Allianz Launches New 7702 IUL Policy—How Does it Compare?
By: Roccy DeFrancesco, JD, CAPP, CMP
Click here to learn about my favorite 7702 IUL that has 55% more borrowing than the NEW Allianz IUL, (this is not a typo)
1) Why a new product? When Section 7702 of the tax code changed, it allowed carriers to lower the required death benefit (by approximately 50%) to avoid the policy from becoming an MEC. Other companies launched their new 7702 policy months ago and now it’s Allianz’s turn.
2) What’s different with Allianz’s new product? It illustrates with slightly higher tax-free borrowing, slightly lower commissions, and a lower initial death benefit.
Example—40-year old male, preferred. $15,000 premiums from age 40-64. Borrow tax-free from 65-95. I used the “default” crediting rate of return.
–Old policy tax-free borrowing annually = $72,461
–New 7702 policy tax-free borrowing annually = $75,639
Difference in annual borrowing? 4.4% better
FYI, the initial death benefit for the client dropped from $443,096 to $306,696 (so you’d think the new product would perform a lot better for the client) (see the commission discussion below).
My favorite 7702 IUL Policy—I compared my favorite 7702 IUL to the NEW Allianz.
Annual tax-free borrowing from my favorite 7702 IUL = $117,511
A $41,872 difference annually or $1,256,160 total difference over the 30-year borrowing phase.
Why the big difference?
One key reason is target premium.
Target premium on my favorite 7702 IUL = $3,956
Target premium on the new Allianz IUL = $5,366
So the agent can make $1,500 more in up-front commission, but the client potentially loses tens of thousands in borrowing each year.
For the record…before I get into the reasons for the difference, I want to state for the record that pre-7702 Allianz was my favorite IUL for years. It not only illustrated well, but it fulfilled for clients with good returns and good cap rates renewals. I am a huge Allianz fan on the IUL side.
Then what happened with the new Allianz policy?
Even with a guaranteed bonus, it doesn’t help the illustrated rate. The Allianz IUL I have recommended for years has a non-guaranteed bonus and before the 7702 change it illustrated as one of the best in the industry.
Now it appears that Allianz made the strategic decision to design a policy to compete with what it calls the “six hall-of-fame” IUL companies (Pac, Transamerica, LSW/NLV, MN Life, and John Hancock).
I think this list is a bit ironic since I DO NOT recommend ANY product on this list and warn readers to stay away from some of them like Pac, Transamerica, and John Hancock.
When Allianz did its own comparisons against these companies, it found the following:
Allianz would be #1 – #4 in borrowing depending on the age, sex, underwriting status, and whether the premium was short–funded or funded over a long period of time (the average was #3).
If my info is correct, Allianz will also be #1 in target commission against the listed companies.
What about my favorite 7702 IUL policy?
It appears that Allianz made the strategic decision to ignore competition outside of the other five companies listed above.
The 7702 product I like best is NOT offered by one of the remaining five companies listed above and it is NOT one of the higher commission products (meaning the company can put more money into the product to make it better for consumers).
It seems Allianz is focusing on being the highest commission product of the six listed.
I’ve NEVER, and I mean NEVER, chosen a product because of the commission and I’m sorry that it looks like Allianz has chosen to go down this path.
I hope Allianz reconsiders this stance and launches a new/more client-centered product in 2022.