ejbarraza
Expert
- 65
I think you can get a positive rate if return every year if you are properly diversified. For example, if you dollar cost average (DCA) a quarter of your cash value into the fixed account at 2.25% and uncapped 1 year, 2 year high cap, and 5 year Index options from Pacific Life. You can get some positive return every month. Or use PennMutual’s policy with 4% interest on the DCA account or 3.75% on the fixed account. Plus the 1.15% minimum return regardless of performance will generate some positive returns every year. With the 5 year high cap index option you can definitely generate more than enough interest to never worry about the policy lapsing due to the rising cost of insurance.I finished the book about 2 weeks ago. As I was reading I was highlighting, taking notes, and pulling out pros and cons. The first bad thing about this read is that it was hard to pull out cons. When someone cannot criticize the product in which they endorse, it automatically shows me that the opinion is one sided. Before I go into it more, I would like to say that I understand there are IUL's with amazing performance, and a properly structured max funded tax advantaged IUL is a great product! I'll start with cons so we can end on a happy note.
Cons:
Pros:
- 1) Risk: This book RARELY mentions any form of risk. My big turn off with IUL's and UL's in general is that the insurance company has flexibility to change your COI. And yes this can be mitigated by using the cash growth to pay premiums, but let's just say you are linked to an index for the full CV growth that year and it is a down year. The book does not mention what happens!! Not only can your cost go up dependent on your age, but you also made no money. You can opt to pay with already accumulated CV or just be out of luck that year and pay out of your own pocket. Another bad scenario for an IUL would be if you were to pull loans out based on Arbitrage like the book recommends. If the premium goes up, fees go up, and the market is down, you have to pay your massive amount of interest + COI + you made nothing. Rule #1 is to NOT lose money! And the only guarantee in this policy is the guaranteed interest, and God knows how bad that is especially when fees and COI goes up... We have to evaluate where we are in regards to this product as agents. Interest rates are low, and inflation is at a 40 year high. Internal costs are crazy and returns would be absolute garbage. To base retirement off of arbitrage on something with so much risk is not something I would recommend to ANY of my clients. Insurance companies can also change the cap rates for your participation in the market which could affect your returns in the future. The book has hardly any mention of these points.
- 2) Blame: The authors of this book put very plainly that if your IUL fails, it is because of the structure & agent. Now, I would be willing to bet that 95% of IUL's DO fail because of those exact reasons, but again, there is hardly any mention of the above risks from my first bullet point. It feels like they are trying to convince you that they are the ONLY people in the world who can build you an IUL that does not fail.
- 3) Arbitrage: When using an IUL for returns that provide you income, remember one thing. IUL IS NOT AN INVESTMENT. This book likes to treat it that way and that is its main mistake. The only way to use the interest accrued on your policy tax free is through a collateralized loan. Spending that money on liabilities that provide you no financial value or growth is just praying that the market does well enough that your already accrued cash value will not be eaten by interest payments for previous loans, COI, & fees. If you used this book as your main source of information for IUL, you would be convinced that arbitrage is 100% possible every single year and you would never lose money.
Overall, I would say that this is a good read for the knowledge that it provides. I would recommend to not take this book at face value and call it scripture because, well... it's not. I love the idea of using an IUL because yes it is LOWER RISK than the stock market. I think we can all agree on that. But it should not be touted as the safest bet for an insurance contract because it definitely is not. IUL is probably most optimal for someone who has money in whole life focused on cash growth, and wants to put some more money in something they are willing to risk for some more gains, but keep it tax free for other investments. It's an amazing product and you get to see the whole good side with this book.
- Knowledge: This book provided with so much valuable information and simple ways to explain tax laws. I can confidently say that if someone were to ask me about 72e, 7702, 101a, TEFRA, DEFRA, & TAMRA, I could answer why and how we can use the code to build a great policy. I also don't think IUL is a bad vehicle. I just think that some of the ways that they show the vehicle being used are over inflated and risk is not assessed.
- IUL Usage: As mentioned before an IUL can be really great! If you maximum fund while keeping it tax advantaged you have access to very liquid money as you do with most permanent insurance. For me, an ideal scenario would be for someone who can purchase an IUL, once maximum funded they loan out money for an investments like real estate where they can use rental income to pay off the loan, all while the CV has uninterrupted growth that HOPEFULLY was higher than the floor on your policy.
- Risk (Again lol): Risk can be amazing! The book shows some really great examples of linking indices and illustrating awesome growth. With an IUL you have the opportunity to participate in a market more abundantly than you would with most permanent life insurance, & this book shows you how to sell it to your client like that. EX: If you were to set a 5 year point to point to the S&P 500 with a 125% participation rate and the market goes up by 11% annually, you got the full benefits of the index fund PLUS 25% more... tax free! The book's examples are mostly based on situations like that.
