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Unveiling Universal Life Insurance Risks and Solutions

Understand and avoid the risks associated with Universal Life insurance. Learn about common pitfalls, compliance issues, and investment dangers. Gain insights to safeguard your financial future.

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Unveiling Universal Life Insurance Risks and Solutions

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  1. The Risks Associated with “Universal Life” And……How to avoid them!!!! James Britton CFP

  2. Consider the way they sell cars

  3. Or this….

  4. Marketing Universal Life

  5. Marketing Universal Life CCRA

  6. Marketing Universal Life • Risks!!! • Compliance!!! • Lawsuits!!!

  7. Risks: • How was it Sold? • Why Was It Sold Improperly? • What’s the Solution?

  8. 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)

  9. How was it Sold? • Illustration “War” sells an exciting story • Tax Free Cash Accumulation • Tax Free Income • Attracted Financial Planners to Life Insurance

  10. MTAR

  11. The Illustration At 8% Linear Growth the Account Value is always less than the MTAR….

  12. MTAR Risk • Why was it Sold Improperly?

  13. Why was it sold Improperly? • Competing for market share • Did not understand the • Investment Risk • Did not understand the Tax Risk

  14. MTAR Risk

  15. The Illustration $1,250,000 in taxes in 30 years 1 15 30 $630,000 Original Estate Value

  16. The Illustration 1 15 30 $630,000 Original Estate Value

  17. The Illustration 1 15 30 $1,750,000 Original Estate Value

  18. The Illustration $65,000 in taxes in year 30 1 15 30 $1,750,000 Original Estate Value

  19. Why is this education important? • Lawsuits!! • E & O Claims • Class Action Suits • Public Image & Reputation

  20. The Solution • KYC • Investment Objectives • Risk Tolerance

  21. MTAR Smoothing Features • AIG • Maritime Life/ Manu • National

  22. Risk #2 – Increase and Reversals?? • Minimized • Fund Builder • Optimized • Calibrator • Wealth Enhanced • Accumulator

  23. So Why is it Sold This Way? • To accommodate the • “Illustration War” • Lack of knowledge of the Risk

  24. So Why is it Sold This Way? Account Value MTAR of “Minimized Policy” Regulation 306 Prohibits more than an 8% Increase.

  25. 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……….

  26. 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

  27. The 250% Rule Year 10 $25,000 CSV Year 7 $10,000 CSV

  28. Year 10 $45,000 = 20,000 in CSV and 25,000 inheritance The 250% Rule Year 7 $10,000 CSV

  29. Year 11 $25,000 The 250% Rule Year 8 $14,000 CSV Year 7 $10,000 CSV Year 10 $8,000

  30. Year 11 $25,000 The 250% Rule Year 10$20,000 Year 7 $14,000 CSV Year 8 $10,000 CSV

  31. Risk #4 – MER’s • Are they guaranteed • Do they include IIT

  32. Risk #4 – 90%/110% TSE 300

  33. S&P 500 Results

  34. Risk #5 – Net Returns • Index or Managed Funds???? • Value or Growth????

  35. Do Investment Styles Truly Perform Differently? Last four years: S&P/Barra Value - S&P/Barra Growth Deviation from the S&P 500 S&P500

  36. 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

  37. The Risks Associated with “Universal Life” And……How to avoid them!!!! jbritton@pipfs.com James Britton CFP

  38. Thank You

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