Brian Fechtel, CFA
[Editor’s Note: This is a guest post from Brian Fechtel, CFA, founder of Breadwinners’ Insurance. It is unusual to see a CFA selling insurance, and he provides a very unique perspective on the industry. His website is full of all kinds of great data about life insurance policies, both good and bad. He was one of the contributing authors to the NAIC’s White Paper on the State of Life Insurance Industry, having written a section advocating the importance of drastically improved policy disclosures. Last September the Journal of Financial Planning published his article, “Bringing Real Clarity and Understanding of Cash-Value Life Insurance to the Marketplace.” We have no financial relationship.]
Cash value life insurance illustrations and disclosures
One needs good information in order to make savvy financial decisions. When it comes to the life insurance industry’s products, good information is hard to come by. There are major changes coming from The Dodd Frank Reform for the financial services industry. Yet the life insurance industry still has draconian policy disclosures and regulation.
Cash value life insurance products are sold with illustrations. Policies are reviewed and compared with sales or in-force illustrations. Yet policy illustrations are not financial projections. And one cannot compare a policy from insurer A to insurer B, on the basis of two illustrations side by side. This is because there are no disclosures on illustrations, and because the underlying assumptions for the life insurer’s financial performance may be very different.
The Society of Actuaries declared illustrations cannot to be used to compare policies over 20 years ago. Illustrations are not even required to be financially sustainable. An illustration is nothing more than hypothetical future scenario. And the assumptions used generally are current dividend rates. One insurer declared dividends of 7%, and its illustrations may use that dividend rate assumption. Can one really assume that they will receive a 7% dividend for the duration of policy being in-force? That does not seem realistic, yet the industry allows such.
Mutual Funds Can’t Do It, So Why Can Insurance Policies?
Mutual funds with track records tend to report past performance as a measurement to compare similar fund strategies and managers or to the performance of an index. Past returns are by no means an accurate predictor for future performance. No financial advisor would illustrate how a mutual fund would grow using a current rate of return. That is essentially what cash value life insurance illustrations do. Illustrations use current dividend rate assumptions to show a hypothetical future scenario. No one can predict the future and an illustration is worth nothing more than the piece of paper it is on.
Bad Information Leads To Insurance Misconceptions
To make good decisions, one needs genuine, appropriate information. Without appropriate information, basic misconceptions may persist with real, harmful consequences. For example, many individuals think there are two types of life insurance, term and permanent; and that term is akin to renting and permanent akin to owning. This conceptualization contains the very seeds of poor decisions and costly mistakes. All life insurance is comprised of term insurance. To assert that a term policy is the least costly form of life insurance is both to overlook this basic fact and to fail to consider the after-tax costs of different policies. Similarly, the presumption that a permanent policy bought long ago probably provides good value today because it allegedly locked-in a cost based on a much younger age is pure financial foolishness.
The solution, of course, is to understand the life insurance industry’s products the same way one understands any financial product: by obtaining good, appropriate information from an expert who can explain such. For instance, the value a policyholder receives from a cash-value policy depends ultimately upon the financial performance of the insurer. This fact is true even of guaranteed, no lapse policies, given that a guarantee is only as good as the guarantor.
Delving Into Life Insurance Products
To understand life insurance products one should work with an experienced agent who will share good, appropriate information and be able to explain such. Here are five questions that come as a natural starting place for anyone considering cash value life insurance policies:
- What is the life insurer’s rate of return earned from its investments, and credited on its policies?
- How efficient are the life insurer’s home office and agent operations?
- Of the life insurer’s block of cash value policies a) what share was underwritten during the past five years, and b) remains on the books even ten years after being issued?
- How competitive are the life insurer’s average mortality costs, and what are the implications of uncompetitive costs for you?
- How fairly does the life insurer distribute its earnings?
Financial decision-making may actually begin with risk management, and good decisions cannot be made without appropriate information. Only by learning the answers to the above mentioned questions, and obtaining proper product disclosures, will one be able to make an informed buying decision.
“Yet the life insurance industry still has draconian policy disclosures and regulation.”
I don’t understand what this means. Based on my limited knowledge of the overused buzzword “draconian,” this statement doesn’t make any sense to me.
These are great questions. As a licensed agent I could not answer any one of them, and suspect that finding answers directly from the insurer would be difficult. Perhaps in the era of captive agents the odds might have been better, but most agents are independent and may not have the home office relationships needed to get correct answers.
Even captive agents don’t really know those answers. They typically don’t even realize how few polices stay in force. The problem is that none of this information helps sell the product.
@Rex – Noticed you have commented on a lot of WIC articles. What is your position as it relates to the life insurance industry? We have answers to these questions.
You may email me direct if you like. bp019j at yahoo dot com .
I’m not in the industry
I’m a doctor
Why would I want to email you?
To exchange your thoughts on the life insurance industry.
“The problem is that none of this information helps sell the product.”
That is the point, agents often misrepresent certain products to get the sale, and put an excessive commission into their own pocket. Consumers are left having to ‘trust’ the agent selling the policy. If consumers understood how carriers operate and how policies may perform – they would choose the most efficient carrier with less expenses. It does not lead to a high commission check for the agent, but the client is happy.
Under the current model consumers buy without knowing any information upfront and end up paying high expenses. Even though a comparable alternative might be available within the same company with less expense. See table [10]
http://www.breadwinnersinsurance.com/evaluting-new-and-existing-policies/evaluate-disclosure#18
They would also chose to avoid permanent insurance 99% of the time. Thanks for the offer but I’m not interested.
That may be true. Would rather see that than an individual buy a permanent policy and pay an excessive commission to the agent. No problem.
the entire model requires that type of issue. If they dont do that then they dont sell the polices. If they actually provide polices with better returns then the lapse rate goes down and then in turn the return will need to go down since they need those lapses in order to pass on a better return to the few who keep them in force. There is no magic in this world. The companies invest in primarily bonds/treasuries for WL and have huge costs/comissions. If it wasnt for the fact that few polices stay in force until death the return would likely be below inflation even on the death benefit. I doubt there ever will be true transparency bc i believe it would kill the industry. I think its great you want more transparency but lets not kid ourselves.
@Rex – you are spot on! In the information age people tend to gather information before making big financial decisions. Life Insurance should be no different, especially for those considering permanent life insurance. Just because the agent was referred in from a fraternity brother doesn’t mean the agent will act in the best interest of the client. There is no fiduciary standard in the life insurance industry. The CLU designation might help separate an agent from the pack, yet there is no requirement to act in the best interest of the client, like a CFP would.
A properly designed cash value policy can offer many benefits beyond what people might imagine. Would you agree that any form of savings is a good thing? You and I both know this country is hooked on credit. After the 2008 financial crisis many baby boomers took a major hit, and are now playing catch up in order to retire. 401k plans were not designed to be the only savings vehicle for individuals and retirement planning. That is clear today as many boomers have fallen short of their savings goals in order to retire. What happened to the “Golden Years”? Who knows what social security will be like in the future. But hey, they bought term and invested the difference.
Life insurance companies do price premiums with a percentage lapse ratio (Something like 7 or 8 out of 10 – research available by http://www.conning.com/). And unfortunately that will likely still play a big part in the insurance company business model. There is financial analysis of many life insurance companies available today, albeit it has not been shared with the public yet. It will become available within the next 6 months. The data is publicly available because state regulators require reporting from all life insurance companies. For stock life insurance companies the financial analysis might be more readily available today from analysts at the Investment Banks….But not Mutual Life Insurance Companies – the big players in the Whole Life market.
After reviewing the financial analysis one can make an educated buying decision as to whether or not they think a policy will perform. This assumes commissions are suppressed of course (with is not the norm). The data shows investment performance of life insurance companies, and if compared to the performance of an in-force policy or illustration one can determine whether or not the insurance company is paying it’s policyholders. Even policyholders who hold onto their policies beyond the average policyholder, one would think they would receive higher interest credits to the cash value investment account. That is not always the case. As an example of why the financial analysis is important – we would eliminate that company when recommending insurance companies and products to consumers.
Some carriers offer no loads products and they are not small – you ever hear anyone talking about TIAA-CREF and it’s life insurance products? Hardly. TIAA-CREF does offer no load products and they can be efficient. They may not be the best, however. And what is the likelihood TIAA-CREF will remain operational efficient if they do not have a large in-house sales force to build a pipeline of new business – that is an extremely important consideration.
I am a believer that life insurance does not need to be sold. Most of the selling stems from agents looking to make excessive commissions from permanent life insurance. The insurance companies know that so they can dangle a carrot in front of hungry salesman or saleswoman to get more premium dollars into the company. Because we live in the information age, and how these agents are trained to sell there are plenty of misrepresentations made in order to get the sale. For example, agents pitching 419i pension plans with life insurance to receive large business tax deductions, section 7702 ‘private pension plans’, captive insurance companies and other ‘industry jargon’ that doesn’t let the consumer know “permanent life insurance” is the basis for the pitch.
SBLI, a mutual at the time offered no load whole life insurance products through the 1920 – 1930’s and the business grew exponentially without much of a sales force. The company offered a low cost insurance that performed well – so like all good things people jump on board. Unfortunately things changed and the company went through a rough demutualization. Today, SBLI offers very competitive term life insurance rates.
http://www.sbli.com/about-us
No i wouldnt agree that any form of savings is a good thing especially whole life. You are showing your true colors now…..First off whole life doesnt change behavior. People who cant invest the difference always fail at whole life. The numbers speak for themselves…..everyone pretty much lapses or surrenders many at a huge loss. I lost zero in 2008 bc i didnt sell. Additionally those who pay monthly like forced savings have the highest lapse rates and pay additional finance charges. Give me a break.
There are no real worthwhile additional benefits to whole life most of the time.
The best reason to buy it is a need for a permanent death benefit although no lapse gUl or some cheap VUL might be better but you have to pick your poison/risk and of course almost nobody needs a permanent death benefit. An acceptable reason is that you want a permanent death benefit and are okay with the poor return if you live a normal lifespan as expected by your health rating. Everything else especially forced savings is smoke and mirrors.
Don’t think I ever made the claim whole life was a good product. And no, I am not one of the kool aide drinking junkies at NML, Bank On Yourself, Mass Mutual, NY Life or Guardian. Whole life is a complete rip-off…especially considering how the policies are sold….with excessive commissions. I recommend term insurance, probably 99% of time. And even when there is a desire for cash value accumulation, it would not be straight whole life. It would be a max blended cash value policy, which means it would be mostly term insurance with a cash value investment account. The cash value investment account earns a guaranteed interest credit of 4%. The growth in the cash value investment account is not subject to taxes – so long as the policy does not lapse or is surrendered to basis. That doesn’t stink, especially if you are in a high income tax bracket. Especially now considering the recent changes to taxes for high net worth individuals. It comes down to goals, objectives, planning and resources. Will share an analysis of buy term invest the difference comparison. Let’s say the S&P 500 index vs. an in-force cash value life insurance policy issued 20 years ago. This white paper will be not smoke and mirrors, like many of us have come to recognize the life insurance industry as…We see it as smoke and mirrors because far too many people have been cheated by abusive sales practices and misrepresentations that go on within sales forces.
I see cash value life insurance as a necessary product, so even with proper disclosures that part of the industry will never die. It will just need to adapt like other areas in financial services. Stay tuned for the white paper in the coming months.
I’m an insurance agent and have no idea what you mean by a “max blended cash value policy, which means it would be mostly term insurance with a cash value investment account.” And where do you get, “The cash value investment account earns a guaranteed interest credit of 4%?”
On a daily basis, I run illustrations that maximize the cash value within WL policies by adding PUAs up to the MEC limit and, in the case of 10-pays shortened to a 6-pay projection, add just enough term so that it doesn’t MEC. But, term cost is a drag on the policy–clients who want these don’t care about the death benefit, they’re concerned with cash value.
As far as the 4% figure you mention, I think most readers of this blog would assume this means the cash value within the policy earns a guaranteed 4%. Incorrect. The 4% guarantee means that a 4% annual return in the insurer’s general account is sufficient to cover all applicable expenses so that the policy is guaranteed to endow at age 121.
Exactly.
Max blended policy means mostly term insurance with a cash value investment account – which is the insurance company reserves, set aside to pay future death benefit claims.
Some cash value policies credit a guaranteed 4% on the cash value investment account – yes it is the insurance company reserves set aside to pay future death benefit claims. That is not to say the cash value policy is receiving a dividend plus 4%. It means there is a guaranteed minimum interest credit of 4%.
What do you mean when you say ‘term cost is a drag on policy’? Of course, it is life insurance so there will always be expenses and cost of insurance charges to factor in, which does cause a drag as the policy holder ages.
Life insurance is designed to provide death benefit protection. Cash value life insurance offers tax privileges. There is a reason MEC limits, 7 pay tests, TAMRA were established – to limit abusive behavior on using cash value life insurance as a tax shelter.
Whole life has been around for over 150 years. Your white paper will be like all the rest where it has cherry picked information and is written by insurance folks leaving out important details. Even though whole life has been around for that long, not one single independent researcher has ever shown it to be a good value. That isnt by accident and nothing has changed that would make it so. There is data for SPIAs and other products. You can overfund a blended 10 pay or whatever you want to do to increase CSV but it still wont change the bottom conclusion. Sure its better but its still lipstick on a pig. The number of people who have had serious problems accessing cash from whole life is not trivial especially in this decreasing dividend environment. Loans cost money as well. So many folks have been suckered into thinking they can take too much out too early and not have the policy collapse. And yea 4% does stink when you consider its over your entire life which is much longer than to retirement.. Those small percentage points matter a lot over that many years. Also if the 4% looks too good then the risk that the insurnace company cant make good goes up. There is no magic in this world. Insurance guarantees only have limited value if the underlying investments dont perfrom.
The industry has evolved in some degree over the last 150 years – considering companies do offer level premium term life insurance beyond ‘annual renewable term’. Demographics are a driving force – in general people are living longer so mortality rates are lower. Therefore, life insurance rates are generally lower than they were 20 years ago.
The white paper will be just that, factual. You can call it cherry picking. I can only use what I am able to obtain – if a policy was sold by an agent who did right by there client why would that be a problem? In the white paper I will use a max blended policy from a mutual life insurer – not straight whole life. As I mentioned in a prior comment straight whole life insurance products are a rip-off. I agree with you on that!
The life insurance industry believes life insurance must be SOLD and therefore any agents able to SELL should be rewarded. Ever see Al Granum’s 10-3-1 prospecting ‘one-card’ system? Al Granum was a career agent with NML and had a method of prospecting for new business. Kudos to him for creating a database and analyzing the data to discern this statistic. We live in a different era and consumers now have greater control and are demand more information upfront. They don’t want to be sold. Al Granum’s system is for every 10 meetings you have book, 3 will lead to quality fact finding, and 1 will become a client. What that says to me is the 1 person who becomes a client pays for the agent’s time spent with the other 9 prospects. I don’t blame the agent for wanting to be paid for his or her time – but it should not be at the expense of the client. Which is how things carry on to this very day. If an agent can earn a commission of 50% of first year annual premium from the sale of a whole life product, with a 3-4% annual trail for 10 years versus a commission of approximately 8% on the first year annual premium most agents will and do sell the product with the higher commission check. The customer will never recoup that expense over the life time of the policy being in force. In my opinion this is why the whole life policies hardly perform. And why whole life is considered a rip-off because people lapse their policies when they become frustrated by the lack of investment performance in their cash value account. If people kept their policies in-force for 15-20 years, which the majority do not, Whole Life policies can be effective, just not as efficient as a max blended policy.
If I am able to find an in-force whole life insurance policy sold by another agent back in 1993 to a 30 something year old in good health I will be more than happy to include that analysis within the paper. This can be used as a comparison for how policies should be issued versus not – all information will be held in strict confidence, no client information will be shared in white paper.
Earning 4% is not terrible especially considering what the taxable equivalent might be. There is risk involved with investing, and cash value life insurance is a bundled product – term life insurance plus a cash value investment account. I agree with you that the insurance company must be operate efficiently and produce investment returns greater than guarantees in order to sustain paying existing policyholders. That is why I think the above mentioned article was written. Financial analysis on life insurance companies show investment performance, but if the insurance company is not sharing or passing along the investment performance to policyholders and collecting profits – policyholders, especially in the case of a mutual insurance company, deserve to know. As you know, policyholders are viewed as ‘partial owners’ of mutual insurance companies.
I agree with you on the loans and consumers need to be aware of potential problems arising from borrowing from their cash value investment account. Don’t borrow too fast, or you might end up paying hefty taxes. In some cases there is a spread as little as 25 bps, or .25% between the borrowing rate and the dividend rate. Still it needs to be managed properly which is why a quality agent with genuine expertise and knowledge is extremely valuable.
I have a few questions:
1) You say the the customer will never recoup the expense of the commission. Then why does the cash value show a positive IRR over the life of the policy?
2) You state that WL policies can perform, but not as well as max-blended policies. While I agree, the difference isn’t that great: The 30 year IRR of a non-blended policy is about 4.47%, a max-blend would produce a 4.73 IRR according to my software.
3) You don’t borrow from your cash value, you borrow from the insurance company.
4) The dividend rate is not the interest rate and comparing the dividend rate to to loan interest rate is not accurate.
Ask this question out loud to yourself:
You say the the customer will never recoup the expense of the commission. Then why does the cash value show a positive IRR over the life of the policy?
For example:
If I am a consumer and purchase a whole life policy with a 50% commission expense/sales load. The agent pockets 50% of my 1st year annual premium. Let’s say it’s 20,000. Not factoring in cost of insurance, and other expenses the cash value account would have no more than 10,000 in it. That kick starts my cash value accumulation – which will eventually equal total aggregate premiums at year 8, 10, 12….at some point well into the future. At year 10, I will have allocated 20,000 in annual premiums for 10 years or a cumulative premium amount of 200,000. And that is what my in-force illustration states is in my cash value account.
Now consider I allocate the same 20,000 in annual premiums to a ‘max blended policy’….and the sales load/commission expense is significantly reduced to 8%. I would say my cash value account will have greater value at the end of year 1, and a higher basis and the cash value account to grow thanks to compounding interest.
Not to mention offering upfront liquidity in the event I needed to surrender the policy because I had buyer’s remorse or lost my high pay salary.
Ok, I’ll submit this challenge: Let’s take a 35 year-old-male, pref nt (or second best class), and max-fund a policy using $20,000 in premium. We’ll then compare the projected cash values AND death benefit at 10, 20, and 30 year increments. I’ll use Guardian and Mass Mutual for my insurers. What do you say? My plans will be max-funding, non-MEC, using about 50% base premium and the rest PUA.
no a very useful challenge.
to begin with people in the best rate class at age 35 are highly likely to live much more than 30 years and even longer than the average American. I wonder why you didnt look at the most likely realistic situation where they live a long time since even 30 years could be covered by straight term…
Then we would need to consider that about half of these polices who be surrendered by around 10 years so that affects things and pretty close to zero people would have died who have the best rate class.
It is a good challenge to determine costs between policy design, and carriers. Will revert back with my comparison to the details that Bob from Austin provided. Allow some time before I am able to share.
Out of curiousity, what else would you like to have the insurance company use when running illustrations rather than the last declared dividend? Did you know that you cannot illustrate any higher than the last declared dividend? Did you know that the illustration ALWAYS has a table that shows the guaranteed interest rate, the current assumption based on the current dividend, and a mid-point assumption that splits the difference? Have you read the illustration where it states that these are projections based on current dividends and performance could be worse or better? Do you realize that you can have your agent run the illustration at less than the current dividend to be conservative? Have you examined the dividend history of the insurance company? Do you understand that a WL contract is a unilateral contract that has as its sole variable the dividend? You call it lack of transparency, and I call it lack of either education or comprehension.
It’s not clear who you’re directing this comment at. The guest poster? Rex? Me?
I suspect all 3 of us are aware of the points you’re making.
The title of the article is “The Insurance Industry Needs Better Disclosure.” Wow, pretty broad brush, isn’t it? The entire Industry? My points were directed to the fact that there is ample disclosure within the actual illustration of a whole life policy if one were to actually read it. Example, page two of a Guardian illustration for WL99: “Figures depending on dividends are based on the 2013 dividend scale and are not guaranteed. This illustration assumes that the currently illustration non-guaranteed elements, including dividends, will continue unchanged for all years shown. This is not likely to occur and the actual results may be more or less favorable than those shown. The Numeric Summary report shows the values under three sets of assumptions. In each scenario, the values are based on paying the premium every year and taking no loans or other distributions.”
The dividend is the sole variable in the performance of a WL policy. All other elements–premium, death benefit, cash value–are guaranteed by the unilateral nature of its contract. Dividends are highly correlated to investment-grade bonds. So, step back and look from a macro viewpoint on how those bond yields are performing and how you predict they will perform over the life of your policy. If you want my two cents, I think that our era of 0% loans to banks is near an end as is “quantitative easing.” With that in mind, I see higher rates of inflation and correspondingly higher investment yields for fixed instruments and, therefore, higher dividends for mutual insurance companies.
Clear enough? If the guest poster had directed his attack on VUL or IUL polices for showing unrealistic results, I would have been right there with him.
Think the guest poster was suggesting disclosures be made on excessive sales loads and expenses. Could these sales loads and expenses be reduced to benefit the client, which in turn reduces the potential commission to the agent? I think so, which is why fee only life insurance advisors have a nice niche. Consumers are used to genuine expertise and value from fee-only investment advisors. They are willing to pay a fee to receive valuable advice before making a purchasing decision. Even though the client may still end up paying a commission on the policy purchased. The commission will be reduced greatly, if not eliminated by using no load products.
If you design a policy that maximizes CV through the use of of Paid Up Additions, the effective commission to the agent will be reduced. He will be paid about 70% on the base and about 3.5% on the PUA. But, at the end of 20 years, there is not a tremendous difference in IRR, 4.73% vs 4.47%.
Most of the policies we do at our agency maximize cash value by adding PUAs. If your desire is to maximize cash value, limited-pay products work better, 10-pays for example.
The reason I own permanent life insurance is that when I do retire, having the insurance in place will allow me to maximize my income. It gives me the permission to spend down other assets more freely knowing that if I die, my spouse will receive a tax-free death benefit (or I will, if she dies), or if we both live past 85, then we can take supplemental income from our permanent policies. If we both die, then the kids are really happy!
I’m sure your kids would rather have you than your money.
I dispute that there is not a “tremendous difference” between 4.73% and 4.47%. There is significant difference at 20 years, and even more at the 50-60 years whole life insurance “investors” need to hold on to the investment. $50K a year into a policy shows a difference of $49K at 20 years, and $819K at 50 years. This is the reason costs matter so much, even small differences in return really matter over the long run, and investment expenses come directly out of your investment return.
I hope you’re right!
Here’s the difference between the two: I ran a 35 year-old male, pref nt, 1 million face and $100 annual PUA, total prem is $12,330. After 30 years the cash value is $778,358 and death benefit is $1,641,214 (assuming current dividend scale).
I then ran a 50/50 blend of base and PUA with same outlay, $12,330. After 30 years, the cash value is $805,765 and death benefit is $1,575,471.
However, the second illustration did not exceed $1 mil in Death Benefit until the 17th year. We all talk in the abstract of life insurance as an investment, but you can die early. You could cover that shortfall with term of course, or you can blend in some term with the WL, but if you look at my examples, the base plus $100 was 96.5% of the max-funded version and had superior death benefit in all years.
What you forgot to mention is that there is a many year lag between when bonds improve and dividends might improve. I wonder why you didnt mention that? Actually i dont. The only real guarantee is that insurance agents will bash every product that there arent selling. There is also no guarantee that WL will have bond like performance. It may or may not period. Historically there is a pretty good lag between when those returns improve.
Also the illustration assumes yearly payments and doesnt inform the reader that paying monthly has higher costs. Also for the company he mentioned, there are no mid point numbers on the illustrations like you claim. Im looking at several right now and they have just guaranteed and illustrated. Wouldnt want to give people to much of the impression that they might go down from the current illustrated value.
Id say the brush isnt broad enough. The proof is in the pudding that almost everyone lapses or surrenders whole life. If whole life was so great they wouldnt need agents bc it would sell itself.
Rex–if you follow your own logic, then it would mean that dividends would not immediately be affected when bond rates worsen. And you’d be right: in November of 2008, Guardian declared the largest dividend in its history. Therefore, dividends are more of a lagging rather than leading indicator, but they will, in fact, reflect the relative performance of investment grade bonds. My point is that the lag works both ways, get it?
Your second point is also incorrect. The illustration reflects the payment mode chosen. If it’s run on monthly, quarterly, semi-annual, or annual payments, the results change.
I run hundreds of illustrations a year. I’m looking at my software right now. Page 5 of 11, “Numeric Summary”, shows Guaranteed, Non-Guaranteed Current, and Non-Guaranteed Intermediate. On that same page is the Applicant’s Statement: “I have received a copy of this illustration and understand that any non-guaranteed elements illustrated are subject to change and could be either higher or lower. The agent has told me they are not guaranteed.” Below that is a signature line for the Owner and date.
Another thing you fail to realize is that agents are rewarded for persistency and dinged for lapses. It’s never in my best interest to sell a policy that will lapse.
By the way, you’ve mentioned before that you had (have?) a Guardian WL policy. I’ve asked you at least twice to provide the details of the policy but you haven’t. Is this, the third time, the charm? I’d like to know the issue age, product, funding level, issue class and any other pertinent details. If you’re certain that it was a bad deal, then you’re confident enough to share the details of why it was bad, correct?
Who cares about how much the dividend was in 2008. [ad hominem attack removed] That isnt the largest dividend percentage in history by any means which is what matters to the client but hey why tell people that when you can give a false impression?
Glad your software gives mid point. Im 100% positive they all dont since im looking at an illustration in hand without one. Also my illustrations when i was paying monthly are shown as yearly. Maybe a mistake but im doubting it.
I dont fail to recognize how persistency works….[ad hominem attack removed] Sure if the policy is dropped in the first few years, there is a problem for the agent but not after that for the most part. Sure a little less residual commission doesnt come in but not much in the scheme of things and they dont pay commissions indefinitely so it certainly doesnt affect you at that point.
I wouldnt trust you with any additional information about myself then what is already on this site and even that is too much. [ad hominem attack removed]
Cash value accounts do offer guaranteed interest credits as high as 4%. Is it sustainable going forward? As higher yielding bonds mature, newly issued bonds have lower yields. There might be a lack of investment performance in comparison to guaranteed interest credits. Think NML had investment performance of ~2% recently, but still paid a dividend of 5%+. NML wrote down some of their excess reserves, which were built up from premium charges and investment performance over many years. It all comes down to accounting wizardry. All insurance companies just need to make sure more policies are written – as new premium dollars help the business move forward.
Great point, and completely agree Rex.
Rex–I think you take this much too personally. Everyone is entitled to their own opinions, just not their own facts.
My statement was that the Guardian declared their largest dividend in history in 2008, after the financial meltdown. This is verifiable fact, not my opinion. I didn’t say percentage, that was your interpretation.
I can’t vouch for all software illustrations, just the ones I run for Guardian and Mass Mutual WL. They both include mid-point as well as guaranteed performance. The software calculates results based on modal premium, monthly or annually.
If you think that a business practice is built on lack of persistency and good service to clients,then you’re nuts. You build respect and referrals by doing right by your clients, the same people I see in my community regularly.
So, I’ve asked you three times to provide information about your experience that would be particular to you but not in anyway identifiable and you’ve refused. Therefore, you lose all credibility with me.
Yes you said amount which is meaningless compared to %
Why did u say it well bc it seems impressive until someone understands the proper context
I have zero reason to give u any details about myself.
Almost all polices lapse yet the business model continues.
Can anyone tell me about the commissions insurance agents “earn”? Is it a one time thing or do they get a piece every year for something they sell me? Also, what size “bite” can I expect to be taken for various products? Every time I talk to an agent, they seem to want to dodge the issue or make it sound like the insurance company pays them.
Assnap Kined
As a general rule, 40-80% of the first year’s premium goes to the agent as a commission. Some policies provide residual commissions for up to 10 years. These tend to be more like 5% of the annual premium. As you might imagine, it varies quite a bit.
It depends on where the insurance company is headquartered and the state regulations as well. The Guardian, for example, is headquartered in NY and uses a General Agency system for distribution. The General Agency receives 91% of the first year premium as commission and the agent is paid according to contract and production with commission ranging, most often, from 70 to 80%. This is for WL. 10-pay contracts usually have a commission around 40%. Term contracts are paid around 50%. Other states can receive more commission–some insurers actually pay over 100% of the first year premium.
The insurance company also pays commissions on renewals, typically from 5 to 9%, in years 2 thru 10 (again, on WL). The renewal commission comes from the insurance company and is not reflected in your policy.
One downside of this commission structure is that it encourages NEW policies, especially after year 10. Whereas, unless the policy is really poorly designed you are almost always better with an older policy than a newer one. It really sets agents up with a serious conflict of interest toward their clients. What’s good for the client is bad for them and vice versa.
I can see your point, commission-wise, but it really doesn’t work that way with this proviso: IF a policy was well-designed (like the ones we do at our agency, of course:), then it would be difficult to sell a client on replacement. The initial costs of the policy have already been amortized, and after 10 years, the dividends should be substantial, close enough that the policy could easily offset in just a few more years (or already offset if substantial PUA had been specified).
The immediate criticism of my observation will be, “Yeah, but that’s not the way most of those insurance guys do it!” And, all I can say is, that’s the way WE do it.