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The problem with all IUL illustrations, as I see it, s that the illustration is based on ACTUAL return, not an AVERAGE return. I’ve watched countless videos by agents,marketers, and carriers over the past two months on these products. This is the elephant in the room that rarely so much as alluded to, much less mentioned head on. Heard one today where he said “whole life guys” make a big deal about the fact that IUL’s will invariably and inevitably have “zero gain” years, but that the zero years don’t matter. All it takes is one zero year for a 6% illustration to show itself for the fiction that it is unless the index returns greater than 12.36% the next year AND the cap is greater than the gain. Get two zero years and you have a UL that over funded or not will likely implode eventually like the rest of its older brothers have.
Good points.
1) IUL should be a concept sale, not an illustration sale. So 6% 'average' happening per year, every year, is just a calculation for the compliant illustration, not an expectation of the actual results.
2) IUL cap rates go down for the same reasons that WL dividend rates go down - general account performance, new sales, and mortality experience. The difference is that WL is far more steady and IUL has the potential of a higher annual return following a 0% year. It would offset itself - assuming (I hate that word) a decent rebound in the index.
I would generally prefer a 50/50 split between a capped index allocation and an uncapped index allocation with a spread. Capture a decent upside rebound on both strategies.
So while "whole life guys" think that IUL is 'lesser', the truth is that the underlying facets behind both policies are similar - they just credit interest with different methods.
Six of one, and half a dozen of the other - assuming a skilled agent behind each is setting the proper expectations and funding structure behind them. (And with some agencies, asking for a skilled agent... is where I fear more issues will be in the future.)