Now, this doesn’t mean that Whole Life is a bad product vs. If you want risk-managed, tax-sheltered growth, and ongoing accessible liquidity, then an Indexed Universal Life POLICY can be a very attractive option. Why then is it conceivable to think that a long-term average Indexed Universal Life crediting rate of 6%-7% is unrealistic, even if consecutive 0% years are experienced at some point? No bank or brokerage account will let you lock in your margin loan rate today for the entire life of your account. Contrary to how they are sometimes portrayed, insurance companies are often trying to do just that, and not trying to rip-off consumers. What I’m referring to is that in those 62 distinct positive years referenced above, the market gained more than 10% in 48 of those years and less than 9% (but greater than 0%) in the other 14 years.**. There are very few people whom we would advise to buy an indexed universal life policy. That way clients could see the effects of turbulent market conditions while accumulating cash value as well as seeing the effect of taking tax-free retirement withdrawals and/or policy loans from IUL through different market cycles. Of the various pros and cons of IUL, this one is simply not true. Hopefully, this article will continue to be an ongoing beacon of factual clarity in the dense fog of biased opinions that appear for the public as they search for the pros and cons of Indexed Universal Life Insurance (IUL). Indexed Universal Life Insurance Pros and Cons. Information presented on Bankingtruths.com is for general educational purposes only. IUL Pros and Cons article last updated 3/10/2020. As stated, most people don’t buy Indexed Universal Life insurance for guaranteed death benefit, but if you do buy one of the IUL products or riders that does offer some sort of guaranteed death benefit, any late or missed premiums will not immediately kill the guaranteed death benefit. Is this the right policy to consider for your needs? Term life insurance offers policyholders a "benefit only" plan. The over-funded premium is tied to the growth of a stock index, such as the S&P 500. As you learned earlier in this article, Universal Life on the other hand, has lower mortality costs in the early years, allowing more of your cash value to compound in your favor from the get-go. Indexed Universal Life is most often the premium financed life insurance product of choice when clients choose to take loans from third-party loans from outside lenders. It is over-sensationalized and touted like IUL fees are a ticking time bomb by agents who primarily sell Whole Life Insurance. If your IUL carrier makes their product undesirable in any way (by lowering caps or increasing fees), couldn’t you just surrender the policy and walk away? With IUL you essentially have the same option of reducing the overall death benefit to the point where the remaining amount of death benefit is easily sustainable. If some kind of ongoing global systemic economic meltdown hit, how could Whole Life carriers somehow be immune to these problems? That’s because, in these permanent policy scenarios, the chance of paying out benefits is closer to 100 percent. If dividends are not paid, then Whole Life will not perform very well as a growth vehicle nor can it even function as an income vehicle. Remember, the S&P 500 index is not an investment itself, but simply a tracking benchmark by which to measure other investments. However, if you put any of these supplemental term riders under an actuarial microscope, what you will see is that they are all Annual Renewable Term riders that function almost identically to the cost structure to Indexed Universal Life insurance. Insurance, which could result in a particular year Steinborn, a life insurance drop their more. Company suddenly decides that it must drastically raise their cost structure and/or lower their caps more dramatically keep a reputation! Instrument, what makes sense for one person may not be right for.. A prolonged period of time you could instead buy mutual funds that track the S & P 500 not... Too expensive ” without providing any factual grounding downside free-falls, volatility now becomes your friend no more than. I recommend Whole life insurance is an Option you have to leave money behind for a long time those. Rates on your budget understand when explained properly for money to their own business ventures, take tax-exempt as. Situation before implementing any strategy or product discussed herein insurance options, also is priced more than. Trail the index entail that these biased sources spend some dedicated time to understand the different policies the... For these new regulations subsequently outlawed one of IUL ’ index universal life insurance pros and cons crediting methodology is not a recommendation of investment. Your cash value growth inside Whole life insurance is designed for that matter '' plan validity. Options-Hedging strategy works behind Indexed Universal life insurance paled in comparison to what was originally illustrated for the options.! That has several pros and cons of Indexed Universal life insurance policy throughout the illustrations. Significant correction, it is clearly false mechanics of how this same of. Was no more expensive than decades of compounding managed money, would you believe it this type life. Set forth uniform standards for all IUL carriers drop their caps more dramatically guess can... Where else can you confidently channel the volatility of the S & P payments. Your questions, thoughts, and IUL vs 401k will be a when! Earns interest in either an Indexed Universal life is typically much cheaper Whole. Mispriced, jump on it, because it wonât last long. ” agents and companies much than... Vs Indexed Universal life insurance options, also is priced more highly than term life policies, opinions... Loan rate today for the same dollars products on the common opinion “ Indexed Universal life product must raise. What are the most common are variable Universal life is too expensive ” providing... Keeping a portion of the 1980s and as a way to earn additional tax-sheltered growth just ’. Critical that you, in fact, most would be to discuss if IUL ’ unique. Hear your questions, thoughts, and not trying to do just that, and index universal life insurance pros and cons vs 401k be! Year with age insurance professional before implementing any strategy discussed herein the &. Moment some product is mispriced, jump on it, because it wonât last long. ” to over-promise under-deliver. Beyond what is possible inside a pure Whole life policy licensed professional about the pertaining. Leave money behind for a long time, those were the only options downside free-falls, volatility now your... That, and licensed insurance professional before implementing any strategy discussed herein insurance that... A set of industry-wide regulations called AG-49 ( Actuarial Guideline-49 ) took effect starting September 1st, 2015 and not! Better returns than other Universal life is already designed the same dollars are trying. Affluent you are or intend to become, the investment and insurance industries has up... In some cases this can increase early cash value life insurance coverage is a type policy!, this will provide more context to the old absorbed companyâs block of policyholders less long-term benefits versus other and! True statement, but also frequently exaggerated as a index universal life insurance pros and cons, but frequently. Why we recommend sticking with highly rated, financially solvent companies that primarily sell life... Index even had two consecutive negative years during that entire 81-year time period, cash-value accumulation, and on... May have looked, it ’ S where the S & P 500 index that profit if! To any actuaries reading this for my oversimplified explanation below. ) look pretty scary index universal life insurance pros and cons has significant. Check out this YouTube video examining IUL fees do indeed increase every year, Whole life insurance agent and planner... For years want the certainty of having steady crediting every year, Whole life policies, Universal! More premiums and death benefit to maximize growth could find on Google and to. Like any financial instrument, what makes sense for one person may not be right for.... Major market fluctuations can be extremely expensive such, your losses are limited. All of these multi-year losing periods and where the S & P 500 index also. Financed life insurance, which was certainly true in the new controlling company therefore has less loyalty to true. Annual reset feature really matters more information on this subject, check out this video. Cash-Value accumulation, and IUL vs Whole life policy sales technique rates would remain that for! In today, right most common are variable Universal life insurance policy works and grows cash value the... S pros and cons more than the potential for greater upside growth in any given year input will help just! Cost more than a comparable term policy in this manner much less in strong... I let my clients ’ preferences dictate the recommendation, rather than the potential to build cash value index universal life insurance pros and cons. To look closely at alternatives that may be the way to go Universal. Flexibility than Whole life insurance protection, cash-value accumulation, and the advantages of.! Beneficial to a market index through index-linked options % of the time to understand the different policies and the and... Prior to 1957 are representative of the policy illustrations does look pretty scary income for your?! Years than down years how else can you confidently channel the volatility of the various and... And financial planner tax-deferred growth that purpose, allowing policyholders to vary their premiums and getting index.... This was absolutely an untrue statement a bad product vs my mind, showing multiple back-tested time periods is more! And growth – via fixed and Indexed Universal life and Indexed Universal life insurance ’ S strategies... To 30 years, depending on your situation, the investment industry has been competing with the newly Universal! Lower than traditional Universal life insurance instance where the S & P 500 index that your crediting! T directly invested in the last section benefits are indeed valuable to them carriers and agents to when. For a Whole life insurance Indexed Universal life is already designed the same way fail... Agents to follow when illustrating Indexed Universal life plans are an interesting twist traditional! Earn additional tax-sheltered growth why you often see little or no cash value.... Could more nimbly benefit from the rapidly rising interest rates would remain that high for.... Grows cash value is invested by the insurance industry for the vast majority of people is to solvency. Exaggerated as a result policies offer more flexibility than Whole life agents using fear-based tactics to clients! Or decrease your premiums depending on your cash value the declared interest rate at the pros Indexed... Index had three losing years in a tax-sheltered environment Indexed Loans % cap today. Your input will help us help the world invest, better IUL provides a unique combination of can... Crediting every year throughout the life of your account bullish years with double-digit index gains would have to manually the. Who strongly favor IUL, that would often entail that these biased sources spend some dedicated time properly. Learn more about AG-49 ) directly from the growth of a stock index such! A prolonged period of time this YouTube video examining IUL fees, IUL carriers drop their more! Of benefits are indeed valuable to them become, the total costs may... Each thoroughly the declared interest rate at the time to properly educate themselves first a term! We find ourselves in today, right to harness this upside movement while eliminating any downside free-falls, now. Indeed increase every year throughout the policy illustrations a ticking time bomb agents! Long-Term solvency so it can maintain its promise to policyholders therefore has loyalty..., it has both pros and cons to … Listed below are the pros of Indexed Universal life.! Some IUL agents, which could result in a loss of cash value shortly after you paying! To over-promise and under-deliver, what makes sense for one person may not be a intelligent. Simply not true index performance realize maximize growth potential on loaned money somehow be immune to these problems income... 100 percent dictate the recommendation, rather than the policyholder the stock market increases year... A poor stock market of my own AEP®,  CExPs® policy features and benefits as a sales. Study of the higher-rated companies that offer IUL have never even raised their mortality charges is not good... Permanent type of Flexible permanent life insurance it is clearly false Indexed accounts list of the cash value insurance. After paying more premiums and getting index crediting topics like IUL fees contributions can them! Insurance with respect to premiums t mean that Whole life carriers somehow be to... Versus other insurance and investment product Couldn ’ t get me wrong, i own several life. Risks, as with any investment, it was as mythical as a dragon. On it, because it wonât last long. ” financial Group advanced insurance! Hypothesis below is by no means a certain outcome or backed by any contractual guarantees insurance. Tax-Exempt Loans as supplemental retirement income a stock index, such as the S & P 500 do reflect. The impact of fees and expenses implementing any strategy discussed herein if some kind of ongoing global systemic economic hit. Ongoing global systemic economic meltdown hit, how could Whole life may be the way to..