Since you will not post a call option return strategy from March 2009 to present, here ya go. I have two more posts coming up on the subject which go into more depth, including an analysis of a fairly good IUL policy. You can choose to live in whatever world you wish, but do you own diligence and don’t insult your readers after you’re the one who asked them for their experiences. Depending on your situation, the total costs paid may net less long-term benefits versus other insurance and separate investing alternatives. Go to PDF pp 16 and 49 at this Society of Actuaries pdf: https://www.soa.org/files/research/exp-study/research-2007-2009-us-ind-life-pers-report.pdf. When you have those horrendous down years, don’t lose a night’s sleep cuz it always comes back ..right? I’m also on Vanguard’s payroll. This WSJ piece: http://www.wsj.com/articles/SB10001424052748703435104575421411449555240. Yep and since its a UL the cost of insurance rises and rises and rises (and isnt even at the guaranteed rate yet which would be a lot higher). You pay 30-40% of your earnings on stock investments each year? Things can .. and do .. happen. Let's assume that by the age of 50 he has a cash value of $200,000. 11. Furthermore, it’s just even more evidence that takes from the creditability of any argument you suggest against any IUL product by trying to make a comparison to WL or the old UL policies. James you said that over 80% of Whole Life buyers let lapse their policies. If you only borrow from the policy, it’s like it’s tax-free but not interest free. I agree that investing in life insurance is probably a good option for terrible investors who managed to lose 60% of their money in a year when the market only lost 37%. Ask yourself the probability of our market indexes never making at least 3% over the next 30-years. How much does that matter? 2) I think “malpractice immunity” is probably too strong of a word, although in many states life insurance cash value is fully or partially protected from creditors in bankruptcy. In 30yrs the taxable account would be almost 30% less than tax deffered if you use same returns. Increasing is where the amount of your cash value gets added to the face amount so your beneficiaries end up getting both amounts. Seriously though, I love how these insurance agents don’t even understand Vanguard’s structure (not to mention the structure of our tax system). We’re well past the worst of the Great Recession when law firms had their hands full with titans such as Goldman Sachs, Enron, and Arthur Andersen. Sorry for posting a new comment instead of replying. Isn’t it funny how you have financial experts like Ed Slott, CPA saying that Index Universal Life insurance is the way to go……..? James, this leads to a grimly fascinating point: *Individual Retail Perm Life may be one of the biggest financial scams perpetrated on the American people.*. you can lose money) if you have been paying near the minimum premium each month. No sensible comparison of the two would lead anyone to choose IUL over a solid 401(k). There is an inflation risk to permanent life insurance and guarantees are only worth as much as the person guaranteeing them. Regarding your phrase “fairly conservative” everyone has a different idea of what that means. 2- I am in FL and have been told by multiple sources that Life ins is protected. Are you younger or in your 30’s trying to invest more into riskier vehicles or are you retiring and cannot afford to go back to work. 3. You simply don’t get anywhere near the market returns due to the costs of the insurance, the additional fees, the loss of the dividends, the cap rates, and the participation rates. I’m with an A+ rated privately owned carrier (ESOP) that’s been in business for over 100 years. What if the drunk had swerved the other way and your brother lived, but later lost his job and his Perm Life policy because he couldn’t keep up with his $1,000+/mo premiums? And don’t forget, you also have to have an iron stomach and be willing to ride out the downdrafts cuz after all, history, which never changes, right? The interest credited to your account is determined by taking a snapshot of the S&P 500 when you money goes into your policy and then another snapshot of the S&P 500 index is taken one year later; a percentage change in value is calculated and gains up to your cap is added to your cash value, while losses generated no interest for that year. All of these accounts will be fully taxed as income when you withdraw funds at retirement. In such a case, they should buy a WL policy from a reputable highly-rated provider, especially from a Mutual which often offers more for your money than those from publicly-traded companies like Transamerica, Nationwide, Voya, etc. I believe he ( the WF advisor) is commissioned as well though. But his COI is still very manageable and he is able to grow his cash value. I am considering minimizing the policy to the minimum death benefit, keep funding any extra income after retirement accounts to allowable max (after funding any Retirement Plans), and buy term for any extra insurance I need for now. Whatever its curators do to the S&P 500 is immaterial. Jamie then you say: “…Life insurance ain’t an investment…So when folks compare all these numbers and growth rates and index returns, etc, it looks like you are comparing apples to apples but you aren’t…” That doesn’t necessarily mean he’s wrong, but it certainly introduces a serious conflict of interest which doesn’t seem to be as fully disclosed in his presentations as I would like to see. Thanks for sharing that lengthy and detailed comment illustrating issues with this industry and these products. says that even in 2007, almost a decade ago, the very rich were diving into Universal Life (mainly VUL) mainly through customized policies called Private Placement Life Insurance policies (PPLIs). You don’t need a permanent policy to insure against a temporary risk. I suggest beginning here: https://www.whitecoatinvestor.com/new-to-the-blog-start-here/ I’d love to see the original illustration and a current in force illustration. Almost 30 years. It is more comparable to a term policy with a cash value vehicle attached. I understand that I can probably get better returns if I learn to do it myself. Actually it was good Michael mentioned the fees for Mutual Funds. The returns with permanent products are not supposed to be fabulous. 1) They may or may not growth enough to cover the withdrawals plus additional growth. As far as I can see, you’re trying to compare this to the old UL and WL policies which is an insult to anyone reading this. What are the terms on the loans in your policy? The broker will always give you a broader view of the product landscape, and that plays to your benefit when you're shopping around. I started investing (albeit a most humble of scrap amount – hey … public servant here) … in 2008 … the same year the market tanked. Again Jamie, we’re no longer in the 1930s when carriers owned ONLY bonds. Come on now. And as the decimation of the health care / insurance industry continues to ravage the population, this is going to get very interesting. I believe tt was an associate of mine as I never sent you anything. BTW, James I apologize for making a several assumptions across year periods. Indexed Universal Life: Back Testing and Cap Rates and Averages, Oh My! I am a physician, closing his 50s, and like the benefits it provides including lawsuit protection but concerned about the increasing cost of ins, especially as I will be getting older into 60s and later, eating away any chance of growth in investments to be used as a supplemental income during retirement days. You can reduce your Cost Of Insurance (COI) as you get older by changing how your policy is structured, AND you can do this without incurring additional fees or lapsing the policy. After 1988 when the gov’t enacted §7702, xULs stopped being viable for all but very wealthy clients. With an Indexed Universal Life policy the max rate cap is around 12%. Save the argument about fees with regard to mutual funds. Most men die before reaching the age of 95. Jamie, you say you’re neither a life agent nor a financial planner. WCI, you’re not going to get any statements and illustrations. And I will both argue & add to the discussion .. that mutual funds .. at some point .. just might not live up to those 8%+ 100-year averages. This article, which also appears in Forbes, simply gives a decent primer on what the PPLI does. Hopefully by the time 20 to 25 years have gone by you have funded to policy enough to where this is not a concern. James, I just saw you covered this main point in Reason #3–that long-term dividend-less S&P returns fall to a very modest 4+% CAGR. However, a wise investor would usually sell his highest basis shares, usually the ones he recently bought (although held for a year.) As you can see this method of changing the structure of your Indexed Universal Life as you get older is a way for you to keep your Life Insurance policy intact, while keeping your premiums consistent and manageable. However, when you combine the benefit of Life Insurance with the accumulation options, I would put a great IUL up against a regular term policy and pretty much any other investment option out there. That is what life insurance is for. In past years, there were concerns with the values in the investment portion of universal life insurance because of unstable markets. IULS have been under a lot of attack, agents from TransAmerica, WFG, etc have been known as brainwashed salesman rather then educated financial agents. It seemed to make sense for me personally. What company and what is the product from that company named? If you choose to leave your policy alone well into retirement, you will gradually see your premiums go up and up. Loans can either be zero cost loans, where the insurance company loans you their money and charges you an interest rate while setting aside an equal portion of your cash value for collateral or you could use a variable loan rate where the insurance company will still charge you interest for your loan, but now all of your money is still in your index account hoping to earn an interest rate higher than the rate charged, so that you can earn money on your money. They like to pretend its a case study and that case studies have any real validity. ]. The big deal is that if you go back to 1870, the average dividend yield of the stock market is over 4%. So even though you may be 90 years old and still paying for your IUL policy. Why did you buy the policy? The disadvantages of indexed universal life insurance abound. Because the odds of the man dying before the term expires are incredibly high. Cash Drag Remember 25% loss need 33% profit to be nullified. Here are some more… Fees Are Very High. Today’s carriers are much less safe than they were in the 1930s. Also, the more complex the product, the fewer competitors it will have, and competition drives prices down. That’s over $200 a month more than she originally paid. In addition, they have to generate enough money for profits and to pay hefty commissions to their sales force. selling a cash-value policy for an inferior and even fraudulently low Life Settlement, which you can read more about here: https://www.thestreet.com/story/10005391/1/cash-out-that-life-insurance-at-your-own-risk.html. if you want you can actually get an S&P 500 ETF like VOO and every cent you earn you get to keep–including the dividends. That means I’ve paid somewhere in the neighborhood of $6,800 for the cost of insurance and fees over a 5-year period. Google: 60 min. That’s probably why in the beginning the return is negative but the longer it goes, the higher the rate of return. E.g. I would rather pay that then fees to a mutual fund and get nothing. Let’s not confuse the terms in this discussion or it will leave later readers confused. ?I know some of the big producers in the senior market mag (don’t want to name names) belong to his elite group and they use the connection in there seminars in various ways. Which leads us to what you say here: “When professionals …say to ‘buy term and invest the difference’ .. the world is full of studies that show that almost everybody that starts out doing that .. fails to ‘invest the difference.’…”. Well, let’s assume $50K a year invested either way for 30 years, then nothing invested. Minimizing 401(k) fees and getting the best possible investments inside your 401(k) is obviously important. Please explain what an annual reset feature means to your readers. And it’s short, simple, to the point and easy to understand. Ultimately you owe it to yourself to get a broad perspective on your financial products. Expense Ratios So in reality, he’s making 5.5% and still way ahead of the insurance guy. It just takes one bad investment and you can get wiped. Guarantees come at a cost, and these costs are never explained by agents. Even then, nine years ago, the very rich were buying *nearly 40% of the Face Amount* of all cash value insurance: “…$2 million and up policies, which carry *premiums of over $20,000* per year, are nearly 40% of the Face Amount of Permanent Life insurance sold in 2007. Rather than growing based on a fixed interest rate, it’s tied to the performance of a market index, like the S&P 500.. 50%? These policies are heavily promoted by the industry under the guise that IRAs and 401k accounts are not cutting it, and using high cost mutual funds in their comparison. Some drunk came out of nowhere. In 2014, if we apply LIMRA’s 2010 Term/Perm policy ownership ratios, total Individual Perm owners paid $207.4 billion. This post gives lots of options: Small wonder then that this unofficial Life Insurance industry organ: http://www.lifehealthpro.com/2013/06/05/the-future-of-life-insurance-taxation. Thus, it isn’t realistic. With an IUL you can lower your death benefit gradually, so you don't have to have $1,000,000 coverage one day and zero coverage the next. For the vast majority of the 99.9%–that means Term and invest the rest. This is why strong anecdotal evidence suggests the index account portion of the FFIUL gives an average annual rate of return of a tame 3–5%–far FAR below WFG’s typical non-guaranteed fantasy pie-in-the-sky illustrated rates of 7.5–9.0%. That’s just insurance agent double talk. ( American Funds small cap – A to be specific) on Wednesday to talk about transferring the sep funds over somewhere else. His cash value is now sitting comfortably at $600,000 because of the power of compounding interest. Alas, this xUL premise and promise has FAILED disastrously to now, as older xUL holder by the thousands are forced to lapse their xULs and LOSE EVERYTHING, spurring class-action suits against carriers. Check the facts with your brother – they don’t add up. You doctors especially you younger doctors know that those days of excessive high earnings are about done. How about the tax benefits etc? As my family my need it, I’m fine with paying a small portion for the cost of insurance. and paid them back today in fact. Now click the Calculate button. The assets that back these products are recorded on the separate account. Here’s that exact language in the FFIUL: “The cap may be changed for each segment but may never be less than the basic interest account current interest rate…”. But realize the difference between compounding $15K per year at 5.31% and compounding $15K/year at say 8-10%. The specific formula is outlined in the policy documents, but, in general, is related to the performance of the stock market. I have been paying 5.5 % loading fee every contribution for the last 4 years $3400 in total. For those of you who have a much higher risk tolerance, don’t mind paying taxes, and are counting on tax rates staying the same, then by all means go the routes you’re suggesting. Seriously? You may not need an alternative investment vehicle. Also, the book by David McKinght, “THE POWER of ZERO.” you made a blog on but you still didn’t recognize Ed Slotts’ forward. I’ve seen many others, including those pre-packaged xULs from Nationwide, Pacific Life, Voya, etc. If I thought I could reliably get 10% risk-free out of a cash value life insurance policy I’d be buying them left and right. As an MD with an MBA, I am completely happy with my IUL. I believe it’s only like 2 or 3. That video is by ed slot posted by david, see this where he says his name and you can check wikipedia too for his pictures : https://m.youtube.com/watch?v=v0oYCPoKylI. Then they have a lot more cash flow they can use to invest in more traditional investments such as stocks, bonds, and real estate, often combining those investments with far more beneficial tax advantages in retirement accounts. So a 30 year policy for a 65 year old man would have a high chance of paying out a death benefit. The carrier DOESN’T HUGELY CARE what the options do. It’s easy to get caught up in semantics on this issue. The IUL is the best thing out there, by far, and I am an electrical engineer by profession. Knowing what I know now, I would simply avoid ALL these pre-packaged xULs. If so, at which return rate do you illustrate them? Indexed universal life insurance (IUL) is an insurance product that seems to promise you can have your cake and eat it, too. I’ve been placing $25k per year into this policy for the past 5-years. Or, much worse a taxable account your using as a retirement vehicle. I think it would make for an interesting post. Also, for guaranteed maximum charges to kick in people will have to start dying soon then they are now. The IUL sports only two credits (premium and index account credit) and 4–5 expenses. I run it as a minimum Non-MEC which is even a lower face amount. About offloading risk, the carriers give ridiculously low GUARANTEED Investment Index returns of 0–1%, very high caps on Cost of Insurance (COI) charges that reset every year, and a Policy Monthly Expense Charge that recoups the commission charge 3 times over. Comment below! Unfortunately, as with most things in life, there are no free lunches. Why? There is no question that an IUL is one of the best things out there, kind of like your father’s pension plan from his company back in the day. I don’t disagree that Wall Street gives politicians money, just like hospitals, the AMA, engineering trade groups, and my mother do, in hopes of influencing public policy. If “tax-free income” is so important to an investor, a Roth 401(k) or Roth IRA is a far better choice than an insurance policy. If the index goes up, the IUL credits a matching interest to your cash value, but since your money is not directed exposed to the market you do participate in any of the market losses when it goes down. To make matters even worse the illustrations are typically quoted without using the guaranteed costs for insurance meaning they are allowed to increase that as well if desired (gUL riders are available at times for more money). For the bonds in the GA, over half are a mix of corporate and foreign. Rebalancing is a basic and critical strategy that adds up to .35% per year in increased returns. © 2020 - The White Coat Investor – Investing & Personal Finance for Doctors. 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