Life Insurance Question

[Nords]

Originally Posted by REWahoo

The above statement can be found on page 137 of "Life and Variable Annuity Sales Techniques", MetLife Edition 27.

The fact that it takes 137 pages to sell an annuity should be the first warning sign...

[saluki9]

Originally Posted by Nords

The fact that it takes 137 pages to sell an annuity should be the first warning sign...

Two years ago if you would have told me I would be promoting a VA I would have laughed at you.

Some of the products have become very attractive in the last couple years as long as you really understand them and their limitations.

[RockOn]

Originally Posted by saluki9

Two years ago if you would have told me I would be promoting a VA I would have laughed at you.

Some of the products have become very attractive in the last couple years as long as you really understand them and their limitations.

Can you list a few specific products that you consider very attractive? I'd like to check them out. I have money in VA's.

Do youmean the Fidelity VA with the lower fees, or something else?

[Art G]

Originally Posted by RockOn

Can you give me the name of a specific product that you like so I can check it out?

Not without knowing more about your situation. The product that matches your needs is directly dependent on your personal goals.

[RockOn]

Originally Posted by Art G

Not without knowing more about your situation. The product that matches your needs is directly dependent on your personal goals.

How about age 53 married, 1 kid in college and 1 about to go which has been taken care of, nearly retired, still working to provide a safety factor, I need about a 2.5 to 3% SWR to make things work. At a 3% SWR I expect to fully fund my retirement and allow for my assets to build at approximately the inflation rate for my estate. Conservative.

I actually don't see where my situation makes that much difference, I just want the highest rate of return possible with the lowest risk. I place a much higher value on low risk vs high returns. Fee's really don't matter as long as my goal is met.

[innova]

I actually don't see where my situation makes that much difference

I agree.

Fee's really don't matter as long as my goal is met.

Fees always matter. You get exactly what you DON'T pay for. Nothing about an annuity contract changes this basic fact.

[RockOn]

Originally Posted by innova

Fees always matter. You get exactly what you DON'T pay for. Nothing about an annuity contract changes this basic fact.

I agree but if there is a "great product" out there that pays a great return with low risk, I'm interested. At 7-8% guaranteed net, I don't care if they are charging 3% fees on top of that. I suppose it will be a long wait.

[innova]

I would agree - if it were possible.

Consider that the insurance company needs to make money on the spread somehow. What investment can they invest in that will give them a high percentage chance of beating 7-8% by enough after their costs to generate a profit? If that product existed, why not just invest in that yourself?

Do you see what I'm getting at I simply don't believe it is possible to make those types of promises and remain solvent. Of course, I'm open minded enough to listen.. just seems WAY too good to be true.

[RockOn]

Originally Posted by innova

I would agree - if it were possible.

Consider that the insurance company needs to make money on the spread somehow. What investment can they invest in that will give them a high percentage chance of beating 7-8% by enough after their costs to generate a profit? If that product existed, why not just invest in that yourself?

Do you see what I'm getting at I simply don't believe it is possible to make those types of promises and remain solvent. Of course, I'm open minded enough to listen.. just seems WAY too good to be true.

I have heard there are product out there with that type of return. I suppose if they took most of the long term upside in the stock markets above 7-8% and capped my return, they might be able to offer higher returns. I haven't read the fine print though. There are likely some significant catches.

[Delawaredave5]

Originally Posted by Art G

Not without knowing more about your situation. The product that matches your needs is directly dependent on your personal goals.

I'm interested also in seeing an example of an "attractive VA product" - you pick the situation and the product.

The only situation I see these as valuable is to "prevent someone from doing something really stupid". Friend has a FIL who is clueless financially, does not understand risk, and paranoid of advisors (maybe rightly so....). He's trying to get a portion of FIL assets into VA to "prevent him from hurting himself".

Seems clear that these VA's are very profitable products for insurance companies - so either:

1. They are so much smarter and successful than the average investor that they can offer attractive returns and still make great profits, or

2. The mechanics of the policies are cleverly crafted to make you think you are getting market returns with reduced risk - but you are not - and they are making money off the difference.

Call me an ignorant skeptic, but I think #2 applies.

[Art G]

Originally Posted by RockOn

How about age 53 married, 1 kid in college and 1 about to go which has been taken care of, nearly retired, still working to provide a safety factor, I need about a 2.5 to 3% SWR to make things work. At a 3% SWR I expect to fully fund my retirement and allow for my assets to build at approximately the inflation rate for my estate. Conservative.

I actually don't see where my situation makes that much difference, I just want the highest rate of return possible with the lowest risk. I place a much higher value on low risk vs high returns. Fee's really don't matter as long as my goal is met.

Not entirely the type of questions that need answering.
The more important questions are such as
1)What percentage of your portfolio did you want to commit to this product?
2)At what age do you want to start drawing out the income from this product?
3)Are you more concerned with providing lifetime income for you and your spouse, or are you more concerned about leaving money to your heirs?
4)How much income do you feel you'll need to earn to live comfortably in retirement?
There's some off the top of my head.
If, as you say, being conservative and wealth preservation is more important to you than maximizing your returns, then annuities are in all likelihood perfect for you. JMO

[Art G]

Originally Posted by Delawaredave5

I'm interested also in seeing an example of an "attractive VA product" - you pick the situation and the product.

The only situation I see these as valuable is to "prevent someone from doing something really stupid". Friend has a FIL who is clueless financially, does not understand risk, and paranoid of advisors (maybe rightly so....). He's trying to get a portion of FIL assets into VA to "prevent him from hurting himself".

Seems clear that these VA's are very profitable products for insurance companies - so either:

1. They are so much smarter and successful than the average investor that they can offer attractive returns and still make great profits, or

2. The mechanics of the policies are cleverly crafted to make you think you are getting market returns with reduced risk - but you are not - and they are making money off the difference.

Call me an ignorant skeptic, but I think #2 applies.

I think you left off #3....The insurance companies recognize the needs in the future for baby boomers to have lifetime income and are madly competing for your investment dollars. Before considering a variable annuity with lifetime income, be sure and check out the quality of the insurance company and what percentage of their overall business is VA business.
Personally, I think corporate insurance boards are currently squeezing actuaries to offer benefits that may be borderline overly generous. Paying out a death benefit is a one time offer and people aren't all dying at the same time. However, with people living longer and more people searching out income, they may put future stress on the insurance company themselves (and this is very important to be aware of).
At one time, there were some incredible insurance products offering tax shelter and solid growth. These products have gone away. It is possible the current annuity benefits may also be cut back after further review.
BTW, these insurance companies do have the right to raise their expenses in the future somewhat. I do think this also should be considered.
Again, JMO

[brewer12345]

RockOn, he also forgot two salient questions:

1) Do you enjoy needlessly enriching annuity salesmen?
2) Do you regularly walk around in public with your underpants on your head?

[ziggy29]

Guaranteed income for life AND the ability to pass something to heirs?

How about taking a large sum of money, putting 1/3 of it in a low-cost plain-vanilla single-premium annuity (there are some), another 1/3 into high dividend stocks and the final 1/3 into a bond ladder?

Voila. Guaranteed income stream, opportunity for growth AND something to pass to your heirs.

I'm not touting this as an "ideal" portfolio, but merely showing that you can accomplish these goals without the high fees and sales commissions of a VUL product.

[Art G]

Originally Posted by brewer12345

RockOn, he also forgot two salient questions:

1) Do you enjoy needlessly enriching annuity salesmen?
2) Do you regularly walk around in public with your underpants on your head?

How silly. Should I complain about how much the chef at my favorite restaurant is earning when I can just as easily cook a steak at home? Should I complain about the salary of the bank president who is paying me a low rate on my C.D.? I could go on, but you get the point.
Bottom line, if I am concerned about the swings in the market and whether or not I will have enough income to last my lifetime, and someone guarantees me they will provide it, why should I care if he's making a living?
Hey Brewer, are you getting paid for what you do? How do you feel about online trading fees?

[brewer12345]

Originally Posted by Art G

How silly. Should I complain about how much the chef at my favorite restaurant is earning when I can just as easily cook a steak at home? Should I complain about the salary of the bank president who is paying me a low rate on my C.D.? I could go on, but you get the point.
Bottom line, if I am concerned about the swings in the market and whether or not I will have enough income to last my lifetime, and someone guarantees me they will provide it, why should I care if he's making a living?
Hey Brewer, are you getting paid for what you do? How do you feel about online trading fees?

In the capital markets, TANSTAAFL. That means whatever you pay someone comes out of your hide, not the market's. There is no magic that the insurer can summon up, and the structure of the VA market means that the principal beneficiary of what comes out of the investor's hide is the annuity salesman. So, yes, you should care how much your crack dealer annuity salesman gets paid.

Yes, I get paid for what I do, FWIW, I consider hedge fund fee structures to be absurdly expensive and would cnsequently never pay them myself.

[Art G]

Originally Posted by ziggy29

Guaranteed income for life AND the ability to pass something to heirs?

How about taking a large sum of money, putting 1/3 of it in a low-cost plain-vanilla single-premium annuity (there are some), another 1/3 into high dividend stocks and the final 1/3 into a bond ladder?

Voila. Guaranteed income stream, opportunity for growth AND something to pass to your heirs.

I'm not touting this as an "ideal" portfolio, but merely showing that you can accomplish these goals without the high fees and sales commissions of a VUL product.

Well, the single premium annuity will never get you a raise. Nor will the bond ladder. Nor is the dividend stocks going to get you much, and could cut their dividend in the future. If you buy AAA bonds you'll give up yield, and if you don't you'll face market risk (in fact, as we're seeing today, even AAA bonds are facing market risk).
Do you not think you're paying fees for all those items as well?
BTW, I have gone this route in the past, much of it worked great, but I started during a high interest rate environment, which is quite different than what we see today. But I do like the way you're thinking.

[Art G]

Originally Posted by brewer12345

In the capital markets, TANSTAAFL. That means whatever you pay someone comes out of your hide, not the market's. There is no magic that the insurer can summon up, and the structure of the VA market means that the principal beneficiary of what comes out of the investor's hide is the annuity salesman. So, yes, you should care how much your crack dealer annuity salesman gets paid.

Yes, I get paid for what I do, FWIW, I consider hedge fund fee structures to be absurdly expensive and would cnsequently never pay them myself.

Actually, the living benefit will one day turn out to be the rue of all annuity salesmen. If the income rises and the principal amount disappears. Not only will the saleman be getting paid nothing, but the product will be impossible to move.
Insurance companies don't win out over everyone. If I buy an insurance product and die the day after the contract is written without even making one premium payment, my heirs will see a great windfall. The reason there are actuaries is that there is a need to measure out where the insurance company breaks even. They come out way ahead with some people and lose to others. It is entirely possible lifetime income will be a product they take it in the shorts with.

[ziggy29]

Originally Posted by Art G

The reason there are actuaries is that there is a need to measure out where the insurance company breaks even. They come out way ahead with some people and lose to others. It is entirely possible lifetime income will be a product they take it in the shorts with.

Sure. If I'm 65, very healthy and all my parents and grandparents lived into their 90s, it could be a losing bet for the insurers. But the thing is, there is the opposite of "adverse selection" that goes on with annuities -- those who do have longevity in their genes and are very healthy are more likely to see an annuity as an attractive product (and waiting until age 70 to take Social Security, for example).

So in reality, actuaries can't look at typical lifespan, but typical lifespan of the type of person likely to buy an annuity. That typical person isn't a 60-year-old diabetic who is 50 pounds overweight, had no parents or grandparents live past 70 and who had cancer a few years ago. For this individual, an annuity is the ultimate sucker bet.

[Art G]

Originally Posted by ziggy29

Sure. If I'm 65, very healthy and all my parents and grandparents lived into their 90s, it could be a losing bet for the insurers. But the thing is, there is the opposite of "adverse selection" that goes on with a