Indexed Universal Life

[Blessed]

Hello,

I was wondering if there is an equivalent of Paid Up Additions, which is a Rider in Whole Life, to Indexed Universal Life? Is there a rider in IUL that does the same thing as Paid Up Additions in Whole Life.

I am very proud to be on this forum, my questions have always been answered by very knowledgeable individuals. I will be waiting for your very educated answers. Thanks.

 

[Ron Van D]

Hello,

I was wondering if there is an equivalent of Paid Up Additions, which is a Rider in Whole Life, to Indexed Universal Life? Is there a rider in IUL that does the same thing as Paid Up Additions in Whole Life.

I am very proud to be on this forum, my questions have always been answered by very knowledgeable individuals. I will be waiting for your very educated answers. Thanks.

Wait! When did we allow that type in?

 

[spartuna]

Not really the same, IUL should only be marketed to clients that can afford to overfund the policy, otherwise the increased costs could potentially be problematic later.
If you run the illustration at option B (age appropriate) with max funding they usually perform quite well.

Don't forget, any year they do not max-fund they can go back later and dump in the difference.

 

[RonRoberts]

Not really the same, IUL should only be marketed to clients that can afford to overfund the policy, otherwise the increased costs could potentially be problematic later.
If you run the illustration at option B (age appropriate) with max funding they usually perform quite well.

Don't forget, any year they do not max-fund they can go back later and dump in the difference.

If someone wishes to fund the IUL at minimum premium or somewhere between minimum and target which might give them a 15 year guarantee do you sell them something else?

 

[spartuna]

Yes, definitely. Do you wanna be the agent that receives a call from your client asking you why the insurance companie's letter is telling them to increase premiums or have their policy lapse?

 

[findsm]

so im looking for feedback on this topic actually..

me and a financial advisor friend got into a discussion on this topic a few days ago.

we did the IUL vs 401k or even term plus mutal fund.

I discussed the tax benfits of the IUL while 401k (non matched by company) had the deposit deferred but taxed on everything else where as term would be wasted if they didn't pass during the time and they would have to use the money made on mutal funds to be back to zero...

I know a company that has a IUL ave return of 8.5% over the last 20 years the celing being 13.5% and floor being 1% would be be smarter to get an individual into the IUL or see what other options are out there?

 

[DHK]

I know a company that has a IUL ave return of 8.5% over the last 20 years the celing being 13.5% and floor being 1% would be be smarter to get an individual into the IUL or see what other options are out there?

That's a dangerous statement right there.

First, it shows you don't understand the value of IUL. The value in IUL is that you can reap the upside of market volatility, without the downside. Either in an annual point-to-point... or a monthly averaging, you can capture upside swings in the given index without loss of principal. That is the value of indexing... not the promise of great returns, but in capital preservation (taking the insurance fees and COI into account).

Second, it shows that you don't know the difference between average and actual returns. (Or you like to believe in illusions... or illustrations as facts?) Just because you CAN illustrate an IUL at "8.5% PER YEAR" does NOT mean that they will GET 8.5% per year. The highest rate I would feel comfortable showing is 7%... and even THAT is a little high for me. I usually prefer 6% on my IUL illustrations. (I really wish there was a different standard for IUL illustrations than showing a consecutive, consistent, rate of return year over year. Maybe something closer to how variable annuities were illustrated back in the day?)

Once you understand how IUL can capture upside volatility (good) and avoid the negative losses... and if that strategy is important to you and the client... then it doesn't matter how good you can make the 401k (or anything else) look.

Don't compare rates of return. Compare strategies, safety, security, and possibilities. Then let the client decide which they'd prefer.

 

[findsm]

thanks for your feedback, I'm going to have to do more research forsure! your right on the 8.5% it wasn't like that the whole 20 years it was higher and lower but looked to come out to be around 8.5%.. but how i saw the IUL is the safeness of the play, more for the people who aren't tryingto gamble their hard earned money away... so just curious then because you have alot more knowledge then I do on the subject. for an ave family middle class looking to to retire at the age of 65 and not worry about out living their money what would you suggest? Im sorry I just want to pick your brain on the subject..

 

[DHK]

First, I would suggest a full-fact find.

Second, I would learn how to harness the permanent life policy BEFORE age 65. I'm a fan of the "infinite banking" concept.

Here's what it is:
- Borrow against your cash value for your purchases... instead of expensive finance charges from banks... and instead of withdrawing your savings (and forfeiting interest you could've earned).

- When you borrow against your cash value, (with non-direct recognition policies), your cash value continues to grow as though you haven't touched it! This allows the compounding to continue (instead of the start & stop that most people do)!

When you compare the strategy THIS way... there's no comparison to the "traditional" methods of:

- Save money in 401k (that you can't touch). If you borrow from a 401k, it can be fully taxable if you quit your job, and your compounding balance is reduced.

- Term life insurance premiums are lost... including the earnings that premium COULD'VE earned.

- Lost principal and the earnings for taking on portfolio risks.

So combine some methods, and the overall strategy will be a LOT better than "buy term, invest in your 401k, and pray".

----------

This guy, John Cummuta, is a financial author that used to tout "Buy term and invest the difference". Now he promotes a "Family Bank" strategy. This video is helpful:

The Banker's Secret to Permanent Family Wealth

----------

With life insurance loans... you want to treat them just like a bank loan.

But here's the kicker:
- If you get into a bind, the minimum payment is the ANNUAL interest due each year. If you can't pay that... then it can come out of the remaining cash values.

No collection calls... ever.

However, don't let the policy lapse... or it can trigger some serious tax consequences!

 

[meclimit]

"Infinite Banking" works fine with whole life, with the caveats you mentioned. Its particularly important to at least pay the interest each year on a policy loan. Plus, with non-direct recognition whole life, as you mentioned, the policy continues to earn dividends as if the loan wasn't there. This usually results in a wash loan type of a situation.

Infinite Banking is not so good with IUL -- particularly if the loan collateral is kept in the index accounts and there is no wash loan feature. Policy lapses much more likely to happen if the loan interest can't be paid.