FIA Vs IUL for Safe Cash Accumulation for Retirement Income

[RINCN]

Please pardon my ignorance in my question, just trying to increase understanding of using different tools for different situations.

When would you use a flex prem FIA vs an IUL for cash accumulation/retirement income play?

Is there a crossover in # of planned years of contribution, age of insured, or $ amt to be contributed that would lead the flex prem FIA to be better than the IUL or vice versa?

(And/or other factors not already mentioned like health of insured/insurability, access to funds?)

Also, for the purposes of this comparison, death benefit is not important, only cash accumulation and distribution.

Thanks in advance for your help with my question!

-RINCN

 

[AnonymousOne]

Identical question 8 posts below yours.
Why would you buy a life insurance when a death benefit is not important? I'm sure someone who uses life insurance policies for every scenario will chime in.

 

[Norwayguy]

Identical question 8 posts below yours.
Why would you buy a life insurance when a death benefit is not important? I'm sure someone who uses life insurance policies for every scenario will chime in.

Because if you have a long time frame the life policy can blow away the lifetime income of the FIA....Just take a look at caps between a FIA and what is available in an IUL with caps in the 13%-14% range, now I know that is only part of the story but if you take an honest look at what a life policy can create in the form of a tax free income it can explain why one may use it in place of a FIA.

 

[RINCN]

Because if you have a long time frame the life policy can blow away the lifetime income of the FIA....Just take a look at caps between a FIA and what is available in an IUL with caps in the 13%-14% range, now I know that is only part of the story but if you take an honest look at what a life policy can create in the form of a tax free income it can explain why one may use it in place of a FIA.

That's the direction I'm leaning for most of my clients, especially with FIFO treatment of withdrawals, or loans available, and no penalty for accessing CV that happens to be greater than 10% of principal per year...

But I wanted to know under which circumstances one would recommend and implement a FIA as a solution for a client instead of IUL and what the benefits are of the FIA over the IUL. (Main ones I can think of are no COI, all of account value immediately can earn interest vs only what's left after IUL fees/COI/premium load/etc.)

Granted I'm looking for a comparison between flexible premium FIA vs IUL, let's say contributing to either or both for 5/10/15/20 years.

Under what circumstances/situation/client fact pattern would the FIA be better for client than IUL, and when would IUL be better than FIA for client?

Thanks again to all of you for your help in increasing my understand of proper application of these products/solutions for my clients!

I really do appreciate this forum and the wonderful/very knowledgeable, as well as the more sarcastic/humorous, posters. Thanks for making this a great resource.

-RINCN

 

[Justin Bilyj]

Also income taken from an annuity that isn't annuitized adds to their taxable income, possibly increasing the amount of social security taxes owed. Income taken from a life insurance policy doesn't add to taxable income keeping taxes lower on one's social security benefits.

 

[Tahoe Ray]

But I wanted to know under which circumstances one would recommend and implement a FIA as a solution for a client instead of IUL and what the benefits are of the FIA over the IUL. (Main ones I can think of are no COI, all of account value immediately can earn interest vs only what's left after IUL fees/COI/premium load/etc.)


-RINCN

When the assets that we're discussing are in IRAs, older clients, sicker clients, clients with shorter time horizons (before needing retirement income), clients who want 100% guaranteed income without uncertainty, clients with a lump sum, etc.

 

[Norwayguy]

Also income taken from an annuity that isn't annuitized adds to their taxable income, possibly increasing the amount of social security taxes owed. Income taken from a life insurance policy doesn't add to taxable income keeping taxes lower on one's social security benefits.

Careful with that statement even an annuitized stream of income adds to their taxable income its just the payment is a portion of return of premium and interest in excess of cost basis....So they will recieve a 1099 just how tax efficient it is depends on how large the account value is above the cost basis.

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For me when I would go with a flexible premium annuity over a life policy is when I can not get a firm commitment from the client to fund the policy ie I think they may stop premium in 3 years no problem in the annuity but could be a disaster in the life policy.

 

[AnonymousOne]

Because if you have a long time frame the life policy can blow away the lifetime income of the FIA....Just take a look at caps between a FIA and what is available in an IUL with caps in the 13%-14% range, now I know that is only part of the story but if you take an honest look at what a life policy can create in the form of a tax free income it can explain why one may use it in place of a FIA.

IULs certainly out cap any FIAs. That's purely on the accumulation side.
Where an IUL may be appropriate for someone saving that is young and healthy, I don't think an IUL could compete with a FIA when we are talking say over 55. If not only for the reason of a guaranteed income rider.
It would take two illustrations for me to see the light in this scenario, of which I am completely open to.
I'll give the IUL benefit of the doubt with a min face and best underwriting.

 

[Norwayguy]

IULs certainly out cap any FIAs. That's purely on the accumulation side.
Where an IUL may be appropriate for someone saving that is young and healthy, I don't think an IUL could compete with a FIA when we are talking say over 55. If not only for the reason of a guaranteed income rider.
It would take two illustrations for me to see the light in this scenario, of which I am completely open to.
I'll give the IUL benefit of the doubt with a min face and best underwriting.

Please note the operative words "long term". Most of my conversations are people at square one contributing for the first time as I explain between now and retirement 1 of 3 results can happen:

1. You never reach retirement age and die early, from day one the life insurance plan has a tax free benefit that is larger than any other vehicle.

2. You get sick or hurt and can no longer work, you would likely not be able to continue contributing to your account...With the life insurance option you have a waiver of stipulated premium meaning the insurance company after an elimination period will make your payments for you till age 60 now that is shorter than the 62 or 65 or 67 we would like to contribute till but it is better than a poke in the eye with a Sharp stick.

3. You reach retirement age to equal the same tax free income this policy might provide you may need to do an unsustainable withdrawals from any other account meaning you can have the same type of lifestyle the life policy can provide but for just a much shorter time frame, do you know when you want to stop living?

Add to that the accelerated benefit riders offered for chronic and critical illnesses and the fact that you have more flexibility on pre 59 1/2 withdrawals makes the life policy pretty strong IF the prospect is open minded and willing to listen which this goes to another recent thread about 770 accounts or 7702 plans etc. I am not ashamed of what life insurance is but I can see using that terminology to get the prospect to actually listen to what life insurance can provide but they must be informed before application that it is a life insurance policy.

 

[RINCN]

Please note the operative words "long term". Most of my conversations are people at square one contributing for the first time as I explain between now and retirement 1 of 3 results can happen:

1. You never reach retirement age and die early, from day one the life insurance plan has a tax free benefit that is larger than any other vehicle.

2. You get sick or hurt and can no longer work, you would likely not be able to continue contributing to your account...With the life insurance option you have a waiver of stipulated premium meaning the insurance company after an elimination period will make your payments for you till age 60 now that is shorter than the 62 or 65 or 67 we would like to contribute till but it is better than a poke in the eye with a Sharp stick.

3. You reach retirement age to equal the same tax free income this policy might provide you may need to do an unsustainable withdrawals from any other account meaning you can have the same type of lifestyle the life policy can provide but for just a much shorter time frame, do you know when you want to stop living?

Add to that the accelerated benefit riders offered for chronic and critical illnesses and the fact that you have more flexibility on pre 59 1/2 withdrawals makes the life policy pretty strong IF the prospect is open minded and willing to listen which this goes to another recent thread about 770 accounts or 7702 plans etc. I am not ashamed of what life insurance is but I can see using that terminology to get the prospect to actually listen to what life insurance can provide but they must be informed before application that it is a life insurance policy.

Hi Norwayguy, thanks sooo much for the clear and well thought out answer, this kind of information is exactly what I was looking for!

Thanks a bunch to everyone else also for the healthy discussion/debate about the merits of flexible premium FIA and IUL for retirement savings accumulation.

I also really like Tahoe Ray's post on when a flex prem FIA would be better in terms of contribution years, age, and/or health of insured.

Thank you all!

-RINCN