “arguably” because there are cool aid drinkers of certain products I don’t like (see the following articles) that seem incapable of looking at or selling anything but these products.
AG 49 illustration limitations–AG 49 changed the game when it comes to IULs. AG 49 put significant limits on a company’s ability to put forth what I would call a non-real world/total nonsense illustration.
-Gone are the days of 3% loan arbitrages
-Gone are the days of 8.5%+ illustrative rates
Work Around AG 49–many companies have rolled out new products or tweaked old ones to get around AG 49. Most of the tweaking has come in the form of internal bonuses in the product. So, an IUL may only illustrate at 7%, but the company has a 1.5% non-guaranteed bonus it is giving the client. The bonus effectively kicks up the illustrated rate to 8.5%. With some companies the bonus doesn’t vest until year 5, or year 10, or even beyond.
The problem is that the bonus isn’t guaranteed and some companies are charging internal expenses that are huge, as though the bonuses are guaranteed.
As you may have read in my recent newsletter North American and Midland Dumps Caps on IUL Renewals, it’s tough to trust companies that offer IULs sometimes.
Comparison-while I really like the features of the new IUL (see below), what many want to know is how does it illustrate? Keep in mind that illustrations are not worth the paper they are printed on. Companies dump caps and do all sorts of things to the product. So company integrity is very important.
Example: 45-year old male, pays $10,000 in premiums until age 65 and then borrows from the policy from ages 66-90. I used an increasing death benefit using a 6.92% rate of return*. How much could be borrowed from the new product vs. some other unfortunately popular products in the market?
New IUL Product $40,005 every year
Pac Life $37,552 every year*
North American $37,132 every year**
Minnesota Life’s Omega $34,469 every year
*The Pac Life illustration was run only at 6.21%. I was told that is the default rate. What’s crazy is how well it illustrates at such a low rate of return. It’s because the policy has huge expenses and a bonus structure inside a black box that Pac Life refuses to explain. This is why it’s my least favorite product in the marketplace (but agents love it even though they have no idea how it works because of the high commissions).
**NOA and Midland both just dumped caps on their older IUL policies.
New IUL Product Specs
1) Guaranteed bonus from day 1. Yep, the company is not playing games with non-guaranteed bonuses that don’t vest for 10+ years. The new product bonus vests from day 1 and continues as long as the client owns the policy. This is huge!
2) The Per 1000 (AKA per unit) charges have been drastically reduced. Why does this matter? If a client needs to lower the death benefit in the early years, they are not punished with high Per 1000 charges that last as long as the surrender charge lasts. This makes the policy much more flexible for the clients, which protects them in case they have problems paying the budgeted premium.
3) Ability to switch investment options EVERY YEAR. This is a big deal with all the different indexes that insurance companies now offer. It’s great flexibility for the client to be able to pick a different investment index if they so choose every year.
4) New rising interest rate index.The new product comes with an investment index that is supposed to do well in a rising interest rate environment. Clients might want to allocate money to that the next few years (and with the flexibility to move money each year to different indexes, they have that option).
My final review of this new product is two thumbs up!
It’s nice to have a company roll out a product that seems to go out of its way to protect the client (guaranteed bonuses from day one, lower Per 1000 charges, ability to switch investment options each year).
The fact that it happens to illustrate well is nice, but it’s not a determining factor in my mind. It’s the concept of using IUL as an asset class and then picking a product that you believe has the best chance to perform as illustrated and one that protects the client with the most flexible features.
Roccy DeFrancesco, JD