Roth IRA on steroids

[Allen Trent]

An IUL does not lose value when the market does down in value

It generally does lose value in those 0% years because of the internal fees of the IUL and because the COI is ART increasing costs. So, a 0% floor for the index return doesn't guarantee the entire account won't have a negative cash value for the year

I agree with all your other points. Just don't like how many reps promote IUL as a pure investment play. It is 1st & foremost life insurance and carries a half dozen various fees that must paid

 

[DHK]

I wouldn't confuse market risk with policy costs, but that's just me.

 

[Allen Trent]

I wouldn't confuse market risk with policy costs, but that's just me.

I know you wouldn't, but I am shocked at how many do, especially vulnerable new agents with very little understanding of money concepts in general.

 

[Tahoe Ray]

I wouldn't confuse market risk with policy costs, but that's just me.

The problem with this is what Golfnut points out. You won't but a lot do.

If somebody (who is middle market/not affluent) is convinced to do IUL instead of a Roth, then the funding to make it work is pretty much REQUIRED (I know that you can miss years later on, but to make it look great, it's a big commitment). Not the case with a Roth.

Forced savings can be a good thing but when there isn't money to contribute and the product/investment suffers because of that, I can't get on board.

If you're maxing out your Roth or are unable to qualify for one due to income then, by all means, do an IUL or WL for retirement.

This isn't directed towards you, David (even though I quoted you). I'm just saying that the "Roth on steroids" concept can be great or terrible, depending on the client situation.

 

[KRobby]

I had an interview with a captive company. I was asking about insurance and retirement for 20-40 year olds. I asked this while near the end of the interview when I found out they most definitely do the Project 200 thing.

The agency manager said that an IUL policy was superior--said it was "a Roth IRA on steroids." I couldn't get specifics out of him though when I asked how so.

I don't think he meant having the policy within a Roth IRA, if that is even possible.

So lets say one is putting in maximum contributions to a Roth every year ($6,000) from starting from age 25 into Vanguard Total Stock Market ETF (avg 7.31% since 2001 inception, 0.03% expense ratio).

What makes a IUL better than a Roth with the above investment selection? As opposed to said individual buying a term policy and investing most into a Roth?

I'd be a little wary if the only facts you gave on the hypothetical case was an age bracket and he had a product solution in mind. If he's going to train you to sell you'll definitely want to ask a few more questions. Although I guess it also depends on what kind of practice you want to build.

 

[marindependent]

Indexed Universal Life Insurance is a Life Insurance Product that carries significant fees and generally require annual premium payments to maintain it. A Roth IRA opened with a low cost option (such as the previously mentioned Vanguard) can be done with virtually no fees and does not require consumers to make annual contributions. (If you cannot make a contribution in a given tax year, no big deal.)

To compare an IUL with a Roth IRA is an extremely poor choice, in my opinion. Actually to attempt to compare IULs with any retirement option is probably not a great idea.

The best (if there are any) use of IULs are possibly for post retirement tax dollars. People that are already maxing out their Roths and 401Ks.

I would be exceptionally careful pitching the IUL over a Roth if you do not have a securities license or some sort of financial adviser credential.

 

[Golfnut2112]

Indexed Universal Life Insurance is a Life Insurance Product that carries significant fees and generally require annual premium payments to maintain it. A Roth IRA opened with a low cost option (such as the previously mentioned Vanguard) can be done with virtually no fees and does not require consumers to make annual contributions. (If you cannot make a contribution in a given tax year, no big deal.)

To compare an IUL with a Roth IRA is an extremely poor choice, in my opinion. Actually to attempt to compare IULs with any retirement option is probably not a great idea.

The best (if there are any) use of IULs are possibly for post retirement tax dollars. People that are already maxing out their Roths and 401Ks.

I would be exceptionally careful pitching the IUL over a Roth if you do not have a securities license or some sort of financial adviser credential.

Most of the people that push that stuff don't have a security license and for good reason.

 

[Delta75]

I completely agree, the problem occurs when you have a middle income earner with no roth getting pitched life insurance as a alternative which to me is plain silly and it’s usually some guy without a security license. Believe me if max funded life insurance was better than a roth people would know about it, the problem is it’s not and it needs to be sold

True, but I see it less these days, which is a good thing. That's probably a symptom of the traditional captive channel disappearing. I use that term at times to prove a point, but I'm referencing a HSA.

 

[Golfnut2112]

I had a guy come into my office last Friday with a Guardian policy that was supposed to be better than an IRA. He paid in $683 per month for a total of $106,000 and his cash value was $94,000. Wonder what he would have had if he bought term and a small DI policy to pay the premiums if he become disabled. BTW the guy who sold this is out of the business

 

[DHK]

Wonder what he would have had if he bought term and a small DI policy to pay the premiums if he become disabled.

"Small DI" policies are good for what... 2-3 years? They're meant for income needs, not to insure a savings plan.