New Rules for Illustrations vs. the Real World

Jeffrey Stemler, Sr. VP Advanced Planning

The NAIC has long been charged with providing regulations regarding illustrations that project Life Insurance policies’ potential outcomes. The NAIC is very concerned that illustrations show realistic assumptions as to possible/likely outcomes. For those of us who have been in the industry for a while, we’ve experienced numerous changes and modifications to the illustrations we present. More changes will be going into effect November 25th of this year.

It should be noted that the changes have no effect on how the policies function, just how they are illustrated.  The changes are contained in AG49A and can be summarized as follows:

  • The current spread between illustrated crediting rate and policy loan rate will be decreased from 1% to .50%.
  • All riders/options will still be available including those that provide multipliers, however they will not be taken into account for creating the illustrations.

At this time, these changes will not apply to inforce illustrations.

What does this mean?

For the consumer, anytime you make illustrations more conservative you increase the chances that the projection of possible returns are understated and actual results will be greater.

For the producer, the answer varies. If the producer’s only approach to making a recommendation is to highlight the rate of return, he/she will be disappointed. The projected results for income will be reduced.  How much is not confirmed yet, but a reduction of 45% would seem possible – this is without companies coming out with new products or riders. We know through discussion with carriers, policy changes are on the way that are designed to show increasing payouts, while complying with the AG 49A regulation.

The real question is, how will IULs fit into the real world with other investment choices when we take into account the real threats to our retirement funds.

First we have to identify the key issues:

  • Many economists agree that taxes must be increased because of the National Debt. What is the impact on our retirement due to increased taxes and how do we prepare for this possibility?
  • A standard investment portfolio often contains a mix of stocks and bonds which are subject the gains and losses in the market. Economists point out the sequence of returns has a huge impact in the first few years of retirement. The exposure is not if the market goes up but if it declines. The reason declines can be so devastating is that if you need a “constant” withdrawal amount to meet expenses, you’re cannibalizing your account with no way to replenish the funds because you aren’t working.
  • Another issue that is raising its’ head more often is, the most popular qualified plans – 401(k)s and IRAs cannot accept enough contributions to fully fund a high income earners retirement.

Since illustrated rates are going to decrease significantly, will overfunded IULs still be viable compared to other investment alternatives? The answer is “YES”.

Remember, the product is not changing just the illustrations. Allianz, for example, is working on how to explain the impact of purchasing the 40% multiplier on future income payouts from the policy.

However, to begin the decision process for determining investment choices, this discussion needs to start with comparing each investment’s attributes.

Whole Life InsuranceNon-Qualified Investment PortfolioQualified 401(k)Overfunded IUL
Tax-Deferred GrowthYNYY
Tax-Free DistributionYNNY
Competitive ReturnNYYY
High ContributionsYYNY
Additional BenefitsYNNY
Collateral OpportunitiesYYNY
Safe HarborYNYY
No Loss ProvisionsYNNY
Guaranteed Loan OptionsYNNY
Unstructured Loan PaymentsYNNY
Liquidity, Use and ControlYYNY

Overfunded IUL is the only investment choice that covers all three of the key elements affecting a successful retirement:

  • Taxes upon distribution
  • Losses due to the market
  • Contributions based on how much you can afford

Bottom line, if we stay focused on the issues to be solved, overfunded IUL will continue to be an integral part of retirement income planning.

Math or Magic?

Jeffrey Stemler, CLU, ChFC – Sr. Vice President, Advanced Planning

Why is it so hard to save enough for retirement? 

Part of it is, it’s just “life”. We know we should start saving as soon as possible but when you are 25 and fresh out of college, married and a baby on the way – money is in short supply.  In addition, if you’ve started a business, all excess money gets reinvested to build the business in the early years.  Doctors have a different problem but with the same outcome. They don’t start earning “real money” until they are in their late 30’s or early 40’s.

So besides starting to save later than they should, what other issues prevent most people from achieving their goals for retirement?

Let’s look at traditional retirement strategies – 401(k)s and IRAs. The overwhelming strategy is a blended portfolio of stocks and bonds and over the long haul it should produce a positive rate of return. Unfortunately, this is an accumulation strategy, not an income strategy, AND if you are invested in the market when you retire AND the market declines YOU CAN’T MAKE UP FOR THE LOSSES because you are no longer working. 

When we talk about not saving enough in addition to starting too late, studies show that on average high income earners save around 9%.  However to maintain lifestyle in retirement, people should be saving 34% – that’s just not realistic.

Finally when you add in the factor of taxation on distribution, it’s like swimming upstream – every three dollars you earn, you could owe one or more to the government.

Is there a viable investment strategy that could help to make up for starting to save for retirement late.

  • Can it also prevent losses due to the market when you are in retirement?
  • Can it also provide income for a lifetime?
  • Can this strategy eliminate taxes on withdrawals?

The answer is yes, when you use an Index Universal Life Policy that has been designed as an “income engine”. 

When you get down to it, it’s just “Math”.  A properly funded IUL can:

  • Eliminate losses due to the market
  • Increase distributions by 100% to 300%
  • Avoid taxes on distribution. 

Bottom line is…it’s “Math” not “Magic”.

To get more information on IUL, Asset’s Planning Compass, or other Life inquiries contact Jeff Stemler –

Consider the Ultimate Gift of Love

Jeff Stemler, CLU, ChFC, CFP, Sr. VP – Advanced Planning

With Valentine’s Day being in February, our thoughts often turn to our loved ones. This love takes on many forms, one of which is to protect them. We would do almost anything to prevent a life-changing event that has devastating emotional, physical and financial consequences.  An event that often tears a family apart and puts their lives on hold.  Wouldn’t you do just about anything to prevent these consequences from affecting your family?

What’s the event that can cause such devastation? It’s when you or a loved one needs extended care. Is there an answer?  One option is to set aside enough assets to pay for your care which can be expensive and severely affect your lifestyle.  Is there another answer?  Consider Asset Based Long Term Care Insurance.

Asset Based LTC Insurance is unique in many ways:

  • The premiums are fixed and can’t go up
  • There are multiple ways to fund the coverage; single payment, annual payments for a specified number of years, or lifetime payments
  • Various assets can be used to fund the policy; cash, annuities, existing cash value life insurance, and even qualified plans
  • A return of premium rider is available on certain policy designs

Below is an example* for a husband and wife both 50 years old 

  • Premium $100,000
  • Return of premium guarantee $100,000
  • LTC coverage amount $236,792, which will pay $4,736 for 50 months
  • Benefits can be used by each spouse, or both until benefits are exhausted 
  • An immediate death benefit of $408,450 decreasing to a guaranteed $236,792 after 15 years

Multiple riders are available, including extended coverage options, and the only lifetime coverage benefit available on the market.

When you need extended care, your life does not end but your care-giver’s life, as they now know it, will.  Owning Long Term Care insurance is not for you, it’s an act of love for your family.

* Rates will be based on final underwriting decision. Coverages and policy features may vary from state to state. Consult your Asset Product Specialist to get a sample illustration.