What Are Key Factores to Consider Before Buying a IUL?

[csinsurance]

It seems that once a client has an IUL product, it is better for the client to keep it for the rest of his life.

There have several companies offer IUL product. What are the key features for a client to consider before purchasing a one? (By the way, I like cash value life insurance that money in IUL can grow without risk and have tax benefits, and I want to use it as a personal bank account)

 

[DHK]

1 - Recognize that just because there is no 'market risk' doesn't mean there aren't other risks inherent in an IUL contract.

7 Reasons to be Wary of Index Universal Life Insurance

I'm not 'doom and gloom' on these contracts... but compared to other solutions out there, there are more negatives in these kinds of contracts over others.

 

[AlTheGud1sRtakn]

1 - Recognize that just because there is no 'market risk' doesn't mean there aren't other risks inherent in an IUL contract.

7 Reasons to be Wary of Index Universal Life Insurance

I'm not 'doom and gloom' on these contracts... but compared to other solutions out there, there are more negatives in these kinds of contracts over others.

I'm only halfway through the video but I'm watching it to the end just to see.

So far... How is this not illegal advertising? It's full of skewed and misguiding information. It seems to be very anti market risk, and anti UL, and slanted just towards Whole Life.

There are a lot of reasons to buy various UL products, especially if you're going to overfund them. They can long term wind up cheaper than many whole life products and offer a lot more flexibility.

Generally speaking I'd say most people I come across are better off with some type of UL product that is used properly and well structured than they would be with a Whole Life policy. I'd also say that a lot of them would be better off with a traditional dividend paying UL, GUL, or VUL than they would be with an IUL, but IULs can still be great for a lot of people, especially when overfunded (as is the case with most UL).

OP - Look at the costs of the policy and see if your overall gains are where you want them to be (would you rather pay 3 to get 6 or 1 to get 5?) What kind of no-lapse guarantees does the policy offer? What is the interest rate on policy loans? When does that rate go into effect (ie the loan rate may be 1% after 10 years but 10% before that) When you take out a loan does what happens with the cash value change? (Some policies the cash value continues as it would normally, some it gets transferred to a general account with lower risks/performance) And lastly, look at the strength of the underlying insurance company. Do you think they'll stick around a while or are you worried they'll go under before you do?

 

[DHK]

I'm only halfway through the video but I'm watching it to the end just to see.

So far... How is this not illegal advertising?

Because it is not advertising any particular company or product. As such, it does not require compliance or regulatory approval.

It's full of skewed and misguiding information. It seems to be very anti market risk, and anti UL, and slanted just towards Whole Life.

Whole life has higher guarantees... granted, without the "upside market" potential.

There are a lot of reasons to buy various UL products, especially if you're going to overfund them. They can long term wind up cheaper than many whole life products and offer a lot more flexibility.

Define "cheaper".
- Are you talking about internal policy costs? Over what period of time?
- Are you talking about the promise of returns? Over what period of time? Are you factoring in the zero return years as well as the years you can "max out" on the caps?

Generally speaking I'd say most people I come across are better off with some type of UL product that is used properly and well structured than they would be with a Whole Life policy. I'd also say that a lot of them would be better off with a traditional dividend paying UL, GUL, or VUL than they would be with an IUL, but IULs can still be great for a lot of people, especially when overfunded (as is the case with most UL).

UL doesn't pay dividends. They pay interest.

GUL is a non-lapse product that isn't designed for cash value. It's essentially a "permanent term" policy.

VUL... is a security and has inherent market risks.

OP - Look at the costs of the policy and see if your overall gains are where you want them to be (would you rather pay 3 to get 6 or 1 to get 5?) What kind of no-lapse guarantees does the policy offer? What is the interest rate on policy loans? When does that rate go into effect (ie the loan rate may be 1% after 10 years but 10% before that) When you take out a loan does what happens with the cash value change? (Some policies the cash value continues as it would normally, some it gets transferred to a general account with lower risks/performance) And lastly, look at the strength of the underlying insurance company. Do you think they'll stick around a while or are you worried they'll go under before you do?

IUL cannot guarantee gains. That's a big E&O claim right there. You're probably selling off the illusion... er, I meant illustration.

What IUL is supposed to do is capture the good side of volatility (subject to an annual cap) while not participating in the downside of volatility of a given market index.

The good news, is that you can reasonably predict that there will ALWAYS be upside and downside. The federal government and the Federal Reserve bank will see to it themselves because Americans look to the "stock market" to feel good about the overall economy.


The two biggest problems I have with IUL... are the surrender charges for the first 15 or so years... and the increasing costs of insurance projected in retirement years.

The surrender charge schedule severely limits your liquidity in the first few years of the policy. You only have access to the "net surrender value"... even though your "Account Balance" is growing per the given index performance. This is my biggest hurdle on recommending IUL. I could offer IUL without a surrender schedule... but then the chargeback risks come back on me.

The increasing costs of insurance is just one problem that I don't want to deal with in someone's retirement. If the policy lapses with outstanding loans, that phantom tax can become a huge liability.



However, this business is about giving advice from our own value-system. I've outlined the values that I have and the things I'd rather avoid. Whole life isn't sexy... but it's proven.

Sometimes the sizzle on the steak is more exciting than the steak.

 

[AlTheGud1sRtakn]

Define "cheaper".
- Are you talking about internal policy costs? Over what period of time?
- Are you talking about the promise of returns? Over what period of time? Are you factoring in the zero return years as well as the years you can "max out" on the caps?

I'm talking about a policy with a face value of X taken out at a certain age and lasting the lifetime of the client. Not always, but it seems to be fairly often, that you can usually find a UL to do it cheaper than WL. Even if you throw cash values into the mix, this is generally the case in my experience. Flexible premiums are often nice too. Dump a little more in one year when things are good, a little less the next year when things are bad. You just have to be careful.

UL doesn't pay dividends. They pay interest.

You're correct I misspoke.

 

[DHK]

I'm talking about a policy with a face value of X taken out at a certain age and lasting the lifetime of the client. Not always, but it seems to be fairly often, that you can usually find a UL to do it cheaper than WL. Even if you throw cash values into the mix, this is generally the case in my experience. Flexible premiums are often nice too. Dump a little more in one year when things are good, a little less the next year when things are bad. You just have to be careful.

AH! That's a different objective than maximizing the cash values!

Yes, if you just want to have a permanent death benefit funded with a minimal premium... then yes, UL will do the job. And yes, you need to manage it, just in case.

Yes, I agree that premium flexibility is nice too... but that comes as a privilege when one has over-funded the policy for a little bit of time.


For my purposes, I'm looking at using life insurance as a "bank" to borrow from and repay interest. I'm looking at it as a source of retirement income to last the insured's lifetime. I'm looking at it as a way to save on income taxes and social security benefit taxation in retirement.

To have such a heavy emphasis on the cash values, it has to be in a vehicle that will support it long-term. For me, whole life does the job. I keep looking at IUL and seeing how I can structure them for these objectives... and I can't do it AND be paid as well as I can for recommending whole life.

 

[AlTheGud1sRtakn]

I keep looking at IUL and seeing how I can structure them for these objectives... and I can't do it AND be paid as well as I can for recommending whole life.

Well I'll certainly agree with you there. Commissions on a maxed-out UL are a lot less than a comparable WL policy.