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Transparency Ensures Accountability

Thursday, October 09, 2014

Transparency ensures accountability, and policy owners have a right to see where every penny of their premium goes, how much is going to costs and how much to cash value.  Few clients know what they are actually paying for cost of insurance charges (COIs), fixed administrations expenses (FAEs), cash value based “wrap fees” (M&Es), and premium loads or what they are actually getting in the performance of invested assets underlying policy cash values. In addition, most financial advisors don’t know what their clients are paying or what they are getting.  Given findings from independent studies[1] indicate there can be as much as 80% difference between best-available rates and terms and poorly-priced products, the opportunity to bring reduced policy expenses and/or improved performance of invested assets underlying policy cash values can be both significant and meaningful today.Before Veralytic advisers had no alternative but to use illustrations to try to dissect expenses and charges. Office of Comptroller of the Currency (OCC) says that policy illustrations [are] subject to a high degree of fluctuation[s].  Comparing illustrations of hypothetical policy values is NOT useful to EITHER the overwhelming majority of financial advisors OR their clients as a decision support tool for determining which products are more suitable in each client situation.  In fact, advisors who are not trained in the life insurance pricing and performance principles, but who nonetheless compare illusions of hypothetical policy values to determine which product is “better”, can instead actually cause harm to clients. 

For this reason, the chief regulatory body of the financial services industry “strictly prohibits” comparisons of such illustrations of hypothetical policy performance because they can be “misleading”.  Similarly, the chief actuarial body of the life insurance industry commissioned a study that concludes “illustrations should not be used for comparative policy performance purposes” because such “usage for illustrations is fundamentally inappropriate.”  Instead, both the chief regulatory body of the financial services industry and generally-accepted Prudent Investor principles prescribe separate examination of expenses independent of performance assumptions. 

History also shows that comparing illustrations of hypothetical policy performance has not produced good results for clients.  In the 1980s, illustrations of hypothetical policy performance were used to market universal life (UL) products when prevailing interest rates were high, which gave the APPEARANCE of lower costs.  When high interest rate assumptions proved unsustainable, many UL policies became underfunded and are now at risk lapsing without value and without paying a death benefit.  In the 1990s, variable universal life (VUL) illustrations using high earnings rates again gave the APPEARANCE of lower costs, but many VUL policies are also now underfunded and risk lapsing without value and without paying a death benefit. 

Had more financial advisors been able to actually examine policy expenses and performance assumptions separate and distinct from each other, instead of simply comparing illustrations of hypothetical policy values, there would almost certainly be fewer disappointed clients with UNDER-funded UL and/or VUL policies.  These “flavor of the day” marking practices using illustrations of hypothetical policy performance continue to this day with indexed universal life (IUL) and emerging litigation and case law reveals just how harmful this practice has been (i.e., see “A Shot Across The Bow” in the December 2010 issue of Trusts & Estates magazine). 

Veralytic can help you show your clients that you are taking care of them in ways that even most insurance agents or brokers cannot. Veralytic is the only patented, objective and rules-based research tool that goes beyond the overly-simplistic comparisons of illustrations of hypothetical policy values that can be considered “misleading” and “inappropriate” by both financial and insurance industry authorities. Veralytic’s independent research reports provide a facts-based solution that is both compliant with industry regulations and established case law.

Veralytic is simply the fastest, easiest, and most comprehensive and cost-effective way to independently verify to clients and their advisors whether or not the pricing and performance of existing or proposed life insurance is in their best interest.  Only Veralytic is accepted for independent client representation, endorsed by the New York Bankers Association (NYBA) and compliant with industry regulations and established case law. 

Use the Veralytic Reports to determine the appropriateness of pricing, the reasonableness of performance expectations for invested assets underlying policy cash values, and overall suitability for your (client’s) policies based on the 5 factors of suitability.  Get up to 3 Veralytic research reports under our NO-Risk trial subscription.



[1] [2] Tillinghast Towers Perrin study referenced in the May 2003 issue of Trust & Estates, CASCO survey reported in the April 1999 issue of Trust & Estates magazine, and research from Veralytic database.

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