Whole Life or IUL
- Thread starter Shakray
- Start date
- 10,318
Im not sure where you get your info from. But the insurance carrier cant just drop the DB suddenly and make the policy a MEC. By law, that cant happen. Anything that would cause the DB to reduce would cause the CV to reduce, keeping the MEC corridor the same.
Not all CV is taxable with a MEC. It is taxed similar to an annuity. Which means only gains are taxable, basis is not, & 10% penalty applies to withdrawals before age 59.5 . DB is still tax free with a MEC.
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Cap renewals are the biggest variable with IUL. Expenses increasing is not ideal. But that is not going to crash a properly designed policy if Caps remain competitive.
You can often account for increases in expenses or decreases in Caps in the illustrations.
That is why choosing a quality carrier is more important than just choosing a really high Cap or Participation Rate. Some carriers have much better renewal histories than others.
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With all of your distrust of IUL caps and expenses and such. You need WL. You said earlier that you dont want it. But it is able to act as a "bank account" in the same way that IUL can for the most part. There are subtle differences, but that whole concept of using life insurance for "banking purposes" originated with WL. There are WL policies that if designed correctly, can have significant levels of Cash Value in the early years. And WL gives you a constant "level" expense charged against the policy. It does not have increasing expenses like UL/IUL.
I am one of the biggest fans around here of IUL. I sell it on a regular basis. But WL has a very valid place right next to IUL. For people who are less trusting of the insurance carrier, WL is often the better choice. It guarantees your policy will not crash. Some out there can guarantee 1% or 2% if designed properly.
Whoa! read it correctly before you start attacking. The first sentence was the question and " Drop the DB to cash value and make it a MEC? " was a possible answer that I volunteered
I meant policy owner dropping the DB, NOT the insurance company. The reason is to the protect the CV from the high expenses that will surely eat up the CV if the insurance company raises the expenses to the maximum.Now, it makes sense, doesn't it?
I am just doing my due diligence. and this is a very valid scenario which can play out. Why do you take it so personally and say it's distrust?
If you are an expert in IUL, please answer the questions I ask. This is a friendly discussion. No need to attack.
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- 10,318
Whoa! read it correctly before you start attacking. The first sentence was the question and " Drop the DB to cash value and make it a MEC? " was a possible answer that I volunteered
Now, it makes sense, doesn't it?
I am just doing my due diligence. and this is a very valid scenario which can play out. Why do you take it so personally and say it's distrust?
If you are an expert in IUL, please answer the questions I ask. This is a friendly discussion. No need to attack.
It was not meant as an attack. I did read it wrong and apologize for misunderstanding what you wrote. But I didnt mean any of it as an attack.
Saying that you distrust them is not me taking it personally. You would be a fool to blindly trust any company. You would be a fool to completely 100% trust any company or any agent for that matter. I did not mean distrust in a derogatory manner. Just that it is a primary concern of yours (or seems to be). And if that is true, then there is a lack of trust to some extent with the carriers.
And I dont blame you at all for doing your due diligence.
Look, some people are able to sleep at night and trust that the carrier is going to do right by IUL policy holders. Some cant, and that is ok. I dont take it personally. That is what WL is made for, people who want or need a positive return in the guaranteed column. People who cant get past "all the zeros" in the guaranteed column of IUL illustrations.
And you are right to worry. Some carriers have better track records than others with Cap renewals. Or the market could just suck for the next decade, or that specific carrier could have financial issues. All of those are valid concerns and valid risks to consider with IUL.
As an advisor, my #1 goal is to create positive client outcomes for the years to come. I have had plenty of clients who just cant get over the lack of guarantees, and "being at the mercy of the insurer" with IUL. I recommend WL to those clients and not a one has told me they regret not getting IUL.
I did not mean that post as an attack, sorry you took it that way.
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I answered your question to an extent in my last post:
If the IUL is designed properly, then maximum expenses will not cause it to crash.
For a properly designed policy, the main risk is lowering Caps to the bare minimum. Especially in conjunction with increasing the expenses.
Long term expenses in an IUL are not high if the policy is designed correctly. Yes, they do increase some each year. But as a % of CV, they are often around or even under 1%. They key to that is "properly designed policy".
If expenses are a concern, or you just want to max out the CV, you switch from an Increasing DB to a Level DB after Premiums end. This helps to minimize long term expenses.
Proper design will minimize expenses. Prevention is the best solution.
You have made previous comments that make me think you are not being shown a properly designed policy. You started a thread saying it will crash if you get under a 6% index return. If thats true for that illustration, it was not properly designed to be maxed out for CV. You should be able to get under 6% and it still wont lapse, even under 5% and some carriers even under 4%. The exact minimum varies from carrier to carrier and with age and health. But you will never have an IUL that does not lapse at the Guaranteed rate, it is not how the policy is designed to work. Your agent should be showing you the minimum return needed to sustain the policy if this is a worry for you.
Also, mutual carriers often have better track records with rate renewals. Penn Mutual has a strong IUL and a strong renewal history. They also have a very strong WL that you can design with high early cash values.
Guardian has a WL with an Indexing Feature. But only 50% of premiums can go into the indexing allocation.
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Guaranteed column in a WL is a good thing
Guaranteed column in an IUL is a very bad thing:(
I am doing DD about IUL and how to get out in that scenario. A few agents who met me personally did not have the expertise to answer me beyond "market has always returned 8%". One guy showed up wearing a suit, gave a little presentation and expected a check when he was done
Here, on the forum, I got a few agents to dig deep and come out at below 6%, even to 4%. From 8% to 4% is a big deal! I have cut my risk 50% just by finding new agents.
I believe there is an agent out there who can solve below 4% and answer questions like what to do if the company goes the nuclear option of max expenses and min cap rate after x number of years after I buy their policy.
Once I know what to do in that situation, I am ready to buy as I have eliminated almost 90% risk. This is how I approach RE, PPMs etc. Now, the question is are you that agent I am looking for? Can you take it as a challenge and make it 90% risk free for me? or atleast, can you find out if any company has resorted to max expenses and what happened to it's policy owners?
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- 10,318
Below 4% is hard and depends on the carrier. There is a correct way to max out a policy. That is a constant between all carriers.
The variable are the expenses that each carrier charges. There are one or two that have Expenses low enough for the policy to maintain itself below 4%. There are multiple carriers that will go down to the 4% range.
Midland is one of those that can go below 4% in some circumstances. But they have been messing with their Caps and renewal rates a lot lately. I dont like it and it makes me nervous. They have the ECV product that offers the 100% liquidity rider. But it does have lower Caps vs. the non ECV product. So it is a trade off.
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There is not much you can do if the carrier "goes nuclear". Keep in mind that the policy does not just crash overnight. It is something that happens over the course of years, not months. So you can see it coming and plan for it if necessary.
1. You can cash out of the policy. If you have a highly liquid policy, if there are any surrender charges they are very small. And some can have no surrender charges at all.
2. You can 1035 transfer (tax-free) the Surrender Value to a new policy with a different carrier. This assumes you can qualify at that time. You could always have a term policy ready to convert with a different carrier.
But this is why its so important to begin with the most efficient design to start with... and choose a high quality carrier.
Is there an example of this scenario? Do you know what happened to it's policy owners?
- 10,318
I am not trying to solicit you. Just give you some accurate info because it seems you are getting half the story. I work mostly on referrals. Or consumers find me and request to work with me because of the product expertise I display. I have no clue if I would be a good fit as your advisor, or if you would be a good fit as my client. I do not take on just any IUL client, and turn down prospects regularly who are not a good fit. Often it is due to unrealistic expectations on their part about what the product can do, is meant to do, how it works, or the laws/regs surrounding it.
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And again, the expenses are not whats going to crash a properly designed policy.
If you want to see how the policy will perform at max expenses, just look and see what the max expense schedule is. Figure out what % of CV it is over "Current" expenses. Then reduce the Credited Rate by that %.
But that does not account for the possibility of them lowering Caps. Again, that is the biggest risk you face.
Guaranteed column has max expenses and also a fixed interest rate, right? Say, 3%. They cannot go lower than that.
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