IUL Opinion?

[GF888]

Hi all,

Found your forum while browsing around trying to get information about IULs. I was hoping to get a "disinterested" opinion on an IUL that was being presented to me. I am being advised to stop contributing to my 401k w a 4% match, and start putting those contributions into an IUL policy. I was also given an illustration. I'd like to post the info I was given and get anyone's opinion on it, but not sure if it's ok to post or not. Let me know and if it is I'll put the illustration numbers up.

Thanks to all for any insight!

 

[DHK]

Sure - go ahead and post it. Just mark out any identifying information on it.

Here's a very important question: Have you done a medical exam to determine your underwriting classification?

The better your health, the better the policy will perform.

However, if the illustration shows "superman preferred"... and you're at standard (which isn't bad)... your policy won't perform as illustrated.

 

[FRJ]

I'd be wary of taking any advice where I'm throwing out 4% FREE MONEY. A better plan may be to roll some of your 401K money into an indexed annuity inside of an IRA. I think IULs have their use but I hate how they are structured such that real bottom line numbers are masked behind the smoke and mirrors of insurance-speak accounting.

 

[scagnt83]

Hi all,

Found your forum while browsing around trying to get information about IULs. I was hoping to get a "disinterested" opinion on an IUL that was being presented to me. I am being advised to stop contributing to my 401k w a 4% match, and start putting those contributions into an IUL policy. I was also given an illustration. I'd like to post the info I was given and get anyone's opinion on it, but not sure if it's ok to post or not. Let me know and if it is I'll put the illustration numbers up.

Thanks to all for any insight!

Go ahead and post the illustration.

Im a huge fan of IUL. But I would NEVER tell someone NOT to take advantage of matching contributions in a 401k. That is a very stupid move.

If it is a dollar for dollar match, the RoR (rate of return) on the IUL would have to outperform the RoR on the 401k by 100% + the return on the 401k.... just to equal the performance... it would have to perform at 100% + the 401k return + extra to actually beat the 401k.... no way in the world will that ever happen.

Even if the 401k match is 50cents on the dollar, it would have to have an RoR of 50% + the 401k return just to match it .... again, there is no way that will happen.

Never ever drop your matching contributions!!


Now if you contribute above the match, it could make sense to put that portion towards an IUL, especially if it is a Roth 401k.

When I sell IUL for savings purposes:
1. There has to be a need for the Death Benefit.
2. It is always contributions ABOVE the matching contributions that go to the IUL... thats if 401k contributions are used at all. Usually I market it to people who are maxing out their 401k and looking for other tax-advantaged places to save money.


Bottom line, if the agent told you to stop your matching contributions then they are giving you horrible horrible advice.

Also, an IUL must be designed in a very specific way for it to perform well. It must be "overfunded" meaning that the Death Benefit used is the lowest possible amount for the Premium paid.
The problem is that when an agent designs the policy that way they are paid the lowest possible commission... so not all agents design it that way... many do but not all (and not all even know how to design it correctly).

So for the love of god please do not stop your matching contributions. You could just throw the 401k matching contributions into a bond fund or even a money market fund and it would outperform the IUL.

But do post the illustration and we can give you thoughts on it and evaluate it for you. I can tell you right now that if it is not with North American, Midland, Lincoln, Pac Life, ING, or Allianz you can find a much better IUL product...

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I'd be wary of taking any advice where I'm throwing out 4% FREE MONEY.

It is not 4% free money... assuming its a dollar for dollar match it is 100% free money... you put in $5k and they automatically give you $5k putting your account value at $10k... which is a 100% return.

 

[DHK]

I'd be wary of taking any advice where I'm throwing out 4% FREE MONEY. A better plan may be to roll some of your 401K money into an indexed annuity inside of an IRA. I think IULs have their use but I hate how they are structured such that real bottom line numbers are masked behind the smoke and mirrors of insurance-speak accounting.

Depending on how someone's finances are structured... I might disagree with you.

401k contributions are for long-term and future use. Yet, the money in an IUL/WL policy is available for borrowing against much sooner with no tax consequences.

So, if someone has debt, limited savings, and no life insurance... I'd probably recommend to temporarily stop qualified plan contributions and resolve some of these other issues before contributing to a long-term retirement savings plan.

Every situation is different... as well as every policy illustration is different too.

 

[FRJ]

lol, yes - 100% free money is way better than 4%!

 

[GF888]

Thanks all. I have the PDF saved but not sure how to attach from my iPad, but here's the basics.

I'm 33, currently contributing 8 percent to 401k w 4% match. I also have group life insurance through work that I pay $6/month for roughly 500k coverage. It's cheap so I purchase the max.

Here's the basics of the illustration. It's from midland.
linked to S&P, annual pt to pt, 100% participation
12 or 13 cap I think, not sure exactly
It's based on preferred, non tobacco
Variable rate loan at 6%

It shows a 3% (guaranteed) 5.6% and 7.6% assumption. Although, the 7.6% assumption is only for years 1-10, it increases to 8.35% after. I believe he said if the policy has no growth for 8 years, it will go back and credit 3% for each of those 8 years, in essence a minimum guarantee.
It assumes a $400 monthly contribution with no annual increases.

Here's what I don't get:

If I contribute $400 month, it equates to roughly $150k in premiums by an assumed retirement age (65)

Based on that, he is saying I can take 62k yearly tax free via loan until age 100. Roughly 2.1MM total tax free income in my retirement, assuming i reach age 100. PLUS, there is a tax free death benefit of 1.15MM tax free as well. That's a benefit of 3.2MM tax free income and tax free death benefit off of 150k in premiums. Like I said, I'm new to IULs so I'm going completely off of what this person is telling me, but this sounds too good to be true. When I asked what the catch is and why everyone wouldn't do this he said its because not everyone can qualify for one via medical qualification.

Also, the 3% projection shows (assuming the same 62k withdraw) that Account value, surrender value and death benefit would all be ZERO only two years into the assumed retirement age of 65.

The 5.6% projection shows, assuming all things the same that everything would be ZERO after 7 years.

Does this mean this thing only works under the assumption it earns the 7.6 or 8.35 over the long term, otherwise it blows up?

Not sure if it matters, but it also says Terminal, chronic, critical illness rider Accelerated benefit endorsement included at no charge.

Also, can anyone explain fees on this? He kept referring to the cost of insurance being frontloaded, but could never give me any numbers about how fees are worked in. He said it would be cheaper than the 401k plan.

Sorry for the length but this is pretty much everything I have. I hope it helps. I'd really like to get everyone's feedback as I'm not feeling like I really understand how this thing works.

GF888

 

[GF888]

Thx I posted a pretty lengthy reply yesterday but it don't post....said it had to be approved by a moderator first?

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Or I screwed up somewhere....which is totally possible....lmk and I can repost.

 

[scagnt83]

Thx I posted a pretty lengthy reply yesterday but it don't post....said it had to be approved by a moderator first?

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Or I screwed up somewhere....which is totally possible....lmk and I can repost.

If you posted a link or an attachment that could be the cause... (because of your low post count) if so, try reposting without it. You can email me your email address and I can post the link or attachment for you. (click my screen name and click "view profile" then go to contact info, there will be an email link there.

If any mods see this you should go ahead and approve the guys post.

 

[DHK]

Eh. Being a new poster... anything can happen.

Just remember:
- To err is human.
- To forgive, divine.
- To really screw things up... requires a computer.