About Mark Pace

T. Mark Pace

When there is an immediate need for cash at the time of someone’s death, it has been my experience that life insurance, when properly acquired and managed, is one of the best tools ever invented for the creation and transfer of wealth. However, life insurance is rarely acquired properly and, because it is mistakenly assumed to be a "buy and hold" asset, it is never managed. The resulting financial disasters are far too frequent and completely avoidable.

If you would like to learn more about any Pig-in-a-Poke blog posts or discuss any other life insurance issues, contact T. Mark Pace at Mark@objectivereview.com

 

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Pace’s Pig-in-a-Poke

About Pace’s Pig-in-a-Poke

Pace’s Pig-in-a-Poke, provides an arena for sharing the four great passions in my life. My three foundational passions are:

  1. Invest in yourself first;
  2. The genius in all of us, and;
  3. We can all live a long healthy life.

These three support my life work and my fourth passion; LIPM™ (Life Insurance Property Management).

As the blog title suggests, my focus is on debunking all of the myths, misuse, and muddled thinking that has accumulated in the life insurance industry. And, from time to time, I will go outside of the specific world of life insurance and share my views on my other three passions.

I hope you find my blog worthy of your attention, informative, and occasionally inspirational. I welcome your comments, questions and suggestions.

Mark Pace

The downside of equity index life insurance

Life Insurance product designers and agents are some of the most creative individuals in the world. This can be good when their creativity is applied to solving problems with life insurance.

But, when creativity is taken to the extreme and they focus solely on selling more policies to maintain or increase profits, very fine and valuable products are manipulated in a manner that, while generating a sale and a commission, will often never generate the results the life insurance owner expects and, more importantly, needs.

The Poke: Equity Index policies are touted as offering the lowest possible premium for a given death benefit… or for creating the highest future cash value for a given premium.

The Poke Exposed: Most Equity Index illustrations assume a constant monthly crediting gross rate of return of 8 – 10 %, depending on the carrier. Unfortunately, the way these policies are structured, there are many reasons why it is highly improbable these rates of return will be achieved. If these rates are not achieved, the policies owned by people taking the minimum funding approach will lapse because of insufficient funding. For those taking the maximum accumulation route (e.g. as a pension fund alternative), they will be sorely disappointed with the money they have left to fund their lifestyle in retirement. In fact, their funding will probably be just barely enough to ensure a death benefit.

Pace’s Poke Remedy: I am not against this product; I am simply against the way it is being sold. Showing an irrationally high constant crediting rate is an old poke that comes around every few years and has been used for decades to sell new types of life insurance. (If you thought VUL was a disaster… Equity Index is about to be the next big one.) It is important to know that relative to other life insurance products, these policies have much higher internal expenses.  This does not automatically make them bad, as long as the buyer is qualified for this type of product using a valid risk tolerance protocol. And, to avoid future problems for both the person who sold the policy and its owner, I would recommend using a more appropriate constant crediting rate of 5 – 6 %. I arrived at this number using our own proprietary testing procedures.

Unfortunately, given the high internal loads, using a lower crediting rate takes away almost all of this product’s illustrated appeal.

About the author

Mark Pace
Mark Pace
When there is a need for immediate liquidity at the time of someone’s death, it has been my experience that life insurance, when it is properly acquired and managed, is one of the best tools ever created for the creation and transfer of wealth. However, in my 35 plus years of experience, life insurance is rarely properly acquired and never managed… thereby creating a monumental financial disaster for many individuals that should never happen.

If you would like to learn more about this Pig-in-a-Poke subject or discuss any other life insurance issues, contact T. Mark Pace at Mark@objectivereview.com

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