Bankers Life EIA's

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Mar 2, 2009 8:32 pm

Anon, thank you.  Didn’t even think of that, check out the Weiss ratings here:
http://www.weissratings.com/HL_Life.asp

Mar 3, 2009 8:58 am

Be careful with that link.  You have to make sure that you are looking at the correct company.  Bankers Life Insurance Company of America (Texas) that is rated E in that link is not the same company as Bankers Life (Illinois).  I don’t know if they are affiliated or not, but my guess is “no.”  Anyway, it wouldn’t be much more comforting to know that Weiss has them rated “D”.  Unlike other rating services, Weiss ratings can be looked at like school grades.  An “A” rating from Weiss is a great rating.  An A rating from A.M. Best isn’t so hot.

  S&P just downgraded Bankers Life.
Mar 3, 2009 9:35 am
(I'm editing my post because I don't want to bash any specific company.  This is what I would do if I was competing against any company that was poorly rated and used captive agents.)   gvp, I don't sell EIA's.  However, this is what I would do if I did and I was competing against Poorly Rated Company Life.    Me: "Mr. Client, I absolutely agree with your agent from Poorly Rated Company Life that using an EIA for some or all of this $500,000 may make lots of sense.   However, I have a couple of concerns for you based upon my experience of meeting with clients and prospects of Poorly Rated Company Life.    1) EIAs are often recommended because the agent isn't licensed to sell investments.  EIA's can be sold by people who don't have investment licenses because they are not investments.  An EIA may make the most sense for you, but let's make sure that you use one because it does make the most sense for you and not because it is the only way that your agent can get paid.  In my experience, an EIA often makes sense, but it usually doesn't make sense for all of one's money.  Does that make sense to you?"   Prospect: "Yes."   Me: "The second concern is that a Poorly Rated Company Life agent gets paid to sell Poorly Rated Company Life products.  That's all that he can sell.  It does not matter whether it is the best EIA for the client.  Let's assume that an EIA is in your best interest.  What I do as a broker is to shop the market to find the best product for you.  It does not matter to me which company we use.  They all pay me a fair commission.   The best product for you is not the best product for someone else.   I must warn you in advance that even if it turns out that Banker's Life has a competive product and you want to use their product, I can't/won't sell it to you.  I will have to send you back to the Poorly Rated Company Life agent.    The reason for this is that because an EIA is not an investment, the money is in the general account of the insurance company.  This means that in the event of an insurance company's insolvency, you are a creditor of the insurance company and your money may not get all of your money.  If that happens, it stands to reason that you might sue your agent if he didn't use a strong company.  Therefore, my errors and ommissions insurance won't cover me if I use an insurance company that has poor ratings from the rating services.   To protect my family, I am only willing to use highly rated insurers, so I hope that you can understand my unwillingness to use companies that are poorly rated.   My e&o insurance won't cover me for companies with ratings similar to Poorly Rated Company Life."   Anyway, the bottom line is that we should do this in two steps.  Let's make sure that an EIA makes sense for you and then, assuming that it does, let's find the best one for your situation.  Does this sound like the best way to proceed?"
Mar 16, 2009 11:46 pm

There is a very simple way to resolve this question. One must compare apples to apples, and with investments that means controling for the amount of variance (risk) in each one. There are many different ways to do this, from the Sharpe ratio to the M**2.

  To calculate this risk adjusted returns for an EIA you basically have a distribution that is truncated on the left and the right sides of the tails. The bottom is typically set at something like 3% (minus the fees) and the top is usually something like  .85(index ceiling). The index ceiling is typically around 10%.   All you need to do ius write a simple algothrym calculating what the EIA's truncated yeild is (over some time period) adjusted for its truncated variance, and now you can compare apples with apples.   L:et me put this in option terminology. An EIA is like an investment w/ an OTM long put and an OTM short call.
Mar 17, 2009 12:39 am

You know, I think I liked Anon’s answer better :). 

I’m just kidding MV.  But seriously, would you argue that with a 60+ year old client?

Mar 17, 2009 4:49 am

Mini, an EIA is not an investment.