There hasn’t been anything new in the IUL (Indexed Universal Life) space in a while so when I saw that Pac Life released their NEW IUL, I thought a product review was in order.
Three Different Illustration Options
What’s new about the just-released product? There are three different illustration options.
1) High cash value
2) Sort of high cash value
3) No high cash value
High Cash Value (HCV) policies are typically used in two situations:
1) Bank on Yourself/Infinite Banking (one of my least favorite sales concepts and one that Mass Mutual recently disavowed). To download the Mass Mutual 3-page memo stating that NO agent will be allowed to sell their policies in a BYOB sales concept, click on the following:
https://advisorshare.com/mass-mutual-byob
2) Premium Financed Life (this helps with collateral requirements and lessens the burden if the client needs to get out of the structure early).
What’s the problem with HCV? An HVC rider adds expenses to the policy and reduces the amount of tax-free borrowing in retirement.
5- and 2-Year Point-to-Point Crediting Method
Cap Minimums—the cap is not guaranteed and can drop down to 10%.
Pac offers a 5-year pt-to-pt crediting bucket on the S&P 500 and it comes with a guaranteed 105% participation rate (no cap) on the S&P 500 with no fee/spread (FYI, the current rate is 110%).
Pac also has 2-year pt-to-pt S&P 500 bucket with a 24% cap (with a 6% min. cap). To me, a 24% cap doesn’t sound very good considering you can get an annual pt-to-pt with a 12% cap.
Even if Pac doesn’t dump the caps, is the higher par rate worth the risk?
Annual Pt-to-Pt Rate of Return Calculator
I built a calculator that allows me to run 1-, 2-, 3-, 4-, and 5-year pt-to-pt crediting methods and I ran the numbers on Pac’s 5-year bucket and the 2-year bucket. See below a historical rate of return comparison to an annual pt-to-pt crediting method using a 100% par rate and a 12% annual cap.
Example starting January 2000 and ending December 2023:
5-year pt-to-pt = 5.06%
2-year pt-to-pt = 5.84%
1-year pt-to-pt = 6.88%
What about the last 10 years ending in 2023?
5-year pt-to-pt = 9.72%
2-year pt-to-pt = 6.77%
1-year pt-to-pt = 7.21%
What’s the conclusion to the above numbers? If you think the market is going to go on a historic bull run, the 5-year bucket might be worth the gamble. The two-year bucket was a loser all the way around. For me, I don’t want any part of a 5- or 2-year pt-to-pt bucket.
To download my 22-slide PowerPoint Presentation that goes over the numbers of using 1-, 2-, or 3-year pt-to-pt crediting methods in FIAs, click on the following link:
https://advisorshare.com/1-2-3-year-pt-to-pt
Pac vs. Roccy’s Favorite IUL
If you wondered how well the new Pac Life policy illustrates, let’s compare it to my favorite IUL product. The following is for a 45-year-old male, preferred, with a $15,000 a year premium until age 65, with max borrowing from 66-90 using the max illustrated rate.
-Roccy’s Favorite IUL = $73,023
-Pac Life (NO HCV) = $57,783
-Pac Life (HCV) = $55,333
Want information on my favorite IUL? Just click on the following link:
www.advisorshare.com/roccys-favorite-iul
The Do Nothing Well IUL?
I’m not sure what Pac Life was thinking when they rolled out this new product.
Does it have more features than other IULs? Sure, it’s got an HCV option, a partial HCV option, a no-HCV option, a 5-year pt-to-pt bucket, and a 2-year pt-to-pt bucket. So, it gives an advisor a lot of options.
But if the end result, no matter what option you use, is projecting borrowing in retirement that lags that of 10+ other products (and lags my favorite product by a wide margin), why would you use this product?
If you have an answer, please let me know.
For me and our “advisor-owned” IMO www.advisorshare.com, we will take a pass on recommending this product to advisors we work with.
