Does anyone having life Insurance through USAA?

Posted: Wed Dec 02, 2009 11:26 am Post Subject:

Max, I agree with most of what you are saying about UL. However, you are missing the boat with the secondary guarantees.

It's not a dodge by the insurance companies. Think of a secondary guarantee as saying, "Hey, if the incredible high costs associated with this product cause the policy to reach the point that it has no value, the insurance company will still let you keep the policy in force until death."

One big problem with UL policies is obviously the chasis of ART. ART isn't designed for long term insurance needs. The increasing insurance costs combined with human nature to underfund/remove money/ect. cause these policies to lapse if one lives a long life.

A no lapse guarantee essentially changes an ART product to a level term product with the term being "until death". One funds these at the minimum level. Between surrender charges and costs, the cash surrender value may never go above $0.

I don't like these products at younger ages.

When you have a few minutes, try the following. Assume that you have a healthy 65 year old who wants to leave as much behind as possible at death and not take investment risk. How much will it cost to buy $1,000,000 of WL? Now, take this same amount of money and put it into a UL policy with a secondary guarantee with minimum funding. How much death benefit will it buy? How many years will it take for the WL policy to have a higher death benefit? The person will probably have to live to be in their mid-90's.

"Hey, Mr. Client, UL will leave your family more (based upon current WL assumptions) if you die between now and age 95. WL will leave more if you live past 95. Which do you want?"

Posted: Wed Dec 02, 2009 02:15 pm Post Subject:

Falruvma . . .

You're quite right. Somewhere around age 55-65, new cash value policies make more sense than term. But the needs you describe are the ones I think of as estate planning uses. Wealth accumulation has largely been accomplished and now the game has turned to one of wealth preservation, expecially the protection from government intrusion through estate taxes and the wealth redistribution schemes that the Democrats are so fond of. [Disclosure: I am a registered voter, but neither a Democrat or a Republican. I detest both equally!]

So, I think we're in agreement that WL/UL has a place alongside term. From an agent's perspective, it comes down to knowing which product to recommend at which time. In the example you propose, I would recommend a single premium purchase of either product to obtain the lowest possible cost. But still, most individuals are going to choke on the amount of money necessary, and wouldn't want to commit to it.

So the workaround is premium financing, which has always been known in P&C circles, but is just now becoming a topic of discussion in Life circles, in precisely this type of need. And when properly priced (using the maximum guaranteed COI or "minimum assumptions"), the need for the additional "costly guarantees" is obviated. So the client saves even more. Yes, the premium financing will cost something, but not nearly as much as the increasing amounts needed to support a UL policy in one's 80s, 90s or beyond.

It will become an even more pressing issue after EGTRRA expires at the end of next year -- the hand writing on the wall is already apparent. I'm expecting 2011 to be a HUGE year for new UL/EIUL estate planning sales, and I'm beginning to position myself for it.

Thank you, Democrats, for the coming redistribution of commissions to life agents. But we agents must not become greedy and forsake the needs of our clients. They are the MOST IMPORTANT element of our success.

Posted: Wed Dec 02, 2009 02:37 pm Post Subject:

Yes, the premium financing will cost something, but not nearly as much as the increasing amounts needed to support a UL policy in one's 80s, 90s or beyond.

Posted: Wed Dec 02, 2009 02:43 pm Post Subject:

Also, I don't know why you would recommend a single premium purchase. Sometimes, I might, but I wouldn't make that assumption.

With a single premium purchase, it hurts the client if death occurs early. If the money is qualified money, this will also typically involve much higher taxes because of the withdrawal to pay the premiums.

If someone wants to pay it one shot, it often makes sense to buy a SPIA and then let the SPIA payments fund the life insurance premium.

I also don't know why you are recommending premium financing. Premium financing primarily makes sense because someone's net worth is not liquid or they have something to do with their money that will pay higher than the loan interest rate. Otherwise, how does premium financing make sense?

Posted: Wed Dec 02, 2009 09:04 pm Post Subject:

Max, With your posts, it sure doesn't seem like you understand the secondary guarantees. You seem knowledgeable, so I'm probably wrong about your lack of understanding.

The secondary guarantees of the UL stop the need for increasing amount to support the UL into one's 80's and beyond. A level premium will guarantee the death benefit regardless of what happens to the cash surrender value.

Posted: Thu Dec 03, 2009 08:50 am Post Subject:

Jafflajfa . . .

How did we make the leap from life insurance to annuities? No one has been talking about annuities here, this thread is about Universal Life and no-lapse guarantees.

"If someone wants to pay it one shot, it often makes sense to buy a SPIA and then let the SPIA payments fund the life insurance premium." What in the world are you talking about? To borrow from another post elsewhere in this forum, "That's just about the stupidest thing I ever heard."

Now, if you want to talk about single premium life insurance, there are no payments other than the first. The policy is fully funded and, if a UL product, should support itself if the premium was calculated correctly.

Why would someone choose to do that? To get the lowest cost of insurance. Payments over time are more expensive, with monthly payments being the most expensive. Single premium life insurance has been around for a hundred years or more. It's only in recent years that the estate planning community has figured out the benefit to the client to leverage their resources to provide a maximum benefit at the least amount of cash outlay. And if they use a premium financing arrangement (or borrowed money from their favorite bank), it could mean no outlay of their own cash at all.

As to all the other posts questioning my knowledge of secondary guarantees, I just have this to say: If a life insurance product is properly designed (or funded in the case of UL products) there is no need for "secondary guarantees."

Tell me I'm wrong here: You market a UL policy to your client on the basis that it earns a "current" interest rate which is higher than the interest rate on a WL product. You illustrate cash accumulation beyond the client's wildest expectation. And you sell the client on the need for a no-lapse guarantee. You tell the client he'll be able to borrow the cash value in his later years to supplement his Social Security checks. Have I missed anything so far? And many of you keep telling me (which I know): "A level premium will guarantee the death benefit regardless of what happens to the cash surrender value."

When the client calls you 30-40-50 years from now to ask why the insurance company told him there's no money available to borrow from the policy and says, "But you told me I would be able to supplement my Social Security checks with the money. Now you're telling me I have no money?" what will you tell your client then? "I'm sorry it didn't work out for you Mr. Smith the way we thought it would, but if you just keep paying that $150 monthly premium, when you croak in a few more years, your beneficiary will get the $100,000."

How would you feel if it was your Dad?

Put another way . . . Why do many of us buy "extended warranties" with a new car that has a 50,000 mile warranty to begin with? Because we expect the stupid thing to break down and we don't want to have to pay for it, that's why.

When an insurance company says you can buy a no-lapse guarantee, and make it work just by paying all of your premiums, and you'll still have a death benefit even if the policy ends up with no cash value, it's prima facie evidence (or an admission) that they KNOW the policy design is defective and is going to self-destruct, yet they sell it anyway.

How much did Ford pay in civil damages for designing the Pinto with a faulty gas tank, and sold them knowing full well it was faulty? And how much did the insurance industry pay collectively in policyholder class actions and regulatory fines and other penalties for all the UL policies that collapsed in the 1980s and 1990s, leaving (in at least one instance) an 83-year old widow with a $90,000+ tax liability when her policy died before she did? Multiple BILLIONS!! At least Ford stopped making and selling the Pinto.

Like it or not, no-lapse guarantees are available today for only one thing: to cover the insurance company's butt in the event a UL policy inevitably implodes . . . kind of like using the Surgeon General's warning on a pack of cigarettes as a defense to a lung cancer suit against the tobacco companies . . . they can say, "But, look, we offered you a way to prevent this, and you didn't want to pay for it. You should have paid more money into the policy than we asked you to pay. Why would you believe that what we asked you to pay was going to be enough money?"

If you want to sell UL policies with no-lapse guarantees, please, be my guest. I'd rather sell a UL policy with a properly calculated premium that will truly endow the policy with cash value instead of simply providing a "lifetime death benefit" (there's an oxymoron) and no cash value -- what happened to all that pie-in-the-sky million$ of cash value in your sales illustration that the client relied on in making a decision to apply for the UL policy?

That I can do with term insurance for less money (to a point, admittedly). Or I can do it with WL for more than the cost of a term policy but less than the cost of UL with or without a no-lapse guarantee. Whichever way I do it, I'll be able to sleep at night.

Posted: Thu Dec 03, 2009 12:09 pm Post Subject:

Max, please tell us that you are brand new to the business and all of your experience comes from a text book. I don't want to be mean, but you are on this board looking for business and you have just exposed yourself as someone who is missing some very basic understanding.

Posted: Thu Dec 03, 2009 01:06 pm Post Subject:

I'm torn. Should we take the time to offer assistance? Should we just laugh at Max? Should we just ignore him and let him keep his ignorance? Normally, I'd be more than happy to point out where he is completely missing the boat and take the time to be helpful. The issue with Max, though, is that he started posting on this board with an attitude that said, "I know everything. The rest of you are stupid."

This is what I'll do. I'll wait for others to chime in. Max, I promise that people with insurance knowledge are laughing at you for your last post.

Posted: Thu Dec 03, 2009 01:30 pm Post Subject:

Max,

I'm not sure what kind of agents you're running into that are illustrating no-lapse ULs with massive cash value increases, "more than whole life" as you indicated. Almost every no-lapse UL illustration I run has $0 cash value on the guaranteed side past age ~60 or so, and very minimal cash value even on the non-guaranteed/current side. Most illustrations never get above a few thousand dollars in cash value. I don't even think you can run an illustration with a "projected" interest rate return for most of these companies.....pretty sure you can only run one based on current rates.

I received your PM and there is a difference between EIUL/VUL and straight no-lapse UL with guaranteed premiums. A "regular" no-lapse UL will have a stated interest rate, not a rate that varies based on the market. Aviva has a no-lapse EIUL, but I don't know of any other companies that do. I don't think I've ever seen a VUL that has a no-lapse guarantee.....if there is one, please point it out to me.

If an agent is illustrating UL the same way people did back in the 1980's, they should lose their license. The insurance company always has the right to raise their cost of insurance and lower the interest rate crediting methods, which will implode most UL policies as the client gets older. Insurance companies are raising costs these days, not lowering them. We sell no-lapse UL with the intent for the client to pay a level premium for life, not draw money out of the policy to "supplement their social security". Any loans against a no-lapse UL policy will reduce the guarantees and accelerate the policy's implosion.

Posted: Thu Dec 03, 2009 01:48 pm Post Subject:

Some companies won't even allow illustrations that have anything other than the guarantees.