Ok, so IUL's have gotten my attention ...

[To The Top]

You are right in that it's safe to overfund. Keeping everything in perspective, IUL's are an attractive package deal most of the time, providing insurance with the additional benefits of using the cash later for other things, such as funding education or retirement, medical emergencies, long term care needs or simple cash accumulation. Dave Ramsey would disagree, but term and invest the difference is antiquated unless you're an active real estate investor and not risk averse. To diversify, create financial discipline and soften market risk, it can be a great option.

 

[Life Hawk]

but term and invest the difference is antiquated

Not so... if that model is followed at an early age, and one is disciplined both in saving and spending... that model works very very well. The problem is not that it is antiquated, the problem is that rarely is it instituted in a correct age frame and few people have the discipline that proper finance and investing require.

The emotions of investing is what people often fall prey to.

 

[Allen Trent]

To diversify, create financial discipline and soften market risk, it can be a great option.

how does a UL or IUL create financial discipline? I have seen the opposite. UL based products have little to no noticeable impact to the consumer when a contribution isn't made, thus they learn they can get away with not making payments. they wont see the consequence of it for years or decades.

I own a lot of UL & WL, but having clients use UL or WL/PUAR instead of 401k/Roth can be a disaster for the wrong consumer. Failing to make a retirement contribution has little to no consequence. failing to make contributions to a designed UL/IUL/WL savings plan allows all the internal costs to eat up any cash value

 

[Life Hawk]

how does a UL or IUL create financial discipline? I have seen the opposite. UL based products have little to no noticeable impact to the consumer when a contribution isn't made, thus they learn they can get away with not making payments. they wont see the consequence of it for years or decades.

I own a lot of UL & WL, but having clients use UL or WL/PUAR instead of 401k/Roth can be a disaster for the wrong consumer. Failing to make a retirement contribution has little to no consequence. failing to make contributions to a designed UL/IUL/WL savings plan allows all the internal costs to eat up any cash value

Agreed... the complexity of the product mixed with options to miss/skip payments allow too much leeway to under fund and the complexity is far greater than most consumer want to consider, which means they will not remember or understand... and its hard to course correct 5 to 10 years into disaster...

 

[To The Top]

To respond but not to debate, these points are based upon my experience with many clients.

"Buy term and invest the difference" was a good plan when mutual funds were net high yield investments. For the most part, that's no longer the case considering generally lower returns, market fluctuations and higher expenses. To your point, it wouldn't be antiquated if people saved with discipline. I find that to be the exception rather than the rule, so it's a non-starter for me.

I recognize UL products allow the freedom to be flexible. Frankly, I don't emphasize that. It's not a benefit except when someone is in a financial pinch. I would say, consider how you present.

To the point of creating discipline, the buy-in of the client for an IUL is found in the accelerated benefits or the savings feature (often long-neglected), not so much the death benefit. That's their interest, and because of that, persistency in IUL's presented correctly and well-serviced is very high for me.

 

[Allen Trent]

was a good plan when mutual funds were net high yield investments. For the most part, that's no longer the case considering generally lower returns, market fluctuations and higher expenses

I am in your corner as I am a big believer in permanent life, but I think you have some info completely backwards which tells me you might be getting your over all financial acumen from people motivated by IUL solving all problems

Average mutual funds & items like S&P 500 index funds/ETF have average 10% historically over the last 90 years. the most recent 10 years is closer to 14%. Also, expense ratios of mutual funds & index funds have plummeted in recent years. So, I think you have both of those aspects backwards from actual.

I think you are correct that most of these cases need more TLC & I am glad you are doing that with your customers as that is not the case for many policies

Everything in moderation & best candidates for max funded IUL or max funded WL/PUAR are those more affluent clients who are already saving adequately in other places for retirement, college. if an agent sells a life policy as being able to solve all things like short term disability, college savings, retirement income, long term care & death benefit, the average consumer will be in trouble when they deplete the contract for 1 of those 5 things & cant figure out why the policy isn't there for the other 5 life events. we may be overpromising a bit to consumers when we say "possible uses" & they interpret "guaranteed to be swiss army knife for all of these events"

 

[To The Top]

I'm glad we have found a few points of agreement.

My summary about mutual funds were labeled by you as "backwards", so I'm going to challenge you to substantiate your facts. I'll make my case and if you would like, please do the same, and feel free to test my remarks. I'll acknowledge your return in the end to conclude, as this has become quite long. However, I enjoy exchanging ideas as you seem to as well.

The first ETF was started in 1990 and the first S & P 500 index fund began in the early '70's, so it's completely erroneous to quote a 90-year return on either of these. Methinks perhaps it is you who may be heavily influenced by industry training and folklore. I say this only because it sounds terribly familiar, as I too was trained by the industry. I'm sure you meant to refer to the S & P 500 returns over the past 90 years. However, it's clear they didn't achieve such high returns over those years either. But, let's continue.

My perspective doesn't come from IUL people, and I assume you mean insurance wholesalers. It comes from several years of active portfolio management. I only recently came to the insurance business after retiring and coming back to practice in financial advisory. After several years of putting my nose into prospectuses and reading that horrible fine print, I came to realize that most, not all, mutual funds, did well in the '80's, '90's and early 2000's, but deteriorated following the tech bubble and most assuredly after the derivative mortgage implosion. It was disillusioning and changed my philosophy and analytics.

I will agree with you that index funds and ETF's can be reasonably good market investments for many. Although growing, they are not prominent in most individual portfolios. However, in my earlier remarks, I spoke only of mutual funds in general, not managed index funds or ETF's, as expensive and, frankly, obsolete, so please tell me where you will find "average mutual funds" returning 10-14% net over time. I think your numbers are closer to net returns on performing hedge funds, not garden variety mutual funds.

To close, while I am a contrarian, I am not anti-markets. I trade individual stocks. I like some ETF's (ever since I lost a few thousand at the end of the day's trading in mutual funds) and index funds if managed well (Vanguard). I enjoy alternatives. Overall, I stand by my original statements in the respect that IUL's have flaws as do all products, but they are an excellent added asset class or part of a balanced portfolio for most clients. They are an excellent diversified tool to help people who often have no health insurance, have health insurance with gaps, don't save consistently, have no long term care plans, underfund retirement and need more life insurance. Covering five areas with one product brings a risk of losing one or more coverages, but the benefit far outweighs the detriment. AND, it leaves the door open to continue to protect families.

 

[jboussea]

You guys are debating all of this with the best intentions but it doesn't matter ...what the plan is. doesn't matter all that much .. it's the implementation of the plan.. and that ultimately falls on the client. .

Buy term and invest the difference is not the problem
UL/IUL is not the problem...

Any of these plans would work if it were not for the typical "human behavior" ... The best candidate for a max funded IUL is someone with great discipline... The best candidate for buy term invest the difference .. is the same..

IMO .. I think using all these products together would work best for most .. because it maximize the options you have .. regardless of what happens in the market... However none of that matters if you can't follow through with the plan

Say what you want about Dave Ramsey... there are a lot of things that he says that's inaccurate.. but at the end of the day .. his die hard followers seem to be indoctrinated with his plan..

 

[Allen Trent]

I'm glad we have found a few points of agreement.

My summary about mutual funds were labeled by you as "backwards", so I'm going to challenge you to substantiate your facts. I'll make my case and if you would like, please do the same, and feel free to test my remarks. I'll acknowledge your return in the end to conclude, as this has become quite long. However, I enjoy exchanging ideas as you seem to as well.

The first ETF was started in 1990 and the first S & P 500 index fund began in the early '70's, so it's completely erroneous to quote a 90-year return on either of these. Methinks perhaps it is you who may be heavily influenced by industry training and folklore. I say this only because it sounds terribly familiar, as I too was trained by the industry. I'm sure you meant to refer to the S & P 500 returns over the past 90 years. However, it's clear they didn't achieve such high returns over those years either. But, let's continue.

My perspective doesn't come from IUL people, and I assume you mean insurance wholesalers. It comes from several years of active portfolio management. I only recently came to the insurance business after retiring and coming back to practice in financial advisory. After several years of putting my nose into prospectuses and reading that horrible fine print, I came to realize that most, not all, mutual funds, did well in the '80's, '90's and early 2000's, but deteriorated following the tech bubble and most assuredly after the derivative mortgage implosion. It was disillusioning and changed my philosophy and analytics.

I will agree with you that index funds and ETF's can be reasonably good market investments for many. Although growing, they are not prominent in most individual portfolios. However, in my earlier remarks, I spoke only of mutual funds in general, not managed index funds or ETF's, as expensive and, frankly, obsolete, so please tell me where you will find "average mutual funds" returning 10-14% net over time. I think your numbers are closer to net returns on performing hedge funds, not garden variety mutual funds.

To close, while I am a contrarian, I am not anti-markets. I trade individual stocks. I like some ETF's (ever since I lost a few thousand at the end of the day's trading in mutual funds) and index funds if managed well (Vanguard). I enjoy alternatives. Overall, I stand by my original statements in the respect that IUL's have flaws as do all products, but they are an excellent added asset class or part of a balanced portfolio for most clients. They are an excellent diversified tool to help people who often have no health insurance, have health insurance with gaps, don't save consistently, have no long term care plans, underfund retirement and need more life insurance. Covering five areas with one product brings a risk of losing one or more coverages, but the benefit far outweighs the detriment. AND, it leaves the door open to continue to protect families.

Yes, now we are talking. You had me at hello. Mad respect for your expertise & being a student of the business. I made a couple assumptions about your fund comments that were incorrect. The main incorrect assumption I made was that you might be new or 1 product track. That bad assumption comes from the hundreds of times seeing someone tell someone to stop 401k deposits & buy IUL like it is a pure savings plan without it's it' set of internal costs & sure charges, etc

You are obviously a tremendous asset to your clients & good for our profession

 

[To The Top]

I'm blushing at your flattery, but, thank you.

You're a gentleman and a scholar. Wish you well in your career, and many blessings to your business and your clients!