Response: Juicing Your Life Insurance
July 14, 2010 by Sheryl J. Moore
PDF for Setting It Straight with WSJ3
ORIGINAL ARTICLE CAN BE FOUND AT: Juicing Your Life Insurance
Leslie,
As you VERY well know, I am an independent market research analyst who specializes exclusively in the indexed annuity (IA) and indexed life markets. This is a fact that is well-known and something that I have made clear to you the last three times I have written you, in order to correct you on articles that you have written with bad information in them. I have tracked the companies, products, marketing, and sales of these products for over a decade. I used to provide similar services for fixed and variable products, but I believe so strongly in the value proposition of indexed products that I started my own company focusing on IAs and IUL exclusively. I do not endorse any company or financial product, and millions look to us for accurate, unbiased information on the insurance market. In fact, we are the firm that regulators look to, and work with, when needing assistance with these products.
I established a relationship with you 16 months ago, to ensure that my firm could serve as a fact-checking resource to you on indexed life and indexed annuities. Since establishing that relationship, WSJ HAS PUBLISHED FIVE INACCURATE ARTICLES on indexed insurance products. If you cannot get it right on this one little niche of the insurance market, how many inaccurate or misleading articles are you publishing on mainstream financial services products? Interestingly, over that same period, WSJ has responded to me every time, and even done some fact-checking with me once. However, your newspaper has failed to distribute one single accurate article on indexed life or indexed annuities. I wonder how your readers would feel about that? We’re about to find out…
You know that I personally respond to, and correct, every negative and inaccurate article on indexed life and indexed annuities. I’m certain you’ve known that I would call you out on this most recent article, as you are aware that my firm is doing all that we can to correct the misinformation in the media relative to indexed insurance products. So, it boggles the mind that you would not perform adequate fact-checking and maintain journalistic integrity in your “reporting.” My firm has been providing you with press releases and sales data for years, so that you have access to statistical, and factual information on these products, as well as a reliable indexed insurance product source. You continue to disregard this data, so I continue to conclude the following:
A. The Wall Street Journal has no regard for the FACTS, or
B. The Wall Street Journal puts the truth aside, in order to forge ahead with sensationalistic headlines, or
C. The Wall Street Journal puts the truth aside, in order to better-serve their mutual fund advertisers
With that said, let me draw your attention to your most recent mistakes, inaccuracies, and twisting of the facts that you have crafted with, “Juicing Your Life Insurance.” I am writing you to bring these mistakes to your reader’s attention, as it appears that both you and The Wall Street Journal continue to have a blatant disregard for the facts when it comes to life insurance products.
Leslie, as I have made copiously clear to you, indexed insurance products are “safe money places,” which are priced to return 1% – 2% greater interest than fixed money instruments. So, an Indexed UL (IUL) sold today should outpace today’s average traditional UL rate of 4.57% by as much as 2%. Is there a potential for IUL to earn double-digit returns? Yes, but it is not priced to consistently return gains in the double-digits. Some years the client will receive 0% interest, but what is most likely to happen is something in-between. It is dangerous to make statements about IUL, alluding to the fact that it can be used to “capture stock-market gains,” as IUL is not intended to compete with risk-money products, much less the market itself.
I’m so interested to hear what you or your sources consider to be “complex” about IUL. It is just a fixed UL product with a different way of crediting interest.
Also, as I have clearly indicated to you in the past, indexed insurance products are marketed as offering a minimum guarantee with limited upside-interest potential based on the performance of an outside stock index (such as the S&P 500). For you to assert that consumers “could easily think there is more upside than there actually is” is preposterous. Every product brochure that I have ever reviewed for indexed life makes this fact abundantly clear. What on earth makes YOU think that one may perceive there to be greater potential than there is with an IUL? The illustrations that the client must sign at point-of-sale disclose it. The product brochures disclose it. The actual contract discloses it. Again, it appears that fact-checking is lacking in this piece, Leslie. While I’d remark that this is disappointing, I cannot say that it is surprising.
You say that “commissions can be steep” on IUL. Do you even understand commissions on universal life insurance products? Do you know that there are two components- a target and a payout? I’m certain you do not. I am further assured that you do not have any commission information on indexed UL because all life insurance commissions are considered proprietary. They are not released publicly, as doing so would compromise trade-secret information on life insurance pricing. In the future, it would be appreciated if you keep your commentary to yourself, when you do not have facts to support it. The alternative is millions of readers being swayed by your “hunches” or “feelings” which have nothing to do with the FACTS.
Furthermore, as the company that tracks the sales of indexed UL products for every single company in the market, I can assure you that IUL sales were up only 35.5% from 1Q2009 in the first quarter of this year. Sales for the first quarter of 2010 were just over $143 million. Sales of IUL account for less than 10% of the total Universal Life market. The growth of IUL was impressive, but it was fueled by American consumers’ desires to preserve their cash values in a product that is not subject to the risks of the market.
James Hunt appears to be the drama queen of the CFA. Truth be told, I’m no math whiz (and certainly not an actuary!), yet I understand every single IUL every developed. So I assure that Mr. Hunt’s statements are dramatically exaggerated.
Indexed life insurance is not “bondlike,” Leslie. However, the product is not intended to keep pace with the market’s performance. See my above discussion about comparing IUL to UL and other fixed money instruments.
Furthermore, it is COMPLETELY inappropriate to compare temporary term life insurance with any permanent cash value life insurance plan, whether it is whole life, universal life, or otherwise. Term life insurance is so cheap because it expires. It is never available on a term more than 30 years. At the end of the term period, the client will have an dramatically increased premium that is based on their attained age if it is renewable at all. In the event it is not renewable, the client will have to apply for new insurance and will likely not make it through underwriting because of insurability. For this reason, term life insurance is intended to SUPPLEMENT permanent life insurance plans- especially during the period where there will be temporary expenses such as mortgages, loans, etc. For these reasons, it is irresponsible to suggest that one would purchase only term life insurance.
Additionally, life insurance is not intended to be a “savings vehicle.” Life insurance has costs: premium loads, policy fees, per thousands, cost of insurance charges, percent of fund charges. Any efforts to “save” in such a product would be silly because of these charges. A savings account, CD, annuity, or other savings vehicle is much more appropriate than life insurance for the purpose of “saving.”
As I have told you before, all indexed gains must be limited through the use of a cap or a participation rate on indexed insurance products. Caps and participation rates are merely two different ways of doing the same thing: limiting the potential indexed gains on indexed UL. Were the gains unlimited on these insurance products, the life insurance company could not afford to provide a minimum guarantee and THAT is variable life insurance, not indexed life.
For the third time in the past year, it appears I must remind you about reinvested dividends and indexed insurance products. It never ceases to amaze me how people like you think that the dividends of the index being excluding from the crediting calculation of indexed life is a bad thing. Ms. Leslie Scism- the insurance company never receives the benefit of the dividends on the index on an indexed UL, because the client is never directly invested in the index. The insurance company invests the indexed UL client’s premium payment in the general account, which protects them from declines in the index. The premiums are never invested in a pass-through account, which would provide the benefit of the dividends, but also expose the client to risk should the market decline. For this reason, the dividends cannot be passed on to the consumer. So you see, the insurance company cannot pass on the dividends if they do not have them to begin with.
Also for the third time, although insurers “reserve the right to adjust rates and caps within certain limits” on indexed UL after product purchase, they can do it no earlier than the second year. This is NO DIFFERENT than how an insurance company can reduce the rates on a fixed UL, or increase the charges on a variable UL. Insurance companies must price these products appropriately, and that means building-in the ability to reduce rates, should the volatility of the markets require it. However, just because the insurance company has the ability to change these rates, does not mean that they DO. Adjusting renewal rates on inforce IUL is more the exception than the rule in this market.
Although I share Peter Katt’s concerns about a lack of industry-wide standards for illustrations on IUL, it is an issue for the National Association of Insurance Commissioners to address. This issue has been my primary agenda since starting this business five years ago. Perhaps your article will help to make it a priority. Thank you.
The continued proliferation of valueless media from The Wall Street Journal makes me physically ill. I will never subscribe to your periodical until you decide that accuracy is important. I hope that my clients, friends, and colleagues follow-suit and drop their subscriptions to your newspaper. One way or another, the insurance industry will send a message LOUD AND CLEAR that it is not okay to publish such blatantly false “articles.” I’m beginning to liken your periodical to the likes of The National Enquirer with your continued sensationalism. I pray that you awaken with a renewed sense of loyalty to your readers and concern for their financial literacy.
Thank you.
Sheryl J. Moore
President and CEO
AnnuitySpecs.com
LifeSpecs.com
IndexedAnnuityNerd.com
Advantage Group Associates, Inc.
(515) 262-2623 office
(515) 313-5799 cell
(515) 266-4689 fax
