Equity Index Life Insurance Products
- Thread starter Ficklone02
- Start date
I suppose you are going to say that Certificates of Deposits are bad to since you have to pay a penalty if you cash them out early. How dare a company charge you money if you don't hold up to your end of the contract. Sucks that the guy died but that doesn't mean the estate should just get the money back free of charge.
As with all financial products read the fine print and decide if that product fits your financial goals. Probably not a good idea to buy a product with a 15 year surrender policy if you are creeping up there in age.
While jmb might has some valid points, I think he may have lost a lot of us in his delivery.
There are very few issues (this one, and others) that you can speak in such absolutes by lumping together every player in the same boat and end up being correct in the end.
There are very few issues (this one, and others) that you can speak in such absolutes by lumping together every player in the same boat and end up being correct in the end.
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probably true. i am pretty open on most instruments...but with EIA's have a visceral response that is a result of seeing them in action on 'the street', and after we have inspected them with fine detail. Probably a hammer response...but I am passionate about this issue, as it seems the regulators are also.
My apologies to most.
I hesitate to weight in on this but I have a definite opinion of EIAs and have been on the receiving end of an attempt to sell this product. I went through the information and concluded there is no possible way I would want this product for two reasons: liquidity and investment return.
The liquidity concerns are relatively apparent. Most EIAs have surrender charges of 10%+ that decrease over time. This makes early cash-outs very costly. Other investment vehicles with surrender charges are often cheaper. The charges are typically much lower and the surrender charges are usually just on returns rather than the entire value.
As big of a concern from my perspective is the realized return. While it looks good on its face - receive up to x% return of the S&P - it typically will be much less than a direct investment in the index itself due to several factors:
The liquidity concerns are relatively apparent. Most EIAs have surrender charges of 10%+ that decrease over time. This makes early cash-outs very costly. Other investment vehicles with surrender charges are often cheaper. The charges are typically much lower and the surrender charges are usually just on returns rather than the entire value.
As big of a concern from my perspective is the realized return. While it looks good on its face - receive up to x% return of the S&P - it typically will be much less than a direct investment in the index itself due to several factors:
- Account fees - A good index fund will have a management fee of less than 50 basis points (0.50%). An EIA may charge 2 or 3% or more.
- Calculation of returns - An EIA typically suppresses returns by the way it calculates returns. It will cap the return per each measurement period, often annually or monthly. If capped monthly, you could lose the majority of gains. Plus, there is an overall cap typically that could further suppress returns.
- Treatment of dividends - If the EIA does not reinvest dividends in their calculation, you could lose a significant portion of gains of the index.
- Participation rate - you only get the calculated return on the amount of investment that "participates" in the investment. If the participation rate is 80%, you get the calculated return on 80% of your investment, not the entire amount.
Understand. I appreciate your response. As you can see by my earlier response to the poster who suggested that whole life insurance was basically a slam dunk, it caused me to be a bit snarky as well.
Anyway, fixed annuities are regulated by the state insurance commissioners, not the SEC. It is the states that need to get together and proposed new regulations if they are in fact needed. They have a national body to do so via the NAIC. The SEC has enough issues to deal without over extending themselves beyond the areas they lawfully should go.
SEC is getting in the game because of the marketing that claims stock market like returns....etc. & NAIC has been woefully slow in getting this product uniformally regulated across the country.
BTW the whole life post was so off, i decided to let it roll.
Some companies have marketed them that way, but does that make them a securiity? Yes, I agree the NAIC is slow. I'd like to see insurance regulation move to the federal level myself.
I'm curious as to your comment about my whole life insurance comment. You disagreee with my entire point or just a piece of it?
I'm curious as to your comment about my whole life insurance comment. You disagreee with my entire point or just a piece of it?
