Insurance Investing and the $100,000.00 Challenge - The Outcome

MoneyWatch TalkbackShare your ideas and expertise on this topic

Subscribe to this discussion via Email or RSS

•  
  1

  Allan Roth

  10/12/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  The outcome is now posted:
  
  http://moneywatch.bnet.com/investing/blog/irrational-investor/insurance-investing-and-the-10000000-challenge-the-outcome/654/
  

•  
  2

  Wealth Builder

  10/12/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Mr. Roth,
  
  Thank you for the update. You've provided a GREAT public service for the investing public.

•  
  3

  r_buckner

  10/12/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Mr. Roth,
  Thank you for all of the work that you have put into this subject. I recently attended a "seminar" that touted this strategy, as a way to achieve "safety, liquidity and rate of return", along with tax-free "withdrawals". And, it recommeded that it was unwise to leave your untapped equity in your home and wise to take it out and put it into an IUL. This strategy certainly makes the insurance agent and the mortgage broker richer!
  I figured that the devil was in the details, but had not seen an actual policy illustration, so thanks again for crunching the numbers and facts. The promotion and marketing of these policies and strategies are totally misleading, and downright financially dangerous.

•  
  4

  Allan Roth

  10/12/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  WealthBuilder and R_buckner,
  
  I appreciate your comments. I'm curious why I haven't heard from Mr. Anderson or other insurance producers.

•  
  5

  Brett A

  10/12/09 | Report as spam

  Challenger Response

  The reason why is because you had a week to think about and write your reply and refused to send me a copy in advance, so when I complete addressing each of your lies, ommissions and distorted statements it will be posted. In the meantime I'm sure the other advisors are allowing me the courtesy of waiting until I've had the time to do so.
  
  Brett Anderson

•  
  6

  Invesave

  10/12/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Just like r_buckner, a few friends and I also went to a seminar recently and heard about the same types of sales pitch from a team of investment advisors. All of us are over 65 and relatively conservative with our money. I think the recent bear market has provided fuels to a lot of snake oil salesmen. None of us were tricked into buying the snake oil, but we were all amazed at how smooth and articulate the sales team was.
  
  Allan, please keep fighting for us, the vulnerable small investors.

•  
  7

  Allan Roth

  10/12/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Thanks Brett.
  
  Don't you think I'd like to put my family's nest egg in a product that would give me a "NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk?"
  
  I always want to lose these challenges.
  
  Allan
  
  

•  
  8

  Allan Roth

  10/12/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Thanks Invesave
  
  No matter what the market does, the financial industry will always think of new ways to seperate us from our money.

•  
  9

  Brett A

  10/12/09 | Report as spam

  Challenger Reply

  Hey, I hope nobody is surprised at this decision! I knew this is what his answer would be when I first took on his Challenge. But hopefully in the end a lot more of you are now educated about the fact that there is a place where you can save your money without downside market risk. What Allan Roth says today is one of the biggest collections of lies by omission, distortion and taking things out of context that I have ever read. But I knew he had to do this - that is why when he said I had no credibility because I could not instantly provide him the source for a fact about long term care - that I said I would not when he again demanded that I do so, because I did not want to deprive him of an excuse for weaseling out on his Challenge.
  
  What was his actual Challenge? ?I would love to put my own nest egg in a vehicle that gives market returns with limited downside risk. For many years, I have been challenging producers to show me a product that can do just that. If successful, I promise to buy the product.?
  
  I replied: ?How about a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk.?
  
  His response: ?If you show me how to get an 8% annual return, I buy it from you and write about how you won the challenge.?
  
  I said sure, then he called me and said it had to make this return by year 10. I said it can do that, but to do so the gains will be taxable. I sent him the information that showed Indexed Life would do this (more later).
  
  So he called me up again to say it had to have a guaranteed return of 8% in year 10. There is nothing that will do that, but this shows how he kept changing the challenge as I kept meeting his new requirements, until finally there is nothing that exists that can possibly do so.
  
  So what is Indexed Life and how does it work? It is a way that credits only the (annual) gains earned by an index to the cash value of a life insurance policy. You are guaranteed the minimum you can earn is 0%, which is a way of saying your account cannot go down in value when the index/market does. Your principal and gains are guaranteed they cannot do down in value because of what the market does. But there are still policy expenses, just as there are with any investment.
  
  There are several ways to design a policy. The first step is to determine if you want to be able to access the gains Tax Free. If you do, then (short answer) Congress revised the law so that premiums for most have to be paid in over 4-5 of the first 7 years. The next step is to design a policy with Increasing vs. Level insurance. This way you reduce the insurance amount and so costs to the minimum allowed by law. When you combine these steps, I told Roth that we would put in $20,000 each yr for 5 years. Doing this the net IRR would be 5.53% yr 10; 7.44% yr 20 and 8.01% year 30. (Dalbar in their 2009 study determined that the actual net IRR for the typical mutual fund investor the past 20 years, is 1.87%). This is for current policy crediting parameters which are less than the long term average. If he wanted to put the $100,000 in all at once, he could, but the policy becomes a Modified Endowment Contract (or MEC). By doing this the IRR of year 10 is 7.49% NET all fees; in year 15 it is 7.98%. Again both of these are using current rates.
  
  At this link you can see the IUL proposal Roth has, including all the annual policy expenses and IRR pages:
  http://www.keepandshare.com/doc/view.php?id=1452589&da=y . At this link is the illustration of the 5 pay, tax free income method. http://www.keepandshare.com/doc/view.php?id=1452673&da=y . You can see $20,000 per year Tax Free coming out starting yr 14. On page 18 you can see the IRR of the plan using (only) current crediting (low) rates and only the S&P Index. You will note that based on long term historical averages the account ONLY goes UP in value. There are 2 different ways to borrow gains from a policy -- Roth and I did not discuss this because he never expressed an interest to do so. The IRR is NET all the loans and fees.
  
  I asked Roth several times if he preferred the plan with the better long term return with Tax Free gains, or the method with the higher 10 year IRR. He would never reply except by telling me to decide. I can?t decide what is personally best for him without personal information on his long term needs, but the Challenge he kept revising was for a 10 year IRR of 8%, which the MEC can very likely do.
  
  First, how does the Indexed Policy work? With Minnesota Life it currently offers the highest crediting cap in the industry - there are 3 index options and you can mix and match them however you want each year:
  1) S&P Index: 16% Cap and 100% Participation Rate
  2) S&P Index: 14% Cap and 140% Participation Rate (so if the index only earn 7% your account is credited with 9.8%).
  3) Dow Global (exUS): 16% cap and 100% Participation Rate.
  
  The Index option I discussed with Roth was always #2, but for some reason he later he insisted I was lying and sending him analysis for the 16% cap. In the end the long term difference in gains will likely be very small, but it shows what I had to contend with.
  
  He next makes an outright LIE when he says the policy illustration rate I?m using (9.21%) is the high value of a bull market. He should be ashamed of himself for making this lie, as I provided him with substantial analysis to prove just the opposite. First, I do no analyze the market based on only Dec. 31st values. Those do not reflect what the Index/Market does over the course of an entire year - and June can be very different from Dec. I use a program that computes the return of the index based on the quarterly-annual gains for the past 65 years. So I look at March 31-March 31, June 30-June 30, etc., then avg. the 4 values for an annual average.
  
  Next, I do not base my analysis on a single period of time. I look at the 5, 10, 20 and 30 year running gains for the past several decades to determine what a realistic average would be. For this Challenge all that mattered to Roth was the 10 year returns. For the IUL using current Caps for the #2 option the history is:
  
  Past 10 year periods:
  Past 5 / 8.79% (less fees)
  Past 10 / 9.27%
  Past 15 / 9.55%
  Past 20 / 9.56%
  Past 25 / 9.32%
  
  Running the illustration for him at 9.2% is actually conservative based on the past 35 years.
  
  This is what it was for the actual S&P Index:
  Past 5 / 6.54% (less fees + dividends)
  Past 10 / 8.29%
  Past 15 / 9.65%
  Past 20 / 10.29%
  Past 25 / 10.20%
  
  But what about these ACTUAL index rates? Should I base projections of the actual S&P 500 Index solely on the past 10 year return (1999-2008) of 0.84%? Of course not. The market has been experiencing historical lows; and interest rates are at historical lows too.
  
  How does IUL work? Instead of crediting you with your share of the interest it earns, it uses them instead to buy options on the index. If the index goes up you get all the gains the options could buy. If the market goes down all you lost was the forgone interest used to buy the options. If interest rates go up, the co. can buy more options; down it buys less. The caps are determined buy how many the co. could buy. A few months ago interest rates went down again, so the cap was lowered from 17% to 16%. The co. did not as Roth claims, make a penny from doing this - it did not provide the co. with any insurance perse at all. It is an outright LIE that I told him the company has never lowered its caps. If you want 100% of the index gain you can invest in the actual index -- but then you also get 100% of the losses!
  
  If I?m not going to use the current gains of the index as a ruler for long term projections of it, should I have to do so for the IUL? I say not. Interest rates will go back up, the co. will be able to buy more options for your participation in future gains. If I raise the cap just 1% to 15% the 10 year IRR will increase to 8.03%. Knowledgeable analysts I?ve spoken to expect a more realistic long term cap will be 16% -- this has an 8.81% NET IRR.
  
  None of these potential gains has factored into them the higher return of the past several years of the Global Index. If I make it just 1/3rd of the account mix, the possible 10 year IRR goes to 9.32%. If we assume it can increase the overall gain by 1% point, the potential gain is 9.83%. So there is plenty of leeway based on historical long term gains of the indexes, to potentially net 8% with the IUL! This MORE than meets the original, initial challenge of a way to earn market returns (with 8% net) with limited downside risk.
  
  What about the insurance need requirement? For starters, there was NO such need requirement for the Challenge - which only required a way to earn market returns with limited risk. So to say that this was not met is just another of several excuses Roth is using to weasel out of this challenge. But I expected no less. But what about a valid insurance need? There are very, very few of us who do not have an insurance need either for children, spouse, parents - or most certainly for ourselves! This is what the actuary at Minnesota Life said to him that was also twisted, distorted and taken out of context by Roth to serve his own purposes and the answer he wanted / had to give you so as not to have to fork over $100,000 for this challenge.
  
  I could write many pages on this need (I did with my book Last Chance Retirement), and I guess Roth refused to read the article I posted last week to the 401k article in TIME titled, Why It is Time to Retire the 401k http://www.time.com/time/business/article/0,8599,1929119,00.html . It states: ?The ugly truth, though, is that the 401(k) is a lousy idea, a financial flop, a rotten repository for our retirement reserves ? Remember, the biggest factor in whether the 401(k) works as designed has to do with when you retire. If the market rises that year, you're fine. If you retired last year, you're toast. And the chances of your becoming a victim of this huge flaw in the 401(k) plan are pretty high. The market fell in four of the nine years since the beginning of the decade. That means anyone retiring this decade had a nearly 50% chance of leaving work in a down market. In fact, your chances of retiring into a down market are even greater than that: forced retirements spike in recessions just as the stock market is tanking.
  
  The solution: a new type of insurance. Retirement savings, it turns out, are exactly the type of asset we need insurance for. We need insurance to protect against risks we can't predict (when the market collapses) and can't afford to recover from on our own.?
  
  So, the absolute minimum insurance need is to yourself, to protect your life savings from crashing when the market does - which happens on average every 6 years. This in part is why the net gain in an IUL is equal to the market long term - because you KEEP all your gains. When the market goes up again you are NOT recovering, but building gains on TOP of your prior gains! Roth just does NOT get that (but he can?t or he would lose)! Insurable interest - what could be a more important interest than making sure your retirement savings do not disappear - especially when you need to depend on them the most?! IUL is also the BEST College Savings plan there is - accumulating savings without downside market risk AND life insurance if the parent dies prematurely to guarantee funding of college for ALL of their children! I could go on and on.
  
  What about that minimum return guaranty that he claims is: ?nada - in year 26 I could lose my entire amount?. This is another response of ? truths and he knows it. Again, his concern and challenge was just year 10, but here is the WHOLE truth. The insurance companies are required by law to run an illustration based on the account minimum (yes, there is a minimum guarantee of 3% unlike other types of market investments that have none except the fact you can lose all your money) and the guaranteed maximum the co. can increase the internal costs to. They cannot run the illustration based on current costs so it is already wrong in Yr. 1 of the illustration. It is true some companies have increased costs after a policy was issued. But Minnesota (in its 128 year history) and the other companies that issue IUL never have - in fact it is one of a few companies to actual decrease costs in an existing policy.
  
  If you run this illustration with the very likely current costs, the 10 year minimum guaranteed value of the $100,000 is $111,125. It NEVER goes to zero - it always goes up in value. Roth was told this and has the chart, but he lied to you by never telling you this part and instead saying the guaranteed value in the future is zero.
  
  And what about those expenses? Indexed Life takes out the bulk of the fees in the first few years - the exact reverse of mutual funds - and this is why it is slow getting started. As you can see what matters isn?t how you start but how you finish. Even so, Roth can still earn an 8% net by year 10. He asked me in an email why I did not tell him about the dramatically increasing insurance cost in the later years. That is disingenuous and another lie in that these are stated on the charts I gave him, including on the company illustrations he was provided with. I told him if he was going to talk about expenses to also say that the TOTAL expense ratio in year 30 is 0.17% (in yr 11: 0.04%; yr 20: 0.016%). Can you show me another investment with total expense ratios this LOW?! According to Morningstar and Roths own company CBS Money Watch, their recent studies determined the average mutual fund expenses is a minimum of 3.03% per year. Which do you prefer?
  
  Roth says there are things I did not tell him. I find that amusing because it is impossible to tell anyone everything about something in just a few minutes or pages. This is why I sent him a copy of my 330 page book about it, which has a Table of Contents and Index, and he could always email or call me to ask a question (which he did several times). By the way, thank you Roth, there have been many purchases by your regular readers!
  
  Also, contrary to what some have replied, let me note that the strategy proposed to Roth had nothing to do with withdrawing equity from real estate. That is a non-issue in this proposal.
  
  Now what about that LTC statement of mine he says is ? ?ridiculous, not sourced statements such as the odds of a couple age 65 eventually needing to pay for one typical Nursing Home stay for 2 1/2 years, is 100%.? I did not have that reference immediately at my fingertips - he acts as if I?m some sort of computer at his beck and call all day without other things I need to be doing - so I sent him a WSJ article until I could search more. It said: ?More than 50% will need some form of LTC ? at some point in their lives?.
  
  This is what Met Life and the U.S. Government report:
  
  1) About 70% of individuals over age 65 will require at least some type of long-term care services during their lifetime. Over 40% will need care in a nursing home for some period of time.
  U.S. Department of Health and Human Services, 3/2008 http://www.longtermcare.gov/LTC/Main_Site/Understanding_Long_Term_Care/Basics/Basics.aspx
  
  2) On average, someone age 65 today will need some long-term care services for 3 years. While about one-third of today's 65-year-olds may never need long-term care services, 20 percent of them will need care for more than five years.
  U.S. Department of Health and Human Services, 3/2008, http://www.longtermcare.gov/LTC/Main_Site/Understanding_Long_Term_Care/Basics/Basics.aspx
  
  3) Studies indicate that the average nursing home stay is 2.4 years. (Source: 2003 MetLife Market Survey).
  
  So, the likelihood is 2/3rds that someone age 65 will need LTC. Some a few weeks, some a few years - many sources will tell you the average is 2.4 years for Nursing Home Care. If you also include Home Care the average total time of need is about 8 years.. Or look at it this way - when you flip a coin there is a 50% chance either side will come up - and we don?t know which - but there is a 100% chance one of the sides will be on top. With couples there are 4 possible scenarios, and you either need LTC or you don?t. Here the odds are greater at 70% each, but you either have a need or not. Here is a simple way of looking at the only 4 possible outcomes:
  
  1) Each spouse needs LTC: 100% + 100% = 200%.
  2) Husband only needs it: 100% + 0%
  3) Wife only needs it: 0% + 100%
  4) Neither need it: 0% + 0%.
  
  If you add up the columns: 400% / 4 couple needs = 100% chance of 1 need per couple on average.
  
  The typical response I have noted in the past week is Roth does not respond to the positive merits of any of the information I have posted. He completely ignores it and - like a magician - tries to detract your attention away from the real issue to something completely irrelevant. Such as whether or not the well known indexers would approve of my quoting them instead of whether or not index investing in a format without downside market risk has merit and is worth considering. Whereas I have addressed each of his claims directly and with the citation of links directly to the source.
  
  Summary:
  
  1) Depending on your want, an 8% NET IRR is possible short term and long term just using the low cap rates today.
  
  2) In addition, if Roth dies next month, his beneficiary with the IUL will get $340,000 or $380,000 in year 1 - nothing else can do this.
  
  3) If Roth lives whatever the market goes, he keeps ALL those gains earned by the IUL. In retirement (and every year) he will have the peace of mind of knowing in the morning the account will be worth the same as the day before.
  
  With IUL you get guarantees for lifetime minimum, and each year the maximum index gains you are guaranteed will be locked into your account IF the actual index has those gains (or even less, i.e. earn 140%) - something that NO other investment can offer. For Roth to reject the entire concept because I omitted facts (not true) or could not answer his LTC question is like the Wizard of Oz hiding behind the curtain - refusing to acknowledge and state the truth because it does not fit the facts as he wants you to believe them. If I were you I would ask Roth if he will personally guarantee in writing to make up the difference for any of these. That:
  
  1) Your index gains in the open market over a lifetime of saving will never go down in value with the market in any year and in retirement.
  
  2) That you will be able to withdraw your earnings Tax Free.
  
  3) That your income and capital gains increased tax rate risk the rest of your life is zero (because you already paid and are done with them with IUL).
  
  4) That if you die next month or next year or in any pre-retirement year, that he will fund personally the remainder of your beneficiaries retirement savings and/or college fund for all your children.
  
  5) That your investment / Qualified Plan gain withdrawals will NOT increase the tax on your Social Security, which could also increase your Medicare premiums.
  
  All of these are just a bonus - they were not part of the Challenge and in a sense are irrelevant. The Challenge was to show him how he could (not would or guaranteed) - but could earn 8% net with limited downside risk. Indexed Life can do that. How fast it does is entirely his choice. He added the requirement of 10 years - it can do that.
  
  For him to renege on the Challenge now is dishonest, but hey, it is what it is. Like I said, NO surprise. But who is really the snake oil salesman?! Your responsibility of how you invest your savings is to yourself and your family. There is a safe way to invest and earn and KEEP market type gains -- or Roths way where he stated in a response in his prior column that he was against index investing with no risk! Unbelievable!
  
  If you think he reneged on his Challenge, then to all the advisors out there I just request that you reply in a civil fashion with the actual experiences of yourself and your clients. If you want to let his editors know what you think you can email Eric Schurenberg and Jill Schlesinger here: http://moneywatch.bnet.com/about/?tag=about-mw;meet-mw
  
  I achieved my only true goal which was to make more of you aware of Indexed Life and how it could benefit you. The rest is up to you!
  
  Brett Anderson
  

•  
  10

  Allan Roth

  10/12/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Brett,
  
  Please answer the following:
  
  1) Did you claim 140% of "market return" when it only returned the index, stripped of dividends?
  
  2) Was the guaranteed value in year 26 of the illustration zero? How much is my insurance cost in that year?
  
  3) Are you still recommending the product Minnesota Life says I have better options to invest without the insurance costs?
  
  4) As to credibility, do you continue to believe that no couple age 65 or older has any chance of dying without one first going to a nursing home?
  
  I know you don't like my findings but stick to the facts, please.

•  
  11

  Brett A

  10/12/09 | Report as spam

  Challenger Reply - The Facts

  Do you see what I have had to contend with?
  
  1) Semantics - not merit. Somewhere in a conversation I referred to the Index gains as a % of market returns instead a % of the index. Instead of discussing the merits of the product he would rather detour you into not examining it based on its merits but the semantics of the use of a term. The fact is it will credit 140% of the S&P index gain up to a cap of 14%.
  
  2) Using the MAXIMUM possible expenses the policy would go broke in year 26. Who cares? You are cashing out in year 10 because your thinking is limited to only short term and that was the Challenge. And as I keep telling you (and in my earlier reply), the company in 128 years has NEVER increased its expenses after issue so the most likely costs are the current ones, which means the policy in year 26 is worth about $150,000 and going up each year. At some point you need to focus on the scenario that has a 99.99% of being the actual.
  
  3) This is an outright LIE - this is not the honest contetxt of what the Minnesota actuary said to you. Show me an investment with less costs (equal guarantees and potential gains) long term and so a better option. It doesn?t exist. Who cares if there is an insurance need or not (but there almost always is) if the bottom line $ gains will outperform just about anything else - and without the risk.
  
  4) Roth says he is a math geek, but give me a break. Option #4 in my prior answer where there is a zero LTC need can be either because they have no need when alive, or they are both dead and so never have a need. The result is the same: every couple age 65 on average will have to pay for 1 average Nursing Home stay of 2.4 years. The average age of need is 82. About ? of those alive at 65 will be alive at 80. The incidence of Alzheimers after 85 is almost 50% http://www.google.com/hostednews/ap/article/ALeqM5j-w-6Cr0WdQy9AddjtDPvVZqxA8AD9ARFL9O0 .That care need on average is about 7 years.
  
  But again, this is just DEFLECTION from the REAL issue at hand because he cannot address directly the MERITS of Indexed Life in any way so as to show that the potential gains with IUL as they pertain to the Challenge are not valid. He says I should stick to the facts, but all of my points are made with historical index facts, company projections and links to actual sources. NONE of his are.
  
  It is your retirement, your savings. What I did NOT read was his agreeing to guaranty with his money that your savings will perform as well as they would in what he prefers vs. an IUL plan.
  
  There is an old saying, Put Up or Shut Up. It is time for Roth to do one or the other.

•  
  12

  Brett A

  10/12/09 | Report as spam

  Minimum Gains PS

  Roth is making a big deal out of the minimum guaranty - so lets look at the actual 10 year historical gains of the actual S&P Index and the hypothetical IUL gains. As you can see on the chart, the lowest 10 year IRR for the current cap of 14% (and 140% participation rate) is 1978 and 5.67% when the actual index 10 year IRR was 0.11%. The lowest 10 year gain for the S&P was -0.31%. You can see the running average with the IUL - pick your period. The average for almost every 5 year period is for more that the rate used to run the IUL illustrations - some are for as much as 1.5% (10.7% vs. 9.2%) more than I ran it at to get 7.49% net. Based on these actual historical returns of the S&P the liklihood of the IUL have an 8% NET IRR by yr 10 is probably over 80%, and the other 20% is in the 7% range.
  
  http://www.keepandshare.com/doc/view.php?id=1453133&da=y
  
  But the hypothetical minimum of 3% (1/2 the lowest actual ever 10 year IRR) with maximum costs (never charged in 128 years) is $0 in year 26, so I guess that is THE reason that matters as to why you should not consider an IUL for the most important savings decision of your life.
  
  Brett Anderson

•  
  13

  Allan Roth

  10/12/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Brett,
  
  The length of your comments is long but the discussion of facts is short. I will note a few parts where you did address facts:
  
  1) market return vs. index return - you believe that stripping out half the returns is semantics. I disagree.
  
  2) "Who cares about maximum expenses?" I think the policy holders you have sold these products to should care in the context of your guarantee.
  
  3) "this is not the honest context of what the Minnesota actuary said to you." As you know, you weren't part of the conversations nor copied on all of the emails. You are again making up facts.
  
  4) "The odds of a couple age 65 eventually needing to pay for one typical Nursing Home stay for 2 1/2 years, is 100%!? You are claiming no couples will die without at least one first going through a nursing home. This is downright silly to try to defend.
  
  5) "Show me an investment with less costs (equal guarantees and potential gains) long term and so a better option." If you read the column, you'll note how I used a similar strategy to that used by Minnesota Life, without the costs of insurance, commissions, overhead, profit, and taxes. It's economically superior as it intermediates both you and the insurance company.
  
  I think we can agree to disagree in that Minnesota Life and I think both an insurable need and disclosure of costs should have been mentioned up front by you. I also think you should not have omitted facts like Minnesota life having the unilateral right to lower the caps to as low as 3%.
  
  I would buy this product in a minute, if it worked for me.

•  
  14

  Allan Roth

  10/12/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  If anyone (other than insurance producers) doesn't get this - take a step back. Minnesota life has their portfolio 87% in fixed income and 13% in equities and the like. How could it pay market returns when most if it's portfolio is in fixed income? It must first pay a commission, cover overhead and taxes, and then make at least some profit (it's a mutual). What's left is what the policy holder will get.

•  
  15

  Brett A

  10/12/09 | Report as spam

  Deception Again

  Roth keeps proving to me over and over that he cannot read or refused to understand. As stated above (and several times) all the companies take their share of the interest earned off the top and then take the interest you would normally be credited with and use it to purchase options for the index(s) instead. The profit margin they earn is basically fixed. So with rates at historical lows, as the rates on the bonds increase in the future there will be more available from your share to purchase options which means in the future the caps and/or participation rate can increase. How much you are able to earn with the options is not really relevant to the co. - they have already taken their profit. For them it is a $0 cost/profit and they don't really care.
  
  They do not make an additional profit (or loss) on exercising them on your behalf - they do not share in the gains as a result of the options. The companies for their share typically earn a gross of 2-3% from the bonds, and from this they deduct their overhead costs and earn their net profit. There is also a profit made from the mortality costs - this is all regulated.
  
  What you need to know is the companies are not paying you 14, 16% directly from their investments - but from the exercise of options purchased with the 3, 4, 5% that would normally go to you. The option costs and returns are determined by the marketplace and currently this is what they are. Roth knows better and how this works - he is just trying to pull a deception trick again because he really has no basis to refute Indexed Life and the real, potentail gains with no market type risk.
  
  Brett Anderson

•  
  16

  Brett A

  10/12/09 | Report as spam

  LTC

  "The odds of a couple age 65 eventually needing to pay for one typical Nursing Home stay for 2 1/2 years, is 100%."
  
  Roth is the one who is being silly -- it says the odds -- meaning the average liklihood is for each couple age 65 there will be 1 average LTC expense. As I showed in my prior reply for some couples it will be 2, others 0 - but the avg. will be 1. I do NOT say every couple will end up having to pay for 1 incident.
  
  See what I mean? Roth is more concerned with semantics than the facts and merit of the real issue.
  
  I did not say expenses were a non-issue. This is why they have been disclosed to you from the start. You are the one who continually takes them out of context such as what the total % of expenses are relative to the account value.
  
  Roth says that stripping the dividends out of the gains at an average of 2.2% is 50% of the potential gain. Boy, if it is 50% and my net on the investment otherwise is only 2.2% I want to stay away from that. Again, semantics. Show me an investment where bottom line you can earn 8% NET with no market risk and dividends included or not. If Roth can do it with something that has market risk, good for him. But that was NOT the Challenge - the Challenge was to show how it could also be done with limited market risk. I did that.
  
  Roths whole decision is based on technicalities of what was said and what was disclosed or not - NOT the merits of the actual NET return of the investment. Bottom line is it shows no integrity.

•  
  17

  Allan Roth

  10/12/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Brett,
  
  Options are a zero sum game. If you are arguing for derivative investments, may I point out the recent financial crisis and the fact that AIG would have gone into bankruptcy without taxpayer bailouts.
  
  Minnesota life recognizes the weighted average returns but notes that new money is not necessarily invested in this 87% fixed income, 13% equity average mix it has now.
  
  As far as your personal claims of "deceptions" and "lies," remember that you are also accusing Minnesota Life of these actions.
  
  Personally, I found the communications from Minnesota life quite crisp and transparent. I hopefully showed in my column just how impressed I was with the company whose product you recommended for this challenge.
  
  Please feel free to address the five points in made in comment 13.
  
  As far as the personal attacks you are now making, I agreed with your earlier statement "I think some of those who've responded to your column need to calm down - being upset just keeps people from listening to the merits of both sides, and achieving the real goal of a solution to today's investment problems."

•  
  18

  Allan Roth

  10/12/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Brett,
  
  If you are arguing that your statement below doesn't say every couple over the age of 65 will have to pay some nursing home costs, then I can see how you believe the IUL delivers what you stated.
  
  "The odds of a couple age 65 eventually needing to pay for one typical Nursing Home stay for 2 1/2 years, is 100%."
  
  Your logical conclusion is based on a different set of rules than society uses.
  
  You may then believe half the market return and a total loss of one's principal does equal market return and NO downside risk.
  
  

•  
  19

  Brett A

  10/12/09 | Report as spam

  More Deflection - Where is the Beef?

  I already addressed the questions in #13.
  
  Derivatives and government bailouts have nothing to do with IUL and the challenge - again more deflection away from the merit of IUL. Minnesota Life with a Comdex rating of 95% is among the top 5% of combined ratings for Insurance Companies.
  
  I am not accusing Minnesota of deceptions and lies - you have taken what was said to you out of context to validate the answer you need to renege on this Challenge. You also keep trying to show that I have no credibility by trying to give meaning to words I said about LTC, that are not valid. Your 2nd grader can see that. I consider that a matter of integrity - that is not calling names.
  
  Again, I do NOT see any guaranty from Roth that your investments will perform as well as IUL. The fact is $1 in the S&P index 10 years ago - with no expenses - is only worth about 70 cents; with avg. expenses of 3% it is only 50 cents today. In an IUL it could be worth $1.50 or more!
  Which would you rather have?!
  
  
  Brett
  
  
  
  

•  
  20

  Allan Roth

  10/12/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Brett says:
  
  "The fact is $1 in the S&P index 10 years ago - with no expenses - is only worth about 70 cents; with avg. expenses of 3% it is only 50 cents today."
  
  Brett is correct that when you compare something bad to something worse, the "bad" looks better.
  
  Who except Brett would suggest a client invest in the S&P 500 index, which is stripped of dividends? As noted in the column, a 60% equity / 40% bond index fund earned 44.4% over the past ten years, after costs.

•  
  21

  hikinganimal

  10/12/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Well, let me stick my toe in the water. I am another agent that sells the IUL...I am not a snake oil salesman. I believe I am providing honest and valuable options for retirement. I read the Time article on the 401...and yes, they talk about insurance as an option.
  
  I do not favor those who choose to insult others in their opinions.
  
  Taking money out of home equity to fund the policy is one strategy that has gained favor with some. The equity just sits there doing nothing, and putting some of it into a growth vehicle is smart investing.
  
  These policy's have caps and guarantees. Caps are usually 12% to 15%. My example illustration would be guaranteed with a 2% gain for 20 years before the policy lapsed. But what would make it meet that condition would be 20 years of the market steadily declining, and I contend were that to happen we wouldn't have any economy at all anymore.
  
  I don't work with Brett's Insurance co. I ran an illustration just to see the numbers from my company. With a sample non MEC policy, if you, age 52, put $20K in for 5 years, and wanted to pull out as much as you could, (and not cause it to lapse), starting at age 65 for 30 years (presuming death at 95) your $100,000 would have returned you $652K. You would have taken out about $21,750 per year for 30 years. And while doing this you still have in addition a death benefit of $388K. This all assumes that over the 30 years we experience the positive of about 7% average that is indexed to the S&P500.
  
  If, with the same scenario, you did not take out any money in that 30 years and let it ride, at 95 you would have accumulated a Cash Value of $2.3 million, with a corresponding Death Benefit of $2.3 million.
  
  It is hard to imagine anyone who does not have an insurable interest of some kind or other.
  
  

•  
  22

  Allan Roth

  10/12/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  hikinganimal,
  
  Thank you for your respectful disagreement and your points. It's nice to have a discussion on the issues.
  
  I have a differing opinion on your points:
  
  1) Regarding home equity, many homes are now under water with the logic that one should tap all the equity they can on a home.
  
  2) Regarding your scenario, I have seen hundreds of illustrations on dozens of flavors of cash value life insuranace. Very few have lived up to those illustrations.
  
  We have a professional disagreement on these issues.
  
  Thanks again for your comment.

•  
  23

  Brett A

  10/12/09 | Report as spam

  Insurable Benefits

  Hmm, is Roth now saying he is opposed to Indexes for investing - that a 60% equity / 40% bond mix would have been best? I thought he was a Bobble Head? Or was that last week? First, here is a recent article in the NYTimes on a Morningstar report, that states - again - that the S&P 500 index over long periods of time outperforms almost all equity funds: http://boss.blogs.nytimes.com/2009/08/28/active-vs-passive-the-debate-keeps-going/?ref=your-money . They write: ?only 37.1% of actively managed funds made up of large-capitalization stocks beat the category?s benchmark, the S.&P. 500. Most large-cap investors would have done better with a plain old S.&P. 500 index fund?. Here is the link to the actual report: http://www2.standardandpoors.com/spf/pdf/index/SPIVA_2009_Midyear.pdf
  
  The problem with equity investing - as we have all been reminded the past decade - is they are not really gains until you take the money off the table (out of the market), which means thereafter you have an opportunity cost relative to Indexed Life gains in the future.
  
  What about bonds? Many experts say it is not a smart thing to be investing in long term bonds currently because of major principal risk -- as interest rates rise from their current record lows your principal value will only go down in value.
  
  One of his reasons for reneging on his word is that unlike the other 99% of us he says he does not have any insurable interest. How about this one for most of you: another potentially major benefit of IUL is an Accelerated Death Benefit. If you are diagnosed as terminal Minnesota Life has one of the best benefits - they will advance to you up to 95% of the insurance benefit up to $1 million that you can use for any purpose - include treatment that may save your life that no other insurance you have will pay for. In another reply I also went into the insurable interest of knowing your savings will not go down in value because of the market - aren?t these both important insurable interests that we all have?!
  
  Again, as I said before, the Challenge was NOT to outperform what he believes is another, better way to invest. The terms were ONLY to show him how he could ALSO earn market type returns BUT with limited downside risk. I did that. You can go back to his column and read it for yourself: http://moneywatch.bnet.com/investing/blog/irrational-investor/why-so-critical-on-annuities/563/ ). Roth does not address what Indexed Life does and can do - only these side issues like LTC where he twists the facts or ignores whatever does not suit his decision. Or real benefits such as gains taken out of an IUL do not increase the tax on your Social Security or Medicare premium.
  
  Roth has not put up anything that can offset these many other benefits with greater real returns. He has not said anything I?ve said about Indexed Life is not true. Only that I did not explain everything about everything therefore he says ?you have no credibility?. So he doesn?t have to honor his promise. Again, no surprise. My participation in this discussion is over - I am busy with investors and advisors who want my help and I don?t have time to keep answering the same questions. From hereon it is up to the rest of you to call him on his decision and deflections - or not. If you wish to contact me direct you can do so at brett@lastchanceretirement.biz .
  
  Brett Anderson

•  
  24

  mfinder

  10/12/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Well, this was a real shocker! Not only did Brett loose the challenge( hard to win a challenge when the rules keep changing). Easy to win a challenge when you make the rules. As I suspected, we were treated to at least 2 references to his "second grader" principle outlined in "his Book". Brett, the people,er, those "snake oil salesmen" know the truth because they are in the trenches actively saving futures nor bloviating from the blog pulpit. As I said in my last post he is the Teflon Investor because nothing you tell him sticks. And my metaphor of the painter who painted himself into a corner, well, Allan just walked out leaving a very messy trail of footprints, a sign of a true craftsman. Nonetheless, take heart in the fact that his "clients" were following along as well and even though you'll never hear it, all of this will ultimately have a negative impact on his bottom line as his integrity is already highly suspect. Good job Brett!!

•  
  25

  finnetusa

  10/13/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  What surprised me the most is the way Mr. Roth deflected from the facts. Mr. Anderson is a man of integrity that proved his points and then some! With all the many benefits that Minnesota Life brings to the table, why would anyone put their money in the stock/bond portfolio? What Mr. Roth also fails to mention is that over the last 10 years, which investor would open their annual statements and find their account values have dropped? Then what? Panic? Sure, it's the human thing to do. Did the IUL EVER drop in value? It could have been "underwater" in the first year or so, I don't know. But if the illustration is shown to the buyer, and explained properly, then they are prepared. But when was the last time any investor saw a projection from a growth vehicle that showed a negative return on a year over year basis? Sorry Mr. Roth, but you deflect and change the facts to suit your needs....ever thought of politics?

•  
  26

  Dylan R

  10/13/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  After reading this and the subsequent comments, two
  phrases come to mind: "sore loser" and "drinking the cool
  aid."
  
  If indexed life insurance is such a great investment, why
  isn't it more main stream? Why do insurance agents face
  such an uphill battle to convince others that its so great?
  Why isn't it embraced by the academic, financial journalist,
  or fee-only financial planner communities?
  
  Do people learn all about these products and then decide to
  become agents to sell them, or do they become agents first
  and then learn how to sell these products? Why do
  insurance companies have to pay such high commissions to
  in order to get people to sell them?
  
  Doesn't even the existence of these questions give the die
  hard advocates of indexed life insurance any pause to
  contemplate the possibility that they might be, even a little
  bit, wrong? Or do you already have an answer for all them
  that make perfect sense to you?

•  
  27

  larry swedroe

  10/13/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Just a few thoughts
  
  As I act in effect as the director of research for over 100 RIAs around the country I get asked to analyze many investment products. Most of these come under the broad category of what are called structured notes. I have written about some of these in my blog here at moneywatch. These products typically are complex products typically with embedded options. EIAs come under this type umbrella.
  
  Now what the issuers of the policies know and count on is that the average investor cannot properly value the embedded options. Even with the add of a Bloomberg calculator I have found many professionals cannot even value them they are so complex. But the key is that you don't even have to be able to value them because you can be 100 percent certain, not 99%, that the complexity is designed in favor of the issuer.
  
  I have reviewed probably over 100 of these over the years and every single one was priced to favor the issuer, exploiting the buyer. Typically these are underpriced by from as little as 3% to 12% or even more.
  
  EIAs are among the worst abusers. And insurance policies like the one described, with embedded options (like capping upside while limiting downside) are always mispriced to favor the issuer. The investor is selling the options (typically the caps) WAY TOO CHEAPLY.
  
  The issuer (wicked witch) is waves the shiny apple (the downside protection) in front of Snow White (the uninformed buyer) and they take a bite, unaware of the poison inside.
  
  All one has to do is ask the simple question: Why is the issuer offering me such a bargain? Do they like me? If they are paying me such a great return doesn't that mean that they are having to raise capital at a higher than necessary cost? And issuers are not in the business of doing that. It is really that simple.
  
  As Allan showed here in his example, every single one of the products I have seen can be reverse engineered to show the issuer is charging above market prices for the product. EVERY SINGLE ONE. There is no need ever to buy such products and as Allan correctly pointed out in each case there is a more efficient way to construct the same transaction on your own, avoiding the expenses and profit margins of the issuer.
  
  If you need insurance, you buy it for the purposes you need it for. Investing and insurance should not be mixed or you will be paying excessive costs.
  
  

•  
  28

  Allan Roth

  10/13/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Brett,
  
  1) Do you dispute that Minnesota Life does not recommend this product for someone that does not have an insurable need?
  
  2) If this product really could deliver "a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk," why wouldn't institutions be able to design a similar product to deliver these returns?
  
  3) Regarding your comment #23 and your reference to the NY Times article, why do you continue to say "the S&P 500 index over long periods of time outperforms almost all equity funds," when the article actually sites the S&P 500, which includes dividends. I thought you had already conceded that you improperly called the S&P 500 INDEX the market, when you knew it was stripped of dividends.
  

•  
  29

  Allan Roth

  10/13/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Larry does a nice job of discussing this in his book "The Only Guide to Alternative Investments You'll Ever Need."
  
  Even if Larry were wrong and the insurance company did not price the product properly, they have the unilateral right to change the cap, as noted in this challenge.
  
  I have yet to have an insurance producer explicitly point that out. I've never met a policy holder that understood this unilateral right given to the insurance company, even though they signed a document saying they read all disclosures. buried in the disclosure is where this fact lies.

•  
  30

  DougDiggerEberhardt

  10/13/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  I didn't see the agent address the issues of the insured living too long or the potential of a lost decade for investments and how that might affect current illustrations/assumptions.
  
  People are living longer. Mortality tables have been updated in the past to reflect this, and will be updated again. While this may lower the cost of insurance some for the insured, it also means that the cost of insurance will eat away at the principal for many more years as people live longer lives because of medical advances. http://www.redorbit.com/news/health/1763803/more_than_half_of_babies_could_live_to_age_100/index.html
  
  This means that the insured could end up living longer than expected (many will) and end up with the potential of taxes having to be paid on the policy if it were to lapse. There are no guarantees that resolve this issue of living too long that I'm aware of just like there are no guarantees that the insurance company won't raise expenses or lower crediting rates on the S&P index in the future. Granted there could be a rider added to a policy at a cost (if there is such an animal).
  
  The other aspect to this is what "if" the S&P went through a lost decade (or two) ala Japan's Nikkei Index? Who is to say it won't occur? Can you guarantee to the insured that it won't occur?
  
  This potential would throw the "current" illustration down closer to the guaranteed minimum of 3% (not talking about guaranteed insurance costs here) which many insurance companies are struggling with paying today as the 10 year bond is only paying just over 3%.
  
  Minnesota Life's 5 year yield on invested assets is 5.04% compared to an industry average of 5.52% according to Vital Signs financial data: http://www.lifelinkcorp.com/vitalsigns/about.asp
  
  The 2008 total investment return was 2.65% for Minnesota Life compared to the industry average of 3.36%.
  
  49% of the bond portfolio is invested for 5 years or less. "If" we continue the current low interest rate cycle, the proceeds from the maturing bond portfolio bonds will struggle to find returns that keep pace with company expenses.
  
  Minnesota Life's one year growth on total admitted assets is -17.3% and three year compounded growth is -2.9% (2008).
  
  Total Surplus and AVR is -19.2% and three year compounded growth is -3%
  
  This data tells me that Minnesota Life is having trouble keeping up with current costs which is confirmed in the fact that their returns are below industry average by a significant half a percent.
  
  On the Minnesota Life balance sheet, 12.9% of their invested assets are in mortgages. What are the chances that some of these default, especially if they are commercial real estate (see Japan's history for answer).
  
  Hard to keep the general account paying salaries and company expenses when returns don't turn out as projected just a few short years ago.
  
  Lastly, the S&P itself historically has secured most of its 10% annual return (sans the last decade) from dividends which companies are presently paying in the 2% range. This means that to achieve an 8% return, the remaining 6% has to come from capital growth.
  
  The only thing growing in this country is government spending which is the only catalyst for GDP at present. But that's a whole different conversation.
  
  I'd just like the agent to admit that if the individual lives too long, these policies could come back to bite them with a huge tax bill on all tax-free income taken (if policy was kept under the IRC 7702 guidelines) and that current policy projections are not indicative of future results (which I know you tell all potential buyers). And lastly that this product may require more funding down the road to obtain desired results if the market doesn't perform as expected.
  
  My point is, there are no real guarantees as we don't have that crystal ball to consult and there's risk in not knowing what may or may not happen. It's not all black and white, sign here.
  
  That said, people will buy anything you put in front of them because they like you! lol
  
  

•  
  31

  DougDiggerEberhardt

  10/13/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Allan said: "Even if Larry were wrong and the insurance company did not price the product properly, they have the unilateral right to change the cap, as noted in this challenge."
  
  I agree Allan. This is the loss of control that I don't want to give up as an investor. The game can be changed at anytime to benefit "the company." Not that companies are out to screw their clients, but they are in the business of making money and if push came to shove, it would be at the expense of the insured.
  
  
  
  

•  
  32

  Allan Roth

  10/13/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  DougDiggerEberhardt
  
  You make some really great points - thanks.
  
  Much like 2/3 of people returning from Las Vegas think they made money, I suspect that people hold on to the illusion they can make stock market returns without risk.
  
  The logical conclusion from these beliefs is that Casinos and Insurance companies exist to pay us money.
  
  Pretty hard to defend that conclusion.

•  
  33

  hikinganimal

  10/13/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  OK, I am afraid that nothing I say will have much impact on some of you?.but I went ahead to my sample illustration and increased the life expectancy to 120 instead of 95 should the client ?live too long?.
  
  The numbers continue to grow. You would still be able to pull out $21,750 (tax free) every year until age 120. In fact, if you chose to, you could take out much more every year?.say $50,000 or $100,000?.but that would require another illustration, so I won?t go there. At 120, were my client to die with the original annual withdrawal of $21.75K, the cash value of the policy would now be $2.7M and the death benefit $2.9M.
  
  Insurance companies have to make money to remain in business. Mine is almost 400 years old?they must be doing something right.
  
  I have no answer for your concern over changing cap rates, nor preference to equity and bond investing. I hope that it?s not that you just don?t trust insurance companies or insurance salesmen.
  
  I have a fiduciary responsibility to my clients, and take that very seriously. I would never advise a client to pull all his equity out of his real property. Indeed, if he was ?upside down? he would have no equity to use.
  
  Everything should have balance. Investing $100,000 I hope would only be part of your portfolio leaving you free to engage in any number of other investments.
  
  And, Allan, I would like to know how very few insurance companies have not lived up to their obligations of cash value in their policies.
  
  Distrust of the insurance industry has increased because of such huge blunders as found with AIG last year. However, their life insurance, fire, health and other standard insurance divisions were very profitable...the London division, their financial investments division, which engaged in insuring bundled mortgage securities, is what brought them down.
  
  
  

•  
  34

  Dylan R

  10/13/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Insurance companies have to make money to remain in
  business. Mine is almost 400 years old?they must be doing
  something right.
  
  Right by who?
  
  How can someone have a fiduciary responsibility to their clients
  yet act as an agent for the other party in the contract at the
  same time?
  
  There is nothing wrong with insurance; it is what it is. But
  when people try to artificially make it into something that it is
  not, it becomes problematic.

•  
  35

  DougDiggerEberhardt

  10/13/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  hikingandimal,
  
  What interest rate did you use for your current illustration?
  
  Did you start with a lump sum of $100k in this example making it a MEC or did you do the five pay under the 7702 threshold? I assume it was five pay as that is the only way tax free income could be withdrawn. If five pay, what was the amount contributed each year? What age? Male or Female? If you already posted some of this, let me know.
  
  Obviously it's difficult for me to analyze without seeing an illustration, but I appreciate your response.
  
  

•  
  36

  Allan Roth

  10/13/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  hikingandimal,
  
  When you statement:
  
  "And, Allan, I would like to know how very few insurance companies have not lived up to their obligations of cash value in their policies."
  
  What I mean is that when client come to me with cash value policies, I ask them to bring the illustration shown to them when they bought the product. I don't believe I have seen one that showed an expected cash value that was matched by an actual cash value.
  
  I often ask insurance company officers, including the one at Minnesota Life, if they have ever done a study to compare the illustration shown to a client when they bought the policy vs. the actual.
  
  For example, it would be really easy to compare all illustrations on policies sold in the year 2000 to their actual value in 2009. It could show that, on average, the illustration amount was 76.2% of the actual amount. If I'm wrong, the number would be 100% or higher.
  
  It's just me but, if I were an officer of an insurance company, I'd do such a study and use the results as a marketing tool, if the numbers look good.
  
  I continue to appreciate your great comments and questions.
  

•  
  37

  Allan Roth

  10/13/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Brett,
  
  I asked you three factual questions which I have not responded to. Could you kindly address these?
  
  1) Do you dispute that Minnesota Life does not recommend this product for someone that does not have an insurable need?
  
  2) If this product really could deliver "a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk," why wouldn't institutions be able to design a similar product to deliver these returns?
  
  3) Regarding your comment #23 and your reference to the NY Times article, why do you continue to say "the S&P 500 index over long periods of time outperforms almost all equity funds," when the article actually sites the S&P 500, which includes dividends. I thought you had already conceded that you improperly called the S&P 500 INDEX the market, when you knew it was stripped of dividends.
  

•  
  38

  hikinganimal

  10/14/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Allan, as an agent, I would like to see a comparison study of the illustrations also. That would be good information for all of us.
  
  Doug, you may go back and reference my posting #21.
  
  Dylan, I fail to see where I am being artificial. If my product does not please you, do not buy it. I am basing my projections on what is given to me by what I presume to be bonefide calculations from a well established company.
  
  

•  
  39

  Dylan R

  10/14/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  hikinganimal, I never said you were being artificial. I said
  insurance sales become problematic when insurance is
  artificially presented as something other than insurance, such
  as an alternative to owning securities. In other words, my
  observation is that distrust of the insurance industry stems
  more from deceptive sales practices than from the insurance
  itself. If you are not pitching insurance as something other
  than insurance, than there is no reason think you are being
  artificial.

•  
  40

  Allan Roth

  10/14/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Brett Anderson notes:
  
  "My participation in this discussion is over - I am busy with investors and advisors who want my help and I don?t have time to keep answering the same questions. From hereon it is up to the rest of you to call him on his decision and deflections - or not. If you wish to contact me direct you can do so at brett@lastchanceretirement.biz."
  
  Mr. Anderson has time to write comments that seemingly never end (such as #9) but now no longer has time to participate in this discussion. Perhaps I'll write one more column on his claim that I was not truthful in stating Minnesota Life did not recommend this product recommended by Anderson for those like me without an insurable need.

•  
  41

  DougDiggerEberhardt

  10/14/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  hikinganimal,
  
  Appreciate the response.
  
  Please consider the following when advising clients.
  
  You're telling me that the illustration shows a male age 52 putting in 20k a year for five years will give him 30 years of income at age 65.
  
  Part of this income will come from the policy growth at the assumed rate of 7%.
  
  My request was to see what income they could take out if the policy averaged 3%, the minimum. Not the "guaranteed insurance cost column minimum," but the "current cost with a 3% return."
  
  My reasoning (among many others) is:
  
  Mish Shedlock: "Expecting 8 percent returns when 30 year treasury bonds are yielding 4%, the dividend yield of the S&P 500 is 2%, and the S&P 500 trailing PE is 138.97, is amazingly foolish."
  
  http://globaleconomicanalysis.blogspot.com/2009/10/five-major-pension-problems-one-simple.html
  
  Same goes for 7%.
  
  I am simply addressing the reality of today and also the "potential" of a lost decade or two ala Japan as well as the fact that the S&P is only paying 2% in dividends. If the S&P was dishing out 6% dividends, then I'd be closer to saying ok.
  
  An investor doesn't have control of the money as it is invested for me by the insurance company in the S&P index only. There is no flexibility for me to choose other asset classes to take advantage of market conditions. While there is downside protection, I want to see my money grow during the time frame the stock market is in a down trend (like last year). Whether this is in cash, shorting the market via inverse ETFs, Rydex Mutual Funds, or whatever, I want control. Variable Life doesn't give me this full control and flexibility either and obviously no guarantees.
  
  If I'm 52 and have 13 years of investing, I don't see the next 13 years being that easy to get a 7% average return on the S&P at all. I also can't afford to have a few years of zero percent return. This of course changes the entire income stream projections which can't be accounted for in the illustration.
  
  You cannot guarantee me 7%.
  
  You cannot justify 7% in today's investment environment.
  
  3% I would accept.
  
  But I'd still rather have control.
  
  And there's still the issue of the insurance company (Minnesota Life) having to pay the minimum 3% guarantees as well as company expenses when it's not even earning 3% on admitted assets (2.65%) and has double digit negative growth (-17% - 2008).
  
  Lastly, those older than age 52 would have higher insurance costs eating away at the return and thus a lower income than the 52 year old you illustrated even with the 7% return.
  
  But hey....if they like you and trust you, they'll buy! You got that going for you!
  
  
  

•  
  42

  Brett A

  10/14/09 | Report as spam

  The Lost Decade of Stock Investing

  WSJ 10-14-09: The Lost Decade of Stock Investing
  
  "Advisers sold us a bill of goods about the lasting value of real estate and stocks."
  
  "If you invested $100 in the S&P 500 at the end of the last decade, you're happy with Dow 10000 but still hoping for a 34.5% rally before year end -- just to break even. You'll need a staggering 72% rally when adjusting for inflation."
  
  http://online.wsj.com/article/SB125556534569686215.html

•  
  43

  Allan Roth

  10/14/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Brett,
  
  When you quote:
  
  "If you invested $100 in the S&P 500 at the end of the last decade, you're happy with Dow 10000 but still hoping for a 34.5% rally before year end -- just to break even."
  
  you qoute another verifiably false statement. You are only including the index, not the S&P 500 you stated. You keep making this claim that the index is the stock market rather than part of the return of part of the stock market. The Vanguard S&P 500 index fund lost 12.5% since 12/31/09.
  
  I think there are much better funds S&P 500 funds with more diversification and costs that are also dirt low.
  
  I write about all sorts of bad investment advice from illusions of risk free stock market returns from insurance to expensive mutual funds with bad behavior. It seems as though you are really trying to set the bar really low to make your product look really good.
  
  I understand you have spoken to Minnesota Life about my conversations with them. Now that you are back on this discussion, do you still dispute that Minnesota Life does not recommend this product for someone that does not have an insurable need?
  
  
  
  
  

•  
  44

  Allan Roth

  10/14/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Brett,
  
  Goof in my prior post - The Vanguard S&P 500 index fund lost 12.5% since 12/31/99. I incorrectly said 12/31/09. Your quote of a 34.5% loss this decade only includes the index return and not the full S&P 500 return.

•  
  45

  AztecTheRed

  10/15/09 | Report as spam

  From the peanut gallery as a fee-based planner

  Just 2 cents from the peanut gallery;
  
  2) If this product really could deliver "a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk," why wouldn't institutions be able to design a similar product to deliver these returns?
  
  A) 'Institutions' can (you already know the 'not-so-secret sauce' of using a discounted bond for the gaurantee, with a derivative hedge for the upside growth to the index,) but they only have two ways to make it tax-free;
  1) Inside a cash value life contract,
  2) Inside a ROTH account.
  
  Few individuals have ROTH accounts of sufficient size to attract the securities salespeople who are skilled enough to manage the fixed-and-derivative strategy required.
  
  B) If the entire point of the "challenge" was a net return of 8%, why is the topic of dividends versus index even a concern? The EIUL delivers an "interest rate" like a CD (or more exactly, an indexed CD with a floor, and tax-free treatment.) The entire argument about what is counted on the index side is a circus sideshow... it is irrelevant to the net-8%-delivered challenge.
  
  
  there are no guarantees that the insurance company won't raise expenses or lower crediting rates on the S&P index in the future.
  
  C) Without a protective contract rider (and its concurrent costs,) this is indeed one 'risk' that an EIUL strategy incurs... however, when compared to the risks of market timing, and the probabilities of finding your securities account is needed for living costs when the markets are on a down-cycle... many people find the established life insurance companies more reliable than the free and unfettered stock market.
  
  
  Mish Shedlock: "Expecting 8 percent returns when 30 year treasury bonds are yielding 4%, the dividend yield of the S&P 500 is 2%, and the S&P 500 trailing PE is 138.97, is amazingly foolish."
  
  D) I love seeing you quote Mish... he's a good friend of mine, and great fun to chat & brain-tussle with!
  
  NOW... as nobody has brought up so far, the Minnesota Life EIUL contracts (and indeed almost all EIUL contracts) offer the contract owner the option to switch from a "index participation" strategy to a "fixed credit" strategy at various intervals... some quarterly, some annually at anniversary. The particular contract debated here is a 5% fixed account, IIRC.
  
  This clearly blows the doors off of most tax-free-access fixed-credit alternatives currently.
  
  
  You cannot guarantee me 7%.
  You cannot justify 7% in today's investment environment.
  3% I would accept.
  But I'd still rather have control.
  
  
  E) You certainly have more control in an EIUL than you do in an loss-vulnerable equities account. You may give up some "homerun" opportunity above the cap, and in return are assured a zero market loss reality.
  
  
  do you still dispute that Minnesota Life does not recommend this product for someone that does not have an insurable need?
  
  F) Can't speak for Brett... but certainly if a person has no insurable need, they have no dependants, no taxes to avoid, no expectation of taxable retirement income, no concern (or an ignorance of) market down cycles, and no real assets to protect (let alone $100,000 available funds for a 10 year "hands-off growth" period.) For such a person, EIUL is certainly no real conversation... and 8% net return on nothing is a circleshirk.
  
  
  The Equity Indexed Universal Life growth strategies are by no means appropriate for EVERYONE, and "one size does not fit all".... however, they are so flexible in their strategy design, and so potent in their benefits, that it is a very rare few who have a desire for financial independence who would NOT benefit from having a portion of their balance sheet structured into a customized EIUL strategy.

•  
  46

  Allan Roth

  10/15/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  AztecTheRed
  
  Interesting comments.
  
  1) I think 2008 proved institutions were not immune to risk. No institution would own Treasuries if they could get 8% without risk.
  
  2) The use of the claim of market returns when referring only to a part of the market is part of the illusion of these products. Brett continued this illusion as of yesterday. The crediting is based on the S&P 500 index so it is very relevant.
  
  3) A unilateral risk that someone can cut the cap by more than 80% is something I don't recommend. I also don't recommend timing the market as you note.
  
  4) Comparing the EIUL to equities is inappropriate. Look at the Minnesota Life Balance sheet and you will see it's 87% fixed income.
  
  5) One should self insure for something they can afford to lose - much more cost-effective.
  
  6) There are better ways to manage income and estate taxes than an EIUL or annuity.
  
  One pattern I'm noting is that Brett and others compare this product to something really bad and it suddenly looks pretty good. Yes - An EIUL and annuities did better than a Madoff investment.
  
  Finally, I'll give you 150% of the total S&P 500 return if you give me the unilateral right to change the terms. I'll bet you won't take me up on this $100K challenge.
  
  Thanks for your comments - good discussion.

•  
  47

  Bosola

  10/15/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Allan,
  
  I just want to mention how grateful I am both for your analysis
  and for preserving the full discussion in these comments. As a
  result, I see pretty clearly one hard-nosed analyst and one
  snake oil salesman with a vicious streak. It's been most
  illuminating. I look forward to reading your column in the future.

•  
  48

  AztecTheRed

  10/15/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Hi Allen,
  
  Hi Allen,
  
  Some further banter;
  
  1) I think 2008 proved institutions were not immune to risk. No institution would own Treasuries if they could get 8% without risk.
  
  Yet an incredible great number of institutions hedge their accounts along virtually the identical strategy as the EIUL programs. Creating the underlying stable "leg" of an arbitrage or a growth hedge is the most fundamental key... and frankly, I advise my individual clients to learn their risk-management from the philosophies of the most successful institutional managers as well.
  
  Build your baseball lineup primarily with base-hitters, and pepper in just one or two fence-swingers... as the fence swingers strike out as often (or more often) than they actually get on base, let alone knock it out of the park.
  
  
  2) The use of the claim of market returns when referring only to a part of the market is part of the illusion of these products. Brett continued this illusion as of yesterday. The crediting is based on the S&P 500 index so it is very relevant.
  
  Maybe relevant to some level of journalistic drama... but not relevant to the initial bona fide challenge... at least according to what you both mutually acknowledged was the initial challenge.
  
  
  3) A unilateral risk that someone can cut the cap by more than 80% is something I don't recommend. I also don't recommend timing the market as you note.
  
  I'm with you here... and as conceded, it is a risk to be weighed, no doubt. The offsetting considerations to this risk tends to be factual track record, along with the litigious pressure a significant body of existing contract holders can apply to a carrier acting out of reasonability.
  
  No amount of class-action lawyering can beat a ripped-down securities account though.
  
  
  4) Comparing the EIUL to equities is inappropriate. Look at the Minnesota Life Balance sheet and you will see it's 87% fixed income.
  
  What the life companies use as their engine underneath the hood IS irrelevant for fixed & indexed strategies. They make their invested money however they choose to make their money, but they have to honor the fixed-formula of crediting they've contractually agreed to regardless their underlying performance mix.
  
  
  5) One should self insure for something they can afford to lose - much more cost-effective.
  
  Completely agreed.
  
  
  6) There are better ways to manage income and estate taxes than an EIUL or annuity.
  
  In some cases this is true, but not always (let alone the majority of time.) Again, no "blanket plan" is prudent to suggest or deny for anybody, and there are few strategies with the tax benefits and "market ratcheting" features of EIULs.
  
  
  One pattern I'm noting is that Brett and others compare this product to something really bad and it suddenly looks pretty good. Yes - An EIUL and annuities did better than a Madoff investment.
  
  This complaint is valid... but probably even more egregiously committed by commissioned securities hucksters (you have to agree.) The non-fiduciary sales people on both sides of the aisle can be misguided at best, sleazy at their worst... and if legislation and regulatory levels are any evidence of problem areas, securities is a far more dangerous arena for the general public.
  
  
  Finally, I'll give you 150% of the total S&P 500 return if you give me the unilateral right to change the terms. I'll bet you won't take me up on this $100K challenge.
  
  If you matched the floor protective guarantees, and the ratcheting market-reset features of EIUL policies, and you had a sufficient track record (20 - 100 years or longer) to observe your client treatment, you'd have a line-up at your door that would go for miles, my friend.
  
  I suspect you're not actually as well versed in all the features of the EIUL products as you may actually prefer to be... I would suggest digging in a bit deeper, and hopefully doing your best to remain unbiased.
  
  Tilt your lance at whole life, and variable products... and you have me on your wing every time. EIUL is a different animal than you are apparently used to.
  
  All the best!

•  
  49

  Allan Roth

  10/15/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Bosola,
  
  I appreciate your comment - I have over a thousand "drop dead" type emails from insurance agents and ones like yours mean a lot.

•  
  50

  Allan Roth

  10/15/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  AztecTheRed,
  
  First of all, I really appreciate your comments as I think this is good dialogue.
  
  1) Goldman Sachs did well because they sold a lot of derivatives and didn't hold any. Those that wanted the upside of the market without the downside risk are either extinct or we taxpayers own them.
  
  2) With three decades of corporate and personal financial planning, I can tell you that cash always matters. The crediting method determines the value that can ultimately be cashed out.
  
  3) I think we agree here - Insurance investments are far from the only abuse done to the consumer.
  
  4) How the insurance company makes money is always relevant, unless you believe that they, along with Las Vegas casinos, exist to give money out.
  
  5) We again agree that self-insurance for anything one can afford to lose is good. I suspect neither of us would pay $20 for an extended warranty of a $100 gadget.
  
  6) Yet another agreement - tax planning is complicated and there is no one solution. As a CPA, I'd be lying if I said I completely understood our tax code.
  
  7) You could be right that there is more consumer abuse in securities than in insurance. For what it's worth, I've written far more columns on securities abuse than insurance. For some reason, I have far more hate mail from insurance producers.
  
  8) Regarding your comment "Tilt your lance at whole life, and variable products," I've written far more columns on whole life and variable products. I assure you, I'm more hated on that side of the industry.
  
  Your comments are great - I appreciate them hope others can learn from where we agree and disagree.
  
  I'm happy to take a look at any product you have with your choice of it being private or want me to write about.
  
  I so want market returns with limited risk!

•  
  51

  AztecTheRed

  10/15/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Hi again Allen,
  
  Indeed, this is an enjoyable exchange.
  
  1) Goldman Sachs did well because they sold a lot of derivatives and didn't hold any. Those that wanted the upside of the market without the downside risk are either extinct or we taxpayers own them.
  
  Well, to be accurate GS was (is) a principal marketmaker in many markets... and as such they not only get a virtually risk-free 'slippage' on every trade match-off, they are able to use technology to front-run even momentary trends on a truly massive level. They definitely wrote a massive amount of derivative contracts... but the blade cuts both directions, and they wrote them long at the right times, and short at the right times (and hedged properly in all times.) Writing a derivative contract not previously purchased is, by definition, a "hold" unless/until it is bought to close, and the fattest profits in the derivatives game is those held to worthless expiry.
  
  
  The crediting method determines the value that can ultimately be cashed out.
  
  Uhhh... let's flip that around, actually. The contractual crediting method establishes the required minimum delivery on the contracts by the life company, and internally they must then perform sufficiently (if obscurely) to deliver on their contractual commitments PLUS (hopefully) additional internal profits to the company's bottom line. If internally they underperform, they do not get a "pass"... they must dip into their own reserves to keep their contractual crediting agreements, which are determined by an external independent barometer (literally arbitrarily, the nominated index.) They need not internally participate in that actual index at all... they merely need to perform sufficiently to deliver on their externally determined commitments.
  
  
  4) How the insurance company makes money is always relevant, unless you believe that they, along with Las Vegas casinos, exist to give money out.
  
  "HOW"? No. That they DO perform sufficiently, definitely yes. Again, their internal trading methods are irrelevant to their requirement to deliver to meet their defined credit calculation. As with some hedge funds, they COULD theoretically go lay it all on the ponies at Del Mar (though obviously they don't,) as long as come distribution day they deliver the pre-calculated funds to the cash accounts.
  
  
  I'm happy to take a look at any product you have with your choice of it being private or want me to write about.
  
  Take another look at the illustrations you already have from Brett... with open eyes in regards the actual risks. Although he may have come across a bit out of sorts, he actually covered many of the stated considerations accurately. The so-called "guaranteed" performance is poorly misnamed... it is actually a "worst-case" performance, which requires unreasonable increases in costs of insurance (the kind of actions that would have lawyers becoming extremely excited) as well as perpetual and consecutive index down years, one after another after another, PLUS a complete and stuborn refusal by the contract holder (in light of the armegeddon) to convert some of all of his cash account into the 5% fixed strategy.
  
  In other words.... the far more realistic (not optimistic... but actually realistic) illustration is the "non-guaranteed" performance, set with historically-tested averaged period returns.
  
  Try this for eyeglasses; Imagine that this strategy were offered on a no-load basis (Symmetra does this, by the way, on a constrained basis.) Remove the scatoma of commission conflicts... or imagine crediting all commissions to a client's fee account.
  
  NOW take another look at the details!
  
  Cheers, my friend.

•  
  52

  Allan Roth

  10/15/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  
  AztecTheRed,
  
  Your description of Goldman Sachs reads very much like the annual report of Lehman Brothers, just before bankruptcy. But this is getting a bit off the subject of this challenge.
  
  Having been financial officers of two muti-billion dollar insurance companies, I assure you we set benefits so that the premiums cover commissions, expenses, taxes, and profits. The contract has profitability priced in.
  
  Not only have I studied the illustrations Brett provided, the chief actuary of Minnesota Life agreed I could build my own policy with lower costs without their policy, as a pure investment and non insurance vehicle.
  
  I can't ignore commissions and other costs. One must examine how others make money from your investments and always remember that the only predictor of returns is cost. In investing, you get what you don't pay for.
  
  Thanks again for your comments.
  

•  
  53

  Allan Roth

  10/15/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  For a great inside story on insurance sales tactics, check out Kathy Kristof's great story:
  
  http://moneywatch.bnet.com/saving-money/blog/devil-details/inside-secrets-how-insurance-agents-get-you-to-buy/781/#comments

•  
  54

  Wealth Builder

  10/16/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Dear Mr. Roth,
  
  Your ongoing battle with the mighty insurance industry is eye opening and beyond my imagination. I would like to thank the MarketWatch for providing this platform for your wisdom.
  
  The fact that you've received over a thousand "drop dead" type emails is another solid endorsement of your "dare to be dull" and "dare to be courageous."
  
  Keep up with the good fight and don't let the bullies and snake oil salemen run you off the road.

•  
  55

  hikinganimal

  10/16/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Aztec the Red makes my point in a prior post. The worst case scenario of a guaranteed 2% or 3% return lasting 20 years before the IUL policy lapses is a highly unlikely event. The history of the S&P over the years has shown only a few times where the index went down successively for 2 or 3 year segments....but never 20 years. Were that to happen our entire economy would be a disaster.
  
  Also, the insurance company is investing in any number of areas not necessarily in the S&P. Their contractual obligation to the policy holder is to return X number of percent with a cap (say up to 12% or 14%) every year when the market is up. That contract must be met.
  
  I read the article by Kristof....I am sorry for the bad rap we insurance agents get. Some of it is deserved. I am trying to give a good product to a client that will help them, and I abhor slick sales people. Sales seminars are pretty much all the same. They are in all walks...not just insurance.
  
  And I appreciate this discourse...I have learned some things. If with your expert knowledge you can do better on your own....power to you.

•  
  56

  Allan Roth

  10/16/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  hikinganimal,
  
  Thanks for the comment. If the 20 year worst case scenario was a +2% to +3% annual return, then I would think the guarantee would give a 2% or 3% return, rather than a -3.2% IRR in the illustration. Don't forget the cost of insurance built into this product.
  
  I attended a seminar put on by the FPA that was titled something like "how to sell insurance products without getting sued." Not once was something uttered about putting the client's interests first. It was all about getting signatures.

•  
  57

  Allan Roth

  10/16/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Wealthbuilder,
  
  I appreciate the comment. I don't view myself as doing battle with the insurance industry as I'm an advocate of insurance for risk management. I look at cash value policies because I want to find one that will work for my family and my clients. I just haven't found one yet.
  
  I know the hate mail from producers is because I am impacting their income. I don't feel great about this but I do believe the consumer should come first.

•  
  58

  Brett A

  10/17/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  h

•  
  59

  Brett A

  10/17/09 | Report as spam

  The Challenge was Met

  It is humorous and ludicrous as those of you opposed to Indexed Life rant about it just because it is life insurance, or how options work and that they could not possibly provide these returns (after 11 years of doing so), or its alleged excessive costs. Or deflect attention away from the real issue by focusing on other irrelevant ones such as the likely need for long term care. When the fact is when all the dust settles - despite how you slice the pie for gains and costs - those of you who have invested in the market/stocks/mutual funds the past 20 years have a very small return (Dalbar reports it is 1.87% per yr), and for the past 10 yrs the Wall Street Journal reports it is about negative 35%. You all act oblivious to what has happened - especially over the past year - that has left retirement savings for millions in a world of hurt and loss. Yet despite the calls today for some kind of ?insurance? against market losses for retirement savings by voices such as TIME and the NY Times - which is exactly what Index Life provides - many of you insist it is some kind of snake oil fraud.
  
  Well, IUL has been around 11 yrs. now. The gains cap on one of the original plans is the same as when it started - in between it has only been higher. The companies have not lowered the caps to the gutter to steal the money. These companies have been in business hundreds of years - short changing clients is not their mentality. That is why they are the companies that survived and carried this country through the Depression and are the largest, strongest financial companies in the world today. They did not create the current financial crisis - the ?stock? companies and their products you praise & defend did that all on their own. But if you had put your money in an IUL the past 10 yrs. your $1 would be worth about $1.40 now instead of 65 cents (WSJ). So who got the last laugh!
  
  As for the strength of Minnesota, here is a listing of how it compares in the top 200 companies: http://www.keepandshare.com/doc/view.php?id=1462924&da=y . Here too is a Jim Cramer column where he talks about the financial strength of insurance companies -- for this reason he researched them for the strong companies (and products) and for his own life insurance he chose -- Minnesota Life: http://www.keepandshare.com/doc/view.php?id=1462925&da=y .
  
  You rant about the cost of the insurance as if funds did not have any costs. According to Morningstar the total management and transactions costs on the avg. fund are 3.03%, with small cap funds over 4%. Each yr forever as the balance (hopefully) grows. Do not forget opportunity costs. Whereas the TOTAL fees when the cash value is large -- including the insurance on a properly designed IUL -- could be 0.2% or less. Frankly I prefer the much lower costs of IUL -- I do not care what they are called. The other deflection is Roth keeps claiming a combination of Zero bonds and funds will outperform the market. I never said IUL would outperform other ?exotic? strategies (never a condition of the Challenge) or that you could not substitute the IUL for the ?fund? share if you like that strategy - if you did the result would likely be even more and without the downside market risk.
  
  This other red herring about ?insurable interest? is especially amusing! Who cares - if you can earn a net IRR of 8% with no downside market risk, and are allowed to buy it without it and can walk away with the money, you will! But I think you will find it very difficult to name anyone who does not have any insurable interest - at minimum it is the assurance that your own savings will not go down in value because of market losses. If that is not an ?insurable interest? I do not know what is. The cover story of TIME this week is ?The 401k Needs to be Retired?, and it states this is so because retirement savings are not insured against market loss. The CEO of Putnam said basically the same thing last week - ?retirement savings are not protected with index savings when the market crashes?. So you can listen to these other financial pundits who have a reputation to uphold with millions of people or not -- it is your retirement savings.
  
  Roth bludgeons me over LTC (I am right), but why will he not even address relevant side-topics such as the fact IUL income will not go into the formula to tax your Social Security? Or that future tax rate hikes will have NO effect on your gains and ?income?? Or the $1 million Accelerated Death Benefit a ?stock? investment cannot provide if you are diagnosed terminal? Or how about the positive benefit of the Life Insurance? Or that IUL is the best College Savings Plan? All these are included in the much lower costs vs. funds. These are real, direct benefits to address but he says not one word about them.
  
  Oh yes, for those of you worried about lapsing the policy if the ?market? collapses or because you greedily stripped out most of the cash, even if you are over age 100 the policy guarantees that it will stay in force until you die and so prevent a taxable event ever. Roth says he does not want to borrow out his own money - those are IRS rules for it to be Tax Free and most companies allow you to do this for a 0% net cost (or almost 0 like 0.1%. There is also a Variable option). If you want to actually withdraw the gains and pay taxes go ahead (your only choice with a MEC design).
  
  For those of you who believe the ?market? will earn less the next few years, one option of the IUL GUARANTEES it will credit your account with 140% of whatever gain there is up to 14%. That should more than offset any xtra costs (if any). Insurance companies have been doing this for years and they are not broke - they know what they are doing. (I explained all of this previously with using options, and provided links to actual illustrations). Believe it or not they actually make a profit running these large companies!
  
  So the ONLY thing Roth is left with is to focus on the absolute worst that could happen and so he says that makes this a lousy product. Or the fact I didn?t say the cap minimum is 3% (that sorta goes with saying the minimum lifetime guarantee is 3% but Roth does not want you to focus on the actual disclosure truth). That is disingenuous and just an excuse to avoid the facts about what really matters. The caps are a function in part of interest rates and so the budget for options. Those are at historical lows and the companies have not dropped the caps to the minimum - not even close. And why would they - you can walk with the money if they do and put it in another plan - they do not want that to happen - or keep it.
  
  If you put these side-by-side I wonder which plan his wife would pick? I will not leave you guessing - they always pick the IUL. So do the husbands. That is why there will be over $1 Billion in new 1st year premium this year. At $10,000 per policy avg. that = 100,000+ new people who like these IUL benefits! Why do not large institutions offer this if it is so good? You have to be an insurance co. Or own one. Or have a partnership that allows them to make a profit. Mostly I think it is because they still have not heard about it or understand what it does and how it works. That is part of my reason for having done this - I may of lost this sham ?Challenge? but hopefully it has left many more of you educated at least to the fact you have another investing option that is worth your education and consideration.
  
  As for the Challenge, Roth has never said I did not meet the condition of showing how you could earn 8% in 10 years with ?limited downside risk?. But you can never win a challenge when one of the players is also the only person making up the rules and can change them whenever they like, and is also the only referee with a vote to decide if he was right or not. It is kinda like saying you can race a horse around the track in less than a minute. It does not matter what the horse cost or what the mortgage is on the owners house or costs to feed or what color it is - just what is the net time across the line. When you do it the ref then says, ?My horse can do it in 58 seconds instead of 59, and I meant while you were riding backwards.? When you do that too he says, ?I meant backwards and blindfolded on a muddy track during pouring rain every day for 10 days.? At some point you realize the challenge is a FRAUD and move on.
  
  All these other conditions were only added AFTER the challenge was met - the excuses for reneging on it are that the 8% is not guaranteed; the company can lower the caps; S&P dividends are not included; something else will earn more or do it better or cheaper; each couple age 65 (he says) will never have to pay for long term care, etc. The excuses go on and on, but the bottom line is based on current and historical S&P gains and policy costs for decades, Indexed Life met his challenge. That something else could do it also or better was NOT a condition. NONE of these other things were.
  
  I challenge Roth to show where even one of them are included in the Challenge terms. Or that based on historical S&P gains (without dividends) and historical IUL caps and participation rates the average net would not be 8% or more. He cannot. The average 10 year return of the S&P 500 for the past 45 years would result in the Minnesota IUL having a net return of 8% or more. Is that not what really matters? Is that not what the Challenge was? The loser in this was Roths integrity and those of you he convinced with his deflections to not consider Indexed Life for part of your financial plans. The rest of us will be laughing all the way ?to the bank? through retirement!
  
  Brett Anderson

•  
  60

  Allan Roth

  10/17/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Brett,
  
  Here are a couple of things I want to point out:
  
  1) You continue to recommend a product offered by Minnesota Life where their chief actuary noted there were better products for those without an insurable need. You stated an insurable need "is not a factor in choosing to invest money in this product - it is incidental." Minnesota Life and I disagree as it is a significant part of the cost the consumer pays for.
  
  2) You noted in comment #23 "I am busy with investors and advisors who want my help and I don?t have time to keep answering the same questions." Yet you have time for a 13 paragraph post attacking my integrity.
  
  I did not think you met the challenge that in your words were as follows:
  
  "I can blow away saving for retirement in any market fund, with an Indexed Life policy. How about a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk."
  
  I do very much appreciate you putting me in touch with Benjamin Roth at Minnesota Life.

•  
  61

  roccycwpp

  10/18/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Interesting title for this blog and interesting comments.
  
  First, it is clear that Mr. Roth's heart is in the right place. Protecting the consumer by giving them information is always a good thing.
  
  However, it is clear that Mr. Roth does not understand Equity Indexed Life Insurance policies.
  
  If you want to run a proper example comparing EIUL to other wealth building tools, you have to build a fair example. Any example of using EIUL must start with the fact the premium must be paid in over a five-seven year period. Mr. Roth is correct that if you paid the premium all in one year the policy would either become a MEC or the costs in the policy with the required death benefit would be so high that the finances of using the policy simply would not work.
  
  Assuming you ran a fair comparison to let's say mutual funds, then you have to take into account the real costs of the mutual funds as well as short term and long term capital gains taxes (not to mention that there is no protection from downside risk when you use mutual funds (unlike when you use an EIUL).
  
  One of the other problems with Mr. Roth's discussion is that he used the MN life product. It is not the best product in the market (or even close if you want to run "conservative" illustrations).
  
  Without boring everyone to tears on this site with the exact math explaining why using EIUL should work well as a wealth builder for millions of Americans (who all wish they had their money in such policies over the last 10 years), I'll simply refer everyone to my new book where I have the math supporting such a conclusion.
  
  If you are interested in verifiable math that will tell you how well and EIUL policy can work to grow your wealth, simply go to www.retiringwithoutrisk.com.
  
  To the extent anyone wants to debate the numbers in my book, I?d be happy to engage in such a debate in a blog or in other media format.
  
  Roccy DeFrancesco, JD
  Founder, The Wealth Preservation Institute
  

•  
  62

  Dylan R

  10/18/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  The debate about whether the challenge was met is becoming
  humorous and ludicrous. The challenge was to convince Allan Roth
  that there is a life insurance product worthy of investing in. Brett
  clearly didn't do that. If the task is to convince the challenger, who
  else should be defining what does and does not convince him? You
  either convince him or you don't.
  
  The claim I continually see and hear from insurance agents is that
  these are good products, and maybe some of them are. The
  supporting evidence is often comparison to things/numbers that are
  not as good. But if I do not invest in mutual funds with industry
  average expenses, or if I invest in other parts of the market, such
  comparisons are meaningless. I am more concerned with how it
  compares to the lowest cost, diversified, alternatives available to
  me. I do not care that you can beat out the stuff that I too can
  beat out.
  
  I am not (and I suspect neither is Allan Roth) simply looking for
  good investments that work well at building wealth if I can
  readily access something better, more efficient, more appropriate,
  lower costs, etc.

•  
  63

  Allan Roth

  10/18/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Dylan R,
  
  You are, of course, correct. If you compare something bad to something worse, the bad looks good by comparison.

•  
  64

  AztecTheRed

  10/18/09 | Report as spam

  What can actually perform better, longterm?

  Hi Allan,
  Let's take a look then at what you can propose as POSSIBLE superior alternatives. The enumerated advantages held in combination by EIUL strategies are;
  
  A) Never loses principal, protective floor of 0% if the indexed market drops, regardless of market timing,
  B) Indexed Gains match a given index up to a ceiling/cap (15% is an example,)
  C) Fixed Gains can be chosen (and subsequently unchosen) to give a guaranteed 5% credit in any period the owner doubts the indexed market will beat 5%,
  D) Gains once booked are converted to principal, which is again never at risk of market loss,
  E) Gains are technically tax-deferred... however the IRS has zero demands for required taxable distributions, so they in effect may remain permanently untaxed,
  F) Gains (and principal) may be accessed tax-free for any purpose incrementally up to typically year 10, and without restriction thereafter, via zero net interest policy loans (which have no repayment stipulations during the policy-owners lifetime,)
  G) Gains and principal, whenever taken for consumption by the owner receiving SS benefits, have no income taxation trigger on Social Security benefits,
  H) Gains and principal held in EIUL strategies have no adverse effects on a college student's qualifications for grants, aid, subsidies, scholarships, nor deferred-interest student loans,
  I) EIUL balances are not required to be spent-down in order to take advantage of senior healthcare benefits,
  J) Gains, historically calculated among the 'worst-case' sequential market periods over 30 years, have performed north of 8% net of all policy costs & fees, with zero down years.
  K) The fee burden on EIUL managed funds, on a 10+ year basis, including costs of insurance (for standard non-smokers,) is much less than the fee burden for typical actively-managed accounts,
  
  
  For challenge purposes, you can even ignore all but A, D, E, F, and J.
  A) Principal never lost,
  D) Gains never lost,
  E,F) Tax-free
  J) 8%+ net/net
  
  In the SHORT-run, for those who don't mind the risk, there are plenty of actively managed alternatives...
  
  For the LONG-run, when timing of access is unknown, can you propose anything for someone wanting superior performance without market timing risks in a tax-free environment?
  
  What would that be?
  
  Sincerely,
  Aztec

•  
  65

  Allan Roth

  10/18/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Aztec,
  
  No - and that's the point. There is no product I know of that gives an expected 8% return without risk. The illustration provided by Brett did not guarantee all principal - it had a loss in 10 years while a 60% stock index/ 40% bond index portfolio had a substantial gain. At 26 years, it had a zero guaranteed value.
  
  I'd build my own annuity by buying a zero coupon bond and stock index funds. By putting the bond in my IRA and equities in my taxable account, I get a much more tax-efficient portfolio than borrowing my own money against a policy and risking a tax catastrophe if the policy lapses.
  
  As noted, Minnesota Life stated they use a similar strategy so why not avoid the commissions, costs, taxes, and insurance company profits?
  
  Understanding how the insurance company makes money is key. Insurance companies are great for insurance needs.
  
  I so want to believe I can earn 8% without risk for my family but I've so far never found this solution.
  
  Thanks for the comments.

•  
  66

  roccycwpp

  10/19/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Yes, I?d say this is a bit comical.
  
  It seems that everyone is trying to flex their muscles when it comes to their knowledge and trying to make the point that their way of doing things is the "right" way.
  
  The fact of the matter is that proper planning involves diversification.
  
  There is nothing wrong per se with stocks or mutual funds. Many client should have them as part of a long term diversified portfolio (long term because the short term risks can be great (just ask anyone over 65 who was counseled into a "diversified" portfolio and who lost over 50% of that in the recent stock market downturn)).
  
  There is nothing wrong with a properly designed life policy as wealth building tool (EIUL specifically) (Although EIUL will not work too well for anyone over 60 due to the cost of insurance).
  
  As I've stated, I?ve written a book on the benefits of using EIUL as a tool for wealth building and I have a very sophisticated software program that will compare building wealth to mutual funds (using any variables you want) and to tax deferred plans such as 401(k) plans. When thinking about writing the book I had to run ?real world? illustrations to determine for myself if EIUL is a valuable tool. The numbers turned out to be very positive and so I move forward to write the book.
  
  I'd be happy to continue this debate, but let's start having a debate with real world variables/numbers instead of all the pontification that's going on.
  
  Let's try another debate that I think would end up being comical. FIA with guaranteed income rider. If Mr. Roth is consistent he'll say there is no place for these products either.

•  
  67

  Allan Roth

  10/19/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  roccycwpp,
  
  You state:
  
  "If Mr. Roth is consistent he'll say there is no place for these products either."
  
  I'll be happy to look at any numbers on any policy you'd like to propose. That is my consistent stance.
  
  I'll be happy to look at your FIA "variables/numbers" as I did with the illustrations provided with this challenge.

•  
  68

  DougDiggerEberhardt

  10/19/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Brett A. said;
  
  "So the ONLY thing Roth is left with is to focus on the absolute worst that could happen."
  
  One other "worst"thing that could happen is the rules are changed.
  
  In full disclosure to a prospect it needs (IMO) to be pointed out that the IRS at some point in the future could start to tax these types of products just like they changed the tax structure of them 20 or so years ago going from a FIFO basis to a LIFO basis for withdrawals. Granted this could be a good selling point too..., that if the IRS is looking at them, they know they might be too good for us consumers....but who would win out when push comes to shove? Hardly ever the consumer.
  
  If you look at the state of the nation and the bills it currently has to pay as well as future obligations for the now inducted members of the baby boomer generation into the social security system and add to that proposed health care programs, state induced global warming cures, cap and trade, cash for clunkers and free money for houses, etc. etc., one would have to conclude we're on a slippery slope.
  
  Insurance companies might be a target (despite the large lobby that curtails such efforts by congress).
  
  Case in point, H.B. 2854 in Oregon: http://www.acli.com/ACLI/Newsroom/News+Releases/NR09-021.htm
  
  "?Oregonians who purchase life insurance and annuity products to assure the financial security of themselves and their loved ones would be hit with a tax that undermines their carefully-made financial protection, long-term savings and retirement income. H.B. 2854 would impose a tax on the life insurance benefits received by Oregon families suffering the death of a loved one. It would also impose a new tax on savings through life insurance and annuities."
  
  Oregon, like many other states, are talking about ways to find funds to pay their bills because of the current unemployment picture. God knows (like most other struggling states) they don't want to cut departments or salaries.
  
  Obama is definitely looking at the insurance industry (among other places):
  
  Insurers May Be Victims of Obama's Crackdown on Tax Havens
  
  http://industry.bnet.com/financial-services/10001091/insurers-may-be-victims-of-obamas-crackdown-on-tax-havens/
  
  Obama tax proposal would hit securities dealers, life insurance firms, big estates
  
  http://articles.latimes.com/2009/may/12/business/fi-taxes12
  
  I'm not saying it will happen, but as shown above, when push comes to shove, the vampire state will look for blood where it can find it. That you can "bank" on!
  
  Call me negative, sure....and I realize it's not just insurance companies that would be affected. When government gets too big, the crack of the whip will be painful for most. It's just hard for me to give up control for too long a time-frame when I know Obama has the whip in hand and isn't afraid to use it (and same goes for Bush and any Republican who voted for TARP, etc etc.). Things can change on a dime as shown in the last twelve months.
  
  I would fit in Aztec's short run scenario. His and Brett's long run scenario might fit others. I just wanted to add another potential "worst case" scenario that one might think is important....or not (if you trust government to be in your best interest and not theirs), based on the facts I've laid out.
  
  Enjoyed hearing all sides... I unfortunately don't see it all black and white, but the insurance industry does have a track record to point to. And so does the cannibalistic and hungry leviathan that controls its (and its products) future.
  
  And I will repeat....a prospect will buy what you put in front of them because they like you. Most don't know what the hell you're talking about and never go into such detail as Allan's article and comments. Brett may never convince Allan to fork over $100k, but I'd guess he convinces most he speaks with because he believes in it.
  
  

•  
  69

  Allan Roth

  10/19/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  DougDiggerEberhardt,
  
  The fact that the sales folks believe in these products was a key learning for me, several years ago. I once thought that annuity sales folks were just tricking the elderly to make money. To date, however, I have never met an insurance producer who didn't truly believe in what they were selling.
  
  Many believe it it so strongly that they think it justifies making inaccurate statements like the S&P 500 INDEX is the same as the total market return.
  
  Never underestimate someones ability to not understand something if their income is dependent on them not understanding it.

•  
  70

  Brett A

  10/19/09 | Report as spam

  Worst Case Fabrications

  
  Roth is doing it again - only giving you half-truths to reach the answer he wants, so I have no choice but to respond.
  
  With the IUL plan for him, IF the S&P 500 had ZERO gains for 26 years AND IF the co. raised the internal expenses to the max. allowed (in 128 years they have NEVER raised them at all for an issued policy) then -- if you were so intellectually challenged you left the money here the whole time -- the cash value in year 26 would go to zero. If you did the same with a mutual fund, with maximum fees it would go to zero cash value even quicker.
  
  These are the historical gains of the S&P (not including dividends or deducting fees) since WWII:
  Average 10 year gain: 8.44%
  Average 20 year gain: 7.93%
  Average 30 year gain: 7.47%
  
  If we did this for the years before these they would look much the same. It is fair to say the likelihood of the gains being zero for 26 years in a row are ZERO. If they are then the world is experiencing much bigger problems and this is irrelevant. But this is the basis Roth is using to say IUL did not meet the challenge because the 8% is not guaranteed. It is a bit like wanting a guarantee that if a nuclear bomb goes off the house will still be standing AND going up in value.
  
  But the IUL will keep going up in value! If the S&P had zero gains for 26 years AND at CURRENT policy expenses AND the current minimum guaranty of 3%, then in year 26 this policy would have a guaranteed cash surrender value of $161,473 -- NOT $0. The next yr it is $165,177 -- it will always be going up! But Roth wants you to believe the realistic minimum gtd. value is actually zero, because this is the ONLY way he validates his decision.
  
  Based on the historical gains of the S&P, the average IRR in year 10 for the MEC design is 7.49%. This illustration was posted before for you to look at (http://www.keepandshare.com/doc/view.php?id=1452589&da=y). If you also factor in historical interest rates (currently historical lows) and the global index option and 140% Participation Rate option, the net IRR in year 10 is more realistically 8% to almost 10%. Each year as you earn index gains they are locked into the guaranteed principal - when the market does go down the value of the IUL account does NOT go down too because of these losses, and it does not mysteriously revert to the values of the 3% minimum gty. and maximum expenses that Roth wants you to believe goes to $0 in year 26. Nothing could be farther from the truth. But he does not want you to understand that.
  
  Roth also has the option of doing the IUL that will have the tax free distribution feature, but he told me all that matters for the Challenge is the maximum likely IRR in year 10. So then basing his decision on an absolute worse, totally unrealistic scenario to have a $0 value in year 26 is completely disingenuous. Based on historical S&P index gains the account value will more realistically be worth over $200,000 in year 10. That is done with minimal risk -- i.e., he keeps ALL the gains as earned (less annual expenses as with any other investment) each year. That was the only original condition. Then he added 8% net fees. Then he added 10 years. When those were met he added all these other conditions.
  
  As for the insurance and other costs, the average annual cost over the 26 years is 0.036%. The total cost in yr 20 is 0.016%. Whereas the avg. mutual fund is 3.03% (min.). So much for these awful insurance expenses (and so an insurable need to justify them) -- show me any other investment with such a low total cost factor!
  
  As for the government changing the distribution tax rules on life insurance plans, they can. They did in the 80?s. But the Supreme Court has ruled the changes would ONLY apply to NEW policies. If you obtain an IUL plan before any changes (if ever) are made, you lock in the current Tax Free income/loan benefits. This worst case scenario does not factor into the current situation.
  
  I challenge Roth to show in any column or email that any of these other worst case minimum guarantee scenarios were a condition to the challenge. Show where 8% guaranteed was a condition. Provide the condition it had to outperform all other investment strategies (and they have market loss risk). I challenge him to also show where the risk of long term care was a condition. He cannot. I challenge any of you other naysayers to show us a way to earn 8% NET consistently over multiple periods of time. With NO market risk (account cannot do down in value because of market losses GUARANTEED). You cannot do it even with market risk. The equivalent Qualified Plan pre-tax gain you need to show with a 35% MTR = 12.35% net fees.
  
  As for impinging his integrity, it was he who attacked mine in his initial challenge decision comments, saying nothing I had to say was believable because I could not support the - (his word) - ridiculous statement about LTC need. Then he sent me an email that said his comments were nothing personal. Well Allan -- nothing personal. Using facts from the U.S. Government I showed the LTC statement is correct. I have provided fact upon fact with links to the source. Roth has not provided a single one - not a single chart or reference or link. Nothing. He says he does not like Indexed Life because if the S&P earns zero for 26 years and the company increases the costs, it will be worth zero in that year. If he is dumb enough to keep it or anything else that long if that is what happens. On that basis none of us should make any market related investments ever. We certainly would not want to base decisions on using real historical gains and costs for a realistic IRR projection!
  

•  
  71

  Allan Roth

  10/19/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Brett,
  
  For someone who claims you don't have time to participate any further in this discussion, you sure write long posts.
  
  Could you take five seconds and just answer the question i've asked a few times:
  
  Do you dispute that Minnesota Life does not recommend this product for someone that does not have an insurable need?
  
  A "yes" or "no" would be fine.
  
  Thanks.

•  
  72

  Brett A

  10/19/09 | Report as spam

  Insurable Interest

  Alan - I have to keep responding and at length because of the omissions and 1/2 truths you insist on continuing to write even after presented with 3rd party evidence your statements are not true. Why do you ignore and not address the other real benefits and features of Indexed Life - why only the absolute worst scenarios that have a probability of 0%?
  
  With an avg. expense ratio over 26 years (your #) of 0.036% per year including ALL the insurance costs and a net IRR of over 8% net of fees with a guarantee you keep all your annual gains, do you really need to have a classic insurable need? Would the answer change your decision?

•  
  73

  DougDiggerEberhardt

  10/19/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Brett,
  
  You answered my worse case scenario question to my satisfaction. I do remember (it's been a few years) that they did grandfather the FIFO folks in when they changed the rules.
  
  Unfortunately (or not?) I have another worse case scenario which is more relevant and possibly not even a worst case issue.
  
  These policies that the client has taken income from (tax free loans) to the tune of hundred's of thousands of dollars by age 80, and then dies (best case scenario), would possibly have estate taxes to pay would they not? To the tune of 45% - 55% depending on the estate value?
  
  This is because as the tax code stands today, starting in 2011, the maximum that one can pass to heirs estate tax free is $1,000,000.
  
  Naturally most of the people you sell these types of policies to would buy them as a compliment to their IRA's, 401k's and house as part of their complete retirement portfolio. Retiring on a million today may or may not cover your liquid retirement needs. Your policy would be an added place where people could choose to withdraw money from tax free "if they are the owner of that policy" at age 65 as you illustrate.
  
  However, come age 80 or so, just a few years past mortality, the amount withdrawn is subtracted from the death benefit if they die correct? This means, if I'm not mistaken, that you have a larger death benefit ($1.2 million in your example) at age 80 because the loan is included in the death benefit for estate tax purposes at death.
  
  When the client passes away, the policy would be added to the estate and become subject to estate taxes along with the house, IRA and 401k.
  
  So yes, they get the money tax free during their retirement years, but the estate taxes would negate that "if" the person had an estate taxable estate above the $1 Million threshold in 2011 and beyond.
  
  Since I've been out of touch with the business a few years, I don't remember the rules, so I submit this post as a query, not an absolute.
  
  My understanding is that if the insured has insurable interest (owner and/or access to cash value) then it is included in their estate and thus subject to possible estate taxes.
  
  It is the death benefit alone that could cause all other assets in the clients estate to be estate taxed if the 2011 taxable level is maintained at $1 Million by the tax hungry Obama administration. As the Baby Boomers start dropping off, it's an easy place for the state to attack. It's another issue that I/we have no control over. Just speculation as to what "may" occur.
  
  An ILIT (Irrevocable Life Insurance Trust) wouldn't work as the insured couldn't take income from it.
  
  Although I agree there may be ways that the one's who can afford Private Letter Rulings might be able to accomplish this, that's not what the average Joe I believe we're speaking of here would do.
  
  I think I've said enough...just looking to see how you can have your cake and eat it too... That and I love to play devil's advocate...but always willing to learn that for which I do not know...
  
  Doug
  
  

•  
  74

  Brett A

  10/19/09 | Report as spam

  Estate Taxes

  Doug - as you know the Estate Tax issue is still up in the air. Here is what 2 sources report about it:
  
  Under tax cut legislation passed by Congress under President George W. Bush, the estate tax has been steadily shrinking and is scheduled to be repealed in 2010. If current law remains in place, it would then return full-strength, with a 55% rate and $1 million exemption level, in 2011. President Obama has proposed making permanent the 2009 estate tax rules beginning next year. Those rules tax estate wealth in excess of $3.5 million, or $7 million for married couples, at 45%.
  http://online.wsj.com/article/BT-CO-20090929-715377.html
  
  The Tax Policy Center estimates that if the 2009 estate tax is made permanent, only 6,410 - or one-quarter of 1 percent - of all estates will be subject to tax in 2011. If Congress does nothing and the estate tax reverts to the pre-2001 law, the center estimates that about 46,000 estates - or 2 percent of the total - will be subject to tax in 2011.
  http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/04/25/BUGE178HU6.DTL
  
  First, this problem is not mutually exclusive to having an Indexed Life plan so not an issue directly relevant to the other issues above - you'd have the tax to pay regardless. As you can see a very small % of people are subject to it, and this is not my area of sophisticated expertise. We are talking about two different kinds of needs and so a need for two different plans. If you know your estate is going to be subject to an estate tax after all other avenues to reduce it have been taken, then the short answer and best simple solution is to have a 2nd life policy in an ILIT to pay those taxes. You could possibly gift the income from the IUL to pay the ILIT premiums. A 2nd-to-die and/or other type may be better for the ILIT depending on the scenario and policy parameters required by the attorney.

•  
  75

  Allan Roth

  10/19/09 | Report as spam

  Repeating the question to Brett

  Could you take five seconds and just answer the question i've asked a few times:
  
  Do you dispute that Minnesota Life does not recommend this product for someone that does not have an insurable need?
  
  A "yes" or "no" would be fine.
  
  In response to your question - I use the guaranteed values that YOU PROVIDED as the "NO downside risk" you used in your challenge. Those value are the minimum that Minnesota Life is contractually obligated to pay.
  
  I agree that a mutual fund strategy with a 3% expense ratio is flawed and have written far more on this subject than others.
  
  This is not the first time I haven't been able to convince a producer that there are better investments outside an insurance wrapper.
  
  What IS a first for me is the following:
  
  This is the first time I've ever had an insurance producer continue to push a product its chief actuary recommends against for those like me without an insurable need.
  
  I'm not the Insurance regulator but I hope you are disclosing to clients that Minnesota Life does not recommend this product as a investment, without an insurable need.

•  
  76

  AztecTheRed

  10/19/09 | Report as spam

  A deeper look at Reset-Indexing versus Zero Coupon plus index securities

  Some interesting academia around this thread's topic. Not regarding the life chassis design, but the annuity side.
  
  http://fic.wharton.upenn.edu/fic/Policy%20page/RealWorldReturns.pdf
  
  Often a financial columnist or an occasional other writer will dismiss the index annuity concept
  by proposing that a consumer purchase a long-term zero-coupon bond together with an index
  fund instead of an index annuity (Clements, 2005; Pressman, 2007; Warner, 2005; McCann and
  Luo, 2006). These columnists and other writers often posit the term end point crediting method
  as the representative interest crediting structure. However, all term end point designs account for
  less than 4.5% of sales over the last four years and term end point design using two crediting
  components represents even less (Marrion, 2006, 2007; Moore, 2008, 2009). Indeed, Collins,
  Lam and Stampfli (2009) base their conclusions on a term end point that uses a cap, but less than
  1% of the products have ever placed a cap on a term end point crediting method (Marrion, 2009).
  Such a product is certainly not representative of index annuity crediting methods in practice.
  
  More at the paper linked... a worthy read, I think.
  http://fic.wharton.upenn.edu/fic/Policy%20page/RealWorldReturns.pdf
  

•  
  77

  Allan Roth

  10/19/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  AztecTheRed
  
  I've had a conversation with one of the Wharton professors, though not one who did this study.
  
  I don't agree that the long-term zero coupon bond and index fund only has an end-point application since both have market values throughout the period.
  
  I have recently interviewed another academic on his paper making the case for annuities. I'll write about this at some point but I think I've written enough lately on investing through insurance products.
  
  I continue to appreiceate your comments.

•  
  78

  DougDiggerEberhardt

  10/20/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Brett wrote:
  
  "If Congress does nothing and the estate tax reverts to the pre-2001 law, the center estimates that about 46,000 estates - or 2 percent of the total - will be subject to tax in 2011." (via Tax Policy Institute)
  
  Brett,
  
  My point for bringing this up is that in your example for the 52 year old and anyone else near this age, by age 80 they would have close to this $1 million threshold (accumulated or withdrawn) if the illustrations averages what was proposed.
  
  This in turn would add to the 46,000 estates virtually everyone invested in this product in that age bracket as the $800,000 to $1.2 million would be added to the individual's house, 401k, IRA, etc. Numbers of course will vary by age and return.
  
  Am I missing something?
  
  Allan, I don't think anyone at Minnesota Life, or its agents, would recommend someone purposefully make one of these contracts a taxable MEC to begin with.
  
  Maximum funding under IRC 7702 guidelines would however be something they would recommend.
  
  It's rather easy to portray insurable interest of an individual for the underwriters (the difference between cash value illustrated and the death benefit), especially if they have a spouse with income needs, younger children, potential estate tax issues (although this isn't the product for it, it can be a listed "need"), and/or even income needs to supplement retirement by the insured turning the cash value into a lifetime income settlement option (not my recommendation, but all we're doing here is fooling the underwriter right? Not that any reputable agent would do that of course....).
  
  Just playing devil's advocate on both sides....
  
  
  
  
  
  

•  
  79

  roccycwpp

  10/20/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Let me answer the question on insurable interest.
  
  Allan, this is a good illustration that you do not understand the insurance industry.
  
  If you call an insurance company and ask them if they will allow a product to be sold to someone without an insurable interest, 100% of the time they will say no. There are laws dealing with insurable interest they must comply with (which have been massively violated lately with SOLI/STOLI sales).
  
  Having said that, your question is one no advisor who understands insurance would ask of an insurance company.
  
  Why? Because every client you sell a policy on their life where the beneficiary is a loved one, a trust for the benefit of, or a charity HAS an insurable interest.
  
  It's a question where the answer is nearly always yes and goes without saying.
  
  If you ask MN life or any company that sells a cash value life insurance policy designed to build cash if it is ok to sell the policy to someone who is more interested in building cash and tax free income (loans) than the death benefit, the answer 100% of the time will be yes (because insurable interest is not an issue).
  
  So, this debate while useless to anyone who understands insurance, may prove to be useful to you Allan and anyone who does not understand the laws and regulations dealing with used cash value life insurance as a wealth building tool.
  
  I suggest you move off of the argument that CVL shouldn't be used because you asked the wrong question to the home office at MN life and instead focus on the numbers of whether using a life insurance policy makes financial sense as a wealth building tool.
  
  Roccy

•  
  80

  Allan Roth

  10/20/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  roccycwpp
  
  If you had read the blog, you would know that my past includes being financial officers of two multi-billion dollar insurance companies.
  
  The economics work as follows - Insurance company takes consumer's premiums, pay commissions, taxes, costs, and profits, and then invest the rest in fixed income and equities that the consumer could have bought directly. What's left, goes back to the consumer. I choose to disintermediate the insurance company and commission to the producer. I do not use the 3% fee mutual funds written about by producers in these comments. I use ultra low cost funds.
  
  There is no law that forced Minnesota Life to tell me they would not recommend this product for those without an insurable need. I think they they said this to be accurate. There is also no law that forced Minnesota Life to say they use a similar strategy as the zero coupon bond & low cost equity index funds strategy.
  
  Minnesota Life has differentiated themselves from other companies, in my book!

•  
  81

  Allan Roth

  10/20/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  DougDiggerEberhardt,
  
  Great comments - tax laws and logic do not go together. As a CPA, I've outsmarted myself many times. I don't predict what the stock market will do tomorrow and I don't predict what Congress will do ever.
  
  The fourth dimension of diversification is what I call tax-diversification from what Congress may eventually do to us. I wrote about it in the following:
  
  http://moneywatch.bnet.com/investing/blog/irrational-investor/roth-on-roth-iras-and-401ks/500/?tag=col1;blog-river
  
  The MEC was recommended by Brett, the insurance producer. The difference between the cash value and death benefit is the insurance value - not an insurable need.
  
  Thanks for continued great comments.

•  
  82

  Allan Roth

  10/20/09 | Report as spam

  The Lost Decade of Stock Investing

  Brett A wrote:
  
  "If you invested $100 in the S&P 500 at the end of the last decade, you're happy with Dow 10000 but still hoping for a 34.5% rally before year end -- just to break even. You'll need a staggering 72% rally when adjusting for inflation."
  
  http://online.wsj.com/article/SB125556534569686215.html
  
  I spoke to the author of this Wall Street Journal article and here is what I found:
  
  http://moneywatch.bnet.com/investing/blog/irrational-investor/fact-check-even-the-wall-street-journal-perpetuates-investing-myth/677/?tag=col1;blog-river
  

•  
  83

  Brett A

  10/20/09 | Report as spam

  Insurable Interest

  Let us assume for the sake of argument that the actuary with all the companies state you must have an insurable interest to purchase a policy - legally it is required. For some reason you are insisting that the only definition of an insurable interest is a dependent that would need the proceeds of a policy to sustain their life. It would seem too that your only planning horizon is how much profit is there at the end of the year. I look at it from a lifetime perspective, and my education and decades of work experience is to look at features, benefits and solutions from every perspective possible.
  
  Just like with the 3% minimum (if the S&P does nothing for 26 years) and maximum cost decoy, you are pounding away at another false argument in that 99% of the time there will be a classic insurable interest of a spouse, child, parent, other family member or even charity that each of us wants to protect. But what about the 1% (or less) who have absolutely no insurable interest except themselves. Is not guaranteeing you can preserve your savings from market loss a valid interest? Or that you can eliminate all future increased tax rate risk on the gains you take out? And by being able to take out those gains tax free? How about reducing the tax on our Social Security because the gains/income accessed as loans are exempt from the tax formula? Is there any one of us who would not want to be able to receive up to $1 million today if we are diagnosed terminal, to use it to save our life or pay the bills until the end? How about being able to access your savings before retirement to finance your life (the Own Banker strategy not possible or major restrictions with most other investments or Qualified Plans)?
  
  You would be very hard pressed to find someone without any financial interest that would not be enhanced with an Indexed Life plan. But to get a plan you do need to list a beneficiary. Would you deny yourself these benefits and self insurable interests because you did not have a typical beneficiary / insurable interest? I think not. Even so, can you find even one person who does not have someone (or an organization) they would not want to receive there estate proceeds (with life insurance or not)?
  
  This is the legal definition of insurable interest:
  
  (quote) A person is always considered to have an unlimited insurable interest in his own life and health. Therefore, the beneficiaries of the policies that an insured purchases on his own life do not need to have an insurable interest. It is presumed that the insured would name as a beneficiary only people who want the insured to live a long and healthy life. A person, therefore, can obtain as much insurance as he wishes on himself - subject to other limits an insurance company might have. For example, insurance companies commonly limit the amount of insurance they will place on a person to that appropriate to his income and life style. http://law.freeadvice.com/insurance_law/life_insurance_law/insurable-interest-life-insurance.htm
  
  Your argument about insurable interest is just another red herring to divert attention from the real merits of IUL for the Challenge. How many other false and illusory excuses do you have to justify your failing to agree that the minimal market risk and realistic potential gains based on historical returns of the past several decades, meets all the original conditions of your challenge? And do not even start that something else could do it as well or better - even if it can that was NOT a condition of the challenge. Show me anything we agreed to that says it or any of these other things are. We both know you cannot.
  
  

•  
  84

  Allan Roth

  10/20/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Brett,
  
  
  You neglected to mention the definition you used came from an insurance article?
  
  If I buy a $100 GPS, I could insure it for $20 or so with an extended warranty. I chose to self insure because it will cost me less in the long-run. Same goes for life insurance as insurance companies are in business to make money - even mutually owned companies.
  
  I"ll ask for the 5th time:
  
  Do you dispute that Minnesota Life does not recommend this product for someone that does not have an insurable need?
  
  A "yes" or "no" would be fine.
  
  I'll keep asking.

•  
  85

  Brett A

  10/20/09 | Report as spam

  Need

  Allan, Allan, Allan. Everyone has an insurable need - the insurable interest in their own health and financial well being is legally unlimited as a basis for owning a policy. So the situation you insist on does not exist. Why do you keep from refusing to answer the question: will the answer of Minnesota or any company make any difference in your decision?
  
  What will you do without something not related to the merits of IUL to harp on and deflect away from the real issue, which is how it can really perform and benefit anyone for a variety of personal and financial needs?!

•  
  86

  Allan Roth

  10/20/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Brett,
  
  So to document your beliefs:
  
  1) No one should self insure - very different than your comment - an insurable need "is not a factor in choosing to invest money in this product - it is incidental."
  
  2) A zero guaranteed value in your illustration equates to "NO downside market risk."
  
  3) No couple has any chance of dying without one first going to a nursing home for at least 2.5 years ?The odds of a couple age 65 eventually needing to pay for one typical Nursing Home stay for 2 1/2 years, is 100%!?
  
  4) You state you don't have time to participate in this forum discussion yet you:
  
  A) Keep posting
  B) Won't answer one simple question I keep asking.
  
  Your logic uses a different set of rules. In your world of logic, maybe Las Vegas casinos and insurance companies do exist to make consumers rich.

•  
  87

  roccycwpp

  10/21/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Allan,
  
  I had to laugh when I saw your comment that you were a CFO at two billion dollar insurance companies. That does not qualify you to have this debate. Most of the home office at these insurance companies who deal with these products on a day to day basis don?t really understand them (let alone some CFO who doesn't deal with the product).
  
  If you said you acted as an actuary for an insurance company and designed products, then your comments might have some validity.
  
  Why don't you stop talking about things you don't understand and take good information from people who are trying to be nothing but helpful.
  
  It is crystal clear you are not an expert when it comes to the use of EIUL policies to grow wealth nor do you fully understand the practical uses of insurance in general for wealth building.
  
  As for your cool aid drinking attitude towards MN life, I could post stories on this site that would make you ill from some of the things MN life has allowed in the STOLI (stranger owned life insurance) market.
  
  Why don't you let the real experts post on this site so that those who read the blog can learn vs. posting your uninformed opinions (which simply mislead the ignorant reader).
  
  To illustrate further your ignorance of the "best" EUIL policies, I?d like to let you know that if you use MN's EIUL policy and illustrate it at less than let's say 7%, a client would wish they'd never hear of EUIL.
  
  This is part of the problem with the insurance industry in general. Agents do not understand the products they are selling and consumers don't understand what they are buying. There are only a few products in the industry that are designed to perform well even if the returns dip down to 3%.
  
  Just for fun, I ran an EIUL illustration with a policy that is designed to perform well in a not so terrific market (and it's not MN life).
  
  I used a .5% mutual fund expense (which is 1% or more below the industry average). I used a 10% blended cap. gains and dividend tax rate on the growth (which is a joke, but I did it to illustrate my point). I assumed NO local money manager fee.
  
  I assumed a gross rate of return in the mutual funds at 6% and a 6% gross rate of return in the EIUL policy (and I used wash loans if you know what those are). And I assumed the market did not tank 59% like it did in our recent stock market crash right before the example client chose to take his money out.
  
  I used a 45 year old male in good health. I had him put in 15k a year into a mutual funds from ages 45-64 and the same amount of money paid as premium into the EIUL policy. Then i assumed the client took out loans from the policy from ages 65-84. He could remove $42,037 tax free via policy loans from the policy each year (and there was a $760,000 death benefit to boot).
  
  Out of the mutual funds after expenses, he could remove $37,224 a year from ages 65-84.
  
  So the EIUL policy generated $4,813 more a year in after tax, after expense money to be used for retirmeent and the client had a $760,000 DB along the way. And oh yah, if the stock market tanked 59% during the life of owning the EIUL policy, in the negative years, the return in the policy would equal zero (yes, zero is your hero when he market tanks).
  
  The bottom line is you are way over year head with this discussion.
  
  Not only do you not understand EIUL and cash value life insurance policies well enough to have this debate, not only do you not know enough about the industries or companies to decided that MN life is a good company, but you don't understand the math that is needed to even begin this debate.
  
  So please, either educate yourself better on the issues you are discussing or stop pontificating on subjects you are not qualified to discuss.
  
  Oh, and finally, stop talking about MN life saying they wouldn't sell the product to someone without an insurable need. As I stated early, that's a non-issue and posting as such simply makes you look like you have no idea what you are talking about.

•  
  88

  Allan Roth

  10/21/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  roccycwpp,
  
  When you write:
  
  "To illustrate further your ignorance..."
  
  Calling me ignorant is the most used term by insurance producers in communications to me. In actuality, I worked with two actuaries who reported to me to design products.
  
  I don't doubt you can run an illustration that looks good. I doubt you can actually achieve stock market returns without risk. I can run an illustration using garbage inputs to get garbage outputs.
  
  Here are some facts in my dealings with Bret A, the producer that are very common among producers:
  
  1) Communications were extremely bias - for example, never was it brought up in emails or phone calls that the insurance company had the right to lower caps or that I was paying for insurance. It was all buried in the literature.
  
  2) Communications were false - for example, Brett stated Minnesota life had never lowered the caps and that the insurance regulators demanded this unilateral right to lower the cap to 3%. He stated that the S&P 500 index was the market return, rather than having dividends stripped out.
  
  3) Communications contradicted prior communications - for example Brett A stated an insurable need "is not a factor in choosing to invest money in this product - it is incidental." Later, he claimed I had an insurable need.
  
  4) You and Brett continue to recommend a product whose manufacturer, Minnesota Life, states I have better options to invest directly in a similar strategy and disintermediate producers and the insurance company. You should feel free to contact Benjamin Roth to see if your claim of the insurable need is a non-issue to them.
  
  5) When the facts don't support the claim of:
  
  "I can blow away saving for retirement in any market fund, with an Indexed Life policy. How about a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk."
  
  You revert to calling people "ignorant" or other personal insults.
  
  Your income depends on you not understanding how an insurance company makes money. I never dreamed I would convince you. My goal was to either find a better product or point out to consumers the tactics used to sell this stuff, which makes the mutual fund industry I'm so critical of, actually look pretty good by comparison.
  
  

•  
  89

  Brett A

  10/21/09 | Report as spam

  Best Indexed Life

  Roccy and I had an email conversation 1/09 about comparing another co. (X) and Minnesota Life. His claim was that X is better, and that the comparison needed to be run at 7%. I explained to him you could not fairly compare IUL with different caps at a same ill. rate because the cost structure was designed for the cap % used. In his quote below you can see he came to agree.
  
  Roccy (quote): I agree that it?s a tough comparison to illustrate them both at 7% because the MN life product has a higher cap ? I NEVER use the default (illustration) rates ? (X) has a 140% crediting option (so) is the best product out there if you think the market returns will be modest. There is no comparable product out there. As far as high cap products are concerned, I?ll have to look at MN Life (unquote).
  
  As for his preferring co. X, it was because they have a 140% option. Since then Minnesota has also added this option with a 14% cap. The cap for co. X for the policy Roccy prefers is currently 11%. This plan though also has a 5 yr bucket which means you cannot change your strategies for 5 years. This plan also has a different lower cap for years 2-5 which is only 10%. It also has higher expenses than Minnesota Life.
  
  If you run a projection using actual policy expenses (Minnesota is 25% less) and current caps (for co. X it is 11,10,10,10,10) against actual gains of the S&P 500 index the past 20 years, for a $12,000 annual premium for someone age 50, today the cash value with Minnesota in year 20 is $525,672. For X it is $385,287. (A mutual fund with gains equal to the S&P 500 index less 3% in avg. fees (Morningstar) would have a net value of $318,969). I think it is fair to say that the plan he prefers is clearly not better than Minnesota. I do not think he has looked at Minnesota yet.
  
  I look at all the companies and run projections using each companies actual policy costs and current caps - not a company illustration rate. I apply these against the actual S&P 500 gains the past 20 years. I then determine what illustration rate (IR) in the company software would give me the same cash value. For every company except Minnesota the IR value is always less. For example for co. X the current IR is 7.8%, but the rate to give me the same CV is 6.01%. This is because their system does not factor in the lower cap rate in years 2-5. For Minnesota their current 20 year IR is 8.53%. For the same CV it would need to be 9.41% - the only co. that is higher than their actual current rate. This was not meant to be a commercial but I need to stand up when someone claims an inferior policy is better. When you look at all aspects of each companys policy, Minnesota Life is currently the best.

•  
  90

  Allan Roth

  10/21/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Brett,
  
  To confirm, you run illustrations with assumptions that don't come from Minnesota Life or those from the insurance company issuing the policy?
  
  

•  
  91

  Brett A

  10/21/09 | Report as spam

  Minnesota Values

  Quite the contrary - for both companies these are run with actual policy costs (from the policy illustration), current caps and participation rates, applied against actual S&P 500 index gains the past 20 years the same as the companies do.

•  
  92

  finnetusa

  10/21/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Allan,
  Please learn to read each post carefully before you post such a question. Mr. Anderson did not say what you asked. Got back and read it again. First, seek to understand, before you seek to be understood.
  

•  
  93

  Allan Roth

  10/21/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  finnestusa,
  
  Brett noted "I apply these against the actual S&P 500 gains the past 20 years."
  
  That's not how the illustration from Minnesota Life was run.
  
  Thanks for the lecture, though I'm not sure why you think questions are inappropriate. I'd still love a response from Brett as to whether he still thinks my statement regarding Minnesota Life not recommending this product for me is
  
  "an outright LIE - this is not the honest contetxt of what the Minnesota actuary said to you." (misspelling left so as not to change his statement).
  
  Remember, the claimed goal is learning so I welcome all questions more than insults and lectures.

•  
  94

  Brett A

  10/21/09 | Report as spam

  Cash Values

  They do it exactly as I stated. The only difference is they use only the annual gain of the S&P index on Dec. 20 to apply the cap and participation rate against. As I explained near the beginning of this column, I use the average of the quarterly annual gains for an annual gain to use. Based on the resulting CV they determine what rate would result in the same 20 yr CV so that a computer has a % value to run the illustration. If Allan would take the annual premium (+ existing CV), deduct the annual costs and multiply that by the policy IR he would get the CV shown on the illustration. The only other variance is this % # would vary a bit by age as the costs would be different, so the companies average it out to come up with the IR used for all ages.
  
  The ones I stated in #89 were the results for a M50 and the particular policy parameters used to compare apples-apples against other policies. When there are zero gains, I deduct the expenses from the CV (and for all years). When there are gains I add them based on the years actual average gain. If Minnesota life ran this CV projection based on using actual costs and Dec. gains of the S&P the past 20 years you would get the same value with the program I use - I know because they have run it for me.

•  
  95

  Allan Roth

  10/21/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Brett,
  
  Thanks - In the interest of learning and being truthful, I'd still love a response as to whether you still think my statement regarding Minnesota Life not recommending this product for me is:
  
  "an outright LIE - this is not the honest contetxt of what the Minnesota actuary said to you." (misspelling left so as not to change your statement).
  
  I'm gathering you've spoken to the chief actuary about our three conversations.

•  
  96

  Brett A

  10/21/09 | Report as spam

  Insurable Interest and other Factors

  I have some time again to focus on this for a few minutes, so first lets address the LIES made by Allan in #86 and #88. Let me start too by saying that when I accepted this Challenge I did so with the hope that he would have a fair and open mind - he has proven with his continued battering at completely irrelevant issues already answered over and over, and refusing to address any of the actual merits of IUL, that he is not. Also, when we first spoke Allan told me he does not have an insurance license and had no knowledge or understanding of Indexed Life. Unfortunately that does not seem to have changed. So his only game plan is continued deflection and ignoring them. I hope for your own benefit that you will examine all the evidence I have provided to counter this including:
  
  1) I NEVER told Allan that the company had never lowered it caps and never would. This is another LIE. If he only opened my book he would know this is so. Why would there even be a minimum guaranteed rate if the company could not lower the cap? It also states in the illustrations I sent to him: the co. can change the cap.
  
  2) I NEVER said anything to him about self insurance. But I believe it is dumb to self insure for a life insurance need.
  
  3) He says I never told him he was paying for life insurance. Another LIE. I was insistent from the beginning that he understand this was a life insurance policy. That (and any investment) inherently have specific costs. A life policy has life costs. He even acknowledged this in response to comments from readers correcting him in a prior column, this was for life insurance. I sent him company and custom illustrations that specifically listed these costs.
  
  4) He says I said an insurable need "is not a factor in choosing to invest money in this product - it is incidental." If I did that is True - a life insurance need is not required (see 7 below). There are many other benefits to owning a policy that you cannot get in any other investment that are legally valid reasons to buy it or they would not be legally approved benefits. These include:
  
  a) Gains linked to the S&P 500 with no downside market risk (savings insurance).
  b) Taking out gains as loans does not go in formula to tax Social Security (income protection insurance).
  c) You can take out the gains as a loan Tax Free (tax rate increase risk insurance). (Loan Method required by Congress).
  d) If diagnosed as terminal the company will advance up to $1 million while alive (staying alive insurance).
  e) You can access the money without penalty and continue to earn gains linked to the market before 59? or pre maturity date. You cannot do this with the zero coupon bond + stock strategy Allan promotes, except by surrender and/or selling it (Emergency and Liquidity insurance).
  f) A 3% minimum guaranty (Principal/contributions insurance).
  
  What about a life insurance need? In the 80?s investors were putting large amount of money into insurance that had a very small life insurance amount just to take advantage of the Tax Free withdrawal benefits. So Congress changed the rules specifically to regulate the purchase of life insurance by INVESTORS -- this is IRC #7702. This specifically outlines the minimum insurance rules INVESTORS (and others) have to abide by, to be able to take gains out of a life insurance policy Tax Free. There is however NO legal requirement that if you buy life insurance on yourself that there has to be a need for life insurance. But the plan must have X amount of insurance (based on age, gender and premium) in it to qualify for the Tax Free benefits that come with the policy. That is fine - and there are easy ways to reduce the amount required to the minimum required by Congress to reduce costs and so maximize the IRR over time to 7-9% NET for most.
  
  5) It is a LIE that I told Allan he had no insurable need. I have no idea if he does or not, but my guess is he does. 99% of us do. I wrote before that we never discussed this for me to know.
  
  6) He says I said: A zero guaranteed value equates to NO downside market risk. This is another perfect example of him purposefully taking something out of context and trying to turn what is a positive into a negative. It is true and a primary reason investors will put $1 billion of new 1st year premium into IUL this year! In the context it was said, if the index has a negative return for the past year Indexed Life guarantees the company will deduct ZERO of those losses from your Cash Value. Each year and decade as you accumulate gains you KEEP ALL OF THEM less only policy costs. The average annual expense over 26 years for Allans MEC proposal was 0.36% per year! Name ANY other investment with an expense cost as low and net gains as high!
  
  7) What about this requirement to have an Insurable Need? What you need to understand about insurable interest is that there are two kinds:
  
  A) Someone else getting insurance on your life. For this there needs to be a valid interest to want you to stay alive. Or else the mob would buy a policy on you.
  
  B) Getting it on your own life. There are NO limitations of what defines this need - you can have life insurance for whatever reason you want even if there is no specific need for it to financially protect another person.
  
  (Allan complains the source I listed for this came from an insurance article. It came from a legal site that runs commercials too as almost every site does - in this case there were some for term insurance - I have no idea who for. Allan should look at his own site - they also run commercials. Because it has Fedex under his picture is what he says on this site false?)
  
  Here is what the actuary said to me about the conversation with Allan:
  
  (quote) Individuals can buy insurance on themselves for any reason that they want to. No question at all about that. Investment oriented individuals generally have a hard time getting past the insurance extras that they have to buy to get at the investment. He (Roth) asked, what if I do not need life insurance. I responded that anyone who has a financial plan with no life insurance has an extremely unusual situation. The vast majority of Americans have a life insurance need. Planners who suggest and do otherwise are likely doing a disservice to their clients. In the end, he chose to extract only the words that helped him to make his story. (unquote)
  
  If you have no life insurance need and you still wanted to have an IUL with all its benefits, guarantees and LOW cost you CAN. Congress says so. All 50 states have specifically approved these plans and benefits so you can.
  
  8) What about Long Term Care (again for the 3rd time). This is the explanation posted in #9 about the need for LTC. I also explained it again for Allan in a reply after that. A couple can die and never need LTC -- that is covered in Option 4 below (as I told him before). On the flip side they may both need it. Based on the U.S. Government statement that the odds any one person needing some care over age 65 is 70%, the average need per couple will eventually be 100%. These are the four possible scenarios:
  
  1) Each spouse needs LTC: 100% + 100% = 200%.
  2) Husband only needs it: 100% + 0%
  3) Wife only needs it: 0% + 100%
  4) Neither need it: 0% + 0%.
  
  Even Allan can add up the columns and divide by four: 400% / 4 couples = 100% chance of 1 need per couple on average. This does not mean each couple will have one need - only the average. According to MET Life and other sources, the average time of Nursing Home need is 2.4 years.
  
  I realize Allan needs to obfuscate, but I think even the 2nd grader in his book would understand this after 3 times. Why does he insist on pounding away at this and other non-issues instead of addressing the actual benefits and merits of Indexed Life? All he is doing is depleting his credibility by continuing to do so.
  
  
  9) Finally, what about this Zero Coupon bond method? For the sake of argument I conceded a long time ago it had more return than IUL. But does it - after taxes? With that method all those gains are subject to Capital Gains tax or - if in a qualified plan - ordinary taxes. The net IRR just went down. Those gains eventually taken when taking Social Security go into the formula to tax Social Security. So the net IRR just went down again. If tax rates go up in the future your IRR just went down again. Also what is the cost to have no liquidity (above) before maturity? Also, Allan has presented NOTHING to show what the typical net return would before over different, lengthy periods of time whereas I have for the IUL. Are the average costs really less than IUL? There is an old saying: It does not matter what you make - it matters what you KEEP! Nothing out-KEEPS IUL long term when you factor in all related taxes and costs!
  
  
  10) Allan recently raised the time period for consideration from 10 to 26 years. In this case we can look at the 5 pay, Tax Free version of the IUL for the Challenge: http://www.keepandshare.com/doc/view.php?id=1473914&da=y . Look at year 14 - he can start taking out $20,000 per year in Tax Free Income! The NET IRR in year 26 is 8.08%. Social Security is NOT taxed because of this. It is exempt from All tax rate increases! The average of ALL expenses including insurance over the 26 years is 0.63% per yr. Look at year 6 and you will notice the insurance drops from $447,460 to $163,581. This is something anyone can do within the parameters of the rules set up by Congress to minimize insurance costs and increase CV and so IRR. But most agents and laypeople do not know you can do this (not Aviva - they will reduce the insurance but not the costs). One of Roths many deflections was to complain - and an excuse for not doing this plan - that I did not tell him about the exorbitant insurance costs in the later years. The expense factor for ALL costs in year 20 is 0.016%. In year 30 it is 0.017% ($1,506 on $869,000. A mutual fund with avg. fees of 3% would cost $26,000!). If that is exorbitant I apologize.
  
  The 8.08% IRR reflects the cap rates based on historical low Fed. interest rates today of 0%. At average rates long term (and so a larger option budget), caps at a minimum will likely average 2% higher. The net IRR could very well be 9%! For a Qualified Plan you will need to net with a 35% mtr 13.85% to equal this. If it goes to only 40% you need to net 15%!
  
  Can anyone show me an investment NET IRR with NO market risk equal to this? How about with risk? You CAN NOT do it! Even if you could, none of them will include all the other benefits - because legally only life insurance can!
  
  11) Estate Taxes. For the person who asked about this on $1 million in 30 years, why are you not adjusting for inflation? At the avg. of 4% since WWII this would increase to $3,343,000. But that is irrelevant - Congress can change the exempt amount and % of tax at anytime and it would apply to any kind of asset. You cannot make choices based on what Congress might do on estate taxes over the next 30 years.
  
  Summary: DO YOU REALIZE ROTH HAS NOT ONCE REFUTED THE POSITIVE BENEFITS and IRR OF IUL or the ACTUAL ORIGINAL CONDITIONS OF THIS CHALLENGE?! After being asked if he could do so many times! He CANNOT, which is why his only hope is that you will continue to not notice the endless deflections and a strategy of ignoring the real MERITS of IUL, and the actual Challenge factors: limited downside market risk, and 8% net of fees IRR in year 10. I ask for proof there was ever anything else and he provides NOTHING! I?ve met all those conditions and more!
  
  If Roth ever really addresses any issue that matters, someone please let me know.
  

•  
  97

  Allan Roth

  10/21/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Brett,
  
  The illustrations and the emails are from you - you can't take them back.
  
  Your challenge was:
  
  "I can blow away saving for retirement in any market fund, with an Indexed Life policy. How about a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk."
  
  You returned with a vehicle that had more downside risk than a 60/40 portfolio and which the insurance company controlled the payout. Commisions for you were great!
  
  I'll be happy to give you another chance to meet that challenge but I'm not your usual prospect. I read the policy rather than just your sales pitch.
  
  Your communications are very biased. Wouldn't he Minnesota Life officer have defended you if he agreed with you? Why does he continue to talk to me?
  
  He is transparent in going through the issues as to how the product is designed.
  
  I wish it were required that all producers do the same. I do applaud you for choosing an ethical insurance company for this challenge. I've had officers of other insurance companies use similar tactics you use.
  
  I want market returns without risk for my family - I just want to mark sure they are real first. Your submission wasn't close. Minnesota Life agreed and you didn't have the judgment to stop arguing that the numbers you submitted met that challenge.
  
  
  
  

•  
  98

  r_buckner

  10/21/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  I sell term life insurance, but I have tried my best to keep an open mind on the IUL product. I have studied an IUL Policy Illustration for a 25 year old with a $1.5 million Death Benefit. (Initial Annual Premium: $109,248) Ten year Account Value: Non-Guaranteed $189,861/Guaranteed $112,387. It seems like you either come out on one side or the other with your opinion on this product. I did find a very good, real-world, unbiased description of pros and cons.
  
  "There are a lot of different types of UL.
  
  The good is it's more flexible than straight whole-life. You can over fund, under fund build up a lot of cash in it etc.
  
  The bad is MANY people have lost their policies and all their money with UL because they didn't understand what it is and thought of it as straight whole-life. It's more complicated.
  
  The no lapse ULs are the cheapest way to have a permanent death benefit provided you never miss a payment OR routinely pay late. My opinion is that many of these will also lapse because people are not that structured their entire life. When they get old and children take over bills, many times things have already gotten out of control. If this account overdrafted- policy guarantee is probably gone.
  
  People go on Medicaid, people change bank accounts, people move and miss billings, people forget.
  
  It's a 50-year old that you are selling it to and fully understands but it's a 90-year old that has to do everything just right to keep the guarantee in force (40-years later)
  
  I would definitely educate your client about the difference in straight whole-life and guaranteed UL and let them decide. If they go UL, I would recommend they overfund it during the early years to give it a head start.
  
  UL is not a bad product, it's just more complicated and there are more possible ways for people to lose ALL their money with it. And when that happens they ALWAYS feel like the agent screwed them."
  
  
  ------------------------------------
  J Scott Burke
  Life & Health Agent
  IMO for Final Expense
  

•  
  99

  roccycwpp

  10/22/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Wow, what a bunch of nonsense.
  
  Let's get off the MN life discussion. Their product is a good product if you want a "high cap" product. If the S&P 500 does well over time (returns that would average 8%+ in the policy or higher), then the MN life policy will perform well.
  
  If the returns are less than 8%, then another product would either outperform or significantly out perform the MN life product.
  
  It is accurate to state as I have on other message boards that it's not fair to compare a high cap product with a low cap product when using the same illustrated rates. That's why when I have compared MN life to other products designed for less robust markets, I make sure I illustrate MN life with a 1-1.5% higher crediting rate (although this part of the discuss on this message board it totally irrelevant).
  
  I got involved in this discussion because it was clear that Allan does not understand EIUL and does not understand the differences of the products in the market.
  
  Further, he does not understand the math behind comparing in the "real world" using cash value life to other wealth building tools.
  
  My statement that Allan is "ignorant" as listed above has been proved to be accurate by his posts.
  
  It's not the end of the world. As I indicated, 95% of the insurance agents selling the products don't understand them and it make sense that Allan (someone who doesn't sell them) wouldn't understand them either.
  
  I also don?t' care about Brett's comments. My concern is someone like Allen who holds himself out on the web as an expert making inaccurate or false statements and then having consumers read them and take these statements as truths.

•  
  100

  Dylan R

  10/22/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Reading all of this, it becomes quite clear that Brett just
  doesn't get it, and like Allan said, his income relies on him
  not actually getting it. So I don't think I ought to try
  changing his mind, but I do think I can help him with his
  misunderstanding of probabilities.
  
  Using Brent's math to examine the chances
  of one member of couple being trampled by elephants
  before turning 65, we can see that there are the four
  possible scenarios:
  
  1) Each spouse gets trampled: 100% + 100% = 200%.
  2) Husband only is trampled: 100% + 0%
  3) Wife only is trampled it: 0% + 100%
  4) Neither are trampled: 0% + 0%.
  
  Add up the columns and divide by four: 400% / 4 couples =
  100% chance of 1 person in the couple being trampled by
  elephants before age 65. Scary, isn't it? Or do you now see
  the flaw in your logic?
  
  Allan, you are doing a great job (with a lot of unintentional
  help) exposing the way these products are sold.

•  
  101

  Allan Roth

  10/22/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Dylan,
  
  Great explanation!
  
  I use the two coin flip to explain - If I flip two coins, each has a 50% of coming up heads.
  
  Using Brett's UIL logic, because each coin has a 50% chance, then 2 coins must have a 100% chance (2 x 50%). Thus, in Brett's universe, there is a 100% of getting at least one heads in any two coin flips.
  
  I hope insurance regulators don't use this logic.

•  
  102

  Allan Roth

  10/22/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Examine the facts of the challenge:
  
  "I can blow away saving for retirement in any market fund, with an Indexed Life policy. How about a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk."
  
  1) "How about a NET return of 8%"
  
  The illustration showed 8% using input assumptions picked from a historic period where the raging bull began. Insurance company had a unilateral right to lower returns and had already done so this year.
  
  2) "that allows you to take out the gains Tax Free for retirement income"
  
  Brett proposed a product that did not allow me to take out any gains as he used a MEC. In reality, in a non-MEC, any gains are borrowing your own money which can create catastrophic tax consequences if the policy lapses
  
  3) "with NO downside market risk.
  
  Per the illustration numbers provided by Brett, guaranteed returns were as follows:
  
  1-Year return: -10.3%
  10-Year return: -4.9%
  26-Year return: -100.0%
  
  I don't see this as "no downside risk" and it happens to be far riskier than a low-cost balanced portfolio.
  
  The bottom line of the disagreement is I see the facts provided by Brett, the challenger, as failing the challenge. The challenger, Brett, and certain insurance producers see this challenge as having been met and I'm an "ignorant" writer prone to lying.
  

•  
  103

  roccycwpp

  10/23/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  In my opinion both Brett and Allan have failed this challenge.
  
  Brett has failed because he can't communicate in English the value and benefits of EIUL and he doesn't know how to illustrate real world returns and compare them to mutual funds.
  
  Allan has also failed, because it is clear he doesn't understand EIUL or the math supporting its use to help clients build wealth in a safe and tax favorable environment.
  
  I suggest we focus on the numbers.
  
  Let me re-input the numbers from the example I inserted above.
  
  Just for fun, I ran an EIUL illustration with a policy that is designed to perform well in a not so terrific market (and it's not MN life).
  
  I used a .5% mutual fund expense (which is 1% or more below the industry average). I used a 10% blended cap. gains and dividend tax rate on the growth (which is a joke, but I did it to illustrate my point). I assumed NO local money manager fee.
  
  I assumed a gross rate of return in the mutual funds at 6% and a 6% gross rate of return in the EIUL policy (and I used wash loans if you know what those are). And I assumed the market did not tank 59% like it did in our recent stock market crash right before the example client chose to take his money out.
  
  I used a 45 year old male in good health. I had him put in 15k a year into a mutual fund from ages 45-64 and the same amount of money paid as premium into the EIUL policy. Then I assumed the client took out loans from the policy from ages 65-84. He could remove $42,037 tax free via policy loans from the policy each year (and there was a $760,000 death benefit to boot).
  
  Out of the mutual funds after expenses, he could remove $37,224 a year from ages 65-84.
  
  So the EIUL policy generated $4,813 more a year in after tax, after expense money to be used for retirement and the client had a $760,000 DB along the way. And oh yah, if the stock market tanked 59% during the life of owning the EIUL policy, in the negative years, the return in the policy would equal zero (yes, zero is your hero when he market tanks).
  
  -It is a fact that a client's money will not go backwards in an EIUL policy because of negative returns. This is the protective feature of the product and why as an asset allocation model many clients should have money in these policies. However, for full disclosure, in down years, the actual cash in the policy will go backwards slightly to pay the costs of insurance.
  
  Again, from what I can tell, no one posting on this site knows these products well enough to pontificate as they have been.
  
  Again, the problem with blogs.
  
  I submit to any consumer who reads this that they can learn the lesson that few advisors understand the math of wealth building products being offered to their clients.
  
  Be careful who you take advice from because taking it from someone who?s "ignorant" about the viable wealth building tools could cost you dearly.

•  
  104

  Allan Roth

  10/23/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  roccycwpp,
  
  A couple of points -
  
  1) I don't dispute you could compare apples to oranges with unreal assumptions and come out with an illustration that an insurance investment in mostly bonds and some equities, less costs, commissions, taxes, and profits comes out with a higher return that a completely different asset class mix. I just question the assumptions and the applicability.
  
  2) Regarding your statement
  
  "Allan has also failed, because it is clear he doesn't understand EIUL or the math supporting its use to help clients build wealth in a safe and tax favorable environment."
  
  Thank you. My whole life I've been called a math geek and your statement kind of makes me feel good. I think I'll forward your statement to the Minnesota Life Actuary who must have the same misunderstanding and "ignorance' of the math that I have?
  
  

•  
  105

  roccycwpp

  10/24/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Funny. Go ahead. Most of their entire staff gets my weekly newsletters, know my opinion of their product, and they are familiar with my distain for people who do not understand the math when talking about EIUL or building wealth with cash value life specifically.
  
  You may consider yourself a math geek, but you have not put in the time needed to understand the topics you are talking about in this blog.
  
  If you put in the time, I?m sure you would understand the math and you'd be doing readers of your blogs a service by learning it.
  
  Make sure you copy your correspondence to Ben Roth at Minn. life. You might also send him to this blog so he can give you his opinion of your comments (ignorant and valid ones you've posted).
  
  To the extent you'd like to learn this subject better, feel free to e-mail me directly at roccy@thewpi.org and I'd be happy to send you a complimentary copy of my new book Retiring Without Risk. It would be a good starting point for your education on EIUL policies and their use in the real world as a wealth building tool.

•  
  106

  Allan Roth

  10/24/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  roccycwpp,
  
  Ben Roth at Minnesota Life is well aware of this blog. If you had read this, you'd have seen Ben Roth is the person who stated there were better products for this challenge, which did not involve an insurance need. We seemed to be on the same page on the math and the design of the product.
  
  I'd love to see your newsletter and book. I'll email you.
  

•  
  107

  Brett A

  10/24/09 | Report as spam

  More LIES by Allan

  1) The illustration showed 8% using input assumptions picked from a historic period where the raging bull began.
  
  Answer: You mean 65 years ago? The fact is - and he knows it and I?ve posted them by link in this blog - the illustration rate used is actually less than the average credited gain based on the past 10, 20 and 30 year gains of the S&P 500 Index over the past 65 years. He knows he is lying by saying it is based on raging bull assumptions.
  
  2) Insurance company had a unilateral right to lower returns and had already done so this year.
  
  Answer: Sure they do. In this case the cap dropped from 17% to 16%. This is why there is a minimum gty. If they have a fixed $X budget and the cost goes up it naturally follows they can only buy less of the item - in this case options on the S&P index. We ALL know Interest rates are at historical lows (0%). As they increase again so will the cap on the IUL. The cap today on one of the oldest IUL?s is the same as it was 10 years ago - inbetween it was only higher. The more guarantees (and so costs) you want, the lower the cap and potential gains. The stock market has no minimum or principal guarantees. All the studies show people are more than willing today to give up potential higher gains for more safety. If you want 100% guaranty the rate can?t go down then go buy Allans Treasury with a 3% return.
  
  3) Brett proposed a product that did not allow me to take out any gains as he used a MEC.
  
  Answer: That is another lie - I gave him a choice which he refused to make. I made it very clear to him that the MEC gains would be taxable when withdrawn. He was given a choice because of his 10 year condition to have achieve an 8% net IRR. He has since raised it to 26 years (see #5) eliminating this requirement.
  
  4) In reality, in a non-MEC, any gains are borrowing your own money which can create catastrophic tax consequences if the policy lapses.
  
  Answer: This has to be boring for all of you too - responding to the same issue over and over to someone with the cognizance of rock it seems. The requirement to borrow the money out to receive it Tax Free is that of Congress. And as has been said several times the IUL comes with an Overloan Protection rider that guarantees the policy will never lapse and cause this taxable event. How many times can Allan ignore being told of this feature (and others) before he loses all of his credibility and integrity?
  
  5) "with NO downside market risk (but the )guaranteed returns were as follows:
  1-Year return: -10.3%; 10-Year return: -4.9%; 26-Year return: -100.0%.
  
  Answer: We have been over and over this, so it is a perfect example of Allan having no valid argument against Indexed Life so he has to beat this to death. These returns will happen only if 2 conditions occur: The S&P essentially has a 0% return every year for the next 26 years (the 20 year S&P avg. the past 65 years is 7.93%) AND the company increases the costs in the policy to the maximum allowed (in 128 yrs. they have never increased the costs of an issued policy) starting the year it is issued.
  
  The REALITY is the Indexed Life policy based on historical performance of the S&P the past 65 years, and practice of the co., will perform as good - and more than likely better - than the conditions of the Challenge.
  
  6) Why does not the actuary for Minnesota respond in this column?
  
  Answer: Because as much as he disagrees with Allan?s twisting of the facts (which I quoted him saying Allan did in my prior response and for which Allan had NO reply), his hands are tied because of his position. The lawyers will not allow him to because anything he says directly anywhere - no matter how innocuous or true - can be the cause of a suit by any moron looking for a payday.
  
  7) As for Roccy and his continued propaganda that X policy will work better than a high cap product when the actual Index has low performance, this is a joke. His underlying basis is that the lower cap product can do this because it has lower costs, when in reality in this case it is 25% more. Strike one. To offset this he prefers a 140% participation rate option offered by X -- Minnesota has it too. Strike two. Yet somehow he wants you to believe a lower cap over a 5 year index lock-in period of 11%, 10, 10,10,10% will be better than 14% all 5 years. Even our moron is not dumb enough to fall for that. Strike 3 - he is OUT! It is because of this type of math that many agents who have read his book say they prefer mine by far.
  
  Summary. Roth lost this challenge and he knows it. More importantly so do you. Because anytime when someone spends 100% of their time on factors that do not matter and have nothing to do with the actual challenge requirements, you know you won. There were ONLY 3 conditions:
  
  1) Show limited downside risk: Your principal and earned gains do NOT go down with the market. This factor goes to IUL.
  2) Show an 8% IRR net fees. This factor goes to IUL.
  3) Do #2 by yr. 10 -- later increased to yr 26. This factor goes to IUL.
  
  After asking over and over that he do so, he has NOT posted anything that shows there were any other conditions.
  
  Because he knows there were NO other conditions. I foolishly assumed this would be decided by what would likely be the real outcome 99.9% of the time. Not on completely irrelevant things like the probability of LTC. Even if I?m wrong (and I am only if the U.S. Government and Met Life statistics are), what does it have to do with this challenge? Absolutely nothing. Insurable interest? Guess what - NO response from Allan after the explanation I posted but he focused all his attention on this non-factor for over a week to avoid the real issues. The heart of his pounding on this were the costs of insurance - but the truth is the TOTAL average costs of the policy (which include commissions) at 0.63% are less than almost anything else you can do! So now there is silence from him on this.
  
  For almost two weeks he has refused to address any of the real benefits with Indexed Life or the real likelihood of the gains - just saying the same lies over and over again that even his readers say are no longer an issue. Do you notice he did not reply to any of the prior statements I had proved he lied about? You cannot have an intelligent conversation of integrity and credibility with this kind of a person. That conversation would have been one of saying, what about this and what about that. Not saying IUL - or anything else - had no merit because if the S&P has a 0% return for 26 years in a row AND the company increases its cost to the maximum, it will be worth $0. Guess what - so will the stock part of his investment! If anyone out there wants financial advice of value, I think he has proven himself that you need to look somewhere else!
  
  Roth refused my challenge of having his wife say which plan she would prefer - because he knows what her answer would be! No one is responsible for your retirement but you. I hope that gives you a clue that for a simple plan with the potential for earning index gains - and KEEPING them - the right Indexed Life plan is second to none! If anyone can show that anything else can perform better than IUL with market risk or not, and with lower costs and comparable tax protection, then let me know! Otherwise, this chat was interesting but it is time to move on to a forum where it is possible to have an intelligent conversation about the actual MERITS and TRUTH about IUL!

•  
  108

  roccycwpp

  10/25/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  No, i didn't notice that Ben was on this blog. I only got on this blog when another advisor asked me to post to try and give some real world numbers it.
  
  I've not read every post, just sort of glanced through most of them until i found a few that I figured I needed to comment on.
  
  As for the book, yes, please e-mail me your contact info, I'll shoot one out to you. I will then also add you to my newsletter list as well.

•  
  109

  roccycwpp

  10/25/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Brett,
  
  If you are going to talk about why I like product X better than Minn. Life, at least quote me accurately.
  
  I like another product better than MN life because it has a 1.25% premium bonus that will kick in in year 11. That's why the cap is lower.
  
  Because I really could care less what company an advisor or client uses, let me re-re-re state for the record that the MN life product is a very good product if you want a high cap/no bonus product.
  
  i just don't believe the market it going to be that great going forward and so I prefer to use a lower cap product that has a bonus in it and is designed to illustrate and perform well with returns as little as 3.5%.
  
  If you illustrate the MN life product below 7.5% (or almost any of the other products out there), it will flat out stink. I don't think clients want to see 8%-8.5% illustrations right now.
  
  I have been illustrating lately at 6.5% with 6.5% loans. I think that is fairly conservative.
  
  I sure hope MN life is paying you well to be their marketing B.

•  
  110

  DougDiggerEberhardt

  10/25/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Some unanswered questions and points of discussion.
  
  1. Would like to see the same 52 year old illustration with a "Overloan Protection rider that guarantees the policy will never lapse and cause this taxable event." to see what affect it has on the income taken run through age 110 (or as long as Minnesota Life allows), at a 6% current rate of return (as I agree with roccy that the future seems a bleak for stocks as p/e ratios are currently out of whack and we may experience another lost decade ala Japan's Nikkei experience - maybe - I just want to see the numbers). The historical rate of return for the S&P included 60% of which were dividends (6% of 10%) and today dividends are paying around 2%. We're in a secular bear market and I don't see capital growth obtaining the remaining 6% to acheive an 8% return when historically it has only been 4%. Roccy, could you put your companies illustration online for all to see too?
  
  2. Could Brett or Roccy or any other insurance agent reading this please provide me with the Internal Revenue Code that says my loans of over $800,000 (per the illustration for the 52 year old male), will not be added to the death benefit for estate tax calculation purposes at death (assuming death occurs before lapse). I did look for it, but can't find the specific code addressing loan inclusion in the estate for calcualation of tax purposes. The $800,000 of loans added to the death benefit and the rest of one's estate could trigger estate taxes depending on current tax code and I believe this to be a valid question). Just the code please. No speculation.
  
  3. Allan, go sell some UIL and stop wasting your time here. It will NEVER turn out to your satisfaction.
  
  4. On a personal note Brett, it is better to use the Socrates approach to influencing people rather than an reply only approach. You need to take control of the conversation by asking questions. Allan does it quite well by repeatedly asking you questions "yes" or "no" that seem to go unanswered via your replies. If you were to do the same to him, then you might possibly get somewhere, but don't make it a long drawn out reply.... I know you insurance agents were taught the KISS method the first year of training. No offense.
  
  5. Lastly, I had said this product is not for me as I don't have enough control. There are too many varaible's that "could" change. One glaring example with Minnesota Life is their return on investments is presently under their 3% minimum guarantee I pointed out in comment #41 where it shows their "current" return to be 2.65%. Read comment #41 for source. These figures are current. If we experience a lost decade ala Japan, which would be fine with our government at this point because they can't afford to have the Fed raise rates and destroy the economy (and the stock market). Granted, maybe a quarter point to fool us and let the Chinese and Japan think we support a strong dollar, but I digress...
  
  6. Seriously Brett, you have better things to do....and so do I for that matter. This is beginning to look like the movie Groundhog Day for you eh?
  
  
  

•  
  111

  DougDiggerEberhardt

  10/25/09 | Report as spam

  I meant "Brett" not "Allan" in #3 above, sorry

  Sorry Allan...I meant Brett in #3 above.
  
  

•  
  112

  DougDiggerEberhardt

  10/25/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Brett, in #4 above, I meant "socratic," not Socrates. I need to proofread these....sorry. Socratic method is where you never give an answer but just ask another question and with this technique you lead the person to the conclusion you want them to come to, but they think they do it on their own and thus will buy from you (or in this case could possibly convince Allan to your line of thinking). At least it could allow the conversation to be more pleasant and get to the heart of disagreements/objections more easily so they can be overcome.
  
  Just something to think about...
  
  Doug

•  
  113

  Allan Roth

  10/26/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Allan Roth
  "At any point, did you communicate to me as to whether I had an insurable need?"
  
  Brett Anderson
  That is not a factor in choosing to invest money in this product - it is incidental - the life insurance chassis is just the means to an end which is a way to earn 'market' returns without market risk.
  
  Benjamin Roth, Actuary & Director, Life Products, Minnesota Life
  "I do not recommend this product for someone that does not have an insurable need."
  

•  
  114

  roccycwpp

  10/26/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Stop with the quotes of Ben Roth on insurable interest.
  
  It's a P.C. comment by someone looking to appease a compliance dept.
  
  It's nearly impossible to fail the insurable interest test when you buy life insurance on yourself with your own money (vs. borrowed funds from an interested outside lender).
  
  MN life should know better than most that those failing the insurable interest test are those who are pushing STOLI sales.
  

•  
  115

  Dylan R

  10/27/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  "It's a P.C. comment by someone looking to appease a
  compliance dept."
  
  Here is an example of Socratic reasoning:
  
  Why is there a compliance department and why would they
  need to be appeased? If left unchecked, might some
  producers be inclined to ignore or favorably misinterpret
  certain requirements that may be otherwise be seen as an
  obstacle to a potential sale? Is the insurable interest
  requirement a potential obstacle to a sale?

•  
  116

  glendavenport

  10/27/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Brett and Alan,
  
  Thank you both for your engaging discussion. Three thing appear perfectly clear to me.
  
  1. The average investor needs some help to improve performance.
  
  2. Insurance products can improve that performance.
  
  3. The best way for the average investor to receive the best performance is to avoid the high cost of insurance, or any other high cost products, and build a low cost andwell diversified portfolio.

•  
  117

  hikinganimal

  10/27/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Compliance has been in place as long as I can remember in the Insurance Industry...this is to keep everybody honest...Insurance is a very highly regulated industry. Too bad banks did not have similar regulations last year or so....perhaps we would not have seen all the failures, and also maybe certain governmental agencies would not have pressured lenders to make bad loans, either.
  
  If a recalcitrant prospect claims not to have in insurable interest...that would end the deal, and it would not be pursued by the agent. However, that would mean 99% if the time that the client just wasn't interested in the first place.
  
  I believe Brett made his case and proved his point. All the resulting details that have been bantered about are avoiding the contest....that you can get an 8% tax free return with no downside risk with a certain type of insurance policy.
  
  Glendavenport says "The best way for the average investor to receive the best performance is to avoid the high cost of insurance, or any other high cost products, and build a low cost and well diversified portfolio. the best performance"
  
  I ask then, how is this high cost with an IUL....you put in $50,000 over time, or $500,000 over time....you should get, on that money, a return of 8% plus have a death benefit in addition (added value). That is good investing. But yes, divest your money in other investments too, for balance.

•  
  118

  glendavenport

  10/27/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  hikinganimal,
  
  I said the "best return" so if the markets do 10 to 12 percent and the insurance product does 8 percent the question is is that acceptable?
  
  Over a 20 to 30 year period one could easily safely miss half of the total return available net of taxes.
  
  So insted of $50,000 or $500,000 how about $100,000 or $1,000,000.
  
  Best return for the investor or share with the insurance company in exchange for "added value".

•  
  119

  glendavenport

  10/27/09 | Report as spam

  The odd similarities between Alan And Brett

  Both Alan and Brett are Smart.
  
  Alan is smart enough to keep his money ($100,000) in his pocket.
  
  Brett is smart enough to fill his pockets with his clients money.
  
  I congradulate both of you!
  
  The pertinent question is how smart is everone else?

•  
  120

  AztecTheRed

  10/27/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Hi glendavenport,
  
  I said the "best return" so if the markets do 10 to 12 percent and the insurance product does 8 percent the question is is that acceptable?
  Over a 20 to 30 year period one could easily safely miss half of the total return available net of taxes.
  
  Ya see, the problem is the lowest longterm average (20 year minimum) return in the EIUL product is north of 8%
  
  NONE of the unhedged indices (INCLUDING reinvested dividends) beat that on the same timeframes.
  
  The old stockbroker's saw of "ya gotta be IN the game to get the homeruns" turns out to simply be so much risk hucksterism for commission & management fee capture.

•  
  121

  hikinganimal

  10/28/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  glendavenport
  
  Apparently you have not read the many posts on this subject here. If the markets did 10 to 12 percent, you would make 10 to 12 percent with the insurance product....the IUL
  
  Making "more money" with stocks etc. comes with it higher costs and higher risk. Should you make 20% you would beat the IUL (caps at 12% to 15%) but chances are you would have paid a lot of commissions and management fees plus you would have a pile of taxable gains.
  
  Active stock trading can be fun, but it can be devastating, too. The IUL affords comfort as you don't play the game, and you know your average of 8% or more over the years will not be taxed.
  

•  
  122

  roccycwpp

  10/28/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Please do not forget when the market tanks 50%+ like his has recently, you get those returns in much of a "balanced" portfolio.
  
  In the EIUL, the return is zero. There are insurance costs, but the benefit is in the EIUL you don't have the same recovery issues.
  
  When the market goes down 50%, you need to get 100% return to get back to even.
  
  Also, enough with the insurable interest question. It's a non-issue.
  
  And one more time, this is not an all or nothing discusssion. it's about asset allocation.

•  
  123

  DougDiggerEberhardt

  10/28/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Couple clarifications here in the quest for truth:
  
  hikinganimal said;
  
  "Making "more money" with stocks etc. comes with it higher costs and higher risk. Should you make 20% you would beat the IUL (caps at 12% to 15%) but chances are you would have paid a lot of commissions and management fees plus you would have a pile of taxable gains."
  
  "If" one were to achieve these 20% returns in the future, could they not avoid paying taxes on the gains by gifting the funds by setting up a Charitable Remainder Trust (not with Mutual Funds)?
  
  hikinganimal said;
  
  "The IUL affords comfort as you don't play the game, and you know your average of 8% or more over the years will not be taxed."
  
  Wouldn't the explanation of this in insurance industry compliant literature read "may" not be taxed?
  
  Also, again, I challenge the premise that the S&P would earn 8% on average moving forward when dividends represent only 2% today and capital growth has historically averaged 4%. The numbers don't add up do they?
  
  roccy said;
  
  "In the EIUL, the return is zero. There are insurance costs, but the benefit is in the EIUL you don't have the same recovery issues.
  
  When the market goes down 50%, you need to get 100% return to get back to even."
  
  Couple issues here...
  
  One is the assumption that I would achieve 100% of that 50% fall in the market. Many investors were aware of what was happening in the sub-prime debacle and got out of the market. While timing the market hasn't been historically recommended, there are many advisors today who criticize this buy and hold mentality, including Aztec's buddy Mish.
  
  With the EIUL, the client would have but two places to put their money if they were able to correctly predict the market decline in advance. One would be leave it where it is and earn zero percent and the other would be in a guaranteed account earning a minimum of 3%.
  
  Unfortunately, the guaranteed account in most cases only allows the client a once a year change and they would have lost all of the market rebound in 2009. There's no ability for the client to switch back and forth right? This lack of control is obviously an issue for some.
  
  Lastly, no answers on comment 110 #2 about the Internal Revenue Code relating to potential estate tax issues as to whether the policy loan is or is not included in the estate. Interesting.
  
  I'll let you all have the last say. I'm out.
  
  

•  
  124

  hikinganimal

  10/28/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Doug
  Point well taken. The more correct language would be "MAY" not be taxed.
  
  If I read your question correctly to Roccy regarding "switching" from guarantee to market index, you are not involved in switching...it is automatic. If the market starts to rise above the 3% guarantee, you are automatically involved in that gain...up to the Cap.
  
  Regarding your comment 110 #2...
  The death benefit amount payable in event of death is reduced by any policy loans. The illustrations reflect a NET death benefit, after any loans have been paid off by the insurance company. There is another column on the ledger that you do not see, which is a higher number reflecting the gross death benefit. There is no issue with estate taxes or IRS as no loan continues to exist after death.

•  
  125

  Allan Roth

  10/28/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  The debate is simple. Look at Minnesota Life's balance sheet - it's 87% in fixed income and 13% in equity investments.
  
  The chief actuary did not have to say buying a zero coupon bond and putting the rest in low cost index funds is a similar strategy to what they do.
  
  So you have one of two options:
  
  1) Invest directly using a similar strategy.
  
  2) Buy a similar investment through the insurance company and get the return you could have received by investing directly less commissions, costs, taxes, and profits.
  
  I understand why insurance producers prefer #2. They can make it complex, but they can't change the simple economics.
  
  Insurance companies are a great place to get insurance.
  
  

•  
  126

  Dylan R

  10/29/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  "If the markets did 10 to 12 percent, you would make 10
  to 12 percent with the insurance product....the IUL"
  
  Wow, that sounds as if you're saying the caps apply to the
  holding period return, not annual or any other specified
  period. That would be impressive because there have not
  been that many multi-year periods that averaged 10%-12%
  that did not include years exceeding, 15%, 18%, or even
  20%.
  
  And when the market does 10%, I'll get some dividends if I
  own all those companies (like with a low cost, low turnover
  total market index fund). You make it sound like these
  products index to a total market, total return index and not
  just the price changes of only a few hundred of the largest
  companies.
  
  How do I determine whether statements like that are
  significantly misleading? Do you have any company
  literature that supports that EXACT claim?
  
  If these products are so great, why bend the truth at all
  when promoting them them? Why not be more careful to be
  crystal clear as to how they actually work? Don't
  misleading statements of any kind distract from any actual
  merits?

•  
  127

  DougDiggerEberhardt

  10/29/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  hikinganimal,
  
  Thanks for the reply....
  
  I was addressing this switching (see quote below), not the automatic credit of the S&P return that you were describing. This "switching" is only allowed once a year. If I chose to get out of the S&P return in say, November last year..., because I thought the market was going to fall further and wanted to get some "positive" returns..., not zero percent return..., and then thought the market had bottomed out in April of this year..., I couldn't switch back into the S&P side of the product in April, but would have missed all of the market rebound as I couldn't get back into the S&P side till November of this year.
  
  "NOW... as nobody has brought up so far, the Minnesota Life EIUL contracts (and indeed almost all EIUL contracts) offer the contract owner the option to switch from a "index participation" strategy to a "fixed credit" strategy at various intervals... some quarterly, some annually at anniversary. The particular contract debated here is a 5% fixed account, IIRC."
  
  This switching is only allowed once per year, correct?
  
  Regarding the estate tax on death benefits, I understand they are not "estate" or "income" taxable. To use your language, I want to see the Internal Revenue Code that says the "gross death benefit" is not "estate" taxable. I think I was specific in this request when in comment 110, #2 I asked for "Just the code please. No speculation."
  
  Again, I believe this to be a legitimate request if the client has the potential of added value that could be estate taxable (via the loans coming back into the estate - "gross death benefit") and possibly increasing the size of the estate to where it would trigger estate taxes.
  
  Could you (or insurance agent reading this) provide me with the IRC that specifically addresses the estate tax on policy loans? I can't find it. I only found code dealing with normal death benefits not being income taxable or estate taxable if no incidents of ownership. No mention of whether policy loans are brought back into the estate or not. Only case law dealing with loans being brought back into the estate for income tax (trap) purposes. The fact that there is no case law dealing with this could mean there very well be in the not too distant future "if" these loans were to be added to the estate, especially if the estate tax exemption remains at $1 million in 2011 and beyond. All else, again, is speculation, until I see the code.
  
  I don't think anyone will be able to answer this with the correct code that specifically addresses the potential of policy loans adding to the estate for estate tax purposes at death.
  
  This may seem irrelevant to some, but insurance agents are doing planning for people today that will have potential tax consequences 30 years from now. While many insurance agents will be dead and buried 30 years from now, the client is stuck with the result of their planning. Just show me what the tax code says today regarding policy loans and estate taxes and I'll be satisfied.
  
  Sorry for the long explanation, but I just wanted to be clear on what I'm requesting. Tax consequences are obviously a big part of making this kind of decision today, whether they are potential income tax traps or estate tax traps (on policy loans which I never see discussed and hence my inquiry).
  
  Thank you.

•  
  128

  AztecTheRed

  10/29/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Hi Allan,
  
  So you have one of two options:
  1) Invest directly using a similar strategy.
  2) Buy a similar investment through the insurance company and get the return you could have received by investing directly less commissions, costs, taxes, and profits.
  
  Only the 2nd option gives you;
  A) guaranteed returns to a known index without management risk,
  B) guarantees of principal (meaning no basis, nor annually converted gains-to-basis will be lost to the markets,)
  C) tax-free growth,
  D) tax-free harvest,
  E) net/net fees significantly below those of securities management practices
  F) guarantees backed by centuries-old companies with vettable track records.
  
  Option #1 is best for market egotists, gamblers and hobbyists.
  =====================
  
  Hi Dylan,
  
  You asked hikinganimal;
  Wow, that sounds as if you're saying the caps apply to the
  holding period return, not annual or any other specified
  period. That would be impressive because there have not
  been that many multi-year periods that averaged 10%-12%
  that did not include years exceeding, 15%, 18%, or even
  20%.
  
  The high-end caps (as well as the floors) are annual, but the strategy still outperforms the uncapped indicies due to the annual-reset features. This is to say, an initial $100,000 basis after a 20% down year remains whole at $100,000... and if the market climbs the next year by the same $20,000, an uncapped securities position would be back to ground-zero, while the EIUL would have credited upwards from its new reset starting point to end at $120,000.
  
  The annual reset feature more than outperforms the forfeiture of the top-end home-runs.
  ====================
  
  Hi DougDiggerEberhart,
  
  This switching is only allowed once per year, correct?
  
  Depends on the product, some are adjustable on anniversaries, some on quarterly anniversaries, some monthly-versaries.
  
  Again, stepping in prior to hikinganimal;
  Regarding the estate tax on death benefits, I understand they are not "estate" or "income" taxable. To use your language, I want to see the Internal Revenue Code that says the "gross death benefit" is not "estate" taxable. I think I was specific in this request when in comment 110, #2 I asked for "Just the code please. No speculation."
  
  DEATH benefits are typically estate-taxable in the estate of the owner, thus the strategic useage of ILITs to position the ownership to an alternative entity outside of the estate taxation. They are not taxable as INCOME to the owner, nor to the beneficiaries.
  
  The IRS code sections are 72(e) and 7702.
  
  Again, I believe this to be a legitimate request if the client has the potential of added value that could be estate taxable (via the loans coming back into the estate - "gross death benefit") and possibly increasing the size of the estate to where it would trigger estate taxes.
  
  The same IRS sections cover the income tax-free nature of the policy loans, which are secured by and ultimately repaid from the death benefit. Because the death benefit is income tax-free, the loans (or advance draws) from it are also tax-free.
  
  Cheers

•  
  129

  Robocop975

  10/29/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  The chief actuary did not have to say buying a zero coupon bond and putting the rest in low cost index funds is a similar strategy to what they do.
  
  I think this misstates how EIUL is typically hedged (depending upon how one defines "similar"). As I understand it, EIUL carriers don't typically invest in index fund products or in their underlying stocks. Instead and in general, they buy bond instruments to support the product guarantees and they buy call options on the relevant index to provide the additional cash value return.

•  
  130

  Allan Roth

  10/29/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Hi AztechTheRed,
  
  Option #1 was:
  
  "buying a zero coupon bond and putting the rest in low cost index funds is a similar strategy to what they do."
  
  Thus, option #1 has far lower fees (20x lower) than option 2. It also has a stronger guarantee backed by the US government rather than an insurance company and the index fund does follow an index and give the total return which includes dividends. Finally, when you place the bond in an IRA and equities in your taxable account, you have far more tax efficiency than option 2.
  
  I continue to appreciate your comments.

•  
  131

  roccycwpp

  10/30/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Allan,
  
  I'm still waiting for you to e-mail me so I can send you a copy of my new book so you can better educate yourself on EIUL. Based on this blog, you certainly need it.
  
  roccy@thewpi.org.

•  
  132

  DougDiggerEberhardt

  10/30/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Aztec da Red,
  
  I would prefer to see your reply with this language concerning the estate taxation of loans:
  
  "The same IRS sections cover the income tax-free nature of the policy loans, which are secured by and ultimately repaid from the death benefit. Because the death benefit is income tax-free, the loans (or advance draws) from it are also estate tax-free upon the death of the insured assuming the death benefit doesn't push the estate over estate taxable limits at time of death."
  
  In writing and also attached to policy please (ha). That (to me) would be full disclosure.
  
  72e and 7702 didn't mention "estate" tax specifically. But I understand the "death benefit" is normally income and estate tax free if the estate is under the estate taxable limits at time of death.
  
  I'm just a strange cat that likes to see it in writing. Was taught at young age to pay attention to the details..and the language.
  
  Cheers!
  
  Doug

•  
  133

  Dylan R

  10/30/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  "The annual reset feature more than outperforms the
  forfeiture of the top-end home-runs."
  
  Aztec, are you really claiming that credits in down markets
  will more than make up opportunity cost in up markets? If
  it's really as simple as you argue, I wonder why anyone
  would invest directly in the market at all? I also wonder
  how an insurance company could afford to take no loses,
  yet invest their own money to pay out enough up side to
  result in a net outperformance of the markets, give that to
  customers, and still turn a profit. Or maybe you misspoke.

•  
  134

  Robocop975

  10/30/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Aztec, are you really claiming that credits in down markets will more than make up opportunity cost in up markets?
  
  I can only speak for myself, but I think the only rational position in this regard is to admit that we simply can't know how it will work out. Based upon back-testing, in some scenarios the market will "win" and in others a cap (whatever it is) on gains but with protection against losses will win. The folks at American Funds published an interesting piece on this "arithmetic of loss" focusing on retirement distribution. We also can't know how caps and costs will change over time -- there's an inherent "trust me" factor that can impact results pretty significantly.
  
  If it's really as simple as you argue, I wonder why anyone
  would invest directly in the market at all?
  
  Exactly.
  
  I also wonder how an insurance company could afford to take no loses, yet invest their own money to pay out enough up side to result in a net outperformance of the markets, give that to customers, and still turn a profit.
  
  That's actually easy to answer. Contrary to Allan's suggestion (and as I noted above), insurance carriers don't typically invest in the underlying index directly -- they hedge this exposure via the purchase of call options. If those options are excercised "in the money," the proceeds can be used to meet the policy obligations; otherwise they expire worthless (no losses). Individuals could undertake a similar strategy, but most are ill-equipped to become options traders and to get the best pricing.

•  
  135

  Robocop975

  10/30/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  To clarify the last part of my previous post (#134), I didn't mean to suggest that beating the market via that strategy, providing the other policy benefits and still turning a profit is easy (even though doing so is possible, depending largely upon how the options are priced over time). What's easy to explain is the strategy carriers use to try to get that result.

•  
  136

  glendavenport

  10/30/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  hikinganimal,
  
  From 1972 through 2008 a 40/60 diversified portfolio did 10% exactcly, and if we subtract 1/2 of a percent for fees the net was 9.5 % per year on average.
  
  Net of fees, commisions, and lack of dividends what would be the reurn of the IUL?

•  
  137

  glendavenport

  10/30/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Buy the way let me add that a $100,000 dolloar investment would be worth $2,872,912.57
  
  With the 1/2 percent fee a 60/40 portfolio would be worth $4,021,650.14
  
  Could you break out the net results for the IUL?
  
  LET GET TO THE BOTTOM LINE!

•  
  138

  AztecTheRed

  10/30/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Hi Dylan,
  
  Aztec, are you really claiming that credits in down markets will more than make up opportunity cost in up markets?
  
  NO... read the followng carefully, as you haven't followed along so far.
  
  EIULs (so far, anyway) are not designed with a short-side credit. In other words, they do not earn more than their floor guarantees on an annual market that closes below that floor, regardless haw far below that floor it drops.
  
  The massive advantage is this;
  AFTER the market prints its annual drop, the EIUL strategy then IMMEDIATELY BEGINS CREDITING AGAIN on all upward gains FROM THE CLOSING LOW. In other words, unlike unstructured securities trading, the principal is not only not lost on the way down, but does not have to wait until returning to its previous "high-water" level in order to begin growth.
  
  The EIUL grows from its annual low closing print, even if its own principal did not DROP to that low.
  
  
  If it's really as simple as you argue, I wonder why anyone would invest directly in the market at all?
  
  Seriously? You think common sense is really a driving force for financial logic? Have you heard about states' lotteries, and the volume they run? Have you looked at congress?
  
  The old attempt to discredit by saying "if it weas really that good everyone would do it" falls on its face far more than it stands, unfortunately.
  
  I also wonder how an insurance company could afford to take no loses, yet invest their own money to pay out enough up side to result in a net outperformance of the markets, give that to customers, and still turn a profit. Or maybe you misspoke
  
  I did not mispeak (err, type ;~) Insurance companies (oddly enough) operate more efficiently in trading because they are forced to maintain legal reserves sufficient to fulfill all specified obligations... and, ironically, this "albatross around their neck" forces them to trade within their means, and thus much more effectively over time, than operations that are allowed to overleverage and under-reserve.
  
  By the way, insurance companies themselves DO NOT "take no losses"... rather, they have the money management (albeit by regulatory requirement) that allows them to absorb calculated losses without collapsing... unlike our commercial & investment banking systems.
  
  ============================
  
  Hi Robocop.
  
  We also can't know how caps and costs will change over time -- there's an inherent "trust me" factor that can impact results pretty significantly.
  
  THIS is definitely the key "risk" to be focused on. The rest of the math (when you actually understand it) makes the capped and ratcheting strategy outperform consistently as long as the upside caps, the floor, and the carrying expenses don't adjust adversely to the competitive alternative of the unprotected market participations.
  
  I expect that should the insurance industry find themselves painted into a scenario where they cannot design the caps & expenses to competitively outperform the unprotected alternatives, they won't be able to sell the plans and they'll shift to some other structure (much as whole life has been quickly becoming obsolesced by the universal chassis.)
  ============================
  
  Hi glendavenport,
  
  From 1972 through 2008 a 40/60 diversified portfolio did 10% exactcly, and if we subtract 1/2 of a percent for fees the net was 9.5 % per year on average.
  
  Let's add a net of 30% combined state & federal taxes (and I think that would be conservative, considering the annual nibbles removed from the compounding potentials.)
  
  That would take your strategy down to around 6.65%, net/net.
  
  
  Net of fees, commisions, and lack of dividends what would be the reurn of the IUL?
  
  With a 0% floor, and a 15% cap, I can tell you what 1984 through 2008 would have delivered; 8.81% net of all but costs of insurance.
  
  The 25 average annual COI on a non-smoker male, from 45-70 years of age, would be right around 100 basis points given a max-funded policy within the tamra, tefra & defra corridor... bringing our net/net to around 7 3/4%-ish.
  
  Further, the EIUL would incur no timing risks of being underwater when needed.
  
  THAT is the bottom line.
  
  Cheers,
  Aztec

•  
  139

  Robocop975

  10/30/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Could you break out the net results for the IUL?
  
  It's impossible to do without making a variety of assumptions. By my math, a 60/40 portfolio (S&P/aggregate bond) has a 39-year average annual return of about 9.4%, which is very close to the return of the S&P 500 alone over that period (about 9.7%). Thus blending stocks and bonds maintained most of the performance of stocks while lowering the risk. The portfolio effect (that is, the synergistic result of diversification) is clear. Of course, backtesting is inherently problematic since, as the commercials say, past performance is not indicative of future results. There is simply no way to know what the future will hold and how -- if at all! -- future results will correlate with past results.
  
  That said, here are 20-year S&P returns without dividends:
  
  2008 -38.49%
  2007 3.53%
  2006 13.62%
  2005 3.00%
  2004 8.99%
  2003 26.38%
  2002 -23.37%
  2001 -13.04%
  2000 -10.14%
  1999 19.53%
  1998 26.67%
  1997 31.01%
  1996 20.26%
  1995 34.11%
  1994 -1.54%
  1993 7.06%
  1992 4.46%
  1991 26.31%
  1990 -6.56%
  1989 27.25%
  
  By my math, the total return for that period (including dividends) averaged 10.36% annually. I took my data from S&P's website here, so you can make sure my math is right throughout (I did it by hand and may well have screwed up).
  
  If the negative return years are eliminated, a 1% minimum guarantee assumed and a cap of 14% assumed, I get an average annual return is 7.93%. You also get the benefit of the life insurance. Subtract a 100-125bp cost of benefits and you have a decent idea of how the concept works. That said, capital gains taxes on the 60/40 portfolio will reduce the return on that money pretty significantly overall, whatever rates are assumed. And, of course, looking at other time periods will lead to *very* different results (for example, the S&P looks lousy over the past 10 years -- obviously -- while the EUIL approach would benefit from the loss protection/minimum guarantee).
  
  I don't know if you think the EIUL approach would be a good one for you, but these rough numbers are a reasonable place to start looking at it.

•  
  140

  Robocop975

  10/30/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  With a 0% floor, and a 15% cap, I can tell you what 1984 through 2008 would have delivered; 8.81% net of all but costs of insurance.
  
  Using those assumptions over the 20-year period I used above (1988-2008), I get 8.03% (before insurance costs) v. 10.36% TRR for the S&P (before taxes).
  
  The rest of the math (when you actually understand it) makes the capped and ratcheting strategy outperform consistently as long as the upside caps, the floor, and the carrying expenses don't adjust adversely to the competitive alternative of the unprotected market participations.
  
  I agree that it's a good strategy for some, but I also think your overall view isn't skeptical enough. We simply don't know what the future will bring. For example, a long-term bull market (though I don't expect one) wouldn't likely help the EUIL concept v. stocks or a 60/40 portfolio (unless bond performance were ugly) and a long period of spotty market performance would suggest using a higher participation rate (say 140%) lower cap (say 12%) product. Moreover, one thing Allan is right about is that higher fees are much more damaging to performance than is commonly thought.
  

•  
  141

  glendavenport

  10/30/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Aztec,
  
  You made the following point: Let's add a net of 30% combined state & federal taxes (and I think that would be conservative, considering the annual nibbles removed from the compounding potentials.)
  
  There is no reason to add that tax to a passive portfolio. Most of the gains are capital appreciation and the taxes on the realixed capital gains have been lower.
  
  Additionally most people can use a 401k or IRA to defer a portion or even all the taxes.
  
  With 8.81%, perhaps it is closer, but even net of the insurance cost a balanced portfolio is the clear winner .......bottom line.
  
  I am curious as to what the taxes and or interest arrangements are on the IUL? How do you get this 8.81% gain in your pocket tax free and is it in fact interest free?
  
  Perhaps you would explain that.
  
  

•  
  142

  Allan Roth

  10/30/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Robocop975
  
  Note the difference in the comments from AztecTheRed and you. AztecTheRed clearly disagrees with me and gives facts and logic. On the other hand, you:
  
  1) Reference a book you hadn't read that didn't even cover the subject you claimed.
  
  2) You claim the statement from the Minnesota Chief Actuary (comment 129), made on a call you weren't a part of, was wrong.
  
  These are just examples.
  
  You claim you don't sell these but this may be as accurate as other things you stated as facts. I don't think you are helping your cause by making up facts to try disprove arithmetic.
  
  Take a look from some of the comments from AztecTheRed. None of us are your fact checker.

•  
  143

  Robocop975

  10/30/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  With 8.81%, perhaps it is closer, but even net of the insurance cost a balanced portfolio is the clear winner .......bottom line.
  
  Looking at the problem this way is very dangerous in my view. Keep reminding yourself that past performance is not indicative of future results (read Taleb's The Black Swan for more). As I noted above, the EUIL approach is the clear winner over the past ten years. We simply can't know what the future will bring. For that reason, I generally think that the EUIL approach can be problematic for the average investor. For the EUIL strategy to work, the cash inside the policy needs to keep working for a significant period of time (that's why it's typically designed to provide future retirement income). If the insured needs the money prematurely (fairly plausible for the average Joe), the plan get screwed up -- and screwing it up means a lot of money (policy costs, for example) gets wasted.

•  
  144

  Robocop975

  10/30/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  You claim the statement from the Minnesota Chief Actuary (comment 129), made on a call you weren't a part of, was wrong.
  
  Abraham Lincoln famously opined that it's better to remain silent and thought a fool than to speak up and remove all doubt. Allan, you might have heeded that advice.
  
  I have no idea how ML hedges its EUIL and never claimed otherwise. However, I have spoken with actuaries from a number of carriers and been told that EUIL is hedged using options. Moreover, the literature in the area discloses the same thing. For example, as stated by Iowa's Commissioner of Insurance (link): "Insurance companies typically purchase call options to hedge the growth in interest credited to the policy as a direct result of changes in the related indices." Therefore, even though I suspect that you misunderstood the ML rep, I gave you the benefit of the doubt and spoke of what's done "typically."
  
  None of us are your fact checker.
  
  At least you're predictable, Allan (sigh -- predictably ignorant). Pot; kettle; introductions.

•  
  145

  AztecTheRed

  10/30/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Hi Glendavenport,
  
  There is no reason to add that tax to a passive portfolio. Most of the gains are capital appreciation and the taxes on the realixed capital gains have been lower.
  Additionally most people can use a 401k or IRA to defer a portion or even all the taxes.
  
  A) few people have, or can quickly enough build, as much funding into their 401(k) or traditional IRA as they desire... relative to the fundability of an EIUL policy with extremely higher funding limits (which are basically only restricted by underwriting's willingness to find sufficient insurable interest... ahh yes, back to this huckleberry ;~) This time, however, we're talking about the upper end, not the theoretical possibility of a lack thereof.
  
  B) Further, color me *EXTREMELY* skeptical of even the most BRILLIANT of crystal-ball market magicians to effectively pre-design a "passive" long-term strategy so well it has little to no down years EVER, as is one of the most critical features of EIUL strategies.
  
  C) If more active trading is required to ensure principal security from long-term market volatility, the theoretical "passive tax avoidance" goes out the window.
  
  
  With 8.81%, perhaps it is closer, but even net of the insurance cost a balanced portfolio is the clear winner .......bottom line.
  
  I've yet to see this evidenced in any historical reality, given the costs and taxation of rebalancing.
  
  Its fine for the "home-run hitter" portion of a younger person's aggressive portfolio (which, frankly, is critical to be in place in heavier abundance at earlier stages...) but not for the longterm, IMO.
  
  I am curious as to what the taxes and or interest arrangements are on the IUL? How do you get this 8.81% gain in your pocket tax free and is it in fact interest free?
  
  Pal... respectfully... scroll up to the top & read downward post-by-post. This has all been detailed out.
  
  
  There are really two ways EIUL could be a bad choice for longterm safe growth portions of a personal plan;
  
  A) The market over the longterm averages greater than the EIUL upper cap *AND* does not drop below the EIUL floor (about as likely as the tooth faerie,)
  or
  B) The carrier that backs the EIUL selected goes belly up, or skews the variables (as they retain the contractually agreed tolerance to do) beyond where the account can outperform the unprotected markets (which, given the litigation pressures against such, they are unlikely to do *UNLESS* the derivatives market itself forces them to do so... in which case, any unprotected securities positions will be decimated or in dire straights anyway.)
  
  IN THE END... its still not like EIUL strategies are double digits better than unprotected actively managed accounts... or even high single digits better. I'll entertain the argument that in come cases they're ultimately neck-and-neck in longterm returns.
  
  The *major* kickers in favor of EIUL strategies for the general public are;
  A) it is simpler to understand & trust the account offer,
  B) there is a deeper historical base to give trust to with century-old guarantors with vettable records that far back,
  C) there is a far more stable track record to the insurance industry than the banking & securities industries,
  D) the fees, at their face, are exponentially less (and though this is irrelevant when the end result is the same, it matters to Johnny Public,)
  E) The tax benefits are much simpler to understand (and for advisors to explain,)
  F) There is a huge base of existing account owners (including congress-critters,) which establishes a virtually immovable level of stability of legislation.
  
  I still believe that more aggressive & direct strategies have their place... but they're at the peak of the risk pyramid, not the body or base.
  
  Cheers,
  Aztec

•  
  146

  roccycwpp

  10/31/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  If you'd like to stop your unscientific comparisons, e-mail me. We can do a go to meeting and I'll use my proprietary online software to compare active or passive investing to CVL.
  
  You can put in whatever variables you want for the comparison to see which won wins.
  
  However, these discussions about which one wins is not what it should be all about. Remember this is not an all or nothing discussion.
  
  People can have money in stocks, mutual funds, and use CVL as a wealth building tool as well.
  
  I also suggest you read the Dalbar study if you want to start posting good information for those reading this blog. While it's nice to talk about buy and hold, the statistics clearly show that the average mutual fund is held for less than five years and closer to three years in a volatile envoronment (bond stats are similar)

•  
  147

  Allan Roth

  10/31/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  roccycwpp,
  
  Just sent you my address -very easy to find.
  
  The Dalbar study grossly overstated the difference between dollar weighted and time weighted returns. It his huge, however, at about 1.5% according to my study and triangulating with others.
  
  Hope you don't mind me asking a question to you and AztecTheRed. It has to do with this comment from me and the response from Robocop975, after I called him on a couple of false facts he stated:
  
  Allan: None of us are your fact checker.
  
  Robocop975: At least you're predictable, Allan (sigh -- predictably ignorant). Pot; kettle; introductions.
  
  I have many incidences when I called insurance producers on facts and the response always seems to include calling me "ignorant." Is there some insurance manual that recommends this tactic and that word? It's almost always the word "ignorant."
  
  Thanks.

•  
  148

  Robocop975

  10/31/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  It has to do with this comment from me and the response from Robocop975, after I called him on a couple of false facts....
  
  Good morning, Allan. Actually, I'm giving you the benefit of the doubt by alleging ignorance. On just the prior example I demonstrated your error (unless you're claiming that the Iowa Commissioner of Insurance is lying) and you simply move on as if nothing happened. That's either willful ignorance or dishonesty.
  
  You also keep wrongly assuming and claiming that I sell insurance. Once again you jump to your preferred and assumed conclusion without understanding the facts. I do have my insurance license; securities license too; and a number of industry designations. But I don't sell -- I'm an attorney and Compliance Director.

•  
  149

  roccycwpp

  11/01/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  hmm. Apparently anything that doesn't further you goal that the only way to build wealth is through your preferred platform does is not good, does not have correct math, is grossly over or understated, etc.
  
  There are many ways to build wealth and using a properly designed EIUL is one of them. It is a mathematical fact that EUIL under several fact patterns will outperform other ways to build wealth and as such it should not be shunned by those who only think a way to build wealth is through a properly balanced portfolio.
  
  As for your continued harping on people calling you ignorant which you seem to take as a sign that the people calling you that have no facts to back up their position, I can't help but snicker at that. When you put forth some examples and facts on this blog that lead me to believe that you are not "ignorant" on some of the things you?re pontificating about, then I'll refrain from calling you ignorant on certain issues.
  
  In case anyone cares, the following is one definition of ignorant which I think accurately reflects my opinion on many of the people who are using this blog.
  
  Ignorant--lacking knowledge or comprehension of the thing specified
  
  And for the record, I'm ignorant as we all are ignorant on many issues. EIUL and building wealth just doesn't happen to be one of those issues.

•  
  150

  Allan Roth

  11/01/09 | Report as spam

  The Role of a compliance department

  Post #148 by Robocop 975 contains a critical learning, in my view. He or she finally discloses they are a "compliance director."
  
  In this comment, Robo (for short) refers to the following link to prove I'm practicing "willful ignorance or dishonesty."
  
  http://www.iid.state.ia.us/docs/bull0818.pdf
  
  In actuality, this link is to an Iowa bulletin on "Accounting for Derivative Instruments" and has nothing to do with me calling this "compliance director" on stating false facts.
  
  The learning here is that, whether we are talking about the insurance or the securities industry, never forget the fact that the compliance department exists to protect the company from the consumer.
  
  Many false statements are made by brokers and insurance producers but proving you relied on those statements is an uphill battle.
  
  Compliance departments teach their producers either not to put things in writing or not to do so in a way that can be traced.
  

•  
  151

  Allan Roth

  11/01/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Roccywpp
  
  Why would you think I'd have any disincentive to recommend investing through insurance product? You stated:
  
  "hmm. Apparently anything that doesn't further you goal that the only way to build wealth is through your preferred platform does is not good, does not have correct math, is grossly over or understated, etc."
  
  Did you look up my platform or did you make the statement "lacking knowledge or comprehension of the thing specified?"
  
  

•  
  152

  Robocop975

  11/01/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Per his usual script, Allan (in #150) makes a claim but fails to back it up. For those scoring at home, let's recap.
  
  In post #125, Allan said the following:
  
  "The chief actuary [of Minnesota Life] did not have to say buying a zero coupon bond and putting the rest in low cost index funds is a similar strategy to what they do."
  
  Allan then suggested that employing a similar strategy makes more sense than using EUIL to create wealth.
  
  I replied in #129 with respect to how EUIL is hedged:
  
  "I think this misstates how EIUL is typically hedged (depending upon how one defines 'similar'). As I understand it, EIUL carriers don't typically invest in index fund products or in their underlying stocks. Instead and in general, they buy bond instruments to support the product guarantees and they buy call options on the relevant index to provide the additional cash value return."
  
  In #142, Allan attacked me as follows, saying I was "making up facts to try [sic] disprove arithmetic":
  
  "You claim the statement from the Minnesota Chief Actuary (comment 129), made on a call you weren't a part of, was wrong."
  
  As I pointed out in #144, it was Allan who was in error:
  
  "I have no idea how ML [Minnesota Life] hedges its EUIL and never claimed otherwise. However, I have spoken with actuaries from a number of carriers and been told that EUIL is hedged using options. Moreover, the literature in the area discloses the same thing. For example, as stated by Iowa's Commissioner of Insurance (link): 'Insurance companies typically purchase call options to hedge the growth in interest credited to the policy as a direct result of changes in the related indices.' Therefore, even though I suspect that you misunderstood the ML rep, I gave you the benefit of the doubt and spoke of what's done 'typically.'"
  
  In #147, Allan ignored the issue except to try to put me in a bad light (again). In #150, Allan returned to the issue to declare that "this link is to an Iowa bulletin on 'Accounting for Derivative Instruments' and has nothing to do with me calling this 'compliance director' on stating false facts." Of course, his bald-faced denial is both unsupported and unanalyzed -- because it can't be supported by the underlying <ocument. As the Iowa Commissioner of Insurance clearly states, conclusively demonstrating that I am correct and Allanis in error about how EUIL is typically hedged:
  
  "Insurance companies typically purchase call options to hedge the growth in interest credited to the policy as a direct result of changes in the related indices."
  
  Not surprisingly, Allan attempts misdirection relating to compliance officers because his own errors are so obvious, damaging his credibility (such as it is) even further. To summarize, it is 100% clear that EUIL is typically hedged through the use of call options and not, as Allan claims, by investing in the underlying index -- exactly as I have stated repeatedly.
  
  I expect Allan to reply with his usual unsupported bluster, but the facts are clear and speak for themselves. All one need do is read the thread.

•  
  153

  Allan Roth

  11/01/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  The two (of many) false statements from Robo were that:
  
  1) Reference a book you hadn't read that didn't even cover the subject you claimed.
  
  2) You claim the statement from the Minnesota Chief Actuary (comment 129), made on a call you weren't a part of, was wrong.
  
  I have worked with many compliance officers to get compensation for clients that have been duped by their firm. Robocop975 is very good.
  
  It would be great if he identified himself - compliance departments love 473 page documents that a consumer (or even the producer) can't understand but he doesn't like real disclosure.
  

•  
  154

  Robocop975

  11/02/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  The two (of many) false statements from Robo were?.
  
  So Allan keeps claiming. Let?s see if he's telling the truth.
  
  1) Reference a book you hadn't read that didn't even cover the subject you claimed.
  
  Allan is talking about another thread here ? one in which he claimed that income annuities (the kind of annuity that pays a guaranteed income for life) are ?oversold.? Unfortunately for Allan and his position, the academic world has looked at the question in great detail and thinks Allan?s viewpoint is ? essentially ? nuts. Of course, academics are far more unbiased and impartial than people like Allan, who have books and services to pitch.
  
  Income annuities (whether an immediate annuity or the annuitization of a deferred annuity) are an incredibly powerful tool for managing income needs and are almost surely the most underutilized financial asset in the market today. As reported by The Wall Street Journal, "income annuities can assure retirees of an income stream for life at a cost as much as 40% less than a traditional stock, bond and cash mix."
  
  From Prof. David Babbel of Wharton:
  
  "I have reviewed over 70 academic studies that have appeared since 1999, analyzing lifetime income annuities vs. other alternatives, and coauthored another major study. (Most of these are included in the reference section to this paper, as well as a handful of earlier academic studies, each marked with an asterisk.) The consensus of the literature from professional economists is that lifetime income annuities should definitely play a substantial role in the retirement arrangements of most people. How great a role depends on a number of factors, but it is fair to say that for most people, lifetime income annuities should comprise from 40% to 80% of their retirement assets under current pricing. Generally speaking, if a person has no bequest motive, or is averse to high risk, the portion of wealth allocated to annuities should be at the higher end of this range.
  
  "Lifetime income annuities may not be the perfect financial instrument for retirement, but when compared under the rigorous analytical apparatus of economic science to other available choices for retirement income, where risks and returns are carefully balanced, they dominate anything else for most situations. When supplemented with fixed income investments and equities, it is the best way we have now to provide for retirement. There is no other way to do this without spending much more money, or incurring a whole lot more risk coupled with some very good luck."
  
  Lifetime Income for Women: A Financial Economist?s Perspective
  
  Here are some great academic resources on the value of income annuities:
  
  Annuities and Individual Welfare
  Investing your Lump Sum at Retirement
  Rational Decumulation
  Optimal Gradual Annuitization: Quantifying the Costs of Switching to Annuities
  Optimizing the Retirement Portfolio: Asset Allocation, Annuitization, and Risk Aversion
  
  So Allan failed with his number 1; let?s move on to number 2.
  
  2) You claim the statement from the Minnesota Chief Actuary (comment 129), made on a call you weren't a part of, was wrong.
  
  I have already responded to this nonsense in detail with post #152 above. As I predicted, Allan ignores the facts of the matter (the link from the Iowa Commissioner of Insurance proves that Allan is wrong) and attempts a misdirection. What a shock.
  
  The bottom line is that no matter how much braying Allan does and no matter how aggressively he tries to change the subject, income annuities still make great sense for most retirees and EUIL is still hedged through the use of call options.
  

•  
  155

  Allan Roth

  11/02/09 | Report as spam

  Disclosure

  Robocop975,
  
  Why does a director of compliance not want to disclose their identity? Isn't compliance suppose to be about disclosure?
  
  You have an amazing skill of arguing points that have nothing to do with you quoting a book you hadn't read and speaking for a chief actuary in a call you weren't a part of.
  
  
  
  

•  
  156

  Brett A

  11/03/09 | Report as spam

  Gains in Low Markets & Other Loose Ends

  I guess I should take it as a compliment when the only way Roccy can refute what I stated is to call me a *****. Because as they say, only small minds resort to small words as a last resort. If anyone is a company ***** you would think he would be glad to claim the title as he enlists agents primarily for the IUL plan he prefers (LSW), but he is not even honest enough to disclose who it is on his site by always referring to it by a slogan on their illustrations - Revolutionary Life. He keeps throwing out a red herring about how to compare policies which is a low Illustration Rate. But anyone who truly understands how IUL work knows that not one penny has ever been credited to a single IUL policy because of Illustration Rates -- gains are credited solely on the basis of the cap and participation rate formula less costs for each crediting period. He keeps talking about how they will perform in a low index gain environment, so lets take a look at how each would of performed over the actual recent worst 10 year periods using actual index gains for 1974 to 1983. The hypothetical IUL gains are for each plan-s 140% participation rate and current renewal cap. As you can see the average 10 year gain credited to the Minnesota Life plan would have been 30% more! But we cannot forget the expenses - they would have been more for the LSW Provider plan:
  
  S&P Minn. LSW
  Actual 14% 10%
  
  1983 5.06% 7.41% 5.56
  1982 1.40% 6.16% 4.71
  1981 2.86% 6.91% 5.31
  1980 3.87% 7.59% 5.80
  1979 1.34% 6.51% 5.03
  
  Past 5 Yrs 2.91% 6.92% 5.28
  
  1978 0.11% 5.67% 4.31
  1977 0.87% 6.25% 4.77
  1976 2.90% 7.24% 5.56
  1975 0.48% 6.02% 4.71
  1974 - 0.31% 5.95% 4.80
  
  Past 10 Yrs 1.86% 6.57% 5.05
  
  10 Yr Costs:
  Age 40 na - +12.6%
  Age 50 na - +35.6%
  
  First, for you skeptics you can see that the Minn. IUL has an average gain of 253% more than the actual S&P. This is because it earned gains during the recovery on top of the gains it KEPT - instead of just recovering. Do you have anything that could do the same? With no market downside risk?
  
  Next, what about the 1.25% bonus that LSW MAY pay that he claims will mean it will perform best long term? First it starts AFTER year 10. It is NOT guaranteed - it is NOT even in the policy as a potential credit (whereas all annual cap and participation rate parts by Minnesota ARE and guaranteed each year as declared). Even if you added 1.25% to LSW it would not match Minn. But this is NOT how this bonus might work. Here is what it says in the brochure:
  
  "Starting at the end of policy year ten, an anticipated 1.25% Account Value Enhancement (non guaranteed) will be credited to the policy each year. An AVERAGE of the MONTHLY accumulated values will be multiplied by 1.25% and credited to the Basic Strategy at the end of the policy year."
  
  This is what their actuary wrote to me about it: ?The total account value is stored each month and is averaged at the policy anniversary. The 1.25% is (then) applied to the averaged account value.?
  
  We all know that when you average something over long periods of time the result will only be 50% - so the maybe credit might really only be 0.625%. But lets say it is 1% - it still would be less than Minn. - and would not help at all for the returns above.
  
  LSW has a good IUL - just not this one. This plan locks you into index choices for 5 years. Their other plan does not, and the avg. 10 year gain in the above 10 year picture with a higher 12% cap would have been 5.85%, or 15.8% more than this plan with costs only 6.3% more (age 50), so it would have a net higher cash value. But no maybe bonus after 10 years. And still less than Minn. And the LSW Provider has a renewal rate for years 2-5 which is less than the first year rate - why would anyone want to lock themselves into that?! As for Minn., I used them for this challenge because - based on actual caps and costs - I do not know of a better IUL today. If you do, let me know - but so far no one has. Also, Minnesota was named by Allan in the column in the interest of full disclosure.
  
  But really, if someone is going to call you a co. ***** they at least should know what they are talking about. Especially the product they primarily promote. With each discussion Roccy proves again he really does not.
  
  As for the original, actual challenge this is what Allan stated it was in his column: an 8% return in 10 years with minimum downside risk. That is ALL. He later increased the time period on his own to 26 years. Yet despite showing that it could be done 99% of the time based on historical returns of the S&P 500 Index for the past 65 years for multiple time periods, he focused ONLY on issues that had NO relevance to the merits of the actual investment at hand. After refuting his numerous lies and mis-directions he did not deny that he had done exactly this. Only silence. This sham of a challenge is over everyone, and it is time to move on to discuss it in a forum where the moderator has at the least an honest, open mind. That cannot be found here.
  

•  
  157

  glendavenport

  11/03/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Aztec,
  
  Your arguments are interesting but I think argument A is the best for me. Thats because I trust the markets, and would prefer to keep control as I know what my risk are, and can embrace a passive approach at low cost with minimal taxes.
  
  No worries about an insurance company changing its crediting, no worries about the possibility of life insurance being taxed in the future, and liquidity today not having to wiat to get around surrender fees and the like.
  
  Sorry but I won't be enriching the masses of Life Insurance Salesman who offer make such passionate pleas for our money.
  
  Glen Davenport
  
  A) it is simpler to understand & trust the account offer,
  B) there is a deeper historical base to give trust to with century-old guarantors with vettable records that far back,
  C) there is a far more stable track record to the insurance industry than the banking & securities industries,
  D) the fees, at their face, are exponentially less (and though this is irrelevant when the end result is the same, it matters to Johnny Public,)
  E) The tax benefits are much simpler to understand (and for advisors to explain,)
  F) There is a huge base of existing account owners (including congress-critters,) which establishes a virtually immovable level of stability of legislation.
  

•  
  158

  AztecTheRed

  11/03/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Hi Glendavenport,
  
  Your arguments are interesting but I think argument A is the best for me.
  
  I answered 3 different questions with multipart sequential answers... there were 3 different "A" answers. Which "A" are you referring to?
  
  The "A" you reposted supports EIUL investing... but it doesn't appear that this is the supporting point you were actually shooting for.
  
  Sorry but I won't be enriching the masses of Life Insurance Salesman who offer make such passionate pleas for our money.
  
  You'll pay far more to the securities gamers to get anywhere near the same results... do you have a 'personal' issue against the insurance companies? You won't be paying less to the securities companies.
  
  My position is not only that "one size does not fit all" but that "a single solution is virtually never the best mix for a properly planned portfolio."
  
  Take the full-exposure risks on the amounts you can afford to lose, and of which you are personally competent (and sufficiently reserved) to be managing... and export the risks of loss, tax exposure, fee costs, and underperformance to suitable players for the rest.
  
  In the end, you can never prevent people from voluntarily adopting too much risk... its just human nature.
  
  "There can be no real freedom without the freedom to fail."
  Erich Fromm
  
  Cheers,
  Aztec

•  
  159

  glendavenport

  11/03/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Aztec,
  
  The A is:
  
  A) it is simpler to understand & trust the account offer
  
  My trust is in a portfoio that can be controlled like a balanced portfolio.
  
  As I said it frees me from any worries.
  
  The only risk one bears is the volitility risk of the markets.
  
  I can live with that.
  
  

•  
  160

  Dougmor

  11/07/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Wow, now I'm confused. Which EIUl should I choose? Life of The Southwest or Minnesota Life? In today's times probably the more financially sound makes the most sense.
  
  How would one purchase a boring Swiss policy with less moving parts and more sound financial responsibility behind it?
  
  

•  
  161

  AztecTheRed

  11/09/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Hi Dougmor,
  
  EIUL programs & options need to be selected *after* you define your scenario, as they may have from extremely different features between them, to subtle (but critical) differences relative to your specific financial life.
  
  There is no "generic best"... every person's fit determines which structural design is optimum.
  
  Not sure what to tell you about a "boring Swiss policy." I have no idea what you're looking for in that.
  
  Luck!
  Aztec

•  
  162

  Dougmor

  11/22/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Aztec,
  
  Thanks for your insight. After reading 65.5 mil of the 151mil tax filers don't pay taxes, coupled with huge Bush and massive OB spending, which way are taxes headed? I like the EIUL but the cost of insurance is of concern. An illustration for cost of insurance should be provided by carriers too. Still I'd rather have tax free growth than the recommendations of fund pickers that can't beat the SP500 index and charge 3.5% per year without any risk on their part.

•  
  163

  AztecTheRed

  11/23/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Hi Dougmor,
  
  I like the EIUL but the cost of insurance is of concern. An illustration for cost of insurance should be provided by carriers too.
  
  That's another really cool feature of the Universal contract design; You're fully disclosed of the actual costs of insurance, in advance illustration and every year in your statements. It is not "folded into the mix" as with the obsolete whole life chassis.
  
  I'd rather have tax free growth than the recommendations of fund pickers that can't beat the SP500 index and charge 3.5% per year without any risk on their part.
  
  The average COI (fully transparently disclosed) tends to be well under 1.5% of a properly structured, max-funded (non-MEC) EIUL strategy... often well under 1.0% for survivorship structures (last-to-die.)
  
  ONE thing I have really begun to take to heart is one of Allan's questions (at least I think it was Allan... too lazy to re-read this thread from the top again.)
  
  That question was;
  If this can really be done... guaranteed no losses, resetting the basis to re-grow every year from the bottom, tax-free growth and tax-free access, match the absolute index upside annually, etc... then why aren't the brightest in the securities world doing it also?"
  
  The only answer I can come up with is;
  They *COULD*... however;
  A) It's capital intensive (requires deep pools of reserves, and securities people just don't have the DNA for reserves,)
  
  B) The internal mechanics are COMPLICATED... the few who are really bright enough to know how are far more likely to accept institutional salaries & bonuses at life insurers than to hustle for individual accounts,
  
  C) Offering results with accountability to guarantees... is simply against the typical securities salesperson's religion.
  
  It's not that they don't wish they could... they sincerely can't fathom it being possible.
  
  D) LASTLY; even those who are "shown the light" and bright enough to understand, are so publically invested in a previous position of its impossibility... that they cannot afford to acknowledge the discovered facts.
  
  Cheers,
  Aztec

•  
  164

  Allan Roth

  11/29/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  AztehcTheRed,
  
  As an hourly adviser, I sell nothing but advice. I recommend products, including insurance products. I am constantly searching for better products than broad low cost index funds and have found them in fixed income.
  
  I'm a strong believer in insurance for what one cannot afford to lose. When it come to investing, it brings in two expensive intermediaries - the insurance company and the producer (salesperson). In the $100K challenge, the producer produced gobs of paper to confuse the issue but couldn't overcome the arithmetic of bring in two expensive and unnecessary intermediaries.

•  
  165

  AztecTheRed

  12/01/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Hi Allen,
  With EIUL strategies, the investor has zero investment expense*, principal guarantees that securities managers cannot (or refuse to) offer, and the costs of insurance are less than any competitive-performance managed security strategies.
  
  (*Zero investment expense due to the declining/expiring fee structure over the predetermined surrender period.)
  
  EIUL is an excellent insurance against competitive investment principal loss, and against the predominant failure of active management strategies to consistently meet the performance of the broad indices. Its simply impracticable to self-insure for this.
  
  Its certainly not a panacea... but it trumps a ton of what the securities religious zealots pump.
  
  Cheers,
  Aztec

•  
  166

  AztecTheRed

  12/01/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  I should clarify;
  and the costs of insurance are less than any competitive-performance managed security strategies.
  
  I meant;
  and the costs of insurance are less than the investment management and/or product load fees of any competitive-performance managed security strategies.
  
  

•  
  167

  Brett A

  12/03/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  This is Brett - I am the Challenger in this. I get notices showing people are still reading this column and reports I posted herein everyday, so I decided to check on any new comments. I am not surprised to see that Roth has chosen to again take another pot shot at me and state LIES that he already could not refute before, so lets address these again. He states:
  
  (quote) As an hourly adviser, I sell nothing but advice. I recommend products, including insurance products ? I'm a strong believer in insurance for what one cannot afford to lose. When it come to investing, it brings in two expensive intermediaries - the insurance company and the producer (salesperson). In the $100K challenge, the producer produced gobs of paper to confuse the issue but couldn't overcome the arithmetic of bring in two expensive and unnecessary intermediaries. (unquote)
  
  The crime in the hypocrisy of advisors such as Roth is the disservice he does to those trying to find a good, safe way to invest for the long term. He has the IUL expense report to know that his statement about the costs is an outright lie. Sure, the costs are higher in the beginning - but do you really expect any company to create products or an agent to spend years getting an education to learn their profession, and then sell the investments for free?! I have been in this business almost 30 years and I have never had anyone call me up and say they wanted to buy a life insurance policy because they thought it was such a great investment. Agents have to spend money for education to learn how it can be designed to be such, and to market their services to get people to buy the products that even Roth will say they need. All of this effort from the co. and agent costs money - someone has to pay somehow.
  
  Now advisors like Roth will charge you a fee - typically with most such advisors this can range from $1,000 to $5,000 or more. Yet for some reason this cost never gets incorporated into the cost of the investment too. Why not - it is real money out of your pocket?! Whereas if you came to a non-fee advisor like me I would design a similar - and compared to Roth - better plan at NO cost! The fee would be paid by the company in the form of a commission. The hypocrisy of Roth and his ilk is they promote themselves as being pure with no companies to promote when most of them just pass you down the hall or block to an agent they split the commissions with. And they got your fee too!
  
  And what about as he says ? insurance for what one cannot afford to lose? Does not Retirement Savings fall under this umbrella? What could be more important for most people than keeping a lifetime of savings protected from the market - really! TIME magazine thought so, which is why they did a cover story on it a few weeks ago stating retirement savings need to have a new kind of insurance to prevent them from being LOST because of the market when it is time to retire. The Chairman of Putnam Funds has also spoken recently on this need. But Roth is against this because it does not fit his model of what he wants the typical investor to buy - why is that?
  
  What about the insurance costs? As I stated, they are higher in the beginning than some other types of investments - but this is so the agent can afford to be in the business to educate you about this and other types of investments. Even so - as I also stated before in this column - the average of ALL expenses including insurance over the first 26 years (with Minnesota Life) is 0.63% per yr. In year 30 it is 0.17% ($1,506 on $869,000). While a mutual fund with avg. fees of 3% would cost $26,000 that year! Can you show me another investment with total lifetime expense ratios as LOW as IUL?!
  
  According to Morningstar and Roths own company CBS Money Watch, their recent studies determined the average mutual fund TOTAL expenses is a minimum of 3.03% per year. Because of this and other factors Dalbar reported the ACTUAL net IRR (before taxes) for the typical investor the past 20 years, was 1.87% per year!
  
  So is IUL really that expensive with a NET Tax Free IRR of: year 20 is 7.54%; year 30 is 8.37%; year 40 is 8.87%. These are the Conservative projections that do not allow for current historical low interest rates (and so lower caps) OR using the Global Index option for any portion. Doing so could increase these easily by an additional 1%. I?ve challenged anyone to show me ANY other investment with NO market risk (or with) that can do this - so far no one has. To match this after taxes (35% mtr) and fees, another investment will need to be able to gross every year on average, 15% to 17%! It cannot be done over 20, 30, 40 years.
  
  Roth also refuses to consider and include in the net cost benefits the fact that NONE of the TAX FREE income from an IUL is included in the formula to tax your Social Security. That tax from other investments is a REAL cost reducing its actual net ROI. Or that future tax rate increases will have ZERO affect on your retirement savings and income with IUL because they are protected (by the Supreme Court) from any and all such increases.
  
  When this challenge began Roth told me he knew nothing about Indexed Life. What is criminal is that he still acts as if does not. But the real crime is he must - unless he really is as dumb as he acts - because he refuses to acknowledge he has learned anything about IUL and so continues to harm with the false statements and comments he still makes. But if IUL is really so bad why has Roth NOT ONCE REFUTED THE POSITIVE REAL BENEFITS and IRR OF IUL or the ACTUAL ORIGINAL CONDITIONS OF THIS CHALLENGE?! After being asked if he could do so many times there is only SILENCE on the REAL MERITS and factors because he CANNOT. And he knows it. For his complete lack of integrity about this and the Challenge it really is Buyer Beware in taking any of his advice because it is totally contrary to what the market leaders - and more importantly actual investors - say is wanted and needed today for this generations retirement savings and most certainly future tax rate increases.

•  
  168

  Dougmor

  12/09/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  AztecTheRed,
  
  Thanks for your information. I appreciate your info on the costs. Now that congress is showing their colors, ( moving towards death tax on a permanent basis), I'm sure taxes are headed way up in all areas! A EIUL will be added to my strategies and I was told by an life agent he couldn't legally call it an investment because investments are risk products.
  
  Take care Red.

•  
  169

  AztecTheRed

  12/10/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Dougmoor,
  
  You're welcome. Easier to just call it "Safe Market-based Growth Accounts."
  
  In the end it really doesn't matter what you call it. Just detailing out the factual features of Option A (a managed securities account) versus Option B (an EIUL account) lets the client make their own informed choice.
  
  Aztec

•  
  170

  Allan Roth

  12/13/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Brett,
  
  Since you are accusing me of a crime, do you think you met your stated challenge?
  
  can blow away saving for retirement in any market fund, with an Indexed Life policy. How about a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk.
  
  Remember that you are writing as an agent of Minnesota Life and you have made written representations of statements from its chief actuary that others reading your reps may rely on.

•  
  171

  Brett A

  12/21/09 | Report as spam

  Crime

  I have no way of knowing if you are guilty of a legal crime and did not accuse you of such. I have received many emails in regard to the challenge and they are 100% in my favor for having prevailed. What you are guilty of is obtuseness, stone walling, being disingenuous and closed minded. Most comments from others included the belief that you just really did not have $100,000 and had to do everything you could to cheat to prevail.
  
  As for the issue at hand, if the year had ended on 12-18-09 this is what the gross returns would have been (for the IUL based on current crediting parameters:

•  
  172

  Brett A

  12/21/09 | Report as spam

  Continued from above

  Based on quarterly annual gains - stocks are purchased throughout the year - not just on Dec. 31st:
  
  S&P 500 IUL
  
  1 year - 16.76% 4.00%
  
  5 years - 2.53% 5.96%
  
  10 years - 2.50% 5.89%
  
  20 years 6.10% 8.50%
  
  Based on these losses vs. gains, advisors/reporters such as yourself only do a disservice to the millions of people trying to find a safe place to earn a reasonable return on their retirement and other savings. Even after allowing for dividends and maybe lower fees - and also willing to assume much more risk - you still cannot get close to matching the gross or net return of Indexed Life (with a good company and properly designed plan). For you to be completely unwilling to honestly consider that for those who follow you because they think you know what you are talking about is the real crime. Unfortunately they are the ones who will have to serve the lifetime sentence for your ignorance.

•  
  173

  Allan Roth

  12/22/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Bret,
  
  Below are your words.
  
  I can blow away saving for retirement in any market fund, with an Indexed Life policy. How about a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk.
  
  I'm happy to invest and recommend any product that meets this challenge. The fact that you think you met this challenge and went on record implying the Minnesota Life chief actuary agreed is noted in the above posts.
  
  If you had sold me the product presented in the manner you did with the documented claims you made in written form, I would be unhappy, to say the least.
  
  I do agree with you that there are many bad investments that are securities, such as expensive mutual funds and anything that strips out dividends like the S&P 500 returns you keep claiming is the market. So I agree with you that there are worse investments than the IUL but that wasn't the challenge.

•  
  174

  AztecTheRed

  12/23/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Hi Allan,
  
  Wow... I had to go revisit the body of the thread from the beginning to re-orient myself. Soo many electrons tortured in this thread.
  
  I started from the very top;
  After writing the column, ?Why So Critical on Annuities,? I got a particularly interesting email. It started off with:
  
  I can blow away saving for retirement in any market fund, with an Indexed Life policy. How about a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk.
  
  Unlike most of the other emails I received from insurance producers, this one didn?t use any abusive language and I?d be thrilled to earn eight percent annually, without any risk. So I accepted and agreed to fork over $100,000 for this challenge, if he could deliver. The challenger, Brett Anderson, has a website titled Last Chance Retirement.
  
  SO... without adding, subtracting, convoluting or twisting anything beyond the explicit challenge, what are our results?
  
  A) How about a NET return of 8%
  
  Did he clear this hurdle? The Indexed UL returns, net of fees, costs of insurance, taxes, et. al., cleared 8%, if I recall correctly.
  
  B) that allows you to take out the gains Tax Free for retirement income,
  
  Did he clear this hurdle? (I posted the relevant IRS codes showing how & why it is valid.)
  
  C) with NO downside market risk.
  
  Did he clear this hurdle? (The contract you reviewed showed the guaranteed returns/floors, no?)
  
  By the letter of the challenge as you represented it, it appears he did succeed across all 3 questions.
  
  
  It does appear that you are taking an overly pre-biased position. Yours is not an unusual bias, I see it frequently from those who either do not understand the technical financial benefits of reset-indexed growth within the tax-protective shell of universal life policies... and/or those who's income is threatened by the same.
  
  While Brett has frequently been anything but eloquent, your own responses and treatments have frequently left a gentle reader with reason to doubt you...
  
  In acknowledgment to you, you've left the "dangling chads" of proof of your loss undeleted on this thread... which, in no small part, fascinates me. You assumedly have editorial control of your own BLOG... and it is clearly a platform for your own professional client marketing... yet, this thread has not worked in your favor (at least among those who would read with the discerning eye of an engineer, attorney, or fellow financial professional.)
  
  Perhaps the target market can be counted on not to pay too close of attention to the details?
  
  In the end, you "own" this blog-space... and I predict that you will face certain options;
  A) Delete the entire thread and pretend it never existed,
  B) Acknowledge you have learned something you didn't know prior to this thread, and negotiate your bet settlement,
  C) Leave it to stand, and have it continue to fester.
  
  Then again, the nature of the Moneywatch blog structure is that regardless of how relevant & active this thread & conversation is, it will drop deeper & deeper down on the topic list, since it is sorted by initial post date, not most recent contribution. This could allow you to just let time "bury the cat-doo."
  
  My recommendation is to "clean it up" and deal with the original challenge, unchanged from the initial post.
  
  Happy Holidays!

•  
  175

  AztecTheRed

  12/23/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  hmmm... it appears some unclosed HTML tags drowned out my formatting... let me try again, and please delete the instance above.
  ================================
  
  Hi Allan,
  
  Wow... I had to go revisit the body of the thread from the beginning to re-orient myself. Soo many electrons tortured in this thread.
  
  I started from the very top;
  After writing the column, ?Why So Critical on Annuities,? I got a particularly interesting email. It started off with:
  
  I can blow away saving for retirement in any market fund, with an Indexed Life policy. How about a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk.
  
  Unlike most of the other emails I received from insurance producers, this one didn?t use any abusive language and I?d be thrilled to earn eight percent annually, without any risk. So I accepted and agreed to fork over $100,000 for this challenge, if he could deliver. The challenger, Brett Anderson, has a website titled Last Chance Retirement.
  
  SO... without adding, subtracting, convoluting or twisting anything beyond the explicit challenge, what are our results?
  
  A) How about a NET return of 8%
  
  Did he clear this hurdle? The Indexed UL returns, net of fees, costs of insurance, taxes, et. al., cleared 8%, if I recall correctly.
  
  B) that allows you to take out the gains Tax Free for retirement income,
  
  Did he clear this hurdle? (I posted the relevant IRS codes showing how & why it is valid.)
  
  C) with NO downside market risk.
  
  Did he clear this hurdle? (The contract you reviewed showed the guaranteed returns/floors, no?)
  
  By the letter of the challenge as you represented it, it appears he did succeed across all 3 questions.
  
  
  It does appear that you are taking an overly pre-biased position. Yours is not an unusual bias, I see it frequently from those who either do not understand the technical financial benefits of reset-indexed growth within the tax-protective shell of universal life policies... and/or those who's income is threatened by the same.
  
  While Brett has frequently been anything but eloquent, your own responses and treatments have frequently left a gentle reader with reason to doubt you...
  
  In acknowledgment to you, you've left the "dangling chads" of proof of your loss undeleted on this thread... which, in no small part, fascinates me. You assumedly have editorial control of your own BLOG... and it is clearly a platform for your own professional client marketing... yet, this thread has not worked in your favor (at least among those who would read with the discerning eye of an engineer, attorney, or fellow financial professional.)
  
  Perhaps the target market can be counted on not to pay too close of attention to the details?
  
  In the end, you "own" this blog-space... and I predict that you will face certain options;
  A) Delete the entire thread and pretend it never existed,
  B) Acknowledge you have learned something you didn't know prior to this thread, and negotiate your bet settlement,
  C) Leave it to stand, and have it continue to fester.
  
  Then again, the nature of the Moneywatch blog structure is that regardless of how relevant & active this thread & conversation is, it will drop deeper & deeper down on the topic list, since it is sorted by initial post date, not most recent contribution. This could allow you to just let time "bury the cat-doo."
  
  My recommendation is to "clean it up" and deal with the original challenge, unchanged from the initial post.
  
  Happy Holidays!

•  
  176

  DougDiggerEberhardt

  12/24/09 | Report as spam

  8% Return Is Not Realistic

  In my humble opinion....based on current and future market conditions....
  
  ....an 8% return is not a realistic scenario, let alone one that is "net of fees and cost of insurance." Unless I'm missing something here, insurance companies cannot offer more than the return on the S&P or some other stock index as the benchmark.
  
  See post #30 and #41 for reference and Aztec's reply in post #45.
  
  Aztec's reply offered two thoughts;
  
  1. offer the contract owner the option to switch from a "index participation" strategy to a "fixed credit" strategy at various intervals... some quarterly, some annually at anniversary.
  
  2. You certainly have more control in an EIUL than you do in an loss-vulnerable equities account. You may give up some "homerun" opportunity above the cap, and in return are assured a zero market loss reality.
  
  To #1 my thoughts would be, it does offer you some control, but only in an asset (fixed credit) that offers me a fixed return (5% in your example). I would be surprised if the 5% was being paid in today's interest rate environment, but what this option doesn't give me is any protection from the decline in the dollar's value. The dollar index was down double digits this year. Maybe if it offered me the ability to switch to Gold or EURO's, ha.
  
  For #2, Again, technically you are not given a zero market loss as their is still the loss potential of the value of the U.S. dollar. But I'd rather have the ability to maneuver in taking advantage of market conditions than take a zero return or be forced to switch to a guaranteed return as noted in my reply to #1. The ability to switch once a quarter isn't bad, but once a year is terrible.
  
  But as to the likelyhood of an 8% return on stocks....
  
  Stocks aren't paying dividends like they have historically so approximately 80% of the return has to come from capital growth.
  
  The only capital growth sans a few companies that I see at present is coming as a result of the green shoots blooming from additional government spending. These green shoots will wither and die once people realize they themselves are paying for them through higher taxes and inflation. Congress is complicit as they will approve another raise in the debt ceiling very soon. Merry Christmas!
  
  Your friend Mish Shedlock speaks of the reality of an 8% return moving forward when he addressed recently the problems with Pennsylvania teachers pension plans:
  
  "With 10-year treasuries yielding 3.55% there is no reasonably safe way to assume 8% returns. The only way to get 8% is to take a lot of risk. If teachers want that risk, then teachers, not taxpayers should take the hit when risk blows sky high again (which it will).
  
  An 11% return for the next 10 years is simply not going to happen. Nor is a 38% one-year return followed by a string of 8% returns.
  
  All of these plan assumptions were put in place in the biggest credit expansion and PE expansion in history. They simply are not valid. The Teachers' association will be lucky to get 6% a year for the next ten years, very lucky in fact.
  
  The odds of another huge stock market dip in 2010 or 2011 are huge. The odds of another recession in the next 10 years are also huge. Heck, the odds of double-dip recession in 2010 or 2011 are very substantial.
  
  Fundamentally, a huge wave of boomer retirement is coming up, and those retirees will be drawing down funds and lowering lifestyles, not contributing and consuming more. Moreover, global wage arbitrage still has not played out and there is huge downward pressure on wages and jobs.
  
  Structurally, unemployment will remain high for a decade. And finally, consumer attitudes towards debt and risk have reached a secular peak and have turned.
  
  That is not a backdrop for a huge bull market in equities. Pension plans better figure this out and act accordingly or they are going to dig themselves an even deeper hole."
  
  Naturally you'll agree the Fed is stuck between a rock and a hard place. They cannot raise rates. Enjoy this last rise in the dollar while it lasts (hopefully into the middle of next year). But with the passing of Obamacare this morning, wars that never end, a growing welfare state on the back of higher unemployment, tapped out consumers, businesses that can't get loans because banks won't lend, a dwindling manufacturing base, and a never ending trade deficit, there's really not much to support GDP these days, nor in the future).
  
  Government spending can only take us so far. China and Japan are already nervous. Hate to see them cut the tube to the U.S. heroin addict, but they need to.
  
  Lastly, moving forward, I want my money liquid to take advantage of market conditions. When the Fed is forced to raise interest rates in support of a falling dollar (down the road), it would cause a halt to any growth and be detrimental to the stock market and although I wouldn't lose any money in the insurance product, I am still paying the fees and cost of insurance thus depleting my capital and any currency loss associated with a U.S. dollar decline.
  
  Here's an article I wrote to prove my point:
  
  DOW 10,000 In 2009 Is NOT the Same as DOW 10,000 In 1999 ? It Buys You 23.8% Less Today
  
  http://fedupbook.com/blog/inflation/dow-10000-in-2009-is-not-the-same-as-dow-10000-in-1999-it-buys-you-23-8-less-today/

•  
  177

  Allan Roth

  12/24/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  AztechTheRed,
  
  Regarding the statement:
  
  "with NO downside market risk"
  
  You are saying that an illustration with a guaranteed value of at least $0 from my $100,000 investment meets that hurdle?
  
  I could address the other issues but if you or anyone else (including Brett) is willing to put up a bond for the return of the $100,000 plus the 8% annual return, I'll buy it. If you or anyone else will do it for others, I'll recommend it.
  
  In lieu of the bond, I'll take a written letter from the insurance company guaranteeing me of this. Since you claim it's true, this should be no problem.
  
  Let's do this!

•  
  178

  AztecTheRed

  12/24/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  
  Hi DDE,
  
  ....an 8% return is not a realistic scenario, let alone one that is "net of fees and cost of insurance." Unless I'm missing something here, insurance companies cannot offer more than the return on the S&P or some other stock index as the benchmark.
  
  Yep, you're still missing the effect of an annual reset.
  
  Let's dramatically simplify this for understanding;
  
  Assume: The index rises 100 points year 1, drops 100 points year 2, rises 100 poiunts year 3, drops 100 points year 4...
  
  What's your average rate of return? Zero, right?
  
  An annual reset strategy gives you;
  A) 100 points up year 1, net 100 up,
  B) flat, no loss, year 2,
  C) 100 points up year 3, net 200 up,
  D) flat, no loss year 4.
  
  Average return; 200 points divided by 4, 50 points per year.
  
  See? Reset indexing is how EIUL products that credit strictly to the index *CAN* actually beat the underlying index itself.
  
  The failure to understand this, and to try to assume comparison of an underlying index average WITHOUT the resetting effect, is where the securities-only proponents (those who are honest, anyway) are missing the boat.
  
  ===============================
  
  Allan,
  
  Brett said;
  "with NO downside market risk"
  
  You asked;
  You are saying that an illustration with a guaranteed value of at least $0 from my $100,000 investment meets that hurdle?
  
  Yes, exactly, if you read exactly what was actually said. The illustration "guarantee" discounts non-market risks, which I enumerated previously... such as insurance costs inflating beyond any historical track record, plus a series of consecutive zero-credit markets (such that everyone in securities is even losing their money faster than in the EIUL contracts,) and a tenacious refusal of a client to move *any* of their cash value to safe-equity fixed accounts.
  
  The indexed market itself can go to hell in a handbasket, and you won't lose a dime due to it (unless you are in securities, of course... which you are not, in EIUL.)
  
  I'll take a written letter from the insurance company guaranteeing me of this.
  
  Read the illustration documentation in full you already possess, its expressly guaranteed there.
  
  Let's do this!
  
  As you wish, I am sure Brett will be along eventually.
  
  All the best to you & your family!

•  
  179

  AztecTheRed

  12/24/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  bizarre... just tried to post, and all I see is a big blank space... let's try again;
  
  Hi DDE,
  
  ....an 8% return is not a realistic scenario, let alone one that is "net of fees and cost of insurance." Unless I'm missing something here, insurance companies cannot offer more than the return on the S&P or some other stock index as the benchmark.
  
  Yep, you're still missing the effect of an annual reset.
  
  Let's dramatically simplify this for understanding;
  
  Assume: The index rises 100 points year 1, drops 100 points year 2, rises 100 poiunts year 3, drops 100 points year 4...
  
  What's your average rate of return? Zero, right?
  
  An annual reset strategy gives you;
  A) 100 points up year 1, net 100 up,
  B) flat, no loss, year 2,
  C) 100 points up year 3, net 200 up,
  D) flat, no loss year 4.
  
  Average return; 200 points divided by 4, 50 points per year.
  
  See? Reset indexing is how EIUL products that credit strictly to the index *CAN* actually beat the underlying index itself.
  
  The failure to understand this, and to try to assume comparison of an underlying index average WITHOUT the resetting effect, is where the securities-only proponents (those who are honest, anyway) are missing the boat.
  
  ===============================
  
  Allan,
  
  Brett said;
  "with NO downside market risk"
  
  You asked;
  You are saying that an illustration with a guaranteed value of at least $0 from my $100,000 investment meets that hurdle?
  
  Yes, exactly, if you read exactly what was actually said. The illustration "guarantee" discounts non-market risks, which I enumerated previously... such as insurance costs inflating beyond any historical track record, plus a series of consecutive zero-credit markets (such that everyone in securities is even losing their money faster than in the EIUL contracts,) and a tenacious refusal of a client to move *any* of their cash value to safe-equity fixed accounts.
  
  The indexed market itself can go to hell in a handbasket, and you won't lose a dime due to it (unless you are in securities, of course... which you are not, in EIUL.)
  
  I'll take a written letter from the insurance company guaranteeing me of this.
  
  Read the illustration documentation in full you already possess, its expressly guaranteed there.
  
  Let's do this!
  
  As you wish, I am sure Brett will be along eventually.
  
  All the best to you & your family!

•  
  180

  DougDiggerEberhardt

  12/25/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Aztec,
  
  You're right, I did forget that aspect to it. I don't do this for a living any longer and simply forgot that, lol.
  
  The people you win over for this type of strategy are more than likely the "buy and hold" folks and I can see you persuading them rather easily.
  
  I'm not a buy and hold guy either for the most part.
  
  So while this product might fit most that insurance salesmen sell it to, I'd rather have control of my money to play the trend on the down years (like 2008 for example) and invest accordingly.
  
  I have seen that some companies are offering ETFs now for their variable insurance products. If you have one that offers ETFs where I can short the market and play the gold market (GLD), I'd be interested. I know I wouldn't get the downside protection that the EIUL offers, but that's fine with me. I just want investment control and switching ability (more than quarterly or once a year).
  
  Perhaps this product exists now, perhaps it doesn't. But maximum funding it under 7702 would be worth it to me if I had more control.
  
  The only difficulty that I can see is trying to figure out how much tax free income at retirement to avoid the "tax trap" if I died too soon and the potential of estate taxes on the death benefit if Congress lowered the threshold (although with current deflating of housing and the stock market that isn't as big an issue as it was a few years ago). But I can easily speculate congress will be after more taxable sources in the future (they just raised the debt level again to 12.4 trillion).
  
  All in all, I give the strategy a thumbs up for a portion of someone's portfolio, especially those who don't want anything to do with managing their own investments. I would like to see the reset indexing guaranteed for the life of the product. This seems to be your biggest selling point. Add this to the tax-free aspect to it, and I see it as a win/win, as long as we don't have some plague that would cause the guaranteed cost of insurance charges to kick in.
  
  Do you have a website?

•  
  181

  DougDiggerEberhardt

  12/25/09 | Report as spam

  Paragraph above should read

  The only difficulty that I can see is trying to figure out how much tax free income at retirement to avoid the "tax trap" if I lived too long.
  
  One would have to be conservative with their annual tax-free withdrawals...or eat a lot of corn fed steak!

•  
  182

  AztecTheRed

  12/25/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Hi DDE,
  
  Good, you get it now. This is one excellent strategy for those who want part (some, most, or even all) of their growth safe from market loss with the realistic potential to outperform active-management hired guns.
  
  We have plenty of clients (like yourself) who prefer to retain some direct "play money accounts" to try their own hand at gaming the markets themselves. Nothing wrong with that... as long as they segregate their at-risk money versus safe-growth money.
  
  Thanks for asking regarding my website... I do indeed have one (several,) but in respect of our host I won't be passing my business card here at Allan's blog. I am a significant blog and message-board contributor among some of the larger publications (that's how I know Mish. He would likely easily guess my identity from my posts here... but I don't think there are any other ways to search me out in this thread... I have written it that way intentionally.)
  
  I prefer to leave the financial facts and the math to speak for itself, rather than clouding the argument with who's from where and what someone's advanced educational background signifies, etc. I abhor "shortcut logic" in that manner... where people choose to decide without actually thinking out the details.
  
  All the best!

•  
  183

  Allan Roth

  12/26/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  AztechTheRed,
  
  Regarding your statement "Read the illustration documentation in full you already possess, its expressly guaranteed there."
  
  You denying the illustration guarantee was a loss in 10 years and had a zero value in year 26. If you have another illustration, please send. If you, Bret, or anyone else gives me a guaranteed illustration representing the 10-year value of a $100,000 investment is $215,892.50 ($100K x 1.08^10), I'll send the check. Let's get this done before year end.
  
  It's clear that you and Brett are telling people "I can blow away saving for retirement in any market fund, with an Indexed Life policy. How about a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk." I just want you to deliver or at least honor the representations you made to your clients who relied on them.
  
  Happy Holidays to you too.

•  
  184

  rlecrisp@...

  12/26/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Amazing the time you people have! Not sure if this is even worth 2 cents, but I was a low level worker in the insurance industry. My work involved my knowing the annuity offerings intimately and conversing with clients and brokers about our products. The most amazing aspect to me wasn't the non-stop stream of mom and pop retirees (sp?) who didn't understand what they had purchased (Multi-Point, anyone?), but the never-ending wave of brokers who didn't understand what they had sold! Perhaps the mention of a 15-20 percent commission was a bit distracting during product sales orientation class.
  
  The most telling aspect of this challenge is Minn. Life admitting that the product in question is hedged with a zero coupon bond and an index fund, leaving the consumer to master Black-Sholes to determine the true value of thier product.
  
  
  Bottom line, if a consumer can't fully and completely understand a product in 30 minutes, it should only be available to accredited investors/consumers.
  
  Annuities: brought to you by the people working hard to ensure the survival of the death tax.

•  
  185

  AztecTheRed

  12/26/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Hi Allan,
  
  You denying the illustration guarantee was a loss in 10 years and had a zero value in year 26.
  
  you're either being amazingly forgetful (the kind assumption) or intentionally disingenuous (which I'd perhaps naively prefer to doubt.) I have fully explained in this thread what the illustrations so-called" guarantees" mean in non-regulatory English, how they are figured, and what the real risks of the worst-case illustrations are (which are exponentially less risky than having money unprotected in naked securities.)
  
  An EIUL illustration is required to show what would happen if all of the non-market risks imaginable were to occur simultaneously, sequentially, ongoingly...
  
  Were the same assumptions held for *any* securities account, you would lose 100% of your principal and any gains in your 1st year (if not in months.)
  
  Nonetheless, in the EIUL, you have zero risks of market losses, period... which is explicitly the gauntlet you threw down at Brett.
  
  
  If you, Bret, or anyone else gives me a guaranteed illustration representing the 10-year value of a $100,000 investment is $215,892.50 ($100K x 1.08^10), I'll send the check. Let's get this done before year end.
  
  That's an interesting NEW and DIFFERENT challenge... but not the one you committed to, in writing, at the head of this thread.
  
  
  It's clear that you and Brett are telling people "I can blow away saving for retirement in any market fund, with an Indexed Life policy. How about a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk." I just want you to deliver or at least honor the representations you made to your clients who relied on them.
  
  Done.
  
  =========================================
  
  Hi rlecrisp,
  
  Perhaps the mention of a 15-20 percent commission was a bit distracting during product sales orientation class.
  
  I would imagine so, I've never heard of anything in that realm in the modern day in any kind of indexed program. The highest commissioned indexed annuities I know of are in the one-time 9% (deferred and declining to zero) area, and the best EIUL programs are in the 4-5% deferred/declining area...
  
  In contrast, securities devotees get stars in their eyes with an ongoing 2-4% bloodletting from the clients' principal, each and every year the account remains held. It doesn't take math any better than a low-level insurance clerk to see how much more expensive straight securities strategies are (and how deeply their fees cut into the account performances.)
  
  
  The most telling aspect of this challenge is Minn. Life admitting that the product in question is hedged with a zero coupon bond and an index fund, leaving the consumer to master Black-Sholes to determine the true value of thier product.
  
  The customer has no such concerns, as the account value is issued relative to a published index, REGARDLESS how the carrier's general accounts actually perform.
  
  
  Bottom line, if a consumer can't fully and completely understand a product in 30 minutes, it should only be available to accredited investors/consumers.
  
  VERY MUCH AGREED... and in this aspect, reset-indexing accounts are superior to close to 100% of all securities strategies. You don't need to understand the voodoo of market fundamentalism, you need no worry of technical tea-leaf reading, you need no MBA, nor any other advanced degree.
  
  You know;
  A) When the markets go up, my account value goes up*,
  B) When the markets go down, I lose not a penny,
  C) After the markets drop then start recovery, I gain again immediately... no waiting to "catch back up" to a previous level,
  D) The company's fees DO NOT come out of MY account value (*but there's a catch, of course... below,)
  
  *The catches;
  E) I have a maximum-gain limit per period (known as a "cap",)
  F) I am making a commitment of time to the company in return for their paying my fees for me. If I close-out my account earlier than my time commitment, a time-pro-rated portion of the fees are my own responsibility at that time.**
  
  ** Catch in your favor that beats the downside catches,
  G) The IRS let's me access my funds by a zero-interest cost loan to myself from my own funds, so on a bookkeeping basis I am not "withdrawing" in order to gain access, and therefor I incur no fees, and trigger no taxation events.
  
  =========================================
  
  In the end, these accounts are NOT for all of everyone's money... only the funds that cannot be afforded to be lost, and needed to grow safely.
  
  Just as with sky-diving, decadent desserts, and 3rd marriages, humanity *ALSO* tends to find a need to supplement our lives with some levels of risk and drama (which these reset-indexing accounts are devoid of.) For the fulfillment of spice and excitement, funds should be set aside to "take a gamble" with securities to the fullest extent required for mental health.
  
  Cheers all!

•  
  186

  scottbannon

  12/26/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Dear Rlecrisp:
  
  I have only recently entered the insurance industry as a sales representative. I do not currently sell annuities for several reasons. If you feel the reasons are important please let me know I will tell you some of them. Although, I have contemplated selling them.
  
  That being said, please educate me on this quote, "Annuities: brought to you by the people working hard to ensure the survival of the death tax."
  
  Thank you,
  Scott Bannon

•  
  187

  rlecrisp@...

  12/27/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Mom and Pop weren't very good with asterisks, Aztec.
  
  Scott, sell all the annuities you can, just be able to look yourself in the eye and say 'I've done right by my client'. AND REALLY BE ABLE TO MEAN IT: examine clients needs and issues from a wider perspective than your industry may be able to provide. The biggest issue I always encountered is that at the end of the day clients seemed to forget they bought an insurance product first, and an investment vehicle a distant second. I would have been happy to blame them for this lapse, but my many unsettling conversations with uninformed brokers prevented me.
  
  Regarding the death tax, I included that as it illustrates the predatory nature of the industry. The death/estate tax is a significant financial burden to many citizens not to mention a slap in the face to hard working folks who wish to pass their hard earned (and already taxed!) wealth to their heirs. However, to the insurance industry (and to be fair to Estate Planners and others as well) it is a business opportunity and its continuation, though a detriment to the public, is an especially large boon to the insurance industry. The tobacco industry ain't got nothing on these guys.

•  
  188

  Allan Roth

  12/27/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  AztecTheRed
  
  It's the exact same challenge - "How about a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk."
  
  The challenge wasn't to compare it with bad securities. In fact, a good IUL is probably better than a bad security.
  
  Numbers don't lie - the guarantee was for a loss of some or all of the principal. Since you say you have seen the illustration, you know this and must be associated with the agent that prepared it - Brett. Don't you think that was relevant to disclose?
  
  My disagreement with folks like you and Brett isn't that you sell this, it's fair disclosure of the what the product is and isn't. It doesn't give a "a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk."

•  
  189

  Brett A

  12/28/09 | Report as spam

  Comparison of Actual Gains Past 20 Years

  I have no interest in rehashing all that has been said before. With the link below (A) you can see a simple, straight forward comparison of the gross and net IRR (Internal Rate of Return) of the proposed Indexed Life policy for Allan Roth vs. what the S&P 500 actually did over the past 5, 10, 15 and 20 years. This way you can see in ?black and white? without any editorial bias from either side how the performances would have compared.
  
  The Indexed Life (IUL) values are based on the assumption the current cap did not change over the entire period, when in fact it was higher at different times. Based on historical interest rates the average cap is estimated to average about 2% more than current (i.e., 18% vs. 16%), so all the shown IUL values will be higher. The S&P gains shown cannot change - these are what they actually were.
  
  The Indexed Life values shown are for the 3 options offered by Minnesota Life. The 14% cap / 140% PR / S&P linked values for the past 20 years would have had a NET IRR of 7.54% - this is after ALL expenses. The actual S&P - with no expenses - would have been 6.14%. If you include dividends it may of matched the IUL return. In my book, 7.54% net per yr average over 20 years blows away the 3.11% after expenses for a typical mutual fund (and less taxes still on Social Security). Dalbar states the actual mutual fund net was 1.87%.
  
  But the IUL did not have a roller coaster ride for 20 years - and you can access the gains Tax Free. Also none of the monies withdrawn go into the formula to tax your Social Security. When you allow for these factors the comparable IRR for the S&P with dividends and no cap (in a Qualified Plan) would drop to about 3-4% or ? the IRR of an IUL.
  
  At year 25 the IUL IRR = 8%. Over the next few years it climbs to 9% NET ALL COSTS.
  
  In the other link (B), it shows what the IRR could be for the policy for Roth. The challenge was an 8% IRR by year 26. The Challenge was NEVER that the 8% had to be guaranteed - after all the performance of the IUL is based on what the S&P actually does in the future. If it was an actual guarantee then there would be no need to bother with an actual product -- the co. could just issue a CD or bond. This is a disingenuous demand for a return that does not exist on any investment, but the only way Roth could weasel out of the challenge was to make you think it was an original condition when it never was:
  
  (A) IUL vs. S&P: http://www.keepandshare.com/doc/view.php?id=1641087&da=y
  
  (B) IRR: http://www.keepandshare.com/doc/view.php?id=1641086&da=y
  
  
  In regard to the IRR of the IUL in the early years, be sure to put it into context by comparing to what the actual index did over the same time period - almost always it would have been less.
  
  Roth was also disingenuous by adding another condition after the fact, that he could outperform the 8% net of the IUL with something else. Even if so, that was not a condition either. But what is this investment? If anyone knows of any such product please post it here for all of us to see and learn about.
  
  In the end, Roth is never going to acknowledge that the 3 original conditions were met; those who have a closed mind to the possibility that a life insurance policy could have a net IRR of 8% or more after expenses will never be converted. But for the rest of you who want a safe place to earn and keep a decent return I hope this has educated you to the possibility of being able to achieve this with Indexed Life along with all the other benefits it includes that are not even allowed in other investments.

•  
  190

  AztecTheRed

  12/28/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Allan,
  
  You know, it can be quite honorable to gracefully admit defeat. I have little doubt that Brett has no desire to take you on as a client and is just as likely to gracefully conclude this drill. You're at no real risk of being forced to keep your end of the bargain.
  
  Numbers don't lie - the guarantee was for a loss of some or all of the principal.
  
  Geez... do you actually stop, read, recall & plug in before you respond? The illustration "guarantee" is NOT any such promise or foreseeing of any such "loss," it is a worst-case EXPENSE scenario. It is presented to a ridiculous catachlismic extreme by regulatory design, and requires global systemic meltdown conditions to occur... whereby your money would STILL be safer in the EIUL than in *any* security alternative.
  
  
  Since you say you have seen the illustration, you know this and must be associated with the agent that prepared it - Brett. Don't you think that was relevant to disclose?
  
  I said no such thing. I've never seen your documents, have no associations with nor have I ever met anyone in this thread (that I am aware of.)
  
  
  My disagreement with folks like you and Brett isn't that you sell this, it's fair disclosure of the what the product is and isn't.
  
  Not only is it fully disclosed, it is *over* disclosed with unrealistric worst-case fearmongering included (by design.)
  
  It doesn't give a "a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk."
  
  It has, and still does.
  
  You are left re-parsing, torturing, twisting, denying and outright misrepresenting statements IN THIS VERY THREAD that anyone who cared could just scroll through for reference and see your gaming.
  
  You don't *HAVE* to play this straight, stop your dancing and weaving, and acknowledge the facts.... this is your own playground...
  
  But if you leave this thread to stand undeleted, and unsettled, it discredits you in my opinion (which I realize you have no reason to give a rat's hiney about.)
  
  There is no dishonor in learning of financials which you did not previously know.

•  
  191

  Allan Roth

  12/29/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  AztecTheRed,
  
  What's the annual IRR of a $100K investment being worth $94.5 K in 10 years and $0 in 26 years? Do you get an 8% annual IRR? A "guarantee" is a worst case scenario.
  
  I absolutely believe that you, Brett and others feel this product delivers "a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk."
  
  Unfortunately, this logic and disclosure is the same as:
  
  1. Calling S&P 500 returns stripped of dividends "market returns."
  
  2. Stating and defending "The odds of a couple age 65 eventually needing to pay for one typical Nursing Home stay for 2 1/2 years, is 100%!"
  
  3. Claiming you are for disclosure but not identifying yourself and then demanding that this string of comments be deleted or edited.
  
  As far as editing these comments, Bret Anderson made several important statements on behalf of of Minnesota Life and its chief actuary that I think are important and should stay and it's critical to have the full unedited context.
  
  I agree with you that you have defeated me IN YOUR MIND and using YOUR LOGIC, as noted above. Please don't take it personally.
  
  ALL COMMENTS STAY AS ORIGINALLY POSTED!

•  
  192

  DougDiggerEberhardt

  12/29/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Allan,
  
  There is no downside "market" risk as you state in post #188. The risk is in the fact that the cost of insurance can go to the "guaranteed" levels, thus giving you a lower total IRR. There is no "market" risk. Zero.
  
  As you know, the guaranteed column is not the "current" column. It's put in there to protect the insurer. If anything, wouldn't you agree that people will be living longer and the cost of insurance will decrease in the years ahead?
  
  I think where the discussion should lead is that this is a viable asset to diversify and counter the taxable income one receives in their retirement years. It at least gives one the option of taking tax-free income in years where taxes are higher (like they were during WWII). If anything, taxes will be higher in the years ahead. Why else would government give us all these wonderful tax deferred vehicles they can get their greedy hands on?
  
  Putting 10% of one's assets into something like this makes sense for a well diversified portfolio IMO. The problem comes when some greedy insurance salesmen try to put 50% or more of one's assets into such a product.
  
  But some of these salesmen are so convinced their product is infallible they justify this in their minds.
  
  This is where that guarantee column comes into play.
  
  "What if" there was some sort of incurable plague to affect the U.S. Even if the insured is healthy, their insurance costs would rise to counter those who will have died from the plague. This is actually great for those who are the beneficiaries, lol (in a sick laughing way), but not good for the insurance companies. So the insurance companies need that "guaranteed" column to protect their livelihood...as unlikely it may be it will be utilized.
  
  If you separate the two, "market risk" and the "guaranteed" column, you'll find the differences in your discussion with Brett and Aztec.
  
  Brett A, if you would have worded your original challenge differently, you would have won.
  
  You originally said;
  
  "How about a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk."
  
  If you would have said; "How about a NET market return of 8% that allows you to take out the gains Tax Free for retirement income with NO downside market risk," you could have won.
  
  Just my humble outsiders opinion.
  
  Disclosure: I don't sell insurance. I'm not a financial advisor, but was one for over 20 years.
  
  Aztec, email me; dougeberhardt1@gmail.com

•  
  193

  Allan Roth

  12/29/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  DougDiggerEberhardt,
  
  Great comments, as always. I agree with much of what you say but remember that this product was being sold purely as an investment vehicle. When I noted the need for insurance to the agent, Brett Anderson, he responded that this:
  
  "is not a factor in choosing to invest money in this product - it is incidental - the life insurance chassis is just the means to an end which is a way to earn 'market' returns without market risk."
  
  The Minnesota Life chief actuary told me that he did not recommend this as a pure investment vehicle but Brett Anderson went on record as stating that the chief actuary did indeed recommend this for those without an insurable need.
  
  In actuality, chief actuary Benjamin Roth (no relation) stated in an email "I do not recommend this product for someone that does not have an insurable need." Again, this is in a written form.
  
  Thus, Brett Anderson and AztechTheRed both disagree with the Minnesota Life, in addition to me, as to whether the challenge was met. They also disagree with Minnesota Life as to whether this should be sold as a pure investment vehicle at all, irrespective of the claim in the challenge. I happen to agree with Minnesota Life on this one.
  
  The fact that Minnesota Life didn't recommend this product as a pure investment vehicle was the biggest surprise I had on this challenge. The fact that I didn't convince insurance producers that this did not meet the 8% return without risk was not a surprise at all. Their livelihood depends on them not understanding this product did not deliver an 8% annual return without risk.

•  
  194

  smpatel

  12/29/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Allan,
  
  There was a similar finding by Scott Burns:
  http://www.boston.com/business/personalfinance/articles/2005/09/11/investing_via_life_insurance_not_worth_the_gamble/
  
  Why would someone combine insurance with investments, is it due to the tax advantages by IRS? I intend to read more on this blog to understand this better if truely there is an advantage or not.
  It appears that even if it doesn't provide guaranteed 8% Net return, the downside protection is worth looking into. It would be interesting to know which other product could even come close to it. I think the fact that the insurance company could change cap any time is a control lost by the consumer (it is almost as if the rules of the game are changed in the middle!).
  regards,

•  
  195

  r_buckner

  12/29/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  I have an EIUL Policy Illustration in front of me, from Acme Life Insurance Company. It is for a 25 yr old male, standard, non-smoker. Initial Death Benefit is $1.5 million. The initial annual premium is $109,248, with the next premium due in year 11 for the amount of $6,714. Years 12-45, the annual premium is $10,542. At the end of year 30, the non-guaranteed value is $1,272,456, and the guaranteed value is $392,523. This after paying in $316,260.
  
  If I invested the $109,248 in the American Funds Income Fund of America on 11/30/1979 and did not add another penny to it, reinvesting the dividends and capital gains, at the end of the 30 year period ending 11/30/2009, my actual account value would be worth $2.64 million. That is an average annualized return of 11.19% and a cumulative return of 2312.41%. A healthy 25-yr-old can obtain a 30-year term policy with a $1.5 million death benefit for under $1,900 per year.
  
  Individual circumstances are different, but I believe that most people would choose the second scenario!
  
  As always, past performance does not guarantee future results.

•  
  196

  Allan Roth

  12/30/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  smpatel,
  
  Thanks. The article link you gave me was about a book from Doug Andrews called "Misfortune 101." I wrote a column about two books, of which this is one. It's entitled "bad books make good investment lessons."
  
  http://daretobedull.com/download/Bad%20Books.pdf

•  
  197

  r_buckner

  12/30/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Allan and smpatel,
  Thanks for the link!

•  
  198

  finnetusa

  12/30/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  RBuckner,
  You are so oblivious to the very fine points of this discussion. Please go back and get some experience under your belt before you write on this blog....consider:
  1. Day 1 of your program, client dies. What is left for the family? At what point is the value of the mutual fund greater than the death benefit? Does that get paid out income tax free? No. Do the quarterly dividends get paid out income tax free? No. How about those Capital Gains? No.
  2. What taxes are due on the withdrawal?
  3. What is the growth rate of your EIUL? Was it as good as Minnesota Life?
  You also assume that at some point when your client shows a balance that is substantially lower than the previous year, or even two, or even three years in a row, that your client won't make the wrong move at the wrong time in response to this. Human behavior is a quirky thing. Please, avail yourself of the entire thread and read some good books on this subject, like Brett Anderson's or Roccy DeFranceso. They are both astute observers of the investment world.

•  
  199

  r_buckner

  12/30/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  finnetusa.
  
  No, I am not oblivious to the "fine" points of this discussion. I have kept up with this blog from the beginning.
  
  1. Day one of my program, as I stated, my client does have insurance in place. By year 20, the , the mutual fund value is greater than the death benefit. At a 15% capital gains rate, my client still pays less in taxes than he would if he was paying the $10,542 annual premium. That is a steep price to pay for tax-free growth and withdrawals (loans).
  
  2. If the purchase was made with after-tax money, then only the capital gains and dividends are taxed. The client does not pay taxes a third time, on withdrawals.
  
  3. The non-guaranteed growth rate assumes a Fixed Account Interest Rate of 3.00% and Indexed Account Interest Rate of 8%. (Outlay Allocation: 10% Fixed, 90% Indexed).
  
  I am making no such assumptions on my clients risk tolerance. That is discussed before the investment is made, and revisited during annual meetings. Human behavior is a quirky thing, that is why it is important for an advisor to keep his clients informed and educated.
  
  Thanks for the book recommendations.

•  
  200

  scottbannon

  12/31/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Dear Rlecrisp,
  Thank you for that comment. Since I am new to this business I am going to try to stick to life insurance and maybe some health insurance. The passing of my father in August made me realize the importance of life insurance. And, my mother's situation has made me realize the importance of health insurance. So, that is what I have been studying. As I learn more about annuities and other investments then I will move in that direction. That way I can be sure that at the end of the day I can honestly say I did the very best I could for my clients. Maybe in the future I will be able to go back and offer my clients more investing options. Finally, I think your "30-minute rule" is a great idea. I will definitely try to follow that.
  
  Back to the subject at hand. I would like to know if any company really pays the percentages mentioned in these comments. Also, would somebody please tell me how to find clients that can afford to pay $10,000.00 or more in annual premiums? I am having a hard time finding people who can afford anything right now. Most of the people I talk to have become unemployed for one reason or another and are having a hard time paying the bills.
  
  One more thing. Just to be fair to all involved, I stopped reading the comments when the "back and forth rhetoric" began. So, if I missed something in those comments that would answer my questions please bare with me and repeat the answer for me.
  
  Thank you,
  Scott

•  
  201

  smpatel

  12/31/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Scott,
  Regarding your comment:
  "Also, would somebody please tell me how to find clients that can afford to pay $10,000.00 or more in annual premiums?"
  
  The moment you combine insurance with investment, it gives an ability to climb up the ladder towards higher value/higher reward product. In other words, it is designed to attract high net worth retirees/investors. This is not for low cost term life seekers who wants only insurance.
  So, you could change your title from "insurance broker" to "investment advisor/estate planner" and there you have it.
  To your point about percentages, 4-5% made in the term life insurance vs same made in this kind of policies(IULs), you could figure out how quickly it could add up and justify the new title!
  
  regards,

•  
  202

  AztecTheRed

  12/31/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Attempting to reset/turnoff the italic tags...

•  
  203

  AztecTheRed

  12/31/09 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Hmmm, no luck.... OK...
  
  Hi all!
  
  Allan,
  
  What's the annual IRR of a $100K investment being worth $94.5 K in 10 years and $0 in 26 years? Do you get an 8% annual IRR? A "guarantee" is a worst case scenario.
  
  The real IRR performance has indeed been in the mid 8%s.
  
  Yes, you finally get it, the "guarantee" is the worst-case disclosure.
  
  Unfortunately, this logic and disclosure is the same as:
  1. Calling S&P 500 returns stripped of dividends "market returns."
  
  8% is 8% is 8%... it matters not a whit what the ingredients in the soup are to the person wishing safe returns on their own money in that degree.
  
  3. Claiming you are for disclosure but not identifying yourself and then demanding that this string of comments be deleted or edited.
  
  I've demanded nothing... just pointed out your options, credibility consequences & results. You're free to play in whatever manner you choose (and I've said as much in each reference.)
  
  PERSONALLY, I doff my cap in great respect that you are committed to leaving the entire thread intact despite some fairly self-damning misconstructions & evidence of financial minsunderstandings still denied. I am boggled, however, that you seem to yet continue the self-flagellation.
  
  I agree with you that you have defeated me IN YOUR MIND and using YOUR LOGIC, as noted above.
  
  Ii is not I who have defeated you at all, as I haven't come to fight... I'm just bringing the financial facts, and anyone who reads the facts can see for themselves.
  
  Please don't take it personally.
  
  Which? That you think I defeated you? Not sure what there is to assume personally... I didn't write the terms of the challenge... just referreeing the facts.
  
  ===================
  
  DDE,
  
  You originally said;
  
  "How about a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk."
  
  If you would have said; "How about a NET market return of 8% that allows you to take out the gains Tax Free for retirement income with NO downside market risk," you could have won.
  
  You make a valiant effort to re-write the challenge in a way that Allan could have actually won... but you missed one critical point; Where & how the returns hit the client's account is meaningless in EIUL... the money is there, as a return, as contractually committed, period. Doesn't matter if its tied to the S&P minus dividends, or the DOW, or th5e NASDAQ, or even Gold (we have programs that do this too!)
  
  The critical thing about Allan's challenge is that he failed to think of any risks but MARKET risks, and thereby wrote his own challenge to Brett in a way that Brett handily fulfilled. In EIUL there are systemic risks, which are what are disclosed in the so-called "guaranteed" ledgers, but these disclosures are strictly "so I can say I said so" based. The probabilities of these worse-case events occuring is dramatically infinitesimal, and were they to actually occur any and all alternatives in securities would have been decimated far in advance of the EIUL accounts.
  
  If Allan had written his challenge in a way he didn't have to backpedal now, how would have said;
  "How about a GUARANTEED return of 8%..... yadda yadda".... to which, of course, nobody would have stepped up to.
  
  The thing is, he didn't even actually MEAN to ask for a "guaranteed return" in his challenge. That's a concept beyond comprehension of most securities-only mindsets.
  
  ===================
  
  Allan,
  
  The fact that I didn't convince insurance producers that this did not meet the 8% return without risk was not a surprise at all.
  
  No surprise because you've done no such thing (yet... and you haven't even faced the right goal posts to try!)
  
  In addition, you are now so conveniently forgetting YOU specified "market" risk in your challenge.
  
  Their livelihood depends on them not understanding this product did not deliver an 8% annual return without risk.
  
  Oh, but it *HAS* delivered 8% plus net returns... consistently... with zero market risk! (Which is what you explicitly specified in your challenge... its right above, inescapable, undeniable, in writing.)
  
  ===================
  
  Hi Scott,
  
  Back to the subject at hand. I would like to know if any company really pays the percentages mentioned in these comments.
  
  Absolutely.
  
  
  Also, would somebody please tell me how to find clients that can afford to pay $10,000.00 or more in annual premiums?
  
  Simply find clients who want some, part, or all of their accumulated money growing at a reasonable 6-8% net rate of return in a principal-guaranteed environment. This isn't trying to sell "insurance." The term policy that rides along inside the EIUL account may cover the client's insurance needs to whatever extent they may have... but in general, the people who most need life insurance are (in very general terms) younger, with growing families, and have less accumulated funds to worry about protecting. They need to protect their future personal income, not their accumulate income.
  
  People who have accumulated income/savings who want 6-8% net with a guarantee of no less than 0% when the market dumps... generally also have less need for personal income replacement... so the coverage itself is much less important, and the costs of insurance can be looked at as a comparative against the costs of investment professionals, loads, commissions, wrap-fees, etc.
  
  An EIUL policy that is built on annual fees (the way traditional insurance salespeople sell life insurance) will virtually *NEVER* perform very well... it certainly won't come anywhere near the 6-8%+ net returns, because it has so little working cash value compounding internally.
  
  In order to perform optimally, you need to "max-fund" the account, which generally means;
  A) Determine how much total funds (premium) your client wishes to employ in this strategy,
  B) From this total premium, solve for the policy face,
  C) Filter the premium inputs to avoid MEC'ing the contract (generally dividing full payments into 4-5 years.)
  
  Obviously, in this manner a client will almost always have more face than straight future income replacement requirements would call for. They aren't buying the strategy for the insurance on their life (though its a nice icing to the cake,) they are buying it for the financial market and growth insurance.
  
  
  I am having a hard time finding people who can afford anything right now. Most of the people I talk to have become unemployed for one reason or another and are having a hard time paying the bills.
  
  You are obviously pursuing pure life insurance customers, not financial clients... those likely to need the income replacement benefits. That's a long, hard row to hoe, my friend... I wish you luck!
  
  Cheers,
  Aztec

•  
  204

  scottbannon

  01/01/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Smpatel,
  Thank you for that information. I was under the impression I had to have a series 6, 7, 63 etc. license, which I do not have yet, in order to be able to call myself an investment advisor/estate planner. Is that not correct?
  
  Can you tell me where to find good information about IULs, EIULs or annuities? And A+ companies that offer them? If so, I will certainly take your advice and move into that part of this industry thereby, attracting the high net worth investors. I know Minnesota Life has been mentioned in these posts. However, I do not know enough about those investments yet to figure out the in's and out's of that company.
  
  I mentioned in one of my posts that I am working with a great company. I was in a situation where I needed some immediate income and they offered me a great contract. However, they do not offer any type of high end investment vehicles. That being said, I plan on staying with this company for 20 or 30 years, since it offers a great income and I don't like being unemployed, so I would like to find out about non-captive companies that offer high end investments, if possible.
  
  As always I appreciate your help and comments.

•  
  205

  Allan Roth

  01/01/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Insurance Logic - Definition of guaranteed 8% annual return:
  
  1) Put in $100,000 year zero.
  
  2) Guaranteed $94,500 value in 10 years.
  
  Loss of $5,500 equates to an annualized guaranteed return equals 8%.
  
  Aztechthered - that's not the math the rest of the world uses.

•  
  206

  smpatel

  01/01/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  scottbannon,
  Licence requirements remains.
  Some of the companies I know are:
  Allianz
  American equity
  Minnesota life (already mentioned here)
  Sun life
  National western
  You could check these resources (you should be licensed to sell):
  theannuityshoppe.com
  annuitymarketing.com
  Lastly, if you love what you do then wish you well in continuing the status quo.
  regards,

•  
  207

  scottbannon

  01/02/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Thank you for the information. I will certainly check out the companies and the web sites.
  Respectfully,
  Scott

•  
  208

  AztecTheRed

  01/02/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Allen,
  
  You do realize you are "performing" your antics in public daylight, yes?
  
  A) Nobody in this thread offered a gauranteed 8%. You threw down a challenge for a NET return of 8%. NET, of course, means after all ups and downs, and minus any costs. If you had actually intended to mean "guaranteed" 8% you would have never stipulated a NET 8%. (Beside, in *any* investment, reliably expectable returns must be determined from backward-looking facts.) You never challenged for a fixed 8%, but a NET 8%.
  
  B) NO EIUL contract, in the entire history of the product, has *EVER* performed to the lows of the so-called "guarantees"... so how will you apply the word? Clearly it is no "promise" of any specified result whatsoever.
  
  You are exhibiting the choice of extreme ignorance or outright descredibility in your ongoing defiance of understanding the 'worst-case' disclosures of the insurance world (which you are in print as claiming to have actually been employed by.)
  
  It can't be both... unless you were actually tossed from that employment for a refusal or inability to understand the use of extremes for disclosure, cloaked in the terminologies of "guarantees."
  
  You cannot attack me... I have presented nothing of myself to attack.
  
  You would be wisely advised not to attack that which evidence recorded in your own BLOG disproves... its bad for your business.
  
  =================================
  
  Scott,
  
  Without the 6, 7, or 63 you can't use the term "invest" in your title, nor most permutations of "planner".... however you can still hold yourself out as a variety of allowed titles... absolutely none of which really matter all that much to the people who actually have the money to do business with you.
  
  For support in your career, Google; insurance FMO
  
  These organizations vary widely, but are generally happy to have outside producers explore their systems & offerings.
  
  Luck!
  Aztec

•  
  209

  smpatel

  01/03/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Dateline ran this piece about the practices by insurance agents:
  http://www.msnbc.msn.com/id/24095230/
  
  My purpose to put it out here is to highlight that these products are "complex" for many retirees and spending good amount of time to explain (not only answering what is asked but presenting everything) could help build the trust.
  
  Having said that, there are studies which indicate annuitization is helpful after factoring the penalties and fees,
  See this link:http://fic.wharton.upenn.edu/fic/Policy%20page/WhartonEssay18.pdf
  
  I believe they have a place and more than $26 billion went into index annuities in 2008, I am sure not all of them were pleasant experiences as like many other investment/insurance products.
  
  regards,

•  
  210

  scottbannon

  01/03/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Aztec,
  Thank you for that clarification. That is what I thought, I just wasn't absolutely sure. For now, I will stick to the title "insurance salesman" and be happy for the opportunity. With my limited knowledge of the industry, I think that will be the easiest way to stay out of trouble, for now. Especially after reading the comments in these discussions and reading the information in the link smpatel included.
  
  I did a search on bing.com (even though you suggested Google, I will do that one next) for insurance FMO. The search came up with several pages and you are correct they do vary widely. Therefore, I will read through the information and try to pick the best one for me. I have found three or four that I will start with and move on from there. Do you have any suggestions where to start? If I name some FMOs on this board would somebody be able to give me some information on them? Is it permissible to list that kind of information on here? I know one company was named but that was done by Mr. Roth and I would like to stay within the parameters of the board.
  
  As always, thank you for your assistance and advice.
  Scott

•  
  211

  miguelggarcia

  01/03/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  After reading all the illustrations, and most of the comments in this thread, all I have to say is:
  -Anyone can build a fantastic looking illustration and set any rate of return for it (and offer it almost as a "given"), dismiss the "minimum guarantees" as mere "requirements" for the company and claim future performance as a fact for a policy that has more moving parts than a car. Who cares if the company can lower caps, increase costs (the fact that they haven't increased costs in 200 years as a relief for the next 200) or make other unilateral changes to the the contract? The agent gets his commission not based on the "minimum guarantees", but more than likely on the "illustrated values" whose likelihood of occuring is unknown. Who cares if nobody is able to predict consistently and predictably the movements of the financial markets?
  -Anyone can become an "investment advisor/estate planner" simply by changing the title in the business card (as evidenced by #201), who cares if the insurance agent is just starting out and doesn't have any experience? With this title, he could start reaching out "high net worth retirees/investors", as opposed as "term life seekers" (or other similar name given to low profit insurance buyers).
  -Aztec, regarding 208 ("Nobody in this thread offered a gauranteed 8%. You threw down a challenge for a NET return of 8%. NET, of course, means after all ups and downs, and minus any costs"). If i'm reading this right, this is what Brett offered:
  "I can blow away saving for retirement in any market fund, with an Indexed Life policy. How about a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk."
  I think that clear as crystal.
  -Finally, if EIA and EI Life Insurance are as good, why do the SEC and FINRA have an investor alert on them? Maybe a lot of people are being sold an illusion that may not work as advertised?
  
  IMO, this thread has evidenced some practices that are common for insurance agents that may seem unethical for the outsider but are common in the field.
  I appreciate moneywatch for keeping all the posts and thanks to Allan (and all the other participants) for taking the time and effort to really show how you are and what you really care for.

•  
  212

  Allan Roth

  01/03/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  AztechTheRed,
  
  I'm not attacking you. I am pointing out flaws in your arguments. I am also turning your request to edit and delete comments. Nothing personal. You should not want any of this deleted since you claim you are for full disclosure, whoever you are.
  
  Happy New Year!

•  
  213

  AztecTheRed

  01/03/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Hi Scott,
  
  I have found three or four that I will start with and move on from there. Do you have any suggestions where to start?
  
  Start by deciding what financial niche of business you like & want to focus on... trying to be a "jack of all strategies" is a recipe for failure, as the world of variations is far too great (and the changes within each adds to the complexity) for any individual to master. Mastery is your goal, I propose... get excellent at one particular angle, first... and branch out from there.
  
  There are FMOs (aka IMOs; Independent Marketing Organizations) that focus on indexed annuities first & foremost, others on indexed life as a retirement/college planning tool, others on whole life as alternative tools for LTC coverage, yet others that specialize in FIAs for income planning (and more & more.)
  
  If you're unsure *WHICH* way you want to focus yet (a very understandable situation for someone relatively new to finance,) then its perfectly OK to visit & interview among many different organizations.
  
  
  If I name some FMOs on this board would somebody be able to give me some information on them? Is it permissible to list that kind of information on here?
  
  There are professional community message boards that would probably yield better results for these kinds of questions. Again, Bing & Google are your friends.
  
  ======================
  
  Hi miguelggarcia,
  
  Who cares if nobody is able to predict consistently and predictably the movements of the financial markets?
  
  Primarily; people who want market-participation to the upside, but cannot afford to lose their nest-eggs, that's who. These are the primary buyers of indexed-resetting products.
  
  -Anyone can become an "investment advisor/estate planner" simply by changing the title in the business card (as evidenced by #201),
  
  Uhhh... your state's securities regulators and/or the SEC may have a different point of view.... just don't say you never heard it ;~)
  
  -Finally, if EIA and EI Life Insurance are as good, why do the SEC and FINRA have an investor alert on them?
  
  One reason, for sure, is their member securities firms are having their lunch eaten by funds transfers out of their golden-goose asset accounts (where they skin 2-4% of their clients' money year over year) out to these programs (where the client pays zero in asset fees if they leave it in place for an agreed period, and generally no more than the equivalent of just 2 years securities-brokerage fees if they need access to all their money sooner.)
  
  Maybe a lot of people are being sold an illusion that may not work as advertised?
  
  You talking about the securities people? Happening all day, every single day, indeed.
  
  ======================
  
  Hi Allan,
  
  I'm not attacking you. I am pointing out flaws in your arguments.
  
  But you've not done any such thing (yet... I do commend the diligence ;~)
  
  I am also turning your request to edit and delete comments. Nothing personal.
  
  "Turning my request"? OK. But the *only* requests *I* made for deletions were formatting problems, not content.
  
  Else, I made observations that *YOU* might decide it would be in your best professional interests to delete some of *YOUR* content. I fully see you have taken no such action to date, and I again commend you for your courage.
  
  You should not want any of this deleted since you claim you are for full disclosure, whoever you are.
  
  Yep... except perhaps the HTML formatting trouble, when a full duplicate post was re-posted to try to clear up the taggin (#178 & #179.)
  
  LOOK, Allan, seriously... I do respect you and your willingness to play "full out" on these boards. You are laying out in full public view your full extent & limits of knowledge of the subject, and that's ballsey (to say the least!) I do the same elsewhere, and I know how incredibly frustrating it is to "take shots from the anonymous gallery." I also know, very personally, how difficult it is to publically acknowledge when *I* am confronted by fellow professionals who know more about a topic at hand (*ESPECIALLY* when *I* am the initiator of the thread) than I do. Its never an easy pill to take.
  
  I trust in your sincere & genuine intentions, you clearly hold your integrity to a high level. When this thread & topic finally gasps its final breath, and you have a bit more "room about the collar" I hope you'll roll up your sleeves and learn to the deepest levels of how reset-indexing works, and how it outperforms passive direct index investing while providing more principal safety to boot.
  
  You very clearly love to learn, and are proud of your identity as an expert (it takes one to know one; I salute you!) This *IS* something you will want to have in your professional toolbox for the portions of your clients' money they cannot risk downside exposure, but of which they want index-market returns.
  
  With advanced full fee disclosure, and allowing a client to apply the carrier-paid commissions toward their fee-only service agreements, they can get the benefits of a fee-only planner without losing out (or overpaying) on benefits currently only available in the traditional EIUL structure... and I do believe the fee-integrity issue is something important to you as well.
  
  Here's hoping we've sufficently exhausted this beast of a thread, and neatly wrapped it in a bow for the new year. All the best to you in your practice, and to you & yours in civilian life.
  
  Respectfully,
  Aztec

•  
  214

  Allan Roth

  01/04/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Aztec,
  
  As previously noted, Benjamin Roth, Actuary & Director, Life Products, Minnesota Life stated:
  
  "I do not recommend this product for someone that does not have an insurable need."
  
  Not only did he say this, he sent me an email to confirm it and above is the quote. If you send me your full contact information, I'll forward it to you.
  
  If this statement won't convince you that this product is only good for the agent selling it as a pure investment, nothing anyone can say will. Those that are selling it with the tactics in this challenge will just know they are selling it against the recommendations of the insurance company writing the policy.
  
  Again, I applaud Minnesota Life and do happen to agree that this could be a possible product for those with an insurable need.
  
  If anyone can deliver on the challenge:
  
  "How about a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk?"
  
  I'll gladly send $100K of my money, write about it, and recommend it to others, including my clients. I'd love nothing more than to earn 8% without risk.

•  
  215

  hikinganimal

  01/05/10 | Report as spam

  Insurable Need

  Then Allan, you/we must define Insurable Need. That is a wide open topic. The insurance company makes a blanket statement such as this as a CYA. I will bet that 99% of the population has an insurable need, but then I consider anyone who is alive and eats food probably has that need in one form or another.
  
  I believe that Brett fulfilled his challenge to you.

•  
  216

  r_buckner

  01/05/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Insurable Need/Interest
  
  This is really very simple under the law. An individual has an unlimited insurable interest in his/her own life. You can purchase all of the life insurance you wish on your own life, making the proceeds payble to anyone you wish.
  
  On the other hand, for an applicant to insure someone else's life, the applicant must have an insurable interest (and consent) in that person, i.e., husband and wives in each other, children in their parents, key employee.

•  
  217

  AztecTheRed

  01/05/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Hi Allan,
  
  Don't say I didn't warn you about exposing everything you do (and don't) know about a particular topic ;~) HikingAnimal & r_buckner nailed your wiggler pretty straight & simply.
  
  As for your challenge, you nicely exposed your problem in 1.5 column inches.
  The Challenge;
  "How about a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk?"
  
  Your repeat;
  I'll gladly send $100K of my money, write about it, and recommend it to others, including my clients. I'd love nothing more than to earn 8% without ['market' distinction omitted] risk.
  
  EIUL removes your exposure to market risk, and instead you adopt systemic risks, of which the worst-case possiblities are fully disclosed. Further, in all of human financial history, the "worst case" has not only never been realized, it has never even been approached.
  
  The letter of the challenge you persist in re-quoting has been accompished. The hammer you are swinging isn't hitting anyone but yourself... and painfully embarrassingly to me (in empathy,) you don't seem yet to realize it.
  
  As the saying goes, when you find yourself in a hole, STOP DIGGING!
  
  MY SUGGESTION;
  STOP re-quoting the original challenge.... make YOUR NEW challenge your single-tone drum from here on.
  
  The NEW one is one you can actually win.

•  
  218

  Dylan R

  01/05/10 | Report as spam

  Regarding Insurable Need

  When the only tool you have is a hammer, everything looks
  like a nail.

•  
  219

  Allan Roth

  01/05/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Aztech,
  
  We agree to disagree on these things:
  
  1) I don't think a $100K investment guaranteed to be worth $0 in 26 years is no downside risk. You clearly do if you believe the challenge was met.
  
  2) You feel this meets the challenge and is an appropriate investment tool without an insurable need. I agree with the Insurance company that it is an inappropriate investment for someone without an insurable need.
  
  3) You believe in making this personal. I'd like to stick to the facts such as those two above.
  
  We happen to agree that we'd both like to get "a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk?" I believe you will do even better than this by selling the product with the promises you have made.
  
  Would you like to see the email from the Chief Actuary of Minnesota life or just shoot me another email about how the challenge was met and I've embarrassed myself?
  
  Insurance is not the only tool in the toolbox. Insurance is great at protecting assets or income and is a critical tool. It's just not the only tool and generally not the best for investing. Would you cut a piece of wood with a hammer or put in a nail with a saw?
  
  Just know that you are selling this product for a use that the Insurance company has recommended against. Those are the facts and it isn't anything personal.
  
  If you respond, save time repeating how I've embarrassed myself and other personal slams and address the math of losing money being no downside risk and the fact that the chief actuary states there are better investment products.
  
  Again, this isn't a personal attack on you or the insurance industry. It's a discussion forum so people can see things like what is meant when agents say things like:
  
  1) all of the market return meaning just the S&P 500 stripped of dividends.
  
  2) no downside risk meaning you could lose part or all of your money.
  
  3) Insurable need is irrelevant even though the insurance company disagrees.
  
  I get that you believe these are fair definitions. I happen to disagree. I think we have both done a service to get this disagreement on the table.
  
  Take care Aztec. I wish you the best and appreciate the dialogue.

•  
  220

  r_buckner

  01/07/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Recent article in Life and Health National Underwriter (1/4/10)
  By Sheryl Moore
  
  Index UL Facing A Big Year
  
  "The new year is going to be big for index universal life. Since the decline in the equities markets at the close of 2008, sales of indexed insurance products have been on the rise...
  
  Now, the not-so-good news. A big story that continues to get bigger in the IUL market is illustrated rates.
  
  These fixed insurance products have no standardization for the methodologies used to illustrate current cash values. This translates to consumer misunderstanding, agent confusion, and a general lack of understanding about IUL as a whole.
  
  Today, insurance companies use 8 different methods for calculating illustrated IUL rates. Furthermore, two insurers using the same methodology may use entirely different calculations for determining the illustrated rate. Ultimately, the aggressive, unsupportable illustrated rates in this market will force regulators to make mandates regarding IUL illustrated rates.
  
  Today, there are IULs illustrating current cash values at rates as high as 10%. Compare this to risk-money products such as variable UL that are being illustrated at 8% and you are bound to get somebody?s attention.
  
  The last big story in the IUL market for 2010 will be litigation. Lawyers are going to start crawling out of the woodwork, looking for the next ?big opportunity.? The once-sleepy IUL market could likely become the next victim for bloodthirsty ambulance chasers.
  
  Three major issues make IUL a target for class action litigation. First, many have not set realistic expectations for what consumers can expect to receive in terms of indexed interest on their IULs. In plain English, those illustrated rates are too high; consumers are going to get upset when they get zero instead of 10%.
  
  Next, variable loan interest is compounding the unrealistic expectations. What is going to happen when the client gets 0% credited, but they owe 9% in loan interest? This is a far different story than the 10% interest and 6% loan rate the client was sold on the illustration. (?What? I?m not making money by taking max loans from my life insurance policy??)
  
  The last major issue is inappropriate sales concepts. For years, insurance agents have been taught how cash accumulation life insurance products such as IUL make a great vehicle for concepts such as hyper-funding and equity harvesting. However, these concepts are largely based on the sustainability of interest rates. When these rates don?t come to fruition, it results in unhappy clients.
  
  Ultimately, the success of IUL will not be squashed by market conduct issues and a lack of regulation. However, now that the product line is becoming mature, regulators need to step up and ensure that consumers are protected. If not, this viable insurance product may eventually be damned with the same negative image as its sister product, the index annuity."
  
  Sheryl Moore is president and chief executive officer of AnnuitySpecs.com and LifeSpecs.com, an indexed product resource in Des Moines, Iowa.
  
  Full article: http://www.linkedin.com/news?viewArticle=&articleID=101111476&gid=1882912&articleURL=http%3A%2F%2Fwww%2Elifeandhealthinsurancenews%2Ecom%2FIssues%2F2010%2FJan-4th-2010%2FPages%2FIndex-UL-Facing-A-Big-Year-%2Easpx&urlhash=GHwb&trk=news_discuss

•  
  221

  Allan Roth

  01/07/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  r_buckner,
  
  Thanks. While I agree with her points, It may provide Brett and Aztec comfort to know that Sheryl Moore also calls me "ignorant." She apparently prefers Equity Indexed Annuities(EIAs), though she doesn't like me to use that term.
  
  In actuality, the sales of EIAs are done the with the same misleading ways illustrated by Brett and Aztech above.
  
  1) "Market return" actually is only part of the return of the S&P 500 stocks.
  
  2) "No downside risk" actually means you can lose some or all of your investment.
  
  3) "S&P 500 index return" actually means the insurance company can unilaterally lower your return.
  
  Naturally, all of the above are buried within the paperwork, written by the attorneys.
  
  Anyone know why I get far more personal attacks from the insurance industry even though I write far more negative articles about the securities industry?

•  
  222

  Brett A

  01/10/10 | Report as spam

  IUL vs. S&P WITH Dividends

  First, to address again the Insurable Need that Roth claims the actuary with Minnesota Life said is necessary, Roth took this statement out of context to mean what he wanted it to. The second part of the actuary answer he left out was that ... ()almost everyone (99%) has an insurable need. Also ... legally ... any legitimate reason an individual has for buying insurance on himself meets the Insurable Need requirement. So this argument against IUL as a savings investment for this reason is invalid.
  
  Second, the top reason I hear all the time from others and Roth in this column, is because there is a cap on the IUL gains and they do not include the S&P dividends. So here is a comparison of the IUL vs. the S&P WITH Dividends. For the IUL I am using a conservative average cap for the past 20 years so that we can more fairly compare apples with apples; also the S&P fund has a 0.5% annual fee.
  
  The result is that over the past 20 years the IUL would have had a gain greater than the S&P with dividends, 11 of the past 20 years! Here are the NET values after ALL expenses for each (assumes saving $12,000 per yr):
  
  NET Result:
  S&P IRR: 5.59% $445,827
  IUL (male age 50) 7.35% $548,531
  IUL (male age 40) 7.66% $569,192
  
  Add in ALL the dividends for the S&P, and AFTER deducting all the insurance and other costs for the IUL, the IUL has a NET value after 20 years of over $100,000 (or 23%+) MORE than the actual S&P!!
  
  To view the yr by yr comparison and other benefits:
  www.keepandshare.com/doc/view.php?id=1659209&da=y
  
  When you also factor in the Taxes on up to 85% of Social Security income -- after you add the resulting income from stock investments into that IRS formula, the effective S&P IRR would drop closer to 4%-4.5%!
  
  Another reason why the IUL does so much better of course is that it does have a 0% loss floor. When the market falls you keep - and build on - all your prior annual gains. Not a value 20-40% less (which happens every 6 yrs on avg). So is that worth a cap? Even with it, the IUL still out gained the S&P with dividends over half the time!
  
  Third) It is ridiculous to judge one vs. the other based on the IUL minimum guarantee. But if you want to do so, for this IUL it has a minimum surrender / insurance guaranty of 3% gr. per year. After 20 years (saving $12,000 per yr) it has a guaranteed minimum NET value of $264,827. For the S&P and any stock investment, there is NO minimum guarantee which means it would be $0. Which would you rather have?
  
  Roth has used this minimum as the basis for deciding the Challenge, even though it was NEVER a condition of it. If an investment is tied to future gains of the S&P it is just common sense that it cannot provide a guarantee of 8% today for something that is unknown. The Best it can do is the minimum guaranty above. But based on ACTUAL historical S&P running gains of 20 year periods the past 64 years, the NET 20 yr IUL gain would be 8%+ over 95% of the time. For Roth to use this as an excuse is disingenuous and reflects a lack of integrity.
  
  You skeptics can keep attacking IUL but on every factor there is NO real merit to your arguments. The performance of Indexed Life is directly linked to the index and other stock investments you tout as being better. But the major difference being of course is IUL does NOT go down in value when the stock investment does. You also cannot argue against the ACTUAL numbers of how each did (or could) of performed over time. Or the fact that you can access the gains of the IUL TAX FREE! and many other benefits ONLY the IUL has.
  
  I keep asking that anyone inform me about ANY another investment - with or without market risk - that can perform better than an IUL for NET gains ... so far no one has. Roth posted my contact info before. If you have something: brett@lastchanceretirement.biz

•  
  223

  Allan Roth

  01/11/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Brett,
  
  Assuming you are still an agent for Minnesota Life, you are speaking for the company and have made representations of statements from it's chief actuary on the context of his statements. You went on record of how I took it out of context. I will forward the email to you from Benjamin Roth documenting our conversation. I suspect you spoke to him and the email will not surprise you.
  
  We have agree to disagree on the tactics you used to sell me this product.
  
  1) You used part of the market return (S&P 500 stripped of dividends) to represent the market return.
  
  2) You did not point out that the insurance company had the unilateral right to lower the return and that it had recently exercised the right.
  
  3) You stated it was ridiculous to use the minimum guarantee as the lowest possible return yet, if it were so ridiculous, why wouldn't the insurance company use a higher minimum return?
  
  4) You claimed the need for insurance was irrelevant and did not point out that the cost of insurance was rising rapidly each year I had the policy. I think this is very relevant.
  
  My opinion is that you used sales tactics that did not fully represent the product you were trying to say met your claim of "How about a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk?" The fine print of the documents you provided combined with the discussion you set up with the company provided a very different picture.
  
  I'll now send you an email sent to me by Benjamin Roth as a follow up from the telephone discussion that you arranged.
  
  Brett, your website still states:
  
  "The odds of a couple age 65 eventually needing to pay for one typical Nursing Home stay for 2 1/2 years, is 100%!"
  
  If I can't convince you of the error in that statement, I'm not going to convince you that this product met your challenge or your sales tactics were not balanced.

•  
  224

  scottbannon

  01/12/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Dear Aztec the red,
  Thank you for that advice. I have decided to go with life insurance (due to the passing of my father last August, I now understand the importance of life insurance) and fixed indexed annuities. I think these products will be good starting points for me. Hopefully, I will be able to earn a good, legal, honest living with these products.
  
  Also, having taken your advice and the advice of others, I have corresponded with several companies, either through email or telephone conversations, that I have found in my internet searches. I have narrowed my search down to two companies for various reasons. I am hopeful through my research I have two companies that will best support me in learning the business while providing great service and products to my clients.
  
  As always, I appreciate your comments and advice.
  
  Respectfully,
  Scott
  PS Since this post mainly contains comments regarding both sides of the $100,000.00 challenge and I do not want to detract from those comments, if you or anybody else wants to "discuss" my choices or add information to my search you can email me at:
  scottbannon@hotmail.com

•  
  225

  Brett A

  01/13/10 | Report as spam

  Response to more false claims by Roth

  Response to Roth claims in #223 above:
  
  1) You used part of the market return (S&P 500 stripped of dividends) to represent the market return.
  
  This is another red herring. The gains of Indexed Life are linked to the gains of the S&P without dividends. Regardless, the Challenge was to show an 8% net IRR of IUL which was done. This return stands on its own, and whether or not something else could do the same or better was not a condition to void the Challenge either as you since claim - show me where it is. You cannot.
  
  2) You did not point out that the insurance company had the unilateral right to lower the return and that it had recently exercised the right.
  
  We only talked briefly and it is impossible to tell you everything in ten minutes. You were sent an illustration which you indicate you read line for line, that states: Once a growth cap rate is determined for a segment, it is guaranteed only for that segment. The growth cap may change for subsequent segments.
  
  If you had called or emailed I would have answered whatever you wanted. I also sent you my book which states the fact that caps will go up and down, and for the most part companies guarantee them for 1 yr at a time. As far as I can determine caps are currently the lowest they have ever been with most companies - because interest rates are at historic lows.
  
  Also, the S&P has performed so poorly the past 20 years that the gain would of exceeded 16% only 3 times anyway. Its going down only made it a bit harder for me to meet your 8% Challenge - which I still did. Vs. the S&P with dividends, IUL would have had a NET value today of over $100,000 - or 23+% - MORE! Why is it that you refuse to address this fact?!
  
  3) You stated it was ridiculous to use the minimum guarantee as the lowest possible return yet, if it were so ridiculous, why wouldn't the insurance company use a higher minimum return?
  
  The higher the minimum return guarantee the higher the policy expenses too, which means it can only buy fewer options so there is a lower cap for earned gains. You can get a 2% minimum cash value guaranty each yr. with another co., but the cap is only 9.5%. Most people prefer 16% and a 0% guaranty.
  
  4) You claimed the need for insurance was irrelevant and did not point out that the cost of insurance was rising rapidly each year I had the policy. I think this is very relevant.
  
  To say this is a lie does not begin to tell the story. With the illustration you were provided here are the total costs:
  
  Years 1-5: avg. $3,643
  Years 6-10: avg. $1,931
  Fee Ratio Yrs. 1-10: 2.86%
  Year
  11 $270 0.16%
  12 $239 0.162%
  13 $337 0.169%
  14 $355 0.163%
  15 $396 0.167%
  16 $440 0.17%
  17 $486 0.172%
  18 $535 0.174%
  19 $592 0.177%
  20 $612 0.167
  
  Fee Ratio Avg. Yrs. 11-20: 0.169%
  Fee Ratio Avg. Yrs. 1-20: 0.77%
  
  21 $629 0.158%
  22 $603 0.139%
  23 $584 0.123%
  24 $505 0.098%
  25 $597 0.106%
  26 $710 0.115%
  27 $852 0.127%
  28 $1,029 0.14%
  29 $1,243 0.156% (this is age 81)
  
  Fee Ratio Avg. Yrs. 21-29: 0.119%
  Fee Ratio Avg. Yrs. 1-29: 0.383%
  
  Show me ANY other investment with a cost factor as low! But again, another Red Herring - what matters is what is left after these costs are deducted -- a NET IRR of 8.01% in year 30. The cost hits a $ peak in year 39 with a fee ratio of 0.042%. That is 4 one-hundreths of a %. I do not think that will have any measurable effect on your cash value or life. Your claim about rapidly rising costs is absurd and false. Again!
  
  5) My opinion is that you used sales tactics that did not fully represent the product you were trying to say met your claim of "How about a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk?" The fine print of the documents you provided combined with the discussion you set up with the company provided a very different picture.
  
  See the so called fine print above. This is again another distorted statement by Roth. You were provided 20x more disclosure than most people ever see -- stop whining and address the facts including that this IUL on a NET basis outperformed the S&P with dividends substantially over the past 20 years even with a cap.
  
  6) Brett, your website ( www.lastchanceretirement.biz ) still states: "The odds of a couple age 65 eventually needing to pay for one typical Nursing Home stay for 2 1/2 years, is 100%!"
  
  This is a true fact. If you had read the facts from the US government report you would know this. But even if it is wrong and no one will ever stay in a NH, it has NOTHING to do with the merits of IUL. The fact that over 3 months you have refused to address a single thing about IUL just proves that you know if you did you would have to acknowledge that the Challenge was met.
  
  7) You are still throwing out the Red Herring about Insurable Interest. You just do not get it that it does NOT mean that there must be a primary dependent life insurance need. When buying a policy on yourself any legal financial or other such need or want meets this condition - including leaving it all to charity. But in the meantime it is very legal to take advantage of the living benefits of IUL -- including saving with no Market Risk so that you keep all the gains, and Tax Free retirement income.
  
  You sent me an email 2 days ago saying your comments were not personal. I had hoped this column would be an honest intellectual debate. Instead you have never addressed any of the facts about IUL. You chose instead to make it personal when you defended your opinion solely by attacking me personally in your comments and not once any of the merits about and for IUL. Or to focus solely on issues such as LTC or insurable interest that having no bearing on IUL. That is cowardly -- so please refrain from contacting me again with your deliberately distorted statements.
  
  Also, to address another false inference by you, I still represent the products of Minnesota and other companies. Why would this not be so? Is it at all possible for you to address the facts about IUL and not this other stuff you put out that is false and irrelevant?
  
  I put out a challenge if there is anything that can match the gains and overall benefits of IUL to let me know. So far I?ve received zero replies. I guess that says it all!

•  
  226

  smpatel

  01/14/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  The challenge was:
  How about a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk.
  
  1. S&P return with or without dividends, it is a good information however so far the challenge is met, not sure why it is relevant. The challenge was for 8%- whether one could get higher than that, is not important. Also, it is disclosed well in the illustration, nothing hidden there.
  2. Insurance company unilateral right to lower the cap: This is an important information. One need to look into the historical evidence for this and confirm if that affects the challenge return, It doesn't. Hence, again from a challenge point of view it is not relevant. The challenge does not say guaranteed 8%, so please keep that in mind.
  3. Minimum guarantee discussion: Again, the challenge does not include guarantee as the wording, so irrelvant for the challenge. It is an added safety for this product.
  4. Cost of the insurance: Compared to other products (mutual funds or pure index fund with downside market risk), the cost is very competitive nowadays, Brett already put out the illustration, it is little cumbersome but factual. Can't deny that. Again, from the challenge point of view it is already accounted in the 8% return (NET of fees). So, not relevant.
  5. Sales tactics: I agree that these products are complex and no one should invest on something they don't understand. However, illustrations here are very detailed and informative (applaud Brett A.), The challenge had no clause for sales tactics and one has ample time to ask all the questions upon review of details, for this challenge hence this point is not relevant.
  6. Nursing home issue - I fail to understand how this is relevant to the wording of the challenge, someone pl help me.
  7. Insurance interest - It is a bonus, however people with the annuitization goal in mind could use this product. There is enough academic study to support annuitization suggesting the cost of these products going down and the important role they play.
  Mutual fund industry is against this for obvious reasons as the recent 401k survey put out by that industry to prevent any steps by the government to annuitize part of the retirement money indicates.
  I applaud Allan, Brett and others in making IUL education easier.
  regards,

•  
  227

  AztecTheRed

  01/15/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  reset the formatting...
  
  There... better...

•  
  228

  DougDiggerEberhardt

  01/16/10 | Report as spam

  An aside...

  smpatel,
  
  You said: "5. Sales tactics: I agree that these products are complex and no one should invest on something they don't understand. However, illustrations here are very detailed and informative (applaud Brett A.), The challenge had no clause for sales tactics and one has ample time to ask all the questions upon review of details, for this challenge hence this point is not relevant."
  
  While the challenge had "no clause for sales tactics and one has ample time to ask all the questions," any person reading this challenge must also know that these products are "sold to," and not "bought by" the general public.
  
  Mutual Funds, ETFs and other stocks and bonds can be bought online after an individual does a little research. In fact, no investment advisor or broker are needed with the ETrade's and TD Ameritrade's available for investors. However, a good CFP/fee only advisor can be worth the time and money.
  
  EIUL's are only sold through insurance licensed individuals. The availability of the product is such that I can't go online and compare EIUL products side by side like I can with Morningstar and Value Line's services (although one can compare returns with Variable Life products).
  
  Being that these products are sold, then one has to do their due diligence on the insurance company and trust the seller that the product they are representing is the best out there and in the best interest of the client to purchase, not the pockets of the insurance salesman.
  
  Captive agents only can sell what their company lets them sell. The client may or may not know there is a better product available. As "complex" as these products are, as shown in this discussion of over 220 replies, the average buyer of these products may or may not know the right questions to ask (my experience with such buyers tells me they don't know). This EIUL concept would be new to most. God knows it wouldn't get any mainstream press from the corporate owned media.
  
  So this issue may not be "relevant" to the original "challenge," it is relevant to anyone buying such products. One of the first questions I would ask after a detailed explanation of the product is "how much do you get paid if I buy this product?"
  
  On a side note, can anyone tell me if the interest rate charged on the loan is guaranteed not to go above a certain rate? My speculation is that we'll have higher interest rates in the future and want to know if I can lock in low rates. If so, that would be a great selling point. If not, then I'd have some concerns. I don't recall this issue being discussed.
  
  I've been out of the business for awhile, so I'm not up to date on these products. Sales tactics by some insurance folks don't change though... it seems though we have some good one's involved in the discussion here.
  
  I've learned a few things...

•  
  229

  AztecTheRed

  01/16/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Hi DDE,
  
  On a side note, can anyone tell me if the interest rate charged on the loan is guaranteed not to go above a certain rate? My speculation is that we'll have higher interest rates in the future and want to know if I can lock in low rates. If so, that would be a great selling point. If not, then I'd have some concerns.
  
  Right... another excellent point to know & consider.
  
  Generally speaking, all EIUL policies offer, at minimum, a traditional permanently fixed interest rate loan. Since you are "borrowing" from your own account, you are also the "lender" of the funds, and the insurance company is therefore required by tax law to charge a "market rate" for the loan... which they then credit back to you, since the loaned money is yours. (Confused yet? Basically, you are both the borrower and lender, so you are simultaneously paying *AND* receiving the interest rate on the loan.)
  
  For TRADITIONAL (i.e "Fixed rate") loans;
  
  Typically, for a specified preliminary period (1-10 years) the rate paid by the borrower (you) may be a 1-2% premium above the rate paid to the lender (you,) with the haircut going to the carrier.
  
  After the specified initial period, the rate paid, and the rate received are matched-off equal... and thus the process is known as a "Wash Loan" as the funds accessed by loan have a net zero cost to the policy holder.
  
  ========================
  
  There is a 2nd loan option offered by many carriers, known as an Indexed, or Variable rate loan.
  
  For these loans the interest rate charged and the interest rate received are not locked together in relationship. One, or the other, may be "floating" which creates the potential for either a positive arbitrage (where the policy holder actually PROFITS by borrowing from himself,) or the opposite; a policy holder has a net COST for borrowing from himself.
  
  This is clearly a much sharper access to funds... one that needs to be used and attended to carefully, as it can be a double-edged sword that can cut either way.
  
  This loan type is ALWAYS merely a SECOND option, if offered at all... never the sole or default option.
  
  
  EXAMPLE;
  
  One carrier I know offers an Indexed Loan with works as follows;
  Funds borrowed carry an interest COST of a permanently fixed rate, currently at 6%.
  
  These funds used from the policy holder's account PAY the account holder the straight annual index credit that the rest of the cash-value is getting as well.
  
  THUS... if the account has a floor of 0%, and a ceiling/cap of 14%, your borrowed funds (if you choose to denominate your loan terms to the indexed option) will always cost you 6% interest, but your annual interest payback will vary from 0% to 14%, with the historical crediting annual average at 8.4%.
  
  It is critical to have the client understand that this means you are likely to profit *ON AVERAGE*... but that also means you may very likely have anywhere from a 1 to 4 year stretch, from time to time, of consecutive "net interest COST" years... which are then also offset by 2-8 year runs of "net interest PROFIT" years.
  
  I like to tell the joke of the mathematician who figures that if he sticks one hand in a vat of boiling oil, and the other hand in sub-freezing liquid nitrogen, that "ON AVERAGE" the temperature is "just right."
  
  Although that joke makes the imagery far darker & more dire than the financial realities... I think its always better that our clients vividly understand the full picture (even if it needs to be explained slightly scarier than the truth.)
  
  
  Cheers,
  Aztec

•  
  230

  roccycwpp

  01/17/10 | Report as spam

  switching loans

  Here?s a good question I already know the answer to that I thought some might find interesting.
  
  Most advisors tout the virtues of "variable" loans in EIUL policies. These are good as an option because if they are chosen and if the policy credits more than the lending rate, you actually make money on the money borrowed.
  
  However, the question I wanted to throw out is: can you switch loan options from a variable to a fixed after you've borrowed money out of the policy with the very touted on this blog MN life policy without having to repay the entire loan first?
  
  The answer? No. MN life makes you repay the entire loan if you want to switch between a variable loan and a fixed loan option.
  
  So, if you borrowed let's say $200,000 from a policy in retirement over 5 years and then the interest on these loans went through the roof (making the possibility of a negative am. loan in your policy), you'd have to come up with $200,000 cash to pay back the loan before MN life would let you switch your loan to a fixed/wash loan option.
  
  Yet another reason to use Revolutionary Life if you plan on buying an EIUL policy to build wealth.

•  
  231

  Allan Roth

  01/17/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  smpatel,
  
  Regarding your statement:
  
  "Nursing home issue - I fail to understand how this is relevant to the wording of the challenge, someone pl help me."
  
  The statement that remains on Brett Anderson's web site is:
  
  "The odds of a couple age 65 eventually needing to pay for one typical Nursing Home stay for 2 1/2 years, is 100%!"
  
  In order to believe this, one must use logic that avoids looking at facts from couples dying in auto accidents to the millions of widows and widowers that will die never having gone to a nursing home.
  
  The RELEVANCE to the challenge is that the same facts below must be ignored:
  
  1) Part of the return of part of the market is not "market return"
  
  2) A company that unilaterally controls your return is not an 8% return, especially since that company recently exercised this unilateral right.
  
  3) A guarantee that $100,000 invested will be worth at least zero is not without market risk.
  
  4) The fact that Minnesota Life itself doesn't recommend this product for this investment challenge is not evidence this is not a good investment only product.
  
  The relevance is that both the nursing home claim and challenge claim rely on a set of logic only those that ignore facts can possibly believe in them.
  
  The real story of the challenge isn't the fact that it failed to meet the challenge. Many have provided more complex products that arguably came closer to meeting the challenge than Brett.
  
  The real story is the tactics that the challenger and others kept using which proves my theory that they really can ignore the facts if their livelihood is dependent upon it.
  
  Benjamin Roth, the Minnesota chief actuary, told me he advised Brett Anderson not to keep posting. I'm glad that Mr. Anderson did not take the advice from Minnesota Life as it gives us all a glimpse into insurance sales that is far more valuable than the initial story itself.

•  
  232

  rlecrisp@...

  01/18/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  I think the crux of this discussion has been about sales the whole time. Who is sophisticated enough to buy this product? Certainly NONE of the clients I ever spoke with. The more distressing question of course is this: who is qualified to SELL this product? Apparently anyone. Frightening. I would love to be a fly on the wall as these altruistic agents sell this to Mom and Pop.

•  
  233

  r_buckner

  01/18/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  rlecrisp,
  
  Well said!

•  
  234

  Allan Roth

  01/18/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  rlecrisp and r_buckner
  
  You can be a fly on the wall. Here's a hidden camera by Dateline:
  
  http://www.msnbc.msn.com/id/21134540/vp/24108012#24108012
  
  You'll see some of the tactics above used in this Dateline report. The product used above is a different insurance product but it's the same old game.

•  
  235

  smpatel

  01/19/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Allan, thanks for posting dateline, I did the smiliar one on this blog at #209.
  
  Also, here is some more:
  FIA real-life returns along with bad press examples:
  
  http://corporate.morningstar.com/ib/documents/UserGuides/UnSupermodelsFIA.pdf
  
  Hope this helps,

•  
  236

  miguelggarcia

  01/20/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  It all comes down to what Brett originally offered (not Allan's rules, but straight what Brett offered):
  I can blow away saving for retirement in any market fund, with an Indexed Life policy. How about a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk.
  
  Brett offered a NET (his caps) 8% with NO downside risk.
  What happened? He did not deliver, as far as I know, with the current interest rates there's simply no product in the U.S. that can give 8% NET without risk.
  
  What about the quotes? The numbers that Brett has shown, even without including dividends?
  Well, the problem is that those numbers are past performance, and as every ad relating to investing indicates: "Past performance is no guarantee of future results". So, yes, anyone COULD have received 8% net IF you bought the policy 20 years ago. What about the next 20 years? One can only guess (all the presented illustrations are nothing but guessing) what the future performance for the given index. If an insurance agent (or anyone, for that matter) can accurately predict (and thus showing his predictions in his illustrations) what an index will return for the next 20 years his place is not selling insurance, but receiving a Nobel prize for Economics.
  The only guaranteed result is the 3% that the insurance company offers.
  Hey, not even the costs are guaranteed! Since the insurance company has the unilateral right to increase them (via changing the caps) anytime they want.
  
  In conclusion, what I see is desperate measures to defend a product that, as said above, was designed to be sold, not bought, and its impossible to change their views, since their livelihood depends on not changing them.

•  
  237

  finnetusa

  01/20/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Hey miguel,
  How is it that in the top paragraph you get the quote right, but then to make your point, you leave out an important word? What word, you may ask? MARKET. He said "with NO downside market risk." He didn't say "NO RISK" as you state. Nor do I see the word "GUARANTEED".
  So I just gotta ask...what's your agenda? It's nice to read a post by the only truthful and honest person in the universe. Must be a terrible burden you carry. All I can say is "take off your blinders, open your mind, and reread this entire blog." It's obvious you haven't.

•  
  238

  rlecrisp@...

  01/20/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Just wanted to point out that (even after reading the trasnscripts on the Dateline piece!) obviously I am generalizing about the moral fiber of insurance agents. I simply have a problem with the industry due to the ridiculous information advantage they have over their clients (read 'Invisible Bankers'), the first page on any sales literature should be reserved for one phrase: Caveat Emptor.
  
  As an aside, I must say Aztec needs to realize he is not doing his professions' reputation any favors with his childish and condescending attacks on AR. I've read back over some of these posts: say what you want about AR but he has not let his arguments degenerate into the realm of the juvenile 'against the person' variety.
  
  It's obvious to me the burden of proof has not been met and the most worrying aspect of this debate is that this product seems to have been marketed (at least in this forum) as an investment vehicle. The underwriting companys' mention of 'insurable need' leads me to believe they share the same concerns.

•  
  239

  Allan Roth

  01/21/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  The facts are that the product delivered essentially what ever rate the insurance company unilaterally decided to pay with the risk of losing the entire investment. The company, Minnesota Life, itself didn't recommend the product as an investment.
  
  With these facts, the only way the insurance producers above could make their case is with personal attacks. I've read many insurance policies to bring out the facts and contrast them with the sales pitches and have had many personal attacks from producers when I have done so.
  
  This, however, is the first one that can be shared by all. I understand the requests from producers to delete this whole thread or certain parts of it. I am just not going to delete a single word.
  
  There may be a lot of comments above, but it's a rare glimpse into the world of insurance producers, who really do sincerely believe this product delivers an 8% annual return without risk.

•  
  240

  miguelggarcia

  01/21/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  @finnetusa: You're right, I missed the word "market" in my remarks. Thank you for pointing that out.
  We've seen Brett's quote enough times, plus its up there, so I won't re-post it.
  
  Let me rephrase what I said: Brett offered a "NET 8% with NO downside market risk".
  What he gave back was an "illustration" a.k.a. "simulation" that proves his point and backed it up with historical data. The problem is that there's no way of determining that the 8% past returns will be repeated in the future.
  In short, he offered a "NET 8%" as a certainty for something that has no certainty at all (except for the "guaranteed 3% than some people like to ignore).
  We've all seen some of the insurance agents' practices (apparently, personal attacks are a big thing here) and how convenient is to turn the numbers.
  Thank you Allan for keeping this open and thank you Aztec, Brett, finnetusa and everyone else for showing your side of the story; I think that investors can get their own conclusions and determine for themselves if equity indexed life insurance is really an investment or not. (I personally think it is not).

•  
  241

  AztecTheRed

  01/21/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Hi relcrsip
  
  I must say Aztec needs to realize he is not doing his professions' reputation any favors with his childish and condescending attacks on AR.
  
  I must say; you need to re-read the threads more carefully. Not only have I *not* attacked Allan Roth, I ahve extensively (and quite sincerely) stated my respect for his courage and integrity in this process!
  
  Go back and read_the_words ;~)
  =======================================
  
  Hi Miguel,
  
  I think that investors can get their own conclusions and determine for themselves if equity indexed life insurance is really an investment or not. (I personally think it is not).
  
  "Investment" is *NOT* defined by the potential of market upsides... According to the SEC and the various states securities regulatory languaging, the term "Investment" defines a scheme where principal is at risk of loss.
  
  THUS, I entirely agree; EIUL is in no way whatsoever an "investment" by the securities AND insurance industries' definitions.
  
  More accurately, however, it is an "upwardly indexed growth account with guarantees against market downsides."
  
  Whatever labels one wishes to use, however, the financial facts stand unbroken;
  A) It is safer than unguaranteed securities schemes,
  B) It costs less than virtually all securities schemes,
  C) It has historically outperformed the majority of hired-gun stock pickers/advisors,
  D) It offers worst-case limit guarantees that *NO* securities-only advisor is even ALLOWED to ofer,
  E) It has historically *NEVER* so much as approached its worst-case low performance sides, despite its full-disclosure of possibility.
  
  Frankly, I'm amused by the people here and elsewhere who point out the POTENTIAL worst-case limits as some kind of downside....
  
  If they have any integrity whatsoever, they would clearly have zero of their funds (let alone client funds) in *ANY* securities at all... since the worst-case only guarantee securities can offer is 100% principal loss by tomorrow. Again, the only position of integrity such folks would have is with 100% FDIC insured savings accounts (and that's questionnable too, since the FDIC actually has a WORSE stability track record than the mutual life industry!)
  
  Cheers

•  
  242

  miguelggarcia

  01/21/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  @aztec:
  You're right, I shouln't have called it "investment" (insurance agents would need to be regulated by FINRA or SEC and wouldn't be able to say some of the things they say about products like this and equity index-annuities, but that's another story).
  I should have said:
  After reading this post, and understanding all the moving pieces, people can get their own conclusions and decide if equity indexed life insurance is a product where they should put their money in or not. I personally wouldn't put a penny of my money in one of them.
  As for your points:
  a) It is only as safe as the insurance company backing it.
  b)If you compare it with mutual funds with annual fees of over 1.25% (or even 0.50%) and high turnover, I agree. does it cost less than a portfolio of index funds? Ah, I get your "virtually" now.
  c)Exactly, anyone that uses a stock picker to manage their funds is essencially gambling with their money.
  d) The guarantees are as good as the company backing them. Investors... Err... People with money, shoould balance the benefit of those guarantees with the downsides of the product.
  e) Talking about risk, in individual only should take as much risk as he/she is willing/able/and in need to take.
  
  The FDic has a "bad" sability track record? if I read the Dateline transcripts correctly, the FDIC has never missed a payment to their depositors, but you may have other information, would you mind sharing it?
  
  Thanks for your comments.

•  
  243

  miguelggarcia

  01/21/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  @Aztec: I didn't see any comments in regards of the past 8% NET vs the future 8% net, what do you think of that? Do you think it's reasonable to believe than the future performance of the S&P 500 will be as it has been for the last 20 years (and as Brett showed in his illustrations)? do you think that that makes a difference in declaring if the challenge was met or not?

•  
  244

  AztecTheRed

  01/22/10 | Report as spam

  RE: Insurance Investing and the $100,000.00 Challenge - The Outcome

  Hi Miguel,
  
  A few counter-comments;
  I said;
  A) It is safer than unguaranteed securities schemes,
  
  As for your points:
  a) It is only as safe as the insurance company backing it.
  
  More than that;
  The company backing it, PLUS
  The strength of the state guarantee association backing the company, PLUS
  The strength of the competitor companies that the association could call on to absorb assets if there were problems.
  
  In contrast, there are *zero* backstops against *any* downsides (market NOR systemic) with securities firms.
  
  B) It costs less than virtually all securities schemes,
  b)If you compare it with mutual funds with annual fees of over 1.25% (or even 0.50%) and high turnover, I agree. does it cost less than a portfolio of index funds? Ah, I get your "virtually" now.
  
  
  OK... you caught *ME* stepping in a "narrative negligence bucket" here... what I had inteded to say was;
  B) It costs less than virtually all securities schemes reaching the same performance & safety levels.
  
  Individuals trading speculatively *can* trade as cheaply (or even cheaper) than EIUL contracts... but they rarely get anywhere near as much safety and they can't rely on *ANY* back-up guarantee systems.
  
  does it cost less than a portfolio of index funds?
  If such portfolio was managed for equivalent reset-indexing features, and equivalent tax efficiency, there's no comparison... the EIUL offerings are beyond approach by generic securities strategies.
  
  C) It has historically outperformed the majority of hired-gun stock pickers/advisors,
  c)Exactly, anyone that uses a stock picker to manage their funds is essencially gambling with their money.
  
  Wholly agreed. The alternative is indexing... which falls right into the bucket where reset-indexing, with substantial reserves, is done better (and more tax-efficiently) by the life insurance companies than virtually all securities-only offers.
  
  D) It offers worst-case limit guarantees that *NO* securities-only advisor is even ALLOWED to offer,
  d) The guarantees are as good as the company backing them. Investors... Err... People with money, shoould balance the benefit of those guarantees with the downsides of the product.
  
  Again, wholly agreed... and the competitive indexing offerings outside the insurance industry (if they could even be found) are so lacking as to be a miserable (if any) comparison.
  
  E) It has historically *NEVER* so much as approached its worst-case low performance sides, despite its full-disclosure of possibility.
  e) Talking about risk, in individual only should take as much risk as he/she is willing/able/and in need to take.
  
  Again, wholly agreed... and the securities-only world can offer no risk-abatement guaurantees at all. They *CAN* (and DO) offer the potential for the periodic "home run" jackpot though... and this (as all casino gaming systems specialists know) is what drives the public to run headfirst into more risks than they can or should take.
  
  The FDic has a "bad" sability track record? if I read the Dateline transcripts correctly, the FDIC has never missed a payment to their depositors, but you may have other information, would you mind sharing it?
  
  BOTH the FDIC and the various states insurance guarantee associations have perfect payment track records, so we have to dig deeper into actual accounting reportings to determine which is more stable and safer. The FDIC has been widely exposed for their insufficient reserves (pretty much the entire last 12 months or so.) It is a well-reported problem.
  
  The state's insurance guarantee associations (also publically disclosed, as non-private entities) have had zero such reserves problems.
  
  Its a "shade of gray" talking point, I acknowledge... UNTIL the FDIC creates further systemic breakdown. The state's guarantee associations pose no such threat.
  
  
  I didn't see any comments in regards of the past 8% NET vs the future 8% net, what do you think of that? Do you think it's reasonable to believe than the future performance of the S&P 500 will be as it has been for the last 20 years (and as Brett showed in his illustrations)?
  
  (Read this carefully, please) I think it is VERY reasonable (and mathematically probable) that the rolling future 20, 25, or 30 year combined annual periods of the S&P 500 will have a very similar range of growth and volatility as the historic 20, 25, and 30 year rolling annual periods.
  
  The application of current EIUL crediting rates (which are at their industry-lifetime most-constricted & low) on the historical rolling performances of the SP500 show the EIUL outperforming the underlying index (ignoring securities fees, and *including* securities' dividends) for the backward-looking view. (NOT by any "homerun" brag figure... but who needs to brag when "safe" money beats "risk" money at all?)
  
  Since reset indexing capitalizes on volatility, I *STRONGLY* expect rest-indexing to *STRONGLY* outperform passive-hold securities indexing in the coming 10-15 years (but that's *ONLY* my own tea-leaves... I won't make any argument on that point.)
  
  
  do you think that that makes a difference in declaring if the challenge was met or not?
  
  In review of this thread and the original challenge, both Roth & Brett left a lot of massive ambiguities open, such that Roth has plenty of room to add additional stipulations that were never in the challenge (and to be fair, were never excluded from the challenge either.)
  
  Whether the challenge was actually met isn't determined NOW by the actual financial realities, which stand on their own... but rather by the retroactive re-writing of the ambiguous blanks... and Roth has the discretion as the challenger to re-write to his favor.
  
  So, no... I don't think the historical facts versus future mathematical market probabilities make any difference in how the ambiguities will be re-presented.. and thus, they make no difference to the challenge.
  
  Cheers,
  Aztec