Life Insurance Objection

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snaggletooth's picture
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I'm looking to write a lot more Term and ROP Term policies to people ages 25-40 to start cultivating a little younger crowd that might turn into something years down the road.
 
So I've been talking to a few people that are getting married or buying houses and whatever about life insurance.
 
The first thing they say is that they are covered through work.
 
I typically say something like, well if you were no longer at your current employer, you might lose coverage, plus every year you wait to buy it, it's more expensive.  I also try to find out how much coverage they have because I don't think it's enough.
 
How do some of you guys handle the objection of coverage through work? 

deekay's picture
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This is what I use - I've had very good success with it.
 
"Mr. Client, when is the last time you had a professional life insurance agent review your coverage?"
 
Blah blah blah, I have it through work.
 
"I'm glad to hear that.  Most of my clients do as well.  However, I was asking a slightly different question."
 
Would you remind repeating it?
 
"When is the last time you sat down to review the type of policy you have and how much coverage is appropriate for your situation?"
 
client responds
 
"Is having the right kind of policy and the right amount of coverage important to you?"
 
client responds (and if positive)
 
"Can I make a suggestion?  Let's get together for twenty minutes.  We'll know in that time whether it makes sense to add to your coverage at work or not.  Fair enough?"
 
Sometimes you just need to redirect the conversation, because the client's initial reaction is to say no or blow you off.  Hope this helps.

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B24
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Snags, I do almost exactly what you do.  The "if you leave work"/portability argument usually falls on deaf ears, since most 30-somethings often have the "I'll deal with it if the time comes" mentality.  But the bigger issue is the cost over time.  I explain to them that the policy is going to cost a little more today than their coverage through work (I explain group vs. single), but over time, the differential will be astronomical.  I actually have copies of the term schedule for a very large employer in my area, and I show them that not only will you be paying like triple what you are right now in 20 years (due to banding), but that the cost of each band will likely rise over time.  So for a little bit more today, they can save gobs of money over time - and it's convertible to permanent insurance as well (I explain underwriting today vs. at age 50, etc.), and all the reasons they may eventually want some permanent insurance. 
Usually whe people tell me they're "covered through work", I ask how much.  The closest response (after "duh, I dunno") is usually something like $50K or some multiple of salary, like 3x, which we all know is not nearly enough.  So after they tell me "oh it's great, we can pay off the mortgage and my wife won't need to worry about that".  To that, I say "great, and where is your wife gonna work?  I mean, she IS going to work, right? Can she really afford to stay home with your 3 kids under the age of 7?  Cuz, well, like, they have to EAT, and wear CLOTHES, and play little league, and go to COLLEGE.  But I'm sure by knocking off that $180K mortgage everything else will just fall into place."
I also ask the husband what he would do with those 3 kids if his wife died.  Would he still work 50 hours a week?  Would he hire a nanny?  Would he downsize his job?  I usually tell them $250K is a good number on the wife, and at least $1mm on the husband (this is based on the type of clients I usually have).  That way no childcare issues if the wife dies, and everything is taken care of if the husband dies.  And seriously, if someone can't afford like $30/mo. for life insurance for the wife (or less), then you have serious money management issues.  Often, between the husband and wife, we're talking less than $100/mo. for full coverage on both.

snaggletooth's picture
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Thanks guys.

BerkshireBull's picture
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snaggletooth wrote:I'm looking to write a lot more Term and ROP Term policies to people ages 25-40 to start cultivating a little younger crowd that might turn into something years down the road.
 
So I've been talking to a few people that are getting married or buying houses and whatever about life insurance.
 
The first thing they say is that they are covered through work.
 
I typically say something like, well if you were no longer at your current employer, you might lose coverage, plus every year you wait to buy it, it's more expensive.  I also try to find out how much coverage they have because I don't think it's enough.
 
How do some of you guys handle the objection of coverage through work? What if you sold them permanent life instead?   Or sell them convertible term with the thought of converting it down the road and keeping the health rating they received at a younger age.  You get paid twice on those

anonymous's picture
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snaggletooth wrote:I'm looking to write a lot more Term and ROP Term policies to people ages 25-40 to start cultivating a little younger crowd that might turn into something years down the road.
 
So I've been talking to a few people that are getting married or buying houses and whatever about life insurance.
 
The first thing they say is that they are covered through work.
 
I typically say something like, well if you were no longer at your current employer, you might lose coverage, plus every year you wait to buy it, it's more expensive.  I also try to find out how much coverage they have because I don't think it's enough.
 
How do some of you guys handle the objection of coverage through work? 

 
Snags, that is the best objection that you will ever get.  It means that they don't have a life insurance agent.   It should be a guaranteed sale.
 
My typical response is, "Great.  Let's take a quick look to see if you have the correct amount and it's at the best price."
 
It will almost always be too little and too expensive.  There are also plenty of reasons why the person shouldn't have life insurance through work.

snaggletooth's picture
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BerkshireBull wrote:What if you sold them permanent life instead?   Or sell them convertible term with the thought of converting it down the road and keeping the health rating they received at a younger age.  You get paid twice on those
 
I'd need to learn more about it...I didn't get the insurance background that some of you have.
 
I've been looking at VUL and UL for high income earners.  I know some of you on here don't like these products, but if you over fund them they won't blow up and your fees are at 3% or so for the first few years but as you accumulate and eventually distribute, your fees are at like .75%.
 
What am I missing here?

deekay's picture
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A lot.  Keep selling term that you can convert to permanent.  KISS.

B24's picture
B24
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I have found that anytime someone gets into a bind financially (and I'm talking about higher-income earners getting laid off or something) the over-funded policy is the first to get "underfunded".  If it gets underfunded for too long, it will start to eat itself and eventually either implodes, or becomes worth so little that there is no chance of recovery without massive future contributions.  And at that point, it is not meeting the purpose that it was designed for, so you have basically way overpaid for a term life policy.  The only time I use permanent now is if I am certain that there is very little risk of them underfunding.  If the purpose is purely death benefit (either for income protection or estate planning), then there is a bit less risk.  If the purpose is overfunding for retirement, I tend to shy away from these.

anonymous's picture
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snaggletooth wrote:BerkshireBull wrote:What if you sold them permanent life instead?   Or sell them convertible term with the thought of converting it down the road and keeping the health rating they received at a younger age.  You get paid twice on those
 
I'd need to learn more about it...I didn't get the insurance background that some of you have.
 
I've been looking at VUL and UL for high income earners.  I know some of you on here don't like these products, but if you over fund them they won't blow up and your fees are at 3% or so for the first few years but as you accumulate and eventually distribute, your fees are at like .75%.
 
What am I missing here?

 
Snags, you are missing some really big stuff.  Take a close look at the numbers.  You'll see that UL/VUL has a combination of extraordinary high insurance costs combined with extraordinarily high sales loads combined with expensive investments.
 
Take a look at an illustration.  There is something conveniently left out.  Look at a prospectus.  It is also not included.  What am I talking about?  The cost of insurance at every age.  Never sell an insurance policy with an increasing cost of insurance without understanding the insurance costs.

anonymous's picture
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B24 wrote:
I have found that anytime someone gets into a bind financially (and I'm talking about higher-income earners getting laid off or something) the over-funded policy is the first to get "underfunded".  If it gets underfunded for too long, it will start to eat itself and eventually either implodes, or becomes worth so little that there is no chance of recovery without massive future contributions.  And at that point, it is not meeting the purpose that it was designed for, so you have basically way overpaid for a term life policy.  The only time I use permanent now is if I am certain that there is very little risk of them underfunding.  If the purpose is purely death benefit (either for income protection or estate planning), then there is a bit less risk.  If the purpose is overfunding for retirement, I tend to shy away from these.

B24, you don't run into this issue with WL, just with UL.

BerkshireBull's picture
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anonymous wrote:snaggletooth wrote:BerkshireBull wrote:What if you sold them permanent life instead?   Or sell them convertible term with the thought of converting it down the road and keeping the health rating they received at a younger age.  You get paid twice on those
 
I'd need to learn more about it...I didn't get the insurance background that some of you have.
 
I've been looking at VUL and UL for high income earners.  I know some of you on here don't like these products, but if you over fund them they won't blow up and your fees are at 3% or so for the first few years but as you accumulate and eventually distribute, your fees are at like .75%.
 
What am I missing here?

 
Snags, you are missing some really big stuff.  Take a close look at the numbers.  You'll see that UL/VUL has a combination of extraordinary high insurance costs combined with extraordinarily high sales loads combined with expensive investments.
 
Take a look at an illustration.  There is something conveniently left out.  Look at a prospectus.  It is also not included.  What am I talking about?  The cost of insurance at every age.  Never sell an insurance policy with an increasing cost of insurance without understanding the insurance costs.Ruh roh.... now you've gone and done it, snaggletooth....

aeromaks's picture
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anonymous wrote:snaggletooth wrote:BerkshireBull wrote:What if you sold them permanent life instead?   Or sell them convertible term with the thought of converting it down the road and keeping the health rating they received at a younger age.  You get paid twice on those
 
I'd need to learn more about it...I didn't get the insurance background that some of you have.
 
I've been looking at VUL and UL for high income earners.  I know some of you on here don't like these products, but if you over fund them they won't blow up and your fees are at 3% or so for the first few years but as you accumulate and eventually distribute, your fees are at like .75%.
 
What am I missing here?

 
Snags, you are missing some really big stuff.  Take a close look at the numbers.  You'll see that UL/VUL has a combination of extraordinary high insurance costs combined with extraordinarily high sales loads combined with expensive investments.
 
Take a look at an illustration.  There is something conveniently left out.  Look at a prospectus.  It is also not included.  What am I talking about?  The cost of insurance at every age.  Never sell an insurance policy with an increasing cost of insurance without understanding the insurance costs.Hey genius.... ever hear... "All insurance is term insurance and all term insurance is annual renewable term insurance?"the cost of insurance on term, whole life, UL, VUL, are all the same. the difference is how you cut your premium.    With term you are just taking the sum of all COI for each year of the term and splitting it down the middle.I will agree on the sales load that you are paying, but permanent insurance does have a place for some people.  But how is a 5% load on A shares any different than a 5% load on a VUL premium?   At the same time, for that load, the client is not hammered 1.5% that he would be paying me or any other advisor on a fee based account, and they are getting in many cases a total subaccount fee of apx 60 bpts.  I seldom recommend VUL's, in the past 2 years, only 1 case, but it does have its place.But to bring this back to the original point...if a client is bringing up that objection, you are missing the boat.  Group term insurance is not your insurance.  At any point in time your boss can revoke that policy, or just say, hey, I am no longer paying for it anymore.  where is that policy now?furthermore, if the premiums are paid for by the employer, it is taxable.  in most cases, think of group insurance as a thank you bonus in the worst case scenario.  but it is not the clients insurance policy by any means.btw, the VUL's I used were , since i know people will ask, was a 1% M&E, 62bpts average subaccount fee, 5% premium expense (what pays the commissions). 0 net loans.  And the cost of insurance, is exactly the same, term, UL, VUL.  

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Ok, here we go with another VUL debate.  I want to have this debate because I want someone to show me that I'm wrong so that I can increase my income by selling the product.  First, though, I need to see how it can benefit the client and I'm still finding this impossible due to the combination of costs and human nature.

 
"the cost of insurance on term, whole life, UL, VUL, are all the same. the difference is how you cut your premium.    With term you are just taking the sum of all COI for each year of the term and splitting it down the middle."
 
The one thing that all people seem to have in common who take a pro-VUL standpoint is that they are completely unwilling to discuss the cost of insurance.   You are pretending that it doesn't matter and it's the same no matter how you slice it, so we can just ignore it.
 
The reality is that it is simply not the case.   I'm about to replace a 30 year term policy from Nationwide to one with Hartford.  With Nationwide, the cost was $2820 and with Hartford, it is $1080.  (He was standard with Nationwide and Ultra with Hartford.)  Is the extra $1800/year something that we should be ignoring?  This is a 30 year old male with $1,000,000 of coverage.
 
Look at your favorite VUL product.  How much would this person pay for coverage over the next 30 years?  I bet that it's more than $32,400.  In fact, to keep the actual insurance amount at $1,000,000, I bet that it's over $100,000.  Is this difference something that we can ignore?
 
If you had a client with a 20 year need for insurance, would you sell him a product that increased in cost annually or remained level?  What about for 25 years?  What about 30 years?  In all cases, you would go with a level product because it is much cheaper for the client.  Yet, when you switch and go with a product that is expected to last even longer, you go to one with annually increasing costs.  Products with annually increasing costs are terrible for long term insurance needs, but that is exactly what is being done with VUL.
 
Additionally, before the money even goes to start paying for this insurance, it gets hit with a 5% charge off of the top.
 
"But how is a 5% load on A shares any different than a 5% load on a VUL premium?"
 
Would you ever sell a mutual fund that had a 5% load with no breakpoints?  Would a fund with a 5% load and no breakpoints ever be in the best interest of the client?
 
"At the same time, for that load, the client is not hammered 1.5% that he would be paying me or any other advisor on a fee based account, and they are getting in many cases a total subaccount fee of apx 60 bpts. " 
 
That's right.  Instead of being hammered with an AUM fee, he is being charged a 1% M&E fee.  So, it is the equivalent of an investment that has a 5% sales load with no breakpoints AND a 1% AUM fee.   This just sounds great for the client.    At least, since it is like an "A" share with a front end load, there is no surrender charges.  Oops.  I'm wrong about that too.  It still has very large surrender charges.  This is getting better all of the time.
 
"And the cost of insurance, is exactly the same, term, UL, VUL"
 
Compare for yourself and then tell me that this is true.Do you understand the pricing of a VUL policy?  They price the insurance very high.  This is for two reasons.  1) It is hidden.  It isn't in the illustration.  It isn't in the prospectus.   The typical VUL salesman doesn't have a clue as to the cost of insurance.  2) It needs to be high to protect the insurance company.  The insurance company doesn't know what mortality will be like 20, 30, 40, 50 years from now.  What happens when mortality is less than their worst case scenario?  The insurance company makes money and the stockholders benefit.
 
The cost of this product pretty much guarantees that if death occurs early, in hindsight, one ends up with over priced term insurance.  If death occurs late, one ends up with a very expensive investment with all gains taxed as income.  Policies simply don't last for people who live too long.  Human nature combined with insurance costs lead to this result.
 
Before you attempt to argue with me look at the COI.  It is much more expensive than anything that you could ever imagine selling your client.  You wouldn't sell an investment with this pricing structure.  You wouldn't sell insurance with this pricing structure.   How can it then be a good idea to combine two things that are bad for your client.
 
 

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anonymous wrote:
 
If you had a client with a 20 year need for insurance, would you sell him a product that increased in cost annually or remained level?  What about for 25 years?  What about 30 years?  In all cases, you would go with a level product because it is much cheaper for the client.  Yet, when you switch and go with a product that is expected to last even longer, you go to one with annually increasing costs.  Products with annually increasing costs are terrible for long term insurance needs, but that is exactly what is being done with VUL.
 
 

 
I thought you sold ART policies?

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I love ART policies.  They are great for short term insurance needs and for when the insurance will only kept for a short period of time before getting converted. 
 
Long term, they don't make sense.

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anonymous wrote:I love ART policies.  They are great for short term insurance needs and for when the insurance will only kept for a short period of time before getting converted. 
 
Long term, they don't make sense.That's an EXTREMELY risky tactic, my friend.  I sell 15 year MINIMUM if we're talking about people under the age of 52 even if they're planning to convert.What happens when someone buys an ART with the plan to convert and then life happens and they can't?  People lose jobs, have unexpected expenses, or worst of all someone has health problems and can't afford the permanent insurance.You've got a lot more experience than me, but I'd rather sell the 15 or 20 year and have someone pay an extra $100 per year until they convert than be the jackass that sold them something that gets progressively more expensive if/when they decide they can't convert.  The extra $100/yr you cost them isn't going to mean jack to the people who do have the means to convert to permanent insurance.I have a list of about 20 people who have terms with us they've bought over the last 5 years who planned to convert and never did.  Obviously we'd like them to, but if they don't at least they've got 15 or 20 year terms to see them through for the next decade at least.

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BB, I wouldn't do it if it was risky.   Let's look at the absolute worse case scenario.  The person becomes unhealthy and doesn't want to covert their coverage.  They simply keep their ART.  Over the course of the 15 or 20 years, they will pay more than they would have for level term, but it wouldn't be some life changing amount. 
 
I often use both for the same client.  Ex. Client buys $2,000,000 of term coverage.  We reasonably expect to only be able to convert $1,000,000 of coverage at the most and have the expectation of converting $500,000 in the next 5-7 years.  He buys $1,000,000 of 20 year term with the cheapest carrier that we can find.   He buys $500,000 of 20 year level term from a company with an excellent WL product.  He buys $500,000 of ART from a company with an excellent WL product.

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I disagree with the statement that ART policies are "risky" expecially in this economy. I just wrote a 55 year old with two daughters, one age 7 and one that's age 2. One could argue that we need a 20 year term to at least insure the family until the children graduate from college, but they just started a business and can't necessarily afford the 20 year term right now. This is due to the fact that the insurance need was $1.5 million and that the business was in its beginning stages and not necessarily generating any profits right now. In my opinion, the duration of the life insurance policy comes third in the sales equation. First is the life insurance NEED, second is the family's budget and then we talk about the different types of life insurance after.
 
Anonymous, I'm very curious as to how you talk to your clients about permanent life insurance and how you're able to sell it.

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ChrisVarick wrote:I disagree with the statement that ART policies are "risky" expecially in this economy. I just wrote a 55 year old with two daughters, one age 7 and one that's age 2. One could argue that we need a 20 year term to at least insure the family until the children graduate from college, but they just started a business and can't necessarily afford the 20 year term right now. This is due to the fact that the insurance need was $1.5 million and that the business was in its beginning stages and not necessarily generating any profits right now. In my opinion, the duration of the life insurance policy comes third in the sales equation. First is the life insurance NEED, second is the family's budget and then we talk about the different types of life insurance after.
 
Anonymous, I'm very curious as to how you talk to your clients about permanent life insurance and how you're able to sell it.Uhhhhhhhh.... This is the dumbest post of the day.1.  You're talking about a guy whose 55 when I said that I write 15yr min level for everyone under the age of 52.  So my post didn't pertain to your prospect's situation.2.  Everyone knows it's commonplace for 55 year olds to have a 2 year old daughter.  Thank God we have guys like you who know how to propose ART in that situation rather than some irresponsible SOB that would sell him a level term.3.  Is this policy issued or are you still in the process?  Either you're going to get laughed out of underwriting for turning in a $1.5mil face policy on someone who doesn't have the income to justify it or this guy is making $150k+ and you sold him a $3500 ART when you could have just gotten him a 20 year level term for $8000 which he could very well afford on that 6-figure income.

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BB, for what it's worth, a lot of insurance companies will underwrite someone based on either a multiple of their income (depending on their age) or one times their net worth.  I have written a couple of cases where a business owner takes a modest salary, but a big net worth (usually tied to the business).

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BerkshireBull wrote: ChrisVarick wrote:I disagree with the statement that ART policies are "risky" expecially in this economy. I just wrote a 55 year old with two daughters, one age 7 and one that's age 2. One could argue that we need a 20 year term to at least insure the family until the children graduate from college, but they just started a business and can't necessarily afford the 20 year term right now. This is due to the fact that the insurance need was $1.5 million and that the business was in its beginning stages and not necessarily generating any profits right now. In my opinion, the duration of the life insurance policy comes third in the sales equation. First is the life insurance NEED, second is the family's budget and then we talk about the different types of life insurance after.
 
Anonymous, I'm very curious as to how you talk to your clients about permanent life insurance and how you're able to sell it.Uhhhhhhhh.... This is the dumbest post of the day.1.  You're talking about a guy whose 55 when I said that I write 15yr min level for everyone under the age of 52.  So my post didn't pertain to your prospect's situation.2.  Everyone knows it's commonplace for 55 year olds to have a 2 year old daughter.  Thank God we have guys like you who know how to propose ART in that situation rather than some irresponsible SOB that would sell him a level term.3.  Is this policy issued or are you still in the process?  Either you're going to get laughed out of underwriting for turning in a $1.5mil face policy on someone who doesn't have the income to justify it or this guy is making $150k+ and you sold him a $3500 ART when you could have just gotten him a 20 year level term for $8000 which he could very well afford on that 6-figure income.
 
55 year old client, 2 little daughters (Age 7, Age 2), $1 million mortgage (monthly mortgage is roughly $4500/month), grosses approximately $100k/year, no real business net worth as he just started up his business, wife does not work. Extreme Christian household family where his 7 year old attends an expensive private school.
 
So lets break down the numbers, he takes home roughly 6k/month. After the $4500 month mortgage, it leaves us with about of $1500 disposable income. A 20 year term with my company costs about $800/month (he got standard rating). An ART cost him about $450/month. If we went with the 20 year term, it would've left a family of four with about $700/month to live off of for groceries, gas, utilities, etc. An ART policy costed us about $400/month. Granted he should of never bought a million dollar home in the first place, I did what I had to do to properly insure his family for the RIGHT amount of coverage in that particular situation. I firmly believe that an agent should ALWAYS solve for the right amount of life insurance coverage before deciding on a product. He was also underwritten by our company for the $1.5 million of coverage (and I work for a company with one of the strictest underwriting out there).
 
Please do not mistaken this post as to me disliking long duration term, I tend to sell a lot of it. However, if you do look at the industry statistics, under 10% of term policies stay in force after a 10 year period. Quite frankly, life insurance rates get cheaper and consumers switch from company to company on a very frequent basis. As they switch from company to company, if all they would of purchased were long duration term then they would've overpaid for life insurance.

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Underwriting Limits: All companies have their standard limits in terms of how much one can purchase based upon income and net worth.  However, that doesn't mean that one can't purchase more than that.  One certainly can get more than that as long as there is a good explanation of why the additional amount is being purchased.
 
Life Insurance Rates get cheaper:  This is simply an incorrect statement.  It was correct in the past.  It's no longer true.

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"Anonymous, I'm very curious as to how you talk to your clients about permanent life insurance and how you're able to sell it."
 
I'm able to sell it because I keep it as a secondary issue. 
1) It's not a subject of conversation until after they have all of their financial basics covered.
2) With retirement planning, I make sure that they completely buy into the concept that it makes sense to have some long term conservative money. *
3) I show them how whole life insurance makes sense as part of this long term conservative portion of their portfolio.**
 
*This is easily done simply by showing them the danger of taking money out of investments when the investment is down.
 
**First of all, I get them to drop the silly notion that their life insurance need will go away when they get older.   They must leave money behind at death unless they want their spouse to be impoverished.   I then show them how whole life insurance will allow them to either spend more money in retirement or leave more money behind or a combination of both.   The real value is the death benefit.
 

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anonymous wrote:Underwriting Limits: All companies have their standard limits in terms of how much one can purchase based upon income and net worth.  However, that doesn't mean that one can't purchase more than that.  One certainly can get more than that as long as there is a good explanation of why the additional amount is being purchased.
 
Life Insurance Rates get cheaper:  This is simply an incorrect statement.  It was correct in the past.  It's no longer true.
 
You're probably right on this, I have noticed that a lot of the stock companies are repricing their life insurance policies, especially the term product line. I wouldn't be surprised if it got cheaper somewhere in the near future when this whole economic mess stabilizes,  especially when the payout of term life policies are so minimal.

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the cost of insurance is the same!  in all insurance policies, you are paying an M&E fee.  If it is called Mortality and Expense, policy expense, contract charge. it is there.You have cost of insurance which is the annual cost to insurance your life for that particular year based on the mortality tables.with me?  here is where it gets different between whole life, Universal life and VUL comes in.Whole life, you pay extra amount over the cost of insurance that he insurance companies keep on their books and invest as they see fit. They give you a minimum rate, often times dividends etc.  Easiest to guarantee.Universal life, you specify the premium over the cost of insurance and that gets invested in a seperate account often in treasuries or what not, giving you a fairly safe investment with a guaranteed minimum.  difference between the two, is with a Universal Life, you control the policy, premiums, and extra amount invested each month.  Whole life, the terms are directed by the company. You either take the policy or not.Next, Variable universal.  Same thing.  you start with the fixed contract expenses, M&E fees. etc.  then, you pay the annual cost of insurance.  After that, you add an addition for money to be invested in sub-accounts, that are once again held in a sepereate account that you control and invest as you see fit.  You pay on each premium an extra load... often called premium expense that partly goes to pay the commission, and partly goes to the states to insurance the policies.  the rest gets invested in sub accounts, for as low as 50bpts annual expense, as it is often subsadized by the insurance companies or fund companies.In all of the policies.  it is the same cost of insurance.  No matter if you go with VUL, UL, Term, whatever, it is the same annual cost of insurance.  It is easy to have it print on the proposal/illustration and is clear as night and day.what you are talking about is the comparing an ART policy from company one, to a permanent one from a different company.  Obviously they will be different.  I am talking about getting a policy from the same carrier.  They all base it off the same base mortality tables.  What you are paying for is the extras.ART policies are more expenses quite often because the company knows it will lose hte policy and it will not be converted, thus they charge a higher contract expense, or may base the policy off of older Mortality tables.Once again, all life insurance is term insurance and all term insurance is annually renewable term insurance.with a fixed term, you are just getting a level premium.  It is the ART companies that add extra expenses to it to pay for fees.I use term for most clients who need extra coverage for a fixed period of time.  UL for clients who need permanent coverage. often, I use a 0 cash value UL, basicly term to age 120, or a No lapse guarantee to age 100.  VUL I use seldom as unless the client can commit to a high premium and does not forsee a need for the money for at least 8 to 10 years.  there are some Whole Life products from mutual policies that are nice and pay very hefty dividends, and a few even offer 98% cash value of premium, without surrender, within a few years.You have to compare the companies and the cost of insurance within a few, but it is impossible to say that company a's term is better or cheaper than companies b's UL.    What is fair, is to compare company a's term vs company b's term.  

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anonymous wrote:Underwriting Limits: All companies have their standard limits in terms of how much one can purchase based upon income and net worth.  However, that doesn't mean that one can't purchase more than that.  One certainly can get more than that as long as there is a good explanation of why the additional amount is being purchased.
 
Life Insurance Rates get cheaper:  This is simply an incorrect statement.  It was correct in the past.  It's no longer true.Life insurance rates are getting cheaper.  what is getting repriced are the riders, and policy expenses.  the ones getting the most massive reprice are the Return of premium term policies.Regular term rates have stayed the same or have fallen.

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aeromaks wrote:
 
there are some Whole Life products from mutual policies that are nice and pay very hefty dividends, and a few even offer 98% cash value of premium, without surrender, within a few years.

 
What kind of mutual policies would those be? single premium lump sum dump ins?

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aeromaks wrote:
the cost of insurance is the same!  in all insurance policies, you are paying an M&E fee.  If it is called Mortality and Expense, policy expense, contract charge. it is there.
You have cost of insurance which is the annual cost to insurance your life for that particular year based on the mortality tables.
with me?  here is where it gets different between whole life, Universal life and VUL comes in.
Whole life, you pay extra amount over the cost of insurance that he insurance companies keep on their books and invest as they see fit. They give you a minimum rate, often times dividends etc.  Easiest to guarantee.
Universal life, you specify the premium over the cost of insurance and that gets invested in a seperate account often in treasuries or what not, giving you a fairly safe investment with a guaranteed minimum.  
difference between the two, is with a Universal Life, you control the policy, premiums, and extra amount invested each month.  Whole life, the terms are directed by the company. You either take the policy or not.
Next, Variable universal.  Same thing.  you start with the fixed contract expenses, M&E fees. etc.  then, you pay the annual cost of insurance.  After that, you add an addition for money to be invested in sub-accounts, that are once again held in a sepereate account that you control and invest as you see fit.  You pay on each premium an extra load... often called premium expense that partly goes to pay the commission, and partly goes to the states to insurance the policies.  the rest gets invested in sub accounts, for as low as 50bpts annual expense, as it is often subsadized by the insurance companies or fund companies.
In all of the policies.  it is the same cost of insurance.  No matter if you go with VUL, UL, Term, whatever, it is the same annual cost of insurance.  It is easy to have it print on the proposal/illustration and is clear as night and day.
what you are talking about is the comparing an ART policy from company one, to a permanent one from a different company.  Obviously they will be different.  I am talking about getting a policy from the same carrier.  They all base it off the same base mortality tables.  What you are paying for is the extras.
ART policies are more expenses quite often because the company knows it will lose hte policy and it will not be converted, thus they charge a higher contract expense, or may base the policy off of older Mortality tables.
Once again, all life insurance is term insurance and all term insurance is annually renewable term insurance.
with a fixed term, you are just getting a level premium.  It is the ART companies that add extra expenses to it to pay for fees.
I use term for most clients who need extra coverage for a fixed period of time.  UL for clients who need permanent coverage. often, I use a 0 cash value UL, basicly term to age 120, or a No lapse guarantee to age 100.  VUL I use seldom as unless the client can commit to a high premium and does not forsee a need for the money for at least 8 to 10 years.  
there are some Whole Life products from mutual policies that are nice and pay very hefty dividends, and a few even offer 98% cash value of premium, without surrender, within a few years.
You have to compare the companies and the cost of insurance within a few, but it is impossible to say that company a's term is better or cheaper than companies b's UL.    What is fair, is to compare company a's term vs company b's term.  

Let me quote myself from my previous post.  "Before you attempt to argue with me look at the COI.  It is much more expensive than anything that you could ever imagine selling your client.  You wouldn't sell an investment with this pricing structure.  You wouldn't sell insurance with this pricing structure.   How can it then be a good idea to combine two things that are bad for your client?"
 
Aeromaks, your post is consistent with most people who sell VUL.  They talk about how the cost of insurance is the same.  Yet, there is an absolute refusal to talk about the specific cost of insurance.  
 
The fact that all insurance may be based upon the same mortality tables does not mean that they charge the same.
 
Here's a made up example based upon the policy specs that you have given.  Tell me how Client B isn't getting screwed.
 
Client A and Client B are very healthy 30 yearl old females have a level death benefit of $1,000,000. Client A has a $100 cash surrender value, so the net amount at risk is $999,900.  Client B has $500,000 cash surrender value, so the net amount at risk $500,000.  Client A is paying an M&E fee of $1 for $999,900 of coverage.  Client B is paying an M&E of $5000 for $500,000 of coverage.
 
Does this company charge healthy 30 year old females $5,000 (+ the COI for $500,000 of insurance + policy fees + admin expenses) for term insurance?
 
Our job isn't to find the best product from Company A.  It is to find the best product.  That's why it is perfectly ok to compare one company's VUL with another company's level term product.  If the client isn't buying Company A's VUL, he isn't stuck with Company A's ART.  He is free to buy whatever product he wants.  
 
Don't post real numbers because if you do, your days of thinking that VUL is appropriate will be behind you.   Who knows, maybe I'm wrong.  Go ahead and post.  I've done it in the past using numbers from Ameriprise and it was no comparison.

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ChrisVarick wrote:aeromaks wrote:
 
there are some Whole Life products from mutual policies that are nice and pay very hefty dividends, and a few even offer 98% cash value of premium, without surrender, within a few years.

 
What kind of mutual policies would those be? single premium lump sum dump ins?
 
Nope.  a regular whole life policy,
 
Mass Mutual high early cash value.

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anonymous wrote:aeromaks wrote:
the cost of insurance is the same!  in all insurance policies, you are paying an M&E fee.  If it is called Mortality and Expense, policy expense, contract charge. it is there.
You have cost of insurance which is the annual cost to insurance your life for that particular year based on the mortality tables.
with me?  here is where it gets different between whole life, Universal life and VUL comes in.
Whole life, you pay extra amount over the cost of insurance that he insurance companies keep on their books and invest as they see fit. They give you a minimum rate, often times dividends etc.  Easiest to guarantee.
Universal life, you specify the premium over the cost of insurance and that gets invested in a seperate account often in treasuries or what not, giving you a fairly safe investment with a guaranteed minimum.  
difference between the two, is with a Universal Life, you control the policy, premiums, and extra amount invested each month.  Whole life, the terms are directed by the company. You either take the policy or not.
Next, Variable universal.  Same thing.  you start with the fixed contract expenses, M&E fees. etc.  then, you pay the annual cost of insurance.  After that, you add an addition for money to be invested in sub-accounts, that are once again held in a sepereate account that you control and invest as you see fit.  You pay on each premium an extra load... often called premium expense that partly goes to pay the commission, and partly goes to the states to insurance the policies.  the rest gets invested in sub accounts, for as low as 50bpts annual expense, as it is often subsadized by the insurance companies or fund companies.
In all of the policies.  it is the same cost of insurance.  No matter if you go with VUL, UL, Term, whatever, it is the same annual cost of insurance.  It is easy to have it print on the proposal/illustration and is clear as night and day.
what you are talking about is the comparing an ART policy from company one, to a permanent one from a different company.  Obviously they will be different.  I am talking about getting a policy from the same carrier.  They all base it off the same base mortality tables.  What you are paying for is the extras.
ART policies are more expenses quite often because the company knows it will lose hte policy and it will not be converted, thus they charge a higher contract expense, or may base the policy off of older Mortality tables.
Once again, all life insurance is term insurance and all term insurance is annually renewable term insurance.
with a fixed term, you are just getting a level premium.  It is the ART companies that add extra expenses to it to pay for fees.
I use term for most clients who need extra coverage for a fixed period of time.  UL for clients who need permanent coverage. often, I use a 0 cash value UL, basicly term to age 120, or a No lapse guarantee to age 100.  VUL I use seldom as unless the client can commit to a high premium and does not forsee a need for the money for at least 8 to 10 years.  
there are some Whole Life products from mutual policies that are nice and pay very hefty dividends, and a few even offer 98% cash value of premium, without surrender, within a few years.
You have to compare the companies and the cost of insurance within a few, but it is impossible to say that company a's term is better or cheaper than companies b's UL.    What is fair, is to compare company a's term vs company b's term.  

Let me quote myself from my previous post.  "Before you attempt to argue with me look at the COI.  It is much more expensive than anything that you could ever imagine selling your client.  You wouldn't sell an investment with this pricing structure.  You wouldn't sell insurance with this pricing structure.   How can it then be a good idea to combine two things that are bad for your client?"
 
Aeromaks, your post is consistent with most people who sell VUL.  They talk about how the cost of insurance is the same.  Yet, there is an absolute refusal to talk about the specific cost of insurance.  
 
The fact that all insurance may be based upon the same mortality tables does not mean that they charge the same.
 
Here's a made up example based upon the policy specs that you have given.  Tell me how Client B isn't getting screwed.
 
Client A and Client B are very healthy 30 yearl old females have a level death benefit of $1,000,000. Client A has a $100 cash surrender value, so the net amount at risk is $999,900.  Client B has $500,000 cash surrender value, so the net amount at risk $500,000.  Client A is paying an M&E fee of $1 for $999,900 of coverage.  Client B is paying an M&E of $5000 for $500,000 of coverage.
 
Does this company charge healthy 30 year old females $5,000 (+ the COI for $500,000 of insurance + policy fees + admin expenses) for term insurance?
 
Our job isn't to find the best product from Company A.  It is to find the best product.  That's why it is perfectly ok to compare one company's VUL with another company's level term product.  If the client isn't buying Company A's VUL, he isn't stuck with Company A's ART.  He is free to buy whatever product he wants.  
 
Don't post real numbers because if you do, your days of thinking that VUL is appropriate will be behind you.   Who knows, maybe I'm wrong.  Go ahead and post.  I've done it in the past using numbers from Ameriprise and it was no comparison.
 
Stop listening to suze orman. =)
 
I never said  that all insurance companies have the same cost of insurance. 
lets take amerirpise since you brought it up.  the cost of insurance is is the same on term as on ul as on vul.
 
M&E IS NOT COST OF INSURANCE!  the M&E is going towards policy administration.  btw...
 
lets take your assanine example... Once that term policy expires in 20 years, ask your client, if they are happy they paid $5k a year to have cash value of 500k left over. 
 
Once again, you would not sell a VUL solely for the death benefit.  if someone needs solely death benefit, for a fixed period of time you use term.  If you need it for life, a 0 cash value UL.   If you need another place to start putting away money on a tax deffered, tax free basis, creditor protected, and ability to use it as an asset on company books, you would look at a permanent policy.   and oh yeah, this works well in capital transfer as well.
 
There is a reason why Bill Gates has the world's largest VUL. 
 
As far as I am concerned, M&E fee is the same as they would be paying me to manage the money. 
 
Are VULs for everyone? absolutely not, and VUL's account for less than 10% of all insurance policies I have sold/sell. 

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When you find clients with VULs and they're heavily underwater (as they all are), do you replace them? Or just leave them alone until their cash value is out of surrender AND equal to at least their basis?

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ChrisVarick wrote:When you find clients with VULs and they're heavily underwater (as they all are), do you replace them? Or just leave them alone until their cash value is out of surrender AND equal to at least their basis?
 
the main question is... do you need to replace the policy?
 
i usually ask for an original copy of the policy which will have a copy of the original illustration. 
 
the first one is to get an inforce statement and current reprojection to see if the policy is going to lapse or not.
 
many agents sell the vul's while projecting very high returns, in often cases 12 and up.  Typically, I project 8%.
 
the only times I replace policies is when the client owns a policy that is under water, and cannot put more money into the policy. 
 
but it is a very loaded question, and it is on a case by case basis.  but I am not going to replace any policies if there are no reasons to.   will do a change of agent on all of them of course..., but not going to churn a policy just for the sake of earning a commission.

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"Stop listening to Suze Orman"
 
 I'm a huge fan of permanent insurance.  I'm even a bigger fan of people understanding the costs of what they are selling.
 
"lets take amerirpise since you brought it up.  the cost of insurance is is the same on term as on ul as on vul"
 
If that is the case, their clients are always paying much more than necessary.   They charge a 35 year old male with standard rates $90/month + $4.50 sales load for $1,000,000 of coverage.  This cost will increase every year.  For the same cost, a decent agent can get $1,500,000 for their client and have the price remain level every year.
 
Do they charge a 5% load on their term insurance like they do their VUL?  
 

"M&E IS NOT COST OF INSURANCE!  the M&E is going towards policy administration."
 
If you sell the product, you should know what this.  Despite the fact that the insurance is already much more expensive than the client can get elsewhere the Mortality expense is, and I'm quoting from the prospectus, "The risk that the cost of insurance will be insufficient to meet actual claims."  The Expense part of M&E is in case the policy fees and surrender charges aren't enough.   In English, this is an extra cost just in case the costs that they are already charging the client isn't enough.   You do realize, I hope, that not all VUL policies charge this extra M&E cost.
 

"lets take your assanine example... Once that term policy expires in 20 years, ask your client, if they are happy they paid $5k a year to have cash value of 500k left over."
 
You are missing the fact that the client is paying an extra 1% to get nothing of value.   Why are they paying 1% on top of the expenses that they are already paying?  Why are they paying for an insurance policy in which the COI is so much more expensive than it otherwise would be?  Why are they paying a sales load with no break points?
 
"As far as I am concerned, M&E fee is the same as they would be paying me to manage the money. "
 
That's fair to look at it that way.  The problem is that the answer to the following questions is probably "no".   Do you ever put someone into a load fund (without waiving the load), not give them break points and at the same time, charge them a 1% AUM fee?  Do you ever charge a 1% fee and only give your client a limited choice of mutual funds and nothing else?
 
For the VUL policy that you currently sell, can you let us know the cost of insurance for every 10 years?  How about age 50, 60, 70, 80, and 90?  I keep asking about the COI and I can't get a straight answer from you.

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You are looking at the M&E for exactly what it is, policy administration.  I am looking at the M&E as 1% that provides you all the rest of the benefits of permanent insurance.
Do you sell Variable annuities? They have the M&E in there as well.  M&E in a permanent policy is to provide you access into the platform.  M&E, call it the membership fee into Costco.... while you are paying that fee, you are simply getting the entrance to invest into the platform.the extra 1% is of value.  It is the ability to get into subaccounts that are cheaper than any mutual funds.  It is the ability to borrow or take out money from the cash value of the policy. It is the ability to put away more money on a tax deferred basis.  It is Creditor protection in most states.Now while you personally may not find any of that of value, I bet you there are some wealthy individuals who do, who have maxed out their 401k's, dont qualify for roth iras, and dont feel like sticking after tax money in a 59 and a half lockup.Once again, not everyone, hell, not even close to half of the people are ideal candidates for it, but it is worth alot to some.The insurance cost is the same between the same.  What dont you understand?  If you have an insurance carrier, go call up your wholesaler. Furthermore, if you took a few moments to read, digest and think, esp since you are saying you are a big fan of permanent insurance.  Print up the cost of insurance page for a UL, a VUL, and term.  You will then be able to compare them.I dont have time over my lunch break to go spend an hour running illustrations from multiple carriers.  When I have a client in this position, I will. =)  The last 3 cases I did were UL, so no luck for you.

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Ok, I entertained myself.  The base cost of insurance was lower on a VUL than on a UL with one carrier. partly because the UL was based on older mortality tables.  Within this one carrier, and even though their VUL sucks.... 
However, the VUL did have apx the same cost of insurance, ie the life insurance expense, as 5, 10, and 20 year term products.  Only difference, once again, the VUL and UL's do have additional charges, $120 a year admin charge, a premium expense and sub account fees.On a whole life, no fees are broken down. I am going to attach one illustration in a bit or later tonight for the high early cash value.once again, I do agree that the VUL is not the most efficient investment vehicle, it is not.  But you are paying more for a swiss army knife.Its not all about the price.

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aeromaks wrote:
Its not all about the price.
 
Except, when you're talking about subaccounts and/or mutual funds that are the same pool of underlying assets, and the only difference is breakpoints (or lackthereof), or internal expenses, or asset-based fees...it IS all about the price. 

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aeromaks wrote:
You are looking at the M&E for exactly what it is, policy administration.  I am looking at the M&E as 1% that provides you all the rest of the benefits of permanent insurance.
Do you sell Variable annuities? They have the M&E in there as well.  M&E in a permanent policy is to provide you access into the platform.  M&E, call it the membership fee into Costco.... while you are paying that fee, you are simply getting the entrance to invest into the platform.
the extra 1% is of value.  It is the ability to get into subaccounts that are cheaper than any mutual funds.  It is the ability to borrow or take out money from the cash value of the policy. It is the ability to put away more money on a tax deferred basis.  It is Creditor protection in most states.
Now while you personally may not find any of that of value, I bet you there are some wealthy individuals who do, who have maxed out their 401k's, dont qualify for roth iras, and dont feel like sticking after tax money in a 59 and a half lockup.

Once again, not everyone, hell, not even close to half of the people are ideal candidates for it, but it is worth alot to some.
The insurance cost is the same between the same.  What dont you understand?  If you have an insurance carrier, go call up your wholesaler. 

Furthermore, if you took a few moments to read, digest and think, esp since you are saying you are a big fan of permanent insurance.  Print up the cost of insurance page for a UL, a VUL, and term.  You will then be able to compare them.

I dont have time over my lunch break to go spend an hour running illustrations from multiple carriers.  When I have a client in this position, I will. =)  The last 3 cases I did were UL, so no luck for you.

I'm not asking you to run illustrations.  I'm asking you to answer specific questions.  Illustrations won't answer any of the questions.
 
What is the COI at age 50, 60, 70, 80, and 90?
 
Let's make this real simple.  Please show me one real world legitimate example of how someone would be better off with a VUL policy than they would be with BTID using the same side fund.

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aeromaks wrote:
Ok, I entertained myself.  The base cost of insurance was lower on a VUL than on a UL with one carrier. partly because the UL was based on older mortality tables.  Within this one carrier, and even though their VUL sucks.... 
However, the VUL did have apx the same cost of insurance, ie the life insurance expense, as 5, 10, and 20 year term products.  Only difference, once again, the VUL and UL's do have additional charges, $120 a year admin charge, a premium expense and sub account fees.
On a whole life, no fees are broken down. 
I am going to attach one illustration in a bit or later tonight for the high early cash value.
once again, I do agree that the VUL is not the most efficient investment vehicle, it is not.  But you are paying more for a swiss army knife.
Its not all about the price.

If you are going to post crap like a VUL having the same approximate insurance costs as 5 and 20 year term, you need to back it up.  A very healthy 30 year old male will pay $500 or less for $1,000,000 of 20 year term from 18 different companies.  None will charge an up-front sales load.  That's less than $10,000 for 20 years.  I GUARANTEE that the insurance costs for your client over 20 years in the VUL are double that.  Are you up for the challenge of posting them?
 
A VUL is like the old cross training shoes.  They are mediocre for a bunch of things, but good for nothing.  Please take the time to prove me wrong.  I want to be wrong on this stuff.  Please don't be like the rest of the VUL salesman who refuse to get into the insurance costs.

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send me an email and I will email you the illustration.
for a 27 year old, cost of insurance for a VUL vs 10 year term.VUL.     Year 1 - 3602 - 3603 - 3684 - 3615 - 3546 - 3477 - 3508- 3529 - 35010- 350Add in Premium expense of $91.  Admin of $120.Term from the same company, same rate class obviously, $340 for 10 year, $355 for 20 year.So once again, the cost of insurance is the same.  You are paying the premium expense and admin fee for the vehicle itself.

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Anon,
I just showed you that the cost of insurance is the same.  What the discussion is... and no one can be proved right or wrong is whether the added fees are worth the vehicle itself.Personally, I depends on the client.  If Paying an extra $200 a year is worth to them to have a policy in which they can invest, have the money creditor protected, growing tax deferred.... you tell me.  Personally, to me it doesnt matter.  I am fortunate that I can go to any carrier, and get paid fairly well.  the comp on VUL, UL, Whole life is all the same to me.  I present all the options to the client, and they pick.  Unless the client can dump alot of money into a VUL, I discourage them from going that route, esp if they havent maxed out other tax deferred vehicles.  For a client, last one I sold a VUL, actually, a second to die vul... annual income of $500k, maxed out roth 401k, and in sue happy industry.  Has cashflow to support it, putting in $2k a month into the policy.  Has the death benefit and growing tax deferred, and money will be passed on to kids and trust tax free.  To them.... it is worth it. 

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Once again, for the last damn time... you dont use VUL if you need basic coverage with no use for the vehicle itself.
Here is one more. This is a riversource VUL, ie ameriprise. the one above is a Mass Mutual.will insert link here as soon as I upload it.  The policy, this one is an illustration I did back in 07

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Here are the pdf's.
 First pdf... http://www.maksfs.com/insurance/scan3.pdfThis is the one I was talking about.Here are 2 more of ameriprise policies from 2 years ago when I ran this hypo for a prospect.  first 10 years cost of insurance is $9261? I ran a 10 year term for him, it is $8500 for that person with same carrier. So $700, or $70 a year he paid extra to have the VUL. To him, it would be worth it.  While it is a bit more expensive... it is not anywhere near double.http://www.maksfs.com/insurance/scan.jpgandhttp://www.maksfs.com/insurance/scan2.jpgAmp policies include the expenses in the cost of insurance.  The first one, Massmutual, breaks it down between life insurance expense, premium expense, and admin.Btw, you said you were a big fan of permanent insurance... Please let me know how any other permanent insurance not have an administrative expense, or a premium expense.  Whole Life has those expenses as well... except it is not disclosed anywhere, and you dont know about it.  Not one Whole Life illustation has the Cost of Insurance broken down... yes, even I just tried on the MassMutual policies, and no such report exists. Only on VUL and UL.  Here is homework for you... Go run a WHole Life... and also the same companies UL using the same assumed rate...  and compare the two policies.  that is the only way to compare the permanent policies.  Otherwise, it is like saying Term is cheaper than VUL. lol.  In any case... I am done with this topic.  There is no sense of me and you bickering over this, it is only the client that can decide if the added fees are worth it to them.  Me Personally, I own a 1mil VUL that I picked up 5 years ago, a 500,000 Whole Life that I am getting now, and a good amount of 10 and 20 year term.  All three serve a different purpose.  The cost of insurance on all three of them is nearly the same.  I Choose to pay the extra premium expense for the benefits of the policy.  It seems where we differ on is the definition of "cost of insurance"  to me, it is literally the cost to insure your life for that given year.  Many others mistakenly throw in the premium expense in there, even though that has nothing to do with the cost of insurance for that given year.Ok, I wasted enough on this... time to go roll some money over. 

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Do I have ANON on ignore?  I am seeing a oneside argument here by Aeromarks.

aeromaks's picture
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Joined: 2007-01-13

Wet_Blanket wrote:Do I have ANON on ignore?  I am seeing a oneside argument here by Aeromarks.He replied twice on the previous page... though it is a good idea... the ignore button.Thanks wet_blanket. On a sidenote, good thing I stayed an extra 10 mins typing my final response... I was going to miss the UPS lady bringing me goodies. 

Anonymous's picture
Anonymous

Why would you put Anonymous on Ignore?  He wasn't disrespectful to you, or anyone else.  He's simply trying to share his knowledge, and/or learn, whichever.  One of the most helpful guys on this forum; ignoring him would be foolish.

anonymous's picture
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aeromaks wrote:
send me an email and I will email you the illustration.
for a 27 year old, cost of insurance for a VUL vs 10 year term.
VUL.     
Year 1 - 360
2 - 360
3 - 368
4 - 361
5 - 354
6 - 347
7 - 350
8- 352
9 - 350
10- 350

Add in Premium expense of $91.  Admin of $120.

Term from the same company, same rate class obviously, $340 for 10 year, $355 for 20 year.

So once again, the cost of insurance is the same.  You are paying the premium expense and admin fee for the vehicle itself.
 
 

Don't forget that you are also paying a "face amount charge" along with not getting to shop the market to find the cheapest term insurance.
 
I looked at the illustration.  Thanks for having the balls to post some actual numbers.  Let's go with your assumptions:
 
1) Very healthy 27 year old male
2) $1516 annual premium payment
3) $500,000 of coverage (net amount at risk decreasing as cash value increases)
4) 8% gross investment return
 
Year 1: $360 goes to mortality charges +$91 goes to premium expense charges + $120 goes to administrative charges + $1080 goes to face amount charges.  Net result is that although the "insurance cost is the same", none of the $1516 gets invested.
 
Year 2: 100% of the premium disappears again.
Things improve in years 2-5 when a whopping $230 gets invested out of the $1516.
Years 9-16: about $1,000 out of the $1,500 gets invested
Years 17+: Less gets invested every single year
 
Rate of return on the cash value at 10 years: less than 0%
                                                    at 20 years: less than 0%
                                                    at 30 years:  approx 1%
                                                    at 40 years: approx 3.1%
                                                    at 50 years: approx 3.5%
                                                     at 60 years: approx 3.5%
                                                     at 70 years: approx 3.4%
 
The costs absolutely crush these things. 
 
Compare dollar for dollar with VUL vs. BTID and VUL gets crushed.  The client gets screwed.  It's just a question of what the insurance company is using to screw them.  Is it a high premium expense charge (sales load) that doesn't have break points?  Is it an M&E charge?  Is it a "face amount charge"?  Is it non-competively priced COI?  Is it simply the fact that the client must keep paying an increasing COI or have their investment become taxable and lose their death benefit?  It's usually a combination of these factors. 
 
These costs can't be overcome.  It comes back to the fact that VUL combines overpriced insurance with overpriced investments along with human nature.
 
 

Full Throttle's picture
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Joined: 2008-08-26

It gets even worse.  That 8% assumption assumes a level, year after year, rate of return.  As all of us know, this is far from reality, some years will be 25% growth, some years will be -15% losses.  If you have two people getting the same series of returns (with some negative years in the series), but the first investor is accumulating only and the second investor is making withdrawls, the second investor will have a lower rate of return.  A 50% loss takes a 100% rate of return to reach even, but what if the base after a 50% loss was diminished as well through withdrawls.
 
This is another fault of VUL, the increasing cost of insurance is continually withdrawn during the down years as well as the up years, further hindering performance.  This is why I believe subaccount (general account) values should be in conservative vehicles guaranteed to increase each year.  VUL doesn't fit this bill, throw in human behavior, the odds of expected performance are a long shot.

anonymous's picture
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Joined: 2005-09-29

"Here are 2 more of ameriprise policies from 2 years ago when I ran this hypo for a prospect.  first 10 years cost of insurance is $9261? I ran a 10 year term for him, it is $8500 for that person with same carrier. So $700, or $70 a year he paid extra to have the VUL. To him, it would be worth it.  While it is a bit more expensive... it is not anywhere near double.
http://www.maksfs.com/insurance/scan.jpg
and
http://www.maksfs.com/insurance/scan2.jpg "
 
Let's look at how badly you screwed your brother on this one.   First of all, it's not a little bit more expensive, it's a lot more expensive.   He started out with $400,000 of coverage.  He is being charged $720 for this.
 
Insurance costs assuming death benefit remains at $400,000
Year 1 $720
Year 5 $ $936
Year 10 $1116
 
10 year term can be purchased for $165.  The 10 year total would be $1650.  This would only be 2 years of premiums with the AMP VUL product.   What if we look at this over 30 years?
 
AMP
Year 15 $1212
Year 20 $2016
Year 25 $3168
Year 30 $ 4992
 
30 year term can be purchased for $450/year or a total of $13,500.   The insurance costs of the VUL during this same period would be over $50,000.  Like I keep telling you, the costs of insurance inside of a VUL is more than triple what the client would otherwise be paying with a good agent who would look out for him to get the best cost.  In this case, once you throw in the sales load, the client is paying 4x as much. 
 
Please don't try to tell me that if he didn't buy the VUL, you would have stuck him in overpriced Riversource term insurance.  This is your own brother.
 
This "bickering" is occurring because you don't understand the impact that these costs have.   You can't find a "Cost of Insurance" for a whole life policy because it doesn't exist.   There is no such thing.  You would know this if you understood how a policy works. 
 
By the way despite your "LOL", the point is that term insurance is less expensive than VUL.  Strip everything out except the insurance costs and you'll see exactly what I'm telling you.  Your client will pay insurance costs that, in your example, are 4x higher than what they'd be paying than if they found a cheap term policy. 
 
Let's sum this up.  Your brother, by buying the proposed policy from you accomplished the following:
1) Paid 4x as much for insurance as was necessary
2) Paid a 5% sales load on every dollar that went into the policy
3) Paid an M&E charge that increased the cost of his investments by about .9%
4) Paid administrative charges
5) Has the "pleasure" of paying income tax instead of capital gains when it lapses
6) The way that the policy is designed, you combined a terrible investment vehicle with a terrible insurance vehicle.  How bad?  Despite the fact that this is probably being illustrated at 8%, a financial calculator will reveal that the rate of return on the cash at 40 years will be less than 4%.
 
VUL = Lousy insurance + lousy investment (but nice commission)  I'm in favor of huge commissions, just don't do it by screwing the clients.  If I'm wrong, go sell it, but please take the time to use numbers to show how this is in the best interest of the client.  I'm trying to see that I'm wrong, but the more that I have this conversation, the more painfully obvious that it becomes that I'm correct.
 

anonymous's picture
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Joined: 2005-09-29

Aeromaks, this is what you should do.  Don't bother posting the results here.  Do it for yourself so that you truly understand.
 
Compare the following to your brother's Riversource illustration.  Take the premium that is going into his policy.  Use it to buy the cheapest $400,000 30 year term policy that you can get and then invest the rest into the S&P 500 earning 8%.  These are the results that you will get.
1) For every single year, there will be more cash available in the side fund than what's available in the VUL.
2) For every year of the first 15 years, they death benefit will be somewhat higher with the term + side fund.  In years 15-30, the death benefit of term + side fund will be much higher.
3) At life expectancy, the side fund will be more than twice the amount of the death benefit of the VUL
4) The only time that the VUL will carry any advantage is if death occurs between about ages 68-72 and the advantage will be small.
 
Don't make these false arguments with yourself.
1) "Well, the side fund will be taxed."  A)If the money comes out of the side fund, it will be capital gains.  If it comes out of the insurance, it will be taxed as income.  B)At death, it will receive a step-up in basis, so it won't be taxed.  C) Since, it is in an index fund, there will be very little taxes.
 
2)"Well if it is in a side fund, there will be a management fee."  That's true, but if you are any good, your management fee will add value and not detract value, so you should be assuming a higher rate of return and not lower.
 
Feel free to thank me later.

Milyunair's picture
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Joined: 2009-09-25

Good work, Anonymous. I love reading posts like this. I don't have the energy to do this type of analysis any more. 

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