Biggest Negative to IUL

everyone here assumes the illustrations are a given, but if you go into your illustration software and change the rates, particularly for the early years and lower a few of them to the floor, as would be the case with a 3 year bear market, not that unusual, fiddle around with the middle years as would be the case with a rising market and then falling again, and those IUL projected cash flows vanish quickly. The compounding effect of the interest rate during those first few years of policy inception are critical to the longevity of the policy and its cash flow as its principal is required in the later years to subsidize the COI, and if it's not there those Cash Values are seriously impacted, making that WL look like a much better deal after all, and trust me an WL is a poor investment vehicle at best.

And talking about the tax free income, well if you experience a few early years in a down market, and latter cant afford or choose not to afford the then escalating premiums and let the policy lapse before you die, now you will have taxable event on top of all the money you threw down that rat hole - ouch.


Trading futures I can tell you back testing is fine in theory but a poor indicator for real results. Ive back tested and modeled algorithms all day long overlaying them on the past with terrific results only to find when I apply them in the current here and now everything changes and that is exactly why all the Wall Street firms pay people with a lot more experience, education and big bucks to clearly state over and over; " past performance is no guarantee of future results".

I dare anyone to jump into their illustration software and play with those rates in the early years, simulate a bear market for 2-3 years changing the interest to the floor on and off for a few years simulating a bear - bull - bear market and then look at your CV 20 years out, and then compare that with a similarly funded WL and then come back and give us your take away. I could be wrong, but it certainly had an influence over my initial perception -damn. And I too thought it was the next best thing since Apple Pie and seeing all that money I was going to make changing the world one client at a time.
 
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I think the biggest drawback to IUL is client behavior. Because it is a flexible premium product, during a financial crunch the premiums may be reduced or even skipped. This can ultimately put the policy in jeopardy down the road if the client doesn't bump the premiums back to where they need to be, once the financial crunch is over.

We are creatures of habit...once we get used to the low payment, imo its unlikely to voluntarily be increased again. We'll find something else to do with the $. This is especially true if there is no agent is working with the client regularly to manage the policy.

My .02
 
I think the biggest drawback to IUL is client behavior. Because it is a flexible premium product, during a financial crunch the premiums may be reduced or even skipped. This can ultimately put the policy in jeopardy down the road if the client doesn't bump the premiums back to where they need to be, once the financial crunch is over.

We are creatures of habit...once we get used to the low payment, imo its unlikely to voluntarily be increased again. We'll find something else to do with the $. This is especially true if there is no agent is working with the client regularly to manage the policy.

My .02

Good point(s)...another interesting point...I've taken the liberty of bolding a sentence above...what's interesting is that there was an agent working with the client when the policy was sold...I get that's not the issue, an IUL issue, etc. Just thought I'd throw that in there. This can be a very common problem.
 
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