North American Builder Plus IUL 3
- Thread starter Jay1958
- Start date
- 10,838
Everyone is pimping the new NA products with their "ultra low expenses". Most leave out the part where NA is able to increase expenses by apx. 100% what the current "low" expenses are. Their guaranteed expenses are about 25% higher than the competition. They also have some of the worst Cap decreases among the A+ rated carriers. They use teaser rates to make illustrations look good, then lower Caps on existing biz once a new product line is released. That is why they have so many different blocks of IUL biz.
- Thread starter
- #3
The Builder Plus IUL 3 has a Percent of Account Value Charge that is higher than on previous products. On a current and guaranteed basis, the charge is 0.104% per month (1.248% annually) in all years up to age 120. This charge is applied to unloaned account value only.
This product appears to have been designed to win the "illustration wars." In my opinion, designing an IUL policy that has essentially one viable index option (that is, the Fidelity Multifactor Yield Index 5% ER) from which to choose if you hope to achieve anywhere near the illustrated performance, doesn't make this product one to highly recommend. Also, introducing a third loan option called a fixed interest participating policy loan yet the interest rate is not fixed (but will never exceed 8% annually) is problematic. Again, just my opinion.
If we operate under the premise that a product designed to under-promise with the potential to over-deliver is a superior value proposition for a client in comparison to a product that may over-promise and potentially under-deliver, I think therein lies the issue with the Builder Plus IUL 3. Only the passage of time and hindsight will reveal whether North American is able to maintain the interest bonuses at or near the non-guaranteed amounts illustrated. If they do and the volatility control index performs at or above the illustrated rate chosen or the maximum illustrated rate, it will be a great outcome for the policyholder. However, if the interest bonuses drop substantially or to the minimum guaranteed amounts, there will likely be many unhappy and disillusioned policyholders. Combine this with essentially having only one viable index from which to choose in addition to being nudged in the direction of a fixed interest participating loan (that isn't really fixed) due to the interest bonus only being available on this loan type, I feel the product has too many "what if's?" attached to it.
This product appears to have been designed to win the "illustration wars." In my opinion, designing an IUL policy that has essentially one viable index option (that is, the Fidelity Multifactor Yield Index 5% ER) from which to choose if you hope to achieve anywhere near the illustrated performance, doesn't make this product one to highly recommend. Also, introducing a third loan option called a fixed interest participating policy loan yet the interest rate is not fixed (but will never exceed 8% annually) is problematic. Again, just my opinion.
If we operate under the premise that a product designed to under-promise with the potential to over-deliver is a superior value proposition for a client in comparison to a product that may over-promise and potentially under-deliver, I think therein lies the issue with the Builder Plus IUL 3. Only the passage of time and hindsight will reveal whether North American is able to maintain the interest bonuses at or near the non-guaranteed amounts illustrated. If they do and the volatility control index performs at or above the illustrated rate chosen or the maximum illustrated rate, it will be a great outcome for the policyholder. However, if the interest bonuses drop substantially or to the minimum guaranteed amounts, there will likely be many unhappy and disillusioned policyholders. Combine this with essentially having only one viable index from which to choose in addition to being nudged in the direction of a fixed interest participating loan (that isn't really fixed) due to the interest bonus only being available on this loan type, I feel the product has too many "what if's?" attached to it.
- 5,062
Squirrel always finds a way into the bird feeder. Cue the calls for AG49c
- Thread starter
- #5
So true Allen. When AG49-A became effective, companies wanted to illustrate a competitive AG49-A product so they (1) maximized the Benchmark Index Account rate, (2) added a proprietary index account option and (3) reinvested hedge savings into interest rate bonuses. However, illustrating the bonuses at non-guaranteed rates is, in my very humble opinion, quite aggressive. The companies could argue the policy charges are enough to support these non-guaranteed interest bonuses for the life of the policy.
I anticipate we will eventually see another reiteration of AG49 to address illustrating non-guaranteed interest bonuses and perhaps re-examination of the Benchmark Index Account. North American's Builder Plus IUL 3 sets the Maximum Illustrated Rate of a volatility control index (that is, the Fidelity MFY Index) equal to the Benchmark Index Account. So you have a volatility control index with a higher Maximum Illustrated Rate than all the other indexes North American offers for this product. Further, North American's Benchmark Index Account (based upon historical returns of the S&P 500 Index) is a hypothetical account only and not offered on this product.
I anticipate we will eventually see another reiteration of AG49 to address illustrating non-guaranteed interest bonuses and perhaps re-examination of the Benchmark Index Account. North American's Builder Plus IUL 3 sets the Maximum Illustrated Rate of a volatility control index (that is, the Fidelity MFY Index) equal to the Benchmark Index Account. So you have a volatility control index with a higher Maximum Illustrated Rate than all the other indexes North American offers for this product. Further, North American's Benchmark Index Account (based upon historical returns of the S&P 500 Index) is a hypothetical account only and not offered on this product.
I totally agree. Seen cap rates fall way too often to go back on their products. Hard to say I'll just trust them this time.
- 5,062
But haven't all IUL & FIA products caps dropped as the treasury rates fell & overall low interest rate environment?
- 10,838
Yes. But some have dropped much more than others. Big difference in keeping in line with the rate environment and dropping renewals because they used teaser rates to trick people into buying.
A NA policy bought 6 years ago would have seen a 7% cap reduction if memory serves me correctly. And one block saw an increase in expenses already.
And NA uses true teaser rates. They release a new IUL with high caps... and immediately reduce caps on inforce blocks. If you look at their renewal history and its timing, it is like clockwork. They illustrate a higher than average Cap/rate, then drop it a couple years later to below average rate.
Compare that to others, such as Penn, who give the same Cap/rate on renewals as they do to new issues. Caps are not as high as NA to start... but after 5 years they will be higher.
I regret ever selling NA or Midland IULs and FIAs (they do the same with teaser rates on their annuities). You couldnt pay me enough to sell NA or Midland policies again.
- 5,062
That makes more sense then. I am guessing the agents that choose to write them over the other quality carriers are doing it for commission needs analysis or to lure in consumers for best current illustration with no care for the future of the client. Do agents ever publicly defend this practice by NA/Midland?
- 10,838
Its a mix imo. If an agent objectively analyzes not even the worst case scenario, but just a middle of the road scenario, NA IUL certainly does not look appealing. I forgot to mention the guaranteed minimum Caps are 1%-2% lower than many other carriers.
NA does pay higher than average comp, to both agent and IMO (as an agent I can get 115% easy). But it also illustrates the best right now. NA has figured out how to "win the illustration wars" as pointed out earlier in the thread. So is it for the easy sale or the comp or both? Depends I guess.
But their high illustrations are based on non-guaranteed bonus rates. And a Volatility Control Index that is designed to rarely exceed 5% per year. Then they can drop S&P Caps all the way down to 2% if they choose... on top of a possible 100% increase in expenses built into the contract.
Many agents dont realize it. I have a hard time believing the IMOs dont realize it. I recently had a discussion on LinkedIn with an agency owner who was promoting NA IUL on a LinkedIn Group. He was too old to say the BS he claimed to not know. He claimed there was no way to back up my assertion of teaser rates.... when NA publishes their renewal histories and time periods of their many blocks of IUL biz. He claimed there was no easy way to "discern" what expenses are year by year and there was no way to know if expenses increased or not. I pointed out that NA announced the expense increase to the agent force, and on annual statements... plus the annual statement clearly shows the annual expenses right beside the Cash Value... they actually show the math and the subtraction of the expenses from the Cash Value. So this agency owner who is easily in his 50s.... had either never read an annual statement.... or was playing dumb just to pimp a subpar product to unknowing agents and consumers.
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