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Letters of Explanation: IUL Premium Financing Risk

June 17th, 2019 No comments

Dear Mrs. Client:

Last week I promised you some numbers to put into perspective my thoughts that premium financed Indexed Universal Life isn’t what you think it might be.

The spreadsheet you showed me some time ago assumes an annual loan of $700,000 for 13 years.  This is used to purchase a policy that assumed roughly a 7% annual crediting.  This may sound conservative for an S&P 500 Index return but it isn’t if you understand how Index funds work.  A significant issue is that the dividends aren’t included in the return and historically dividends make up at least a couple hundred basis points of the return and sometime 500 basis points.  There are entire decades where the dividends are greater than 50% of the return of the S&P 500.


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The Bastardization of Premium Financing

June 10th, 2019 No comments

What you see isn’t necessarily what you get.

Wealthy people and business owners have always leveraged money and assumed risk but starting about a decade ago, after the 2008 crash, premium financing has been driven by very low London Interbank Offered Rate (LIBOR) based borrowing rates and aggressive return assumptions on insurance products that are easy to manipulate.

Indexed Universal Life (IUL) made a strong showing marketed by a particularly attractive story, if not altogether accurate.  Upside potential of the stock market without the downside risk sounded great with the memory of 2008 still fresh in minds.  These products can be illustrated at unrealistically high rates while appearing to be modest because few understood how they work.  Abuse is rampant even after the regulatory action of AG 49. For full post, click here…

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