Biggest Negative to IUL
- Thread starter kstein
- Start date
- 11,273
Always ask "compared to what?"
IUL compared to a 401(k)... IUL doesn't get a company match.
IUL compared to Whole Life insurance... well, WL salespeople are brainwashed to believe that IUL has an increasing cost of insurance. This comes from mutual insurance company training.
This is BS!
All permanent life insurance has similar internal costs. The difference with WL compared to UL, IUL, or even VUL... is that WL has a built-in rate of return and has stronger guarantees... as long as you pay the premiums. You'll notice that the only variation of WL illustrations are the projected dividends that aren't guaranteed in any given year either.
But since UL policies have flexible premiums, for consumer protection, you need to know the internal costs of insurance that need to be accounted for. Therefore, those costs are disclosed.
Just like going to your bank and asking for CD rates. There are costs, but they aren't disclosed because it's a set period of time and a guaranteed rate. This is similar to Whole Life.
However, a mutual fund has costs because it has a varying return (or even negative returns) therefore you need to know what can affect your returns. In the prospectus, mutual fund costs are disclosed. This is similar to UL, IUL, VUL in that there are many factors that can affect your insurance coverage, so you need to know what those factors are.
Guy Baker - The Box:
https://www.youtube.com/watch?v=7WUQYdpSbzE
As for a reason NOT to use IUL as a retirement vehicle... is that it does have insurance costs built-in to it. Illustrations will generally show that IUL will "break even" (cash values > premiums paid) after about 10-15 years. (Could be a few years sooner depending on index performance.)
But if you put in $10,000/year into an asset management account - or even a Roth IRA or Roth 401(k) with 2% costs... that's only $200/year for each $10,000 you put in. Insurance costs are higher than that.
If you don't have a need for life insurance protection, either now or in the future, regardless of its other features, I probably wouldn't recommend buying an IUL.
IUL compared to a 401(k)... IUL doesn't get a company match.
IUL compared to Whole Life insurance... well, WL salespeople are brainwashed to believe that IUL has an increasing cost of insurance. This comes from mutual insurance company training.
This is BS!
All permanent life insurance has similar internal costs. The difference with WL compared to UL, IUL, or even VUL... is that WL has a built-in rate of return and has stronger guarantees... as long as you pay the premiums. You'll notice that the only variation of WL illustrations are the projected dividends that aren't guaranteed in any given year either.
But since UL policies have flexible premiums, for consumer protection, you need to know the internal costs of insurance that need to be accounted for. Therefore, those costs are disclosed.
Just like going to your bank and asking for CD rates. There are costs, but they aren't disclosed because it's a set period of time and a guaranteed rate. This is similar to Whole Life.
However, a mutual fund has costs because it has a varying return (or even negative returns) therefore you need to know what can affect your returns. In the prospectus, mutual fund costs are disclosed. This is similar to UL, IUL, VUL in that there are many factors that can affect your insurance coverage, so you need to know what those factors are.
Guy Baker - The Box:
https://www.youtube.com/watch?v=7WUQYdpSbzE
As for a reason NOT to use IUL as a retirement vehicle... is that it does have insurance costs built-in to it. Illustrations will generally show that IUL will "break even" (cash values > premiums paid) after about 10-15 years. (Could be a few years sooner depending on index performance.)
But if you put in $10,000/year into an asset management account - or even a Roth IRA or Roth 401(k) with 2% costs... that's only $200/year for each $10,000 you put in. Insurance costs are higher than that.
If you don't have a need for life insurance protection, either now or in the future, regardless of its other features, I probably wouldn't recommend buying an IUL.
- 284
DHK, with respect to "insurance costs are higher than that" it all depends on what "that" is....$200 yes 2% on accumulated assets after 10/15/20 years- not so much. Afterall, there's a reason advisors focus on AUM.
I can't understand why one would focus on the internal expense component rather than simply comparing risk and tax adjusted returns. For me the argument for perm CV life insurance is that it is a versatile extremely low risk potentially tax free vehicle. If one is unwilling to suggest such a product to a risk averse investor because the insurance portion is seen as unnecessary ( a s situation that could change in expensive fashion later), what would be your recommendation? Munis? The advantages of a well designed IUL/WL policy outweigh the costs for a risk averse investor. The Ins is simply a bonus. BETA MATTERS!
I can't understand why one would focus on the internal expense component rather than simply comparing risk and tax adjusted returns. For me the argument for perm CV life insurance is that it is a versatile extremely low risk potentially tax free vehicle. If one is unwilling to suggest such a product to a risk averse investor because the insurance portion is seen as unnecessary ( a s situation that could change in expensive fashion later), what would be your recommendation? Munis? The advantages of a well designed IUL/WL policy outweigh the costs for a risk averse investor. The Ins is simply a bonus. BETA MATTERS!
- 11,273
First, I agree that life insurance is a unique asset class all of its own. And while I'm noting that the OP is also an agent, I'm also concerned about compliance and negating possible complaints.
ProducersWeb - Life - New lawsuit against agent for selling a VUL
My comments:
If we were advising a potential client, the perceived need for life insurance is important. If there is no need for life insurance, then you could be looking at an issue in the future.
Yes, this is more about protecting the agent/advisor than it is in helping the client... but every piece of life insurance literature (or at least agent field guides) on their permanent products does indicate that these products are life insurance first. Everything else is just an additional benefit within a life insurance chassis.
Now, if life insurance was FREE... there would be no issue. However, there are policy charges and expenses that need to be managed. Are these costs much lower for all the benefits you can receive? Absolutely... as long as the client can remember that and you document that they client is buying life insurance for reasons OTHER than a permanent death benefit.
ProducersWeb - Life - New lawsuit against agent for selling a VUL
My comments:
If we were advising a potential client, the perceived need for life insurance is important. If there is no need for life insurance, then you could be looking at an issue in the future.
Yes, this is more about protecting the agent/advisor than it is in helping the client... but every piece of life insurance literature (or at least agent field guides) on their permanent products does indicate that these products are life insurance first. Everything else is just an additional benefit within a life insurance chassis.
Now, if life insurance was FREE... there would be no issue. However, there are policy charges and expenses that need to be managed. Are these costs much lower for all the benefits you can receive? Absolutely... as long as the client can remember that and you document that they client is buying life insurance for reasons OTHER than a permanent death benefit.
- 709
I love IUL but the critics will point out its costs. I'm quoting from the policy page of a Midland National Life IUL:
Policy Expense Charge: $8.00 per month to age 100
Premium Load: 5.00% of premiums received to policy age 100
Percent of Account Value Charge: Maxiumum of 0.050% per month
And, of course, there's the cost of insurance
Policy Expense Charge: $8.00 per month to age 100
Premium Load: 5.00% of premiums received to policy age 100
Percent of Account Value Charge: Maxiumum of 0.050% per month
And, of course, there's the cost of insurance
- 284
So if if you can prudently illustrate a return that that after expenses competes well with other risk averse strategies plus has the versatility of Life Insurance you don't think that it could be an appropriate recommendation sans kids or debt? I'd have to disagree.
As long as the rationale is documented, I'd have no issue recommending LI as an asset class to a client without kids or debt. Remember, there are some thriving LI practices out there where the only concern about DB is how to minimize it (think Brandon). Beta Matters!!!
- 11,273
I suppose it depends on who you're recommending it to.
High income individuals... definitely. They earn too much to contribute to a Roth, they get phased out of many tax advantages, and maximize their 401(k) contributions. In this instance, I agree. Life insurance makes a lot of sense as an asset class, even for single people. Just document everything.
I suppose what I'm saying is that if you target people who actually NEED the death benefit, you'll make better sales, provide proper protection, and have a better 'defense' should you need it, all at the same time.
High income individuals... definitely. They earn too much to contribute to a Roth, they get phased out of many tax advantages, and maximize their 401(k) contributions. In this instance, I agree. Life insurance makes a lot of sense as an asset class, even for single people. Just document everything.
I suppose what I'm saying is that if you target people who actually NEED the death benefit, you'll make better sales, provide proper protection, and have a better 'defense' should you need it, all at the same time.
- 10,318
In response to the expense issue.
The expenses vary from year to year and really should be looked at over the long run as a whole. Once you are at year 20 or 30, the total expenses (for a properly overfunded policy) are usually less than 1% of the CV.
----------
Those are the guaranteed/maximum charges. The non-guaranteed ends the premium load after year 10 if I remember correctly.
The expenses vary from year to year and really should be looked at over the long run as a whole. Once you are at year 20 or 30, the total expenses (for a properly overfunded policy) are usually less than 1% of the CV.
----------
Those are the guaranteed/maximum charges. The non-guaranteed ends the premium load after year 10 if I remember correctly.
The title of your thread, question -- the biggest negative -- that said, I think one of the biggest negatives, and biggest problems with IUL, is a lack of thorough, comprehensive, and complete understanding of the product. You've never written it and I am not sure if you've thoroughly researched it -- and if so, for how long. It is a very complicated product, far more complex than it is portrayed.
Also, should you, could you, would you, etc. -- and so on -- compared to what? What are your other options?
Good luck.
- 11,273
This article definitely fits this thread regarding on whether to focus on IUL's death benefit, or not:
Iul: Accumulation Vs. Protection | InsuranceNewsNetMagazine.com
Iul: Accumulation Vs. Protection | InsuranceNewsNetMagazine.com
Similar threads
