The problem with VUL is that it combines overpriced ART with overpriced investments.   ART, especially overpriced ART is a horrendous product to have to own forever.  What is your client's insurance cost at age 70?  Age 75?  80?  81? 82? etc?

The client has to keep paying these insurance costs or make the life insurance taxable as income.  He'd be better off buying term insurance and investing the difference.  After all, this is all that VUL is.  The difference with BTID is that the term insurance will be less expensive.  The investments will be less expensive.  The insurance component can be dropped without causing the investments to be taxed as income.

What typically happens in VUL is that the policies will lapse in the future, thus bringing us to your point about life settlements.  Nobody is arguing that life settlements are bad in all cases for the client.   You clearly have a case in which a life settlement helps a specific client.  The problem is that the life settlement hurts every single person not involved.  One factor built into insurance pricing is lapse expectations.  Screw with this, and this is exactly what life settlements do, and ultimately life insurance companies and all policyholders will pay the price.

Someone involved with selling life insurance should never be involved with life settlements.    They have the capability of severely crippling the industry.  Not only does this add a huge expense to the insurance company, they jeopardize the tax treatment of life insurance.

So.........you can justify having someone other than a family/charities/business relationships having a vested interest in seeing your client die early?

Interesting..........

Deekay, excellent point.  The client did get $80,000.  However, he gave someone  who doesn't care about the insured, 3,000,000 reasons to "encourage" an early death.

Life settlement people are awesome. They convert something that not useful to the client, (a promise of cash after they die) into something that is useful (cash while they are still alive).



All the money in the world is useless to you after you’re dead, because you can’t take it with you.



The insurance companies could cut the life settlement people off if
they offered the option to annuitise (With guarantee’d full payment of
the benefit) life insurace policies upon age 85 or serious disability.



But the insurance companies preferred not to offer that option, so a third party does.

A promise of cash at death is very useful to a client who cares about his family.

How would your solution help since is a very minor % of life settlements that occur after age 85? 

Life settlements can help certain people, but it comes at the expense of everyone who owns life insurance.

[quote=anonymous]

1) If you don’t sell insurance, how can you be sure that your way works?

2) Using emotions is not using scare tactics.   Scare tactics is not the way to sell.

3) Insurability is fragile.  It should never wait until after something else is squared away.  One can invest if they can write a check.  Once someone's health changes, that's it for insurance.   We must get someone covered asap. 

4) Unless the investments are occurring in a vacuum, we need to look at someone's complete financial picture to make investment recommendations.  Therefore, insurance can't be brought up after the fact.

[quote=anonymous]

A promise of cash at death is very useful to a client who cares about his family.

How would your solution help since is a very minor % of life settlements that occur after age 85? 

Life settlements can help certain people, but it comes at the expense of everyone who owns life insurance.

Yes people should move quickly on insurance matters, but there is no need to create false urgency.

There is nothing false about the urgency.   People are insurable until the instant that they are not.   I'll give you my latest example.  I met with a guy to discuss long term care insurance.  He wanted to wait a week to think it over.  In the mean time, he had a routine physical.  He was completely healthy except for the fact that he along with the doctor decided to operate on a umbilical hernia that had given him virtually no problems for over 15 years.  This made him uninsurable until after the surgery.  His surgery got postponed 3 different times for minor issues.  He had the surgery and then was diagnosed with cancer on his first follow up appointment.

We need to create this urgency to get people to APPLY for coverage.  When they apply, all that is being done is asking the insurance company to make an offer.  By including a check with the application, it is putting the insurance company on the hook without forcing the client to make any quick decision.

"Mr. Client, let's let the insurance company approve you and tell us what the rates will be.  Once we get the approval, we can then decide on the amount and type of coverage."

If we delay in taking an application, we will have clients suffer the consequences.

[quote=deekay][quote=AllREIT] [quote=anonymous]

I think financial decisions need to be made in an objective dispassionate framework.

This simply doesn't work for insurance.  People don't want to deal with death and disability.  Insurance gets ignored in a dispassionate framework.  It shouldn't, but it does.  

But thats not the way to do things if your goal is to sell and close on lots of life insurance/annuity premium . In that case you want to create lots of percieved need for life insurance/annuities, and get ink on paper before the smoke clears.

No widows will call it a "perceived" need. 

[/quote]

It's been my experience that I bring up insurance *after* people get all their investments squared away. You set up a bond of trust, and can sell plenty of insurance in a rational way.

You said yourself you've never sold insurance but you've helped people buy insurance.  Which one is it?  Are we dealing in semantics?  Do you farm it out?
Yes, I refer people to an agent who helps shop around the case and get the cheapest cover.

Any CFP will tell you insurance is the building block of financial planning.  So what are you doing setting up their investments first?

Because I don't do "financial planning", and without geting paid for selling insurance, I can be more objective about it.  It's something clients need to think about but in a cool and dispassionate manner.

You don't have to use scare tactics to sell a product that would sell itself if only you let it shine. But maybe I just deal with a different clientele than most folks here. I think people will deal with death and disability if you bring it up in a low pressure, non-threatening, non-confrontational way.

Neither do I.  I tell them the truth.  I've seen what premature death and total disability can do to a family.  If you ever did, you'd NEVER set someone's investments before insurance.  Please tell me, what kind of clientele do you deal with?  Aliens?  Immortals?  I deal with real people.

A split book. Lots of young professionals and a few crazier older folks. Very educated crowd for the most part.

 And I motivate them to deal with what needs to be dealt with first.  That is, get all your insurance straight.  PERIOD.  That goes from car insurance all the way to life insurance and everything in between.

Clients need to deal first with what they want to deal first. The tendancy of insurance salesmen and others to bring up insurance sales early and often dooms them.

There is also an element of surviviorship bias, in that people look at what works in the sales they made, vs what didn't work in the sales they didn't make. '

That would reveal that most people do not want to talk about insurance first thing and are very skeptical about the subject in general. It's better to build up credibility first.

The same rational framework that works with matching investments to long term continious liabilities (e.g retirement) works with matching life insurance to point liabilities (Educations, Mortgage, Burial Expenses, Income Annuity)

Again, you've said yourself you have never sold insurance.  People are not rational.  They purchase based on emotion.  Frankly, I question whether or not you even have clients.  Just my two cents.

That's ok DK. You can believe in an invisible pink unicorn for all I care.

[/quote]

I don't argue the "old" part, but it's not people over 85.

Old people who can't afford their WL policies are not a dime a dozen.  Old people tend to have old WL policies.  Old WL policies have dividends that are higher than the premium.  Old people don't have to pay a dime out of pocket to keep these policies in force.

Old WL policies are terrible candidates for life settlements.  Unless someone is very sick, the life settlement is a lose-lose situation.  The settlement company can't offer more than the cash value of the policy because it would turn it into a bad investment.  The insured would make more money simply by taking a policy loan and they would still have the death benefit for their family.

On the other hand, if we talking about UL/VUL, it would frequently make sense for the policy holder.

[quote=AllREIT]Life settlement people are awesome. They convert something that not useful to the client, (a promise of cash after they die) into something that is useful (cash while they are still alive).

All the money in the world is useless to you after you're dead, because you can't take it with you.

The insurance companies could cut the life settlement people off if they offered the option to annuitise (With guarantee'd full payment of the benefit) life insurace policies upon age 85 or serious disability.

But the insurance companies preferred not to offer that option, so a third party does.
[/quote]

So, tell me.  When you bring up LI Settlements and tell them that a third party wants them to die early to collect, how do they respond?

Do you understand that LI settlements run counter to what insurance is all about?  Do you even know what the pure definition of insurance is?  If you did, you would never consider a settlement for any client.  Period.

All the money in the world is useless to you after you're dead, because you can't take it with you.

That is NOT the purpose of insurance.  In some rare instances** I can see a life settlement being useful but in the majority of the cases it negates all of the insurance planning and intentions of the insured and the beneficaries.

** One of my best friends had terminal pancreatic and liver cancer at a fairly young age of 45.  Her children were set for income and didn't especially need the death benefit and she had no estate tax issues.  She took the life settlement option written in the contract (not selling to an outside agent as an investment for somebody else) and made her remaining months more pleasant for herself and her family until she was too ill and went into hospice to die. 

[quote=deekay]

[quote=AllREIT]Life settlement people are awesome. They convert something that not useful to the client, (a promise of cash after they die) into something that is useful (cash while they are still alive).

All the money in the world is useless to you after you’re dead, because you can’t take it with you.

The
insurance companies could cut the life settlement people off if they
offered the option to annuitise (With guarantee’d full payment of the
benefit) life insurace policies upon age 85 or serious disability.

But the insurance companies preferred not to offer that option, so a third party does.
[/quote]

So, tell me.  When you bring up LI Settlements and tell them that a third party wants them to die early to collect, how do they respond?

Do you understand that LI settlements run counter to what insurance is all about?  Do you even know what the pure definition of insurance is?  If you did, you would never consider a settlement for any client.  Period.

[quote=Dust Bunny]

All the money in the world is useless to you after you’re dead, because you can’t take it with you.

That is NOT the purpose of insurance.  In some rare instances** I can see a life settlement being useful but in the majority of the cases it negates all of the insurance planning and intentions of the insured and the beneficaries.

ALLREIT, It's not like the insurance company has a rooting interest in what happens.  It's based upon the law of large numbers so they don't care what happens with any individual.  They know to a great degree what their mortality will be.

Life Ins: Live long and let the policy lapse.  More accurately, they would want everyone to live long, keep the policy long, and then lapse it.  This does happen with some people.  It hurts those people (if we ignore the fact that they did have necessary insurance coverage).  However, it helps everyone else.  Insurance companies count on these lapses.  If these lapses stop, it will have a negative impact on everybody else.   Early lapses also hurt the company.

Annuity: Die quickly.  More accurately, this is only true for immediate annuities.  With deferred annuities, the quicker the death, the more likely that a death claim will be paid, and of course, they don't have the money to manage.

Insurance only works because it is spreading the risk.  If everybody is going to collect, it becomes unaffordable.  Life settlements help everybody collect and it blows up the concept of insurable interest.

AllReit,

You have not defined what life insurance is.  You have not answered my question about how your clients react when you tell them the truth about settlements.

I've basically figured it out.  And I cannot believe it took me so long.

AllReit bashes anything insurance based because he is not licensed to sell insurance.  Anything other than el cheap-o 30 year term is going to be scorned because it takes away from his AUM.  Without his AUM, AllReit would go out of business (assuming he even manages money).

Therefore, anything that works to the detriment of his "I'll Give You The Privlege Of Paying 1% In Finitum For Underperformance and Biased Information" system is wrong, evil, and should be made illegal.  Unless, of course, you're talking about life settlements, which obviously is the only sane result of owning a WL policy

where did the “underperformance” and “biased information” come from?  Allreit has his own funds?

[quote=anonymous]

ALLREIT, It’s not like the insurance company has a
rooting interest in what happens.  It’s based upon the law of
large numbers so they don’t care what happens with any
individual.  They know to a great degree what their mortality will
be.

Sure they do. The insurance company has huge interests in realised mortality and policy lapses.

In order for life insurance to be profitable in the aggregate, its important that each contract be economically profitable at the time of underwriting.

The complaints about life settlement people is that they prevent reserve releases (thus tying up capital used to back the in force policies) and they increase mortality expense (since the life insurance gets used)

In force policies on old people require huge reserves and will lead mortality losses.

Life Ins: Live long and let the policy lapse.  More accurately, they would want everyone to live long, keep the policy long, and then lapse it.  This does happen with some people.  It hurts those people (if we ignore the fact that they did have necessary insurance coverage).  However, it helps everyone else.  Insurance companies count on these lapses.  If these lapses stop, it will have a negative impact on everybody else.   Early lapses also hurt the company.

If everyone kept all WL in force, it would become a vast time/distance problem. The insurance companies would drop the excess risk onto the bond market via life insurance securitisations.

Otherwise what happens is that insurco's use the fact that the policy mortality does not match customer mortality (since many policies lapse sooner than death), to charge less. All this on the knowledge that  lots of people paid for a period of coverage (when they will be very old/uninsurable) that they will never used.

However, you can use that insight, buy realising that a WL policy that is not held to maturity , is just like a term policy.

Annuity: Die quickly.  More accurately, this is only true for immediate annuities.  With deferred annuities, the quicker the death, the more likely that a death claim will be paid, and of course, they don't have the money to manage.

Right, With VA's and deferred annuities, the insurco would prefer longer lifetimes. After annuitisation, they prefer rapid death.

Insurance only works because it is spreading the risk.  If everybody is going to collect, it becomes unaffordable.  Life settlements help everybody collect and it blows up the concept of insurable interest.

Even if everyone collects life insurance still works, but it becomes a different sort of underwriting problem.

The life settlement people would vanish if insurco's offered more compelling accelerated death benefits and/or benefit annuitisation options.

[quote=deekay]

AllReit,

You have not defined what life insurance is.  You have not answered my question about how your clients react when you tell them the truth about settlements.