Best Life Policy for Return on Cash Value

[TheLifeGuy]

I am new in the business and this forum and am looking to grow my knowledge in the business. I am currently a career agent with Mass Mutual in Texas.

I have done a bunch of research on different companies and the returns on cash value and try to learn the ins and outs of different products the best I can but it is mostly limited to mutual companies. I don't know much about what Universal Life has to offer.

If I have a client who is 35 and healthy, and who only desires the highest return on cash value after 30 years (not using a variable product) and then subsequently takes money out of the policy during retirement (Bear market years ect). What company and product design is currently the best to achieve this goal? I know the Mass 10 Pay and L100 with 50% of money going toward ALIR and then doing reduced payed up after 10 years, both generally end up with an IRR of 5.5%. I personally believe in a variable loan rate because if I studied it correctly, the loan rate has only been higher than the dividend at Mass for 2 of the last 35 years and it's obviously not direct recognition.

Thank you for your comments and suggestions!

 

[DHK]

Since you're a career agent for MassMutual, YOUR best cash value policy that you can offer will be.... a MassMutual policy. Don't worry - it is one of the best out there.

Here's what you need to look at: When is the "break even" point of the policy? When does the illustration show cash values exceeding premiums paid? A well structured Whole Life policy focused for cash value accumulation... will be around year 10-12, depending on underwriting classification.

#2 - How much cash value is available at year 5? I've been running my own experiments of illustrations... and I'm finding that if you can illustrate 75% cash values available compared to premiums paid... then you have a well designed policy.

So, if you're paying $10,000/year for 5 years, you should have $37,500 available as cash values to access.

I wouldn't focus as much on returns on the policy, because that's completely out of your control. I'd focus on the available LIQUIDITY within the policy. And the more liquid the policy is, the more that is working for earning higher interest and dividends.

BTW, to do this well, you'll have MORE than 50% of the money going to ALIR (PUA rider), which will mean that your comp will be lowered for the policy. But your job is to take good care of the client, show that you have their best interests, and obtain referrals.

 

[aclaro]

Don't be afraid to ask for more. Just running it quickly for 35m at select preferred....
I got 76% cash value liquid at the end of year 1
By the end of year 3 it's crediting more than the premium paid
By the end of year 6 there's more cash value than premiums paid

That's just a quick peek I could probably do better depending on the specifics and what you're trying to accomplish

 

[heynow5]

Not sure 10-12 year break even is good design...maybe it has something to do with Assurity? I agree with aclaro, should be around yr 6

 

[DHK]

The underwriting classification always has something to do with it.

I always use standard non-smoking. Obviously the policy will perform better with a better underwriting classification.

I can't always remember, but I think it was year 8 non-guaranteed and year 12 guaranteed.

 

[TheLifeGuy]

Thank you for the feedback. Generally, under the current dividend assumptions Mass's illustrations show 100% of premiums returned to the cash value in the 7-8 year range assuming a select preferred rating. Even when I add scheduled or unscheduled ALIR into the policy to the max without it MECing the crossover year is close to the same and the IRR of cash value is 1 basis point higher in retirement.

I'm not as worried with the short term return of the cash value, as compared to which policy has the most cash in it 30 years from now and allows the most money to come out of the policy and into my clients bank account in retirement. I assume also that some of the short term returns and what year the cash value is positive have to do with the companies mortality and operational expenses compared to others?

I had a guy tell me that John Hancock had a Universal Life policy that returned near or higher returns in the 5.5% world compared to Mass and wasn't sure if this policy was as stable a product & company and if it was likely to perform to this rate. Curious what products and companies have an IRR that is higher, assuming withdrawals, that I can offer my clients.

Thank you for your help!

 

[DHK]

Thank you for the feedback. Generally, under the current dividend assumptions Mass's illustrations show 100% of premiums returned to the cash value in the 7-8 year range assuming a select preferred rating. Even when I add scheduled or unscheduled ALIR into the policy to the max without it MECing the crossover year is close to the same and the IRR of cash value is 1 basis point higher in retirement.

I'm not as worried with the short term return of the cash value, as compared to which policy has the most cash in it 30 years from now and allows the most money to come out of the policy and into my clients bank account in retirement. I assume also that some of the short term returns and what year the cash value is positive have to do with the companies mortality and operational expenses compared to others?

I had a guy tell me that John Hancock had a Universal Life policy that returned near or higher returns in the 5.5% world compared to Mass and wasn't sure if this policy was as stable a product & company and if it was likely to perform to this rate. Curious what products and companies have an IRR that is higher, assuming withdrawals, that I can offer my clients.

Thank you for your help!

The only other non-variable policies that MIGHT have a higher IRR... is an IUL.

Your problem, is that you're not able to offer an IUL while being at MassMutual.

Remember that dividends are just estimates. They are not guaranteed from year to year... even though mutual companies have a tremendous record of paying A dividend, that doesn't mean that the scale will remain consistent.

Mass has one of the best policies out there to illustrate. But you're still selling the policy based on "highest illustrated values".

So you have two problems:
1) You're selling people on using life insurance as an investment (instead of as an alternative asset to harness for its other features & benefits) and focusing only on rates of return and the highest non-guaranteed future value in 30 years.
2) You are unable to offer an IUL because you're with MassMutual.

An IUL (which captures market upside volatility and none of the downside risks) can illustrate very well for what you're looking for... but nothing can guarantee a 7% return every year (which is the way it is illustrated).

If I were you, I'd just check with MMLIAI (Ash brokerage) and see what they can do for you. At least you should be okay working with Mass while using whatever product they would recommend for you. Plus, you still get some credit towards Leader's conference or whatever.

https://mmliai.ashbrokerage.com/

 

[TheLifeGuy]

Great information & thank you DHK!

Just to clarify on the dividend illustrations. I always feel good illustrating at the current 7.1% dividend based on Mass's past dividends since 1978. Only one year (2011) has the dividend been below 7% and the average dividend over these years is 8.66%.

Secondly, I always look at it as an additional vehicle to compliment their 401k/ Roth IRA after those have been fully funded up to the match and gives them the ability to access cash if they need it pre-retirement. I know it's not an investment but at tax free yields of 5.5% it would take an investment return net of fees and expenses of 6.875% taxed at a capital gains rate to equal the return. Is it bad to look at it as a 3rd bucket of money in retirement?

As far as Indexed Universal Life is concerned is there somewhere I could learn more about this product? I have never heard it viewed in a positive light and have only heard about the negatives.

Thank you in advance.

 

[BYSFG]

Hmm...Im breaking even around 10-15yrs.

If you guys dont mind me asking whats the usual premium/year you guys see when illustrating these for interested clients.

Been leaning towards IUL for clients in these type of situations but they're just plain set on whole life due to their risk tolerance, which is understandable.

 

[heynow5]

10-15 years...is that guaranteed or with dividends?