Stock Insurance Companies?

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Dec 8, 2009 1:38 pm

When it comes to whole life, I believe the first priority should be the stability of the company. Who knows when I will die...so I want a company that is built to last.  I like the mutual model for this type of insurance because I believe the priorities are in order.

It puzzles me that policyholders approved the switch to a stock (public) company for Pru & MetLife. I read somewhere that like 90% of policyholders approved the switch. The only purpose of issuing stock is to take on greater risk. Why would someone want greater risk on the insurance side?

I can understand wanting a stock (public) company for Auto and Homeowners, where changing policies is easy...but for Life, LTC and Disability (and even Health) it doesn't make sense to me.

Does anyone here have any reasons why someone would want a stock (public) life insurance company?

Dec 8, 2009 2:31 pm

They approved it because they received stock.

 
In general, I would have no problem with a stock insurance company for term life insurance or for disability insurance.  I also wouldn't have a problem with UL sold on the basis of a secondary guarantee.
 
I would typically not want to be with a stock company for whole life insurance or for long term care insurance.
Dec 8, 2009 3:23 pm

Funny...they received stock in a company where they were formerly a mutual policyholder (aka owner). This is going to take too long for me to wrap my head around this one. You've answered the important question...now, time to make some calls.
 
Just to point out the obvious...If you want that term insurance to be convertible with guaranteed insurability, I'd guess that would be best with a mutual company also. 

Dec 8, 2009 8:46 pm
anonymous:

They approved it because they received stock.

 
In general, I would have no problem with a stock insurance company for term life insurance or for disability insurance.  I also wouldn't have a problem with UL sold on the basis of a secondary guarantee.
 
I would typically not want to be with a stock company for whole life insurance or for long term care insurance.



....or as an agent

Dec 16, 2009 11:44 am

Personally I think one needs to have their head examined if he wants whole life. UL with lifetime guarantees are the way to go.

Dec 16, 2009 7:39 pm

nonews, you sound like someone who has just enough knowledge to be dangerous.

Dec 16, 2009 7:42 pm

why would you want to do DI with a stock company? Mutual co. pay dividends on their DI policies....

Dec 17, 2009 4:55 pm
stalbott:

why would you want to do DI with a stock company? Mutual co. pay dividends on their DI policies....


 
DI is about the contract.  It's not that I want to do business with a stock company.  Rather, the primary concern is using the best contract.   A dividend simply means that a client will save a few dollars.  Saving a few dollars on premium is pretty useless if a claim won't be paid.  The company that typically has the best contract for white collar employees doesn't pay a dividend. 
Dec 17, 2009 7:21 pm
stalbott:

why would you want to do DI with a stock company? Mutual co. pay dividends on their DI policies....



dumb

Dec 17, 2009 11:02 pm

Anonymous,


Why are you not a big fan of ULs with no lapse guarantees? I work for a mutual carrier, but often times, I find myself selling ULs with NLG riders because of the fact that I don't like how the insurance company controls the dividend payouts for expensive whole life policies. Don't get me wrong, I sell whole life as well, but only when the situation is right. However, when someone is only concerned with a permanent death benefit, I think UL with NLG is much more efficient. Please let me know your thoughts.

Dec 18, 2009 6:58 am

Chris, I do like them.  Read what I wrote.  I said that I have no problem with them. 


Where we probably disagree is that I only like them at older ages.  Otherwise, I would much prefer term or whole life or usually a term/WL mix.  We can discuss this more if you'd like.
Dec 18, 2009 10:26 am

Sure, because I just put a 27 year old client into a UL with no lapse guarantee a few months back when he said "I have absolutely no need for any cash value." Granted we got to take some human behavior into consideration such as bad discipline of savings and other issues, I made sure he was maxing out his 401k contributions.

 
How would a whole life policy be better off than an UL?
Dec 18, 2009 11:28 am

Ask that same client if he feels one should have conservative, long-term assets as part of his investment plan.  If he agrees, WL is one of the best options.  If not, move on.

 
It's kind of weird to see a 27 year-old purchasing GUL.  Obviously there is a reason, would you mind sharing your thought process?
Dec 18, 2009 1:20 pm

Sure deekay, will post the numbers after prospecting hours =)

Dec 18, 2009 1:39 pm

When you post the #'s, we should be able to show you pretty easily how a term/WL combo should be better.

 
He's wrong that he doesn't have a need for the cash surrender value.  It's not so much that he's planning on using it.  Rather, the simple fact that he has it will allow the rest of his portfolio to be more aggressive.
 
Keep in mind that if he ever cancels the policy, the end result was that he overpaid for his insurance coverage.  For instance, if he runs into some temporary financial difficulties in 20 years, he's screwed with his GUL policy.
 
What you'll see with the same dollars going into a combination of term and WL is that the death benefit will be the same, but the WL will have more flexibility.  This is because of the cash surrender value and dividends.
 
If you are comparing putting the same dollars into just a WL vs. a GUL policy, the GUL will intially have a greater death benefit, but the WL will ultimately have a greater death benefit, greater cash, and flexibility.
Dec 19, 2009 8:40 pm

27 Year Old, $500k death benefit, non-smoker rating

 
GUL: $2700/year for $500k GUARANTEED. (I never talk cash values with UL products)
 
Whole Life: $4320/year for $500k
 
Guaranteed values at age 85:
$392k cash surrender value/$500k death benefit
 
Non-guaranteed values at age 85:
$995k cash surrender value/$1.2 million death benefit
 
If I took the $1600/year difference and invested it in a 6% interest vehicle for the next 58 years, I would have another additional $850k on my side fund. $850k+$500k death benefit from the UL would still outperform the "non-guaranteed side" of my mutual carrier's whole life policy. I understand that the whole life policy would be more flexible, can be positioned as a conservative vehicle, but this client did not like the fact that the insurance company controlled the policyowner's dividend payouts. All he cared for was a permanent death benefit at the cheapest price.
Dec 20, 2009 10:25 am

Care to tell us where you will get this 6% tax-free investment over a 30 year period?  And you'll guarantee it will go up by 6% every single year?

Dec 20, 2009 11:26 am

Chris,

 
1)As deekay  mentioned, the after tax 6% isn't realistic unless more risk is taken.  In which case, it's not an apples to apples comparison.   If 6% after tax is achieved without the additional risk, the WL policy will perform better than illustrated.
 
2) I'm not sure which WL policy that you are comparing, but your comparison doesn't look accurate.  I just ran the same illustration.  A 27 year old standard non-smoker male would cost $4170.   The guaranteed values are exactly what you posted.  However, the "non-guaranteed" (current) side shows $1.75 million at age 85 for the DB and $1.4 million for the cash surrender value.  So, the GUL + side fund ends up significantly behind even using the 6% after tax assumption.
3) Here's a more apples to apples comparison for you.  Compare $2700 into a GUL with $2700 into a WL term/mix.  This is based upon current numbers.  If death occurs between now and age 63, the products are equal.  If death occurs any year after 63, the WL/term mix gives a greater death benefit.  The WL/term mix always has a higher cash surrender value.  If he stops paying, he'll still always have some insurance.  Ex. He stops paying out of pocket premiums at age 60.  With the GUL, he'll have no cash and no insurance.  With WL/Term, he'll still have a death benefit that will be $500,000+ for the rest of his life.
 
There is no comparison.
 
Dec 20, 2009 12:02 pm

I work for one of the big mutuals and our company has slashed dividends this year which is why our "non guaranteed current" side looks horrible. This is one of the main issues that I have with participating whole life if the client is an aggressive investor, sure the 6% after tax fund is not guaranteed, but neither are dividends. Don't get me wrong, I sell a lot of whole life and I am a believer, but when a client asks you "wait, i'm paying extra premiums for something that isn't even guaranteed? I rather just put my money elsewhere and have access to it from day one"

Dec 20, 2009 12:31 pm

Stop selling WL based on CSV, start selling it based on the permanent death benefit and flexibility it offers, and you won't have to answer that question.  And for what it's worth, when appropriate I sell GUL.  But for a 27 year old that's looking for permanent coverage, I'm struggling with how GUL will be better than a WL/term mix.