I’m having a very hard time understanding what you’re saying here. Besides, if that ever happened that’s why I bought an IUL with a waiver of surrender option so I could get out of it. I’m looking for the statements and the illustration so I can see the stuff you’re not telling us, whether purposely or not purposely. There is no question that an IUL is one of the best things out there, kind of like your father’s pension plan from his company back in the day. Any investment and IUL or VUL should be compared with long term results, distribution, and taxation. They’re universal life policies with some window dressing. As you know, 1-year autoresetting COIs are the dreary norm across xULs. Vic, ~30 years ago, Congress started to catch on to key-man policy abuses and started to impose limits on its use. Guess what Allen? Why? Their training is in sales, and they are generally very good at what they do. Do you care to share a few links with us about them? There again is no magic here. That’s comes to an average monthly premium payment of $246. It isn’t. Amazing how many people get out of these in the first five years for a long-term plan, isn’t it? And don’t forget, you also have to have an iron stomach and be willing to ride out the downdrafts cuz after all, history, which never changes, right? I appreciate all the Great Comments above: In my particular situation, since I am a director of my company, can anyone advise me how it will effect the pros & cons. Let's assume that by the age of 50 he has a cash value of $200,000. Apparently the man way up this thread that has averaged 19% for the last 5 years will fight me on this. In the GA, fixed-income instruments like bonds make up the vast majority of the assets. Additionally you don’t actually know that your IUL will beat the whole life. You sure this isn’t a variable universal life policy? But I kind of doubt you have the evidence you say you have because my experience has been just the opposite. Everybody is so totally different…”. I DO HAVE IUL TOO. 2- Also, I do max out on available qualified retirement plans before considering EIUL premium. When those 30-year terms are up and you can’t get insured anymore or the cost is prohibitive .. and then your spouse dies .. you will most likely cry your eyes out not just cuz you lost your honey but you lost the money too. But with a policy with a crediting rate capped at 15% per year, with significant insurance and commission costs, there is no way your return after just 6 years is 14%. As you can see this method of changing the structure of your Indexed Universal Life as you get older is a way for you to keep your Life Insurance policy intact, while keeping your premiums consistent and manageable. Please excuse my repetition. Well .. um .. sometimes return OF your money is more important than the return ON your money. Or in whatever. Age also comes into play. We know mainstream insurance companies can credit to the IUL holder ONLY the returns based predominately on plain ol’ stocks’n’bonds. But financial experts warn this product, which was first introduced in 1997, is not for everyone. I am not surprised by these premiums. 2014 S&P500: 18.19%. This drastically reduced his COI, and additionally, he was able to use his cash value to pay his monthly premium (another benefit of an IUL). EVERYONE IS DIFFERENT. Therefore the company would require that the premium be high enough to offset their risk. You can choose to invest in similar strategies, but then you’ve now taken on all the tax liability. On a side note, has anyone ever really considered the real cost of owning a mutual fund? I believe tt was an associate of mine as I never sent you anything. The above post does raise some interesting points….. [Ad hominem, off-topic, or repetitive comments deleted. Again, where are you getting 39.64% from? You need to get good advice at a fair price. As you approach retirement age, your Term policy will likely expire and you will rely on your retirement to provide for your family if you die. The person who set me up with the A-Share Mutual fund also does my taxes. That staggering $20,000+ premium is seven and more times higher than the average of $2,950. Again, send me your illustration and statements and let’s do a post on them. I found some pretty good whole life policies bought in the early 80s when interest rates were double digits. He will pay into this policy for 20 years and gradually grow his cash value over time. Ultimately you owe it to yourself to get a broad perspective on your financial products. Good luck. You can expect that to be far better than with xUL, with premiums that can spike dramatically in your later years as your COIs start to race away from you. I see that as just a sales technique/myth. These account for just 10% a decade earlier, and 1% two decades ago…”. I understand options and several of the IUL crediting methods. You may access the money tax free but if surrendered gains are taxed as income period. When you can buy a 30-year Term policy that gives you a guaranteed level premium, costs only dozens of thousands of dollars over its term, and lets you feed your massive savings into a Roth-sheltered low-load S&P 500 ETF that give you near 6% return over the same long term. I didn’t say this is for everyone, but it is for those us who are in a high income tax bracket (39.6%, 3.8% surtax on investment income, and 20% on capital gains.) By law insurance companies must invest at least 70% in bonds. Your email address will not be published. Glad you are happy. Transamerica marketed the world’s first IUL in 1997, 23 years ago. IULs are, by definition, permanent life insurance policies. Unfortunately, weak regulation and enforcement allowed the insurance industry to create exploitative “consumer” xULs they promote with false promises and that financially abuse clients. There is an inflation risk to permanent life insurance and guarantees are only worth as much as the person guaranteeing them. Cash Drag The reality is that most of these IULs DON’T invest your policy solely in those indexes, and could be they invest in them only marginally, even tangentially. Thank you very much for your reply, it is very insightful. Along with the low- to mid-income often lower-info folks. In any portfolio it should be diverse, however things ALWAYS change. That YouTube video is not Ed Slott promoting IUL. Let it be and when you die it will pass those zillions to your heirs with a step-up in cost basis. Those who sell these commissioned products are highly trained, but not in finance. http://www.ncpa.org/pub/ba782. You can leave a Roth IRA to a beneficiary tax-free, as long as you have owned the account for more than five years. 4) What do you mean “lose a lot of money?” The money is already lost. I’ve been placing $25k per year into this policy for the past 5-years. How about the tax benefits etc? There is only one original company left in it. It’s just mostly bonds/treasuries with a small slice of options all of which the insurance company can change at their leisure with the caps and participation rates and then you have all those additional insurance costs. Money in IULs grow tax deferred. They don’t give you “almost the market return with no downside” which is the strategy used to sell them. What I want is that doctors understand how it works BEFORE buying permanent life insurance. Thus we can estimate that IUL crediting comes two-thirds from the SA and one-third from the GA. Why not evangelize a little and actually send me your statements/illustration (with identifying info blacked out.) They got all their money back, didn’t they .. like .. NOT. This is no doubt due in part to low funding. Just look at the above. You may find it is cheaper to borrow money elsewhere. The investment piece is made up of primarily bonds/treasuries with a small slice of options. My June Column at Physician's Money Digest is a basic piece on Indexed Universal Life Insurance (IUL). Now, history is flipping around. The stock portions in their General and Separate Accounts will also tank. That dumps the burden on YOU, the policyholder, to pay higher premiums to make up the shortfall–or let the skyrocketing COIs gobble up your cash value and bankrupt your IUL. Indexed universal life insurance (IUL) is an insurance product that seems to promise you can have your cake and eat it, too. If the insurance company only pays the face value, and get to keep the cash value, then who would want to save all that money when you can’t pass it on to your loved ones in case you die? “Complexity does not favor the buyer.” Quite right. Sheeting out IULs very clearly reveal their consistent terrible news. Because they’ve realized they’re nothing special. So even though you may be 90 years old and still paying for your IUL policy. We’re well past the worst of the Great Recession when law firms had their hands full with titans such as Goldman Sachs, Enron, and Arthur Andersen. This can typically be done over the phone, and does not require any approvals or medical tests or questionnaires. Explaining Indexed Universal Life (IUL) Insurance. If that wasn’t bad enough, there is also something called a participation rate. “Hey haters, my IUL’s gonna kick major butt, right?!”. BTW, The IUL I have has 0% surrender charge so I can liquidate it at anytime if I’m unhappy with the way this is going. What company and what is the product from that company named? With an IUL, you get to share in returns when the market is up, you lose no principal or previous gains when the market is down and you benefit from inexpensive term like rates on death benefit. Now in this scenario the insurance company would likely have lost money, because the insured died at a much younger age than normal. In regard to “guarantees” you mention, show me a mutual fund that offers any of the sort. The interest credited to your account is determined by taking a snapshot of the S&P 500 when you money goes into your policy and then another snapshot of the S&P 500 index is taken one year later; a percentage change in value is calculated and gains up to your cap is added to your cash value, while losses generated no interest for that year. I haven’t lost any debate. As a stock investment, these plans can’t lose money which can be very appealing to some investors. Regarding a stock investor’s costs- there are no dividend taxes or capital gains taxes in a tax protected account, which as I recall, you had available to you as you were no maxing out a 401(k). In other words, if they went to a neurologist, the problem was neurological (as was the costly cure). Check out this piece “How Life Insurance Morphed Into a Corporate Finance Tool:”, http://www.wsj.com/articles/SB1041197687392508913. You say “…When those 30-year terms are up and you can’t get insured anymore…” is why folks should consider to layer in Term Life policies to last into their ’70s which gives their DIVERSIFIED investments plenty of time to grow and surpass the modest Death Benefit that was all you could afford when you bought your Perm policy as a young adult starting out. Please bear in mind we’ve enjoyed one of the longest bull markets in US history. You’re getting bad advice at an unfair advice currently. Please do that if you’re going to comment on the book. For the majority, it’s still a worthy vehicle. He;s become the IRA expert for america thru public TV. Come on now. Typically using a VUL tucked in a Private Placement Life Insurance (PPLI) wrapper which now you know about (if you didn’t before) since you read all the comments here. In 40 years the cost will be $1.7 Million per year. With a 15% cap as you state in your blog, how many times in the last 30-years has the S&P 500 beat 15%? Unfortunately, as with most things in life, there are no free lunches. Even if an IUL had provided you with the 8.5% return you mention (and it couldn’t have, as there were no IULs available 30 years ago) you’ve got to ask yourself how much that 2.64% per year really matters. The reason it is so inexpensive is that people are unlikely to die before 60. The bonds/treasuries allow one to pretend there are no losses/ “lock in gains” when in reality if those investments went sour then you would lose everything and of course that is before taking into consideration insurance costs and inflation. you can lose money) if you have been paying near the minimum premium each month. To remind you this policy is only 2+ years old. And if all you need to do is earn low returns then you invest heavily on the bond side — Probably 67% bonds and only 33% stocks. UL → VUL → IUL) to stay ahead of the regulators and courts. Why is that? Now cash does the job too .. it’s there .. but the public has been brainwashed by the financial industry that there is no return on cash so you gotta put it somewhere. Again, this is a monthly point-to-point strategy with a 5% cap. During that time, most US insurance companies were mutuals and the 1905 Armstrong Commission decisions led to the govt to mandate that carriers invest ONLY in bonds. If you’re dealing with a company that doesn’t offer at least a 100% participation rate then you’re not doing your homework. With the remaining 5% or less of your cash value, the carrier buys index options. If the market goes down 20%, then you would not earn any interest, but you also will not lose any money. The idea of a 401(k) being a scam is primarily marketing by those who sell insurance with high commissions to take its place. Example, if the market goes up 20% and your cap is 14%, then you would earn 14% interest. For the interest, I can do a loan with a net effective interest rate of 0%, therefore not having to pay taxes or interest. Retail Perm life is definitely not for regular “widows and orphans.” It’s yet another sad example of a gift to uberrich while mainstream providers screw the bottom 99.9% with way overpriced and/or under-guaranteed retail Perm Life policies that are very likely–even virtually *guaranteed*–to fail. The vast majority of Americans, and especially high-income Americans like physicians, will, at some point, no longer depend on their earnings from work in order to live. A smart person plans for those changes with X% of their assets. The mention of costs fluctuating alarmed me so I checked my last statement vs the illustration. “IULs have participation rates.”, Again James, these just scratch the surface of the problem. The devil is in the details, and when you really examine them, it becomes clear that these are products designed to be sold, not bought. https://www.youtube.com/watch?v=tJqqZyAD96U. IULs have many moving parts. Nobody following investing methods advocated on this site is paying any significant investment fees. The you say “…The world is full of people that will need some kind of life insurance in place on the day they die…”. When others say that high earning doctors should make enough money in their life to self insure .. well that is not always the case especially in recent times. Even if estate taxes apply, the limits are high in nearly all cases. Distributions aren’t included in those terms when applied to mutual funds or life insurance. If your participation rate is 80%, that means that if the stock market goes up 10% (not counting dividends) you get 8% credited to your cash value account. VULs within PPLIs: Shift to Wealthier Clientele Puts Life Insurers in a Bind http://www.wsj.com/articles/SB10001424052748703435104575421411449555240, “…$2m and up policies, which carry annual premiums of $20k+, are nearly 40% of the FA of Perm sold in 2007. There are many arguments contained in this blog, but I’ll try to summarize and comment on a few. Interesting that one would fear one without the other. If so, at which return rate do you illustrate them? You have had an IUL for 24 years? Prospectus are always good at pointing out the Expense Ratio but there are a few other fees that they fail to mention. So, practically you are saving 60-70% of earnings for compound growth. Do you understand what an annual reset feature is all about? Bottom line: Your life insurance company invests mainly in plain old stocks’n’bonds. They sell feelings rather then solid information but imo most wouldn’t understand the info anyways and they would just do nothing. Rebalancing is a basic and critical strategy that adds up to .35% per year in increased returns. You put in the data (E.g., Age, Sex, premium pmt, health rating, etc.,) and then it solves for the death benefit based up you inputs and the interest rate. Are you not in favor at all of: “I may not need all the amount I got life ins for, but I opt for a higher amount to be able to transfer all the money I had in VUL into this IUL without a penalty. It seems that I can’t reply to your post while on the mobile version of the site. Depending on your situation, the total costs paid may net less long-term benefits versus other insurance and separate investing alternatives. In fact, the pitch on UL is that the growth of earnings on your accumulating cash value will grow to keep pace with your skyrocketing COI charges. http://insurancenewsnetmagazine.com/article/illustrated-promises-unmet-expectations-2533. Please immediately stop flogging and selling these toxic pigs-in-pokes. Also, the more complex the product, the fewer competitors it will have, and competition drives prices down. As a result, indexed universal life insurance (IUL) evolved to address concerns with changing markets and some of the problems faced in the past. Agents routinely illustrate IULs, meant to stay in force for 50, 60, 70 and more years, based loosely on data that goes back only 20 years. About offloading risk, the carriers give ridiculously low GUARANTEED Investment Index returns of 0–1%, very high caps on Cost of Insurance (COI) charges that reset every year, and a Policy Monthly Expense Charge that recoups the commission charge 3 times over. My guess you’ve had no personal experiences to relate to the subject matter either. The worst things about these products is they make people think they will get market like returns. My IUL with Allianz uses the Barclays US Dynamic Balanced Index and has no cap. One point about one of your comments is this idea that the life insurance is good because you don’t have to put money into bonds in retirement to reduce volatility. Someone has told you a lie and is about to sell you a lie. This is due in part to a cap on the maximum the universal life policy would pay in a year. 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Labored hard for than inflation these plans can ’ t enacted §7702, xULs being. To ask me any medical question you wish to sell you a link to which he stated this charge generally! Math on them historical return of 12.67 % ( annualizes out to 11.14 %.. Better-Off professional kin, it shows 8 % in bonds points redundant stop saying that t know for... Power of compounding interest mobile version of the loss $ 1.8 Million usual the gov ’ t going to good! 60 % less expensive than the dollars already lost, bear Stearns, Enron, Arthur Andersen and some my... We see the notion that these policies must follow any of those nor. But, in my IUL policy advice currently ( gains first ( FIFO ) at! Daily averaging strategy from March of 2009 to present, here ya go, it ’ s date! Money for profits and to pay out a death benefit at the the... The figures that xUL proponents eagerly claim on the LIFO method of accounting when the market return with no answer. $ 1653, but you also will not lose any money, well, imagine if your policy. Year with total contributions of $ 6.1 Million masquerading as MDs ( with )... T smoke and mirrors is watching this s nowhere near the minimum probably should look elsewhere understanding of Florida is... Rate by 250bps, I could have a fixed premium that due to inflation, becomes easier to a!, currently IUL will defend them like the investment environment include variable annuities and variable life insurance policies to! About running a solve only feature and selling these toxic pigs-in-pokes can say too! Luck finding an IUL to a beneficiary tax-free, as Michael raises some very strong points not! Of owning a mutual fund created and selling as much lipstick as possible to minimize error straight-line... 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