Pacific Life Policy Performed 22%

[scagnt83]

Pac can reduce Caps/Participation/etc. at will and that throws your numbers out the window.

Pac can increase expenses to the max at will. That also throws your numbers out the window.

Have you researched Pacs Renewal history?

Do you know the big difference in how Pac assesses Caps and Penn assesses Caps?

 

[ejbarraza]

Pac can reduce Caps/Participation/etc. at will and that throws your numbers out the window.

Pac can increase expenses to the max at will. That also throws your numbers out the window.

Have you researched Pacs Renewal history?

Do you know the big difference in how Pac assesses Caps and Penn assesses Caps?

They have been reducing costs so you are saying that they are going to do something completely antithetical to how they have been running their business for decades. The uncapped option is guaranteed at 105% for life and the leverage is priced in for life. All of their index options have a minimum 100% participation. Also, you know that if charges are raised to the max you can always pack your bags and take your business elsewhere via 1035 exchange. This mitigates that possibility from actually coming to fruition since they won't get the money they are trying to "price gouge" out of policyholders. Once again there is no reason why you can't own Pacific Life, Nationwide, PennMutual, F&G, or any combination therein.

 

[Tahoe Ray]

They have been reducing costs so you are saying that they are going to do something completely antithetical to how they have been running their business for decades. The uncapped option is guaranteed at 105% for life and the leverage is priced in for life. All of their index options have a minimum 100% participation. Also, you know that if charges are raised to the max you can always pack your bags and take your business elsewhere via 1035 exchange. This mitigates that possibility from actually coming to fruition since they won't get the money they are trying to "price gouge" out of policyholders. Once again there is no reason why you can't own Pacific Life, Nationwide, PennMutual, F&G, or any combination therein.

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I love how you keep posting carrier developed pieces.

I was on the sales side for a major carrier (for over 10 years) and on the "action team" which was when marketing brought us in to spin the best way to sell our products and company to our customers.

The index can change (you are not actually buying an index). The carrier can drop the index, forcing you to a new one.

You can't 1035 if the carrier screws you and you're simultaneously uninsurable. You could always move it to an FIA, but you're largely stuck.

I'm sure you feel that you'll never be uninsurable but it can happen in a heartbeat.

I review policies/situations like this every day.

And one last time, most of us on this sub-forum love IUL. It's more about the positioning than being a magic bullet.

 

[ejbarraza]

I love how you keep posting carrier developed pieces.

I was on the sales side for a major carrier (for over 10 years) and on the "action team" which was when marketing brought us in to spin the best way to sell our products and company to our customers.

The index can change (you are not actually buying an index). The carrier can drop the index, forcing you to a new one.

You can't 1035 if the carrier screws you and you're simultaneously uninsurable. You could always move it to an FIA, but you're largely stuck.

I'm sure you feel that you'll never be uninsurable but it can happen in a heartbeat.

I review policies/situations like this every day.

And one last time, most of us on this sub-forum love IUL. It's more about the positioning than being a magic bullet.

I know that you guys know what I'm saying so why so skeptical of the OP's 22% return? The 2-year index is capped at 19% so multiplying your returns can easily clear 45%. Why is that controversial? The data I am producing is from policies Doug Andrew's son originated. Actual in-force policies netting over 150% in one year. I am not saying that you should ever illustrate anything close to 10% or even 8%. But if you are continually reinvesting you are bound to catch the bottom just like a broken clock is right twice a day. The reason I am diversifying amongst multiple contracts early in life is to mitigate my risk of losing insurability.

 

[Tahoe Ray]

I know that you guys know what I'm saying so why so skeptical of the OP's 22% return? The 2-year index is capped at 19% so multiplying your returns can easily clear 45%. Why is that controversial. The data I am producing is from policies Doug Andrew's son originated. Actual in-force policies netting over 150% in one year. I am not saying that you should ever illustrate anything close to 10% or even 8%. But if you are continually reinvesting you are bound to catch the bottom just like a broken clock is right twice a day. The reason I am diversifying amongst multiple contracts early in life is to mitigate my risk of losing insurability.

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I'll summarize.

IUL is expensive.

Pac Life is expensive.

Expensive stuff can still be awesome.

Expensive financial products are typically not awesome over multiple decades vs less expensive products. Multiple decades eliminates almost all returns sequencing so it's a pretty even playing field.

You also can make a lot of money in expensive products. You would just have had more money in less expensive products.

You can blend the expensive with the inexpensive to reduce overall costs.

Nothing you're saying is inherently wrong, there are just too many variables to make bold statements.

If the carriers could consistently and reliably make the returns you describe, they would do so in their general accounts. They can't. That's why they sell the product to you.

IUL (or any cash value life insurance) has huge advantages. But it mainly comes down to taxes.

Performance is secondary. So if performance is what you really want, an insurance product is inefficient.

It is a great complement to a heavy dose of equities and other savings.

P.S. I also don't mean to sound condescending, you really sound like you understand what you own. I just think your expectations are unrealistic over a very long time frame.

 

[ejbarraza]

I'll summarize.

IUL is expensive.

Pac Life is expensive.

Expensive stuff can still be awesome.

Expensive financial products are typically not awesome over multiple decades vs less expensive products. Multiple decades eliminates almost all returns sequencing so it's a pretty even playing field.

You also can make a lot of money in expensive products. You would just have had more money in less expensive products.

You can blend the expensive with the inexpensive to reduce overall costs.

Nothing you're saying is inherently wrong, there are just too many variables to make bold statements.

If the carriers could consistently and reliably make the returns you describe, they would do so in their general accounts. They can't. That's why they sell the product to you.

IUL (or any cash value life insurance) has huge advantages. But it mainly comes down to taxes.

Performance is secondary. So if performance is what you really want, an insurance product is inefficient.

It is a great complement to a heavy dose of equities and other savings.

P.S. I also don't mean to sound condescending, you really sound like you understand what you own. I just think your expectations are unrealistic over a very long time frame.

I guess what I want is not absolute performance, but tax-free leverage that cannot be liquidated by stock market volatility. That leverage can then be redeployed into higher risk/reward investments. Being a California resident taxation and asset protection are also very important considerations. I would be satisfied with a 6% average rate of return and would consider anything above 8% to be a pleasant surprise.

 

[Lloyds of Lubbock]

You got licensed in insurance, in California - just to sell yourself this policy?
It has been a long time since I took my licensing exam but I know in NY only a certain percentage of your business can come from your own purchases on you and your family.
This does not apply to other states?
I am no expert on IUL so please correct me if I am wrong.
The company purchases options which either get exercised or not?
There is a cost of the options, so if you have a multiplier more options are being purchased which magnifies the cost in a down year, a good year kind of hides them.
Also in a down year, after the minimum interest rate is applied, then COI and admin costs are taken out your cash value could go down slightly?
What if the options are not available to be purchased?
A few years ago institutions were limiting their sale of options.
Analyzing your return on a good year makes you feel good but projecting that as to what you will get each year is a bit of a stretch.
I am glad you are happy with your policy.
Someone whose index matured in the last two months may not be as happy as you.

 

[ejbarraza]

You got licensed in insurance, in California - just to sell yourself this policy?
It has been a long time since I took my licensing exam but I know in NY only a certain percentage of your business can come from your own purchases on you and your family.
This does not apply to other states?
I am no expert on IUL so please correct me if I am wrong.
The company purchases options which either get exercised or not?
There is a cost of the options, so if you have a multiplier more options are being purchased which magnifies the cost in a down year, a good year kind of hides them.
Also in a down year, after the minimum interest rate is applied, then COI and admin costs are taken out your cash value could go down slightly?
What if the options are not available to be purchased?
A few years ago institutions were limiting their sale of options.
Analyzing your return on a good year makes you feel good but projecting that as to what you will get each year is a bit of a stretch.
I am glad you are happy with your policy.
Someone whose index matured in the last two months may not be as happy as you.

I am simply saying that since 2008 a very conservative 1-year capped index option plus a little bit allocated to the 5-year option did generate a CAGR of nearly 11%. That coupled with the fact that over the past 83 years, the S&P 500 has closed the year with positive total returns 60 times. Of those 60 positive years, the market has returned better than 12% in 44 of them. The bad years would be zero or worst-case scenario -7.5% which means the stock market tanked for 12 consecutive months such that every option expired worthless regardless of whether you allocated to the 1, 2, or 5-year index options. That means 36 options expired worthless which seems extremely unlikely. Also, the crediting methodology for the 5-year index is very favorable to mitigate receiving zero dividends. Nevertheless, when the stock market tanks a rebound rally tends to follow such that you can get 150-270% which is more than the capped losses in an extremely unlikely protracted downturn of multiple years. In the past 83 years, there have only been 3 instances where the S&P had 3 consecutive losing years. Never has it had 4 consecutive losing years, if it does we have much bigger problems than our life insurance policy. Obviously, this is a lifetime investment vehicle, we can't judge it based on 2 months of performance.

 

[marindependent]

I am still trying to work out the math of Getting and Keeping a Life Insurance license in California for the sole purpose of selling one policy - to yourself.
What is that about $188 a year, plus E&O, plus a GL policy. [Not considering CE]
That has got to be about a $1,000 a year or so? But for 14 years.
Admittely - you have received commissions.

I am not asking, and I do not want to know the exact details, but this is fascinating to me..

Good Luck.

 

[Allen Trent]

I am simply saying that since 2008 a very conservative 1-year capped index option plus a little bit allocated to the 5-year option did generate a CAGR of nearly 11%. That coupled with the fact that over the past 83 years, the S&P 500 has closed the year with positive total returns 60 times. Of those 60 positive years, the market has returned better than 12% in 44 of them. The bad years would be zero or worst-case scenario -7.5% which means the stock market tanked for 12 consecutive months such that every option expired worthless regardless of whether you allocated to the 1, 2, or 5-year index options. That seems extremely unlikely. Also, the crediting methodology for the 5-year index is very favorable to mitigate receiving zero dividends. Nevertheless, when the stock market tanks a rebound rally tends to follow such that you can get 150-270% which is more than the capped losses in an extremely unlikely protracted downturn of multiple years. In the past 83 years, there have only been 3 instances where the S&P had 3 consecutive losing years. Never has it had 4 consecutive losing years, if it does we have much bigger problems than our life insurance policy. Obviously, this is a lifetime investment vehicle, we can't judge it based on 2 months of performance.
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you are 100% correct, as long:
1. Carrier continues to have solid returns on their general accounts to buy options/hedges needed. Lower returns will impact caps & par rates or removal of indexes offered

2. Options & hedges continue to be readily available & offered by investment banks. (regulatory exposure or change in taxation on these instruments could modify current efficiency)

3. the cost of options & hedges dont change (increased govt oversight of investment banks or transaction taxes/fees would impact option costs.)

4. Carrier doesnt raise their internal fees nor cost of insurance (google how many UL carriers from the 80s have raised internal costs because they have not been making the projected returns they had planned when they priced the products, so they raised or tried to raise COI)

5. carrier continues to be an insurance carrier. (about half dozen to dozen large ones have quit selling life insurance in the last decade.............research how those policies have been serviced & maintained by the carriers or hedge funds that have bought some of them- Hartford, Met Life, Jackson National, Allstate, Principal, )

6. the carrier didnt get into weird derivative investments chasing illiquid high returns in a small or large segment of their portfolio or subsidiary (AIG, etc)

7. the carrier doesnt sell off to a Canadian teachers fund that decides to no longer offer rich dividends or great returns on an old block of business they may want off the books (ohio national)

8. Carrier isnt in financial trouble in 5-20 years & doesnt process loans or withdrawals as they have solvency issues ( look in to Colorado Bankers Life & others like it)

9. Some agent or CSR in a headquarters is there to help you in 50 -70 years micromanage the $5M loan balance you have on the policy so it doesnt implode & cause tax issues for lapsin

10. the IRS doesnt rule the overloan protection needed for this concept to work is not legal as a way to defer taxable gains

Very unlikely all 10 of these (or other scenarios) will all happen, but how will the plan look if even 1 of them does.

Use it in your supplemental planning, but I wouldnt plan on it playing out exactly as illustrated. I have been in the business 25 years & I have not seen a single policy written play out as illustrated over that time frame. All have had dividends lowered or interest lower or internal fees increased..........but maybe this time it will

So, yes, I think IUL can be a great product when max funded for decades & used to possibly supplement a well rounded portfolio of many products, but your current passion for it is forgetting to look at just a few of the possible things that can & will happen as decades go by. if this is for you only, great. But be careful letting your excitement, risk tolerance & financial situation spill over onto others that may not have your knowledge, money or ability to stick to a 70-100 year plan