Higher interest assumptions with Allianz and ING Indexed UL (IUL)

Looking closely over the last few days at the Allianz Indexed Uniersal Life (IUL) product “Allianz Life Pro+”  I was impressed by its cash value accumulation and for loans for tax free retirement income.  The index account loan rate of 5.30% is excellent.

But what interest rate should the illustration be shown?  Allianz “Blended Index II” can be illustrated at 8.78%. This percentage reflects a 25 year historical performance Dow Jones Industrial Average 35%, Barkleys Capital U.S. Aggregate Bond Index 35%, EURO STOXX 50® 20%, Russell 2000 ® 10%.  I’m sure agents go right ahead and use the highest allowed 8.78% on an illustration because it makes the non guaranteed assumptions look better.

But when comparing  Allianz 8.78% to Lincoln at 8.22% or for their S & P 500 point-to-point allowed illustrated rates, is that an fair comparison?    Lincoln recently announced that they too would follow a 30 year historical look back.  Given Allianz’s much higher assumption on their 25 year look back, their non guaranteed projections look better.  Carriers provide time frames on historical look backs partially based on what helps produce the highest number and to keep up with their competitor’s assumptions.  When comparing these three products, Allianz does have a different index, but is it superior?  Will any index with a 20% Euro stock element outperform the S & P 500?   The recent history of the European Union doesn’t make that a safe assumption.

ING‘s “Global IUL” can currently be illustrated at 10.00%.  It’s uses three indices: the S&P 500®, the EURO STOXX 50® and the Hang Seng.  The top performing index is weighted 75%, second best 25%, lowest 0% on a 5 year look back.  That 5 year look back has a powerful appeal: the two strongest are credited on past performance.  But really can one expect 10.00%?

Recommendation:  Request illustrations for each carrier at the same rate: 8%, 7%, 5% or lower for direct comparisons and to see how they may perform.

Hybrid life long-term care looking even better after Prudential’s exits LTC market and increases premiums

Prudential announced it will stop selling individual long term care (LTC) insurance policies at the end of March. Prudential ranked fifth in the LTC market.  They will still sell group products.

In 2011 Prudential announced rate increases on its first and second generation individual LTC policies. The premium rate increase percentage requests were substantial: 18% or 32% on the first generation product, and 15% or 30% on the second generation. That higher tier of increases was on plans with a cash benefit rider.  The actual increase for those policy holder depends on what each state’s Department of Insurance approves.  From what I reviewed, states were approving most of what was requested and premium increase letters were going out this year to Prudential LTC policy holders.

All individual long term care insurance policy holders have to worry about rate increases.  In contrast with a hybrid life insurance LTC policy, the policy owner is able to lock in a fixed premium for life with a guaranteed UL plan.  For those with other retirement or estate planning goals, Indexed UL plans provide an opportunity for cash accumulation and increasing death or long-term care benefits.

 

 

 

Second bad mail offer for life insurance from United of Omaha

As if once wasn’t bad enough, I received a second life insurance mail offer from United of Omaha.  It’s for graded benefit life insurance, the kind a person might consider, as a last resort, if uninsurable or terminally ill.

One insert read, “IF YOURE STILL UNDECIDED – It’s probably for one of these reasons…”   None of those reasons included the probability there is better and less expensive coverage available than graded benefit whole life insurance.

 

 

Please contact me for a free and confidential quote.  Many other options available.

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

 

United of Omaha Insurance Company
a Mutual of Omaha Company

 

 

 

Cash value in Guaranteed Universal Life

 

To follow up on a post last week comparing non guaranteed interest rates for seventeen major life insurance carriers,  Met Life 5.45% was the highest and Banner the lowest at 3.00%.  But non guaranteed rates are a secondary consideration with Guaranteed Universal Life products, as these were.

For example, compare MetLife’s “Guarantee Advantage Universal Life” with Banner’s “Life Choice UL”:  $250,000 Face amount, age 63, female, preferred non tobacco rate, lifetime guarantee no lapse.

Annual Premium Carriier  Guaranteed Interest Rate Current Non Guaranteed Interest Rate Guaranteed
Cash Value
Year 20
Non guaranteed Cash Value
Year 20
$3,724.44 Banner 3.00% 3.00% $20,854 $20,854
$4,568.02 MetLife 3.00% 5.45%   0 0

With a Guarantee UL, also called no lapse guranteed UL, the lowest premium is the most important factor, locking in lifetime coverage fixed premium.  Cash value is usually not a factor at all, but can come into play in a few important ways.

1. Cash value acts as a safety net if premium are not paid on time to prevent the policy from lapsing.   That’s the biggest risk and challenge of a no lapse UL.    Can the policy owner make timely payments for 10, 20 years or longer?    That’s a detail that can be missed when juggling accounts or switching banks.   The bank draft should be set up to be fool proof.   If a mistake is made, missing two or more payments, cash value can rescue the error.

2.  Drawing down cash value instead of premiums if the policy holder is in failing health or terminally ill.   On a level face amount policy, whatever cash value becomes irrelevant when the policy holder passes away.   The policy will only pay out the face amount.   It’s use it or lose it with cash value.    Proper management of cash value in any universal life policy can save the policy owner thousands in premiums.

Banner’s guaranteed UL  builds guaranteed cash value making it one of the top guaranteed ULs on the market.   Banner also has very competitive premiums.   Metlife’s non guaranteed 5.45% projects $12,860 cash value in year 10, but declines steadily thereafter as age related cost of insurance rises.   Metlife’s premium is much higher for the same coverage, with the non guaranteed rate only a marginal factor in the early years of  coverage, Banner has by far better plan.

Quotes run on 3/6/2012 to the best of my knowledge and are subject to change, as are non guaranteed rates.

Carriers and Products:
MetLife Investors U.S.A. Insurance Company: “Guarantee Advantage Universal Life”
Banner Life Insurance Company:  “Life Choice UL”

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Indexed Universal Life (IUL) switching between variable and standard loans

When selecting an Indexed Universal Life (IUL) for retirement income the loan rules are crucial. John Hancock this February announced a significant change in their loan features.  Policy holders are now allowed to switch between their “Index” loan, which is a variable loan, and the standard loan once per year on the policy anniversary.  Prior to that once a loan option was selected, the loan option could not be changed while any outstanding debt remains.

North American has a similar feature, although it’s much more flexible.  North American allows loans to switch between variable and standard interest rate at any time without a cash payoff.

An escalating variable loan rate could choke off and cripple an Indexed UL designed for retirement income.  North American has recently capped their variable rate at 6%.  In contrast many carriers, including John Hancock, the variable rate is uncapped.  Many carriers base their variable rate on Moody’s Corporate Bond Yield Average.   Historical rates for this bond yield have fluctuated considerably, and it’s quite possible they will do so again over the coming decades.

It’s favorable news that John Hancock has changed their rules on switching from variable to standard loan accounts without a payoff.   Standard loans do not tend to perform very well in the illustrations I’ve run with the exception of Lincoln.   North American has a far superior competitive edge with the variable loan rate capped at 6%.

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

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

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

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.

sean's profile pic
Licensed Agent:  Sean Drummey
phone:  (910) 328-0447
email:    spdrummey@gmail.com

 

 

 

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

 

Supercentenarians: 75 lived in the world of 1902

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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