The Power of 3%

Indexed Life is beginning to take the life insurance industry by storm. The combination of upside potential with the "lock in / reset" mechanism of an indexed product is especially appealing in the volatile economic environment we are in ("lock in / reset" refers to locking in resetting interest every year the index increases and the index when it decreases).

One of the most important features inherent in IUL typically overlooked is the long term minimum guaranteed credited rate. This is rather unfortunate because it is one of the features that really sets IUL apart from other products. These guarantees come in many forms and typically range from 1%–2%. However there is a new product just released that, in addition to a 14% cap, has a 3% lifetime guaranteed credited rate! That is as high as or higher than 70% of the traditional fixed UL products, according to the July 1, 2005 Full Disclosure survey. This product is the Midland National XL^CV and it is the only IUL product that offers a guaranteed crediting rate higher than 2.0%!

Some may say "Why would I sell IUL if there is a potential that credited rates could be as low as 3.0%?" The answer to that question is easy: "That is exactly why you would sell IUL!" The combination of the upside potential, lock in / reset, and long term minimum guarantees make this product unbeatable. And the difference between 2.0% and 3.0% is astronomical.

The Conservative Boomer

Let's say you have a 45 year old client. He is interested in long term death benefit protection as well as maximizing the cash value build-up within a single policy. He doesn't have the financial means to contribute a significant amount to a policy, but he can contribute up to around $14,000 per year and wants a minimum of $1,000,000 death benefit.

He is sold on the indexed life concept being the right tool to accumulate long term cash values and has fallen in love with the non-guaranteed illustrations you've shown him. However, he asks a very dangerous question: "What happens if the policy doesn't perform as illustrated? What happens if we have a long term bear market?"

You can answer this question by showing him a Midland National XL^CV illustration and solve for the premium that endows the contract regardless of the index performance. That would result in an annual deposit of $13,420. So even if the index decreases every single year, the $13,420 annual premium will endow the policy at age 100. You can also show him on a "current basis"—using a realistic illustrated rate—the policy grows to $11,434,639 at age 100. That amounts to a return on his premiums of over 8.0%—tax free!

You've therefore met both of his requirements: 1) sleep at night assurance that the policy won't go away if there is a long term bear market, and 2) maximum cash value accumulation potential.

How does this compare to other IUL products? AmerUs Life's Vision Builder is one of the most successful IUL contracts in the industry today. It has a 12% annual cap and a 2.0% minimum guarantee. Since this product is so hot, you decide to show him that illustration as well. You start out with the same annual premium of $13,420. Using the Vision Builder minimum guarantee of 2%, not only does the policy not endow, but it blows up at age 90. On a "current basis" the policy only grows to $9,215,087 (almost 20% less than the XL^CV).

In fact, it would take an annual contribution of over $15,000 to beat the XL^CV age 100 cash value on a "current basis" and this still won't endow the policy at the minimum guaranteed interest rate—in order to do that, the client would have to pay over $17,000 annually! The chart below summarizes the entire sale.

Not only does the XL^CV require 25% less premium to endow on a guaranteed interest rate basis, it has more upside potential on a current basis than one of the best indexed life products in the market.

Conservative Boomer 1
Age 45
Face $1,000,000
Premium $13,420

Company	Midland National		AmerUs Life
Product	XLCV		Vision Builder
Interest Assumption	Current	Guaranteed	Current	Guaranteed
Age 65 Cash Value	459,425	251,176	388,526	193,900
Age 65 Death Benefit	1,000,000	1,000,000	1,000,000	1,000,000
Age 85 Cash Value	3,144,906	648,984	2,527,084	235,382
Age 85 Death Benefit	3,302,151	1,000,000	2,643,439	1,000,000
Age 100 Cash Value	11,434,639	1,000,014	9,215,087	0
Age 100 Death Benefit	11,434,639	1,000,014	8,215,087	0

Conservative Boomer 2
Age 45
Face $1,000,000
Premium $17,090

Company	Midland National		AmerUs Life
Product	XLCV		Vision Builder
Interest Assumption	Current	Guaranteed	Current	Guaranteed
Age 65 Cash Value	651,886	356,765	583,735	292,240
Age 65 Death Benefit	1,000,000	1,000,000	1,000,000	1,000,000
Age 85 Cash Value	4,428,170	1,119,854	3,848,914	652,850
Age 85 Death Benefit	4,649,578	1,175,846	4,041,360	1,000,000
Age 100 Cash Value	16,045,012	2,226,984	13,973,503	1,000,000
Age 100 Death Benefit	16,045,012	2,226,984	13,973,503	1,000,000

The Conservative Gen X'er

Now you have a 35 year old client and he is interested in supplementing his 401(k) contributions. He knows he can support $10,000 per year for the next 10 years and thinks he should be able to increase deposits by $200 per year between the ages of 45 and 65. He is looking to maximize income ages 65–100 but wants some sort of minimum return on his investment.

You present to him the Midland National XL^CV and discuss the power of indexed life. You focus on the upside potential of IUL and the security provided by the lock in / reset mechanism. You then provide him an illustration showing that the $342,000 of premium deposited for the next 30 years could provide almost $3.9 million of tax-free income between age 65–100 ($110,500 per year). That's close to an 8.25% tax-free return on his deposits!

You also show him the power of the 3% guarantee. Even if the index decreases every single year, for the rest of his life, this particular policy would provide him over $900 thousand of tax-free income ($25,734 per year). That results in over a 3.15% tax-free return on his deposits—even if the index never increases again.

As before, you wish to be diligent and provide a comparison with another IUL with a 2% guarantee. The AmerUs Life Vision Builder is consistently the highest ranking income generating indexed life product, so this is the product you choose. Using the Vision Builder, you can illustrate around $3.7 million of tax free income using current illustrated rates. However on a guaranteed interest rate basis, the policy can only support $14,364 of annual income relative to $25,734 with the XL^CV.

Again the XL^CV not only outperforms on a current interest rate basis but crushes the competition when using guaranteed interest rates. That is the Power of 3%!

Conservative Gen X'er
Premiums through age 65 $342,000

Company	Midland National		AmerUs Life
Product	XLCV		Vision Builder
Interest Assumption	Current	Guaranteed	Current	Guaranteed
Age 65 Cash Value	1,324,059	534,774	1,288,246	454,654
Age 65 Death Benefit	1,615,352	796,631	1,554,180	720,588
Tax Free Income1	110,500	25,734	105,987	14,364
Total Tax Free Income	3,867,500	900,690	3,709,545	502,740

1. Income solved for using withdrawls to basis and fixed loans above basis ages 65–100.