Um hiring dumb incompetent people for actuarial roles would likely result in some lawsuits and the company going out of business
So instead of that fsa, maaa signing that report, get dumbass dude, from the society of dumbass dudery?
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Kernel Smoothing is just trolling, but to your point, I wouldn’t want my auto repair shop filled with folks with my level of mechanical aptitude.
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CS is trolling, but he also is indirectly making a great point about some of the products sold today (especially by life insurers). The products are so complicated and confusing (i.e VA, VUL with their various guarantees and ratchets) that I have real concerns about John Q Public being able to understand exactly what is is they ARE purchasing, and AREN’T purchasing. Gone are the very simple days of WL and term. I’m not sure that consumers are actually getting better products (just stuff with more pretty bells and whistles that the marketing folks think will differentiate the company’s products from competitors).
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A lot of that complexity is encouraged by the way regulators want us to reserve for straightforward products like term & whole life. (and also tax policy)
But it also comes from the insurers trying to make sure their products aren’t commoditized (like term & whole life).
okay, so insurers need to hire a dumb guy to sit there and say he doesn’t understand what everyone is talking about until they simplify the product enough for the common dumb guy. I’m not sure that really goes with the title and op where CS is suggesting hiring dumb actuaries.
I suspected as much but in the event he was being serious, I wanted to give a constructive response. But I agree that some companies are coming up with ridiculous plans. We have straightforward group plans, but our international life products are next level…I think especially when you’re targeting high net worth clients you want to sell them on the idea that they’re securing generational wealth using a method no one else has access to…it’s all about luxury and exclusicvity for these millionaires and they’re willing to pay a premium
Yeah life insurance products, wtf is up with that guys. Get your act together 
Other than for nuanced tax reasons I haven’t researched is there any good reason to buy something other than term life?
Personal story time. In 93’ when I was hired by GML in Omaha they were heavily into the personality assessment metrics, all their professional hires had to pass one to get hired (we didn’t get to hire an actuarial programmer because their gestalt score was to low). Everyone had to pass, except me. When I was hired the assistant human resources director had just been hired that week and he didn’t know to test me. I am reasonably creative and not really a traditional kinda guy. A conservative company with very little innovation desperately needed more diversity in their management team. I felt nearly avant garde with my suggestions and I was a management peon. Loved my boss, liked my coworkers, but I could see the company wasn’t going to continue.
Intellectual diversity is important. Actuarial exams, and college degrees create a rough minimum for a type of intellectual ability needed for the profession. The key to good hiring is to balance a diverse set of the other intellectual/personal assets of your people.
Yes, we also are unfairly biased by favoring people who want to work hard. We also need to hire more lazy people.
I don’t know anything about life insurance, other than tpx and tqx on MLC amirite, and I bet you don’t even use those on the job directly. It is indeed complicated and you can pay me $300k so I can tell you everything I don’t know.
I think this right here is largely why most of this field is bullshit. The products that people generally need and would benefit from already are commoditized imo.
Lots of reasons.
- Grampa has a family cottage. On his death, tax is due on the growth in the value of the cottage. Kids can’t pay six figures in tax. No life insurance = sell the family cottage. Grampa doesn’t want to sell the cottage, so, permanent life insurance. Not nuanced tax stuff, it’s keep the family cottage for the grandkids.
- instant cash on death. Like 3 days from the time the paperwork is received. Burial expenses, etc. You want money within 3 days of death, a permanent policy will give you a probable 3-4% return and be delivered immediately. People like that.
- similiar to 1, you have assets, say rental properties or a business. You die, there’s taxes. Your beneficiaries can start fire selling the rental properties and killing the value of your estate. Or, permanent life insurance makes the problem go away.
- permanent life insurance as an asset class (for funds you won’t spend while you’re alive) will handily beat both the returns and the guarantees of fixed income assets. So if you’re diversifying your portfolio across asset classes, a life insurance policy can (depends on taxes) be better for your estate than bonds.
- There’s a concept in Canada called insured retirement. Grow money inside a UL in a tax sheltered basis. Upon retirement, use the policy as collateral for an annual loan. Loans aren’t taxed and aren’t income for gov’t benefit purposes, so you’ve basically accessed that tax sheltered growth without triggering taxes. Upon death, the policy pays off the loan. The DB includes the accumulated growth, but because it’s a DB, there’s no taxes. Tada, you just took a ton of tax-sheltered growth and accessed it in retirement without ever paying taxes. In some cases, the numbers on this are startling.
- guaranteeing an estate. Some people don’t care. Others, care a lot.
None of those are particularly tax nuanced - for people that are paying a decent amount of taxes they make a cold hard cash difference.
I’m in the camp of #6. I have permanent insurance just in case there’s some combination of my dying early and business not going well enough; I 'm not prepared to let my SO live a frugal retirement, prepared to pay to guarnatee that. Also, we have a JLTD policy for the kids because it’s important to me to have an estate. Without the policy I’ll almost certainly have an estate. With the policy, I guarantee an estate - and at a reasonable rate of return to boot, per #4.
That’s for larger polices. For smaller permanent, lots of people like to just have 25-50k upon death to pay final expenses and leave some money behind for people. In the income earning/accumulation years people tend not to care about this. In retirement, many of those same people start to care very much about about this. Which is why, if you’re not going to buy permanent when you’re younger, you absolutely should make sure your term policy has conversion. That guarantees your ability to get a permanent policy later if you change your mind, or not.
Also, along the lines of utility, people that become uninsurable also change their wants - and they’ll take every bit of permanent they can get; so another reason would be to guarantee your insurability.
I’d say don’t get me started, but it appears that ship has sailed.
I actually went through #4 (asset class) with an actuary some years ago, they were an independent advisor for someone with some wealth. He ground the heck out of me for numbers, brewed them up, then recommended to their client that they buy a decent sized permanent policy.
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I should add, that’s Canada. I paid an actuary one time to explain American UL to me. All I got was a headache.
I have only skimmed your post, but I think the majority of your points apply to WL in the US.
US WL policies also have Paid-Up Additions riders that allows quicker CV build-up inside the policy (compared to a traditional WL policy) in part because they have lower upfront expenses because there are no commissions paid on that portion of the premium, which translates to higher immediate cash value and higher returns (both guaranteed and dividends if you go through a mutual).
The loan option (outlined in #5) can also be expanded pretty significantly to use in a wider variety of situations than just retirement. It was more useful when general loan rates were higher (the Infinite Banking Concept was introduced in the 70s when WL loan rates were low compared to general loan rates), not as much now with money so cheap but still useful.
The CV is liquid and safe, but outperforms a savings account and most bonds so using a properly structured WL policy you come out way ahead taking a 30-year mortgage instead of a 15 and putting the difference in a WL policy. The equity in the WL policy is readily available for use in an emergency (the equity in your home is not), you have a death benefit that can possibly cover the remaining mortgage, and given current mortgage rates the return on the CV is likely better than the after-tax return on paying down the mortgage.
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I would upvote your post twice if I could. Not often I learn things about life insurance, particularly at the consumer level.
is that the case? Or just assumption? Commissions tend to be a relatively smaller part of the premium I think, so I’m surprised it impacts PUA’s.
That mortgage vs whole life thing, now that’s stunning. I’m going to email some friends about this. And I just know I’m going to be running those numbers before monday, to see if they work in Canada.
WRT to canada vs. US Canadian UL is really dead simple. There’s an insurance cost, and a discrete, trackable, measurable investment portion. And the investment portion you get to pick what the investment tracks. If you put in $100 and the insurance cost (which is defined) is $25, then you can see $75 going into the investments - just like a bank account. And if the $75 is invested into say the S&P 500, then if the S&P 500 goes up 10%, then youve now got $75+7.50 that you can cash out (sure, less expenses and stuff, but it’s absolutely that measurable). I really get the impression that US UL isn’t that simple.
I know this from experience and being a life agent who has written the policies. PUA rider premiums basically go about 95% straight to CV, and no commission is paid on that premium. But there are tax rules around how the CV and death benefit interact so there is a limit to how much of the premium can be PUA vs primary (although these rules changed effective at the end of last year and currently being rolled out in actual policies).
There is a niche industry surrounding how to structure the policies to maximize CV vs death benefit so the CV can be used as collateral for other purposes instead of borrowing from a bank.
Canadian UL sounds like an Indexed Universal Life policy in the US, but I am not all that familiar with the policies and haven’t looked at many illustrations so don’t know how it differs. What I have heard is that it is generally an an annual increasing term premium plus a deposit to an index so the cost of insurance increases while the amount invested in the index product decreases over time for a level premium product.
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Well, TIL. I’ve run a lot of scenarios through the years, I’ve never looked at that before. Though I don’t do much if any work around PUA’s.
Similar in Canada, with two differences. First, you can choose ART or level for life costs. Secondly, the investments aren’t a generic index - they’re a cornucopia of everthing from equity indexes, to mutual funds, to bonds, to money market, to, well everything. One company has 200 investment choices inside their UL.
My personal UL is level for life cost, and I pay minimum premium. That means it’s effectively a term for life policy.
I think I screwed up a bit though. I suspect I’'ll eventually want to dump money into the investments but I’ll have run minimum premiums for so long that I’m going to run into regulatory limits on this.
It just so happens that one of the podcasts I listen to did a show a couple of days ago explaining how to use PUAs and they explain it better than I can here. Lack of commissions is only one part of the reason, but my primary point is true.
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Thanks! It’s on the agenda for today.
I emailed my buddy, he says the mortgage thing is likely also true in Canada, but I dont think it’s formulated into a sales strategy.