Myth: Indexed Universal Life Insurance has Stock Market Exposure – Case Study

When we discuss indexed universal life insurance with new potential clients, they commonly mention that they already have stock market exposure, so they see no need to gain additional exposure to the market.

I understand the impression they often have, but assuming that indexed universal life insurance gives you additional exposure to the market is a misunderstanding that could lead you to the wrong decision–many clients have expressed their gratitude in our willingness to pause and discuss the product more to ensure understanding.

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An Indexed Universal Life Insurance Success Story

I was recently reviewing an indexed universal life policy issued seven years ago. We do a lot of reviews for life insurance policies (especially the ones we ourselves put in force for people) and such reviews look at performance to date as well as a comparison to the original policy projection to review how things have unfolded.

For a lot of policies, there’s little variance from the original projection. This is especially true on the whole life insurance side of things since dividends don’t tend to vary all that much (a few exceptions exist for policies we’ve been asked to review we didn’t have a hand in putting in force).

Not all that surprisingly the indexed universal life insurance policies have tended to do better than the original projections.

For the policies we’ve put in force, this is commonly due largely to our insistence on assuming a 6 to 6.5% annual index credit (a lot of less honest agents/brokers like to use numbers in the mid 7 to 8% range, though recent legislation is changing that).

The market has enjoyed a pretty good run since 2008 and indexed insurance products have certainly benefited. As a result, I often get asked what happens if the policy performs better than the 6% number I assume, to which I always point out, you’ll simply have more money.

This is great in theory, but a lot of people have a hard time grasping what that means in a more concrete sense. So today we’ll review publicly a policy that has been in existence for almost a decade and see how it has performed.

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Five Year Asset Growth Indexed Universal Life Companies

Insurance company asset growth is a measure of overall company success in accumulating assets. It’s a metric that certainly indicates positivity when the trend is upwards, but there are a few nuances that we have to keep in mind before ambitiously declaring a winner.

Insurers can accumulate assets either through the new business process (i.e. selling new policies and collecting more premiums) or through superlative investment performance. In either case, an upward trend is almost always favorable, the difficulty comes in trying to determine how much of an upward trend matters when looking at results from multiple life insurers.

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Five Year Indexed Universal Life Insurance Company Investment Return Trend: 2014 Edition

Indexed Universal Life Insurance Investment

Indexed universal life insurance investment return on assets is an indicator we use to measure how well an insurer can maintain returns on its cash value products. Just like the whole life insurance investment return trend we published earlier this month, the same general principal applies (i.e. a higher return on assets held at the insurance company gives us indication that the insurer should be able to deliver a higher return on cash value products like cash accumulation focused life insurance products and annuities).

This time we’re looking at life insurance companies that are well known for their indexed universal life insurance offerings, and this time the results are a good bit different.

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Top Indexed Universal Life Insurance Carriers for Cash Accumulation 2014 Edition

Top Indexed Universal Life Insurance

We all know indexed universal life insurance has taken its place at the top of the leader-board as the dominate form of universal life insurance when cash accumulation is a primary consideration. It’s also the #1 growing type of life insurance in the United States and has held this title for several years. There’s a lot to like about it, but there are a lot of different forms of this product offered by several insurance companies. Just as we’ve noted about whole life insurance not all insurance contracts are created equally. So, we’ve put together a guide for best bets among the indexed universal life insurance crowd when cash accumulation is the primary objective.

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7 Reasons to be Wary of Indexed Universal Life Insurance? A Response to Bank on Yourself

Life Insurance Bank on Yourself

Pam and friends over at Bank on Yourself® released a blog post detailing the reasons to be wary of Indexed Universal Life Insurance complete with a video to further emphasize their point.

It comes as little surprise that a marketing program that seeks to help insurance agents sell more whole life insurance would work to demean indexed universal life insurance, but what is surprising is the sheer lack of honesty.

There are a number of over-the-top claims with zero supporting evidence, so we’ll discuss all seven reasons to be wary of indexed universal life insurance.

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Have We Been Low-Balling Indexed Universal Life Insurance?

Have We Been Low-Balling Indexed Universal Life Insurance

We’ve long held indexed universal life insurance assumed credited interest rates at 6% across the board. And we’ve long been criticized for the practice. The problem, that others came to us with, was the fact that carriers have different cap rates, and those different cap rates do cause the overall overage credited interest rate to be higher or lower than a competitor with a different cap rate.

Our push back to this claim was simple. We understand there are different cap rates, but ultimately we want to evaluate the underlying expense assumptions of the product, and since those assumptions would create a dizzying array of spreadsheets if we tried to compare them all against one another (if we could get them at all) it was far easier to just leave everyone at the same assumed credited interest rate and look at the end result—cash surrender value and projected income.

And we’d still contend this approach pretty solidly evaluates variations in expense assumptions. But it does leave certain considerations out, and it poses some additional problems that we’ve more recently decided were worth worrying about.

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055 Strippers and Insurance Agents Aren’t All That Different

055 Strippers and Insurance Agents Aren’t All That Different

(Complete Show Notes Below)


In the 55th episode of the Financial Procast:

 ESOPs Gone Wild

The DOL has filed a lawsuit against the California Pacific Bank.  It seems that after the bank unwound their ESOP, they violated ERISA law by shortchanging the employees who were the plan participants.

First, we thought it appropriate to offer a high level overview of ESOPs just to make sure that we're all on the same page.  ESOP is the acronym for employee stock ownership plan which is just another type defined contribution qualified retirement plan (think 401k, 403b, 457). The major difference being that they employee doesn’t actually contribute anything. All contributions are made on behalf of the employee and in the form of company stock.

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