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How do you know if your insurance salesperson has structured your EIUL correctly? April 19, 2009

Posted by shaferfinancial in Finance, Uncategorized.
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My posts on equity indexed universal life insurance policies are fairly popular.  I generally get several people a week contacting me with questions about this product.  One of the hardest thing I do is try to help people understand if their sales person is being up front with them and structuring the EIUL correctly.  Generally, I have found it is not usually set up in the clients interest, instead set up in the insurance agents interest!

There are several issues that need to be correct in order for these policies to accumulate maximum cash values and generally all these things decrease the amount of commission to the agent.  There are also some illustration issues that can cover up the wrong structure.

Here are the issues:

1.  The face value should be minimized down as far as possible without creating a modified endowment contract.  There is little the consumer can do to tell from looking at the policy to know if this is done.  I have done so many of these illustrations that I can pretty much tell just by getting a little information from folks.

2.  Option A or Option B?  Should the face value be set up as increasing [option b] or level [option a]?  Generally, if you are max funding over 5 payments, option B should be the initial set up and it should be changed to option A after the premiums are paid.  For those funding with monthly payments option A should be used.

3.  Rate of return?  The software generally allows the agent to put in any number under a maximum the agent wants to.  This is the speculative rate of return that the purchaser can expect these policies to return.  Most agents use the maximum number.  I use 10% less than the 20 year look back to be conservative.  The product works as advertised using this more conservative number so why pump it up?  Agents do this because they are afraid of another agent using an even higher number or having a better product to offer the consumer.  It is the same reason these same salespeople tell people they will get 10 or 12% from their mutual funds.  They think people won’t buy unless they make their product seem like it will make the client wealthy!  Instead I rather give people a realistic view of what these products can do for them.  It makes for happier customers and a much happier salesperson [me!].

4.  There is a fear from most that if clients learn you are making a good commission from the product that people won’t buy it, so they refuse to disclose when asked.  I always disclose when ask.  And yes I make a good living selling these products!  But if the client doesn’t purchase one of these policies based on my commission, then that is a client that I don’t need to have because they are working under a different set of assumptions that I work under.  For me, I help put my clients in better financial positions by the use of my intellect and abilities and that works as a win-win because I can make a living helping people.  Those that want to work with people who can’t make a living doing this get what they are asking for; poor advice!

5.  Which company to buy the policy from?  I spend much time researching the best products out there for my clients.  Most agents offer up what their managers want them to, instead of what is the best out there.

Bottom line, keep up the phone calls and e-mails, and I will continue to structure these in your best interests, so we have a win-win situation!  I have licenses in many states and can get a license in most so it matters little where you live.

Have a great week and consider an EIUL as a part of your financial strategies.