[USER]

What is thoughts on IUL’s index universal life ( cash value life insurance). Is there any true value in them as being your own bank or is it not necessarily a scam but more advantageous for the broker and a money pit that never pans out?

I have heard multiple views from both sides. This would be independent of my FIRE journey.

Thanks

[JT]

I’m planning to get rid of mine at the start of the new year. The opportunity cost of having that money in something that produces a far better result is too big to pass up.

[Bryan]

The only issue with IUL is your performance is only as good as your agent, first off you have to understand the language of the contract, if cash value is your goal, you MUST understand how the NET RISK works based on the Internal Revene Code 7702.

The IRS requires that you hold so much insurance per dollar put into the policy.

IUL is built on an Annual Renewable Term chassis, meaning you pay for the current cost of insurance of your current age, as you get older those cost per 1000 go up, however you mitigate that by understanding net risk.

For example a 37 year old may be required to have net risk of 250%. Meaning if you have $100,000 of cash value you’re required to have a NET death benefit of $250,000, however you OWN $100,000 of the death benefit, while renting the other $150,000.

Yet once you’re 75 and insurance costs are through the roof, the IRS only requires 105% of net risk.

Meaning if you have $100,000 you’re legally required to only have a net death benefit for $105,000. You OWN $100,000 and RENT $5,000.

To put that into perspective your GUARANTEED cost of insurance that year would be approximately $200. Taking only a 0.2% return to cover those costs.

Current returns in certain indexes are paying out quite well this year.

They have some uncapped strategies with spread rates as low as 6.5%. Current S&P is at 39.98 at the time of this comment, that means your return would be 33.48% with having downward protection of 0% in the case of an economic downturn.

Some of the volatility control indexes have bonus par rates as well. Paying upwards of 260-310% of the return.

For example one of the indexes with Nationwide is currently as of today at 10.68%.

The 0% floor 260% par rate puts that return at 27% for an additional cost of 1% of cash value you can get 310% par rate making that return now 33.1%.

With that being said, these policies are pretty complicated to understand but once you understand it, they are pretty damn amazing.

I’ve offered to go on a LIVE recorded call with any naysayers, because most of the crap said bad about these policies is because they don’t understand it, offer still stands too

[Tristan]

The last part is most accurate: not a scam but more advantageous for broker.

I have my insurance license (mostly to offer term to my wealth management clients, but on rare occasion a permanent policy makes sense).

I’ve never had an IUL be what is best for the client and therefore have never sold one

[Arturo]

Just from what I’ve learned is that if you have enough invested now to provide for your families needs for a few years or whatever you deem necessary then no need for life insurance.

If your in the low stages of investments and savings then perhaps term for a few years if your in the expect to grow your savings sooner then later.

Being your own bank with life insurance is great for those who know how to use it and understand how much your annual interest is and if it’s going to change over time or not.

A IUL (I could be wrong) is depending what you get is 100k promised insurance but of course with the growth of stocks more.

This and certain well paying whole life ones are good options to leverage your own money while maintaining a death benefit for family.

Especially good if you don’t have a retirement plan set up and you’re running closer to it.

If you have time to grow your own retirement then it could be better to just invest that money in your own brokerage or IRA.

Keep in mind you can withdraw penalty free from an Roth IRA from your contributions only.

(You gotta keep track of what you put in)
Lastly know that an IUL promises better returns and safer then some index funds.

But they have a cap of returns and a floor of returns that they sell you on. But know that it doesn’t beat the market had you invested the same thing. Why?

Because IUL doesn’t include what your make on your reinvested dividends or dividends at all in most cases, along with up and down of the market you don’t get that purchase of stocks as dirt prices and anything over about 13% return.

So, they say you make more cause you don’t lose when the markets lose but that when you get to double down and when it comes up the gains are more then they give you.

Long story short really depends on your situation, family, retirement plan, investing lifestyle, and if you want your money to grow some while still using it even though you’ll be paying an annual fee (make sure it’s not a crazy interest)

[Lavanya]

It’s a product that can be designed to the best or to the worst as I have seen both kinds of designs in my career.

This product is not for all and it serves specific needs for a client but many of us get lost in the woods on the investment world and compare the returns against that.

This is like a safety net to park your money to protect against market volatility and save taxes on capital gains and also pass on to legacy with added death benefit.

Every person’s situation is unique and the solution need to be designed based on their needs.

[Mickael]

Iuls can be used as a volatility buffer asset or even for long term care purposes.

For the BYOB concept an IUL could work however a participating whole life offers more guarantees.

Fees in IUL are front loaded, it’s expensive at first but if you keep your contract for the rest of your life, they should average less than 1% so it’s not terrible.

Yes, the COI will increase but the insurance company allows you to count your cash as a portion of the death benefit which will shrink the cost of insurance.

When it comes to the agent commission, it’s based on the target premium.

That’s why you always want the lowest death benefit possible.

[Andrea]

Life insurance is not an investment product. You’ll make so much more money in the market.

As for using it as a “bank”, it’s too complicated and risky for my taste.

[Ryan]

Buy term and invest the difference. IULs don’t benefit the policy holder especially when or if it lapses

[Colleen]

They are great if sold under the right circumstances, budget and expectations and set up well.

The projected return in illustration imo should be set at 6 or under. Budget for that. Vs setting at higher to make it look sexier.

A good agent that can walk you through pro cons and look at your overall financial picture vs just rail you into an iul is needed.

[Author]

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