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What is the best EIUL? January 26, 2009

Posted by shaferfinancial in Finance.
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I have been asked that question much.  The short answer is “it depends upon what you are trying to accomplish.”

But for my needs, which is helping clients to protect their wealth from the taxman and hedge against inflation I have found what I consider the best equity indexed universal life insurance policy (EIUL).  This is not to say that other companies EIULs are bad, just that I strive to find the best one for my clients and recently I have had a change of opinion as to what is best.

First, the insurance companies make it very difficult to compare policies using just their illustrations because they use different assumptions that you have to adjust for.  The internal workings of these products are made needlessly more complicated, and difficult for complete transparency.  I want to thank  Brett A. Anderson, author of Last Chance Retirement,  for his hard work in getting the information needed for comparisons from the various insurance companies.

I also want to note, as a habit, I illustrate policies for clients conservatively, usually 10-15% below the historic based internal rate of return.  But for this post I am using historic based returns.

Mr. Anderson has published rates of return for different policies using a twenty year look back and a quarterly average for re-set.  This makes the policies comparable.

The product that gives the highest rate of return within that 20 years look back is Minnesota Life at 9.00%. Compare this to the Aviva product (2 year point to point) at 8.11%.   The Minnesota Life product, not surprisingly, has the highest cap rate at 16% for a 1 year point to point.

Correspondence from an actuary at Minnesota Life indicated they structured more of the fees into the life insurance costs instead of the cash value side.  Since we structure policies minimizing the life insurance this keeps the fees down and allows for maximizing cash value.  If you maximized the life insurance then this policy would not perform as well for you as others.  It is these little things that make their product superior for what we are trying to accomplish.  Additionally, Minnesota Life charges their interest on policy loans at the end of the year, while Aviva charges at the beginning.  This slight twist makes a difference in the long term performance of the policy.  Minnesota Life is a A+ rated company indicating good company strength (about the same ratings as Aviva). 

Going forward, until the products change, I will be using Minnesota Life’s EIUL for my clients who are looking to maximize living benefits, minimize taxes and have a source of tax-free income.

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Comments»

16. G - January 1, 2012

Hello,

I’m unsure where to find the “Is ML still the #1 EIUL” thread?

I was recently quoted a Midland EIUL policy and compared it to a previously quoted LSW and OMlife policies. Basically the insurance agent shot down the other policies. He was a fan of LSW in the past, but they have decreased their returns (35% from 65%) over the last few years.

Here are the numbers for the ML. (33 year old male, non-smoker, preferred class)
Pay $12K premiums per year for 32 years ($0 thereafter),interest rate assumption in the illustration is 8.48% per year with 0.75 bonus at 10 years . (S&P500 ann pt to pt 25%; S&P500 mon pt to pt 25%; optimal (milti-Index ann pt to pt 50%), variable rate loan at 6%, terminal/chronic accelerated benefit endorsement rider

Guaranteed average 3% Interest (over 8 years)
5 years later, net cash surrender value (CV)=$26,100 DB=$1,075,000
10 years later, CV=$79,575, DB=$1,075,000
15 years later, CV=$139,726, DB=$1,075,000
30 years later, CV=$291,919, DB=$1,075,000

8.48% (somewhat aggressive, but he supported it with be able to use other indexes vs solely the S&P 500)
5 years later, net cash surrender value (CV)=$32,790 DB=$1,075,000
10 years later, CV=$112,322, DB=$1,075,000
15 years later, CV=$254,470, DB=$1,075,000
30 years later, CV=$1,231,041, DB=$1,075,000

Any opinions or thoughts would be appreciated!

shaferfinancial - January 1, 2012

I’ll run the numbers tomorrow and comment to you directly.


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