2. The second part of the new rule has to do with the assumed illustrated rate on loans within the life insurance policy. The rule states that an illustration cannot assume a credited rate on borrowed funds to be more that 1% higher than the loan rate being charged. This part of the rule will be effective March 1, 2016.
We also agree that this new rule is appropriate. We have seen illustrations where there is a spread of 2%-3% or more between the credited rate on borrowed funds and the loan interest rate. Using a high illustrated rate can make a product look like it should generate a great deal more cash flow for a client taking income down the road than what could be reasonably expected. The reality of the sale will look quite different; we will have an under-performing policy and a not-so-happy customer. Davis Life & Annuity has been advising producers for years to not over-project rates when building a plan for their customers, and we are glad that the regulations are catching up to our practice!
Please call us at 800-747-5612 to further discuss these new rules and how they might impact your future sales.
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