Author: Sean Drummey

Indexed Universal Life (IUL) index rates: how to request quotes to compare carriers

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February 27, 2012

2:04 PM

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Index Selections, Lincoln Life, Lincoln National Life Insurance Company, Penn Mutual, Penn Mutual Life Insurance Company, quote illustration, S&P 500

Lincoln has changed the name of their Indexed Universal Life (IUL) product to “Lincoln LifeReserve Indexed UL Accumulator”.  They changed their default quoting rate on the S & P 500 annual point-to point to 8.22%.  This is based on a 30-year historical Lookback rate.  Before this Lincoln’s default rate was 7.75%.

Using a higher rate seems counter factual considering the S & P 500 was a flat 0% for 2011, despite so far enjoying a much better 2012.  Showing a higher rate reflects competitive pressures.  One carrier’s current default rate on the S & P is 8.30%.  A carriers competitiveness could suffer when another is showing higher rate on the exact same index and crediting period.   The rate quoted and the calculation method depends on the carrier.  Penn Mutual is currently illustrates 7.92% for the exact same S & P 500 annual point-to-point.   Tranamerica gives 7.93%.  Allianz  gives 7.22%.

The important consideration from a buyer’s point of view is to take all these rate assumptions with a grain of salt.   Sure the S & P could average 8% or above over the next several decades, but it could also average lower.   Request quotes with the exact same rate assumptions for a closer apples-for-apples direct comparison.   With Lincoln, North American and Penn Mutual, I use Penn Mutual’s 7.92%.   It would be nice to level them all to an even 8%, but most carriers including Penn Mutual won’t allow plugging in a rate higher than their default rate.

Depending on the index, the default index rates are in the 7% to 8% range.   It’s prudent to request a quote illustration with interest rates several points lower,  for example 5% or 6%,  to see how those hypothetical results would affect your goals.

A healthy lifestyle gets better rates for John Hancock life insurance

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February 22, 2012

4:13 AM

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John Hancock life, John Hancock Life Insurance Company, Longevity

30 minutes of exercise a day. 16 hours a day awake. 1/2 hour a day of vigorous exercise for health and longevity.

The American Heart Association guidelines are 30 minutes a day of exercise 5 days a week.  John Hancock’s HealthStyles Program credits regular exercise, along with other factors, for better life insurance rates.  This can be helpful if a parent died from heart disease or cancer prior to age 60 to allow their super preferred rate and in many other situations to improve health rate classification and save lots of money.

Annual check-ups and regular screening test are part of John Hancock’s program.   Annual blood tests identify health problems, and the earlier a problem is identified the better.  I wish I had done this for my children over the last year.  My 12 year old son was diagnosed with type 1 diabetes this month, and the months before his diagnosis were progressively harder on him physically and psychologically.  Nothing would have changed the diagnosis, but a routine annual physical sometime last year may have spared him that ordeal which was occurring right before our eyes but unidentified.

Mail offers from United of Omaha for whole life insurance: why you should not return

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February 20, 2012

4:05 PM

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Graded Benefit whole life, graded benefit whole life, guaranteed issue, guaranteed issue whole life, Modified whole life, no blood test, no exam, no exam life insurance, no medical exam, Simplified issue whole life, United of Omaha, Whole Life, whole life insurance, whole life vs. universal life

Like everyone else I get mail pitching life insurance. United of Omaha last week mailed me an offer for “Easy Way” whole life insurance. Coverage is up to $10,000. No health exams.  Guaranteed acceptance. It took me a few minutes to find the key term tucked into the brochure as the last of 10 benefits. That’s the place where they got around to mentioning it was a graded death benefit.

 

During the first two policy years, if you die from natural causes (and cause other then accidental), your beneficiaries will received all premiums paid, plus 10%.  After two years, the full benefit is paid for death due to all causes.

 

Note: there is no life insurance benefit for 2 years, only money back plus interest, unless it’s an accidental death.

Easy acceptance is not the best life insurance. It’s the most expensive. Find your best option:

  • 1st choice:  Life insurance that requires a blood test.   Saves lots of money.  Called fully underwritten life insurance
  • 2nd choice:  Full and immediate benefit life insurance called simplified issue whole life
  • 3rd and last choice:  graded benefit life insurance, guaranteed issue

 

Guaranteed issue is only suitable when in extremely poor health, terminally ill or uninsurable because of a condition like AIDS.

 

Check first to see if you qualify for better coverage. Even if guaranteed issue is the only option, shop for the best premium.  There are many companies that offer graded benefit coverage besides United of Omaha.

 

Please contact me for a free and confidential quote.

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Licensed Agent:  Sean Drummey
phone:  (910) 328-0447
email:    spdrummey@gmail.com

 

 

 

Carrier:
United of Omaha Life Insurance Company
a Mutual of Omaha Company

 

Stroke awareness and prevention in Illinois after Senator Mark Kirk, age 52, suffers stroke

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January 24, 2012

11:14 AM

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Illinois, In your 50's, Preventable Deaths

Illinois Senator Mark Kirk, age 52, suffered a stroke over the weekend. Doctors yesterday removed a portion of his skull to relieve post-stroke pressure.  He could leave some paralysis of the face, and may affect his ability to move his left arm and possibly his left leg.  Sad news.

Senator Kirk’s prominence in Illinois will heighten awareness in his state to the risk of stroke and hopefully get some Illinoisans to make lifestyle changes for prevention.  By the looks of the statistics, many should pay heed.

The CDC has a webpage for Illinois for heart disease and stroke. “According to 2007  Behavioral Risk Factor Surveillance System (BRFSS) survey results, adults in Illinois reported the following risk factors for heart disease and stroke:

  • 28.0% had high blood pressure
  • 36.3% of those screened reported having high blood cholesterol
  • 8.8% had diabetes
  • 20.1% were current smokers
  • 63.0% were overweight or obese (Body Mass Index greater than or equal to 25.0)
  • 51.3% reported no exercise in the prior 30 days
  • 75.4% ate fruit and vegetables less than 5 times a day”

 

 

 

Supercentenarians: 75 lived in the world of 1902

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January 20, 2012

5:19 PM

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Genworth Life and Annuity Insurance Company, Genworth life insurance, Longevity

Most permanent life insurance plans are coverage to age 121.  Genworth’s “GenGuard UL” , an excellent plan, longest fixed rate is to 109, then tiers to a higher rate to age 121.

Since I quote that Genworth plan frequently, I’ve often wondered about the odds of make it past age 109. The Gerontology Research Group currently lists 75 people in the world who are age 110 and older.

Recently a member of this group, Federica Sagor Maas, an early Hollywood script writer, passed away at age 111.  For those interested in photography of that era, Shorpy has early 20th century images which enlarge to allow many details and scenes to come back into full view.

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Life insurance as a piggy bank for long term care expenses

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January 18, 2012

5:14 PM

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Accelerated Benefits, Accelerated Death Benefits, Chronic Illness Rider, life insurance and long term care, long term care insurance, long term care plans

Life insurance has a lump sum death benefit, but if serious illness strikes, a portion of it can be raided to provide living benefits.

Breaking Open The Piggy Bank
It’s called an accelerated death benefit.  Literally it’s accelerating out part of the death benefit from the policy before dying. Carriers charge a fairly high fee for this benefit.  Rules, caps and charges vary.

Most carriers include a terminal illness accelerated death benefit with no up front charge.  A handful of carriers offer a chronic illness accelerated benefit for long term care expenses.

Long term care benefit:  Cash Versus Reimbursement
Most LTC insurance are reimbursement plans with a daily or monthly maximum benefit.  Reimbursement is only for qualified LTC expenses. That’s a problem especially with home health care, the majority done by the spouse or one of the children.  Expenses associated with LTC vary depending on the the need, and may or may not be covered under a traditional LTC reimbursement plan.

Those types of limitations is why North American’s chronic illness benefit is so valuable and versitile.  It’s a cash benefit. You can accelerate up to 24% per year, and you can spend that money any way you please.  Granted the “discount fee” for cash acceleration is fairly large; the rule of thumb is a percentage the correlates with age.  At age 75, the discount fee is about 25%, at age 80 it’s about 20%.  But still that adds up to a significant amount of  money depending on the size of the policy.

Return of Premium
For those who want an money back opt-out option, Lincoln, Genworth and State Life offer life insurance/LTC coverage with return of premium.  Change your mind or an unexpected need comes up, you can terminate your coverage and get every dime of premium back.

What’s great about about this life insurance piggy bank, if no need for LTC arises, the beneficiaries get the full death benefit intact.

Images source: Wikipedia Commons

Using an Indexed Universal Life (IUL) as a college savings plan: example of how it works

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January 17, 2012

5:00 PM

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In your 40's, Increasing death benefit for cash accumulation, maximizing cash value, MEC limit, tax-free loans

Using Indexed Universal Life (IUL) for college savings uses the same cash accumulation strategy as Indexed ULs for tax-free retirement income.  Cash value grows tax deferred and is distributed as tax free loans.  The IRS limits the amount of premium that can be put into a contract and keep the distributions taxed advantaged, rules for Modified Endowment Contract (MEC), so the goal is to put in the maximum premium allowed below that limit.  In life insurance terminology, the guideline level premium determines the policy face amount.  The death benefit is structured as increasing during the accumulation phase and level during the distribution phase.

Granted other options are available, but with an indexed UL, there’s downside risk protection with at least a 0% floor to index crediting, Lincoln has 1%.  Also there’s a death benefit in the ultimate worst case scenario for the parent.

The starting point for the prospective policyholder is to determine how much premium and for how long?  The countdown clock for college savings is simple: 18 years.

Male age 42, best health rate,  $10,000 premium per year for 18 years.  Amounts assume a 8.45% index interest rate, S & P 500 annual point-to-point index.

Carrier Initial Death Benefit Cash Value
Year 18		 Death
Benefit
Year 18		 Distribution
Years 19-22		 Cash Value
Year 23		 Death Benefit
year 23
.
Lincoln $225,000 $348,527 $574,527 $102,444 $67,157 $181,703

What if the market doesn’t preform that well?   Be sure to review multiple index return scenarios.  They are easily illustrated.  Here are 5% index return projections.

Carrier Initial Death Benefit Cash Value
Year 18		 Death
Benefit
Year 18		 Distribution
Years 19-22		 Cash Value
Year 23		 Death Benefit
year 23
.
Lincoln $225,000 $246,646 $471,646 $59,658 $46,689 $207,551

Looking at a 10 year time span for $10,000 in premium instead of 18, the results didn’t work out very well: $37,021 in distributions assuming 8.45%.  As in most savings plans, the earlier the start, the better.

Lincoln National Life Insurance Company:  “Lincoln LifeReserve Indexed UL (2011)
Quote run 1/17/2012.  Rates subject to change.

Sean Drummey
Phone: (910) 328-0447
email: spdrummey@gmail.com

 

Indexed Universal Life (IUL): less blue sky projections

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January 12, 2012

5:12 AM

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0% Floor, 1 year point-to-point, Cash accumulation, Dow Jones Industrial Average, early cash value accumulation, Equity Indexed Universal Life Insurance, Guaranteed Floor, Income distribution, Increasing death benefit for cash accumulation, Index universal life, Indexed Universal Life, interest crediting, Lincoln life insurance, Lincoln National Life Insurance Company, Maximum cash accumulation Indexed UL, over-funding, rapid cash value accumulation, S&P 500, tax-free loans

Indexed Universal Life (IUL) illustrations commonly show 7% to 8+% returns based on historical averages over the last 20 to 30 years. Whether or not an Indexed UL can capture that kind of performance over the coming decades is debatable. 2008 bore an unsettling resemblance to 1929, except officials were able to spread foam on the runway.  The Euro’s instability lead to an additional dose of foam for European banks late last year.  All this uncertainty can make Indexed ULs more attractive because guarantees eliminate downside market risk while providing a life insurance benefit.  But what about the upside Certainly 2011’s index results surveyed were below average.  Tops was the Dow Jones Industrial Average at 5.53%.  The S & P 500, the most widely used index, came in at 0%, which is the floor for an Indexed UL regardless.  But then again, seeing blue sky, 2012 is off to a good start, and historically that’s a very good sign.

When reviewing an Indexed UL, it’s prudent to scenario the possibility of lower returns.  I ran a series of comparisons last fall on overfunding an Indexed UL to build cash value for retirement income.  Lincoln performed very well compared to the competition.   I used the S & P 500 Index, annual point-to-point, and Lincoln assumed on the illustration an 8.45% average return.

Over 8%?  How about 5%?
What would returns look like projecting at a more pedestrian 5%?   Assume a male, age 44, excellent health, putting in $25,000 a year in premiums for 20 years with the goal tax-free distributions for retirement income at age 65. Initial death benefit $520,000.

Carrier S&P 500
Index
Return		 Cash Value
Year 20,
Age 64		 Death
Benefit
Year 20,
Age 64		 Retirement Income
Yrs. 21-40
Ages 65-84		 Cash Value
Year 41,
Age 85		 Death Benefit
year 41,
Age 85
 ‘
Lincoln 8.45%  $1,077,926  $1,597,926  $146,326  $830,516  $1,120,514
‘
5.00%     $727,834  $1,247,834    $51,396 $219,059     $317,285

Take a different example with less premium.  $10,000 premium a year for 20 years: male, age 47, excellent health. Initial death benefit $185,000.

Carrier S&P 500
Index
Return		 Cash Value
Year 20,
Age 67		 Death
Benefit
Year 20,
Age 67		 Retirement Income
Yrs. 21-40,
Ages 68-87		 Cash Value
Year 41
Age 88		 Death Benefit
year 41,
Age 88
.
Lincoln 8.45% $424,913 $609,913 $46,590 $186,833 $252,943
.
5.00% $287,005 $472,005 $19,732 $62,067 $77,698

When shopping for an Indexed Universal Life
All Indexed UL proposals come with full illustrations.  They’re required.  Brochures are okay as a start, but zero in on the illustration’s chart.  An agent can easily generate and email them on .pdf format.   Illustrations are based on current assumptions, for example 8.45% for Lincoln, but can be run with interest rate assumptions anywhere from 0% up to current.  Make sure to request and review lower interest rate assumptions as a counterpoint.

Carrier: Lincoln National Life Insurance Company; Product: ” Lincoln LifeReserve Indexed UL  (2011)”
Quotes run 1/11/2012 and are subject to change.

For your own personalized free quote please contact me.

Sean Drummey
Phone: (910) 328-04447
email: spdrummey@gmail.com