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. Nationwide IUL Web Ex Series Advanced IUL: Part 3 Common Misperceptions of IUL 1For Insurance professional use only.

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Presentation on theme: ". Nationwide IUL Web Ex Series Advanced IUL: Part 3 Common Misperceptions of IUL 1For Insurance professional use only."— Presentation transcript:

1 . Nationwide IUL Web Ex Series Advanced IUL: Part 3 Common Misperceptions of IUL 1For Insurance professional use only

2 Disclosure Life Insurance issued by Nationwide Life Insurance Company and/or Nationwide Life and Annuity Insurance Company. Guarantees are subject to the claims paying ability of Nationwide. As your clients' personal situations change (i.e., marriage, birth of a child or job promotion), so will their life insurance needs. Care should be taken to ensure this product is suitable for their long-term life insurance needs. They should weigh any associated costs before making a purchase. Life insurance has fees and charges associated with it that include costs of insurance that vary with such characteristics of the insured as gender, health and age, and has additional charges for riders that customize a policy to fit their individual needs. Riders may be known by different names in different states, may not be available in every state and have an additional charge associated with them. Indexed universal life insurance policies are not stock market investments, do not directly participate in any stock or equity investments, do not receive dividend or capital gains participation. Past index performance of an index is no indication of future crediting rates. Not a deposit Not FDIC or NCUSIF insured Not guaranteed by the institution. Not insured by any federal government agency May lose value © 2012 Nationwide Financial Services, Inc. All rights reserved 2 For Insurance Professional Use Only - Not for distribution with the public FLM-0811AO

3 Nationwide YourLife ® Indexed UL 3 3 S & P 500® is a trademark of Standard & Poor's and has been licensed for use by Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company. Nationwide YourLife® Indexed UL is not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's makes no representation regarding the advisability of investing in the Product. NASDAQ ®, OMX ®, NASDAQ OMX ®, NASDAQ-100 ®, and NASDAQ-100 Index ® are registered trademarks of The NASDAQ OMX Group, Inc. (which with its affiliates is referred to as the "Corporations") and are licensed for use by Nationwide Life Insurance Company or Nationwide Life and Annuity Insurance Company. Nationwide YourLife® Indexed UL has not been passed on by the Corporations as to their legality or suitability. Nationwide YourLife® Indexed UL is not issued, endorsed, sold, or promoted by the Corporations. The Corporations make no warranties and bear no liability with respect to the product. The "Dow Jones Industrial Average SM " is a product of Dow Jones Indexes, the marketing name and a licensed trademark of CME Group Index Services LLC ("CME"), and has been licensed for use. "Dow Jones®", "Dow Jones Industrial Average SM " and "Dow Jones Indexes" are service marks of Dow Jones Trademark Holdings, LLC ("Dow Jones") and have been licensed for use for certain purposes by Nationwide Life Insurance Company or Nationwide Life and Annuity Insurance Company. Nationwide YourLife® Indexed UL based on the Dow Jones Industrial Average SM is not sponsored, endorsed, sold or promoted by CME Indexes, Dow Jones or their respective affiliates, and CME Indexes, Dow Jones and their respective affiliates make no representation regarding the advisability of trading in such product(s). For Insurance Professional Use Only - Not for distribution with the public FLM-0811AO

4 All competitive information is believed to be current as of January 2013 for NLG; June 2013 for IUL. Information was compiled from the latest company software. American General WinFlex Rev ; Prudential 43.00; Hartford ; AVIVA ; Penn Mutual Web Illustrator 1/8/13; Lincoln 16.0; Pacific Life ; John Hancock 9.0.1; and ING All information presented is reliable as at the date of comparison and Nationwide has made every effort to make sure it is reliable; however, it's possible that there are differences between the products compared which are not reflected and/or of which we are unaware. For this reason, its completeness and accuracy cannot be guaranteed. These are mere hypothetical scenarios and not intended to represent any specific client or situation. IMPORTANT BENCHMARKING INFORMATION

5 Agenda IUL Hedging and what can cause companies to reduce Cap rates? What to look for when you see high Cap rates? Annual Point to Point example Nationwide’s YourLife ® Indexed UL Description & Benchmarking Examples Monthly Averaging is different from Monthly Cap Guaranteed Floor compared to Cumulative Guarantee Pro Rata Crediting compared to End Point Crediting (Impact on Distributions) Illustrating IUL’s Understanding IUL Statements Variable Loans Nationwide’s YourLife ® IUL Strengths 5For Insurance professional use only

6 What occurs in IUL Hedging Transaction? 6For Insurance professional use only Net Premium $1,000 $ General Account General Account Accumulates to $1,000 This supports Guaranteed Floor $50.00 Cost of Options This represents potential growth and will only pay up to the Cap Hypothetical Example: Allocate: 100% to 1 year Indexed Interest Strategy Account 0% Guaranteed Floor; 12% Cap; S&P 500 ® Investment Bank gives Quote – for the cost of 12% Cap & 0% Floor: 5% Gross Premium $1,100 Gross Premium $1,100

7 When could IUL Cap rates be reduced? What could cause a company to lower Cap Rates? Insurance Companies’ Budget – Earnings impacted by General Account Investments Cost of Hedge (the Price of Options) – Impacted by the Markets Hypothetical Example 7 For Insurance professional use only Earnings for Hedge Budget 5% 5% 4% 5% Hedge Cost 5% 5% 6% Cap Rate 12% Cap lowered

8 What to look for when you see high Cap rates When You see High Cap rates (14% or higher) including No Cap rate (un-capped), you may find: Participation Rate less than 100% Bond included in Underlying Index Blend Segment Maturity of more than 1 year Spread (percentage subtracted from credit applied) Daily Averaging or Monthly Averaging Crediting Method Segment Charge for the Crediting Method Higher base policy charges 8For Insurance professional use only

9 Common Misperceptions in IUL 9For Insurance professional use only Perception True/False Comment Insurance company keeps index credit that is above Cap rate? For example: Underlying Index grew by 15% and Cap rate of 12% FalseInsurance company would purchase package of options to match the 12% Cap and therefore not receive anything above the 12%. The base policy charge structure could be as impactful as indexed interest strategy selected TrueDo not forget to review the competitiveness of the base policy charges of the IUL product Dividends are included in tracking the performance of the underlying index False Since the insurance company is not purchasing stocks of the index(s), they are not receiving dividends. A company could do this, but the cost of these options would likely be more impacting Cap rates

10 Example: Spouses with Policy Issued 1 Month Apart Hypothetical Example Annual Point to Point: Wife’s policy issued September: Index Credited 12% at maturity Husband’s policy issued October: Index Credited 0% at maturity Assumptions: S&P 500 ®, 12% Cap Rate, 0% Guaranteed Floor 10For Insurance professional use only

11 Nationwide’s YourLife ® IUL 11For Insurance professional use only

12 Comparing IUL’s: Solving for Premium at 6% 12 For Insurance professional use only CompanyPremiumTarget PremiumRolling TP’s John Hancock-Protection IUL$9,637$9,390 No Nationwide – YourLife Indexed UL$10,571$21,788 Yes Axa-Athena Indexed UL II$11,100$20,130 Yes Prudential-Index Advantage UL$11,351$10,880 Yes Hartford-Frontier Indexed UL$11,586$20,800 Yes Pacific Life-Indexed Accumulator 4$11,866$23,900 Yes Lincoln-LifeReserve IUL Protector$11,957$14,800 Yes ING-Indexed UL-Global Choice$12,387$22,080 Yes Aviva-Advantage Builder IV$12,473$10,037 Yes Penn Mutual-Accumulation Builder II IUL$12,596$19,551 Yes Scenario: Male, 50, NTP, $1 million Face amount, Solve to Endow Premium age 120

13 Comparing IUL’s: Solving for Premium at 6% 13 For Insurance professional use only CompanyPremiumTarget PremiumRolling TP’s John Hancock-Protection IUL$19,630$21,450 No Nationwide-You’re Life Indexed UL$21,151$32,288 Yes Hartford-Frontier Indexed UL$21,671$34,500 Yes Axa-Athena Indexed UL II$22,364$37,560 Yes Lincoln-LifeReserve Indexed UL Protector$23,497$28,300 Yes Pacific Life-Indexed Accumulator 4$22,622$38,990 Yes ING-Indexed UL-Global Choice$23,609$32,160 Yes Prudential-Index Advantage UL$23,712$23,460 Yes Aviva-Advantage Builder IV23,942$20,555 Yes Penn Mutual-Accumulation Builder II IUL$24,889$35,200 Yes Scenario: Male, 60, NT, $1 million Face amount, Solve to Endow Premium age 120

14 Monthly Averaging is Different from Monthly Cap Monthly Averaging : each month the changes of the index(s) are recorded. At the end of the segment period the average of these values (added together & divided by 12) are compared to initial value to determine the rate credited subject to the annual Cap and Participation rates. Monthly Cap (Monthly Point-to-Point): each month the percentage change of the index(s) from the prior month are recorded. The percentage changes are subject to the Cap and Participation rate which is applied monthly. At the end of the year these values are added together to determine the credit. Note: Nationwide offers Monthly Averaging Indexed Interest Strategy, not Monthly Caps 14For Insurance professional use only Crediting MethodComment Monthly Averaging Monthly Averaging is likely to have higher utilization and recognition from advisors than the Monthly Cap. Monthly Cap Expect to see lower Cap rates with Monthly Caps - - such as 3%-4% when compared to Monthly Averaging Cap rates.

15 Cumulative Guarantee vs. Guaranteed Floor They are Not the Same Guaranteed Floor Minimum amount credited at each Segment Maturity Usually 0%. Could be: 0.75%, 1% or 2% Cumulative Guarantee (aka: “True Up” on Surrender or Alternate Policy Value) Minimum amount credited upon Death, Surrender or Policy Maturity Does Not apply credit at Segment Maturity Cumulative Guarantee could be 1%, 2%, 3% Please note: Cumulative Guarantees also have a Guaranteed Floor (usually 0%) Example: Underlying Index Growth 0% at Segment Maturity 15For Insurance professional use only TypePercent Applied at Segment Maturity Guaranteed Floor 1%1% Cumulative Guarantee 3%0%

16 Impact of Distributions on Crediting End Point Crediting : Index credit is applied to any remaining value in indexed interest strategy account(s) at segment maturity Pro Rata Crediting : May apply some index credit at segment maturity on amounts distributed (loans/withdrawals) prior to segment maturity Note: Nationwide utilizes End Point Crediting method 16For Insurance professional use only Still Receive Index Interest Credit if take distribution prior to segment maturity? New Premium Restrictions or Matured Segment Premium Restrictions if take unscheduled distribution? End Point Yes, however only receive credit applied to values remaining in segment at maturity No Pro Rata Yes, may also receive some index credit based on the length of time the money was allocated to indexed interest strategy prior to distribution Yes, some companies may have “Lock Out Period” which prohibits new premium from being allocated to that Indexed Interest Strategy for 1 year

17 Illustrating Indexed UL Illustrating IUL’s Companies assume Various Default Illustrated Rates Companies assume Various Look back Periods to determine Default Rate What rate should you use to illustrate IUL? Company’s Default Rate, or Flat rate: 6%, or 7% 17For Insurance professional use only TermDescriptionUsuallySometimes Default RateRate company uses to hypothetically project values in illustration 6% - 8%4.60% 10% Look Back PeriodNumber of preceding years used in formula to determine the default rate 20 – 30 yrs10 yrs 28 yrs 40 yrs

18 Common Misperceptions of IUL 18For Insurance professional use only PerceptionTrue/FalseComment A client can transfer indexed segment values in the middle of the segment term FalseYou can only transfer monies out of a segment once it has matured. Participation rates applied before Cap rates are the same as a Participation Rate applied after the Cap Rate FalseUsually you will find that the Participation rates are applied before the Cap Rate All Point to Point Crediting Methods exclusively measure 2 points in time FalseSome include in their formula an averaging out the final year (such as average out 5 th year) A guaranteed Cap rate could be as low as 0% TrueThis is unusual, usually guaranteed Cap rates are between 2% - 4% NLG Riders on IUL products can have allocation requirements* in order to be eligible for the guarantee TrueWith some companies this means allocating more to the Fixed account. And, with other companies it means allocating more to the Indexed Interest Strategy Account *For Nationwide, the allocations must be 100% to the Indexed Interest Strategy Account(s) when selecting our optional Extended Death Benefit Guarantee Rider

19 Understanding IUL Statements Reflecting Index Credit on Statement Most companies do Not reflect credit applied to Indexed Interest Strategy for that year in the Annual Statement A few companies send out Monthly Confirmation Statements (including Nationwide) Example: January 4, 2013 Policy Issued January 15, 2013 Monies Swept from Fixed Account into Indexed Interest Strategy January 3, 2014 Statement Reporting Period 365 days (1/4/13 – 1/3/14) January 4, 2014 Statement Automatically Generated (but Indexed Interest Strategy hasn’t matured yet) January 15, 2014 Index Interest Strategy Segment Matures (too late for statement) 19For Insurance professional use only

20 Variable Loans Variable Loans: Also known as Participating or Alternative Loans When loaned values continue to participate in the growth potential of underlying index(s) instead of being transferred to a separate loan account. Nationwide offers Alternative Loans with a current loan interest rate of 4.22% subject to a maximum charge capped at 8%. See advisor guide for details. Note: Intended for clients with appropriate capital and risk tolerance. Utilizing variable loans can result in earning a lower interest rate credited to the accumulated value than the rate charged on the loan balance. For example: if have $1,000,000 loan value and a 0% return in the underlying index(s) and 5% variable loan charge then: $50,000 is the amount the loan has grown by based on the 5% charged rate. 20For Insurance professional use only

21 Variable Loan compared to “Fixed” Loan Example Loan Spread Example: Nationwide offers Alternative Loans (Variable) & Declared Loans (Fixed) 21For Insurance professional use only

22 Nationwide’s YourLife ® Indexed UL 22 Product Highlights For Insurance professional use only Low Cost Premium Solves Accumulation & Income (Insurance Based Retirement Planning) Optional Extended Death Benefit Guarantee Rider (EDBG) - Premium Based guarantees for EDBG (not shadow account) - Unlimited interest free catch up* Policy Management Program - Automated Premium Monitor; Automated Income Monitor Indemnity Long Term Care Rider (IRC Sec 7702b type) *Note: this applies to premium patterns paid beyond the first 10 years of the policy

23 What we will cover next time 23 Advanced Applications of IUL (Part 4) July 23 rd, 2013; 2:00 p.m. Eastern Sales Applications Premium Financing IUL and Executive Bonus IUL and Estate Planning with NLG Rider (EDBG rider) Illustrating Variable Loans For Insurance professional use only


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