IUL lifetime income 2.5% vs 3.75% vs 6.64%

[SParker]

Can someone help me understand the chart on this video ? At about 11:07 mins into the video where it talks about distribution of $114K starting in year 26 of the policy



Distribution starts in year 26 after contributing a total premium of $450K into this policy.

If the return is 6.64%, lifetime income is $114K annually for life
If the return is 3.75%, then the $114K annual income lasts 6 years with zero DB left after 6 years
If the return is 2.5%, then the $114K annual income lasts 2 years with zero DB left after 2 years.

Does the above sound right according to this video?

Sorry video a bit blurry but that is the only illustration I can find online.

Thanks

 

[scagnt83]

Didnt watch the video...

But if the return is lower than original estimates, you dont take out the same amount per year. You take out a lower amount that allows the policy to sustain itself.

You never allow the policy to lapse or its a tax time-bomb.

But I would guess you are looking at the Guaranteed & Midpoint columns of the illustration. Which use the same Loan amount as the Current. You have to use different illustrations to show the different scenarios of income based on returns.

 

[pfg1]

Its a function of math is all. Higher returns = more money total = longer sustained income stream. You better hope the IUL does better than 3-4% or your better off in WL, imo

 

[SParker]

But if the return is lower than original estimates, you dont take out the same amount per year. You take out a lower amount that allows the policy to sustain itself.

You never allow the policy to lapse or its a tax time-bomb.

But I would guess you are looking at the Guaranteed & Midpoint columns of the illustration. Which use the same Loan amount as the Current. You have to use different illustrations to show the different scenarios of income based on returns.

Yes, thanks. I am indeed looking at the midpoint or Alternative values which is 3.5% (min guarantee is 2.5% and current returns is 6.64% on the illustration).

 

[SParker]

Its a function of math is all. Higher returns = more money total = longer sustained income stream. You better hope the IUL does better than 3-4% or your better off in WL, imo

Thanks. I am comparing a WL with IUL, just want to see what the IUL lifetime distribution looks like if it falls short of the current returns of 6.64% in the illustration.

Theoretically it should look very much like a WL.

 

[Allen Trent]

Thanks. I am comparing a WL with IUL, just want to see what the IUL lifetime distribution looks like if it falls short of the current returns of 6.64% in the illustration.

Theoretically it should look very much like a WL.

keep in mind, 6.64%, even if that is what actually the index credits, is not what you will see as returns in your policy. the various costs of the policy are deducted each year from the cash value, which are offsets to the 6.64% average of the projected index credit. you should request to see the illustration pages that likely were not included that might be called "summary of policy charges/fees". these pages will show you the projected costs of the underlying contract. those costs may take away 1-2% of the illustrated returns. the lower you keep the face amount & the more you max fund the contract, the more you can minimize the underlying policy costs so that the more of the index credited interest can help build the cash value

 

[SParker]

keep in mind, 6.64%, even if that is what actually the index credits, is not what you will see as returns in your policy. the various costs of the policy are deducted each year from the cash value, which are offsets to the 6.64% average of the projected index credit. you should request to see the illustration pages that likely were not included that might be called "summary of policy charges/fees". these pages will show you the projected costs of the underlying contract. those costs may take away 1-2% of the illustrated returns. the lower you keep the face amount & the more you max fund the contract, the more you can minimize the underlying policy costs so that the more of the index credited interest can help build the cash value

@Allen Trent Thanks, if the IUL is designed in such a way that the 1-2% costs will eat into the illustrated returns of 6.64%, I will probably be better off going for a participating WL, don't you think?

 

[scagnt83]

@Allen Trent Thanks, if the IUL is designed in such a way that the 1-2% costs will eat into the illustrated returns of 6.64%, I will probably be better off going for a participating WL, don't you think?

All Permanent Life Insurance works like that. If your WL Policy receives a 6% Dividend, your CV does not increase by 6%.

A max funded IUL from a quality company should not cost 2% long term unless the client had a horrible health rating. In later years, often the fees amount to less than 1% of the CV, even less than 0.5%. (depends on carrier/situation obviously)

There are higher Costs on an IUL up front in the first 10 years while Premiums are being paid. Then the costs drop off significantly with most products. The COI obviously increases over time, but for a well designed policy, it should not be a significant load in later years from a percentage standpoint.