Life Insurance Introduction

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The Risks Associated with Universal Life
AndHow to avoid them!!!! James Britton CFP
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Consider the way they sell cars
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Or this.
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Marketing Universal Life
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Marketing Universal Life
CCRA
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Marketing Universal Life

• Risks!!!

• Compliance!!!

• Lawsuits!!!

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Risks

• How was it Sold?

• Why Was It Sold Improperly?

• Whats the Solution?

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Risk 1 - MTAR

• In its simplest form MTAR is the maximum amount
  of money an insurance policy can hold on a tax
  sheltered basis.
• Values in excess of the MTAR are transferred to a
  side account which is taxed annually.
• Regulation 306 (1),(2),(3) and (4)

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How was it Sold?

• Illustration War sells an exciting
  story

• Tax Free Cash Accumulation

• Tax Free Income

• Attracted Financial Planners to Life Insurance

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MTAR
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The Illustration
At 8 Linear Growth the Account Value is always
less than the MTAR.
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MTAR Risk

• Why was it Sold Improperly?

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Why was it sold Improperly?

• Competing for market share

• Did not understand the
• Investment Risk

• Did not understand the Tax Risk

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MTAR Risk

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The Illustration
1,250,000 in taxes in 30 years
1 15 30
630,000 Original Estate Value
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The Illustration
1 15 30
630,000 Original Estate Value
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The Illustration
1 15 30
1,750,000 Original Estate Value
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The Illustration
65,000 in taxes in year 30
1 15 30
1,750,000 Original Estate Value
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Why is this education important?

• Lawsuits!!

• E O Claims

• Class Action Suits

• Public Image Reputation

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The Solution

• KYC

• Investment Objectives

• Risk Tolerance

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MTAR Smoothing Features

• AIG

• Maritime Life/ Manu

• National

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Risk 2 Increase and Reversals??

• Minimized

• Fund Builder

• Optimized

• Calibrator

• Wealth Enhanced

• Accumulator

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So Why is it Sold This Way?

• To accommodate the
• Illustration War

• Lack of knowledge of the Risk

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So Why is it Sold This Way?
Account Value
MTAR of Minimized Policy
Regulation 306 Prohibits more than an 8 Increase.
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(No Transcript)
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Risk 3 - The 250 Rule

• This rule is to discourage the use of an
  insurance policy from sheltering large sums of
  money from Inheritances, windfalls, etc.

The Anti Dump In Rule.
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The 250 Rule

• Policies can not shelter any more than 250 of
  the cash surrender value 3 years prior.
• It starts in the 10th year and continues every
  year thereafter
• .and I mean every year
  thereafter

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The 250 Rule
Year 10 25,000 CSV
Year 7 10,000 CSV
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The 250 Rule
Year 10 45,000 20,000 in CSV and 25,000
inheritance
Year 7 10,000 CSV
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The 250 Rule
Year 11 25,000
Year 8 14,000 CSV
Year 7 10,000 CSV
Year 10 8,000
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The 250 Rule
Year 11 25,000
Year 1020,000
Year 7 14,000 CSV
Year 8 10,000 CSV
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Risk 4 MERs

• Are they guaranteed
• Do they include IIT

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Risk 4 90/110 TSE 300
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SP 500 Results
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Risk 5 Net Returns

• Index or Managed Funds????
• Value or Growth????

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Do Investment Styles Truly Perform Differently?
Last four years SP/Barra Value - SP/Barra
Growth Deviation from the SP 500
SP500
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Risk 5 Net Returns

• Look at the period 1960 to 1982
• Dow Jones 550 grew to 1050
• Templeton
• 1960 9.10
• 1982 9.28
• 1971 5/1 Stock Split
• 1979 3/1 Stock Split

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The Risks Associated with Universal Life
AndHow to avoid them!!!!
jbritton_at_pipfs.com James Britton CFP
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Thank You