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Update News for January 2009    


Here is a quick run-down on what you will find in this bulletin:

These topics will be dealt with in more detail throughout this bulletin.


Happy New Year

We want to wish you and yours all the very best in the coming year. Happy 2009!

While we are hearing a lot about how tough economic times are, Compulife has been through these times before and we have found that our market niche actually does quite well. That's because Compulife provides you with software that helps you help consumers find the lowest cost life insurance alternatives in the market. We believe that you, together with the Compulife software, represent the best solution for the times that we are in. With that in mind, we would like to wish you a mutually profitable year!


New Product Categories in U.S.

During December we were able to roll out the new product categories for our U.S. subscribers. While this is now working well for U.S. customers, we are still converting over the PDA and internet programs to use these new categories, and that work will take us into mid-January.

During that same period we will be implementing the changes for our Canadian software with the first change being the splitting of quick pay guaranteed whole life into 10 pay and 15 pay categories. We also have to make sure the new categories are integrated into our joint life and CI comparisons - neither of which are options for U.S. subscribers.

We have also had some input from subscribers who would like to see us added UL products that now offer guaranteed, limited pay term to 100 as the mortality base. We are looking into that and see no problem adding those categories as well. This should keep us busy during January and February.


IACA Tutorial

During our discussions with U.S. agents checking out the new categories, we have stepped them through how to use these new products in our IACA program. Most, once they see what this can do, say "I had no idea we could do that!"

In this regard most Canadian subscribers have a head start over our American subscribers. Many of our Canadian subscribers have been using IACA for years and realize how effective it is in selling permanent versus term. It can also be effective in underlining the benefits of limited pay permanent versus life pay permanent.

We realize that there may be a large number of newer Canadian subscribers who do not know how to use this program and so the rest of this bulletin is a tutorial that will show you how to file products to IACA, and then do an IACA printout.

NOTE: During January we will be doing a new Video Tutorial based upon the following print tutorial.

We recommend that you print this bulletin, and have the following tutorial next to you as you step through it.

For the purposes of this tutorial the following is the client information that we are entering:

Having entered in this client data, you will need to do a comparison. You can click on the "Compare Now" button in the bottom right hand corner of the screen, or you can click on the "Display Product Comparison" button on the Red Menu. Either will do the same thing.

With the comparison displayed, go to the category selection just above the Face Amount. Click the down button and select from the green area: "Whole Life Guaranteed - 20 Pay".

For the purposes of this comparison we want to use Transamerica Life with a premium of $5,770.00. The highlight bar, which is a light blue color, needs to be put on that product. To do so, move your mouse to that product and left click once to highlight Transamerica at $5,770.00.

Now move your mouse to the top left corner of the window and click on "File". The 4th last choice on the File Menu says: "File to IACA as product 1" Click on that option.

Because the product has cash values, you will be given a menu of 5 cash value options. Select the 20th year cash value option of $114,400. The menu will go away - the product has been filed.

Go back to the category selection just above the Face Amount, click the down button and select from the green area: "Whole Life Guaranteed Life Pay". This category contains products where the premiums must be paid each year until the death of the insured. For the purpose of this exercise click once on Transamerica Life which has a premium of $4,310.00.

With the blue highlight bar on Transamerica, move your mouse to the top left corner of the window and click on "File". The 3rd last choice on the File Menu says: "File to IACA as product 2" Click on that option.

Because this product also has cash values, you will be given a menu of 5 cash value options. Select the 20th year cash value option of $85,200.

That was it, you have filed the 20 pay product as product 1, and the life pay product as product 2. Now move your mouse to the top left corner of the window and click on "File". The 2nd last choice on the File Menu says: "Go to IACA". Click on that option which will display the "Interest Adjusted Cost Analysis" window.

So we can keep the numbers the same, for discussion purposes, enter an interest rate of 6% and a tax rate of 46%. We will assume that the client can earn a 6% fully guaranteed long term interest rate (that's optimistic) and that he is a person in a 46% upper tax bracket.

Go to the bottom right hand button on the screen and click on "Display Year by Year Analysis". This will take you to the "Interest Adjusted Cost Analysis" print preview.

In column one you should see a premium of $5,770.00 for each of the first 20 years. After that the premium becomes zero which indicates, in this example, that the policy is paid up.

In column two you should see a premium of $4,310.00 for every year.

Column 3 for years 1 to 20 should indicated that the 20 pay policy costs $1,460.00 more each and every year.

Column 4 takes that $1,460.00 and invests it, each year adding it to the previous year balance, then adding 6% interest and deducting 46% tax on the interest. By the end of the 20th year, the insured has saved a total of $41,505.24 in tax paid money.

In year 21 the premiums for the 20 pay policy end, but the premiums for the life pay version continue at $4,310.00. This creates a premium DEFICIT of $4,310.00. We use the savings which we accumulated in the first 20 years to pay those premiums. This begins to deplete the savings until the client is age 75/76 at which point our savings go into a deficit.

We like to refer to this as the "cost crossover". Cost crossover is the point where both policies cost the insured the same out-of-pocket money. However, beyond that point the added cost of the life pay version of the policy continues to build so that by the end of this particular example, on page 2 (click the right blue arrow at top left corner of screen), the total accumulated deficit is $155,200.99 (age 99). Keep in mind that this is the deficit on a policy with a face amount of $500,000.

Print out this proposal.

The next step in this exercise is to switch the 20 pay policy to a 10 pay policy.

Close the IACA window and go back to the "Display Product Comparison". Go to the category selection above the face amount, click the down button and select from the green area: "Guaranteed Whole Life - Quick Pay".

For the purposes of this tutorial we will use the 10 pay product of Western Life which has a premium of $9,400.00. The highlight bar which is a light blue color, should be on that product. If not, move your mouse to that product and left click once to highlight that product.

Now move your mouse to the top left corner of the window and click on "File". The 4th last choice on the File Menu says: "File to IACA as product 1" Click on that option.

Because this product also has cash values, you will be given a menu of 5 cash value options. Select the 20th year cash value option of $105,500.

That was it, you have filed the 10 pay product as product 1, and replaced the 20 pay product that was there. Product 2 is unchanged. Now move your mouse to the top left corner of the window and click on "File". The 2nd last choice on the File Menu says: "Go to IACA". Click on that option which will display the "Interest Adjusted Cost Analysis" window.

In column one you should see a premium of $9,400.00 for each of the first 10 years. After that the premium is zero, indicating in this example that the policy is paid up.

In column two you should see a premium of $4,310.00 for every year.

Column 3 for years 1 to 10 should indicated that the 10 pay policy costs $5.090.00 more each year.

Column 4 takes the difference in premium, adds it to the previous year balance, and adds 6% interest, deducting 46% tax on the interest. By the end of the 10th year the insured has saved a total of $60,911.83 in tax paid money.

However, in year 11 the premiums for the 10 pay policy end, but the premium for the life pay version continues at $4,310.00. This creates a premium DEFICIT of $4,310.00 which we draw from the savings that we accumulated in the first 10 years. This begins to deplete the savings until the client is age 72/73 at which point our savings go into a deficit.

Notice that by comparison to the 20 pay product, the cost crossover occurred even more quickly with the 10 pay product meaning that the 10 pay product is a better deal (assuming 6% interest, less 46% tax) than the 20 pay product.

Now take a look at the last year on page 2. The total accumulated deficit is $183,575.21 (age 99).

The moral of the story is that the quicker this client gets the policy paid-up, the more money that they will save in the out-of-pocket cost of delivering $500,000 tax free dollars to their estate when they die.

Frankly, if this is explained properly to a wealthy client who is using life insurance to conserve their estate, paying up the policy as quickly as possible is a no-brainer.

I have had more than one testimony from subscribers who have told me that the Interest Adjusted Cost Analysis presentation led to them making the largest permanent sale of their career.


Video Tutorials Progress

During January and February Compulife will work on rolling out video tutorials for the material that we have just covered. We will also be doing tutorials on the Income Calculator and Retirement Calculator. These are equally simple and effective marketing tools that make it easy for a client to identify their insurance and retirement saving needs.

Apart from the Analysis tutorials, if you have an area where you would like to see us do a tutorial, drop Bob Barney a note at:

barneyrl@compulife.com


What's Next?

We are now turning our efforts to some maintenance work that is needed to the data entry systems. Those programs have not been updated for quite some time, and some need to be converted to take advantage of the newer programming compilers that we have been using for the Windows software that we already distribute to you.

Having reviewed where we are heading over the next few years, and the changes that we would like to be able to make in the future, we have decided to stop and do a much more extensive overhaul than simply changing our data entry software. We have determine that we would also like to implement a better data storage structure that will make maintenance easier on both a data entry basis, as well as a programming basis.

To achieve our goals in this regard, we will be spending a fair bit of time reviewing our new data storage needs, and then building conversion software that will convert our existing data files into our new data file structure. Once we have done that, we will then introducing new comparison software that does exactly what it does now, but which derives its results from the new data structure. In other words, you will end up with a new program that does exactly what the old program did/does.

Once this first stage is completed, we will have both old program and old data, with new program and new data. Moving forward we will use the old data entry systems to maintain the old version, then converting old data to the new data forms for general distribution.

The next stage is to create the new data entry systems that talk to the new data format. Once we are satisfied that the new data entry system give us everything that we have now, we will then switch to the new data structure alone. We will only do this once we have thoroughly tested the new software to ensure it gives us no problems in maintaining the date. This may take several months. As far as the part you use, by the time we make that transition, you will have been using the new software for several months.

The point of sharing this with you is that the process will be quite lengthy and so from this fall throughout most of 2009, you will not be seeing many changes and improvements to the software that you use, even though the underlying foundation will be going through a massive change. Once the foundation has been reconstructed, and all the tools to work on the foundation have been built, the program will be in a position to make some substantial moves forward.

Think of it as transplant surgery, where you need to keep the patient alive and well, at the same time as you are swapping out the organs.