Fees of newer multiplier index segments

[Allen Trent]

any thoughts on the pros & cons of the multiplier segments being offered. seems like they have gained popularity since AG49.

Just seems like in flat or down years the clients Cash value could take a hit because of the cost/fee tied to the index multiplier segment choice.

Am I correct to say that a chance at a higher multiplier crediting in biggest years will also come at the cost of taking negatives in the cash value over & above the normal costs of COI/load fee/ policy fee/rider costs.

are you choosing these multipliers because to be more like a VUL on the upside but better than a VUL to cap the possible downside?

thank you for any insight.

 

[ATM]

IMO the multiplier products are a creation in response to AG49 and an attempt to create the best illustration possible, and not necessarily the best product.

AG49 allows the actuary to assume a 50% gain on all options purchased in any indexed segment. So as i see it, the race is on to create ways to be able to buy more options in the segments.

Look at it this way, if a product had a 100% asset fee each year it could buy lots of options that the actuary could assume a 50% gain on. that illustration would win every single comparison and many agents would sell it and I predict it would be the number one selling IUL product on the market in a very short time.

That is until the index has a down year, then the policy is kaput!

IMO some of these multiplier products are criminal, deceptive, and will never produce what they promise because the volatility of returns with 4% or 6% (for now) added asset fees will change the math.

 

[Allen Trent]

IMO the multiplier products are a creation in response to AG49 and an attempt to create the best illustration possible, and not necessarily the best product.

AG49 allows the actuary to assume a 50% gain on all options purchased in any indexed segment. So as i see it, the race is on to create ways to be able to buy more options in the segments.

Look at it this way, if a product had a 100% asset fee each year it could buy lots of options that the actuary could assume a 50% gain on. that illustration would win every single comparison and many agents would sell it and I predict it would be the number one selling IUL product on the market in a very short time.

That is until the index has a down year, then the policy is kaput!

IMO some of these multiplier products are criminal, deceptive, and will never produce what they promise because the volatility of returns with 4% or 6% (for now) added asset fees will change the math.

That is exactly the type of input I was looking for. So, you are thinking AG49-2 might be coming if some carriers are complaining about the aggressive illustrations with multipliers

thank you

 

[ATM]

I know that adjustments are already being planned. What AG49 did was create loopholes that took time for companies to figure out. As soon as one stepped through that hole (PacLife), others (Hancock/Lincoln) have followed. More will certainly be coming as IUL is in an illustration war and too few agents know or care what assumptions underlie the paper they push.

 

[pfg1]

I would not sell a leveraged IUL. IMO, its a disaster waiting to happen. In a down year, floor goes from 0% to a loss of 5%, or whatever. A few of those years will destroy the returns (and suedo downside protection) that IUL brings. Its another way for carriers to illustrate well to try and win more business.

 

[ATM]

I saw a really good comparative study of 10 IULs performance (retirement income distributions) at 6% illustrated rates then those same 10 run at 4% of the illustrated rate.

The numbers 1 and 2 products dropped to the 9th and 10th spots at the lower rates. 3 dropped to 5th and 4th ended up 3rd. The products that illustrated best at 6% had income drops of almost 80% at 4% illustrated.

I don;t think many, if any agents know the real risks they are selling and I sure as heck know that not one client understands. I think that is bad for our industry and will end up giving us a very black eye, maybe two.

 

[Allen Trent]

I saw a really good comparative study of 10 IULs performance (retirement income distributions) at 6% illustrated rates then those same 10 run at 4% of the illustrated rate.

The numbers 1 and 2 products dropped to the 9th and 10th spots at the lower rates. 3 dropped to 5th and 4th ended up 3rd. The products that illustrated best at 6% had income drops of almost 80% at 4% illustrated.

I don;t think many, if any agents know the real risks they are selling and I sure as heck know that not one client understands. I think that is bad for our industry and will end up giving us a very black eye, maybe two.

Yup. And those of us, including me, that complain about over-regulation can't figure out how we have arrived at 50 page illustrations or 10 page annuity apps that used to be 1-2 pages a decade ago.

 

[DHK]

This article may be helpful for the topic:

Indexed Life: Illustrating at Nearly 14% - Wink

 

[Allen Trent]

This article may be helpful for the topic:

Indexed Life: Illustrating at Nearly 14% - Wink

Excellent & timely blog post

 

[jdumond]

That is exactly the type of input I was looking for. So, you are thinking AG49-2 might be coming if some carriers are complaining about the aggressive illustrations with multipliers

thank you

There is a special Committee/group that is looking into this right now. I have heard from a few of my carrier connections that they expect something within the next 2 years. These illustrations are getting out of hand. If you are selling a highly leveraged product I would recommend pursuing another course.

Think of this as well.... If you are selling these products with crazy multipliers, then they AG49-2 happens these current product iterations are going to go the way of the Dodo for new sales AND there will be NO motivation for these carriers to keep their word for these in-force policies. Most of these bonuses and multipliers are NOT guaranteed and will surely be the first things eliminated from a block a business that the carriers no longer see as an important. Cause heck if they can't point back to previous product performance as a way to sell new business who gives a rip how the old block of business performs.