Indexed Universal Life vs. Universal Life vs. VUL

[zwiepak]

IUL is pretty new to me, anyone know some major (or minor for that matter) disadvantages of this product class, comparatively against UL(guaranteed or current assumption, matters not) and/or VUL? I'm the product guy for an MGA, and looking to get into IUL's... So begins my research!

 

[Full Throttle]

IUL is simply a little more risk/potential reward than plain vanilla UL, substantially less risky than VUL. I don't sell much of it, but have before. I personally don't see how someone can come out ahead with the expenses on a VUL product.

 

[scagnt83]

I personally don't see how someone can come out ahead with the expenses on a VUL product.

This is why I am a fan of IUL. It gives you the guarantees that you need with LI, the upside potential from market gains that clients like, and it doesnt have the high overhead that VUL has.

I have been using it more and more these days.

 

[K3_insbkr]

it is being received well. many people who are all about vul refuse to believe in it. people who are old school and like whole life refuse to try to understand it. it is another option and if it fits your client's needs there are many good products out there. Aviva being one of the strongest although they did raise costs inside of it. Still very strong.

 

[BNTRS]

It gives you the guarantees that you need with LI...

Would that be guarantees like guaranteed mortality charges, rate of return, and expense charges?

 

[scagnt83]

Would that be guarantees like guaranteed mortality charges, rate of return, and expense charges?

lol. I hear ya. I cant argue that WL isnt a great product.
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But there really are some great IUL and UL contracts out there these days.

Lets compare some of the guaranteed illustrations on a 35yo with a rating one above standard:
The two policies are a:
ON prestige max par WL
(paid up at 65, 25K/year, $871,570 DB, overfunded)
and
LFG LifeReserveUL
(pay until 65, 25K/year, $920K initial DB, overfunded)

Guaranteed values @ age
ON ______________________________________ LFG
66: $481,481 CV, $871,570 DB______$696,000 CV, $1,280,639 DB

70: $532,416 CV, $871,570 DB _____$680,867 CV, $1,137,049 DB

75: $597,121 CV, $871,570 DB _____ $655,145 CV, $976,166 DB

80: $659,099 CV, $871,570 DB _____ $620,660 CV, $831,685 DB


So. Admitedly the WL has better guarantees past age75 on a guaranteed "worst case long term economy scenario" basis. (If you do not take income from it)
This is why I own WL myself.

The UL does have higher cash values up until your late 70s when it starts to fall off.
But if this is to be used as an asset to pay yourself income in retirement from, if you start taking loans out the policy it stays in force for lifetime.

LFG has an assured distribution rider that guarantees a certain distribution amount based on the CV.
On this guaranteed illustration I ran the income to age 100, starting at age 66 was 60K/year, and the insurance stays in force after age 100.
You could have a guaranteed lifetime income to age 125 of $59K/year. This is all on a guaranteed basis. Not current or midpoint assumptions.
Thats a strong contract, I dont care how much you love WL

Needless to say, slightly above the midpoint values are much more realistic. And fall in favor of the UL slightly.
But you have a greater DB with the UL and payment flexibility.

And the upside potential of an IUL is far greater than any WL.
I think most experienced and knoweldgable agents would agree that 5.5% is a very conservative and reasonable expectation from an indexed account. And when illustrated beats current assumption WL illustrations. And considering that I could get 6,7,or even 8% from the IUL, its a very conservative place to harbor money considering the upside potential....

And just because a WL illustration doesnt break down the admin fees and loads, does not mean that they are not there. Its just bundled in your premium. All insurance has admin expenses and overhead associated with it, and it trickles down into you policy premiums. UL just illustrates it more than others.

 

[CFP83]

All good points Scagnt83.

If one is positioning life insurance as an "asset class" for a younger income earner, I like whole life through a powerhouse mutual...because of the consistent returns and total uncorrelated nature to the stock market.

In 2009 though I did a great deal of business with IUL's

There were several situations where I took individuals who had seen major income decreases, from a whole life that they were going to HAVE to pay premiums for 7-10 more years and 1035'ed the cash over to an IUL (Penn Mutual's....14%cap/2% guarantee/6% fixed account). This gave them a much lower "required" annual premium, as well as flexability of premiums. In looking at the IRR's for the dollars they are putting in they are very very likely to get a higher IRR than the whole life they were in.

I have been disappointed to see the major mutual's total fear of IUL. This is a product that can be dynamite for the baby-boomer marketplace. We all know that at older ages it's impossible to have good IRR's on whole life. With IUL though you can get some pretty impressive accumulations of cash.

In speaking with other agents who do major life insurance business....it seems there is a hesistancy about IUL because there is no renewal stream compared to whole life.

 

[dgoldenz]

It would seem that an IUL for an older person could get absolutely killed by a raise in mortality charges if there is no no-lapse guarantee.....and if there is, they shouldn't be using it as a bank account anyway, since that would remove the guarantee. Hopefully you documented all of your conversations with the 1035's you did on the WL. I can almost guarantee some of those people will think that "flexible premium" means "I don't have to pay a premium when I don't feel like it" and not realize that their coverage will lapse at some point. People always forget what you tell them unless they are very astute financially. I like the KISS method myself.

 

[BNTRS]

lol. I hear ya. I cant argue that WL isnt a great product.
- - - - - - - - - - - - - - - - - -



But there really are some great IUL and UL contracts out there these days.

Lets compare some of the guaranteed illustrations on a 35yo with a rating one above standard:
The two policies are a:
ON prestige max par WL
(paid up at 65, 25K/year, $871,570 DB, overfunded)
and
LFG LifeReserveUL
(pay until 65, 25K/year, $920K initial DB, overfunded)

Guaranteed values @ age
ON ______________________________________ LFG
66: $481,481 CV, $871,570 DB______$696,000 CV, $1,280,639 DB

70: $532,416 CV, $871,570 DB _____$680,867 CV, $1,137,049 DB

75: $597,121 CV, $871,570 DB _____ $655,145 CV, $976,166 DB

80: $659,099 CV, $871,570 DB _____ $620,660 CV, $831,685 DB


So. Admitedly the WL has better guarantees past age75 on a guaranteed "worst case long term economy scenario" basis. (If you do not take income from it)
This is why I own WL myself.

The UL does have higher cash values up until your late 70s when it starts to fall off.
But if this is to be used as an asset to pay yourself income in retirement from, if you start taking loans out the policy it stays in force for lifetime.

LFG has an assured distribution rider that guarantees a certain distribution amount based on the CV.
On this guaranteed illustration I ran the income to age 100, starting at age 66 was 60K/year, and the insurance stays in force after age 100.
You could have a guaranteed lifetime income to age 125 of $59K/year. This is all on a guaranteed basis. Not current or midpoint assumptions.
Thats a strong contract, I dont care how much you love WL

Needless to say, slightly above the midpoint values are much more realistic. And fall in favor of the UL slightly.
But you have a greater DB with the UL and payment flexibility.

And the upside potential of an IUL is far greater than any WL.
I think most experienced and knoweldgable agents would agree that 5.5% is a very conservative and reasonable expectation from an indexed account. And when illustrated beats current assumption WL illustrations. And considering that I could get 6,7,or even 8% from the IUL, its a very conservative place to harbor money considering the upside potential....

And just because a WL illustration doesnt break down the admin fees and loads, does not mean that they are not there. Its just bundled in your premium. All insurance has admin expenses and overhead associated with it, and it trickles down into you policy premiums. UL just illustrates it more than others.

Ok, I'm looking at this and I'm thinking I must have something wrong, or there's a typo somewhere in what you've written. Is it possible you meant 45 year old and not 35?

 

[dgoldenz]

Ok, I'm looking at this and I'm thinking I must have something wrong, or there's a typo somewhere in what you've written. Is it possible you meant 45 year old and not 35?

Looking at those numbers....I would ask why fund $25k/year to an IUL? West Coast Life guaranteed for life at preferred NS for a $920k death benefit is $5,130/year paid to age 65, which would leave $20k left over. Over 30 years, that's $600k, and the guaranteed CV is only $600-700k? Doesn't make much sense if you ask me. I would rather keep my $20k and invest it somewhere else if I'm 35 years old. Then I have a $920k death benefit AND $600k cash, instead of a $920k death benefit with $0 cash when I die. Same with the WL scenario, assuming the age you posted is correct.