Is it true that whatever insurance we get in the market is generally overpriced?
Total Comments: 24
Posted: Wed Jun 02, 2010 01:04 pm Post Subject:
Are you going to tell me that the dividends my credit union pays me is a result of their either not paying me enough interest on my savings account, or overcharging the members who have loans?
Entirely different (taxable) subject -- but, yes, your CU probably pays less than 1% on most non-CD savings accounts, like mine does, charges 5%+ on first mortgages, 5%-8%+ on new and used car loans, and 15-18%+ on VISA/MC balances. And how much do they charge for overdrafts? $25? More?
So while the interest rates (paid or charged) are perhaps more favorable than other institutions, there's no doubt that credit unions are very profitable. As they should be.
I don't have a problem with insurance companies making a profit at all. They need to, and I wouldn't want to do business with one that didn't. But the fact is, if insurance company "dividends" were anything other than a refund of premiums paid with after-tax dollars, they would create a taxable event.
So perhaps it was a bit crass to characterize it the way I did, but it's not entirely unjustified. "Dividends" is and always will be a marketing ploy to make folks think they're getting something other than what it really is. Ask most policyowners how they got their paid-up additions and they'll probably tell you the insurance company "gave them to me." "Did you pay anything for them?" "No." "Really?" "Yes, they send me more almost every year." "Gee, that's really nice of them, isn't it?" "You bet!"
No, a dividend is a return of premium; this has huge tax benefits from an accounting point of view. It's entirely possible that a policy could have no premium basis and still receive a dividend.
Sure. If it's been in force for many years, was heavily funded, and the owner borrows only the basis. The "dividends" are also based on each policy's percentage of ownership in the company -- based on premiums paid over time -- not premiums still in the cash value. Those dividends often come at the expense of policies that have lapsed providing the company continuing profits based on invested reserves, funded originally by the excess premiums (not needed for the immediate payment of claims or other expenses) that were invested and not refunded -- ideally, that money will remain invested nearly forever, since there is no longer any associated liability.
But I'm going to stand by my statement about excess premiums, because I'm not the only one who says it. From Fundamentals of Insurance for Financial Planning, by Beam, Poole, Bickelhaupt, and Crowe (published by The American College) (Fourth ed. [2003], p 72)
When the premiums in a given period are more than adequate to meet losses and expenses, part or all of the excess is returned to the policyowners as a dividend. When premiums are inadequate, dividends may be omitted, and in a few cases, assessments can be levied on policyowners. [emphasis added]
You also asked:
On top of that, what major mutual life insurer is pushing Universal Life insurance?
Well, how about New York Life? Their NYLIAC "Protector" or their NYLIAC "Instant Legacy" (single premium/estate planning) and NYLIAC "Asset Preserver" (single premium with LTC rider) UL products, among others? Unless they are mistaken, NYL says it is "the largest mutual insurer based on the Fortune 500".
Not enough to prove my point? How about what LIMRA published two years ago to the day:
WINDSOR, Conn., June 2, 2008—Universal life (UL) was the only individual life insurance product able to produce more new premium in the first quarter of 2008, according to LIMRA’s life insurance sales survey.
“UL sales were up eight percent.” said Ashley Durham, LIMRA analyst for product research. “Because UL holds the largest market share (42 percent), total new individual life insurance annualized premium increased one percent despite decreases in variable, whole and term products.”
LIMRA reports that variable life (VL) and variable universal life (VUL) products dropped 26 and six percent respectively. Term life products decreased by three percent and whole life (WL) experienced the smallest decline—dropping only one percent.
If UL is so profitable, why not issue participating policies? Why not indeed.
Maybe the chatter in the board room sounds something like this: "Let's retain those UL profits so we can pay some dividends on all those other whole life products that keep people happy despite the otherwise poor return and poor sales".
Not that UL crediting rates are anything to shout about at 4.5%-5.5% these days, but what else is driving UL sales? It's the fact that they are crediting double the rate of most CDs and the interest is tax deferred. I don't discount the power of that reasoning at all. It makes perfect sense, unless you know that when premiums are not calculated to properly fund the policy for genuine cash accumulation over the long haul, secondary guarantees aside, there is looming potential for disaster. Not for the insurer, but for the owner/insured/beneficiary.
NYL's footnote to the blurb about its no-lapse guarantee says:
Failure to satisfy the Cumulative Required NLGR Monthly Premium test will cause the rider and the guarantee to become inactive and increase the potential that the policy may lapse for insufficient cash surrender value. At the end of the guarantee period, if only the required premium has been paid, the policy may lapse for insufficient cash surrender value.
What else is the policyowner going to pay but what the agent told him the (minimum) monthly payment is?
on the topic of mutuals and Universal Life, I got an e-mail the other week from one of the major mutuals telling me that due to better than expected mortality experience they are reducing the mortality (cost of insurance) charge on all of their future and in force universal life insurance policies issued under the 2001 CSO tables.
This was to be expected. Early commentary on the CSO 2001 -- which increased life expectancy by 21 percent -- was that premiums/COI would initially drop by about 5% within the first five years of full implementation (which occurred in 2008-2009 because some states like CA were late in adopting the table), and an additional 5% within 7-10 years. The full effect of the huge increase in ultimate mortality will not be seen for another 15-20 years, when those born in 2001 start buying life insurance in larger numbers.
Enjoying the dialogue!
Posted: Thu Jun 10, 2010 03:23 am Post Subject:
There are three different factors that go into determining dividends paid on a WL policy:
Mortality experience
Investment experience
Operating expense experience
These are all guaranteed rates inside a WL policy, when the company experiences actual results that are better than what they guaranteed from an aggregate stand point, they pay a dividend.
It's not just about collecting premium. And it's not just about collecting premium on one line of insurance. Dividends are created by more than just excess premium. Again, your literal use of definitions...
NY Life's having a UL that they've done some marketing for to attract business does not mean they are pushing UL.
You're LIMRA statistic does not show that Mutuals are pushing UL. Yes, UL sales are up. Almost every major insurance company has at least one UL product, and the public companies don't usually have WL products, so there's not a lot of other options concerning non-investment related cash value insurance products. There are like 5 public companies for every remaining mutual insurer out there, so UL sales being up over other lines would make a lot of sense. Let's not also forget that UL products generally come with huge commissions in the independent market compared to WL products.
Maybe the chatter in the board room sounds something like this: "Let's retain those UL profits so we can pay some dividends on all those other whole life products that keep people happy despite the otherwise poor return and poor sales".
Compared to UL, the IRR on WL is extremely competitive and in most cases better. UL's more profitable because insurance companies don't tie themselves up with guaranteed charges for insurance with UL.
Concerning NY Life's UL product and their footnote...
It's an SGUL, with all SGUL (notice there's a difference between SGUL and UL with a secondary guarantee period or rider) there is a calculated premium to keep the secondary guarantee inforce. Some companies will even calculate a premium to pay for a defined period of time to guarantee the secondary guarantee with no future payments for the insured's entire life. It's very easy to figure out what this premium is. The example of an agent selling a policy and the client only paying the minimum premium doesn't make sense.
Posted: Tue Jul 30, 2013 07:35 am Post Subject: Insurance coverage
The amount you can pay for in car insurance each month will dictate how much auto insurance coverage you can take advantage of. There are many different levels of car insurance, and depending on the agency you purchase your insurance through will dictate how much coverage your are getting per your premium.
Posted: Wed Jun 02, 2010 01:04 pm Post Subject:
Are you going to tell me that the dividends my credit union pays me is a result of their either not paying me enough interest on my savings account, or overcharging the members who have loans?
Entirely different (taxable) subject -- but, yes, your CU probably pays less than 1% on most non-CD savings accounts, like mine does, charges 5%+ on first mortgages, 5%-8%+ on new and used car loans, and 15-18%+ on VISA/MC balances. And how much do they charge for overdrafts? $25? More?
So while the interest rates (paid or charged) are perhaps more favorable than other institutions, there's no doubt that credit unions are very profitable. As they should be.
I don't have a problem with insurance companies making a profit at all. They need to, and I wouldn't want to do business with one that didn't. But the fact is, if insurance company "dividends" were anything other than a refund of premiums paid with after-tax dollars, they would create a taxable event.
So perhaps it was a bit crass to characterize it the way I did, but it's not entirely unjustified. "Dividends" is and always will be a marketing ploy to make folks think they're getting something other than what it really is. Ask most policyowners how they got their paid-up additions and they'll probably tell you the insurance company "gave them to me." "Did you pay anything for them?" "No." "Really?" "Yes, they send me more almost every year." "Gee, that's really nice of them, isn't it?" "You bet!"
No, a dividend is a return of premium; this has huge tax benefits from an accounting point of view. It's entirely possible that a policy could have no premium basis and still receive a dividend.
Sure. If it's been in force for many years, was heavily funded, and the owner borrows only the basis. The "dividends" are also based on each policy's percentage of ownership in the company -- based on premiums paid over time -- not premiums still in the cash value. Those dividends often come at the expense of policies that have lapsed providing the company continuing profits based on invested reserves, funded originally by the excess premiums (not needed for the immediate payment of claims or other expenses) that were invested and not refunded -- ideally, that money will remain invested nearly forever, since there is no longer any associated liability.
But I'm going to stand by my statement about excess premiums, because I'm not the only one who says it. From Fundamentals of Insurance for Financial Planning, by Beam, Poole, Bickelhaupt, and Crowe (published by The American College) (Fourth ed. [2003], p 72)
When the premiums in a given period are more than adequate to meet losses and expenses, part or all of the excess is returned to the policyowners as a dividend. When premiums are inadequate, dividends may be omitted, and in a few cases, assessments can be levied on policyowners. [emphasis added]
You also asked:
On top of that, what major mutual life insurer is pushing Universal Life insurance?
Well, how about New York Life? Their NYLIAC "Protector" or their NYLIAC "Instant Legacy" (single premium/estate planning) and NYLIAC "Asset Preserver" (single premium with LTC rider) UL products, among others? Unless they are mistaken, NYL says it is "the largest mutual insurer based on the Fortune 500".
Not enough to prove my point? How about what LIMRA published two years ago to the day:
WINDSOR, Conn., June 2, 2008—Universal life (UL) was the only individual life insurance product able to produce more new premium in the first quarter of 2008, according to LIMRA’s life insurance sales survey.
“UL sales were up eight percent.” said Ashley Durham, LIMRA analyst for product research. “Because UL holds the largest market share (42 percent), total new individual life insurance annualized premium increased one percent despite decreases in variable, whole and term products.”
LIMRA reports that variable life (VL) and variable universal life (VUL) products dropped 26 and six percent respectively. Term life products decreased by three percent and whole life (WL) experienced the smallest decline—dropping only one percent.
If UL is so profitable, why not issue participating policies? Why not indeed.
Maybe the chatter in the board room sounds something like this: "Let's retain those UL profits so we can pay some dividends on all those other whole life products that keep people happy despite the otherwise poor return and poor sales".
Not that UL crediting rates are anything to shout about at 4.5%-5.5% these days, but what else is driving UL sales? It's the fact that they are crediting double the rate of most CDs and the interest is tax deferred. I don't discount the power of that reasoning at all. It makes perfect sense, unless you know that when premiums are not calculated to properly fund the policy for genuine cash accumulation over the long haul, secondary guarantees aside, there is looming potential for disaster. Not for the insurer, but for the owner/insured/beneficiary.
NYL's footnote to the blurb about its no-lapse guarantee says:
Failure to satisfy the Cumulative Required NLGR Monthly Premium test will cause the rider and the guarantee to become inactive and increase the potential that the policy may lapse for insufficient cash surrender value. At the end of the guarantee period, if only the required premium has been paid, the policy may lapse for insufficient cash surrender value.
What else is the policyowner going to pay but what the agent told him the (minimum) monthly payment is?
on the topic of mutuals and Universal Life, I got an e-mail the other week from one of the major mutuals telling me that due to better than expected mortality experience they are reducing the mortality (cost of insurance) charge on all of their future and in force universal life insurance policies issued under the 2001 CSO tables.
This was to be expected. Early commentary on the CSO 2001 -- which increased life expectancy by 21 percent -- was that premiums/COI would initially drop by about 5% within the first five years of full implementation (which occurred in 2008-2009 because some states like CA were late in adopting the table), and an additional 5% within 7-10 years. The full effect of the huge increase in ultimate mortality will not be seen for another 15-20 years, when those born in 2001 start buying life insurance in larger numbers.
Enjoying the dialogue!
Posted: Thu Jun 10, 2010 03:23 am Post Subject:
There are three different factors that go into determining dividends paid on a WL policy:
Mortality experience
Investment experience
Operating expense experience
These are all guaranteed rates inside a WL policy, when the company experiences actual results that are better than what they guaranteed from an aggregate stand point, they pay a dividend.
It's not just about collecting premium. And it's not just about collecting premium on one line of insurance. Dividends are created by more than just excess premium. Again, your literal use of definitions...
NY Life's having a UL that they've done some marketing for to attract business does not mean they are pushing UL.
You're LIMRA statistic does not show that Mutuals are pushing UL. Yes, UL sales are up. Almost every major insurance company has at least one UL product, and the public companies don't usually have WL products, so there's not a lot of other options concerning non-investment related cash value insurance products. There are like 5 public companies for every remaining mutual insurer out there, so UL sales being up over other lines would make a lot of sense. Let's not also forget that UL products generally come with huge commissions in the independent market compared to WL products.
Maybe the chatter in the board room sounds something like this: "Let's retain those UL profits so we can pay some dividends on all those other whole life products that keep people happy despite the otherwise poor return and poor sales".
Compared to UL, the IRR on WL is extremely competitive and in most cases better. UL's more profitable because insurance companies don't tie themselves up with guaranteed charges for insurance with UL.
Concerning NY Life's UL product and their footnote...
It's an SGUL, with all SGUL (notice there's a difference between SGUL and UL with a secondary guarantee period or rider) there is a calculated premium to keep the secondary guarantee inforce. Some companies will even calculate a premium to pay for a defined period of time to guarantee the secondary guarantee with no future payments for the insured's entire life. It's very easy to figure out what this premium is. The example of an agent selling a policy and the client only paying the minimum premium doesn't make sense.
Posted: Tue Jul 30, 2013 07:35 am Post Subject: Insurance coverage
The amount you can pay for in car insurance each month will dictate how much auto insurance coverage you can take advantage of. There are many different levels of car insurance, and depending on the agency you purchase your insurance through will dictate how much coverage your are getting per your premium.
(Promotional link removed per TOU)
Posted: Wed Sep 18, 2019 08:14 pm Post Subject:
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