Young, High Income, Low Assets
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not to change the thread, but what are your thoughts (anyone) on these new indexed life contracts? i know little about them.
I think that you know everything about them. You understand UL. It's simply UL with a different crediting method. If UL makes sense for someone, IUL makes sense as long as they are willing to take the chance of getting a little better return in exchange for getting a worse return. The problem is though, just like we've been discussing, when does lifetime ART make any sense? The only UL I sell is GUL. I can't imagine a scenario where IUL makes sense.
no, i was being serious. i do not pretend to know the complete inner workings of index annuities, have sold 1 my entire lifetime, but i feel i know enough to steer clear of them MOST of the time. i assume you have done more research on them and was asking for an honest opinion. i am seriously asking for your thoughts on where they fit in on the insurance landscape.
I know that you were being serious. What I’m tellling you is that they are the same as any UL product, but they simply have a different crediting method.
They aren't any different than EIA's. An EIA is a fixed annuity with a different crediting method. An IUL is a UL with a different crediting method. It's still overpriced ART with a side fund and extra expenses. They are appropriate for someone who wants UL, but would rather have the performance of their UL tied to an index instead of interest rates. I see no reason long term for an IUL product to outperform a traditional UL product. Regardless, I see very little use for a UL product except at old ages on a guaranteed basis. So, where do I see them fitting in? I don't for the most part, but I won't say that they are never appropriate.[quote=anonymous]
Why can't they structure the insurance component like a whole life policy? Well, if they structured UL like WL, it would no longer be UL, it would be WL. If they structured VUL like WL, it would no longer be VUL, it would be VL. This product exists. Very few companies sell it. It could absolutely make sense for the right client. Personally, I'm not a big fan of it, but that's simply because I think that insurance isn't the best place to take investment risk, but it could certainly be appropriate based upon the facts.[/quote] So the real culprit that makes these expensive is the "universal" part and not the "variable" part? What companies do VL? On VL does the cost of insurance not resemble ART? To me when I think of "variable" I think of a better long term growth in the cash value.I actually don’t know who does VL. Northwestern Mutual does, but I don’t know of anyone else, but I’m sure that there are others.
There's no question that the "universal" part is the bigger part of the problem. There is also the issue of taking investment risk with one's life insurance. Do you believe that one should have a portfolio that has both aggressive investments and conservative investments? If so, what happens if some of the money that was going to be put away in a conservative manner instead goes into a whole life insurance policy? If you can wrap your arms around this, you'll see why I'm such a big believer in WL. Personally, I can only see VL making sense if someone wants to be 100% in equities at all times no matter what...which doesn't make sense. VUL only makes sense if the client is a labatory rat animal. What I mean is that it won't make sense in a real world environment. Also, it may help you if you stop thinking of it as "cash value" and think of it as "cash surrender value" and at the same time realize that the true value of life insurance is the death benefit. Anyone who thinks that the life insurance death benefit only benefits the beneficiary doesn't understand life insurance.anonymous, just wanted to chime in and say thanks for your input. I am very new and eager to learn.
[quote=BSinger82]
anonymous, just wanted to chime in and say thanks for your input. I am very new and eager to learn.
[/quote] Smart man/woman; try to stay on his good side[quote=anonymous]
Do you believe that one should have a portfolio that has both aggressive investments and conservative investments? If so, what happens if some of the money that was going to be put away in a conservative manner instead goes into a whole life insurance policy? If you can wrap your arms around this, you'll see why I'm such a big believer in WL. Also, it may help you if you stop thinking of it as "cash value" and think of it as "cash surrender value" and at the same time realize that the true value of life insurance is the death benefit. Anyone who thinks that the life insurance death benefit only benefits the beneficiary doesn't understand life insurance.[/quote] Can you expand on these two statements?I think anon’s point was, if you feel younger investors should have a portion of their investment dollars in conservative investments, WL is the most attractive option for their conservative dollars. Not only in terms of the tax-free growth of the CSV, but adding a permanent death benefit is a huge addition when planning for maximum retirement income.
I am starting to think that whole life insurance is going to enjoy a bit of a renaissance. What type of investments actually beat the crap out of the market in 2008, insurance products. No other “asset class” can really claim the same. Also, talk about a non-correlated asset and a way to lower beta…
[quote=iceco1d]
No offense, but that sounds a bit like an example that was home-grown in a life insurance laboratory.
Who invests $3,600 for 40 years in a conservative manner, with an after tax expected return of 5.5%? I suppose, the most conservative 25 year-old in existence...but the "investor behavior card" (not that it isn't valid in certain circumstances) might be a bit far-fetched here. [/quote] Feel free to change the dollar amount to $1,000 or $10,000. It doesn't matter. I'm not sure why you find $3600 to be such a far fetched number. Is it unreasonable for a 35 year old to invest 80% aggressive and 20% conservative? How about a 35 year old making $100,000 and putting 18% of their pay away? They would be investing $14,400 aggressively and $3600 conservatively. Don't you think that this same person as they make more money in the future will keep putting this amount or more away in a conservative manner? I will freely concede that someone who doesn't believe that any of their money should be put away in a conservative manner is typically a bad candidate for WL insurance. Term insurance pays me commissions and it supports families at death. Expected return doesn't have much meaning. If a conservative portfolio is going to do worse than this, the life insurance will also do worse. If it's going to do better, the life insurance should do better.There is a heck of lot of value in having an asset in one's portfolio that is guaranteed to increase in value every year.I am starting to think that whole life insurance is going to enjoy a bit of a renaissance. What type of investments actually beat the crap out of the market in 2008, insurance products. No other “asset class” can really claim the same. Also, talk about a non-correlated asset and a way to lower beta…
How do you decide if a client is a better fit for a fixed annuity or life insurance? The need for a larger death benefit?
[quote=iceco1d][quote=anonymous][quote=iceco1d]
No offense, but that sounds a bit like an example that was home-grown in a life insurance laboratory.
Who invests $3,600 for 40 years in a conservative manner, with an after tax expected return of 5.5%? I suppose, the most conservative 25 year-old in existence...but the "investor behavior card" (not that it isn't valid in certain circumstances) might be a bit far-fetched here. [/quote] Feel free to change the dollar amount to $1,000 or $10,000. It doesn't matter. I'm not sure why you find $3600 to be such a far fetched number. Is it unreasonable for a 35 year old to invest 80% aggressive and 20% conservative? How about a 35 year old making $100,000 and putting 18% of their pay away? They would be investing $14,400 aggressively and $3600 conservatively. Don't you think that this same person as they make more money in the future will keep putting this amount or more away in a conservative manner? I will freely concede that someone who doesn't believe that any of their money should be put away in a conservative manner is typically a bad candidate for WL insurance. Term insurance pays me commissions and it supports families at death. Expected return doesn't have much meaning. If a conservative portfolio is going to do worse than this, the life insurance will also do worse. If it's going to do better, the life insurance should do better.[/quote] For the record, I had no problem with the $3,600 number. I was referring to the 40 year time horizon on a conservative (non)investment. So let me just make sure I have this straight (and if I'm coming across as either a dick, or an idiot, I apologize in advance because neither is intended).. The hypothetical client comes to you, with no plan or retirement savings at all (35 y/o makes $100K, wants to save 18%). You could possibly recommend to him that he should defer $14,400 per year into his 401K, or ROTH 401K, or maybe some in a ROTH IRA, etc., and put $3,600 into XYZ WL policy. Because of the CSV in the WL policy being the "conservative" part of his overall portfolio, he should invest his 401K/Roth IRA/etc. in 100% equity? Assuming of course, this guy has a risk tolerance suited for an 80/20ish allocation. Just want to make sure I'm following this...[/quote] I think that is correct. I talked to MassMutual today and one of the producers said he was selling WL all day long. He actually said he worked a lot with executives and asked them if they understood and/or qualified for a Roth. Usually because of income they could not do Roth. He was using WL with a nice 6% credit rate (I think) on the MassMutual WL policy and he was able to write policies for execs all day with such a high credited rate. Life is a pretty good option in this kind of environment it seems. I think you basically take the whole life and replace the coservative part of the portfolio that doesn't need to be liquid with WL or other insruance contracts. The rates are better than they are on CDs and treasuries and you can actually get paid on them.“How do you decide if a client is a better fit for a fixed annuity or life insurance? The need for a larger death benefit?”
Although the money comes from the part of their portfolio that is used for conservative investments, I don't call life insurance an investment. It gets used because of the value of the death benefit. I can't think of a scenario in which we would be making a choice between these two products.The typical person should not own whole life insurance. Our typical client, though, can usually benefit from owning some.
Also, I almost never recommend WL to a prospect. I do recommend it to clients often.
[quote=anonymous]
The typical person should not own whole life insurance. Our typical client, though, can usually benefit from owning some.
Also, I almost never recommend WL to a prospect. I do recommend it to clients often.
[/quote]WHat is it about you that makes your clients need WL, unlike everyone else?
I didn't make myself clear. This wasn't about my clients. This was meant to compare the typical person with the typical person who is a client of a financial advisor.
The typical person is not a good candidate for WL insurance while the typical client usually is. It simply stems from the fact that the typical person does not make an ideal client. Hank, I'm willing to bet that your typical client is more likely to own the local McDonald's than be the fry cook. The fry cook is the typical person. The owner is the typical client.