Wealth Advisor Resources

Want to Know Why Many Life Insurance Policies “Fail”?

Michael Brohawn CFP®, CLU®, CAP®
Your Life Insurance Solutions

Sep 2, 2020

Tip #18

Cash value investment projections at policy issues are often too optimistic.

When Ronald Reagan took office in January of 1981, interest rates were sky high. The federal funds rate stood at 19.08%. The life insurance industry came up with a product to take advantage of the high interest rates on fixed investments. The product, current assumption universal life (CAUL) was a hit with consumers. One reason – projected crediting rates on sales illustrations as high as 12%, which made the policy very attractive.

The problem? The rate of return projected was never realized. Policies that were predicted to soar in value lapsed instead.

Variable universal life policies, which could include equity investments, were also sold with 12% returns. Though equity investments have outperformed fixed investment over the years, few VUL policies ever obtained the projected 12% returns leaving policyholders disillusioned.

Today the hot life insurance product is equity index universal life, which can capture a portion of an equity index’s return. It came into the market with agents showing projected returns above 8%. These returns have been limited by regulation and have settled in around 7%, but in The Wealth Advisors Guide to Life Insurance, we show you why even these returns are unlikely to be met.

If you are a policyholder, an advisor to a policyholder, or a trustee tasked with the management of a policy, your cash value rate of return assumption at policy issue should be conservative.

Overly optimistic expectations at policy issue more often than not lead to disappointed policy owners.

Free Book For Wealth Advisors

Michael put the knowledge gained from working with Fiduciaries and Wealth Advisors on thousands of life insurance policies into his first book, The Wealth Advisors Guide to Life Insurance.

An easy to read book, it provides Wealth Advisors with a background in life insurance and outlines the process for the proper selection, use, and management of life insurance.

If you are a Trustee, Attorney, CPA, Family Office or Fee-Based Advisor, Michael is offering you a free copy of the book for a limited time.

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