Transcript Why Nationwide?

Nationwide
IUL Web Ex Series
Advanced IUL: Part 3
Common Misperceptions of IUL
.
For Insurance professional use only
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Disclosure
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Life Insurance issued by Nationwide Life Insurance Company and/or Nationwide Life and Annuity Insurance
Company.
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Guarantees are subject to the claims paying ability of Nationwide.
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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.
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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.
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Not a deposit Not FDIC or NCUSIF insured Not guaranteed by the institution. Not insured by any federal
government agency May lose value
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© 2012 Nationwide Financial Services, Inc. All rights reserved
For Insurance Professional Use Only - Not for distribution with the public
FLM-0811AO
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Nationwide YourLife® Indexed UL
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 AverageSM" 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 AverageSM" 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 AverageSM 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
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IMPORTANT BENCHMARKING
INFORMATION
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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. 122012;
Prudential 43.00; Hartford 12.5.5; AVIVA 2.95.0.55; Penn Mutual Web
Illustrator 1/8/13; Lincoln 16.0; Pacific Life 13.10.4777.24551; John
Hancock 9.0.1; and ING 2012.04.00.00
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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.
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
For Insurance professional use only
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What occurs in IUL Hedging Transaction?
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
General Account
Accumulates to
$1,000
$950.00 General
Account
This supports
Guaranteed Floor
Net Premium
$1,000
$50.00
Cost of
Options
Options
This represents
potential growth
and will only pay
up to the Cap
For Insurance professional use only
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When could IUL Cap rates be reduced?
What could cause a company to lower Cap Rates?
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Insurance Companies’ Budget – Earnings impacted by General
Account Investments
Cost of Hedge (the Price of Options) – Impacted by the Markets
Hypothetical Example
Earnings for
Hedge Budget 5%
Hedge Cost 5%
Cap Rate
12%
• 5%
• 5%
• 12%
• 4%
• 5%
• Cap lowered
• 5%
• 6%
• Cap lowered
For Insurance professional use only
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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
For Insurance professional use only
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Common Misperceptions in IUL
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%
False
Insurance 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
True
Do 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
For Insurance professional use only
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Example: Spouses with Policy Issued 1 Month Apart
Hypothetical Example Annual Point to Point:
•
Wife’s policy issued September:
Index Credited 12% at maturity
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Husband’s policy issued October: Index Credited 0% at maturity
Assumptions: S&P 500®, 12% Cap Rate, 0% Guaranteed Floor
For Insurance professional use only
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Nationwide’s YourLife® IUL
For Insurance professional use only
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Comparing IUL’s: Solving for Premium at 6%
Scenario: Male, 50, NTP, $1 million Face amount,
Solve to Endow Premium age 120
Company
Premium
Target Premium
Rolling 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
Prudential-Index Advantage UL
$11,351
$10,880
Hartford-Frontier Indexed UL
$11,586
$20,800
Pacific Life-Indexed Accumulator 4
$11,866
$23,900
Lincoln-LifeReserve IUL Protector
$11,957
$14,800
ING-Indexed UL-Global Choice
$12,387
$22,080
Aviva-Advantage Builder IV
$12,473
$10,037
Penn Mutual-Accumulation Builder II IUL
$12,596
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
$19,551
For Insurance professional use only
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Comparing IUL’s: Solving for Premium at 6%
Scenario: Male, 60, NT, $1 million Face amount,
Solve to Endow Premium age 120
Company
Premium
Target Premium
Rolling 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
Axa-Athena Indexed UL II
$22,364
$37,560
Lincoln-LifeReserve Indexed UL Protector
Pacific Life-Indexed Accumulator 4
$23,497
$22,622
Yes
Yes
Yes
$28,300
Yes
$38,990
ING-Indexed UL-Global Choice
$23,609
$32,160
Prudential-Index Advantage UL
$23,712
$23,460
Aviva-Advantage Builder IV
23,942
$20,555
Penn Mutual-Accumulation Builder II IUL
$24,889
$35,200
For Insurance professional use only
Yes
Yes
Yes
Yes
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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.
Crediting Method
Comment
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.
Note: Nationwide offers Monthly Averaging Indexed Interest Strategy, not Monthly Caps
For Insurance professional use only
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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
Type
Percent Applied at
Segment Maturity
Guaranteed Floor 1%
1%
Cumulative Guarantee 3%
0%
For Insurance professional use only
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Impact of Distributions on Crediting
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End Point Crediting: Index credit is applied to any remaining value
in indexed interest strategy account(s) at segment maturity
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Pro Rata Crediting: May apply some index credit at segment maturity
on amounts distributed (loans/withdrawals) prior to segment maturity
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
Note: Nationwide utilizes End Point Crediting method
For Insurance professional use only
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Illustrating Indexed UL
Illustrating IUL’s
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Companies assume Various Default Illustrated Rates
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Companies assume Various Look back Periods to determine Default Rate
Term
Description
Usually
Sometimes
Default Rate
Rate company uses to
hypothetically project values
in illustration
6% - 8%
4.60%
10%
Look Back Period
Number of preceding years
used in formula to determine
the default rate
20 – 30 yrs
10 yrs
28 yrs
40 yrs
What rate should you use to illustrate IUL?
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Company’s Default Rate, or
Flat rate: 6%, or 7%
For Insurance professional use only
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Common Misperceptions of IUL
Perception
True/False
Comment
A client can transfer indexed segment
values in the middle of the segment term
False
You 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
False
Usually 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
False
Some include in their formula an
averaging out the final year
(such as average out 5th year)
A guaranteed Cap rate could be as
low as 0%
True
This 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
True
With 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
For Insurance professional use only
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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)
For Insurance professional use only
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Variable Loans
Variable Loans: Also known as Participating or Alternative Loans
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When loaned values continue to participate in the growth
potential of underlying index(s) instead of being transferred
to a separate loan account.
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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.
For Insurance professional use only
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Variable Loan compared to “Fixed” Loan Example
Loan Spread Example:
Nationwide offers Alternative Loans (Variable) & Declared Loans (Fixed)
For Insurance professional use only
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Nationwide’s YourLife® Indexed UL
Product Highlights
• 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
For Insurance professional use only
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What we will cover next time
Advanced Applications of IUL (Part 4)
July 23rd, 2013; 2:00 p.m. Eastern
Sales Applications
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•
•
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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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