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Offering creative solutions in a commoditized life insurance world

Steve Schreiber
Assistant Vice President 
of Advanced Design

Often as case designers we are asked to show the “best” product in reviewing life insurance options. Best is an extremely relative term and will most often vary from case to case. Sometimes, when looking for the best solution we will send a spreadsheet showing every option available to this client because we do not know their situation as well as an advisor would. Unfortunately, a spreadsheet still does not tell the entire story and there might still be better solutions that fit with a particular client.

Most of us know the story of buying term and investing the difference. This story has been around a long time and many solutions have been proven to be better using permanent insurance instead. Not many, however, talk about buying permanent insurance and investing the difference and what alternatives there are to that story. When reviewing a spreadsheet with guaranteed UL, one thing you can count on is that the IRR on cash value will most often be negative the entire duration of the client’s life. In fact, most GULs will have zero cash value causing a negative 100% IRR for the duration of the contract. That’s not the greatest story to be sharing with a client unless the goal is for guaranteed coverage for life. Even then, I would argue there is a better way.

Guaranteed indexed and variable products can provide the same guarantee as a guaranteed universal life contract when structured with a rider which makes them nearly identical in most ways. The largest difference is that there is a potential for cash accumulation in a guaranteed IUL or VUL whereas with GUL there will most likely be nothing. If you dial the guarantee to about life expectancy in a IUL or VUL the story is even stronger but assuming we do lifetime coverage the premium difference is extremely close. We have reviewed a case with a 55 year old male client who was most likely a standard risk. The premium difference on a 500K death benefit was 437 dollars to guarantee coverage for life in a VUL contract. The client would then have the opportunity of cash accumulation. The IRR on projected cash value for this client using a net rate of return of 5.84% which is the same as the highest rate you can use in an IUL contract is very high. If you consider that the client is already paying for the GUL and the 437 is simply being used as the extra amount for cash accumulation then the IRR on the cash value of the 437 extra dollars being paid is 21.67% or a taxable equivalent yield (using a 25% bracket) of 28.89%. Those numbers are astounding.

Give us a call to talk through this case and we can explain everything we did to come up with the projections. We would love to find the appropriate solution for your client’s situation. Let’s think outside of the spreadsheet and offer some cash value to our clients who desire GUL products. One last sweetener to this solution is the target. The GUL for this client has a target of 8,200 and the VUL is 12,420. It pays to go beyond the spreadsheet!

Read more articles from the October Newsletter

Steve Schreiber | Assistant VP of Advanced Design   636.695.2824   sschreiber@FIRSTHEARTLAND.COM

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