Update News for February 2021

Here is a quick run-down on what you will find in this bulletin:

• No Lapse UL Products Withdrawn
  
• Do you Know the Rule of 72?
  
• I’m Not Much of a Risk Taker
  
• Why I Still Like Guarantees
  
• Will Other Companies Follow?
  
• Conservative Values Guide Compulife
  
• Learning Javascript
  
• Our Current Programming Plans for 2021

These topics will be dealt with in more detail throughout this bulletin.

No Lapse UL Products Withdrawn

During January we watched as 3 life insurance companies removed their no lapse UL products from the market. They were:

• • Principal Life

 

• • Sagicor Life

 

• Symetra Life

These follow other companies that did the same earlier in 2020.

None of the companies have commented for the reasons why this was done, and that is disappointing. It is easy to speculate that continued LOW interest rates are a big reason for this. As investors, life insurance companies are finding it more difficult to generate much return on interest bearing investments. When investment yields go down, permanent life insurance product premiums must go up or benefits must go down. If you are guaranteeing a minimum result, and investment returns are not as great as you previously expected, you can face losses.

It is also easy to speculate that with a booming stock market, equity linked products look more appealing on paper. Projecting money at higher returns shows much, much bigger results compounded over 30 and 40 years, and makes products that purport to offer those returns much more attractive to consumers.

Do you Know the Rule of 72?

I don’t want to insult anyone by asking this question, I realize that most of you already know this. But I would like to offer it for those who don’t know about it, as it is a very easy way to determine interest results on money.

The rule of 72 says you can find out how long it takes to double the value of an investment, by compound interest, by taking the interest rate and dividing it into 72. This works for interest rates that are relatively smaller than 72. If you divide 72 by itself, you get one year and a 72% return on money does NOT double the investment in one year.

Here are some simple examples of the results of investing $1,000, for a given number of years, at various interest rates. In each column, the period to double money was determined by dividing the interest rate into 72:

While 12% is just 4 times the rate of return of 3%, over 48 years the impact on the investment return is 64 times more money.

The rule of 72, and a lot of my own personal use of Compulife’s Income Replacement Calculator and Retirement Calculator options, which are found in Compulife’s PC software, have made me hyper aware to the rates of return that some folks talk about when discussing investments.

I’m Not Much of a Risk Taker

Personally I own no stock other than Compulife but like most business owners I am routinely chased by advisors wanting to attract my investments. Even my bank’s personnel have urged me to get into the stock market because you just can’t accept those lower returns on interest options like CD’s.

When your banker is telling you to buy stock, and not lend them money, I think you have to be very concerned. There is an old story that Joe Kennedy knew it was time to short the stock market when Joe’s shoe shine man started explaining his stock portfolio to Joe.

Why I Still Like Guarantees

Now in my 60’s, I no longer own term life insurance. The remaining insurance I personally have are a pair of “Term to 100” policies that I bought in Canada in the 1980’s. Term to 100 is much like no lapse UL, in that the emphasis is on the guaranteed premium for the guaranteed face amount. Unlike no lapse UL, Term to 100 NEVER has a cash value and so they were never sold to be canceled, or the buyer loses big time.

I have a friend with $1 million of the same coverage and he said that the only mistake he made was not buying $2 million. I have but a paltry $350,000 of coverage, but then it’s only costing me $100 per month. Today, that doesn’t seem too bad. Once again, there’s no cash value in those policies but I don’t care. I bought them to give my wife some quick money when I die. Assuming inflation is not too bad before I go, they should cover the cost of a funeral.

The price is much lower than what you could buy guaranteed coverage for today, assuming I was still that young. The reason is simple. I bought those products during a time when mortgage interest rates were over 10% and there seemed no way they could ever go down. Fast forward to now and mortgage rates are under 5% and seem like they could never go up. Companies who sold those policies years ago, are looking at a portfolio of business that is NOT going to generate the profits they hoped for, and most likely will result in losses. No problem, lose on the milk and make money on the cookies; that’s business.

I don’t think interest rates will stay low much longer. Governments are printing money to cover deficits and I believe inflation is rapidly building like a volcano that is shaking but has not yet erupted.

Where is all this heading? The honest answer is I don’t know but it worries me to my core. For those who wonder if/when I will retire from Compulife, the answer is when I die. Now in fairness, if I turn into a slobbering, drooling old fart who is no longer useful, it will be time to hand over the keys to the next generation. But until then I intend to stay in the game as long as I can lift a telephone and talk sensibly. One thing I am convinced about is that the ability to work and produce an income is a human being’s greatest asset, and no matter what happens to your retirement investments, the ability to produce and earn a living is the best insurance against uncertainty.

Today I think there is risk everywhere you look.

Bringing that back to the subject of insurance, personally I think of insurance as a risk sharing, risk management product. I buy insurance to remove risk, I don’t buy insurance to “take risk”. I use insurance to try to eliminate risk rather than create it. You can’t possibly eliminate all risk, but insurance helps to reduce it. If I want to take risk with money, I prefer to do it with other things such as my company Compulife, land or silver.

If today I was personally buying more permanent insurance, I would gravitate toward guaranteed products because no one has ever had to say “sorry” for a guarantee. I suspect that if/when the stock market goes south, there will be a lot of folks who sold and bought equity linked life insurance products who will be greatly disappointed. For those who have not been in business very long, it may seem a small thing. For others like myself, who have been in business for 40 years, you want to make wise choices that stand the test of time.

When I first sold life insurance in the 1970’s, I was very enthusiastic about some permanent products that were linked to current investment returns. Now I didn’t sell much permanent, always having believed that term was the right product for most people who need life insurance, but for those who needed permanent (and I think there are many who do) I thought those high interest linked products made sense. Years later, when interest rates dropped, so did the benefits provided by those products. Because I hadn’t sold many, there was not much apologizing or explaining that I had to do, but some was required. With the guaranteed permanent products that I sold, including to myself, I have never had to say I was sorry.

Let the other guy do the apologizing, not me.

Will Other Companies Follow?

I suspect that demand will continue to drive the market. If demand for no lapse UL has dropped, due to increased prices for the products, and by comparison to higher investment yields in other products, I suspect that other companies may pull their no lapse UL products. But as the number of carriers offering these products diminishes, it will result in more business for the companies that remain in that market. And I suspect I am not alone in my affinity for guaranteed products.

I would be interested in hearing from anyone who has their own take on this subject, for more information that they would be willing to share.

Having noted that some companies have pulled out, others have made recent price changes (generally increases) and so it would seem they expect to continue with the products but need more premium to offset lackluster investment returns related to those products.

Conservative Values Guide Compulife

Compulife is a relatively small company by contrast to some. In total we have 6 employees, operate from offices in our homes, and try to keep operating expenses to a minimum. Why? In order to keep our software prices low and highly competitive. Why? Because we have learned over 38 years that customers and new customers are adverse to paying a lot of money for what we do.

Having noted that, we constantly work to service our customers, update the information in our software, add features and functionality to our products, and to adapt our software to the changes in the technical world. While doing that we are not throwing huge amounts of money at new projects and we are not taking great risks with our working capital. In the race between the Hare and the Tortoise, we’re that thing with the shell on its back. There is no danger that Compulife will ever become a Tesla or a Space X, but that is also the reason why we are still here after 38 years.

That is a win-win for our customers and us. You want Compulife focussed on keeping our product accurate and up-to-date. You don’t want to be embarrassed by a quote that is wrong, and needing to explain that to your insurance customer. Many of you have been Compulife customers for many, many years, and you have profited from our product and you want to keep on profiting. In a sense you want the money you pay us for our services to be used wisely, and you want us to stay around to help you keep making money. It may not be sexy or glamorous, but sexy and glamorous don’t put bread and butter on your table.

The most risky thing we are doing right now is spending time to learn and understand our programming options for the internet, to determine what we can do and how to design our new generation of software. As we have been discussing for the last few months, our goal as we get ready to roll out a new version of our PC software, is to make changes to the software that we can duplicate on the web. Why? It is our objective that eventually you will have access to virtually identical software whether you attempt to run from a PC or run it from the web. The limitations we face in designing software are driven by the limitations of web based software, and so we are trying to learn the extent of those limitations. For that reason this next step in our process is going slow, and will continue to go slow as we investigate and learn.

Learning Javascript

Our programmer is now spending time learning much how about developing in javascript. We have decided that the best way to create a new Windows PC interface, that closely follows our new web based interface, is to embrace more powerful web programming capabilities. Once we understand what we can do and not do with our web design, we can re-program our software in Windows knowing that we can duplicate what we come up with on the web.

Our ultimate goal is to have a web based version of our product, and works just with the Windows PC version, and vice versa.

To summarize, our Compulife Basic product, the one you use for your phone and non-Windows devices, will eventually become much more powerful, and our Windows PC product will work the same way.

Our Current Programming Plans for 2021

The following is the current order for new work that we will be doing in 2021:

• • Introduction of New PC Version: CQS.EXE

 

• • Overhaul Of Current Product Data Files

 

• Introduction of Compulife Basic Plus (with Pick 12)

Anyone with questions about any of these upcoming projects can call Bob Barney to discuss:

Please don’t email me essay questions, just call. If I’m not in, email me your phone number, I’ll call you.

These planned objectives will easily consume our programming time during 2021. The good news is that once the product data files have been converted, and we have introduced the new CQS.EXE, and upgraded our internet engine to use the new data files, Compulife will be turning it’s full attention to our web based, Compulife Basic software. The long term goal is to have a web based product that does everything our PC based software does.