We do a lot of illustrating to compare various products. We are constantly asked to do an “apples to apples” comparison. But what does that mean? A 7% illustrative rate at every company is not apples to apples. What is the participation rate? What is the cap? How can we get a true “apples to apples” comparison without some crazy quadratic formula? Well, we have discovered the answer…
We have all heard the different answers that carriers will give to make sure that their product sells best. They will talk about how their illustrative rate is a certain percentile and the others are not the same. In your mind, do you believe that there is one life insurance company that understands this transaction better than anyone else? I would argue that in an age where there are rarely true secrets, many of these products will perform the same. One way to differentiate products will be the loan rate. I will discuss that in the coming weeks. The other way to differentiate is based on internal costs. We have spent countless hours dissecting products and have found some interesting flaws.
Due to all of the different illustrative rates out there, we prefer to look at the gross illustrative rate. More specifically we want to look at the Internal Rate of Return on the cash surrender value of the contract. We will compare these numbers from carrier to carrier. This is one way to get a true “apples to apples” comparison. By looking at the CSV-IRR in year ten and again in year twenty, you get an understanding of how premiums are being loaded into the product. You would be surprised to find that the most aggressive illustrative rate is sometimes the worst product, because of the future charges. Let’s do a test. Call us and we will run your illustration and do a comparison with a few other products. Rather than sell the next “hot product,” let’s let the numbers do the talking.