In addition, they have to generate enough money for profits and to pay hefty commissions to their sales force. In that case, a 15-year term life policy might make more sense and would have a lower premium than a 20-year policy. How often does that happen? We've all heard Wall Street bigwigs compare the looming recession to gathering storm clouds, hurricanes, and heavy fog. How you do it, that is your choice. Please explain what an annual reset feature means to your readers. Life insurance aint an investment altho it certainly can mimic one. If the index falls in value or remains steady, the account nets little or nothing. What I find amazing is what a large percentage of those who arent naysayers sell it. Hey haters, my IULs gonna kick major butt, right?!. However, please humor us and explain them since the article failed to do so. 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. We got your back! About maxing the premium, agents railroad you into paying the most premium, by coaxing you into the Increased Death Benefit option (variously called Option 2 or Option B) so that youre paying the most premium for the longest time possible. I love paying with after tax money borrowing and paying it back on my terms (but DO PAY IT BACK!) An IUL policy is likely to erode 82% of your wealth compared to investing directly in an index fund that tracks the same index. Cash value isnt going to average 8-12%. I am interested in learning more about it, if you can provide me with some illustrations. There is nothing new about overfunding right up to MEC limit. Investors should consider engaging a financial professional to determine a suitable retirement savings, tax, and investment strategy. WOW! An IUL is a very bad option for retirement planning. "Hardships, Early Withdrawals and Loans. It would seem that you have confused me with Rex. However, when you combine the benefit of Life Insurance with the accumulation options, I would put a great IUL up against a regular term policy and pretty much any other investment option out there. Theres no doubt that any permanent life insurance pales in comparison to investing in a Roth IRA. Premiums also vary based on your gender and health conditions, so if you're a smoker, you'll end up paying more. There have been both 4 (1929-1932) and 3 (2000-2002.) But I decided to delete it as it was mostly ad hominem attack, kind of like the end of your comment. Lets start with the obvious: IUL and whole life are both forms of permanent life insurance. 1) Loans from your policy, like loans from your house or against your investments, are tax-free but not interest-free. If the market goes down 20%, then you would not earn any interest, but you also will not lose any money. This video is a marketing piece by insurance agent David Weisman, who famously wrote a book about the retirement tax trap. This concept of a retirement tax trap is used by insurance agents all over the country to sell more life insurance. IUL insurance, like other types of life insurance, can provide a death benefit for your loved ones. When taken out as a loan it is again tax-free. They vary in the details, but these consumer-level xULs are similar in key waysthe very many ways that favor the issuer and the B/D at the expense of the client. Please feel free to spin any fantasy you wish about your purported IUL and your purported investing savvyoh Im sorry its mainly luck amirite? Btw I love term and mutual funds too, they have their place as well. In that case, you may be better off investing in the market directly or considering a variable universal life insurance policy instead. You list various doomsday scenarios including one dire-sounding case spurred on by Spotted Owlsthese merely argue for one to DIVERSIFY. But heres the deal: Insurance is not an investment. There is no factual back tested data to backup what youre saying. [1] Whole life insurance is a more complicated product than term life insurance. 5 Reasons Not To Buy Indexed Universal Life Insurance - HCP Live IUL might do that, but it might also rob you blind before you ever see the benefits pay out. Or, much worse a taxable account your using as a retirement vehicle. But I confess that I remain exceedingly skeptical because it doesnt seem to be making sense. Anyone on that list is going to be head and shoulders above either of the two advisors youve met so far. If you dont think IUL is the best product, what do you recommend to invest instead of IUL? Since Im no expert, I was just putting my money in a low cost target retirement fund. Then you say The S&P 500 is a manipulated index Jamie, so what? IUL insurance is often pitched as a cash value insurance policy that benefits from the markets gains tax-freewithout the risk of loss during a market downturn. Well, an IUL ties the cash portion to one of these index funds. Where does Ed Slott say IUL is the way to go? If you can legally take a deduction for the contributions, that obviously improves the return calculations. Please do that if youre going to comment on the book. Isnt it funny how you have financial experts like Ed Slott, CPA saying that Index Universal Life insurance is the way to go..? I get the thought process! But Im sure you understand why I cant just take your word about your returns and do a big blog post about it. if the difference is small, I wouldnt mind losing some to get the protection from market risk, and higher returns in retirement. Do you care to share a few links with us about them? Unlike stocks and options, the U.S. Securities and Exchange Commission does not regulate IUL insurance. The additional truth is that these products will perform similar to a regular UL over the long haul maybe a little better or maybe a little worse and thats bc 95% of the investment piece is the exact same. 50%? Depending on how the market performs, the insured may realize no gains at all. Unlike term life insurance, an IUL policy lasts the policyholder's entire life, as long as premiums are kept up to date. Seriously? Sounds like it. For instance, someone who establishes the policy over a time when the market is performing poorly could end up with high premium payments that dont contribute at all to the cash value. Dont worry. My guess youve had no personal experiences to relate to the subject matter either. I certainly dont think an IUL is a 401(k) replacement. People forget that when somebody hits their 80s or even earlier .. agents selling everything under the sun come out of the woodwork to steal your money. In theory, it could grow enough to allow you to pay lower premiums as you age because youre allowed to cover some (or all) of your premiums through the cash value of your IUL policy! Indexed universal life (IUL) insurance lets the policyholder decide how much cash value to assign to a fixed-rate account and an equity-indexed account. Because I am interested in RETIREMENT my policy is structured so that the maximum portion is INVESTED IN RETIREMENT and MINIMUM towards the life insurance I have no kids / etc. Why IUL is a bad investment? (FYI, IUL returns rarely beat inflation because of all the fees.). If the forward looking return is acceptable, then keep it. In a whole life policy, the insurance company determines the dividend rate. Please immediately stop flogging and selling these toxic pigs-in-pokes. Or an insurer could decide to connect cash value to markets most everyday people have never heard of, like the Hang Seng Index. Its like driving a stick, I can reduce wear and tear, and reduce gas usage, but I prefer automatic for the convenience. By the way, I hope that cost of insurance doesnt increase by 24% every year you own the policy. 6. Ill give him the benefit of the doubt. Theres nothing to stop your carrier from starting to credit your IUL with 01% minima for many years in row if it so chooses. If one truly believes they will live long and they equally believe the S&P 500 is Made in Heaven, then put all your money into the index and dont look back. Is IUL a Bad Investment? (It's Actually Better Than Your IRAs and 401 For example, compare whole vs. term life insurance. So it looks like theres no charge for DB, but Im stilled charged 0.7% of my account value and $120 yearly fee. He took things Ed Slott said about permanent life insurance in general and has misrepresented the truth in the title in order to market himself. I want you to take a look under the hood and show how they are not much different from other policies like Whole Life. Mutual funds use the LIFO method, meaning they pay you the interest (gains first.) And they sound WAY too good to be true. No relation there, sadly. In fact, 4 of the 5 basis points theyre charging for their Total Stock Market fund go right into my pocket. This is an extremely overrated strategy to grow money. And I have catastrophic riders on it for health / medical / injury as well. This is why LTCi has had rate increases bc lapse rates and investments werent working out, that is why they have unilateral made changes to what investments are allowed in VA with guaranteed income riders and the list goes on. In general, these policies are best for those with a large up-front investment who are seeking options for a. Awesome right? Considering the very few percent who keep permanent life insurance in force until death are typically the rich, I wouldnt put much faith in grandfathering since if you want to tax the rich then thats probably an easier way to do it especially if you put limits on the policy such as those over 200k or some number. The mention of costs fluctuating alarmed me so I checked my last statement vs the illustration. At any rate, I am unaware of a 20 year old IUL with a 20 year 8% annualized return. I think they would find it really interesting. However, they also come with high premiums and fees, and unlike a 401(k), they can be canceled if the insured stops paying into them. Im sick of it thats why Im here now, reading to get more understanding on an alternative investment vehicle. Best Homeowners Insurance for New Construction, How to Get Discounts on Homeowners Insurance. It is!). Shopping for life insurance may be one of the least exciting products a person ever shops for. Thats just insurance agent double talk. In the long run, Id expect returns similar to other universal life policies. Meaning I can make 5% per month through the index call options. The reason it was easy. Why an IUL is bad? - InsuredAndMore.com I find it very interesting that you have a MBA, lost your shirt with stocks so they are bad, and came to the conclusion this is a good investment. Policy illustrations have evolved to help consumers better understand how the underlying policy would work under the extremes of an unrealistic guarantees-only result, and an equally unrealistic current, non-guaranteed calculation that is the simplistic result of projecting a user-selected crediting rate as a constant over the many years of expected policy benefits. While this figure is approximately trueat least on a nominal (non-inflation-adjusted) basisit includes the stock dividends, not just the change in the index value. Why Someone Would Pick Indexed Universal Life Insurance, Drawbacks of Indexed Universal Life Insurance, Indexed Universal Life Insurance vs. Other Life Insurance Policies, investing in mutual funds through a Roth IRA or 401(k), Everything You Need to Know About Universal Life Insurance, Self-Insurance: How It Works and When You Need It, A cash value account tied to an index fund (thats why its called, It includes a cash value account that can grow through modest returns based on how well a, Any investment growth in your IUL is tax-free. If anything, your piece fails to cover the true extent and depth of the problems of these byzantine fee-laden policies. +13 Why Iul Is A Bad Investment 2022. Because of your article, I took a closer look at my policy and learned alot. Google Feller vs Transamerica and Lieff Cabraser Universal Life for two of those exploratory and planned actions. IB isnt the worlds worst idea though. No sensible comparison of the two would lead anyone to choose IUL over a solid 401(k). For more than a decade, indexed universal life insurance (IUL) has been one of the life insurance industry's most profitable businesses. If the carriers actually came clean with the astronomical prices theyd need to charge, few people would ever buy them. You can find Georges financial expertise featured in the U.S. Sun, Daily Mail and NewsNation. Everything I have read on your sites go against this. ), The death benefit is in force (aka active) permanentlyas long as you keep up with the premiums. According to Chris Wang (fee-only advisor), with all index annuities your can expect returns of only 1% to 3%. 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. Are you new to the blog? According to the International Risk Management Institute, Inc., a premium load is the percentage of a policyholder's premium that is deducted to cover policy expenses. Good luck in mutual funds, and have fun paying all those taxes, but I have peace of mind with exactly what Im doing all the while my principal is growing tax free. And I will both argue & add to the discussion .. that mutual funds .. at some point .. just might not live up to those 8%+ 100-year averages. Thanks. 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. It has averaged 10.07% over the past 24 years and is very strong. After 1988 when the govt enacted 7702, xULs stopped being viable for all but very wealthy clients. According to William Reichenstein insurance companies invest 94.33% in bonds. (Or sparkling apple cider if you prefer the mocktail version.) Hard to say if its the best policy without understanding why you bought it in the first place and what you expect it to do going forward. So you could take a loan against your policy to supplement Social Security benefits without detracting from your benefit amount. Again, send me your illustration and statements and lets do a post on them. The best IULs will have a lifetime cap on the interest the insurance company can charge you generally in the 5-6% range. ]. Indexed universal life (IUL) insurance policies can help you to build wealth while leaving behind a death benefit for your loved ones. And as the decimation of the health care / insurance industry continues to ravage the population, this is going to get very interesting. It always does .. till the day it doesnt. IUL insurance is not a good investment due to the low guaranteed growth rate and sky-high fees charged for managing your policy. The author of this article has no idea what hes talking about. I am of the belief that taxes will be much worse in the future. He;s become the IRA expert for america thru public TV. As @Rex often pointed out here in these comments, its a safe bet much of Transamericas investment come from safe high-quality bonds, not index funds, so the carrier minimizes its risk. But if youre withdrawing cash value from life insurance, my understanding is you get FIFO treatment like with a Roth IRA. Makes you wonder what exactly you were getting for all those high premiums. So, you can invest in an S&P 500 index fund, for example, which mirrors the performance of the largest 500 companies in the U.S. These products dont pass the common sense test. Unlike other types of life insurance, the value of an IUL insurance policy is tied to an index tied to the stock market. Im all for reducing taxes, but Im mostly interested in maximizing after-tax returns. In addition, returns on equity (ROE) indexes are often capped at certain amounts during good years. Can I know the company name? The returns CANNOT be stock-like. IUL: What It Is and Whether It's for You | The Motley Fool Also known as equity-indexed universal life insurance, IUL guarantees your beneficiary(s) a payout upon death. Only 14 states impose their own estate taxes, and only New Jersey taxes estates below $1 million. What Is Universal Life Insurance? IUL is something, its better then the bank and most are scared of vehicles that can tank to 0. Seems like that would really take a chunk out of your retirement plans. The author by his own admission states this as: A generic article on IUL. The first year you invest in mutual funds you can potentially lose half the value or more. Youve also heard of the Indy 500. Let me start by saying I sell IULs, I own an IUL and some of my clients own IULs. He as the agent bears the risk of me surrendering the policy within 5-years. An IUL is a terrible wealth-building tool. These include white papers, government data, original reporting, and interviews with industry experts. Indexed universal life insurance (IUL) is an insurance product that seems to promise you can have your cake and eat it, too. This is done by crediting your loan balance with the same interest rate as is being charged. contact name to get similar IUL. You get this sobering news: Only 4.32%?! They got all their money back, didnt they .. like .. NOT. Anthony Battle is a CERTIFIED FINANCIAL PLANNER professional. Of course, if you show people that, theyre not going to want to buy it. In support of his position, he posted a link to an article written in 2012 by Insurance Agent Allen Koreis in 2012, entitled . Thanks for sharing that lengthy and detailed comment illustrating issues with this industry and these products. 3) What penalty were you facing if you just cancelled your VUL and took the money are run? If he or she is disciplinedthen the clear choice is Term Life and invest the rest. We've highlighted some of the potential downsides below. A variable policys cash value may depend on the performance of specific stocks or other securities, and your premium can also change. Keep watching Dave Ramsey for your financial advice and see where it gets you. If so, at which return rate do you illustrate them? The insurance company can and does lower the cap rate continually and has no reason to increase it. IULs are, by definition, permanent life insurance policies. I love the max funded IUL strategy for covering ones life insurance needs and providing a tax free retirement income. The idea of a 401(k) being a scam is primarily marketing by those who sell insurance with high commissions to take its place. First you say: There are so many variables that go into a decision to add a permanent life policy to your life. Its worse for Perm polices as a groupFAR worse. Checking vs. Savings Account: Which Should You Pick? Is it going to be just like when Suze Orman lost this debate to Patrick Kelly and further to Ed Slott, CPA, her response was, Its just to complicated!!. Each policy should be worth 1012 times your annual income (stay-at-home parents need coverage too). Ive had gains of over 14% since 2008, and they are 100% locked in and can never go backwards. These policies are heavily promoted by the industry under the guise that IRAs and 401k accounts are not cutting it, and using high cost mutual funds in their comparison. Stay far, far way. Im also having to pay a 3.8% surtax and 20% on capital gains that Im not too interested in doing either. After 30 years, a nest egg growing at 8% instead of 10% ends up 42% smaller. The insurance company that issues the policy may offer a minimum guaranteed rate of return. The cash value is credited on a monthly or annual basis with interest based on increases in an equityindex. I understand options and several of the IUL crediting methods. I believe its only like 2 or 3. So going forward I will use Term for my life insurance needs and a mixture of stocks and bonds for my investing needs. That video is made by a guy who sells IUL (David Weisman). The cash value accumulates tax deferred, and the death benefit is tax-free for beneficiaries. Why? That way readers can see what kind of return you have had on your investment since that time. In the end, if you decide you like this policy, knock yourself out. https://www.whitecoatinvestor.com/why-vanguard/. I believe tt was an associate of mine as I never sent you anything. The Bad. Straighten out your financial life today! There are several solid reasons why investing in an IUL policy is a good strategy for your retirement. Specifically, my corp can put money in (as a Key-man ins etc) and thus it will be going in tax free. If youre happy with that, then youre likely to be happy with your policy. Again, if your IUL can truly provide you a true 8.5% return going forward, youll probably be just fine. These restrictions can limit the actual rate of return thats credited toward your account each year, regardless of how well the policys underlying index performs. A 401(k) has more investment options to choose from and may come with an employer match. There are far too many shills masquerading as MDs (with MBAs). The insurance companies work hard to keep it that way. Dont let that turn you off from mutual funds. No way! IUL insurance, like other types of life insurance, can provide a death benefit for your loved ones. what provider are you with? Then you say when you die it will pass those zillions [in your S&P 500 ETF] to your heirs with a step-up in cost basis Jamie, Roth IRA holders should check with their accountants, but for most the 99.9%, this higher cost basis matters little or not at all. For instance, someone who establishes the policy over a time when the market is performing poorly could end up with high premium payments that dont contribute at all to thecash value. As a person grows older, the odds of dying increase. Those fancy illustrations .. they are NOT guaranteed and they do say that all over every piece of paper. None of the 99.9% should *ever* buy a retail Universal Life (xUL) policy. Im also surprised that a public servant with presumably a relatively low salary would place such a large benefit on tax reduction. This isnt anything new many companies have started this way and Walt Disney famously did this to start his theme parks. The problem is that it isnt true when you really look at it for several different reasons that would probably be a pretty good post. If you dont understand the way call options work. If you do understand call options, then shame on you for not explaining them in full detail since the devil is somewhere in there. Call me skeptical, but Ill take a look if youll send the original illustration. The returns with permanent products are not supposed to be fabulous. What (possibly) makes you a terrible investor is the belief that you have to time the market to be successful and that you invest (invested?) Stop preying on my peers. The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters. Its a bad deal for you every time. But I kind of doubt you have the evidence you say you have because my experience has been just the opposite. Jamie, you essentially make the casewhich I agree withthat we should be MORE WARY of insurance companies than ever before. You or no-one else has ever shown any proof of your totally unsupported claim. Its technically about whole life, but most of the lessons apply to all types of permanent life insurance: https://www.whitecoatinvestor.com/debunking-the-myths-of-whole-life-insurance/. If this doesnt preform to my expectations, then I have a product that 100% liquid with no ZERO surrender charges. Now click the Calculate button. What is an IUL? Loans made against the policy are also tax-free in many cases. The policy could then potentially lapse if the premium payments arent made on time later in life, which could negate the point of life insurance altogether. Sheeting out IULs very clearly reveal their consistent terrible news. the Indexed Universal Life (IUL) policy, like Transamericas FFIUL. To decide what to do with an unwanted permanent life insurance policy, it is best to look at a current in-force illustration. Hi Dr Dahle. And its short, simple, to the point and easy to understand. 3. If you really want to take care of lifes essentials, you can build real wealththe smart wayby following the Baby Steps and investing wisely. Typical general-account products include term life insurance, whole life insurance, fixed annuities, and disability insurance. 2014 S&P500: 18.19%. 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. When the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in 2010, IUL policies were exempted from federal regulation. https://www.youtube.com/watch?v=tJqqZyAD96U. Youre right to be concerned about the costs of insurance eating up much of the cash value. If costs are too high its probably not a good investment for you. Politics are involved as well because politicians are funded by Wall Street to promote products that will pay the government a lot of money. Youve edited and deleted my responses and wrote what I consider to be an unethical article. I havent had any problems with it so far. Might want to read the article so you can plan accordingly. "Retirement Topics Required Minimum Distributions (RMDs). From whole to term life and universal to variable life, choosing the right one can be very confusing. How can an insurance company give you most of the upside of investing in stocks while eliminating the downside? These policies leverage call options to gain upside exposure to equity indexes without the risk of losses, while whole life insurance policies and fixed universal life insurance policies provide only a small interest rate that may not even be guaranteed. A 20-year term life policy might make sense for you. One of the main reasons that IUL is a bad investment is that it is tied to an index fund, which means that the returns are usually low. Why is an IUL a bad investment? - Sage-Tips In contrast, separate-account (SA) assets support pass-through products, in which investment gains and losses are passed on to the customer and no more than a minimum return may be guaranteed. Indeed, were now seeing class-action lawsuits against issuers and broker/dealers of xUL products, like the original ULs and variable ULs (VULs). Lets say youre planning to start a family soon. If youre borrowing from your cash value life insurance, these terms dont apply. The carrier DOESNT HUGELY CARE what the options do. The portion of your premium that pays for the insurance component cannot go into your cash value account. Why IUL is a Bad Investment | White Coat Investor Were working hard here to put folks like you out of business. Retail Perm life is definitely not for regular widows and orphans. Its 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 likelyeven virtually *guaranteed*to fail. I recently had a life insurance salesman show up in the comments thread of a post I published years ago about not mixing insurance and investing. Tell us below and our experts . And of course this has already happened with the index linked products but I guess not with yours yet and you feel good about that? are woefully inconsistent and deficient in their market study frequencies, methodologies, and source citations. Cash accumulated in an IUL policy may grow at a faster rate than cash accumulated in whole life. Further, agents who sell IUL insurance are rarely required to undergo the same training as a stock broker and may be less equipped to provide sound investment advice. I prefer Jack Bogles advice to Ed Slotts. Bottom line: Your life insurance company invests mainly in plain old stocksnbonds. I agree that investing in life insurance is probably a good option for terrible investors who managed to lose 60% of their money in a year when the market only lost 37%. Money in IULs grow tax deferred. Learn more about what cash value life insurance is and how it works. Especially, when you say things like, Slices of options, devil in the details, just like UL, just like WL etc . Those sound like Straw man arguments, to me. Provide higher returns than other life insurance policies, Policies can be designed around your risk appetite, IUL does not reduce Social Security benefits, IUL may have higher fees than other policies. +13 Why Iul Is A Bad Investment 2022 | Free Signal Trade Option There is no surrender period with this policy and a 0% sales load on the premium coming in. Read ALL of the comments in one go. Even now, at historically low yields of around 2%, the dividend still accounts for one-fifth of the market return. But if youre getting 8% out of an IUL, stocks should outperform that figure significantly. The best chances for success would be combined portfolio of assets and investments.