Author Archive

Beware…of Inforce Illustration System Error

September 23rd, 2020 No comments

Categories: Beware Series Tags:

Beware…Of Group and Association Term Insurance

September 21st, 2020 No comments

Categories: Beware Series Tags:

The Most Important Thing to Understand Regarding Premium Financing: Are the Numbers Real? By Bill Boersma

September 16th, 2020 No comments

Given the number of premium financing cases that I review, in force and proposed, I’ve seen much of what’s out there and have a good grasp of the level of understanding in the consumer market. There’s one overriding commonality I see again and again, and until this is taken care of, there will continue to be problems: Are the numbers customers see real?

As I’ve written before, I’m not against premium financing. If I was, I wouldn’t have a mortgage on my house. I don’t pay off a 3% mortgage because I’m confident that I can do better over time in the market or invest that money back into my company, other real estate or whatever I believe I can invest in at better than 3%. Returns elsewhere that are better than my mortgage rate effectively discount the cost of the house.

The Appeal

Isn’t this often the communicated appeal of premium finance? If I can borrow at 1-year LIBOR plus 150 basis points today, let’s say that’s 2%, and I can make 5%, 6%, 7% or higher in a life insurance policy, why wouldn’t I if I’m shown that the spread will grow cash value to the point it can pay back the loan and I have significantly discounted, or even free, life insurance?

That would be great… if only it was true. Now wait a minute Bill, I can hear you saying, you’re not going to say that the gazillions of dollars of premium financed business aren’t real, are you? Well, kind of. Of the gazillions in premium financed business, some percentage is legitimate but I’ll suggest bazillions aren’t. (Sorry for the technical terms. I’ve defined them at the end of this piece.) How can I say that, you ask? Because I’ve seen the misrepresentation first hand.

This isn’t about the realism of the AG 49 regulations or the future performance of the stock market or legitimacy of proprietary indexes or performance of more realistic sequencing of returns or the efficacy of indexed loans or numerous other things we can argue about regarding modern life insurance and the financing of premiums. No, this is about something very simple… are the numbers consumers see real?

What Rates are Real?

This is where we can start getting into the area of Clintontonian parsing of language. Is that 6.2% whole life (WL) dividend rate or indexed universal life (IUL) crediting rate real? It depends on what the definition of “real” is. Is it an actual number that goes into the funnel along with all of the other contract variables? Yes. Does it bear much resemblance to the product coming out the other end? No. At least not in the sense that policy owners understand.

I’ve seen plenty of premium financed cases built around both traditional WL and IUL. In recent examples of each that I have analyzed, the internal rate of return on premium to cash value over 10 years was 0%. Let’s go back to the earlier question; Is the WL dividend rate or IUL crediting rate real? You tell me. If I’m supposedly being credited 6.2% and getting 0%, what’s real? Where’s that 6.2% going? Premium taxes and charges, policy fees, mortality charges, commission, etc. That’s to be expected because that’s how insurance works. A recent IUL case on my desk had $3.5 million of premium in the first decade and $3.7 million of expenses during the same period. That’s bound to put a dent in the returns.

That’s in the early years, so how about later? Over decades, the actual IRR on premium to cash value might be 3%, 4% or 5% based on current dividend rates and reasonable market returns, but we’re still not at the 6.2%. Is that a problem? It depends on how the deal was postured to the policy owner. What I can tell you is that over and over I see a deep misunderstanding on the part of the consumer that’s a result of misrepresentation. The arbitrage these deals are consistently built around is between the gross crediting rate and today’s borrowing rate. Moving into the arena of Trumpian language, there is almost no understanding that this is a fake spread.

It’s not real, people. It’s just not real. There, I said it. The gross WL dividend rate and the illustrated IUL crediting rate that so many consumers buy into, because that’s what they are sold, doesn’t mean much relative to the net rate after all expenses. I’m not saying this is typical of all cases, but one I’m working on right now, based on the actual original sales ledger, that has an IRR on premium to cash value that never exceeds one point something percent. I’m serious! The supposed arbitrage based on the original 6.25% projected crediting rate never even hits, under best case conditions, the borrowing rate. It’s a perpetual negative arbitrage that the client bought into because of how it was sold to him! It didn’t even have anything to do with the opportunity cost of any of his other assets.

What Can You Trust?

But what about the spreadsheets showing is all working out? Ask yourself how well you comprehend those spreadsheets. Do you really understand all the variables built into them? How realistic are the assumptions? Maybe it’s being built on an insurance carrier’s illustration system that’s being outlawed as we speak. Are you familiar with options pricing and how that affects cap rates and where they can go? When do you want to discover that? Maybe it was built off a baloney, nonetheless “real” dividend rate that someone who actually understands the markets, the industry and how life insurance works, would absolutely know is going down. Wouldn’t that be valuable and more so today than down the road after millions are sunk into it?

Let’s review. Does your client have needs and a risk tolerance profile that necessitates consideration of such a plan, or is this something “sophisticated” that rich people do? The advertised rate means almost nothing so your client should never make a decision based on the “arbitrage” or “spread” between the advertised dividend or crediting rate and the borrowing rate because it isn’t real; it’s a fake spread. Seek objective counsel from someone who understands the financial markets, the industry, the products, the programs, what’s driving these deals and who’s paid for advice.

Once again, I’m not saying premium finance is bad or can’t work, and I’m not saying to get out of what’s currently in force. What I’m trying to say clearly is that anyone who’s in a deal or considering a deal absolutely needs to understand what is real and what isn’t real. Is that so crazy an idea? The good news is that this is possible. All that’s needed is some objectivity and a calculator. If they move forward with something that isn’t as real as it’s understood to be, things fall apart, disillusionment prevails and they end up at my door. After I dive in and untangle things and show them what was real from the beginning, they tend to pay attention and get engaged. If only they were that engaged from the outset.

* Gazillion – A lot.
Bazillion – A lot but not quite as much.

Bill Boersma is a CLU, AEP and LIC and the founder and principal of OC Consulting Group. More information can be found at, or email at

Categories: Life Insurance Tags:

Do Life Insurance Dividends and Crediting Rates Mean Anything?

September 8th, 2020 No comments

It’s time to separate fact from fiction.

If I hear another policy owner touting the rate of return he’s getting on his policy cash value, I might scream.

Few policy owners have any idea what they’re talking about. All they’re saying is what the agent told them, and they haven’t even taken out a calculator to check the numbers.

Let’s look at a recently run traditional mutual whole life (WL) policy presented to me. The carrier is a big name and respected company with a

current dividend rate at better than 6%. The internal rate of return on the premium to the cash value at 10 years is negative 3.2%. At 15 years, it’s about 0%. At 25 years, or age 70, it’s 3.5%. It never hit 4%.

Expenses Need to Be Considered

There’s nothing wrong with this, and it’s a perfectly fine policy. However, don’t tell me you’re getting 6% on your cash value because you’re not. That’s not even how WL works. The cash value, let alone your premium, just doesn’t grow at the stated dividend rate. I mean, seriously, where do you think the expenses are paid from? Of course, not everyone thinks this and not every, or even most, agents misrepresent it, but enough do so it needs to be talked about. For full post, click here…

Categories: Life Insurance Tags:

Life Settlements: Doing the Right Thing Is a ‘Sometimes’ Mantra

August 31st, 2020 No comments
Within the life insurance industry, there is vicious infighting with everyone trying to protect their own turf.

There may be few markets more divisive in the life insurance world than the life settlement market. It’s a bit macabre by nature, but that shouldn’t be held against it; all life insurance is. A given individual may not want to go that route, but that shouldn’t matter for others. It might have a small target market; however, when it works, it can be like a grand slam.

Within the life insurance industry, there is vicious infighting with everyone trying to protect their own turf. Some agents believe it’s a great opportunity, with others saying it should be illegal. Some advisors cringe at the concept and others readily refer clients to

trusted players in the market.

This is something I have never been conflicted about. When done for appropriate reasons and aboveboard, I would move forward all day long. I’ve seen life settlements salvage almost unimaginable amounts of money, millions of dollars in single transactions. On smaller deals, getting 50 grand is better than a poke in the eye. But why the controversy? For full post, click here…

Categories: Life Settlements Tags:

Indexed Universal Life: Back Testing and Cap Rates and Averages, Oh My!

July 30th, 2020 No comments

In a recent engagement, an agent trying to convince a client to enter a premium financed indexed universal life (IUL) transaction was touting returns on his own IUL policy over the past decade or so.  I found a number of aspects of this peculiar.  One was that he was touting the average interest rate on his own policy, which has happened to be in force during the longest bull market in U.S. history.  This was supposedly a reason the product was so great and could/might actually outperform the crediting rate of the sales ledger, which I already deem to be too aggressive based on significant objective data.

Another oddity is that he evidently doesn’t understand the difference between an average interest rate and the internal rate of return (IRR), which is the difference between an arithmetic mean and a geometric mean.  The geometric mean will generally be lower, and it’s the number any sensible person would use when evaluating an investment.  As an example, what if you get a 0% rate of return for three years and then a 40% return in the fourth year?  The average rate of return is 10% but the IRR is 8.78%.  It’s respectable but not accurate.  No one would reasonably look at the track record of this product as 10%.

Next, the agent was sharing past rates of return that are higher than currently possible due to falling cap rates.  In an IUL product, the cap rate is the highest crediting rate possible regardless of the actual index return.  On the flip side, there’s a minimum, often 0%.  Therefore the product is postured as having upside potential with downside protection.  This is not untrue but rather misleading without a full discussion of internal policy fees and charges and what’s going on with caps. For full post, click here…

Categories: Life Insurance Tags:

Video: Funding a Buy-Sell Agreement with Life Insurance

July 28th, 2020 No comments

Categories: BlogAnimate, Life Insurance, Videos Tags:

Woes of a Fee-Based Life Insurance Consultant

July 21st, 2020 No comments

Why are policy owners so reluctant to pay for these services?

I’ll admit it.  I get frustrated at times.  I’m a fee-based consultant brought in by attorneys, CPAs, trustees, financial advisors and family offices to review, create, fix and do whatever else is needed regarding life insurance products and concepts.  I’m approached to analyze policies and programs already in force for years or even decades, and sometimes it’s new proposals that I’m retained to opine on.

History Can be a Guide

I’ve been around long enough to say “I told you so” a lot.  When I first started doing “policy audits” 20 years ago, which was already 15 years into declining interest rate markets, most policy owners and their advisors hadn’t seen many, if any, examples of underperforming whole life (WL), universal life (UL) and variable life policies.  Few people understood how modern life insurance worked and how the interest rate markets affected it, so few even looked to monitor, let alone manage, life insurance policies and portfolios. For full post, click here…

Categories: Life Insurance Tags:

Speaking to Clients About Premium Financed IUL Policies

June 16th, 2020 No comments

It’s important to understand the details and risks. This sample letter may help clients and advisors alike.


Dear Ms. Prospect:

It was good to speak with you yesterday morning about the proposed supplemental retirement plan, and I thought I would follow up with a couple of comments. As we discussed, I’m very familiar with indexed products and premium financing. I believe there are appropriate times and places to use the product and strategy, and there are times when it’s not.

Prospective consumers need to fully understand what they’re getting into on both the product and the strategy side. They need to intimately understand the variety of risks. A general rule of thumb is that they should be able to pay the full premium out of pocket but choose to finance it because they’re comfortable with the risks and have the ability to buy themselves out of trouble if trouble shows up (and it does too often). Finally, they need the policy meticulously managed until the day they die.

The proposed product is a newer policy design, and some feel it’s too aggressive. I have access to a tremendous amount of analysis regarding the policy that I’d be happy to share. One reason it’s popular in the premium financing world is because it was created to illustrate very strongly and to win the illustration wars. This doesn’t mean it’ll actually perform successfully. For full post, click here…

Life Insurance in the Coronavirus Era

June 2nd, 2020 No comments

Categories: BlogAnimate Tags: