I was discussing indexed universal life insurance products with another agent today and our combined conclusion is that most of the companies that are offering it seem to have forgotten that bad things can happen in our country’s economy.
But just for the sake of argument, let’s pretend that 2008 never happened and our government didn’t heap trillions of dollars on the problem to try to make it go away and let’s pretend that instead of retirement plans imploding, they actually grew. With that rosier picture in mind let’s talk about indexed universal life and variable universal life. Both are products that lean heavily on the hope that whatever investment strategy you choose (out of the few that they offer) will do far better than they have the guts to guarantee.
Case in point. I just watched a webinar done by North American touting their new indexed universal life. They were showing an illustration of, and excuse me if I chuckle a bit about this, but a 45 year old guy buying a $400,000 policy with a $20,000 annual premium. I found that amusing because if a person is making enough to put $20,000 a year into a “retirement vehicle”, why would they buy a pathetic $400,000 life insurance policy to protect their family?
Anyway, North American has a guaranteed interest rate of 3%, but just to make this more enticing, because it isn’t at 3%, they illustrate a projected interest rate of 8.2%. OK. Everyone who believes that North American will meet that projection from now on, raise your hands. Seeing none, the motion dies. Sorry! So if this guy pays into this policy for 20 years and it meets their 8.2% expectation, he can then start taking an income from the cash account of $120,000 annually until he is age 121.
Count me in on that one. But wait. Hold that premium check. That was their projection, not their guarantee. At the guaranteed rate of 3% at age 65 he can start drawing $120,000 a year and it will last 4 years before the reserves dry up. Hmmm! I know there’s no guarantee at all, but doesn’t it kind of make you wonder how this guy might fare if he bought a $400 a year 20 year term policy and put the balance of that $20,000 a year into lotto tickets?
Insurance companies and insurance agents need to quit fluffing the public up with non guaranteed, better than can even wildly be expected in a best case scenario projections. Number one they are setting people up to drain their bank accounts and lose their rears and number two, it just makes them look stupid against a back drop of an economy that is still on life support.
Bottom line. I’m back to that same old saying, you shouldn’t use your life insurance as an investment and you shouldn’t use your investments as life insurance. And like my mom and God told us, you shouldn’t lie.
My 20 years of experience give me the knowledge and leverage to find reasonably-priced life insurance for people who have been declined or are paying more than they need to.
The presentations showing the 8.2% rate is a projection using the Carrier’s historical average. These illustrations clearly list these as Projections.
Doesn’t this Indexed product give the client the upside of the market without risking principle, by providing a guaranteed int rate?
I’d say it’s a pretty good thing to have the upside of the market without risking 1 cent of your principle.
This is a terrible article written by someone who does not understand the power of life insurance. While Index Insurance is not for everyone, It’s far from a bad product.
Don’t sell insurance through fear, gloom and doom, instead educate your client.
Lance,
I don’t sell through fear, doom and gloom, but rather reality and guarantees. If no downside is the upside to the product then they should sell based on that and not an 8.2% “projection”. They aren’t making that much and don’t have any true belief that they will in the future, or at least the near future.
I didn’t say it was a bad product. I said that it shouldn’t be presented as better than it is. There are some indexed ul’s that compete with no lapse UL’s very well on the guaranteed side. But, if you get a client to focus on 8.2%, you’ve moved their expectations (whether it is only a projection or not). That is bad practice.