 Insurance companies will not let us illustrate
reality
That was one of the more compelling quotes from the speaker
at a recent meeting I attended. Once I
thought about it, I knew he was right, and I also knew that this was one of the
myriad ways we need to think critically about what we should illustrate rather
than what we can.
So what did the speaker mean by this statement? His first point was that we can only show
interest rate decreases, not increases, when we illustrate life insurance
contracts. While I am not one to promise
the sky as you know, it is pretty clear to everyone that we are in a period of
absolute rock bottom interest rates. There truly is only one way for things to go from here, and it is not a
further reduction (which we could illustrate!), but 180 degrees in the other
direction (which we cannot illustrate).
Of course, if we want to illustrate rates of return that
reflect unsustainable conditions, we are more than welcome to do that. The question is why? The answer? Premium volume. Insurance
companies operate largely on new premium dollars. Great projected rates = new premium
dollars. It's not rocket science. Of course, at the end of the day, who is left
holding the bag? While the insurance
company may suffer a bit when these rates do not hold, the person directly in
the line of fire is your client.
Want some examples? UL in the 80's at double digit rates, VUL 12% in the 90's, and EIUL
today. Want an example from today? A nameless insurance company just announced a
reduction in their max illustrative rate based on economic conditions. OK, I get that things change, but I am pretty
sure the max illustrative rate was based on unsustainable assumptions, and that
this reduction was a foregone conclusion. I'll even go out on a limb and say that there will be more in the future
from this same company.
Back to the bit about current interest rates and our
inability to illustrate increases. Am I
the only one who thinks that the possibility of crediting rates increasing to approach
historical averages would impact recommendations we make and the corresponding
buying decisions? I am confident I am
not alone in thinking this way.
Bottom line? There
are multiple parties to any life insurance contract, and their individual
motivation is not always aligned. I say
we do business with the carriers, producers and BGA's who line up with what we
know to be in our client's best interest.
What do you say?
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