cost of insurance - Life Insurance Recommendations

Cash Value Life Insurance Choices

September 25, 2013

10:40 AM

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Age 120 guarantee, Cash Value, cash value life insurance, cost of insurance, Increasing death benefit, IUL, lapse guarantee, No Lapse Guaranteed Universal Life, No-lapse guarantee, par whole life, Whole Life, whole live vs indexed universal life

Santiago Rusiñol. Calvario marlloquí

Whole Life: life insurance participating, or par

Dividends
Builds Cash Value
Guaranteed Cash Value Accumulation
Endow, worth face amount in cash, at age 100 or age 121
Increasing face amount
Cash dividends option, after a period of years
Paid Up Insurance
Cash value protects policy if payments are missed
Coverage guaranteed to age 100 or age 121

Pros: Since it builds on top of guaranteed cash value, par whole life has highest potential for cash value accumulation, flexible to changing circumstances; good to start for children, in 20’s, 30’s or upper income
Cons: much more expensive than Universal Life (UL) or Indexed Universal Life (IUL)

Indexed Universal Life: IUL

Builds Cash value, higher upside potential with index crediting then current assumption UL
some guaranteed cash value accumulation, not all years
Flexible on payments
Option for increasing face amount, option B
Cash value protects policy if payments are missed
Policy lapses with zero cash value

Pros: less expensive than Whole Life, flexible to changing circumstances
Cons: if underfunded and or performs poorly can lapse without additional premium; higher cost of insurance charges than UL, periodic review is advisable, more complex, more choices to make than current assumption UL

Universal Life: UL, current assumption UL

Builds Cash value
Flexible on payments
Option for increasing face amount, option B
Cash value protects policy if payments are missed
Policy lapses with zero cash value

Pros: less expensive than Indexed UL, flexible to changing circumstances, lower cost of insurance charges than Indexed UL
Cons: if underfunded and or poor interest credited can lapse without additional premium

Whole Life: non-participating, non-par

guaranteed cash value accumulation

Pros: fixed premium, guaranteed cash value accumulation, endow at age 100 or age 120; good for final expense
Cons: level death benefit; cash surrender value matter little compared to death benefit

Guaranteed Indexed Universal Life: GIUL

cash value accumulation, generally not in 80’s and older

Pros: lifetime guarantee, or set guarantee year
Cons: lower casher value accumulation than Indexed UL

Guaranteed Universal Life: Guaranteed UL, GUL, no lapse guarantee UL

Little to no cash value accumulation

Pros: least expensive lifetime guarantee age 120+, also least expensive setting guarantee to age 90, 95, 100, 105, 110 or whatever length desired; ability to structure longer guarantees, and at older ages than term life, for example 30 year guarantee at age 59
Cons: missed premium payments lapse policy, little to no cash value accumulation
Return of Premium Term: ROP term

guaranteed cash value accumulation
reduced paid up insurance with some carriers

Pros: At the end of the term you get all your premiums back; builds cash value, mostly in the last years of the term period
Cons: death benefit same as term if you pass away, cash value not included; more expensive than term, especially after mid 40’s

Prudential’s new Indeed Universal Life (IUL) an initial look

by Sean Drummey

May 11, 2012

10:02 AM

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0% Floor, 1 year point-to-point, Cap, Cap Rate, cash value life insurance, cost of insurance, crediting strategy, Fixed Account, Guaranteed Floor, Increasing death benefit for cash accumulation, Increasing Face Amount for cash accumulation, Indexed Universal Life, Loans, maximally funded, Maximum cash accumulation Indexed UL, over-funded, S&P 500, tax-free loans

Prudential’s new Indexed Universal Life (IUL) is now available in many states. PruLife® Index Advantage UL a very straightforward Indexed UL product. The index is the S & P 500 annual point to point with a 10.75% current cap and a guaranteed 0% floor. The fixed account, called the Basic Indexed Account, is guaranteed to never earn less than 2.00% which is very competitive. Illustrations assume at most a 6.83% average return which is based on a 25 year look back on the S & P 500 with a 10.75% cap and a 0% floor. It is commendable for Prudential to illustrate returns at 6.83% tops. Other carriers illustrate the S & P in the upper 7% to lower 8% range based on different assumptions including a more favorable 30 year look back. It’s advisable to review illustrations with even lower assumptions, 5% or 6%, to not oversell expectations, and it’s a helpful reminder in any thorough comparison analysis that Prudential model is more conservative.

For Prudential to establish a 10.75% cap rate, below other carriers, is also of note. Higher caps rates may look attractive, but carriers tend to build in higher cost of insurance rates to cover the additional expense. Cost of insurance charges are likely more evident if an illustration is run with minimal premium, solving $1 to age 100, or minimal returns, as in assuming .01% return on the indexed account.

To judge how an Indexed UL product compares with competitors is not cut and dry. There are many variations of age, gender, health rate class, goals and premium targets. I initially ran Prudential’s IUL assuming a maximum cash accumulation, increasing face amount, tax free loan for retirement income for a male in his mid 30’s against top performers, including Lincoln and Penn Mutual, and within those parameters, I did not find Prudential competitive. Prudential indicates their competitiveness is in minimum premium, solving for lifetime coverage, scenarios and with longer no lapse guarantees. In fairness to Prudential the scope and extent to their competitiveness will require multiple comparative tests to see how premiums and policy values compare depending on the particulars of the client.

Looking at Prudential’s illustration and trying to decipher exactly how the policy charges to the Basic Interest Account are credited was very difficult. Prudential requires a minimum of a year’s worth of charges be held in the basic interest account. It’s still early in the product’s release, and undoubtedly agents will be provided explanations in product guides and other training avenues.

Participation rates IUL: set sail for cash value

by Sean Drummey

December 14, 2011

5:19 AM

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Cap, Cap Rate, Cash accumulation, Cash Value, cash value life insurance, cost of insurance, Indexed Universal Life, Participation Rate

This analogy is fairly close. Indexed Universal Life (IUL) is like a yacht. To maximize cash value during market gains, sails are set during favorable conditions. The mast acts like the cap. Right now the highest cap rates are running about 14%. So that is like a 14 foot mast. The participation rate, or par, acts like a sail, ideally like a spinnaker, to maximize cash value. Most of the carriers offer a 100% par rate. Many guarantee a 100% par. But that doesn’t mean the carrier can’t still control crediting cash value in too favorable market conditions. If the market index went ahead the carrier’s ability to credit, the cap rate would be lowered. It is like in favorable winds, no matter how large the sail, if the mast is only 8 feet tall, you’re not going to catch as much of those winds.

The overall elements of an Indexed Universal Life: cap, par, fixed account, indexed accounts, cost of insurance, the carrier, needs careful review before selecting the best product. Just as a yacht, one needs to examine the craft overall: masts, sails, engine, weight, center board and design.