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A recent ThinkAdvisor Life/Health article raised this question: Can members of the life insurance community explain themselves to other players in the financial services sector?
(Related: 5 Questions About Life Insurance for 2019)
Here's my response, with my comments focused on how members of the life insurance community can explain themselves.
Whether life insurance community members have the ability to explain themselves to counterparts in other financial services sectors is a multi-faceted topic.
- Can all agents serve in this role? No. Only those that are FINRA registered representatives have access to the full array of products and can use financial services consistent language.
- Can hypothetical illustrations of insurance products be prepared consistent with financial services alternatives? Variable and fixed indexed annuity and life insurance products can, fixed insurance not linked to the market can't.
- Can a FINRA registered rep provide hypothetical illustration of all consumer alternatives? That's a broker-dealer question.
- Can hypothetical illustrations of a consumers planning alternatives be prepared in a manner consistent with both FINRA and the National Association of Insurance Commissioners (NAIC) using the consumers' financial planning assumptions? Yes.
The "Math" Perspective
My comments here are strictly limited to whether it is mathematically possible to prepare hypothetical illustrations of today's financial planning alternatives in a FINRA- and NAIC-consistent manner. I am not commenting on whether a broker dealer or FINRA rules would allow you to show these illustrations to a consumer.
In 2012, FINRA announced Rule 2210(d)(4)(C) (effective 2/2013) defining the calculation for comparing tax-deferred and taxable alternatives – "Hypothetical illustrations of mathematical principles." FINRA Notice 12-29 states "By placing this rule language in FINRA Rule 2210, FINRA is clarifying that these standards apply to any illustration of tax-deferred versus taxable compounding, regardless of whether it appears in a communication promoting variable insurance products or some other communication, such as one discussing the benefits of investing through a 401(k) retirement plan or individual retirement account."
No more fuzzy math, but a prescribed calculation to be used across any tax structure offering fund investing. As an example, the ability to calculate the net result of an un-capped 401(k) vs 409A NQDC vs un-capped Roth IRA v. variable universal life (VUL) v. non-qualified variable annuities v. a taxable brokerage account with the only material illustration variable being the tax structure.
In 2015, the NAIC announced the Actuarial Guideline 49 calculation for setting the maximum permitted illustration rate for an indexed universal life (IUL) policy. That's a calculation where the S&P 500 Total Return (dividends reinvested) can be applied to calculate the S&P 500 Total Return equivalent return.
Mark Whitelaw is head of design at 
