They’ve done it again. Steve Savant and Don Prehn have produced another good video covering the highlights of my Blog #38: Avoiding a $20 Million Dollar Mistake where I used InsMark’s Wealthy and Wise® for the evaluation.
It may be hard to believe that a life insurance policy funded by way of an asset allocation can accomplish such a significant result, but -- no smoke and mirrors -- it does exactly that.
The Suze Ormans of the world are surely lurking nearby ready to proclaim, “She should have bought term insurance”. That option is covered as well.
Once you’ve reviewed Steve and Don’s six-minute video, you may want to review Blog #38 for a more detailed evaluation. And if you are licensed for Wealthy and Wise and would like to review the data input, be sure to ask for the Case Data file (Workbook) below and following its logic should be straightforward.
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Robert B. Ritter, Jr. Blog Archive
Good concept but 2 weaknesses. $20 million is shown at age 100 well beyond her Life Expectancy. Also illustrating IUL at 7.5% is too high by any true professional’s view.
You are right, Stephen, Elizabeth Rand’s life expectancy is closer to 85 (preferred risk, non-smoker), but it also means that half of that age group is still alive at 85. So it did not seem unreasonable to carry the illustration to age 100 since some of her group will live that long and the reports and graphics could allow later evaluations. But even using age 85, it’s a $6 million net worth mistake not to acquire the life insurance; at age 90, it’s $9 million mistake; at age 95, it’s $14 million mistake.
I believe the interest assumption used on an IUL policy should reflect the client’s overall investment posture. In Dr. Rand’s case, all her equity-related assets are assumed to grow at 7.50% to 8.50%. (This is covered in the material you reference.) While I have no issue with an alternative evaluation using more conservative overall assumptions on all her investments (including the IUL) , I think it’s unrealistic to single out the IUL for inferior interest assumptions.
I hope, in general, that the Dr. Rand study was useful to you in terms of the logic of a comparative analysis using our Wealthy and Wise System proving that retirement plans are typically more favorable when cash value life insurance is included.
Thanks, Stephen, for commenting.
Bob Ritter
InsMark President
It was helpful but the Commission that is reviewing IUL does not think the interest assumption should be so high. I appreciate the comments beyond her LE. Love Wealthy and Wise!!
Steve, I hope that the Commission that is reviewing IUL deals more with suitability than with an order to use lower interest rate assumptions — maybe by way of a suitability requirement that helps the prospect self-identify his or her risk tolerance. Clearly, an aggressive investor will want to see IUL illustrations using more aggressive interest rate assumptions that are tied to indices he or she believe are valid selections, just as a conservative investor will want less aggressive interest rate assumptions. To that point, at the 2015 InsMark Symposium in late March, we are introducing a new module in the InsMark Illustration System that provides such a suitability questionnaire as well as a 4-way Comparison of Insurance Plans illustration comparing illustrations of Whole life, Universal life, Indexed Universal Life, and Variable Universal Life with the idea that the suitability questionnaire will guide the producer and the client into a making a responsible purchasing decision.
Unfortunately , the big mutuals are behind the push to limit the yields shown for IUL illustration because they have a serious difficulty in competing with IUL due indexed yields and participating loans. I’m reminded of an advertisement by MassMutual in the early 1980s with a line something like this: “When MassMutual Offers Universal Life, You’ll Know It’s OK to Buy It.” A few short years later, MassMutual offered universal life. One day, I suspect the mutuals will also offer IUL.
Thanks again for commenting, Steve. And thanks for the nice remark about Wealthy and Wise®.
Bob