Why You Should NEVER Rely On The Life Insurance Illustration

One of the biggest pet peeves that I have in the life insurance industry is people a buying based on assumptions on illustrations and b life insurance agents relying on illustrations to actually sell a product. Now the reality is illustrations the one of guarantee that happens on both whole life and IULs is the the illustration illustrations are never going to There are all sorts of variables. I have a list of different areas that impact the illustrations impact the actual performance and ultimately I want to explain why all these areas are reasons that you should never rely exactly on the illustration and that you need to understand conceptually why you're doing what you're doing and if you can make sense and if it makes sense to buy it conceptually or sell it conceptually without anybody ever looking at an illustration then and only then should you buy or sell that product. So let me know if you have any questions as you go through this comment in the comment section below if you haven't already subscribe hit the bell that way you're notified every time I launch a new video and I look forward to seeing you in there. What's going on cash flow hackers it's Chris with Life 180 and for this video we are doing what I just told you we are going to go over why you should never rely on illustrations whether you're buying a policy or whether you're selling a policy you should never rely exactly on the illustration and I would I would make a call to action for all of your all the life insurance agents out there who follow this channel who try to learn and who are trying to go out there and sell people life insurance and try to serve people hopefully if you're watching this channel hopefully your mindset is serving adding value into people's lives and you know you do that you're going to sell more policies I think however I think a lot of people lean too much on selling based on an illustration based on the ledger based on uh you know just just um I guess random numbers uh that that ultimately are never really going to come to fruition. Now there are elements uh that I'm going to get into in all this with whole life variances between whole life and you can see back here I have a list of things that I just kind of want to touch on case by case by case and we'll go from there so first and foremost loan rates okay think about it this way with uh with whole life insurance every company can illustrate completely differently I could do uh policies with every major mutual company out there and every company is going to illustrate a little bit differently problem is not all things are created equal meaning when I when I look at an illustration uh one illustration company may look better than another but it only looks better if I never touch it or if it performs a certain way or uh you know and I'm going to get into the dividend rate next on how um that can be misleading um but let's just talk about loan rates for a second you know let's let's take two companies um I'm not going to give specific companies in this let's just take company A and company B if you have one company that maybe outperforms um another by 10% let's just I'm gonna I'm gonna pull this over and I'll do this so you got company A right and then you got company B and so company A is 10% better right the company B is negative 10% but then this is uh performance I'll just write performance and and that is what it is and and so if we have that performance um I should do that performance is 10% better here 10% worse here and that's fine but let's just say the loan rate is let's call it four percent here and uh or actually my bad um is four percent here and maybe five and a half percent here right so not all things are created equal because what happens is when you start to actually leverage the policy you have to really figure out what's best for you how do you plan on utilizing this policy and if you don't understand all the variables it's not not all things are equal because the bottom line is when you look at a policy what I want to do is I want to show I want to show this real quick I want to I want to take time and go through this and use this as an example when we talk about loan rates and the impact right so this is a company I'm not going to show two companies uh against each other in this situation but what I do want to do is show you exactly what I'm talking about so in this situation you got $110,000 that you put in year one you got $101,000 now let's just say this goes down and you can see by the time uh we hit here in year 10 you've put in $200,000 you've contributed $200,000 in premiums year 10 right here $200,000 in premiums and you got $227,000 of value now another policy um may have it so it only shows in in here let's just say policy b I'm going to just make something up let's just say policy b only has $210,000 right of cash value right so if you were to compare the two together well in a bubble in a vacuum it would look like all right this one is better than this one and so for this context this example what I want to talk about is is the loan rate so what if in this policy we're talking about the loan rate is 5.5 percent and the loan rate over here is only four percent in option b in the in the second option right so when we look at this and we compare those two together you know maybe this policy is as good as it uh is better than option b if you were to never touch it but the bottom line is if you're getting policy like this it's not really worth doing unless you're going to touch it so you really have to think about like how's it going to perform all in after how you plan to utilize it so when people ask me Chris what's the best company what's the best policy what's the best policy design my answer is all always sounds evasive it's not meant to be evasive it's always well it depends on how you plan to use it and it depends on what your goals and objectives are and are you designing a policy to fit your goals and your wants and your desires right and so when you break this down I could show and make a really really strong cause uh argument to show that even though this performs a little less good because when you think about like the compounding over time $17,000 over 10 years is not that much but then when you look at the difference in the loan cost that is a significant difference and I'm going to tell you I'm not naming the companies but this is basically um pretty much a real comparison between two different companies to consider and contemplate right so when you look at that you go okay um that's one reason that uh not all illustrations should matter because like it's not apples to apples and you have to really take that into consideration so loan rates is something to consider now gross versus net dividend rates now here's the deal I could take I don't want to go back to that illustration I'm going to just write all over the place here so I could take um one I could take a company that I'll take company A for dividend rates and I could take uh here I got to just write this a little differently I could take company A um I'll take company A and I'll take company B right for dividend rates and and company A might have a six percent dividend rate and company B might have a five percent dividend rate right so naturally a lot of agents are selling on the idea of like hey dividends are six percent over here so why would you go with that versus this well what they don't tell you is you know you can't draw blood from a rock you actually have to look at the dividend rates you got to look at the loan rates you got to look at how all the moving parts in the policy are going to affect the end desire and goal for what you're after but here's the deal you have to look at how are dividend rates actually produced how how is the dividend actually not produced how is the dividend rate produced is one thing but how is the dividend um actually paid out that's what really matters right so when you see a company pay out what they do is they have um the profitability of the company so they have a dividend scale this this six percent is not a net number right that's a gross number that meaning meaning that's uh what they say they're gonna pay before expenses and all these different things and let me explain that a little deeper and what i mean because it's a little bit complicated so for instance let's say a company has um i don't know uh just for the sake of it 100 million you know of of uh potential dividend payout right that that's their potential revenue right and i know this is a really small number for most of these companies but i just i want a round number that's big enough but that makes sense that we can work with so if you have 100 million dollars of of revenue that and and maybe they said hey we're going to pay a six percent dividend right so most people would look at that and go oh six percent revenue they're going to pay that six percent dividend so that's six million dollars right but the bottom line is that's not how it works what happens is they go this hundred million and they say okay we're we got a hundred million that we're going to pay six percent but the bottom line is that six percent is a net number after all expenses and and and and costs of running the business right so they can always um take mortality charges and then expenses to run the business i'll just write expenses and and they will subtract those off to get whatever number it is and so yeah will they pay six percent on whatever number that is the answer is yes but the bottom line is these numbers can be changed no matter what so there's not a lot of transparency in what that is and how a company operates from an efficiency perspective is going to have an impact it's not a clear apples to apples and that's why there are some companies one of the companies that i love um once again i'm not going to name it right now because i i keep getting in trouble for naming out companies on on these calls or on these videos um but one of the things that i i love is that they're not playing the game they actually say we're not going to we're not going to call this out what we're going to do is we're going to give you a guarantee you're right they're going to pick a guarantee and they're going to give a good guarantee a really solid guarantee and then they're going to say listen above and beyond that you're partnered with us we're going to pay you a dividend we're going to pay it every year but we're not going to play these games about what dividend rate we're going to declare we're going to absolutely declare a dividend at the end of the year but remember when you look at any of these companies i don't care what it is they don't declare and say yeah we hit our six percent number they declare and say hey we paid out a hundred whatever million or we paid out whatever amount they give an amount of the number of the dividend that they paid out to their policy holders in total right so when you look at it from that perspective you realize the percentage is is kind of a bit smoke and mirrors and so the the thing that i don't like is when people are selling based on these dividend numbers like there's some huge advantage to the other and when you take loan rates into account and then you take in the fact that you know what really matters is the net dividend after all expenses that's what matters but they market the gross dividend and you really have to look at the bigger picture if you're taking that into consideration now the other thing is direct versus non-direct i could look at this illustration unless i know if it's a direct versus non-direct company it really doesn't matter right if this is a direct recognition company what means is as i take a loan from this if i take a loan of let's say because i have a hundred one thousand let's say i have access i want to take an eighty thousand dollar loan right here what a direct recognition says it's going to directly directly recognize this eighty thousand dollar loan right and what does that mean it means it's going to reduce it's going to directly impact the dividend for the equivalent that the loan is out on a non-direct recognition company means it's not going to recognize this loan it's meaning it's not going to have an impact on the dividend which therefore this will grow no matter whether you take loans or not this policy is going to grow however it's going to grow now once again this is based on current assumptions i'm always telling people what you want to do is you want to look at the guarantees right period there's always a guaranteed side and a non-guaranteed side everybody likes to sell on the non-guaranteed side i think the way to do it is look at the guaranteed side because that's i'm a big believer what's the upside what's the downside can i live with the downside this is going to be your worst case scenario and i honestly don't think you're ever going to have to rely on that because these companies have paid a dividend for over 120 years consecutively never missing a year and so obviously this is assuming the guaranteed side is assuming they never paid a dividend above and beyond the guarantee um you know so that said i would say um there's also a lot of good things happening in the economy right now that would lend me to have confidence that the performance of these policies in an increasing interest rate environment are going to get better right i would say that for whole life not for iul however um you know it is what it is like i would say conservatively uh the truth is going to be you know if we looked at year 15 it's 197,000 on the guaranteed which is obviously low 325 here which is which is actually pretty decent the truth is going to be probably more leaning towards this being accurate but there's a chance it could be less and in fact it could actually be higher than this potentially the one thing i know is it won't be that exactly that's the one thing i know 15 years from now this policy even in a whole life policy that are super strong and stable and financial fortresses and they've been financial institutions for 180 years that have been better than any other financial institution in the world i believe all that and that's true and i still will tell you this policy would not have 325,608 dollars at year 15 it may be more it may be a little less but it won't be exactly that now with a non-direct recognition company i'm just saying it's not going to impact the growth with a direct recognition company if you know you're going to actively utilize these policies for loans it will have a negative impact and so you need to understand that that comes into play and so once again that's why just relying on the illustration and relying on the ledger is a mistake and so that then knocks out the whole life conversation now let's get into just iul because i know i got a lot of people that watch both now here's the deal when i look at index universal life and we talk about this is that there are internal charges that are not shown in the ledger of the illustration right like and there there is a charges and expense portion of the illustration right and so if you look at the page right it's going to have a page and you're going to have all the ledger right you're going to have all the ledgers numbers and you'll have the percentage up here that you're based on the assumption or whatever and you'll have all the charges listed out you'll have all the you know all the different charges and iul agents like to tell you that you know this is what makes them more transparent because they tell you what all the charges and the fees are but really what matters is up in the corner there's a little asterisk saying that these charges are not guaranteed right these charges are subject to change at the carrier's will right and so these internal charges will have an impact on the iul now down here i wrote net amount at risk i want to skip ahead because this and i'll come back the net amount at risk here is what matters the most because when you look at the ledger in a whole life policy that's fixed and that's guaranteed and the charges are are balanced out and leveraged out over a longer period of time and they're they're they're level they're even every year with iul it's annual renewable term they iul agents speak out of both sides of their mouth and they say hey you're gonna you're gonna have a net amount at risk which is what your insurance costs are based off are going to shrink but the bottom line is then they go sell you option b which is increasing death benefit so by the time you hit retirement you still have all this insurance and net amount at risk hasn't gone down in fact it's actually probably increased because of the bottom line is you you've got this increasing death benefit so the um the the cash value goes up as the cash value goes up so does the death benefit so what happens is this death benefit goes up but then what happens is when internal charges get increased and that hurts the policy when we have flat years when cap rates get reduced when spread charges get increased when participation rates get reduced right so i'm going to kind of knock this out at the same time here what happens is the cash value goes down but the death benefit still stays right so what happens is you have a net amount at risk that increases and the spread gets bigger and bigger and bigger so what happens then is your goes the charge goes higher and higher and so then as you age as your age goes up your net amount at risk spread is also going up and your annual renewable term costs go up and so this is how in an illustration when we talk about compounding the costs and the fees and all this stuff compounds against you and so you cannot look at any illustration this is what i just wanted to say when you look at a whole life i don't care if you're looking at these three things for whole life or all of the above but especially these three things for iul and you take it into consideration this is the reason you should never look or you should never purchase or sell policy period solely based on the illustration if you cannot explain to your client or if you as a client do not understand this stuff before you buy you're gonna get what you get like and and and i believe i always tell people the reason i love a properly designed whole life insurance policy when done and leveraged properly in your life is because it's the only financial tool in the world that will force you to become who you need to become to get to where you want to be right in your life and so that said this is an educational journey right like don't just buy based on the ledger buy based on the fact that we have all these things going on you're buying for control you're buying for guarantees you're buying for opportunity you're buying to preserve the purchasing power of your capital that's the one thing life insurance companies do better i would look at the guarantee first and say can i live with that can i live with that or maybe find the guarantee find this find the happy medium ground like the you know the the split point you know i got 325 here i got 197 there you know that's 125 000 difference so you know if this were 250 you know and if that's the worst case kind of that i would live with am i comfortable with that i would look at a whole life policy and that's kind of how i would look at it um and if the answer is no then you need to find a company with a better guarantee don't get sucked in to the current assumptions there are some companies that are playing this illustration war even in the whole life game where they look better than they are i know it's sexy i know it's easy to sell but i encourage every agent out there to become who you need to become to actually serve your clients better and understand this stuff so you can actually go out and have a real authentic conversation to help them solve their problems so anyway that is it for this video i hope it makes sense if you have any questions comment in the comment section below if you need anything if you're looking at this if you want a policy overview reach out to my team down in the description there's a link to set up a free clarity call we're happy to help you in any way possible if you're an agent looking to grow in this and you want to learn and you know join an organization that can help you do it reach out there's a link down below and for for people looking to implement a policy in your own life same thing for you so that is it if you're watching this video please give me give me like an emoji just an emoji in the comment because i'm trying to see how many people are watching these videos this long i'm really looking to get some feedback i'm kind of running a test study so if you could just drop an emoji in the comments curious to see what that looks like like a thumbs up or like a star or something fun like that um or maybe a thumbs down if you don't like me i don't know but hopefully there's not too many of those um so anyway that is it hopefully you found value in this have a blessed inspirational day we'll talk soon