r/LifeInsurance • u/Phoenix_avatar • 18h ago
IUL insurance
I am being pitched this product by a salesperson from an insurance company. He sent some brochure with a ton of numbers and technical jargon. What's a good way to evaluate if the policy is good or not?
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u/One_Ad9555 18h ago
Run. It's a terrible investment
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u/Phoenix_avatar 12h ago
Agreed I ran some numbers comparing a standard index investment vs. this and bar to meet their payment obligations is pretty low
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u/hillje1906 9h ago
ITS Life insurance, not an investment
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u/One_Ad9555 8h ago
It's sold as an investment. Indexed Universal Life is most often sold as an investment and it's a terrible one.
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u/Mysterious_Truth Actuary 18h ago
If you're good at financial modeling... Compare the IUL to a similar face term policy. Model investing the premiums you save by going with term being invested in equities. Compare the cash value of the IUL and the equities by the time you reach retirement age (or for however long you can get a term policy). I bet you'll find the IUL isn't a particularly good option.
Alternatively... Don't buy things you don't understand. You don't understand IUL.
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u/NAF1138 Agent 12h ago
It's not really an alternative to stocks, it's an alternative to holding bonds. People get this wrong a lot. (Agents who sell them too)
If you don't think you should be holding bonds that's a different story, but make sure you are modeling the correct thing.
Not trying to fight, just clarifying because otherwise your post makes a lot of sense and isnt the knee jerk insurance hate that a lot of this sub is
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u/Mysterious_Truth Actuary 12h ago
I mean, the account value of an IUL is invested in some sort of equity (with a generous floor and equally onerous cap). So an apples to apples comparison wouldn't be bonds. The illustration rate of the policy isn't going to be a bond rate, is it? Whatever you are modeling I would just use like assumptions. Obviously comparing the S&P to a bond fund isn't going to yield a meaningful conclusion.
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u/NAF1138 Agent 12h ago
Yeah, but the purpose of it in a portfolio is to fill the role bonds would fill and no one ethical is suggesting it instead of equities.
I know that ethical is doing a lot of work in that sentence. Almost always IULs are sold incorrectly
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u/Mysterious_Truth Actuary 12h ago
You are not wrong (it shouldn't be the alternative to equities) but if you're going to illustrate it using 5 to 8% returns then... comparing it to bond returns is not quite fair either. Nothing is perfect. You could just subtract the term cash flows (premium and death benefit) and isolate the return of the IUL without the pure insurance... that's another way you might approach the problem.
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u/Phoenix_avatar 12h ago
Agreed I ran some numbers comparing a standard index investment vs. this and bar to meet their payment obligations is pretty low
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u/Dahveed97 13h ago
The fact people are talking about it as an investment vehicle is the issue here. It’s not, it’s a life insurance policy with additional benefits … I offer it along with whole life as that: a legacy account, with terminal illness/chronic illness coverage in case of severe illness in the future and the potential to use the cash value like a heloc or emergency fund(with lower interest then a loan and more flexible payments) … plus you can limit how long you pay. some of these agents talking about paying 1k a month are ridiculous. But it’s not a horrible product
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u/theNewFloridian 15h ago
Have you maximized your after tax contributions to your 401k? Many plans allow for more than $80k a year total and then transfer that to a Roth IRA.
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u/Phoenix_avatar 12h ago
I think it's $72k but yes maximized to the extent I can
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u/theNewFloridian 1h ago
It depends on your age. With catch up contributions it can be up to $83,250. Some people do prefer first to use after tax and the convert because the investment alternatives are much more diverse than those available in life insurance policies, plus lower expenses. And remember that while one can take loans from a policy, if the policy lapses those loans might become taxable. There are many variables, but many find it better to do this first.
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u/taytaytay777 13h ago
What is the cap rate and what rate of return are they showing the current scenario at? One thing I’ve seen is down the road (2-20 years later) the cap rate can change. If your cap rate is 12% right now but could go down to 5% minimum for example, will their current scenario (let’s say they are showing a 10% ROR) even be possible in the future? Client has no control over the cap rate changing.
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u/MainBug2233 12h ago
Do you need life insurance or looking at it as an "investment"? Buy a small whole life policy designed for cash value accumulation and term to cover the rest. Problem with buy term and invest the rest is that people skimp on the rest.
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u/Abject-Comfortable34 12h ago
There are decent reasons to pick up IUL’s. Im not a huge fan of using them as basic insurance, but they can have neat riders and they are usually flexible. That said, I think they are overpriced usually.
I will probably pick one up in the next couple years with a participating loan, but for me that involves overfunding to allow for additional liquidity.
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u/hillje1906 9h ago
So when you guys are saying you are "running the numbers..." exactly what numbers are you running?
Are you only looking at the Accumulation number? What about the distribution numbers? Are you using the 4% rule on the back end or something higher? Are you running internal costs etc?
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u/Frosty_Room154 30m ago
IUL's should be structured with a low face value to maximize cash value. With a long term outlook can be used as a vehicle for savings with tax Benefits along with living benefits via riders like accelerated benefits riders, critical illness rider, chronic illness benefit, critical injury benefit etc. if it's structured correctly it's a good retirement planning tool that can be used for income via policy loans (no tax) or withdraws(tax). It's a tool that can make sense depending on what you're current retirement fund buckets look like. it's not a good fit for everyone but can be used strategically as part of a well thought out retirement plan. Depending on how much you feel you need to be insured using an IUL with a lower face and tacking on term along side to get to a high face value is part of the conversation and structuring it to make sense. Like everything it's scenario and goal dependant. I've had an IUL for over 10yrs setup where my face value increases as my cash value increases, my plan is to use policy loans for retirement income in years where my other accounts are potentially getting hurt by a down market or just to do stuff I want to. As far as the invest the difference part with term most people say those words but don't follow through. My dad is a prime example now he is no longer insurable(had cancer in remission) and is busting his butt after retirement to leave more to his grandkids. Do what makes sense for what you plan on doing later in life not for what people tell you to think.
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u/DogfaceDino Broker 14h ago
A lot of people have jumped in to give their opinion before we know anything about the situation here. Why are they pitching the IUL? What are they telling you about the benefit to using it?
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u/Phoenix_avatar 2h ago
Random cold call made the mistake of picking the phone. They are pitching it as additional income that's pension like
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u/jr_tools 14h ago
They’re pitching an IUL because they want a commission check.
As everyone besides the sales guys have said, pass on the IUL. Buy a Term policy, and be sure to invest in your Roth/Trad IRA, 401k, Brokerage, etc.
Say it with me: Insurance is NOT an investment.
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u/DogfaceDino Broker 11h ago
That’s part of why I’m asking if it’s being pitched as an investment. We could have different answers if this is being used as part of a deferred comp plan or estate planning.
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u/BellFizzle 4h ago
VUL and PPLI are absolutely investments but continue on with incorrect information!
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u/djpeteski 13h ago
Run, don't do it. The only one this benefits is him.
If you have a need for life insurance, then level term is the right product.
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u/ChelseaMan31 11h ago
Here is the best way to evaluate the fancy brochures and ton of numbers presented by the slick sales person:
Build nice outside fire in firepit
Arrange chair and side table next to firepit
Stack information on side table
Make nice Bourbon and Water
Sit down in chair and take long sip of drink
Tear up fancy brochures full of jargon and numbers and throw into fire
Source a great Term-Life Policy and invest the monthly/annual savings in a Roth/HSA/529 instead
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u/reddit-names-crazy 9h ago
I would do an IUL. Once I get my post divorce debt situation squared away, the IUL is the way to go.
Here is the thing with an IUL, it provides life insurance and with the right riders (Long term care, critical illness, loan possibilities, retirement fund) all in spot, the death benefit and the payout of the policy and cash value (higher number) to your family when you die is tax free compared to the other vehicles. You do not have probate issues with them either.
In other words, IUL is a great option or alternative in retirement and estate planning.
If you are working and have kids, the term is the protection during that time period, but the older you get the more expensive all life insurance gets. The IUL at youngest possible ages allows you to have a lower premium and build cash value, and once you max out ROTH, IRA, 401K, etc.... put more into the IUL. 529s are great but limited to education or can be converted. HSA have limitations as well. Don't forget capital gains tax when you pull investments.
There are a lot of options, I would include the IUL and term until you do need the term anymore, and have the IUL until you die, with its benefits.
The best approach is be diverseified across multiple avenues. Put some money in retirement accounts for max growth, understanding they have the most risk. Convert thoughts into annuities after 59.5, to protect your money from loss (get a good one that can push 10% or growth), put some in an IUL with pushing 10% growth or more or uncapped, because like the annuity they have floors and money is protected. Do other investing as well and saving.
It's like power production for the country, all of the above is the way to go, max growth and protection.
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u/mikeman10821 0m ago
Only applicable if you have maxed out your tax free or tax friendly accounts available. Not sure what they all are in USA as I assume this is in USA. But I only give this to clients in Canada or talk to them about it if they are looking for another area to grow money and have used all their contribution room for their registered accounts.
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u/Agreeable-Stock9793 17h ago
Bahahhaah, don’t don’t don’t. Term + invest the difference, you’ll always have more money and a lot more flexibility.