August 13, 2013 by Pat Lanigan
We have one question in this month’s Q&A with a detailed answer provided by Sheryl Moore, President and CEO at Moore Market Intelligence and authority on indexed annuity products.
Pat: How much consideration should we put into guarantees on participation rates, loan rates, account value enhancements, ect. when there is still moving parts in other areas?
Sheryl: One must always remember that with an unbundled insurance product, such as universal life, no one product feature determines the competitiveness of a product. Sure, the cost of insurance (COI) rates might be competitive, but the premium loads may be exorbitant. On the other hand, the loan rate may be very aggressive and the per thousand charges may be prohibitive. If there is one rule that all those dealing with UL should remember, it is that “the total is greater than the sum of its parts.” Evaluate these products in whole against one another, or you may be comparing apples to oranges.
Guarantees are backed by the claims-paying ability of the issuing company.
June 20, 2013 by Pat Lanigan
We have three questions in this month’s Q&A with answers provided by Sheryl Moore, President and CEO at Moore Market Intelligence.
Pat: Let’s start with Caps, how can one company offer higher caps than another company and are they sustainable over the long haul?
Sheryl: Insurance companies are able to effectively “subsidize” their caps on IUL by making their profit through other features such as premium loads, policy fees, per thousand charges, or COIs. However, all things being equal between two different IULs, if one has substantially higher caps than the other, you do need to ask if that rate is sustainable. When the insurance companies buy the options that provide the caps/index-linked potential, it is comparable to buying a bar of soap at K-Mart versus Wal-Mart. No insurance company has some “secret source” of incredibly discounted options. Often companies that claim to have such efficiencies are merely subsidizing their first-year caps, by dropping their renewal rate caps once the policy is in force.
Pat: Assuming the viability of maintaining higher caps, will this significantly improve the policy performance over the long haul?
Sheryl: There are many things that will affect the performance of an indexed UL over a long period of time. Will the caps remain level? Will the insurance charges stay the same? How will the market perform? Generally, insurance products are priced to return 1% – 2% greater interest than fixed products. So, if traditional ULs are crediting 4.5% today, IUL issued today could earn 5.5% – 6.5% over the life of the policy. Some years, the policyholder may receive zero credited interest. Other times, they may receive double-digit gains and “cap out.” Ultimately, what is most likely to happen is somewhere in between and could average out to be 1% – 2% greater than what fixed ULs were crediting at the time of policy issue. This is regardless of crediting method, index used, or moving part used to limit the indexed interest.
Pat: How relevant are the minimum guaranteed interest rates for IUL?
Sheryl: The guaranteed minimum rates and floors on indexed life are generally not going to be very relevant. All that it takes is one solid year of gains on the contract and these minimums are a moot point.
Guarantees are backed by the claims-paying ability of the issuing company.
May 23, 2013 by Pat Lanigan
This month is a Q&A double header with answers provided by Sheryl Moore, President and CEO at Moore Market Intelligence and authority on indexed annuity products.
Pat: Does any one index crediting strategy outperform any others in the long haul? What about in volatile times like we are experiencing now?
Sheryl: No, the option seller is going to price the options (which are the instrument that provides the index-linked interest on IUL), so that his risk is relative, regardless of index, crediting method, or pricing lever used to limit the indexed interest (cap/participation rate/spread). In our pricing transaction, we take [5%] of the policyholder’s premium and use it to buy options. Today, based on interest rates, market volatility, and option costs, our option seller might tell us that our [5%] will buy an S&P 500 annual point-to-point cap of 12%. However, if the market spikes, one month from now that same 3% may afford our policyholders a cap of 17%. (After all, what is the likelihood that the index will go up 17% when it is already at a historically high level?) This is why the indices that have historically performed the best are going to have lower caps than an index that is mediocre. Sure, some crediting methods and indices will perform better than others in certain environments. However, over a long period of time, they will all perform about the same.
Pat: Over the long haul, does it really matter which IUL product I sell? (excluding riders, ect)
Sheryl: YES. When we price universal life, we price it for one of three objectives: extended no-lapse guarantee (NLG), cash accumulation, or premium-to-endow (most amount of insurance for the least amount of premium). Believe it or not, we do have IUL products that are priced for all three of these objectives; not just cash accumulation. In fact, one of the most competitive NLG products in the insurance industry is an indexed life insurance product!
Agents selling indexed life need to identify their client’s insurance needs and properly identify a product that meets the necessary product objective. From there, the agent needs to do their due diligence on the underwriting insurance company, and evaluate how they will treat their clients’ policies once the contracts are inforce. From there, the agent is positioned to compare products among their qualifying companies in terms of performance, cost, and benefits. Although it can be difficult to compare these products apples-to-apples, I suggest first comparing all of the product features independently of the indexed crediting. Then, compare caps/participation rates/spreads on like crediting methods. And above all, do NOT rely on the illustrated rate that is defaulted in the carrier’s software as an indication of which product is “best” for the client!
Check out the BLMG Q&A blog post each month for more answers to your questions! If you’d like to submit a question or share your thoughts, click on the title of this blog post and comment in the section at the bottom of that page.
March 7, 2013 by Pat Lanigan
Brokers Life Marketing Group, LLCSM (BLMG) is committed to being a leader in the life insurance industry.
In spite of a challenging marketplace, BLMG had a record year in 2012. In order to lay the groundwork for greater future growth, BLMG is announcing a strategic change to our business model.
Moving forward, BLMG will reduce the number of carriers offered. By narrowing our focus to concentrate solely on key relationships, we will be able to provide:
- e-Business technology to reduce administrative and underwriting delays,
- Increased educational opportunities,
- Focused marketing efforts, and
- Features that enhance the living advantages of life insurance such as:
- Premium Deposit Funds,
- Chronic Care Rider, and
- Back-casting tools
Ultimately, these changes will improve the BLMG experience by providing better, more specialized, in-depth support from our staff.
Transition guidelines and a list of key BLMG carriers can be found at http://www.brokerslifegroup.com.