Hello everyone
Steve Parisi here with IBC Global
we've got a guest
and good friend on today
Denzel Rodriguez.
How are you doing my friend?
[DENZEL RODRIGUEZ] Hello Steve I am blessed
I'm happy to be here again
I'm excited for what we have to share
to our audience today.
[STEVE PARISI] Yeah absolutely.
So I guess to begin
I know before we started this
you had a couple questions on it
not too many questions
because I know you've educated yourself
on the new change
but just kind of what you've been seeing
what you've been hearing
probably from some of your clients
and individuals that work with you
anywhere that you'd like to start
as far as the MEC law
and it can be general.
If you say okay like
what's actually going to change
and what's important to be aware of?
[DENZEL] Well I know with your viewers
they like the meat and potatoes
so we'll go real specific
because that'll be really helpful for them.
What I like to do as an agent
is look at the whole playing field
see what other
the gurus
the experts
the other content creators are saying
on both ends of the spectrum
whole life and IULs
and so the question that pops up for me
more importantly is
I understand what's going on
with the new MEC laws that
the MEC limits are actually increasing
for the same amount of money
that we're putting in
so that's pretty interesting
I think that's beneficial
but one thing that I saw pop up
which was very interesting is
coming from index universal
life insurance agents that
try to incorporate infinite banking
is the guaranteed dividend rate
the guaranteed rate of return
that whole life offers
that 4% with the major mutuals
is there a possibility
or do you think
maybe a percentage amount
the chances of that being harmed
decreased
with these new MEC laws
coming into place?
[STEVE] Good question.
So mainly on the guaranteed rate
will that be impacted?
And if so
how will it be impacted?
Is that kind of what you're
hearing from others
and what they want to know?
Yeah, good question.
I mean that is the big question there
so will guaranteed rates
and guaranteed values change
among whole life products?
The answer is yes
so even with
some of your 4 major mutual carriers
you will see the whole life rates
guaranteed values I should say
decrease
guaranteed rates
not necessarily the values
I'll clarify that in a little bit.
But how insurance companies will function
is the guaranteed rate
on a whole life insurance product today
and since 1980 has been 4%
and people look at that a lot of times
say wow 4%
especially over the past decade
or past 15 years
with a low-interest-rate environment
we've been in
like 4% man
like people see that
and they just say that's great.
But the thing is
and I know you and I have
talked about this all the time
is looking at guaranteed rates
still at 4% today
that is not what I'm ever earning
on a whole life insurance product.
[DENZEL] Correct.
[STEVE] That's the gross rate
that is credited after the company's
insurance expenses
mortality charges
everything that comes with the actual
life insurance product.
So if I have a guaranteed rate of 4%
I may see a net internal rate of return
the actual return
what it's growing by
it's going to depend on my age, health
but it might fall between 2.5%
and 3.25%
say the net return is 3%
my tax-free yield
so I kind of want to set it up with that
just to always provide clarity there
because everybody
not everybody
a lot of times we see individuals see
a guaranteed rate a dividend
and assume that's what they're earning
and it's unfortunate because
all these lack of transparency
in the industry
but look at the net performance
on a policy
provide some clarity there.
So the big question
guaranteed rates will they change?
Yes
you will see guaranteed rates
with whole life products
range from 2% to 3.75%
and this is actually a choice
that insurance carriers will have.
So I've seen from some carriers
they may elect to have some of their products
perhaps at the 3.5% to 3.75% range
some products at 2%
they do not have to just pick one option
and that's it.
But the one requirement is by 2022
the guaranteed rate on products
cannot be any higher than 3.75%.
So questions on that?
So we've got 4%
it is coming down
this is the gross rate too
there's more to it that we can add in
but it is coming down
with whole life products
even with the major mutuals
it will be a range from 2% to 3.75%.
[DENZEL] So with that
if the gross rate
on the guarantees
not the dividends
we're not getting into dividends just yet
but just looking at the guaranteed rate
if that comes down
like you said the gross rate
then the internal rate
would also come down a little bit.
[STEVE] Well most likely yes
and why I say that is
you know why rates
the guarantees come down
and why dividends have trickled down
for a long time now is because
of the interest rate environment
it has been coming down
with the downward pressure.
But with that said
what happens
with whole life insurance products
when you cut a guarantee
and your MEC limit increases
so the other thing is if you take a
a $1,000,000 death benefit
for an age 50 male
today still with the 4% guarantee
a $1,000,000 death benefit
will obtain him almost exactly
a $50,000 MEC limit.
With this new change
say the guarantee is 3%
or 3.5%, whatever
that same $1,000,000 death benefit
may obtain him $80,000 in MEC space.
Now where that's important is
meaning if I'm purchasing a policy
and I still want a $50,000 MEC limit
I might only need a $700,000 death benefit
or $600,000 death benefit.
[DENZEL] I got it.
[STEVE] But what I'm getting at is you will see
base premium dollars
most likely build greater cash values
in this new environment
than they are today
potentially.
It's still you know gray
the information we get
and as we dig into it
just we speak with actuaries and such
but it's still taking time
before we have clarity there.
The point being
is if that base premium
does credit
more money to cash value
what that results in is
well greater guarantees
can do the same thing
that we're doing now
as far as a minimum premium
maximum PUA allocation
the purpose to all of this
because I know I'm getting
into the weeds here...
[DENZEL] No, I like it though.
[STEVE] Sometimes I'm like
Steve you got to stop.
But the purpose is
on the internal rate of return of products
my gut feeling is
we will see them a little bit lower
but at the end of the day
I don't expect to see a huge impact
when you take a maximum
cash value policy
and it's juiced for max cash value.
And another reason why
a lot of times we will hear
kind of what you said in the marketing
hey everything is going south
run, get away from those products.
You know we just looked at
a BOLI product
with a specific carrier
because I don't want to disclose
any information
one of the major mutuals
and we actually got to compare
the old one to the new one.
The new one had a lower guarantee
but when you look at the actual values
I mean I look at it and say like
who cares?
On the cash value.
The death benefit
the old one had a greater death benefit
based off of the purchase payment
they looked at
but that's a move
already we see from the top
the larger dollar size cases
bank-owned life insurance
different case there
I mean larger case there
already made that adjustment
with the new guarantees and such
everything going on
but not much different in the net values
the non-guaranteed are actually stronger
looking at the guarantees though
it's like okay
not a huge difference
how they reprice the products
which makes sense
because they're going to remain competitive
especially the top companies
no matter what
they've dealt with this before
the mortality change that occurred
a little over a year ago
is actually a similar change that occurred
so it's interesting when you look at it
to see okay what's the actual impact
not just all the yelling and the noise
and all that stuff we hear.
[DENZEL] And with that to help the viewers
because I'm sure this type of content
is going to come out
which is buy your whole life now
because it's going to go bad
or get your IUL now
because it's going to change.
What's the dynamic with that?
Because it sounds like
a give and a take
it sounds like they're taking
that guarantee lowering it
but they're also giving us
a higher MEC limit
for the same cost
which allows the individual
to put in more cash
without having to open 2
and 3 and 4 other policies
in that case so it seems like
well if I'm able to put in more cash
than you
even if I'm getting a lower rate
I have this potential
to still come out ahead of you
because I have more cash going in
and that kind of leads us to the design
90/10
80/20
70/30
60/40
50/50
those splits will still be valid
in this new environment
or do you see a little change?
[STEVE] Yeah, good question.
I mean hey I'd love a change
if they let us go lower
some of the big carriers
that cap you out at 10% or 9%
but I have gotten no feedback
as far as any adjustments
on the premium to PUA ratios
so if that stays the same
I mean from a cash accumulation
sales standpoint
or someone interested in cash value
the only difference is
if I'm putting in a $100,000 per year
if I have $87,000
$90,000 in cash value in year 1
in today's environment
based off guarantees
non-guarantees
there's a good chance I'll see
not the same
but almost the exact same thing
in the new environment
because with the cash value
the death benefit will be lower
in the new environment
so the overall internal expenses
will be a bit lower too
which will help offset
that lower guarantee.
So the main thing is
in all sophisticated investors
business owners
banks
the one we're working with right now
don't really care about the gross rate
they don't.
It's hey what's the net?
Like pull out all the fluff
and just show me
what it's actually growing by
and then
I can look at how I can use it
to complement my other strategies
if it's velocity banking
and paying off debt
if it's investing in real estate
whatever it might be.
[DENZEL] Now the people who
already have their policies in place
designed for the banking concept
does their rate
that gross rate stays the same
or does it also change
with the new laws coming in?
[STEVE] Good question.
So if you have a product
that's already enforced
there will be no change to that
you will have the opportunity to change it
if the new contract language is better.
[DENZEL] Interesting.
[STEVE] It is
and that kind of addresses your...
[DENZEL] Are you referring to a 1035 exchange?
[STEVE] No actually.
Good question.
It's an internal update
that kind of addresses
your last question
which I didn't thoroughly answer
I'm sorry
which is hey buy now
because things are going
to stink afterwards
because the updates
it's not going to be good
get in now
the fire sale
you know rush that we see
in so many industries.
You know I wouldn't rush in necessarily
let's say we get in now
but let's say we were hesitant
because we've heard it might be better
with the new change
is if I buy a product today
based off of today's contract language
and then the change occurs
companies will most likely
a lot have already said they would
they did this with the last
mortality table update
you're given the opportunity
as a policyholder to say hey
I like the new contract language
guaranteed and or non-guaranteed better
so what I'd like to do is update
or upgrade
whatever word that we want to use
my policy that was issued in
2020, 2021, 2015
to the new contract language
limits and laws that exist now
a lot of times companies will do that
in fact for policyholders
that purchase policies
in the early 80s
prior to the MEC law
they're still given the opportunity
to update their contract
to the new language
to comply with the MEC laws
and given some upside benefit.
So I've always seen that
some companies
have already come out and said
we are going to do that
so I mean
the nice thing about that is
you don't have to feel like
you've got this ultimate pressure
to get in now
because you might miss out
yeah it's not the case
you know it's good to see everything
it's our money we're paying into a product
make sure that
we've got enough information
to make an informed decision
and we don't have buyer's remorse.
[DENZEL] Yeah I think that's very important
for people that are brand new to the space
you're already fell in love with
become your own banker
Nelson Nash
you're looking at the concept
you're doing your homework
please don't feel rushed
to start your policy.
I would start it when you have the capital
when you have the knowledge
when you're confident
you're ready to
and you found that agent
that you like and trust because
even in the past
not just 2020 and 2021
with the new MEC laws
when I look at older life insurance videos
I would see like Penn Mutual videos
of a guy saying
oh you got to get the policy now
because Penn mMtual's making a change
and all the policies moving forward
they're not going to be as good
as the old ones
so it kind of gets you a little anxious
to feel oh man I'm missing out.
But if the product is actually good
if the service is good
then it should be good
in any environment
it should serve us
no matter what the economy says.
And then the flip side is
what happens when
interest rates go up?
Do those rates change again?
Would you say just to closeout
kind of like a final question here.
[STEVE] Good question.
I mean they certainly could
I mean no one really expected
this change to happen
it kind of got snuck in there
at the end of 2020
it was like the end of December
and I heard about it in early January
I'm like, what?
But I mean who knows?
Because right now
things are definitely more chaotic
and the uncertainty
and panic going on right now
than they've ever been
the last time this change occurred
with the MEC limitations
was back in the 1980s
so I mean that's you know...
[DENZEL] A long time 40 years.
[STEVE] Yeah, it's a long time.
[DENZEL] 40 years.
[STEVE] So could it happen?
Yeah absolutely
I mean this is definitely
the most frequent I've seen
2 changes occur
somewhat major scale changes
in a short period of time.
I mean 2020 January 1st
all companies had to comply with the
updated mortality tables
the 2017 CSO tables
which repriced everything
guaranteed values were stronger
MEC limits were lower on products
so you had pros and cons there
and again that was when you heard
hey get in now
based off the old mortality tables
and when I really looked at it
like there's no real difference
there's slight difference in guarantees
but if you're purchasing it
for maximum cash value
going back to exactly
what you touched on before as far as
the splits 10/90
premium
PUAs
design
it doesn't make a huge difference
like we hadn't seen that
so with this new change
will we see a huge difference?
I mean probably not
and again I don't want to
shoot myself in the foot
because I don't have all of the data
we've gotten some information
like what we shared
with the guaranteed rates
the MEC limits today
but to answer your question
could it change?
It could.
Will it?
I would guess probably not for a while
but at the same time
who knows anymore?
[DENZEL] Awesome.
Well that's it
that was my final question there
I want to value your time
I know you have to go in a minute here
but this has been really nice
tight
straight to the point.
For those who are watching
keep continuing to do your research
and homework
don't feel like it's the end of the world
if I don't get the policy now
or maybe I should wait
like do it when you are absolutely ready to go
you've got the cash to fund it.
What you really should be paying
more attention to
is the design of the policy
the company and the policy design
how is that being structure
because with all these new changes
if you don't have an agent
that understands how to design it
well you're not in a better place.
So that's where I would leave you with.
[STEVE] Yeah right on I fully agree.
Thanks so much for that summary
and your time as well
I appreciate you as always
you're coming on it's always fun
a pleasure talking through these topics with you.
[DENZEL] Awesome.
Well thank you Steve.
I appreciate it.
[STEVE] Certainly, likewise.
Thank you and we'll talk to you soon.
Everyone enjoy and
feel free to reach out to Denzel
or our company
anytime on the links below.
[DENZEL] Bye now.
Hey guys Steve Parisi here
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