EIA again

[dgoldenz]

When you say plenty does that mean about 1% of the people who actually buy/get stuck with this stuff. I would say that most people are sold these products for commission sake and not to fill a need. There is always the exception.

Ask people that have bought EIA's over the past 5 years whether they are more satisfied with their EIA or the rest of their portfolio. Ask anyone with permanent life insurance that's ever become uninsurable whether they're more satisfied with the product they bought or if they would've rather had a term policy instead. I'll wager a nickel it's more than 1% in both cases.

 

[73ss454]

Stop it, I just checked my records and OK it's 1 1/2%. I owe you a nickel.

 

[kaneohe]

When you say plenty does that mean about 1% of the people who actually buy/get stuck with this stuff. I would say that most people are sold these products for commission sake and not to fill a need. There is always the exception.

The claim at this talk was that there is no upfront commission so that everything goes into the investment. The insurance company may pay a commission to the agent and that may reduce the return from what it might have been otherwise, but is supposedly reflected in the claimed return.
In other words, the agent may get a commission but the buyer may not care if his return is satisfactory.......e.g. return 0% instead of -40%. I'm not sold on these things but that doesn't sound bad. I'm looking to poke specific logical holes in their sales pitch.

 

[dgoldenz]

The claim at this talk was that there is no upfront commission so that everything goes into the investment. The insurance company may pay a commission to the agent and that may reduce the return from what it might have been otherwise, but is supposedly reflected in the claimed return.
In other words, the agent may get a commission but the buyer may not care if his return is satisfactory.......e.g. return 0% instead of -40%. I'm not sold on these things but that doesn't sound bad. I'm looking to poke specific logical holes in their sales pitch.

The information you have is correct. The salesman gets a commission, but 100% of your premium dollars are credited to the purchased annuity. As I stated earlier, the people who bought EIA's over the past few years could surely care less how much the salesmen made since they didn't lost 40-50% when the market crashed. Do you have the potential for a 40% positive swing in one year? No, but if that's what you're after, it's not the right product. People being EIA's are less concerned with the potential for large returns and more concerned with preserving what took them 40 years to build up.

 

[brewer12345]

The claim at this talk was that there is no upfront commission so that everything goes into the investment. The insurance company may pay a commission to the agent and that may reduce the return from what it might have been otherwise, but is supposedly reflected in the claimed return.
In other words, the agent may get a commission but the buyer may not care if his return is satisfactory.......e.g. return 0% instead of -40%. I'm not sold on these things but that doesn't sound bad. I'm looking to poke specific logical holes in their sales pitch.

So the fact that they take 50 cents worth of hamburger out of your left cheek instead of your right cheek means that they don't take a bite out of your ass?

And then let's not forget all of the insurance company overhead and profit that has to be covered out of your hide.

And let's not sweep the issue of carrier risk under the rug, either. After all, this product is typically not sold by the creme de la creme of this industry.

Finally, this is a very simple product that insurers love to unnecessarily complicate (to their benefit). Anyone with a brokerage account can replicate this product in 5 or so minutes and skip the commission, overhead, carrier risk, long surrender penalty period, etc. I have even detailed how to do so in the past.

 

[dgoldenz]

Finally, this is a very simple product that insurers love to unnecessarily complicate (to their benefit). Anyone with a brokerage account can replicate this product in 5 or so minutes and skip the commission, overhead, carrier risk, long surrender penalty period, etc. I have even detailed how to do so in the past.

Your math doesn't work with current costs and CD rates though...go back and try it yourself. It's also still taxable instead of being tax-deferred.

 

[FinanceDude]

This is about to get interesting. Brewer's plan does involve derivatives to subrogate the risk..........

That being said, I am NOT a fan of EIAs...........never have been. Over half the agents selling them don;t understand them either. Finally, EVERYONE on here knows how I feel about insurance agents that hold themselves out as financial advisors or planners when they only have an insurance license..............

 

[dgoldenz]

This is about to get interesting. Brewer's plan does involve derivatives to subrogate the risk..........

That being said, I am NOT a fan of EIAs...........never have been. Over half the agents selling them don;t understand them either. Finally, EVERYONE on here knows how I feel about insurance agents that hold themselves out as financial advisors or planners when they only have an insurance license..............

Can't argue with either of those. Half of insurance agents don't understand how any insurance works, which is part of the reason 90% fail out in the first year.

 

[dgoldenz]

Also, just as an example, Lincoln has an EIA with a guaranteed minimum 2% on 100% of premium. The current fixed account rate is 2.8% and if the S&P goes up at all (even .001%), 5.15% is credited. If the S&P goes down, 0% is credited. In order to guarantee a minimum of 2% on 100%, you would need over $100,700 just for the CD part of the equation based on the 1-year average of 1.29% posted by bankrate.com. That leaves $0 for the second part of the equation and is more than the principle. The EIA is also tax-deferred instead of taxable.

 

[MichaelB]

Here's an interesting idea - buy dividend swaps from the banks selling the EIA's. As suggested by James Montier at GMO. https://www.gmo.com/America/CMSAtta...qo1IAR8Ui7Ez5GEtVmtm6s0CkR2ANQsUpfWuJTwQEjUud

What happens to the dividend part of an index return under an EIA?

 

[dgoldenz]

Here's an interesting idea - buy dividend swaps from the banks selling the EIA's. As suggested by James Montier at GMO. https://www.gmo.com/America/CMSAtta...qo1IAR8Ui7Ez5GEtVmtm6s0CkR2ANQsUpfWuJTwQEjUud

What happens to the dividend part of an index return under an EIA?

The link doesn't work without a username and password. Dividends are not included with EIA's as they are not a security - the crediting method is simply based on the S&P (or another index). There is no direct market participation, it is only a benchmark for calculating the returns credited on the annuity.

 

[73ss454]

The claim at this talk was that there is no upfront commission so that everything goes into the investment. The insurance company may pay a commission to the agent and that may reduce the return from what it might have been otherwise, but is supposedly reflected in the claimed return.
In other words, the agent may get a commission but the buyer may not care if his return is satisfactory.......e.g. return 0% instead of -40%. I'm not sold on these things but that doesn't sound bad. I'm looking to poke specific logical holes in their sales pitch.

Log onto Pen Fed and buy a 5% CD without the 40 pages of disclaimers that no one understands.

 

[brewer12345]

Log onto Pen Fed and buy a 5% CD without the 40 pages of disclaimers that no one understands.

Ding, ding, ding, we have a winner...

 

[MichaelB]

The link doesn't work without a username and password.

Register. It is cost and spam free.

Dividends are not included with EIA's as they are not a security - the crediting method is simply based on the S&P (or another index). There is no direct market participation, it is only a benchmark for calculating the returns credited on the annuity.

Right. I was making a point. What's the point of investing in an index linked product that excludes half or more of the future index return?

 

[dgoldenz]

Register. It is cost and spam free.
Right. I was making a point. What's the point of investing in an index linked product that excludes half or more of the future index return?

An EIA is not an investment, otherwise it would be a security. You could make an EIA that tracks the cost of bacon or anything else for that matter. The S&P is simply used as a benchmark to determine the crediting rate. Think of it as a fixed annuity with a variable interest rate.

 

[ziggy29]

An EIA is not an investment, otherwise it would be a security. You could make an EIA that tracks the cost of bacon or anything else for that matter. The S&P is simply used as a benchmark to determine the crediting rate. Think of it as a fixed annuity with a variable interest rate.

If someone sold something that tracked the cost of health care and college, I'd be all in. Deflation? Yeah, right.

But thanks for admitting it's not an investment. Too many insurance salesmen say that it is. Investments are investments and insurance is insurance. Both are important in a sound financial plan but one should not be mistaken or substituted for the other.

 

[brewer12345]

An EIA is not an investment, otherwise it would be a security.

Haaahahahahahaha!!!

The SEC may have been cowed into agreeing with the sleazy end of the insurance industry that EIAs are not a security, but that is not true as far as economic substance goes.

 

[dgoldenz]

If someone sold something that tracked the cost of health care and college, I'd be all in. Deflation? Yeah, right.

But thanks for admitting it's not an investment. Too many insurance salesmen say that it is. Investments are investments and insurance is insurance. Both are important in a sound financial plan but one should not be mistaken or substituted for the other.

If an insurance agent said it was an investment, they'd be in hot water, securities license or not. An investment by definition has risk attached to it to achieve greater potential returns. There is no risk to principle with an EIA unless you surrendered early, but that is not market risk.

I agree, investments are investments and insurance is insurance, which is the reason 98% of our sales are term insurance and guaranteed universal life, which is essentially term insurance guaranteed forever. Most people won't write the check for whole life premiums, though it does make more sense for high net worth people who may get some asset protection with it, have maxed out other tax-free contributions, or for business purposes (such as deferred compensation).

 

[brewer12345]

If an insurance agent said it was an investment, they'd be in hot water, securities license or not. An investment by definition has risk attached to it to achieve greater potential returns. There is no risk to principle with an EIA unless you surrendered early, but that is not market risk.

I agree, investments are investments and insurance is insurance, which is the reason 98% of our sales are term insurance and guaranteed universal life, which is essentially term insurance guaranteed forever. Most people won't write the check for whole life premiums, though it does make more sense for high net worth people who may get some asset protection with it, have maxed out other tax-free contributions, or for business purposes (such as deferred compensation).

dgoldenz, I am curious about the competitiveness of the GUL product vs. longer duration level term policies. Is there is big jump in premium for the same face amount for a GUL policy vs. 20 or 30 year level term?

 

[dgoldenz]

dgoldenz, I am curious about the competitiveness of the GUL product vs. longer duration level term policies. Is there is big jump in premium for the same face amount for a GUL policy vs. 20 or 30 year level term?

Depends on the demographics. Obviously the older the age of guarantee gets, the more expensive it is. For someone young, the difference in GUL versus a 30-year term can be minimal. A 30 year old female buying $100k of GUL at the best rates would be $292/year. A 30-year term would be $127/year. The rate is more than double on a percentage basis, but for $170/year, the benefits are guaranteed for life. Will $170/year make or break most people? Will someone really "invest the difference" of a paltry $170 if they buy term instead? Probably not. Transaction costs alone would eat up a big chunk of that "savings" if they were invested.

Since there is no 40-year term, what does a young person do when they outlive the term? Buy another one at 10 times the price when they are 60 years old and health has gone downhill? Life expectancy for a 30-year-old in perfect health today is probably 85-88 years old. What does a 25-year-old buy? 30-year term only takes them to age 55.

For an older person, the difference in premium is bigger because their mortality risk is much higher. A 60 year old male buying $100k of 20-year term at standard rates is about $1100/year. To buy the GUL would be around $2000/year. If that person lived to age 80 and had to buy insurance at that point, they are probably in bad health and the rates for someone to buy at age 80 would self-insure in about 10 years, even if they could get a standard rate. The number of people 80 years old who could qualify for standard rates is minimal. People think they won't need life insurance at age 80 and too many times they are wrong and it's too late to do anything about it.

 

[brewer12345]

Thanks. I would guess that most of the readership here has little or no need for life insurance by age 50 or 60, but that does not necessarily describe the general population.

 

[dgoldenz]

Thanks. I would guess that most of the readership here has little or no need for life insurance by age 50 or 60, but that does not necessarily describe the general population.

I would agree with that assessment.

 

[FinanceDude]

Log onto Pen Fed and buy a 5% CD without the 40 pages of disclaimers that no one understands.

How many years?

 

[FinanceDude]

If an insurance agent said it was an investment, they'd be in hot water, securities license or not. An investment by definition has risk attached to it to achieve greater potential returns. There is no risk to principle with an EIA unless you surrendered early, but that is not market risk.

Then all NML agents should be fired, as they are told to tell clients to "think of the dividends on your WL policy as the FIXED INCOME portion of your portfolio".............they have been saying that for years.........

There is no reason an EIA can't have a shorter surrender than a VA, none except profit margin........

There is risk in an EIA, no matter what an insurance agent tells you........get one of them to explain "crediting rates" or "participation rates" to you, and it will make the disclaimers at the end of car commercials easy to understand..........

 

[saluki9]

Haaahahahahahaha!!!

The SEC may have been cowed into agreeing with the sleazy end of the insurance industry that EIAs are not a security, but that is not true as far as economic substance goes.

Exactly...

When you consider that you need a series 7 to sell a CD in a brokerage account, its criminal in my mind that you don't need to be registered to sell EIAs