Update News for January 2009
Here is a quick run-down on what you will find in this bulletin:
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Happy New Year
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No Lapse to Age 121
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LIMITED PAY – No Lapse to Age 121
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Level to age 65, 70 and 75
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IACA Tutorial
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Video Tutorials Progress
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What’s Next?
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These topics will be dealt with in more detail throughout this bulletin.
While we are hearing a lot about how tough economic times are, Compulife has been through these times before and we have found that our market niche actually does quite well. That’s because Compulife provides you with software that helps you help consumers find the lowest cost life insurance alternatives in the market. We believe that you, together with the Compulife software, represent the best solution for the times that we are in. With that in mind, we would like to wish you a mutually profitable year!
Actually, when you think about it, that’s two different things and we all need to be careful here.
First, you could configure one of the new “to age 121” products to have premiums and coverage to age 100 – meaning that premiums and the guaranteed coverage END at age 100. We think that is playing with fire given that your client might outlive the coverage.
In the good old days, when “to age 100” was the only option that some products offered, that was the best that you or anyone else could do. However, with the ability to guarantee coverage to age 121, does it make ANY sense to cheapen the premium and risk the policy lapsing at age 100 because the cost goes through the roof.
While we do see the point in configuring coverage to end at age 65, 70 or 75, which provides people with term like coverage to the point that they will retire, it is hard to imagine an insurance need that goes to age 100, but would not continue beyond that point if the client is still alive. Given that, we are VERY reluctant to continue with this particular category unless there is significant demand for it. Let us know what you think.
Second, and far more sensible, are those who want the coverage guaranteed to age 121 but the premiums PAID-UP at age 100. Many have pointed out that the cost difference is minor. NOTE: It is logically more expensive to have the premiums paid up at age 100 rather than continue beyond.
Therefore, we are quite eager to add a “To Age 121 Level – Pay to 100” category once we have products that fit into that new category. Some have speculated that we may already have products with premiums that fit that scenario/profile but we do not know which ones those would be. If you are aware of any existing product in Compulife that works that way, please let us know.
If you are a life company, and can get us the premiums for your “to age 121” product, with premiums paid up at 100, we would encourage you to do so. And while you are at it, we would encourage you to give us premiums for the other limited pay categories (discussion follows).
NOTE: Subscribers need to know that two of the companies that we added in December, with limited pay no lapse UL products, were a direct result of one subscriber who took it upon himself to directly contact companies and emphasize the need to have their limited pay no lapse UL products in Compulife. We mention this to underscore that you have more power to persuade companies than we do, and so we appreciate any lobbying effort that you can make on our behalf.
To age 121 Level – Pay to 65
To age 121 Level – 20 Pay
To age 121 Level – 10 Pay
To age 121 Level – Single Pay
To date we have three companies who have supplied us with premiums/rates for these new categories and we would encourage others to do likewise.
NOTE: During January we will be doing a new Video Tutorial based upon the following print tutorial.
We recommend that you print this bulletin, and have the following tutorial next to you as you step through it.
For the purposes of this tutorial the following is the client information that we are entering:
Client Name – anything you want
Face Amount: $500,000
Age (Actual and Nearest): 45
Non-Smoker
Preferred Plus
State: CA
Best Rating: A-
Best Category: Quote all with Best Category
Having entered in this client data, you will need to do a comparison. You can click on the “Compare Now” button in the bottom right hand corner of the screen, or you can click on the “Display Product Comparison” button on the Red Menu. Either will do the same thing.
With the comparison displayed, go to the category selection just above the Face Amount. Click the down button and select from the blue area: “To Age 121 Level – 20 Pay”. This will bring up 3 companies, Pruco, Genworth and United of Omaha.
The first product should be Pruco Life with a premium of $4,474.99. The highlight bar, which is a light blue color, should be on that product. If not, move your mouse to that product and left click once to highlight Pruco at $4,474.99.
Now move your mouse to the top left corner of the window and click on “File”. The 4th last choice on the File Menu says: “File to IACA as product 1” Click on that option. The menu will go away – the product has been filed.
Go back to the category selection just above the Face Amount, click the down button and select from the blue area: “To Age 121 Level – No Lapse UL”. This category contains products where the premiums must be paid each year until the death of the insured. This comparison contains many more companies but for the purpose of this exercise click once on Pruco Life which has a premium of $3,308.49.
With the blue highlight bar on Pruco, move your mouse to the top left corner of the window and click on “File”. The 3rd last choice on the File Menu says: “File to IACA as product 2” Click on that option. The menu will go away – the product has been filed.
That was it, you have filed the 20 pay product as product 1, and the life pay product as product 2. Now move your mouse to the top left corner of the window and click on “File”. The 2nd last choice on the File Menu says: “Go to IACA”. Click on that option which will display the “Interest Adjusted Cost Analysis” window.
So we can keep the numbers the same, for discussion purposes, enter an interest rate of 6% and a tax rate of 39%. We will assume that the client can earn a 6% fully guaranteed long term interest rate (that’s optimistic) and that he is a person in a 39% upper tax bracket (also optimistic if Obama has his way).
Go to the bottom right hand button on the screen and click on “Display Year by Year Analysis”. This will take you to the “Interest Adjusted Cost Analysis” print preview.
In column one you should see a premium of $4,474.99 for each of the first 20 years. After that the premium becomes zero which indicates, in this example, that the policy is paid up.
In column two you should see a premium of $3,308.49 for every year.
Column 3 for years 1 to 20 should indicated that the 20 pay policy costs $1,166.50 more each and every year.
Column 4 takes that $1,166.50 and invests it, each year adding it to the previous year balance, then adding 6% interest and deducting 39% tax on the interest. By the end of the 20th year, the insured has saved a total of $34,763.36 in tax paid money.
In year 21 the premiums for the 20 pay policy end, but the premiums for the life pay version continue at $3,308.49. This creates a premium DEFICIT of $3,308.49. We use the savings which we accumulated in the first 20 years to pay those premiums. This begins to deplete the savings until the client is age 76/77 at which point our savings go into a deficit.
We like to refer to this as the “cost crossover”. Cost crossover is the point where both policies cost the insured the same out-of-pocket money. However, beyond that point the added cost of the life pay version of the policy continues to build so that by the end of this particular example, on page 2 (click the right blue arrow at top left corner of screen), the total accumulated deficit is $113,696.15 (age 99). Keep in mind that this is the deficit on a policy with a face amount of $500,000.
Print out this proposal.
The next step in this exercise is to switch the 20 pay policy to a 10 pay policy.
Close the IACA window and go back to the “Display Product Comparison”. Go to the category selection above the face amount, click the down button and select from the blue area: “To Age 121 Level – 10 Pay”.
The first product should be Pruco Life with a premium of $7,049.99. The highlight bar which is a light blue color, should be on that product. If not, move your mouse to that product and left click once to highlight that product.
Now move your mouse to the top left corner of the window and click on “File”. The 4th last choice on the File Menu says: “File to IACA as product 1” Click on that option. The menu will go away.
That was it, you have filed the 10 pay product as product 1, and replaced the 20 pay product that was there. Product 2 is unchanged. Now move your mouse to the top left corner of the window and click on “File”. The 2nd last choice on the File Menu says: “Go to IACA”. Click on that option which will display the “Interest Adjusted Cost Analysis” window.
In column one you should see a premium of $7,049.99 for each of the first 10 years. After that the premium is zero, indicating in this example that the policy is paid up.
In column two you should see a premium of $3,308.49 for every year.
Column 3 for years 1 to 10 should indicated that the 10 pay policy costs $3,741.50 more each year.
Column 4 takes the difference in premium, adds it to the previous year balance, and adds 6% interest, deducting 39% tax on the interest. By the end of the 10th year the insured has saved a total of $45,837.37 in tax paid money.
However, in year 11 the premiums for the 10 pay policy end, but the premium for the life pay version continues at $3,308.49. This creates a premium DEFICIT of $3,308.49 which we draw from the savings we accumulated in the first 10 years. This begins to deplete the savings until the client is age 72/73 at which point our savings go into a deficit.
Notice that by comparison to the 20 pay product, the cost crossover occurred even more quickly with the 10 pay product meaning that the 10 pay product is a better deal (assuming 6% interest, less 39% tax) than the 20 pay product.
Now take a look at the last year on page 2. The total accumulated deficit is $147,586.34 (age 99).
The moral of the story is that the quicker this client gets the policy paid-up, the more money that they will save in the out-of-pocket cost of delivering $500,000 tax free dollars to their estate when they die.
But there is an even BIGGER advantage to your client paying up their no lapse UL policy quickly. The key to the no lapse guarantee is that your client CANNOT miss a premium – or the guarantee is gone. In the case of our 45 year old, they could pay faithfully for 40 years, and then at age 85, for whatever reason, accidentally or intentionally miss the premium. The policy guarantee could be gone for good and all those years of premium payments could be put at risk. Not a pretty picture.
By going to the quick pay alternative, this problem is eliminated. In addition, the client gets to bank their extra money into a product that will give them a tax sheltered use of that money, and then delivery the tax sheltered benefit to their estate, TAX FREE, when they die.
Frankly, if this is explained properly to a wealthy client who is using life insurance to conserve their estate, this is a no-brainer.
I have had more than one testimony from subscribers who have told me that the Interest Adjusted Cost Analysis presentation led to them making the largest permanent sale of their career. And with limited pay no lapse options available, I can’t see why this shouldn’t help no lapse limited pay products be VERY popular to clients who need lifetime coverage.
Apart from the Analysis tutorials, if you have an area where you would like to see us do a tutorial, drop Bob Barney a note at:
Having reviewed where we are heading over the next few years, and the changes that we would like to be able to make in the future, we have decided to stop and do a much more extensive overhaul than simply changing our data entry software. We have determine that we would also like to implement a better data storage structure that will make maintenance easier on both a data entry basis, as well as a programming basis.
To achieve our goals in this regard, we will be spending a fair bit of time reviewing our new data storage needs, and then building conversion software that will convert our existing data files into our new data file structure. Once we have done that, we will then introducing new comparison software that does exactly what it does now, but which derives its results from the new data structure. In other words, you will end up with a new program that does exactly what the old program did/does.
Once this first stage is completed, we will have both old program and old data, with new program and new data. Moving forward we will use the old data entry systems to maintain the old version, then converting old data to the new data forms for general distribution.
The next stage is to create the new data entry systems that talk to the new data format. Once we are satisfied that the new data entry system give us everything that we have now, we will then switch to the new data structure alone. We will only do this once we have thoroughly tested the new software to ensure it gives us no problems in maintaining the date. This may take several months. As far as the part you use, by the time we make that transition, you will have been using the new software for several months.
The point of sharing this with you is that the process will be quite lengthy and so from this fall throughout most of 2009, you will not be seeing many changes and improvements to the software that you use, even though the underlying foundation will be going through a massive change. Once the foundation has been reconstructed, and all the tools to work on the foundation have been built, the program will be in a position to make some substantial moves forward.
Think of it as transplant surgery, where you need to keep the patient alive and well, at the same time as you are swapping out the organs.
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