Life Insurance Objection
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Once again, for the last damn time... you dont use VUL if you need basic coverage with no use for the vehicle itself.
Here is one more. This is a riversource VUL, ie ameriprise. the one above is a Mass Mutual.
will insert link here as soon as I upload it. The policy, this one is an illustration I did back in 07
Here are the pdf's.
First pdf... http://www.maksfs.com/insurance/scan3.pdf
This is the one I was talking about.
Here are 2 more of ameriprise policies from 2 years ago when I ran this hypo for a prospect. first 10 years cost of insurance is $9261? I ran a 10 year term for him, it is $8500 for that person with same carrier. So $700, or $70 a year he paid extra to have the VUL. To him, it would be worth it. While it is a bit more expensive... it is not anywhere near double.
Amp policies include the expenses in the cost of insurance. The first one, Massmutual, breaks it down between life insurance expense, premium expense, and admin.
Btw, you said you were a big fan of permanent insurance... Please let me know how any other permanent insurance not have an administrative expense, or a premium expense.
Whole Life has those expenses as well... except it is not disclosed anywhere, and you dont know about it. Not one Whole Life illustation has the Cost of Insurance broken down... yes, even I just tried on the MassMutual policies, and no such report exists. Only on VUL and UL.
Here is homework for you... Go run a WHole Life... and also the same companies UL using the same assumed rate... and compare the two policies. that is the only way to compare the permanent policies. Otherwise, it is like saying Term is cheaper than VUL. lol.
In any case... I am done with this topic. There is no sense of me and you bickering over this, it is only the client that can decide if the added fees are worth it to them.
Me Personally, I own a 1mil VUL that I picked up 5 years ago, a 500,000 Whole Life that I am getting now, and a good amount of 10 and 20 year term.
All three serve a different purpose. The cost of insurance on all three of them is nearly the same. I Choose to pay the extra premium expense for the benefits of the policy. It seems where we differ on is the definition of "cost of insurance" to me, it is literally the cost to insure your life for that given year. Many others mistakenly throw in the premium expense in there, even though that has nothing to do with the cost of insurance for that given year.
Ok, I wasted enough on this... time to go roll some money over.
[quote=Wet_Blanket]Do I have ANON on ignore? I am seeing a oneside argument here by Aeromarks.[/quote]
He replied twice on the previous page... though it is a good idea... the ignore button.
On a sidenote, good thing I stayed an extra 10 mins typing my final response... I was going to miss the UPS lady bringing me goodies.
send me an email and I will email you the illustration.
for a 27 year old, cost of insurance for a VUL vs 10 year term.
Year 1 - 360
2 - 360
3 - 368
4 - 361
5 - 354
6 - 347
7 - 350
9 - 350
Add in Premium expense of $91. Admin of $120.
Term from the same company, same rate class obviously, $340 for 10 year, $355 for 20 year.
So once again, the cost of insurance is the same. You are paying the premium expense and admin fee for the vehicle itself.
[/quote] Don't forget that you are also paying a "face amount charge" along with not getting to shop the market to find the cheapest term insurance. I looked at the illustration. Thanks for having the balls to post some actual numbers. Let's go with your assumptions: 1) Very healthy 27 year old male 2) $1516 annual premium payment 3) $500,000 of coverage (net amount at risk decreasing as cash value increases) 4) 8% gross investment return Year 1: $360 goes to mortality charges +$91 goes to premium expense charges + $120 goes to administrative charges + $1080 goes to face amount charges. Net result is that although the "insurance cost is the same", none of the $1516 gets invested. Year 2: 100% of the premium disappears again. Things improve in years 2-5 when a whopping $230 gets invested out of the $1516. Years 9-16: about $1,000 out of the $1,500 gets invested Years 17+: Less gets invested every single year Rate of return on the cash value at 10 years: less than 0% at 20 years: less than 0% at 30 years: approx 1% at 40 years: approx 3.1% at 50 years: approx 3.5% at 60 years: approx 3.5% at 70 years: approx 3.4% The costs absolutely crush these things. Compare dollar for dollar with VUL vs. BTID and VUL gets crushed. The client gets screwed. It's just a question of what the insurance company is using to screw them. Is it a high premium expense charge (sales load) that doesn't have break points? Is it an M&E charge? Is it a "face amount charge"? Is it non-competively priced COI? Is it simply the fact that the client must keep paying an increasing COI or have their investment become taxable and lose their death benefit? It's usually a combination of these factors. These costs can't be overcome. It comes back to the fact that VUL combines overpriced insurance with overpriced investments along with human nature.
It gets even worse. That 8% assumption assumes a level, year after year, rate of return. As all of us know, this is far from reality, some years will be 25% growth, some years will be -15% losses. If you have two people getting the same series of returns (with some negative years in the series), but the first investor is accumulating only and the second investor is making withdrawls, the second investor will have a lower rate of return. A 50% loss takes a 100% rate of return to reach even, but what if the base after a 50% loss was diminished as well through withdrawls.This is another fault of VUL, the increasing cost of insurance is continually withdrawn during the down years as well as the up years, further hindering performance. This is why I believe subaccount (general account) values should be in conservative vehicles guaranteed to increase each year. VUL doesn't fit this bill, throw in human behavior, the odds of expected performance are a long shot.
"Here are 2 more of ameriprise policies from 2 years ago when I ran this hypo for a prospect. first 10 years cost of insurance is $9261? I ran a 10 year term for him, it is $8500 for that person with same carrier. So $700, or $70 a year he paid extra to have the VUL. To him, it would be worth it. While it is a bit more expensive... it is not anywhere near double.
http://www.maksfs.com/insurance/scan2.jpg "Let's look at how badly you screwed your brother on this one. First of all, it's not a little bit more expensive, it's a lot more expensive. He started out with $400,000 of coverage. He is being charged $720 for this. Insurance costs assuming death benefit remains at $400,000 Year 1 $720 Year 5 $ $936 Year 10 $1116 10 year term can be purchased for $165. The 10 year total would be $1650. This would only be 2 years of premiums with the AMP VUL product. What if we look at this over 30 years? AMP Year 15 $1212 Year 20 $2016 Year 25 $3168 Year 30 $ 4992 30 year term can be purchased for $450/year or a total of $13,500. The insurance costs of the VUL during this same period would be over $50,000. Like I keep telling you, the costs of insurance inside of a VUL is more than triple what the client would otherwise be paying with a good agent who would look out for him to get the best cost. In this case, once you throw in the sales load, the client is paying 4x as much. Please don't try to tell me that if he didn't buy the VUL, you would have stuck him in overpriced Riversource term insurance. This is your own brother. This "bickering" is occurring because you don't understand the impact that these costs have. You can't find a "Cost of Insurance" for a whole life policy because it doesn't exist. There is no such thing. You would know this if you understood how a policy works. By the way despite your "LOL", the point is that term insurance is less expensive than VUL. Strip everything out except the insurance costs and you'll see exactly what I'm telling you. Your client will pay insurance costs that, in your example, are 4x higher than what they'd be paying than if they found a cheap term policy. Let's sum this up. Your brother, by buying the proposed policy from you accomplished the following: 1) Paid 4x as much for insurance as was necessary 2) Paid a 5% sales load on every dollar that went into the policy 3) Paid an M&E charge that increased the cost of his investments by about .9% 4) Paid administrative charges 5) Has the "pleasure" of paying income tax instead of capital gains when it lapses 6) The way that the policy is designed, you combined a terrible investment vehicle with a terrible insurance vehicle. How bad? Despite the fact that this is probably being illustrated at 8%, a financial calculator will reveal that the rate of return on the cash at 40 years will be less than 4%. VUL = Lousy insurance + lousy investment (but nice commission) I'm in favor of huge commissions, just don't do it by screwing the clients. If I'm wrong, go sell it, but please take the time to use numbers to show how this is in the best interest of the client. I'm trying to see that I'm wrong, but the more that I have this conversation, the more painfully obvious that it becomes that I'm correct.
Aeromaks, this is what you should do. Don’t bother posting the results here. Do it for yourself so that you truly understand.Compare the following to your brother's Riversource illustration. Take the premium that is going into his policy. Use it to buy the cheapest $400,000 30 year term policy that you can get and then invest the rest into the S&P 500 earning 8%. These are the results that you will get. 1) For every single year, there will be more cash available in the side fund than what's available in the VUL. 2) For every year of the first 15 years, they death benefit will be somewhat higher with the term + side fund. In years 15-30, the death benefit of term + side fund will be much higher. 3) At life expectancy, the side fund will be more than twice the amount of the death benefit of the VUL 4) The only time that the VUL will carry any advantage is if death occurs between about ages 68-72 and the advantage will be small. Don't make these false arguments with yourself. 1) "Well, the side fund will be taxed." A)If the money comes out of the side fund, it will be capital gains. If it comes out of the insurance, it will be taxed as income. B)At death, it will receive a step-up in basis, so it won't be taxed. C) Since, it is in an index fund, there will be very little taxes. 2)"Well if it is in a side fund, there will be a management fee." That's true, but if you are any good, your management fee will add value and not detract value, so you should be assuming a higher rate of return and not lower. Feel free to thank me later.
Good work, Anonymous. I love reading posts like this. I don’t have the energy to do this type of analysis any more.