I’m not in favor of IULs.

[scagnt83]

What would be the best arguments for IUL as compared to WL or another product to grow and protect cash while having a growing death benefit?

I’ve studied this in depth but always want to learn. I may not be seeing something.

Risk tolerance. Personal preference of client. These are the 2 main reasons to use IUL over WL.

IUL simply just has a different risk tolerance than WL does. Some clients are more inclined to take that extra risk... others are not. Most cases thats what it really comes down to. Statistically, IUL is going to earn an extra 1%-3% over WL for a 40 year period. Is the extra risk worth it to the client? Depends on the client.

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From a technical standpoint, there is a huge reason to use IUL over WL for CV accumulation and Income. Its more efficient.

A properly structured IUL/UL (I dont just mean MEC limit) will produce a higher payout % of income per dollar of CV.

A properly structured IUL/UL will allows a higher percentage of annual policy gains to be allocated to CV instead of going to increase DB.

GPT is the main difference that creates this, but also the ability to switch from Opt 2 to Opt 1.

 

[Allen Trent]

or if they’re just looking for max cash value over the long haul,.

if this is their primary goal, no life insurance policy would fit/match that goal. Cash value dragged by load fees, surrender charges, cost of insurance would not max the value of cash over the long haul compared to other non-insurance investments in most 50-70 year periods of history.

Now, if you are already making the assumption the person is only considering buying life insurance & have a gun to their head to only select from IUL or WL, that is a different debate. I own WL & UL, dont own IUL, but I have no problem with someone using fully max funded IUL if they want to as a way to supplement retirement. I also have no problem if someone wants to use no lapse IUL with ADB CIA or to use no-lapse 2nd to Die IUL even if I dont personally own those nor personally produce those products.

 

[DHK]

if this is their primary goal, no life insurance policy would fit/match that goal. Cash value dragged by load fees, surrender charges, cost of insurance would not max the value of cash over the long haul compared to other non-insurance investments in most 50-70 year periods of history.

I'll agree that on a $ for $ basis, life insurance sucks. I don't care which variation, it will suck compared to basic investing - even just buying an index ETF.

Now, if you are already making the assumption the person is only considering buying life insurance & have a gun to their head to only select from IUL or WL, that is a different debate. I own WL & UL, dont own IUL, but I have no problem with someone using fully max funded IUL if they want to as a way to supplement retirement. I also have no problem if someone wants to use no lapse IUL with ADB CIA or to use no-lapse 2nd to Die IUL even if I dont personally own those nor personally produce those products.

I believe he's comparing to WL that has all the costs of insurance bundled in the premium on a known basis, as opposed to an unknown basis. Of course, as we all know, guarantees have costs.

As far as I can tell, IULs can work in retirement, but one would need to manage it using a form of a 'safe withdrawal rate' to account for not just 0% index crediting years (which could be averted with a mix of indexing strategies), but also for costs of insurance on the net amount at risk. (The net amount at risk is often forgotten by whole life zealots because they often believe that the COI is based on the face amount and the increasing age of the insured; it's based on the net amount at risk.)

https://www.dynamicadvancedwealth.c...ash-value-life-insurance-policy-in-retirement

 

[Allen Trent]

I'll agree that on a $ for $ basis, life insurance sucks. I don't care which variation, it will suck compared to basic investing - even just buying an index ETF.



I believe he's comparing to WL that has all the costs of insurance bundled in the premium on a known basis, as opposed to an unknown basis. Of course, as we all know, guarantees have costs.

As far as I can tell, IULs can work in retirement, but one would need to manage it using a form of a 'safe withdrawal rate' to account for not just 0% index crediting years (which could be averted with a mix of indexing strategies), but also for costs of insurance on the net amount at risk. (The net amount at risk is often forgotten by whole life zealots because they often believe that the COI is based on the face amount and the increasing age of the insured; it's based on the net amount at risk.)

https://www.dynamicadvancedwealth.c...ash-value-life-insurance-policy-in-retirement

For sure. He hadnt mention using distributions, tax efficiency. just the largest value of cash.

the one thing hurting WL this year compared to IUL & VUL (easily seen in the national production stats" is the 7702 boon to IUL/VUL products now allowing a ton more premium to fit into smaller policies without causing them to MEC. This has made illustrations that are max cash into minimum face look a ton better in 2022 than in 2019 & before. Hopefully WL carriers can come up with creative ways to price for this. I have not seen it on a couple of recent product introductions

But, you are absolutely right that IUL still has all the unknows as to whether the carrier will not jack up internal costs some days or change par/cap rates. I just saw a clients Transamerica fixed UL annual statement. Transamerica is charging max internal cost of insurance allowed by law/contract even though you know they have much improved mortality compared to when it was priced 20-30 years ago........................why did they raise COI, because they were losing on the investment side of the pricing equation but couldnt go lower than 4.5%, so they moved the other lever of what they could ---fees/COI, etc.

Designed correctly I have no problem with WL, UL or IUL. I am less of a fan of VUL unless it is for the super high income/wealth sophisticated client that is willing to risk the down turns a VUL can take in losses. Saw that in the crashes of late 90's & 2008. Some of those policies I saw couldnt be fixed because the clients were too old & couldnt legally fit any more money in the contract either by law or by ILIT gifting maximums already reached. I helped them at least get some tax advice that they could take the losses as itemized deductions at the time like could be done with Variable Annuity losses at surrender

 

[DHK]

opefully WL carriers can come up with creative ways to price for this. I have not seen it on a couple of recent product introductions

Companies have already introduced their new WL platform contacts to conform with the new 7702 laws.

For WL, the minimum premium/max death benefit sale... the premium is higher, because the minimum reserve rate (2%) is lower (than it was at 4%).

For limited pay WL, the minimum DB/max premium sale... the death benefit is smaller, so more cash can be working in the policy with less net amount at risk.

Now, I can't quantify exactly the benefit to the client, but that's really inconsequential since they can't necessarily choose between a 2% minimum reserve rate and a 4% reserve rate policy.

I just know that it introduces a new level of efficiency.

 

[DHK]

For sure. He hadnt mention using distributions, tax efficiency. just the largest value of cash.

Yes agreed. Of course, this is often when life agents are looked at like a cult:

"You're telling me that I should have a far lower return and lower pile of money when I can 'buy term and invest elsewhere' and have a far bigger pile of money? Are you insane? Are you in a cult? Blink twice if you need help."

 

[Tahoe Ray]

I just saw a clients Transamerica fixed UL annual statement. Transamerica is charging max internal cost of insurance allowed by law/contract even though you know they have much improved mortality compared to when it was priced 20-30 years ago..

I'm pretty sure they're being sued over that too...

 

[Allen Trent]

I'm pretty sure they're being sued over that too...

They were, but paid $195M settlement. But I just saw the clients annual statement & the projection shows exact same future in both the current projected & the guaranteed worst case columns. So, it appears they have no plans of changing from worst case highest charges

https://windsorlifesettlements.com/transamerica-successfully-sued/

 

[REI_Velocity]

Risk tolerance. Personal preference of client. These are the 2 main reasons to use IUL over WL.

IUL simply just has a different risk tolerance than WL does. Some clients are more inclined to take that extra risk... others are not. Most cases thats what it really comes down to. Statistically, IUL is going to earn an extra 1%-3% over WL for a 40 year period. Is the extra risk worth it to the client? Depends on the client.

--------

From a technical standpoint, there is a huge reason to use IUL over WL for CV accumulation and Income. Its more efficient.

A properly structured IUL/UL (I dont just mean MEC limit) will produce a higher payout % of income per dollar of CV.

A properly structured IUL/UL will allows a higher percentage of annual policy gains to be allocated to CV instead of going to increase DB.

GPT is the main difference that creates this, but also the ability to switch from Opt 2 to Opt 1.

Please don't take my questions the wrong way. I'm pretty experienced as a client in this space, as a real estate investor, and then as an agent (more recently)... I love comparing options as I want the best not only for some significant money I put into these policies each year, but also for clients.

Risk would definitely be a factor, I agree. But one of my key aspects is that my WL policies (which I think is done better than 95% of others I've seen) are a savings vehicle (one that will make around 5-ish% but still...). What I use my cash value for is my investment, and we use it pretty aggressively. My policy is just a safe place to run back to with no worries of loss or market fluctuations, etc., yet it's also built for max efficiency (high cash value / low DB).

I've compared my stuff to about 7 IULs today alone and I just don't get it. Even with the non-guaranteed % my WL beats it. It's only when assuming the same higher rate year over year after decades will the IUL exceed the WL, but those assumptions aren't realistic. Further, the WL crushes the IUL on death benefit later in life... which one is more piece to think about.

You mentioned the 40 year history... but this is another issue I have with IULs. They were "invented" around 1997 based on my research... and it looks like it was Transamerica who did the first policy. So any historic claim is looking at the S&P 500 or something, but that isn't even realistic since so much more is going on in a policy. I have yet to see any old illustration (late 90's early 2000's) compared to actual values to present day, and I know many people have that challenge out there.

I'll end with this, but the whole no-lapse guarantees or level term are often for about 20 yrs, assuming you haven't missed any payments and played the game perfectly. However, cost of insurance will go up, up, up. The ticking timebomb decades from now will be top of mind then but it's not discussed today. It's like all the VL products that were imploding decades after they were sold in the 80s... I think of all the late night news shows of the old ladies getting a bill for a 20K premium or else their policy lapses.

As an investor, why not do a very safe and predictable WL, then take loans and make triple digit returns all day long... I'm very risk tolerant too, but I want my risk in what I control.

 

[Life Hawk]

Not picking a fight here, but aren't most of the "fancy" insurance products build around the idea of building in an investment style component on a life chassis?

I'm not opposed to the idea, but "free of risk" just isn't the case in most of these complicated products. In truth, there is a lot of risk, from market or interest fluctuation of the market, willful ignorance or willful neglect on part of companies and agents, to the full on ignorance of the owners who truly have no clue of what they are paying for. In steps the government to control all of this, and ... it gets so much better.

There are so many warning flags with them but agents love selling them. I won’t.

A step in the right direction. I believe that a historical case can be made here, be it with the bad decisions of companies to market these, agents producing these, or ill informed clients purchasing these.