Maximum Premium Indexing Curtis Ray

[Allen Trent]

This system works great, huh! Care to show illustrations?

On every IUL case I have ever written, I have shown 12% interest cause that is what the real S&P has historically averaged. I also build into the plan for the face amount to be 3x more than needed for 1st year to get the target premium as high as possible. This way, I get paid 3x as much and if the client dies in 1st year, the family had like a 1 year big term policy. The plan is then to lower the face to the actual needed amount. I have a reminder written on a post it note on my desk. If i forget to lower it, i dont think it will be that big of deal.

This is what i call my personal max funding IUL strategy to max fund my retirement as the insurance agent cause I gots to eat too

 

[jboussea]

This is what i call my personal max funding IUL strategy to max fund my retirement as the insurance agent cause I gots to eat too

LMAO ..

 

[ATM]

A higher initial would help with growth but it's not required. Even with no upfront capital the MPI system works great.

it works great right up to the time that it doesn't.

 

[Allen Trent]

it works great right up to the time that it doesn't.

I have always said the same thing. it works 100% of the time when it works

 

[krishawkins]

As if the IULs were not bad enough, now people want to leverage these. Doesn't this remind you of 2008 sub-prime mortgage crisis waiting to happen? This will end very badly

@phoenixlord can you walk me through what could go wrong here. If we're linked to an index (is S&P 500) is the concern that market has multiple down years in a row and we essentially run the account dry from the interest cost of the loans? Are there other risks?

@IUL guru can you comment?

 

[krishawkins]

He is using one policy for everything. You dont need two policies to make this work. You are taking out a loan and instead of using it to buy something you are just putting that amount back into the policy.

Is there any way to do this with whole life?

 

[ATM]

@phoenixlord can you walk me through what could go wrong here. If we're linked to an index (is S&P 500) is the concern that market has multiple down years in a row and we essentially run the account dry from the interest cost of the loans? Are there other risks?

@IUL guru can you comment?

The policy returns are based on a formula that is linked to the S&P (or other nebulous/proprietary indexes). The S&P could go up every year and your policy may lapse because the insurance company sets the caps/participation rate etc., based on what they can or want to credit.

Interest rates are the big risk to an insurer. Low rates for a long time, as many professional bond people expect, will kill insurers who have made very long term promises based on long term historical rates. If rates turn out to be significantly lower than what they expected (and that looks likely to be the case) then insurance companies need to find the money to pay claims.

They are going to lower caps/pars, lower credited interest rates, lower dividends, raise policy expenses. And all the while the stock market can go up.

 

[Allen Trent]

If we're linked to an index (is S&P 500) is the concern that market has multiple down years in a row and we essentially run the account dry from the interest cost of the loans?

none of the cash value of an IUL or a FIA is in the stock market or index. cant even really say they are "linked" or "tied" to it as that wouldnt be fair to say for the great years or bad years of the indexes. if it were linked or tied or invested in the markets, the returns would be negative in bad years & super high in the greatest years.

The interest index segment credited to a policy is more "tied" or "linked" to

1. what the interest rate marketplace can offer to the insurer on their overall general investment funds. those bond/mortgage/treasury rates supply the annual return to the carrier that the carrier can then go out in the options market each month to buy the options for the indexes.

2. the cost & efficiency & volatility that impacts the pricing of the options sold by the investment banks. If these drive up the cost of options, the carriers have less money to buy higher cap/spread options

low interest rates now are still limiting clients IUL in some cases to 8-9% this year even though the S&P is up 64% since its lows in the Spring. caps & spreads are going lower because of interest rates not allowing carriers to buy options with as much participation or caps.

Many agents & clients believe the insurance carrier is making a killing this year thinking the carrier earned 65% so far, but will only pass along 8 or 9% to client cash value. my understanding is that the carriers only way to make money on these products is from the fees/costs in the policies & if they can make a small margin on their overall portfolio after expenses of purchasing the options. this is why FIA tend to have so much lower caps than IUL because IUL provides the carrier with the insurance charges in the policy.

 

[scagnt83]

@phoenixlord can you walk me through what could go wrong here. If we're linked to an index (is S&P 500) is the concern that market has multiple down years in a row and we essentially run the account dry from the interest cost of the loans? Are there other risks?

@IUL guru can you comment?

Index performance is not the worry about IUL performance.

Renewal Rates on Caps/Spreads/Participation Rates is the worry about IUL performance. Renewal Rates are directly tied to the interest rate environment of the economy.

On most products...
Caps can be lowered to the 3%-5% range.
Spreads can be increased to the 10%-15% range.
Participation Rates can be lowered to the 10%-30% range.
Internal Expenses can be increased in the 25%-50% range.

No reason has to be given. No benchmark to meet. No warning given other than a 30 day notice. They can do this at will.

Renewal Rates on all IUL products have been trending lower over the past 10 years as interest rates have dropped. Carriers bottom lines are getting squeezed more and more as rates drop and stay at these ultra low levels. Which will remain for at minimum the next 5 years as indicated recently by the Federal Reserve.


Most IUL policies show a lapse under a scenario of 3%-4% credited rate. Many will lapse at a 5% credited rate. There are way too many that will lapse at even a 6% credited rate. Especially once internal expenses increase by 20%. The IUL market is a ticking time bomb imo. Carriers are doing nothing to determine suitability of situation, much less product design to meet stated goals.

The multipliers mentioned just add a higher expense. Making the issue worse as renewal rates crash.

 

[scagnt83]

Many agents & clients believe the insurance carrier is making a killing this year thinking the carrier earned 65% so far, but will only pass along 8 or 9% to client cash value. my understanding is that the carriers only way to make money on these products is from the fees/costs in the policies & if they can make a small margin on their overall portfolio after expenses of purchasing the options. this is why FIA tend to have so much lower caps than IUL because IUL provides the carrier with the insurance charges in the policy.

This is correct. They make money on the fees charged, not the index gains.

They ladder Option Contracts to provide the index returns needed. They never directly invest the money into the actual index, ever.

Behind the scenes (after fees are taken out). Premium funds are first invested into Bonds to cover the guarantees of the Policy. Whatever is leftover, is invested in Option Contracts to provide the needed Index Return. When Bond rates are higher, less money is needed to generate the return needed for the guarantees within the policy. But when Bond rates are lower, more money is required to cover the guarantees... leaving less money to invest in index options.

That is how Renewal Rates are determined. They determine how much is left after covering the guarantees, and how much return is possible to generate using that left over amount.

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And yes, that is why FIAs have much lower Caps than IULs. Carriers charge internal expenses on IUL, in addition to Cost of Insurance. There are zero internal expenses to a traditional FIA.

If FIAs charged a Premium Load of 4% for the first 5 years of the contract, they would offer higher Caps just like the IULs do... lol.