Universal Life---Cash Accumulation-CIGNA

[kaneohe]

Any opinions about putting $$$ in a CIGNA universal life cash accumulation fund. The current 5% (tax free, guaranteed min 4%; 2% "load" ....premium tax) is very tempting in this low interest environment. On the other hand, we've had returns of Eurobank CDs from FDIC in the 5th month of its interest cycle (paid every 6 mos , so no interest for that cycle) and AARP/Waterfield Bank got wiped.

I probably would jump in hoping the state guaranty fund would be the FDIC equivalent but my understanding is that for CA, the guaranty is only for 80% of the value.

 

[MasterBlaster]

You Asked

Any opinions about putting $$$ in a CIGNA universal life cash accumulation fund. The current 5% (tax free, guaranteed min 4%; 2% "load" ....premium tax) is very tempting in this low interest environment. On the other hand, we've had returns of Eurobank CDs from FDIC in the 5th month of its interest cycle (paid every 6 mos , so no interest for that cycle) and AARP/Waterfield Bank got wiped.

I probably would jump in hoping the state guaranty fund would be the FDIC equivalent but my understanding is that for CA, the guaranty is only for 80% of the value.

These variable life type policies have a pretty bad reputation on this forum. I don't know about CIGNA, but many of the variable life/variable annuity policies give the illusion of a good interest rate (eg. 5%) but then require you to annuitize at the end of the contract at their crappy rate. So in reality you are getting much less than it seems. Other policies only have the interest rate guaranty for the first contract cycle, and then the terms become much less favorable upon rollover. Note that at that stage it becomes costly to change your mind.

The state guaranties vary by state. Usually you could expect to get back less than 100 cents on the dollar, sometimes much less. I suspect also that any state guranties do not include accumulated interest. In short you probably will get something back but not everything.

If you just have to invest in something like this go with one of the very low cost providers like Vanguard. They won't rip you off like many of the others would.

The question you should ask yourself is... What am I doing buying Life insurance when I really want an investment. The tax free features are only any good if the after tax investment gains less all of the obvious and sometimes not-so-obvious fees are better than you could do on your own.

 

[kaneohe]

MasterBlaster.......thanks for your comments. Just to clarify, I already had this insurance from Megacorp days, so the decision now is whether or not to add to the cash accumulation fund as a 2yr or so CD equivalent at 5% tax-free
(current rate, or 4% guaranteed min in worst case). I believe I can get the funds back w/o annuitizing tho there is the 2% load going in. The decision is whether the increased yield over a 2 yr CD (taxable) justifies the risk....basically Cigna-related ......I think the interest is declared monthly and so I think the state guaranty fund would include that in the calculation but only at 80% for CA.

 

[brewer12345]

MasterBlaster.......thanks for your comments. Just to clarify, I already had this insurance from Megacorp days, so the decision now is whether or not to add to the cash accumulation fund as a 2yr or so CD equivalent at 5% tax-free
(current rate, or 4% guaranteed min in worst case). I believe I can get the funds back w/o annuitizing tho there is the 2% load going in. The decision is whether the increased yield over a 2 yr CD (taxable) justifies the risk....basically Cigna-related ......I think the interest is declared monthly and so I think the state guaranty fund would include that in the calculation but only at 80% for CA.

I would closely investigate what you have to do to get the cash back out. Would this have to be a policy loan? Partial surrender? Something else? What would the tax implications be?

Looks to me like worst case would be roughly a 3% yield (4% min less 2% premium tax) over 2 years. Is it worth the hassles and extra risk vs. what you can get from a CD or high yield savings? I dunno. Cigna is rated A by AM Best and S&P, A2 (equivalent to S&P A) by Moody's. That's a reasonable rating for an insurer that suggests pretty modest risk to policyholder funds, but its not a fortress like the big mutuals. Having saidthat, I own A and BBB rated corporate bonds I think are money good with very nominal risk, and none ofthem have the advantages of insurance regulation and state guaranty funds (the latter a weak guaranty IMO, but better than nothing).

 

[kaneohe]

brewer12345..........thanks for your input. I was hoping you'd chime in w/ your insurance co. assessment. I don't know the technical term for the withdrawal but my impression is that it's not a loan and that I can request it basically at any time. The cost basis is/would be much higher than withdrawal since I haven't put anything in the cash fund and I've paid premiums for many years so my impression is that this would be a tax-free yield of (net) 3% min (4% current) over 2 yrs vs a CD yield of 2.25%(net 1.8% in 20% Fed/CA bracket).

The gain is less than I'd lose if CIGNA went belly-up and I only got 80% back so the key is the risk of that happening.

 

[dgoldenz]

The interest rate paid on universal life insurance is meaningless because you have to consider the cost of insurance (mortality) charges within the product. If they guaranteed 20% interest and jacked up the cost of insurance by 500%, nothing would change. You have to look at the whole product, not just the guaranteed interest rate. Universal life policies also have surrender charges that will reduce your cash surrender value for up to 20 years.

 

[FinanceDude]

I have yet to see a universal life product do what it should..........so many layers of expense the only ones that make money are the insurers, not the insured..........

UL and other clones of it are way oversold. A good whole life policy with a large mutual with a PUAR would do a lot better over time.

 

[dgoldenz]

I have yet to see a universal life product do what it should..........so many layers of expense the only ones that make money are the insurers, not the insured..........

UL and other clones of it are way oversold. A good whole life policy with a large mutual with a PUAR would do a lot better over time.

Life insurance isn't designed to make you money. If you want to make money, make it somewhere else. Insurance is to protect against a catastrophic financial loss. The two don't mix. Just my opinion.

 

[FinanceDude]

Life insurance isn't designed to make you money. If you want to make money, make it somewhere else. Insurance is to protect against a catastrophic financial loss. The two don't mix. Just my opinion.

Many thousands of insurance agents would disagree with you.......

 

[dgoldenz]

Many thousands of insurance agents would disagree with you.......

I am an insurance agent.

 

[FinanceDude]

I am an insurance agent.

Well....a lot of folks in the life industry push this stuff pretty hard. Not everybody, but a fair number of them.

 

[dgoldenz]

Even when somebody wants permanent coverage, universal life with a no-lapse guarantee is usually the best option. It's basically term insurance guaranteed for life. There will never be much cash value, but the death benefit is guaranteed forever if you keep paying the premiums. It's also about 1/3 the cost of whole life.

 

[brewer12345]

Even when somebody wants permanent coverage, universal life with a no-lapse guarantee is usually the best option. It's basically term insurance guaranteed for life. There will never be much cash value, but the death benefit is guaranteed forever if you keep paying the premiums. It's also about 1/3 the cost of whole life.

Assuming that the insurer does not get into trouble from underpricing the business, that is.

I have always wondered why people do not do annually renewable term.

 

[dgoldenz]

Assuming that the insurer does not get into trouble from underpricing the business, that is.

I have always wondered why people do not do annually renewable term.

What do you mean? The contract is guaranteed. If they went bankrupt, another company would pick it up and honor the terms. I don't know of a life insurance contract that has never been honored and to my knowledge there has never been a valid claim not paid (I won't get into contestability clauses).

People don't do annually renewable term because it is ridiculously high priced. Have you ever looked at the cost of ART for someone getting into their 50's and 60's?

 

[brewer12345]

What do you mean? The contract is guaranteed. If they went bankrupt, another company would pick it up and honor the terms. I don't know of a life insurance contract that has never been honored and to my knowledge there has never been a valid claim not paid (I won't get into contestability clauses).

People don't do annually renewable term because it is ridiculously high priced. Have you ever looked at the cost of ART for someone getting into their 50's and 60's?

I love insurance agents: they are so transparently predictable!

 

[rsingh6675]

Allianz Index Annuity?

Has anyone heard about Allianz Index Annuity? The sales guy has told me if I deposit $100K, they will add 10% in the first year. And then they will add minimum of 8% every year. I can start withdrawing 5-10% every year. Has anyone used Allianz or know about it?
Thanks.

 

[dgoldenz]

I love insurance agents: they are so transparently predictable!

Is there something in my post that's incorrect? ART premiums often aren't guaranteed either. Here's an ART comparison for you on a 40 year old male, standard risk class:

30 year term - $2,220/year, fully guaranteed
No-lapse UL - $6,802/year, fully guaranteed for life

ART:

Year 1 - $425
Year 5 - $1535, up to maximum of $5035
Year 10 - $2245, up to maximum of $8265
Year 20 - $5285, up to maximum of $22,345
Year 30 - $19,525, up to maximum of $73,245
Year 40 - $77,945, up to maximum of $208,465


Yeah, ART is a great deal.

 

[REWahoo]

Has anyone heard about Allianz Index Annuity? The sales guy has told me if I deposit $100K, they will add 10% in the first year. And then they will add minimum of 8% every year. I can start withdrawing 5-10% every year.

Geeze Louise...

 

[MasterBlaster]

Has anyone heard about Allianz Index Annuity? The sales guy has told me if I deposit $100K, they will add 10% in the first year. And then they will add minimum of 8% every year. I can start withdrawing 5-10% every year. Has anyone used Allianz or know about it?
Thanks.

Allianz is a big insurance company.

The guaranties are an illusion.

You need to read the fine print on the disclosure. To get the guaranteed 10% + 8% a year Do you need to annuitize (at their crappy rate) at the end of the contract ? When you roll over the contract you can probably bet that the terms will be much less favorable now that they have you.

If you do a search you'll find lots of links with people who lose money or are very unhappy with these Allianz annuities.

Perhaps you might want to steer clear of this stuff.

If you must, you can do something similar yourself as shown by this thread:

http://www.early-retirement.org/forums/f28/how-to-replicate-an-equity-indexed-annuity-eia-34656.html

 

[dgoldenz]

The guaranties are an illusion.

You need to read the fine print on the disclosure. To get the guaranteed 10% + 8% a year Do you need to annuitize (at their crappy rate) at the end of the contract ? When you roll over the contract you can probably bet that the terms will be much less favorable now that they have you.

Perhaps you might want to steer clear of this stuff.

If you must, you can do something similar yourself as shown by this thread:

http://www.early-retirement.org/forums/f28/how-to-replicate-an-equity-indexed-annuity-eia-34656.html

The guarantees are for the income rider, not for the cash accumulation. Totally different animal....would probably take another 4 paragraphs to explain the difference and how you can access each.

 

[MasterBlaster]

How convienient

So I would bet that the sales guy led the poster rsingh6675 to believe that the 8% and 10 % guaranties were for cash accumulation. I'll bet that is the understanding that rsingh6675 has.

So the guaranties are only for an initial 10% and then 8% more income of a perhaps less (perhaps much less) than steller annuity.

My conclusion is the same - Steer away from this stuff. It isn't a good deal for you.

 

[dgoldenz]

So I would bet that the sales guy led the poster rsingh6675 to believe that the 8% and 10 % guaranties were for cash accumulation. I'll bet that is the understanding that rsingh6675 has.

So the guaranties are only for and initial 10% and then 8% more income of a perhaps less (perhaps much less) than steller annuity.

My conclusion is the same - Steer away from this stuff. It isn't a good deal for you.

Probably, and that's the difference between a good agent and a bad one. To keep it (relatively) simple:

You have two buckets. One has a cash value. One has an income value.

On the income bucket:

The initial principle, let's say $100k, gets a 10% bonus to make its value $110k. It is then guaranteed to grow at 8% per year for however many years the contract guarantees it (probably 8-10 years). You can start taking income at any time for the rest of your life at a certain percentage of that income value. This number is probably somewhere between 4.5-6% depending on your age. So if you have $100k, you can take out ~$5k a year for life. If you have $300k, you can take out ~$15k/year for life. The longer you wait to trigger the income, the higher your payout is for life, especially while still in the compounding interest period. Be careful though, some of these only give simple interest instead of compound.

On the cash bucket:

Your initial principle may have some sort of smaller bonus. Let's say it doesn't and you have $100k. This side operates more like a traditional ELIA and accumulates based on the S&P (or other market index) return, with a capped rate and a guarantee to not decrease. Caps have gone way down in recent years, making this less attractive. If at the end of your 8 or 10 year contract you want to just walk away, you can take whatever has accumulated in the cash bucket and never look back. There is no cash penalty for doing this. You can also withdraw up to 10% per year with no cash penalty.


Here's the rub: If you start taking lifetime income from the income bucket, it reduces your cash accumulation bucket by the same amount. When your cash accumulation bucket reduces to $0, you have nothing left to walk away with, but can still continue taking that guaranteed income for the rest of your life.

Note - this is NOT annuitizing the contract. If you die after you start taking let's say one year of income, your beneficiary receives the remaining cash accumulation value (e.g. the original accumulated value minus one year of income). The beneficiary can also sometimes choose to take the income value over 5 years instead of the cash value in a one-time lump sum. If you had annuitized the contract for a lifetime pay and died in year one, you would have nothing left and be totally screwed. This gives you a way around that.

Confused yet?

 

[MasterBlaster]

I got it the first time.

I just hope that rsingh6675 gets it and understands what exactly they are peddling.

to rsingh6675: Note that the 8% income guaranty goes up mostly because you are older and will get fewer lifetime payments. Mostly they are just giving you your principal back over your lifetime. The real accumulation interest rate is far far lower.

My conclusion is the same - Steer away from this stuff. It isn't a good deal for you.

Confused yet?

These products are confusing by design. They are often sold to people who don't quite understand what they are getting.

Note - this is NOT annuitizing the contract. If you die after you start taking let's say one year of income, your beneficiary receives the remaining cash accumulation value (e.g. the original accumulated value minus one year of income).

I would differ with you there. I'd call it annuitizing the contract along with some life insurance (that you pay for).

 

[dgoldenz]

Fair enough. Even most people that know how ELIA's work don't understand the income riders.

 

[brewer12345]

Is there something in my post that's incorrect? ART premiums often aren't guaranteed either. Here's an ART comparison for you on a 40 year old male, standard risk class:

30 year term - $2,220/year, fully guaranteed
No-lapse UL - $6,802/year, fully guaranteed for life

ART:

Year 1 - $425
Year 5 - $1535, up to maximum of $5035
Year 10 - $2245, up to maximum of $8265
Year 20 - $5285, up to maximum of $22,345
Year 30 - $19,525, up to maximum of $73,245
Year 40 - $77,945, up to maximum of $208,465


Yeah, ART is a great deal.

Your response was textbook agent: ignore any carrier risk (easier to sell whatever you please to the rubes) and pooh-pooh the simple product in favor of the vastly more complex (the better to sell the sizzle rather than the steak).