Re: Life Insurance = Good Investment

[Larry Tew]

I think it should be illegal to sell anything without a proper knowledge of the words used in a language...

I think you're wasting your time. I've posted the same thing a dozen times after an agent pipes up with the "Life insurance is not an investment."

According to most agents, unless you are highly likely to lose your a$$, you can't call it an "investment".

 

[winnersgetdinners]

I think it should be illegal to sell anything without a proper knowledge of the words used in a language.

It's ALL an 'investment'... but not everything is a 'security'.

Exactly, so here we go:

It depends on the products and whether you have the proper securities license. If you only have a life license and not the proper securities license, I don't think you're allowed to use the word investment.

Basic life comes back to the idea of indemnity, like other insurance products, that you aren't supposed to profit but indemnify the policyholder. An example would be having a life policy pay out after someone dies from a fight with cancer (indemnity) versus someone taking a life policy out on someone who 'mysteriously' dies days later (profit).

Variable life products are different in that interest is made from the premiums and can almost be considered two separate products in a single policy. You profit from what you put in, but you don't profit from someone's death.

 

[DHK]

Exactly, so here we go:

It depends on the products and whether you have the proper securities license. If you only have a life license and not the proper securities license, I don't think you're allowed to use the word investment.

You're right. You're not thinking. But that's okay. You're being extra safe with your words and phrases. You probably should until you know what you're doing and talking about.
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I think you're wasting your time. I've posted the same thing a dozen times after an agent pipes up with the "Life insurance is not an investment."

According to most agents, unless you are highly likely to lose your a$$, you can't call it an "investment".

You're probably right. But it's still fun to try to get them to think "outside the box" within the proper context!
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Basic life comes back to the idea of indemnity, like other insurance products, that you aren't supposed to profit but indemnify the policyholder. An example would be having a life policy pay out after someone dies from a fight with cancer (indemnity) versus someone taking a life policy out on someone who 'mysteriously' dies days later (profit).

agreed.

Variable life products are different in that interest is made from the premiums and can almost be considered two separate products in a single policy. You profit from what you put in, but you don't profit from someone's death.

And how is that different from a Whole Life, Universal Life or an Index Universal Life that has NO securities... but earns interest and dividends?

 

[winnersgetdinners]

Understanding Life Insurance
"Agents and companies may not refer to life insurance as an investment or retirement income source"

I only brought this up because I remembered reading it and wanted to check if my hunch was right. I'm not saying people don't consider life an investment or treat it as such.

 

[DHK]

Compare with THEIR definition of "investment":

Life insurance isn’t an investment. An investment is a financial risk – you might make money, but you also might lose some or all of your investment.

Some types of life insurance can build up cash that you can use for retirement income. Agents and companies may not refer to life insurance as an investment or retirement income source, however. If an agent or company tries to sell you a life insurance policy as a good investment, be wary. Also, don’t confuse life insurance with annuities. People often buy annuities for retirement because they can provide steady income over a long period.

Please read between the lines. They are a regulator trying to talk sense for consumers who don't know any better.

You are licensed... and SHOULD know better.

 

[Larry Tew]

Understanding Life Insurance
"Agents and companies may not refer to life insurance as an investment or retirement income source"

I only brought this up because I remembered reading it and wanted to check if my hunch was right. I'm not saying people don't consider life an investment or treat it as such.

Winner, I understand you're new right out of college, and I think that's great. No one is encouraging you to overstate or violate your state guidelines.

I attached a file below that I put together from the planning system I use. I've posted it before but you may not have seen it.You'll notice there's no overstatements or questionable references, nor did I drill down to the sub-atomic level, but in a simple straightforward way, it tells a prospect how life insurance works.

I hope it's helpful and adds to your existing understanding of life insurance.

 

[seeknulfind]

Caught in the act?

Sort of suggests that I've made allusions suggesting this doesn't happen. I'm not sure we can say that's true.

Though I do know of a few ways to significantly prevent the risk, even in products with a 0% floor.

Brandon,

Please note I don't like to use smiley graphics, but I was "speaking" facetiously about you being "caught in the act".

I believe it was in the beginning of the third segment of your series with Steve. In essence, he was asking you about what might happen in a terrible year on the stock market and I'm quite certain you said due to fees one could end up paying out of principle.

Watching the segment I got the feeling you two were "revealing dirty little secrets" about UL. This may be partly due to Steve's penchant for invoking a bit of drama into the program. Thus my own reference was made in the spirit of my memory of the show and was in no way intended as a slight towards you.

Hope this clears up the comment.

Andy
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DHK,

You're right this is an old thread. Didn't notice it, just saw the latest post. Even so it helped sort out all this in my own head.

LarryTew,

Thank you for providing your article on PLI. I like the analogies you used.

Does something like this need approval from carriers before offering it to prospects and clients?

Andy

 

[Larry Tew]

...LarryTew,

Thank you for providing your article on PLI. I like the analogies you used.

Does something like this need approval from carriers before offering it to prospects and clients?

Andy

I purposely stayed away from compliance issues in the piece. I had a couple of compliance departments give it a look (along with other similar pieces) and they thought it was fine.

However if you're a registered rep, technically speaking, FINRA will want to see it before you use any material not previously approved. Just submit it to Compliance along with what kind of underwear you're going to wear that day and you should be good to go.

 

[seeknulfind]

I purposely stayed away from compliance issues in the piece. I had a couple of compliance departments give it a look (along with other similar pieces) and they thought it was fine.

However if you're a registered rep, technically speaking, FINRA will want to see it before you use any material not previously approved. Just submit it to Compliance along with what kind of underwear you're going to wear that day and you should be good to go.

I thought the underwear thingy applied only to whitie tighties...

Don't even want to THINK about doing the RR bit these days.

After spending the last few years writing copy for non-regulated products and services, I find this environment a bit stiff and intimidating. It helps to see that one can exercise some modicum of free speech.

It's yet one more reason I'm happy to leave insurance in the hands of us "non-investment" professionals. :-)

Thanks again for your article and for your insight.

Andy

 

[scagnt83]

In essence, he was asking you about what might happen in a terrible year on the stock market and I'm quite certain you said due to fees one could end up paying out of principle.

Watching the segment I got the feeling you two were "revealing dirty little secrets" about UL. This may be partly due to Steve's penchant for invoking a bit of drama into the program. Thus my own reference was made in the spirit of my memory of the show and was in no way intended as a slight towards you.

Hope this clears up the comment.

Andy

Have you ever seen an IUL illustration? Or a UL illustration?
It really helps to read it and it will answer a lot of questions for you.

You need to realize that you are making blanket statements/assumptions when in reality the answer is situation specific.

There are yearly admin costs (which decrease drastically over the life of the policy) plus the yearly "Cost of Insurance" (COI) (which increases at a very small rate over the life of the policy).


These yearly fees are paid from the Premium; if there is a Premium Payment that year.
The remaining amount is what earns interest.

But most overfunded IUL policies are not set up to pay premiums forever. Most people stop around retirement age.

So in the case of a negative year in the market; if no Premiums were paid, then it is possible that the Cash Value could decrease due to the costs associated with the policy.

BUT, even this scenario depends on the specific policy at hand.
Many IULs provide a Guaranteed 1% Yearly Interest Rate if the Index falls below 1% for the year.
So for a policy that provides a yearly min. guarantee; it would not loose any CV because the 1% min would cover the expenses for that year.

So how a negative Index year will affect an IUL depends on the situation.

But if Premiums are paid that year, then the costs will always (as far as im aware of) come out of the Premium.

You are making blanket assumptions from a quick off the cuff answer that he probably did not have time to fully explain given the time constraints of the web show.

Whenever you make a blanket statement in this industry it is almost always just half-correct.
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Understanding Life Insurance
"Agents and companies may not refer to life insurance as an investment or retirement income source"

I only brought this up because I remembered reading it and wanted to check if my hunch was right. I'm not saying people don't consider life an investment or treat it as such.

Your link also says this:
"A portion of each cash value premium is placed into an account that grows over time. This is the policy’s cash value. The amount may grow at a fixed interest rate, be tied to indexed interest rates, or increase if the stocks, bonds, or other securities used as investments increase."



They dont want you using the term "Investment" because the securities version of an investment entails the risk of loosing significant principle over the life of the contract.

IUL/UL/WL does not have this risk, so the regulators do not want confusion for customers.

Also, the "investment & banking Industry" has much better lobbyists than the life insurance industry when it comes to influencing regulations.



But here is the thing:
Life Insurance Cash Values are considered a "Return of Excess Premium, plus Interest".

When you "Overfund" a policy, they deduct what the policy actually costs to keep in force (the fees/coi) & then they "return" your "Excess Premium" to you via the Cash Account.

And legally they are required to attach some type of interest rate to any Excess Premiums that are held.
This is were you get into variations in policies.
WL uses a combination of an interest rate plus Dividends.
UL uses just interest rates.
IUL uses interest rates plus Index Gains up to the Cap.


This is why it is not an "Investment". It is a return of excess premiums plus interest.