Pacific Life Rolls out a NEW IUL Policy
I’m so frustrated with the trend of how NEW Indexed Universal Life (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 -The Pros and Cons of New vs. Old IUL Designs
On Recording (one of the best webinars you will ever attend)
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:
Pac Life’s New IUL – I don’t like it!
Last week I did a newsletter titled Lincoln Rolls out a NEW IUL Policy. My review of that policy was that I didn’t like it. To read last week’s newsletter, click on the following link:
As I’m writing my review of the Pac Life policy, I’m truly sitting here in stunned amazement (not in a good way). I had to double and triple check with others what I was looking at to make sure it was real.
As I stated last week, AG 49 was supposed to make illustrating IUL policies simpler for consumers and have less abuse in the illustration process, but it’s had the opposite effect.
I indicated that the new IUL designs, in my opinion, are DANGEROUS! Because AG 49 put limits on the illustrated rate of old school policies designs, the new policy designs have circumvented that by adding bonuses into the product.
The problem with bonuses is two-fold:
1) They are very expensive
2) Many are NOT guaranteed
To review from last week…what does the bonus do? If the default/max illustrated rate of the IUL policy is say 5.76%, the company will add a 3% bonus internally to grow the account value. That means you are not illustrating at 5.76%, but instead effectively illustrating at 8.76% in this 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 “default” illustrated rate most agents will use, clients will wish they never heard of IUL policies as a retirement tool.
Pac Life seems to take the internal expense to new heights that I’ve never seen and want nothing to do with.
Let’s look at an example with the Pac Life policy. Male, 45-years old, preferred, premium of $15,000 until age 65, borrowing from ages 66-90.
-Using the default 5.76% illustrated rate. Tax-free borrowing = $60,027 per year.
–Discount the crediting rate by only 20% and the borrowing drops to $27,227 per year.
Total 20-year charges = $363,269.
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.
Total 20-year charges = $49,758 ($313,511 less over the first 20 years which seems insane)
I was actually surprised that the Pac Life policy, with all of the internal expenses allocated toward bonuses, didn’t illustrate better. That’s what their old policy used to do.
Question: 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.
Avoiding lawsuits-if you want to avoid potential lawsuits from clients, you will show them both illustrations. If you show both illustrations, I can’t imagine someone opting to use the Pac Life policy over other less expensive policies that have a much better chance for a good outcome.
Bottom line…I don’t understand what Pac Life was trying to do with this product. With big expenses, you’d think it at least illustrates well. Instead you just have an average performing IUL when using the default rate with huge expenses that make the policy, in my opinion, very difficult to recommend.
I’m left scratching my head on this one and would expect “independent” advisors to flee from using Pac Life IUL policies to others in the marketplace.
Roccy DeFrancesco, JD