IUL time bomb article

[SParker]

Hi All, is it true for all IUL what this article says about the minimum guaranteed growth rate? Or is it only specific to the policy that is being critiqued in the article?

It says: "The guaranteed growth of 3% was only payable at policy cancellation!"

Copied from this IUL ticking time bomb article
The Life Insurance Policy That Is a Ticking Time Bomb! - Modest Money

Say if the stock market tanks year after year, will I still have the min guaranteed return to fall back on and be able to bleed down the policy with a small lifetime income based on the minimum guaranteed return promised in the policy?

Thanks.

 

[DHK]

Depends on how the premiums are allocated between fixed or the various index segments... assuming that the underlying index is flat or negative for many, MANY consecutive years. (Think about how likely that would REALLY be.)

What's most interesting and most common about articles like these, is that they always blame the product rather than the policy structure.

 

[SParker]

THANKS!

 

[pfg1]

So much wrong with that article. I agree there will definitely be some time bombs going off, but that is because of design and/or funding issues. Imho, if you are designed properly and overfund the policy, you won't have an issue. If you minimally fund it or its designed wrong there could definitely be issues.

 

[scagnt83]

That article is written by someone who has an elementary understanding of IUL products and life insurance in general.

The issue he describes in his article is not the product, it is the design of the product.

Also, the guaranteed rate and how it is credited, varies from policy to policy. There is no industry standard for that.

IULs are time bombs because of the agents selling them.

 

[magagent]

Hi All, is it true for all IUL what this article says about the minimum guaranteed growth rate? Or is it only specific to the policy that is being critiqued in the article?

It says: "The guaranteed growth of 3% was only payable at policy cancellation!"

Copied from this IUL ticking time bomb article
The Life Insurance Policy That Is a Ticking Time Bomb! - Modest Money

Say if the stock market tanks year after year, will I still have the min guaranteed return to fall back on and be able to bleed down the policy with a small lifetime income based on the minimum guaranteed return promised in the policy?

Thanks.

As a previous poster indicated, If an IUL is designed properly it will be the best financial investment you've ever made. If an IUL is designed poorly it will be the worst financial investment you've ever made.

 

[SParker]

@scagnt83 @pfg1 @magagent

Thanks! What are some of the critical elements that should go into a properly designed IUL for maximizing lifetime income ?

I only know of keeping the initial DB small and let it increase over time while allowing premium to be as close to the MEC limit as possible. Check the loan provisions, whether it is a wash loans or something else.

As far as max funding the policy, what is considered max funding vs light funding? Is there a formula?

Anyone interested in mentoring me to design a good IUL (New York) for a consulting fee? Feel free to send me a private message.

Details of the policy:

-Male - 55, standard non tobacco
-Objective - maximize lifetime distribution starting year 21 of the policy
-Total premium for the entire policy - $300K
-Can fund in one lump sum or spread it out over time such as a $60K x 5 pay or whatever generates the maximum lifetime distribution starting year 21.

Thanks.

 

[Allen Trent]

Say if the stock market tanks year after year, will I still have the min guaranteed return to fall back on and be able to bleed down the policy with a small lifetime income based on the minimum guaranteed return promised in the policy?

not necessarily. while it may be true that the underlying policy has a bottom guarantee of 2 or 3% interest being credited, that merely means at the time of death claim or cancellation, the worst the interest crediting component of the policy would show is a that 2-3% being credited for each year if it had done worse than that.

because a UL/IUL also has many other components like load fees, cost of insurance for the death benefit, rider costs, etc, there is no guarantee you would get any small lifetime income based on that minimum guarantee because the other items may have eaten up the cash value & interest guarantee. Especially depending on if max funding had not been maintained or money had been withdrawn from the account.

UL/IUL are not pure interest crediting accounts like a bank account or retirement account, the chassis of the insurance policy has fees & costs to be deducted from the values, meaning a 2-3% bottom line minimum guarantee may not cover all the costs if the policy is minimum funded or the internal costs of insurance get raised

 

[SParker]

@Allen Trent Thanks Allen, very helpful.