David Shaulson
New Member
- 1
IUL is not likely to perform as illustrated. Typically, the insurer first exacts a profit on the block of business and then buys derivatives to produce a return with the balance of their revenue. The derivative pricing is outside of their control and they adjust returns accordingly by changing principally participation rates and caps. Oddly, in the best markets (sustained low cost of money) the derivatives are most expensive and so performance must be the most truncated.
First observation, this is not a market based product, it is driven by the insurer who sets and periodically changes the terms. How many folks are willing to deposit money with an online gambling company and then ask the question, "Did I win?" The gambling company first takes what it wants and distributes enough of the rest to keep the losers coming back to lose more. This is the IUL model. The purported investor puts money in the market and then gets told how much of the winnings they can keep. Seems like a sucker's game.
The right comparison is not whole life, but variable life where one gets all of the market return, albeit with volatility. The volatility is then mitigated by the long-term nature of the product (look at the market's standard deviation over 40-year time periods (average life of a VUL contract) and one will find it's remarkably low). While there is still the risk of COI creep, the investment is unadulterated and historically will produce far more alpha than an IUL under any circumstances.
First observation, this is not a market based product, it is driven by the insurer who sets and periodically changes the terms. How many folks are willing to deposit money with an online gambling company and then ask the question, "Did I win?" The gambling company first takes what it wants and distributes enough of the rest to keep the losers coming back to lose more. This is the IUL model. The purported investor puts money in the market and then gets told how much of the winnings they can keep. Seems like a sucker's game.
The right comparison is not whole life, but variable life where one gets all of the market return, albeit with volatility. The volatility is then mitigated by the long-term nature of the product (look at the market's standard deviation over 40-year time periods (average life of a VUL contract) and one will find it's remarkably low). While there is still the risk of COI creep, the investment is unadulterated and historically will produce far more alpha than an IUL under any circumstances.