Non-Guarantees - Top Risks of Cash Building Life Insurance

So last time we discussed how cash value life insurance almost always looks good on paper, and it doesn't matter what type of product you're buying, but we're exploring the six risks that can make these cash building life insurance policies maybe underperform. And so today we're talking about number five, and that would be non-guarantees. Now there's all types of non-guarantees built into these cash building life insurance policies, and the specific non-guaranteed elements are going to change based on the type of policy that you have. But for this video, I'm really going to focus on three areas where there are non-guarantees. The first area of non-guarantees that you should be concerned about is on your index allocations. Some companies will charge you a fee based on the particular index allocation that you've chosen. And if you've chosen a product or a company that has charges on their index accounts, you should know what those charges are. Not only should you know what those charges are, you should also know if those charges can change. Many of these companies will show you a certain charge, but they reserve the right to increase the charge as the policy matures. And you need to know if a company has the ability to increase that charge, because an increasing charge like that can totally derail your accumulation and your income. Right here, it says the charge is currently 0%, but they can charge you 50 basis points. In other areas here, it says the charge is 1%, but they can charge you 1.5%. So if you're looking at a projection that shows you a 0% charge, it's going to show you a 0% charge forever. But if five years into the policy, they start charging you 50 basis points, well, they've just totally changed the projections of that policy. And it's not going to perform anywhere near what you're seeing on the paper. The second area of non-guarantees that we have to talk about is in loan provisions. We're going to show some loan provisions on the screen here. And you can see that the illustration looks really good because they're showing you a 5% loan charge in all years. And if you have a 5% loan charge in all years, well, then this policy is going to look pretty darn good. But what does it say here? It says that they can increase the loan charge all the way up to 8%. Well, I don't need to tell you that 8% over 5% is a huge discrepancy because that 8% loan charge could almost completely erode the growth on the index itself. In fact, we've seen cases where a loan charge going from just 5% up to 6% can almost cut your income in half. Now, imagine it going from 5% to the contractual guarantee of 8%. And you probably don't have much to speak for. And the illustration you're seeing on paper is wildly overpromising. And that's why loan guarantees are the second risk we need to be keying in on. The last element of these policies that we have to talk about as it relates to non-guarantees are going to be any bonuses that the company may be showing on the contract. So here's an example of a company that shows you a bonus that's being paid out every single year. And yet the company is not contractually obligated to pay you the bonus that they're showing you. It may seem pretty obvious, but that's a huge red flag. If you're working with a company or an agent that's showing you a policy that has a massive bonus that is not guaranteed, you are at a high risk of purchasing a policy that will absolutely underperform its projections. Those are the three types of non-guaranteed elements on the policy that you absolutely need to key in on. That would be index charges, loan rates that can change, and bonuses a company doesn't have to pay but are factored into your illustration. Next time, we're going to take a look at the fourth risk associated with these policies and making them underperform projections. And Brady is going to be handling early loans.