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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76075  
Subject: Re: Hi gang... wow!!! Date: 9/18/2013 12:41 PM
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Actually, I think the risk of an ins co going belly-up, as AJ brings up, is probably overstated. It's *probably* a very low probability event.

Well, according to the introduction of this paper http://www.google.com/url?q=http://www.actuaries.org.uk/syst...

there were 640 insurance company insolvencies in the US during the 30 year period 1969 - 1998.

Here's a link to a blog about insurance company failure rates, where the poster cites several different failure statistics, and estimates the failure rate at 0.2% - 0.9% per year http://www.freeby50.com/2010/03/how-frequently-do-insurance-...

Since the long-term IUL is potentially going to be in place for 70+ years (say, mid-20's to mid-90's), even a relatively small annual failure rate can add up to be a fairly large risk.

But there's another risk that I think is much more likely, which AJ hasn't mentioned and which Dave seems to wave away. It's right there out in plain sight explicitly stated in every IUL I've seen.

"Cap is subject to change at our sole discretion. Changes to the cap are not tied to the performance of the underlying index and may be based on interest rates, market volatility, and other factors."


Actually, I did mention in a later post the issue of insurance companies unilaterally changing terms, and cited some examples.

I also saw some examples of customers not being allowed to use the borrowing feature of their policies if their insurance company became insolvent and needed to be restructured.

None of these risks is covered by a risk management plan of implicitly trusting the insurance company that you are paying significant fees to. I'm sure that plan will work, at least until it doesn't. But when it doesn't, if there aren't any outside reserves, where does that leave the policyholder?

But, everyone is free to carry on with their own risk management plan, and implicitly trusting an insurance company with all of your assets, as Dave suggests, is certainly an option, albeit a potentially expensive option.

AJ
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