Do IULs Ever Perform Close To Illustrations?

[HappyGuy]

I was taught with a strong bias against the IULs but I don't know if what I was taught was true: that a whole life policy will consistently outperform an IUL over time and that the low rates of whole life still beat IULs because they change so many conditions with so many fees that whole life wins.

Is there any truth to this? Do IULs perform like they illustrate? I want to sell them but I want to believe in the product.

 

[walthamny]

IUL should have a greater variance in performance than whole life compared to illustrations. DOnt sell the product until you understand IUL and you may not buy IUL for yourself, make sure you have an understanding what type of client may prefer it. IUL is generally more risky than whole life.

 

[HappyGuy]

Thanks Walt. I just want to know if anyone has seen an IUL perform like the illustrations just once after a few years. I understand the product fairly well, certainly not an expert. Still I was looking for some verification from someone who has sold them to have proof they do as they illustrate. Thanks again.

 

[Lloyds of Lubbock]

The performance is not the only selling point.
A whole life policy is a 100% transference of risk an IUL is not.
An IUL has many more moving parts than a whole life.
Depending on the size of the sale it does not have to be an either or situation.
An IUL will not perform as illustrated.
Some years it will be better, some years maybe not.
It will not have the same return every.
The same goes for whole life, todays dividend will not last for life.
If you live by the numbers, you will die by the numbers

 

[Tahoe Ray]

Thanks Walt. I just want to know if anyone has seen an IUL perform like the illustrations just once after a few years. I understand the product fairly well, certainly not an expert. Still I was looking for some verification from someone who has sold them to have proof they do as they illustrate. Thanks again.

I have some performing better, some worse (that are over 5 years old). The illustrations are never going to be 100% accurate. Lloyd's post above and walthamny are both accurate.

Also, keep in mind the IUL gives a lot of latitude in how you illustrate them. Even moreso a few years ago.

So, agents who illustrated a more reasonable rate of return probably have a lot of IULs doing very well. Those who illustrated at the max are probably underperforming.

A lot of it comes down to setting expectations. Return potential is VUL>IUL>WL but the risk works exactly the same way. Just like investments: individual stock>stock MF>bonds>treasuries (typically at least).

 

[HappyGuy]

Lloyds great answer.

I worded my initial post ambiguously. I realize it's my fault. Let me rephrase my issue. Have you ever seen an IUL perform as well as whole life, or beat it, if the market conditions are good for performance?

The only reason I ask is the guy who trained me showed me an IUL policy that had good years for indexing only to have all the profit cut out of it with some terms on page 42 that no one reads.

In theory I like the product, I just want to make sure what I'm selling has the opportunity to perform without too much calibration by the insurer so the buyer isn't getting the opportunity to do well. I hope that makes more sense.

 

[HappyGuy]

So, agents who illustrated a more reasonable rate of return probably have a lot of IULs doing very well. Those who illustrated at the max are probably underperforming.

A lot of it comes down to setting expectations. Return potential is VUL>IUL>WL but the risk works exactly the same way. Just like investments: individual stock>stock MF>bonds>treasuries (typically at least).

Thank you for taking the time to answer that for me Ray. That's the answer I was looking for and I can't thank you enough. Great avatar by the way.

 

[Allen Trent]

Do IULs perform like they illustrate?

100% of IULs perform as illustrated. It just depends on which columns you are focusing on as an agent & also depends on if client pays as illustrated.

Even if IUL funded as planned by consumer, there are 7 potential outcomes:

1. Worst case scenario left hand columns where it gets credited the worst possible crediting starting tomorrow morning & lasting forever along with starting tomorrow morning & lasting forever each & every item like loads, policy fees, COI are charged at the maximum level forever

2. Middle columns of mid rate of interest between worst & current & it credits exactly at that amount each month forever & all charges stay at current levels forever

3. Far Right column of current projected interest & current charges credit/get charged the exact same each month forever.

4. Something better than far right

5. A mix of all 3 columns with variability of good & bad years

6. carrier crediting good rates, caps, participation rates sells off their company or blocks of business & new company or hedge fund adjusts crediting/charges

7. All of the above mixed together.

 

[DHK]

Comparing illustrations isn't the right way to go.

I would compare the likelihood of getting the outcome that you want.

IUL is a great concept sale. In my opinion... it shouldn't even be illustrated because there are too many variables regarding the performance of the contract, even when properly structured, etc.

IUL is a "compared to what" sale. For a long-term comparison to a 401(k), IUL will win. Hands down. Why? Tax risk and market risk. Granted, you still have performance risk (which I differentiate from market risk) and you still have the costs of insurance which continue. Yes, you can lower the death benefit... but will the client remember to do that?

Now, if you want to compare outcomes... when I compare IUL to a limited pay WL... I have far more surety of what I want to have happen with the limited pay WL than I do with the IUL. For the IUL, I'd need to factor in that I need a larger balance to accumulate to (compared to WL) and then factor in a kind of safe withdrawal rate because performance isn't guaranteed through retirement. Yes, I know that WL dividend scale isn't guaranteed either, but at least I can reasonably count on a dividend to be paid to the policy.

Just my thoughts.

 

[Richard-PDIS]

Assuming for MEC limits, can you overfund a WL policy, like you can the IUL? If not, isn't the overfunding concept the real attraction here bc nearly all of it goes into the index? sorry if off-topic