So in this video
we are going to go through
the guaranteed rates
with different life insurance companies
in respect to whole life insurance products
that comply with the new 7702 update.
Now we're also going to touch on
the impact that this will have
on MEC [Modified Endowment Contract] limits
and here's what I will state
since the 1980s
all life insurance companies
in respect to whole life insurance
had a guaranteed rate of 4%
most companies that is
which made it very easy
from a MEC limit standpoint
as the MEC limits would be the same
with almost all of the companies out there
or very similar.
With this new change
and the fact that
companies have the choice
to select a guaranteed rate
between 2% and 3.75%
will result in different MEC limits
with different companies
and different products
so having awareness on this point
is very important
for consumers and agents.
So let's get into it
we're going to start with 3 companies
and where they have selected
their guaranteed rates
to fall on products.
So we will begin with Guardian
1 of the major mutual companies
they have a dividend interest rate
for 2021 of 5.65%.
The guaranteed rate
that they have filed
for all of their whole life insurance products
will be 3%
so what that means
is if I go back
to the guaranteed rate of 4%
if I had a dividend rate of 5.65%
what would that result in
in terms of my surplus being?
If I have a guarantee of 4%
the surplus would be 1.65%
add the 2 together
I'm now at 5.65%.
So the same thing occurs
in respect to the guaranteed rate of 3%
the difference
is I have a higher surplus portion now.
Guaranteed rate only of 3%
plus 2.65% on the surplus
to give you a total
dividend interest rate of 5.65%.
Why that is important to be aware of
is in respect to the non-guaranteed values
this setup actually offers more potential
on the guaranteed values
not as attractive
as the guaranteed rate of 4%.
New York Life
has a 2021 dividend rate of 5.8%
they have filed
all of their whole life insurance products
at a 3% guarantee
so very similar to Guardian
I've got a 3% guarantee
for 2021
this means I have a surplus
crediting rate of 2.8%
the 2 together
give me that 5.8% rate.
MassMutual
has done things a bit differently
so MassMutual has a 6%
total dividend interest rate
now with that said
they have filed
different products
at different guaranteed rates
so this is important to be aware of
as the MEC limits will be adjusted
and we're going to touch on that next.
But for example
their 10-Pay product
they have filed a guaranteed rate
of 2% with that product
now they're 15-Pay product 2.5%
their life paid up at 65
and their 20-Pay
they have filed a 3% guaranteed rate
which is the same
with Guardian and New York Life
with all of their products
and then their legacy 100
and high early cash value products
they filed a 3.75% guarantee
which is not that much different
from the current 4% guarantee.
So those products
could look very attractive
in terms of cash value
and the same premium dollar,
here's what I'll add,
is when you see
a higher guaranteed rate
on a whole life insurance product
the higher the guaranteed rate is
the same premium payment
will purchase you more life insurance
so really how the
company positions this is
if they are attaching
a higher guaranteed rate
to a particular product
that means a $10,000 premium
with an L100
may purchase you
call it $1,000,000 in death benefit
whereas a $10,000 premium
with a 10-Pay
may only purchase you call it
$600,000 in death benefit.
So the guaranteed rate
has a direct relationship
on the death benefit
and purchasing power there.
Now with all that said
most people that we work with say hey
I don't care about the death benefit.
I'm interested in the cash value
how do I maximize that
and what are my
guaranteed cash values look like
based on these rates?
That is a fair question
so the guaranteed values
are still attractive
because the insurance expenses
have come down.
But here's what I want to touch on
the guaranteed rates
and MEC limit impact
this is very important here.
So we've got our cheat sheet
here's what I want to touch on
if we've got an age 40 male
and a product
with the current guaranteed rate of 4%
a guaranteed rate of 3%
and then 2%
2% is as low as they can go
4% would be an old product
that we could still purchase
for the rest of 2021.
If I want a $100,000 MEC limit
the needed death benefit
for an age 40 male will differ.
For example
at a 4% guarantee
I would need
approximately $2,800,000
in total life insurance
to obtain a $100,000 MEC limit.
Now if I am comparing that
to an illustration
perhaps with Guardian
at a 3% guaranteed rate
what you'll find
is if you are a 40-year-old male
and you said
I want to be able to pay in
$100,000 per year
I want the minimum expenses
minimum death benefit
you would only need
for that same $100,000 MEC limit
just north of $2,000,000,
$2,050,000.
Now if we kick
the guaranteed rate down to 2%
what happens here
the death benefits even lower
we've got $1,500,000
it's actually a little bit lower than that
it's closer to $1,400,000 to $1,450,000
I just rounded here.
My point
is for that same 40-year-old male
if I have a product
that carries a guaranteed rate of 2%
I only need a $1,500,000 death benefit
to obtain the same
$100,000 MEC limit.
This is good to be aware of
if you are interested
in a maximum cash value policy
because when it comes to policy design
the premium
and PUA [Paid-up additions] limits
are exactly the same
as they've always been
minimum premium 10%
90% into PUAs
companies have not made
any adjustments there
which is great
but I do want to be aware of
the total death benefit needed
so I can really push down my costs.
Let's look at a couple examples here
so what we're going to look at
is first a product
with a 4% guarantee
this is on a 40-year-old male.
Here's exactly what I want to touch on
so this is a 10/90 split
and let's look at the total death benefit
so here at about $2,900,000
it's a little bit higher
than the $2,800,000
but here's what I want to touch on
from the company's
illustration software
there's my MEC limit
so we are at a $105,000 MEC limit
based on that death benefit
of $2,900,000.
When we set up a policy
for the minimum death benefit
which is what so many people ask for
you may have asked for that
or maybe thinking that
how do we minimize
that death benefit
or what is it based on?
It's based on the total MEC limit.
What has a direct relationship
to the MEC limit
on a life insurance policy
is an individual's age
and total amount
of life insurance
so call it the age
and total death benefit.
I will add however
that gender plays a role as well
so a male versus a female
you'll see different death benefits
equate to different MEC limits.
Point here
this is a product
with the old guaranteed rate of 4%.
Let's look at an example
with a 2% guarantee
so same company
same product
look at your death benefit
$1,500,000
a little bit higher
circle that in
the event it's a little small
at $1,500,000.
Here's what I want to touch on
same age 40 male
which we can see right here
MEC limit $106,000
so a little over-inflated
which means if we wanted a clean
$100,000 MEC limit
I would just pull that
death benefit down a little bit
we're right there though.
Typically when we design policies
to pay in for a long period of time
we're going to over inflate that MEC limit
to prevent a MEC
and that's what we did here.
But my point
is now we've got a product here
with a 2% guarantee
on the same age 40 male
so we had age 40
I neglected to really
highlight that in the first one
so age 40 male
ultra preferred
going back to the last example
age 40 male
ultra preferred
and this is with the
$2,900,000 death benefit
MEC limits are almost identical
with these 2 examples
one's a 4% guarantee
the higher death benefit
the next one
the $106,000 MEC limit
$1,500,000 death benefit
so I need less death benefit
for the same MEC limit.
And then let's look at a 3% guarantee
there we go.
So I had to screenshot this
from the software
because it's not on the full illustration
but what you will find here
age 40 male
you can see that here as well
total death benefit $2,050,000.
I realize that may be small
$2,050,000 on the total death benefit
age and death benefit
have a direct relationship
to the MEC limit
and there we go.
In case that is small
it reads $101,680
so just north of $100,000.
So the interesting piece here
is different death benefits
now exist with different companies
to obtain the needed amount
of MEC space.
So again
if you are designing a policy
or if you're requesting a policy
where you want to cash flow it
up to a $100,000 per year
you can still commit to the minimum
and add more discretion
so I can pay $10,000 only
and then add up
to $100,000 of my discretion
you can still do that
but when we look at this
we need to be aware of
the different companies
and products that exist
so we can make an informed decision.
Where it will really help
if you are in the industry
is when we have those unique situations
where someone is
earning $100,000 per year
but they've got a lump sum
of $1,000,000
and they say hey I want to pay
this $1,000,000 in over 4 years
$250,000 per year into a policy.
Those situations
are sometimes challenging
for the reason that
the maximum death benefit
one can obtain
so if it's an age 30 individual
earning $100,000 per year
and he wants to pay in
$250,000 per year for 4 years
because he's moving
a portion of his lump sum
that he has in cash
perhaps he sold real estate
maybe it was an inheritance
whatever it might be
the important thing to note
is from a life insurance
company's perspective
what they're going to look at
is our income
times call it 30 in this case
which would come out to what?
About $3,000,000
based on the old limitations
that may only get me a MEC limit
of maybe $100,000 at best
where I want to pay in
$250,000 per year
and the company will not approve
a death benefit of this size
based on my income
or I should say a death benefit
that handles a $250,000 MEC limit
so I may need
I'm going to retract
what I just said there
or back up I should say
I might need
$7,000,000 in death benefit
to be able to pay in
$250,000 per year
it'd actually be more than that.
I couldn't do it with the old rules
or it'd be very very difficult
with that 4% guarantee.
With a lower guarantee
the same maximum death benefit
I'm approved for
now obtains me
a greater amount of MEC space
so that gives me an advantage
in that respect.
So I know this is a
decent amount of information.
If you have any questions
please feel free to reach out anytime
and as always
I hope this helps.
Hey guys Steve Parisi here.
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