Ohio National - Demutualization

[DHK]

I swear... if there was such a thing as a truly limited-pay IUL that doesn't have ongoing COI charges... I'd consider jumping ship and doing that.

With fewer and fewer mutual companies, and especially fewer for independent agents... I'd consider trying to get ahead of the trend by looking at a limited pay IUL... if it existed. If it COULD exist?

Or a stock company issuing a limited pay indexed WL... I'd consider that.

 

[scagnt83]

I swear... if there was such a thing as a truly limited-pay IUL that doesn't have ongoing COI charges... I'd consider jumping ship and doing that.

With fewer and fewer mutual companies, and especially fewer for independent agents... I'd consider trying to get ahead of the trend by looking at a limited pay IUL... if it existed. If it COULD exist?

Or a stock company issuing a limited pay indexed WL... I'd consider that.

COI on a 10pay does not go away after year 10. The actuarial assumption is a level cost for the life of the policy.

Premium related expenses go away after year 10... such as Premium Load. But COI does not.

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If you look at the COI on a fully overfunded IUL, using GPT, its nothing compared to the CV. Less than 1% of the CV in old age... often less than 0.50%. The "cost" of a UL is totally overblown if its a fully overfunded policy using GPT.

Also, WL uses CVAT, which carries a higher COI because it forces a higher DB. IUL can use GPT, plus switch DB to Level, which keeps a very low COI over the life of the policy.

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Any IUL can be a limited pay IUL, just stop premiums... the old school name for UL is a "Flexible Premium Universal Life Policy". Fund the first 10 years properly, and you can stop after 10 years.

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Since you are selling it based on the distributions, IUL using GPT is going to blow WL away from a payout percentage of CV. GPT does not force an increase of DB like CVAT does, so more of the annual gains go into CV and distributions. You can get a payout % of over 10% of CV using GPT on an IUL. WL using CVAT cant touch that level.

 

[scagnt83]

It would be interesting if PennMutual can claim on the record publicly if they never seeked an IRS opinion on if they demutualize what the tax consequences would be. New York Life, MassMutual, NorthWestern Mutual can't claim that. Interesting if Penn Mutual really was clean and had never seeked an IRS opinion, you would think they would use that in their press releases and advertising. Instead, we get wow we will fight to remain mutual. Penn Mutual has a number where they would consider public. May be the high level executive does not know it. Or he is also drinking the kool aid. We all did at some point.

Good question for me to ask in my next lunch meeting with them.

 

[DHK]

COI on a 10pay does not go away after year 10. The actuarial assumption is a level cost for the life of the policy.

For WL, the ongoing cost of insurance is a liability on the insurance company rather than the policy holder. That's why it's not disclosed on a WL illustration.

I'd rather have the insurance company retain that risk rather than the policyholder.

Too many 'if's' in IUL for me.

 

[DWPCL]

For WL, the ongoing cost of insurance is a liability on the insurance company rather than the policy holder. That's why it's not disclosed on a WL illustration.

I'd rather have the insurance company retain that risk rather than the policyholder.

Too many 'if's' in IUL for me.

David the risk is there for WL as well. Just take a look at year 11+ on that illustration you posted for you moms policy. Clearly ON transferred that risk right back to the policy holder.

The crazy part is that my ON clients would have been better served had I sold them a universal life product instead of WL(mostly 10 pays). We would have more options right now.

 

[DHK]

David the risk is there for WL as well. Just take a look at year 11+ on that illustration you posted for you moms policy. Clearly ON transferred that risk right back to the policy holder.

The crazy part is that my ON clients would have been better served had I sold them a universal life product instead of WL(mostly 10 pays). We would have more options right now.

No, the difference is in the payment and crediting of dividends, not the costs of insurance. The guarantees are still there in the 10-pay and didn't change. The policy is not in danger of lapsing.

These are two different things.

 

[Allen Trent]

David the risk is there for WL as well. Just take a look at year 11+ on that illustration you posted for you moms policy. Clearly ON transferred that risk right back to the policy holder.

The crazy part is that my ON clients would have been better served had I sold them a universal life product instead of WL(mostly 10 pays). We would have more options right now.

That is a very fair point. If carriers eliminate a dividend going forward & make it just the guaranteed, you are basically forcing it to be similar to guaranteed to 100/120 level face, except forcing it via the laws for WL to build the cash value equal to face. Thus, a much higher premium needed to do that compared to no-lapse GUL/ No Lapse IUL.

WL accumulation cases are being dealt the added negative currently of not much 7702 room expansion compared to UL/IUL/VUL

 

[Lloyds of Lubbock]

How did ON transfer the risk back to the client?
The policy is still paid up and the net amount at risk along with the cash value will be paid out at death.
Ongoing dividends, they suck and they will be worse than projected.
As David mentioned the healthy people will 1035 their policies, so now the interest rate component is being taken out of the dividend and now mortality portion will get worse.
That Ohio National did this really should not surprise anybody when they reorganized as a Mutual Holding Company, there inforce business was not treated all that kindly.

 

[DWPCL]

How did ON transfer the risk back to the client?
The policy is still paid up and the net amount at risk along with the cash value will be paid out at death.
Ongoing dividends, they suck and they will be worse than projected.
As David mentioned the healthy people will 1035 their policies, so now the interest rate component is being taken out of the dividend and now mortality portion will get worse.
That Ohio National did this really should not surprise anybody when they reorganized as a Mutual Holding Company, there inforce business was not treated all that kindly.

ON is getting the maximum premium it can while preventing a MEC for ten years. They crater the dividends in years 11+ not really increasing their net amount at risk after that. That's a pretty good deal for them.

I'm fully aware of the difference on paper, but to my clients there is no difference between an elimination of the dividend on a WL contract, and an COI increase on a universal life contract.

Both contracts have moving parts.

 

[DWPCL]

No, the difference is in the payment and crediting of dividends, not the costs of insurance. The guarantees are still there in the 10-pay and didn't change. The policy is not in danger of lapsing.

These are two different things.

David, you yourself have said that you don't sell this stuff for the death benefit. I don't care what the guaranteed side of the ledger is saying, you relied on the non guaranteed side of the leger to make your strategies work.

Do you think your clients are going to be excited when they say "hey wait a minute this dividend is 10% of what it was supposed to be." Are they going to feel assured if you respond with "well Mr./Mrs. client take a look at the guaranteed ledger, at least your death benefit is guaranteed!"