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The thing about IUL... is that it's all about volatility in the underlying index segments.
If the S&P500 goes up 20% (not including dividends), then your policy is credited 13% (using your cap number).
If the next year the S&P500 goes down 20% (not including dividends), then your policy is credited 0%.
If this happens over a 2 year period, then your policy will average 6.5% per year (13% / 2 years).
If the underlying index doesn't move, then you'll get whatever rate is credited.
In general, every 4-5 years there is a stock market correction, which means that there won't be any interest to compound that year in an IUL.
When comparing WL vs IUL... THAT is the main difference. During down years, the IUL credits 0% while WL will still have interest compounding during that year. If the period is long enough, that could be 5 or more years of anticipated compounding that the IUL won't have. The resulting cash values will end up being about the same, I believe.
Here's the difference:
- People generally WANT to maximize their IUL so they can earn the most interest possible without risk to principal (aside from policy costs).
- Even a maximum target premium still has an account value to earn indexed credits for the first 3 years (compared to almost zero cash values in a base whole life policy), so it's a much easier annual review to hold with the policy holder.
Whichever plan that excites the client the most and keeps them wanting to put money in, and that I like to review with the client the most... is the best plan.
Just my opinion.
If the S&P500 goes up 20% (not including dividends), then your policy is credited 13% (using your cap number).
If the next year the S&P500 goes down 20% (not including dividends), then your policy is credited 0%.
If this happens over a 2 year period, then your policy will average 6.5% per year (13% / 2 years).
If the underlying index doesn't move, then you'll get whatever rate is credited.
In general, every 4-5 years there is a stock market correction, which means that there won't be any interest to compound that year in an IUL.
When comparing WL vs IUL... THAT is the main difference. During down years, the IUL credits 0% while WL will still have interest compounding during that year. If the period is long enough, that could be 5 or more years of anticipated compounding that the IUL won't have. The resulting cash values will end up being about the same, I believe.
Here's the difference:
- People generally WANT to maximize their IUL so they can earn the most interest possible without risk to principal (aside from policy costs).
- Even a maximum target premium still has an account value to earn indexed credits for the first 3 years (compared to almost zero cash values in a base whole life policy), so it's a much easier annual review to hold with the policy holder.
Whichever plan that excites the client the most and keeps them wanting to put money in, and that I like to review with the client the most... is the best plan.
Just my opinion.