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Indexed Universal Life (IUL): less blue sky projections

January 12, 2012

5:12 AM

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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

Life insurance after a major health problem: Modified Whole Life

by Sean Drummey

December 28, 2011

1:52 PM

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Final Expense Options
Individuals, mostly seniors, looking for final expense coverage have four choices. Their desirability is in descending order:

fully underwritten Guaranteed Universal Life (GUL)
simplified issue whole life
modified benefit whole life
guaranteed issue whole life, also called graded death benefit whole life

Regrettably, profit and volume driven marketers, including AARP, not acting in their client’s best interest, skip over option #1 to concentrate on the easier to write and faster to place options #2, #3 and #4.

Look for
Option # 1, Guaranteed Universal Life starting at $25,000 in coverage is very cost effective coverage. Full and immediate benefit. Fully underwritten, it requires a blood tests and carriers usually review 5 years of medical records. Applications take on average 6 weeks and require from the agent and brokerage good old fashioned time and expense, and have a lower placement ratio. That’s why certain marketing organizations, including direct mail, phone and mail solicitations, don’t want to get bogged down doing them, even though it’s in the client’s best interest.

Plan B
Option #2, Simplified Issue Whole Life, is full and immediate benefit, comes into play for affordability, smaller policies $3,000 to $8,000. Also the underwriting is less strict, no blood test or medical records, usually only MIB * check and prescription drug check, and helps with coverage if a serious condition occurred two or more years ago. Remember a $25,000 Guaranteed Universal Life cost about as much as a $10,000 whole life, so make sure to consider option # 1 before settling on option # 2. See here ages 60 to 69 whole life quotes. See here ages 70 to 70 whole life quotes.

Option #3 Suitable for those who have had a major health problem but having occurred over two years ago.

Option # 4 No health questions. Basically, all one needs is be cognitively and physically able to sign the application.

Modified Benefit Whole Life
The beneficiary receives a percentage of the death benefit in the first few coverage years. The percentage rises and generally by the 4th year there is a full benefit.

Guaranteed Issue Whole Life also called Graded Benefit Whole Life
No health questions. Coverage is characterized by a waiting period for the full life insurance benefit. The waiting period is typically 2 or 3 years. If the insured dies during this waiting period, the beneficiary receives a return of premium plus interest, typically 5% or 10%. After the waiting period, it’s the full death benefit. The application question are limited, and coverage is not available only if the individual has a terminal condition or bedridden.

This doesn’t sounds bad, if you’ve had recently something like cancer or a heart attack and really need coverage. What’s the catch? Well, Modified Whole Life is relatively expensive. One of the best ways to judge this coverage is to divide premiums into the death benefit to see at what point cumulative premiums exceeds death benefit. For example with Liberty Bankers Life a 71 year old female.

$99.88 monthly for $10,000 Face Amount – Modified Whole Life

Years 1 – 3 benefit equals return of premium plus 10%
Year 4 death benefit 100%
Year 5 death benefit 105%
Year 6 and thereafter 110% benefit

In this example, Year 6 and thereafter a 110% of face amount is an $11,000 death benefit. Annual premium is $1,198.56 ($99.88 x 12)

$11,000 / $1,198.55 = 9.2 years. Thus, cumulative premiums exceed the death benefit after a little over 9 years.

Whether or not this is a good value depends on the individual’s health condition and life expectancy. In the example above: will this 71 year old live into her 80’s? If she does, the owner ends up paying more in premiums than receiving in benefit.

Please contact me for a free and confidential quote.

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

(* MIB Medical Information Board, checks prior life insurance applications)

Revised: 8/22/14

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Nationwide’s new Indexed Universal Life (IUL) compared to top Lincoln and Penn Mutual

by Sean Drummey

December 4, 2011

10:15 AM

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Nationwide has a new IUL product called “Yourlife Indexed UL”. I’ve posted a series of comparisons analyzing the top performers for tax deferred cash accumulation and tax-free retirement distributions, so I plugged in those assumptions to see how Nationwide compared. Granted, it’s not a true apples-for-apples comparison. The index selection for Lincoln and Penn Mutual is the S & P 500, 1 year point-to-point. Lincoln assumes a 8.45% hypothetical return and Penn Mutual a 8.41%. Nationwide uses a weighted average multi-index blended strategy, 1 year monthly average, assuming a 7.6% index crediting.

Only time will tell on upside assumptions. While pondering the unknowns of the future, it’s good to remember the strength of indexed universal life is knowing there is a floor to stand upon.

Below are figures to the same benchmark structure: male, age 44, great health puts in $25,000 a year for 20 years, and at age 65 the takes out tax-free retirement income for the next 20 years in the form of policy loans, with enough left over for a death benefit. $25,000 a year might be above what you’re considering, but showing high premium is like a drag race to see how fast the car will go, fast as in building cash value, and then popping the chute, projecting how the retirement distribution performance.

Carrier	Cash Value Year 20	Death Benefit Year 20	Loan amount Yrs 21 -40	Cash Value Year 41	Death Benefit Year 41
Lincoln	1,072,791	1,611,714	146,428	831,161	1,121,364
Penn Mutual	1,148,802	1,738,802	145,609	522,606	841,829
Nationwide	933,926	1,503,928	119,820	89,900	302,664

With the goal being maximum retirement income, knowing the carrier’s options and rules on policy loans is vitally important. Nationwide has a fix loan option “declared rate loan” that showed a $88,236 income distribution on the policy illustration. For potentially better performance, like many other carriers Nationwide has a variable loan option “alternative loans” based on Moody’s Corporate Bond Yield Average, currently Nationwide illustrates at 4.79%, which gave a better $119,820 income distribution figure. But what will that figure be in the future? They have a guaranteed minimum of 3.00% and a guaranteed maximum rate of 8%.

Both Lincoln and Penn Mutual have fixed rate loan options that project better than the variables loan rates of the competition, including Nationwide.

Lincoln National Life Insurance Company: “Lincoln LifeReserve Indexed UL (2011)”
The Penn Insurance and Annuity Company: “Accumulation Builder II IUL”
Nationwide Life and Annuity Insurance Company: “Yourlife Indexed UL”.

Image Source: Wikemedia Commons

Disclaimer: Information and quotes are current and accurate to the best of my knowledge on December 4, 2011. Product features and rates are subject to change. Quotes are non-guaranteed projections based on current interest rates and cost of insurance. Tax information is general information only. Please seek professional tax advice for personal income tax questions and assistance.

Surrender Charges on IUL

by Sean Drummey

November 28, 2011

4:57 PM

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Cash accumulation, Cash Value, Equity Indexed Universal Life Insurance, Estate Planning, In your 40's, In your 50's, Indexed Universal Life, Lincoln National Life Insurance Company, Modified Endowment Contract, Penn Mutual, Retirement income

It’s always good to know the rules for getting money back, so I compared surrender charges for indexed universal life (IUL) carriers. Surrender charges decrease on a declining schedule. For the carriers I compared, it takes between 10 to 20 years for those charges to completely go away. Not surprisingly, Lincoln and Penn Mutual were among those most favorable.

Penn Mutual is the best: no surrender charges after the 9th year, also no surrender charges in excess of target premium.

Target premium is a premium designed maintain a permanent policy for life. Mind you target is a guidepost for keeping the policy in force, how the policy performs may require more or less premium. With Indexed Universal Life one strategy is to over fund the policy above target to build additional cash value. Of the carriers I surveyed, only Penn Mutual and Old Mutual did not require a surrender charge on that portion of the premium.

For example, as in prior comparisons: male age 44, over funding an Indexed UL with $25,000 in premium for 20 years in order to generate tax free retirment income in the form of policy loans. With Penn Mutual this is a $590,000 increasing face amount policy, and the given target premium is $7,918 a year, but by over funding it with $25,000 in premium, just under the IRS limit for a Modified Endowment Contract (MEC), the policy builds the maximum permissible tax free cash value. That amount between $7,918 and $25,000 would not be subject to surrender charges at any time with Penn Mutual.

The least amount of surrender charges in the shortest period of time is a distinct advantage for an Indexed Universal Life in case there is a change in plans.

Sean Drummey
Contact for a free quote
Phone: (910) 328-0447
Email: spdrummey@gmail.com

Best Indexed Universal Life (IUL) for retirement income: How does AXA Equitable measure up?

by Sean Drummey

November 22, 2011

4:29 PM

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Which is the best Indexed Universal Life (IUL) carrier for tax-free policy loans for retirement income? AXA Equitable has been in 2011 a consistently leading seller for Indexed UL. Let’s compare AXA side-by-side with other carriers to see how it performs. AXA product features include four index options. But beyond reviewing specs like rate caps and guarantees, the most useful way to evaluate carriers is to run policy illustrations using the the same premium and death benefit and compare projected returns.

The Indexed UL structure employed here is to overfund premiums with the minimum amount of death benefit to stay within IRS rules for tax advantaged life insurance. Then in retirement income take the maximum amount of tax free loans while still retaining a lifetime death benefit.

This Indexed UL strategy is an alternative for someone in their 30’s, 40’s and 50’s to directly investing in equity markets for retirement. IULs allow you to take advantage of market gains without the downside risk.

Here’s what it looks like for a male age 44 putting in $25,000 a year for 20 years, and then starting at age 65 taking the maximum out in tax free policy loans for retirement income for the next 20 years, while retaining at least a $100,000 death benefit to age 121. The death benefit starts at about $540,000 for each carrier and increases for years 1 – 20.

Carrier	Cash Value Year 20	Death Benefit Year 20	Loan Amount Years 21-40	Cash Value Year 41	Death Benefit Year 41
Lincoln	1,072,791	1,611,714	145,602	826,476	1,115,403
North American	1,144,104	1,683,029	147,248	658,775	981,056
Minnesota Life	1,100,898	1,655,898	137,217	584,737	876,987
John Hancock	1,085,171	1,323,908	139,719	614,556	913,093
Transamerica	1,065,637	1,630,637	95,000	215,254	346,582
AXA Equitable	995,284	1,534,207	86,402	98,473	212,604
Aviva	972,524	1,527,524	120,188 * *yrs. 21-31 only	83,677	204,366

I quoted AXA Equitable’s S & P 500 current rate which assumes 7.55% which is below the 8% plus range of S & P 500 rates assumed by other carriers, and that does have something to do with its lower cash value and death benefit accumulations on the chart at year 20.

Regardless, AXA only uses a variable loan rate which is currently illustrated at 3% policy yeas 1-10 and 2% thereafter. The rate is the greater of 3% or published monthly average Moody’s Corporate Bond Yield. Guaranteed not to exceed 15%. They do not offer a fixed rate.

Since those loan payouts are not competitive with Lincoln’s 5% fixed rate or higher variable rates assumed by the other carriers, AXA Equitable does not appear be competitive. Best way to find out which carrier is right for you is to request that I email you free quotes in the form of policy illustrations.

Carriers & Products quoted:

Lincoln National Life Insurance Company: “Lincoln LifeReserve Indexed UL (2011)”
North American Company for Life and Health Insurance: “Rapid Builder IUL”
Minnesota Life Insurance Company: “Eclipse Indexed Life”
John Hancock Life Insurance Company: “Indexed UL”
Transamerica Life Insurance Company: “Freedom Global IUL II”
Aviva Life and Annuity Company: “Advantage Builder Series IV”
AXA Equitable Life Insurance Company: “Athena Indexed Universal Life”

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

Disclaimer: Information and quotes are current and accurate to the best of my knowledge on November 22, 2011. Product features and rates are subject to change. Quotes are non-guaranteed projections based on current interest rates and cost of insurance. Tax information is general information only. Please seek professional tax advice for personal income tax questions and assistance.

Scuba diving deaths North Carolina’s Megalodon Ledge

by Sean Drummey

October 18, 2011

11:20 AM

3 Comments on Scuba diving deaths North Carolina’s Megalodon Ledge

Age 59, American General Life Insurance Company, In your 40's

The Wilmington Star News reported two scuba diving deaths off the North Carolina coast one Thursday, October 13th and another on Sunday, October 16th. I’m following this sport more closely because my 10 year old son is strongly interested in diving and in particular in diving for megladon shark’s teeth. He has read Steve Alten‘s Meg and has become a fan of the writer and his series on megladons. Both deaths involved hunting for these prehistoric fossils at Megalodon Ledge. Donald Zantop, 59 years old was described by his wife as an experienced diver. Amy Pieno, age 48, was the co owner of a Outer Banks Diving in Hatteras, NC. Presumably as a dive shop owner, she was very experienced. Megalodon Ledge’s average depths are 100′ to 110′.

How safe is diving? Statistics indicate it’s relatively safe, yet diving’s environment does not allow for much margin of error, especially the deeper a diver goes. I’m just about convinced that most hazardous sports are for those who are in shape and fairly young. But hey, it’s your life, and as long as your only risking your own, it’s your choice.

Our family has had these discussion before about hazardous sports. Several years ago a kid in the area, about 10, was doing a motorcross event, did a face plant and died. I’d rather hold off allowing my boys do certain hazardous activities until they are 18. Then being of age, I can shake their hand and wish them well. Their fate is up to them. If as a parent I allow them to do something hazardous under age 18 and something goes wrong, part of the guilt is going to be mine. Always.

Divers and life insurance
Over the years I quoted life insurance for scuba divers and have several as clients. Rates depend on the average depths of dives and frequency. Best available rates are possible if diving is limited and not too deep. Over 100 feet is generally considered deep. The most important thing is to admit diving on the application. Some applications are more favorable than others on the look back period on diving history. They all ask if you intend to dive in the future, usually in the next 2 years. Prudential, Genworth and American General come to mind as carriers that offer the most favorable underwriting. Prudential in particular is favorable.

Term to permanent: Conversion is Your Ace in the Hole

by Sean Drummey

January 31, 2011

12:24 PM

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Companies, In Your 20's or 30's, In your 40's, In your 50's, In your 60's, Term Life Insurance

Often something is better than nothing. If you need life insurance, and can’t decide what to get, or can’t afford a permanent policy as big as you need, get term life insurance. Then at least you can convert the term to permanent, even if you’ve developed a health problem. Term is generally all about lowest price, but conversion options is where quality comes in. Genworth has the best conversion with their new Term UL. It’s a fixed price from the get go, locking in the universal life premium rate to age 105.

I got a 10 year term policy after my first child was born. At that point, I needed the most bang for my buck, in case something happened to me. I’m still healthy so when the term ends I can shop for the best deal. But many people run into health problems, and that’s where conversion comes along. Many people in their 60’s end up converting their term policies.