An insurance agent who is a “believer” in the value of index universal life insurance recently set me an illustration for what he considered to be the best Index Universal Life Insurance (IUL) policy out there. “Best” was defined as having the best annualized return on the cash value. I thought it might be interesting to look at it. I've written before about IULs, and I'm not a big fan. There are a lot of moving parts, and the devil is in the details. I'm not a big fan of cash value life insurance of any type, but if you want guarantees I think whole life is the way to go. If you want the maximum possible growth in a life insurance policy, I think a good VUL is the way to go. If you just want a permanent death benefit, a guaranteed no-lapse universal life policy is probably best. Most people, myself included, have no need to purchase one of these policies, and once they understand how they work, usually no desire to purchase one. At any rate, let's look at Index Universal Life Insurance.
How Indexed Universal Life Insurance Work?
The theory behind IUL is that you get some of the benefit of investing in stocks with none of the downside. So if the market is down, you get some guaranteed interest rate applied to the cash value (not the premiums paid) of your policy. If the market is up, you get some portion of the rise. The problem is that portion may not be anywhere close to what the stock market actually delivered since these policies generally don't consider the dividends, have a cap on the maximum rate, and sometimes (although more commonly with annuities than insurance) have a “participation rate” less than 100%. In addition, there are many different ways that these policies “lock-in” stock market gains, and since they haven't been around very long, hypothetical results rely heavily on back-testing, with its numerous methodologic issues well-known to physicians who have looked at retrospective studies.
Add in the costs of the insurance (not insubstantial if you're older, sicker, or have dangerous habits like I do), the fees, and the commissions, and you're looking at returns that are likely to be similar to a whole life policy, but could either outperform it or underperform it. That means, if you're one of the 20% of people who actually hold on to the policy for the rest of your life, that your returns will be somewhere between the 2% guaranteed and the 5% projected returns.
The big selling point of these policies is “stock-market like returns without any downside risk.” Wouldn't we all like that? There's a reason it sounds too good to be true.
Indexed Universal Life Insurance Illustration
The illustrated policy sent to me demonstrates this well. This is a Midland National XL-CV4 policy, which is designed to get you as much cash value as possible. This particular illustration is for a healthy 30 year old male making annual premiums of $5500. It has a guaranteed crediting rate of 3% (note that this guaranteed rate is much lower than the typical non-guaranteed 6-8% crediting rate in a whole life policy.) Also remember that the crediting rate (similar to dividend rate on whole life) is NOT the return on your premium dollars. The illustration also shows that the current cap rate on the policy is 14.5%, but that the company has the right to reduce that as low as 4% at their sole discretion (that seems fair, right?). This is NOT a bad policy, by the way. It's a pretty good one as these go. There are plenty out there that are much worse. The minimum participation rate is 100% (so you get 100% of the change in the index up to the cap rate.) It also only costs you a net 1.25% to borrow your own money in the first five years, and then 0% after that. Many policies charge more. And of course, the crediting rate is benchmarked to the index return only, not including dividends. So, what returns can you get out of this policy?
Indexed Universal Life Insurance Guaranteed Returns
People buy IULs for the guarantees. If they were willing to take on the risk of losing money, they'd just buy index funds. So what minimum return does the company actually guarantee?
| Year | Premiums Paid | Cash Value | Return |
| 1 | 5500 | 1341 | -75.6% |
| 5 | 27500 | 21940 | -7.44% |
| 10 | 55000 | 50671 | -1.50% |
| 15 | 82500 | 83074 | 0.09% |
| 20 | 110000 | 116739 | 0.56% |
| 25 | 137500 | 154043 | 0.86% |
So, after the first year you have a 76% loss. That's pretty typical for life insurance. That money is paying for insurance but mostly going to the agent who sold it to you as the commission. What is astounding, however, is that it takes 15 years just to break even, on a nominal basis. Even after 25 years you haven't broken even on an inflation-adjusted basis. Heck, you can get that kind of a return out of a high interest bank account even at our historically low interest rates. Basically, the guarantee they're selling (“you can never lose money”) isn't worth much at all. Now, I'll be the first to confess that you'll probably do better than the minimum guarantee, but it wouldn't surprise me to see you a heck of a lot closer to minimum guaranteed return than to the return of a good Total Market Index Fund. Let's look at how much better you might do with this policy. The illustration has two other categories, one with a consistent 4% crediting rate and one with a consistent 8.6% crediting rate, both using current insurance charges (which the insurance company is also allowed to change, by the way.) Here's how they stack up over the same time periods.
Possible Returns
4% Crediting Rate
| Year | Premiums Paid | Cash Value | Return |
| 1 | 5500 | 1472 | -73.2% |
| 5 | 27500 | 22938 | -5.99% |
| 10 | 55000 | 50671 | -1.50% |
| 15 | 82500 | 99345 | 2.29% |
| 20 | 110000 | 153083 | 3.05% |
| 25 | 137500 | 218859 | 3.41% |
All right. I tie my money up for two and a half decades to get a return of about the rate of inflation, and I'm underwater, even on nominal terms after the first decade. Forgive me for not getting excited.
8.6% Crediting Rate
| Year | Premiums Paid | Cash Value | Return |
| 1 | 5500 | 1712 | -68.9% |
| 5 | 27500 | 26852 | -0.79% |
| 10 | 55000 | 71479 | 4.71% |
| 15 | 82500 | 146800 | 6.91% |
| 20 | 110000 | 259954 | 7.63% |
| 25 | 137500 | 432603 | 7.98% |
Now we're getting somewhere. There's no reason someone can't be excited about a 7-8% return. It isn't guaranteed, but it might be all that many people earn on a traditional stock/bond portfolio.
There are a few things we can learn from these two illustrations. First, you still have a negative return for years, even if you get a better crediting rate. With a 4% crediting rate, it's still going to be 12 years to your break even point. With a 8.6% crediting rate, it'll be about 6 years. They say “you can't lose money” but apparently that doesn't include the first 6-15 years. Second, even with the higher 4% crediting rate, you're still only looking at long term returns around the rate of inflation. Even with the maximum rate they're allowed by law to illustrate, 8.6%, your long-term returns are still under 8%. Long-term returns on the Vanguard 500 Index Fund (since inception) are currently 11.05%. The difference in your money growing at 7.98% vs 11.05% over the long run is astounding. If you invested $100K at 7.98% for 25 years, you'd end up with $682K. At 11.05%, you'd have $1.37M, or over twice as much money. That's the price of investing with an insurance company, I suppose.
What Is Your Crediting Rate Likely To Be?
So, as you can see, it really all comes down to what the crediting rate ends up being and how the insurance costs change. Some of this is under the control of the insurance company, since they can reduce the cap and increase the insurance costs at their own discretion. It really requires a great deal of trust in that single company to put any significant portion of your portfolio into one of its portfolios. Some of your return, of course, relies on market returns. Let's just hypothetically say they leave the cap where it is (a big assumption) and don't change the costs of insurance (another big assumption) and look at what the crediting rate would have been over the last 25 years using their “annual point to point” method (they do offer other methods with various changes in the other terms of the policy) assuming a January 1 anniversary date when all the resetting occurs. Keep in mind that many wise people believe future market returns will not be similar to what we have experienced over the last 25 years.
We'll start in 1989 and go through the end of 2013.
| Year | Total Return | Index Return | Crediting Rate |
| 1989 | 31.69% | 27.25% | 14.50% |
| 1990 | −3.10% | −6.56% | 3% |
| 1991 | 30.47% | 26.31% | 14.50% |
| 1992 | 7.62% | 4.46% | 4.46% |
| 1993 | 10.08% | 7.06% | 7.06% |
| 1994 | 1.32% | −1.54% | 3% |
| 1995 | 37.58% | 34.11% | 14.50% |
| 1996 | 22.96% | 20.26% | 14.50% |
| 1997 | 33.36% | 31.01% | 14.50% |
| 1998 | 28.58% | 26.67% | 14.50% |
| 1999 | 21.04% | 19.53% | 14.50% |
| 2000 | −9.10% | −10.14% | 3% |
| 2001 | −11.89% | −13.04% | 3% |
| 2002 | −22.10% | −23.37% | 3% |
| 2003 | 28.68% | 26.38% | 14.50% |
| 2004 | 10.88% | 8.99% | 9% |
| 2005 | 4.91% | 3.00% | 3% |
| 2006 | 15.79% | 13.62% | 13.62% |
| 2007 | 5.49% | 3.55% | 3.55% |
| 2008 | −37.00% | −38.47% | 3% |
| 2009 | 26.46% | 23.49% | 14.50% |
| 2010 | 15.06% | 12.64% | 12.64% |
| 2011 | 2.11% | 0.00% | 3% |
| 2012 | 16.00% | 13.29% | 13.29% |
| 2013 | 29.60% | 32.39% | 14.50% |
So, you can see that even with the relatively high cap rate of 14.5%, you would be capped out in 10 years, or 40% of the time. If that cap were decreased to say, 9%, that would increase to 13 years, or over half the time and if it decreased to the guaranteed minimum of 4%, that would occur in 16 of 25 years. The minimum 3% floor kicked in 8 times, or nearly 1/3 of the time. Over this time period, the annualized (geometric, not arithmetic) return of the S&P 500 Index fund would be about 9.04%. The average crediting rate over this time period for this policy (which didn't exist in 1989, by the way) would have been 9.17%, slightly HIGHER than the return of the S&P 500 Index Fund. But remember the crediting rate IS NOT your return, especially in the first decade or two, because of the costs of the insurance and fees.
So what would your return be if your average crediting rate were 9.17% for 25 years? If the insurance costs stayed the same, it would be slightly higher than the 8.6% scale illustrated above. You'd break even around 5-6 years, be approaching 5% returns at 10 years, and have returns of over 8% at 25 years. Any objective observer has got to admit that while that doesn't look particularly attractive in the short term, it is pretty good in the long run (although still significantly less than you could have made just buying an index fund instead.) But always remember the assumptions. We're assuming you're healthy and easily insured, that the insurance company doesn't raise the cost of the insurance and that the insurance company doesn't lower the cap rate. Also bear in mind that this is a pretty good policy, and far better than many I've seen out there. When you buy a policy like this, you're making a bet that requires a lifetime of trust in the insurance company NOT to change the deal, because the guaranteed returns are terrible.
Of course, there is also the issue of the fact that even without ever giving you a negative crediting rate, the insurance policy still underperformed an index fund by 1% a year. At $5500 per year, an additional 1% of return each year adds up to having a 17% larger portfolio ($508K vs $434K) after 25 years. (Yes, it would be a little less after tax, but an broad market index fund is awfully tax-efficient and taxes shouldn't add up to 1% of return.) So even one of the best IULs out there, with some rather generous assumptions and covering a period of time including some of the greatest bull markets in history and some terrible bears, still lags behind an index fund.
As you can see, your short term money doesn't belong in an insurance contract since you will have a negative return. Your long-term money is also likely to do worse in an insurance contract than in riskier assets. So the reader is left with the question, “What money DOES belong in an insurance contract?” None of mine, that's for sure (and that's ignoring the fact that my insurance cost would be far higher than this policy illustrates.)
What do you think? Were you surprised that the potential returns could be as high as this illustration and my example show? Do you own an IUL? Are you happy with it? Why or why not? Comment below!
I was “sold” an AVIVA policy that you described. This was well before your website and well before I learned to educate myself about personal finance. I was putting $100K/year for 3 years, then put in $10K, then I pulled the plug. Expensive lesson learned …. too bad I didn’t put the early termination charge towards an MBA for at least I’d have those initials after my name. What did I do with the money? I paid off the house. I was so risk averse after that debacle, that I figured I couldn’t screw it up by being debt free. Now I’m investing tax-deferred (using Solo Defined Benefit Plan, Solo 401k) and with brokerage accounts. Everything is in index funds at Vanguard and I sleep well at night. I tell everyone that asks to stay away from these products.
I bought one of these Index product in 2000/2001. I put a substantial amount into it (mid 6 figures). I have a number of other investment accounts and insurance products, each for different reasons. During 2008 when the markets seemed to be going into oblivion, I liquidated many of my investment accounts. Frankly, I had forgotten about the Index Life policy. When I reviewed the cash value, I must say I was very happy with it.
“During 2008 when the markets seemed to be going into oblivion, I liquidated many of my investment accounts.”
That is exactly why dentists and physicians need good investment advisers who can help them create investment plans and design conservative portfolios using low cost index funds/ETFs, as well as be available to hold their hand when the markets crash.
If I allowed my clients to hold a 100% stock portfolios, things may have turned out different, and when the market came back to the same point, they had more money because of dividends. All of my clients held on, and we bought more at the very bottom. Needless to say that even the clients who invested substantial amount of money in 2007, at the very peak before the crash made it out much better off than they started.
So I’d say this is more of a cautionary story and a success story. Had you instead a good portion of your portfolio invested in intermediate Treasuries or individual municipal bonds (which it sounds like might be appropriate because of your low risk tolerance), you may have gotten the same or better result than with your insurance policy.
We know for sure that 2008 is not a unique year. We will have more years like that and we have to be ready for it. One of my rules of thumb when it comes to risk management is that we need a ‘safe’ and liquid pool of money that is not invested into the stock market, even if the return we get from it is relatively low, ‘only’ 1%-3% above inflation. As you can see, it is better to have a relatively stable lower return than to take high risk and bail out at the bottom, at least for a portion of one’s portfolio. The rest can and should be invested in high risk assets, but the risky assets shouldn’t determine your overall outcome (if they rise – great, if they fall, so be it – you can wait it out if a good portion of your portfolio is relatively safe).
As far as the insurance, I suspect most policies’ payouts won’t be as generous as the one offered in the 80s, and based on what I’ve seen so far, very few of them will be able to compete with conservatively managed balanced portfolios or individual municipal bonds (or even bond funds), and I doubt that most people who are sold a policy actually do this type of analysis, so the chances of getting an underperforming policy is very high. Yet another way that a good adviser can help their clients is by assisting them with making informed investment choices based on facts, not on sales pitches (as well as protect them from the salespeople).
No Such Thing.
You either risk capital or you dont. If the market crashes huge, You bear the risk.
Not true in an IUL.
The fees are no higher than a Loaded Mutual Fund, that carries alot more risk due to the market.
Lastly, during the depression, over 6000 banks went belly up, overnight, depositors lost everything. Not a single insurance company went BK. Not a one. And all paid on claims.
With this product, not all are created equal, and its not for everyone, BUT they do have alot of merit if structured properly.
I disagree that the fees are no more than a loaded mutual fund. They’re typically significantly higher.
The bit about insurance companies in the depression is a bunch of crap as discussed here: https://www.whitecoatinvestor.com/debunking-the-myths-of-whole-life-insurance-part-5/
It’s so common to hear that one, it’s my “Myth # 22” about cash value life insurance.
I agree it’s not for everyone. In fact, it may very well be not for anyone. But I suppose there could be someone out there for whom it’s right.
I never read anywhere in your article how the iul was funded. That makes a huge difference in these policies. Typically these policies perform very well when overfunded to the non- mec limit and death benefits are lowered to the minimum allowed after year 10 in most cases. It is possible to lower the death benefits to the point that there is very little cost in these policies to drag the returns down.
No, they don’t. They perform better when overfunded, but I wouldn’t say “very well.” Go ahead. Send me one that is 5-15 years old and let’s see how well it performed and see how many readers characterize that as “very well.”
I agree that lowering the death benefit improves returns too, particularly as one becomes elderly. But that also means they’re not great for their primary purpose- providing a life-long death benefit.
I bet if you just look at the time period of 2000 to 2008, it looked REALLY GOOD! Seriously though, I think people would be interested in your actual results 2000-2013. Can you share the name of your policy, the date you started it, your actual premiums paid, and the current cash surrender value and death benefit? Let’s see what real life returns you actually got.
I think that what happens is that the more generous crediting rules get replaced with less generous ones. Why would an insurance company offer you a policy that can beat S&P? Wouldn’t they want to invest their money into that policy themselves? They did the math and I’m sure they made a mistake somewhere, just like with Long Term Care insurance. So I don’t believe one can get such policies in today’s low interest rate environment. They do come up with more and more creative crediting rules, but this makes it impossible to predict whether such policies will do well in the future (and short of doing your own study, I don’t think that an average person is equipped to do this type of analysis, so if anything, my takeaway is to read the fine print, and know exactly why a policy was able to do well, and whether this was just a good run or something that might be expected in the future.
I will have to dig it out. I rarely look at it but I think I can also save you a lot of time as well. Last time I looked I think it was doing around 5 percent. I bought it right after my tech positions took a tank. I wanted some additional life insurance and felt this was a good option for me. I moved that money into this policy not wanting a lot of return. Was just tired of seeing my portfolio go down. After tech I wanted to increase the conservative part of my portfolio.
I am not as an astute investor as most on this site (even though I like to think I am, just ask my wife!). I’m certain the tech bubble mistake and the 2008 losses could have been avoided by a better investor. I was just answering your question “do you own an IUL, are you happy with it”.
With the S&P and Dow at record highs I am not interested in an aggressive portfolio. Both S&P and Dow scare the s#!& out of me!! I am in my late 50s. I could retire but like to work. I’m more concerned about mitigating losses at this point and I still seem to find a need for Life insurance even though I have assets. I have a lot of grand kids!
I totally understand. Insurance isn’t the answer though. This policy might just work better than CDs at low interest rates, but if rates ever rise, you might be in trouble there because insurance policies are not designed to beat inflation. CDs and individual bonds will track inflation (and beat it historically), while this policy might lag. There will be more market crashes in the future, so I’m with you that limiting exposure to risky assets is the way to go, but even though I’m firmly in the conservative camp, I still like to have at least 30% exposure to high risk assets (depending on your portfolio size and needs) through a balanced portfolio of index funds.
The question is, what are your goals? Aside from principal protection, at some point you will presumably start withdrawals and might need a stream of income. I just can’t see how you need more insurance if you’ve accumulated sizable assets (you will need less, and the cost will be higher). Depending on how much you’ve accumulated, you might want consider a tax-free income stream. The IUL policy might be something to leave to the children/grandchildren, but it is probably not the investment from which you want to make any large withdrawals from. Also, assets like IRAs and 401k can be converted into Roth to minimize RMD, while IUL withdrawals will be fully taxable. It seems to me that IUL is just not the right type of tool for proper planning (unless of course it is counted as inheritance, but that’s not the way most people think of it when they buy it, at least that’s probably not the primary reason they buy it).
Purchase July of 2001. Accordia which I think was Amerus. Total premiums $457,328. Cash value $810,572. It was a 10 year surrender.
Konstantin, I am really not looking to get in a big debate over this. I just answered a question on the end of a blog.
I’m not here to tell people to buy insurance or do anything. I don’t know what your statement “Insurance isn’t the answer” means. I’m not trying to beat anything with my insurance portfolio. I have real estate holdings and precious metals. I think they should cover inflation.
In fact I hope inflation does hit due to the anemic returns on those investments! I find the inflation conversation to be a scare tactic similar to taxes. The majority of the US population can barely afford milk so I don’t think inflation is a big worry at this point even though everyone is beating the interest rates are going to rise drum.
I’ve maxed out qualified accounts for many years and also have a Roth and have done ok with them. I have brokerage accounts too.
30% of my portfolio in high risk assets, no thank you. I’m tired of the volatility and frankly don’t need it at this point. I also purchased a couple of annuities when they had a 6 & 7 percent income guarantee. I did that just to hold the contract open and to move money into them when needed or before they close the contract to additional funds. They have a great spousal benefit and furthermore I don’t even have to annuitize the contract to get the income. Nor do I have to take the full 6 or 7% income guarantee.
My advisor told me (or I should say made me) just put the minimum amount in just to open the contract and I am glad I did because good luck trying to find those contracts anymore. My insurance portfolio is fully funded, meaning I do not have to pay premiums on them anymore. I do not plan on touching them for some time unless needed. Lastly, they do have a loan provision and over loan riders on them.
I’m glad it worked out well for you as far as investing in insurance products. However, actual return includes taxes paid on withdrawals (and/or interest on the loans), and we don’t know what those will be. By saying that insurance isn’t the answer what I mean to say is that when interest rates were higher, there were (even at the time) better alternatives to using insurance as a safe asset. Treasury/Corporate/Municipal bonds/CDs were all there (and still are). It is also great that your adviser told you to fund the policies to keep them current, but unfortunately he didn’t provide advice to you on anything else that could have helped you to avoid big stock market losses (like telling you about how to diversify/balance your portfolio for long-term investing).
When you mention real estate and precious metals, that’s basically stock-market like risk, so you do have some exposure to high risk assets. These might not be the right assets though, since metals and real estate are typically very concentrated, not diversified and risky (it is always a good idea to hold real estate and metals as part of a diversified portfolio), and the performance of metals and real estate historically hasn’t been that great. Income producing properties might be another matter, though having a lot of money locked up in rentals might also be quite risky if inflation rises significantly.
The loan provisions cost as much as 6%-8% to you to borrow your own money, so that’s probably the last thing to do. The only way to really get a stream of income out of these products is to annuitize (or to roll them into other products such as immediate/fixed annuities, if possible). Very few people end up annuitizing, so the point I was trying to make was that having a plan to generate a stream of income is something that your adviser should probably talk to you about going forward.
Please don’t take any of this as a personal criticism – I’m simply attempting to explain to others who might be on the fence because their ‘advisers’ (aka insurance brokers) are pushing these products to them (due to a very legitimate fear of losses in the stock market) that in order to make a decision as to whether an insurance product is the right one for their particular situation, that they have to really look at every aspect of this product and make sure that it really fits their situation going forward, and that the past history of performance of a particular policy is really useless to predict the performance of other policies.
Konstantin, you make a lot of assumptions about my portfolio and my advisors. I simply answered an innocuous question on a blog regarding my experience with a specific insurance product. Now I find that my portfolio is being dissected apart which I was not prepared for nor wanted.
As stated previously, I have numerous accounts and products. According to the SEC you passed the Series 65 in April of 2008 and have been registered with your firm since September 26 of 2008 (the bottom of the latest market downturn). The SEC indicated that you have been employed with Raytheon from 10/2003 – 04/2011 and employed at your firm since 04/2011. http://www.adviserinfo.sec.gov/IAPD/Content/ViewIndvl/IAPD_IndvlSummary.aspx?SearchGroup=Individual&FirmKey=-1&IndvlKey=5556537&Indvl_PK=5556537
Konstantine: you stated “If I allowed my clients to hold a 100% stock portfolios, things may have turned out different, and when the market came back to the same point, they had more money because of dividends. All of my clients held on, and we bought more at the very bottom. Needless to say that even the clients who invested substantial amount of money in 2007, at the very peak before the crash made it out much better off than they started.”
How do you do that when the only credentials you have was a series 65 from 04/2008? I thought you were a fee based “CFP” which I cannot find any evidence of. How have you been able to amass any experience or training when you went from Raytheon to your own firm?
I have financial products and accounts 3 to 4 times older than your firm has been in existence. I don’t know how you can assume what I have and what they have weathered. Have you been a fiduciary with someone who has amassed substantial assets over 25 years who is nearing retirement and facing an uncertain economy and stock market? Back-testing is not experience.
There is a reason I am not into inexpensive or cheap fee based planners. I am very willing to pay and pay well for my financial services.
I will continue to work with my primary advisors at Bank of New York Mellon. If you have any questions regarding their qualifications, they have extensive history which can be easily researched. Furthermore, they have a “family office” clientele that puts my portfolio to shame.
BNY Mellon manage a critical bulk of my financial interests. I manage a non-critical portion of my assets. They do a better job than I as I am reactionary. They are not low cost advisors and I was not basing my decision solely on cost when I employed them years ago. I am just glad that I was able to qualify for their minimum assets required to have an account with them. They do charge AUM fees.
As I stated previously, I am not an astute investor. That is why I try to employ the best and I am willing to pay extra for it. As for my insurance broker, I do not purchase anything without reviewing it with my CPA, BNY Mellon and at times my attorney. I know what I am purchasing and why. I understand why this site is so against insurance products. However, I am not in full agreement with that philosophy.
There is great wisdom in Taylor Larimore’s frequently used phrase, “There are many roads to Dublin.”
I highly encourage anyone who would like to read what Financial Planning Association wrote on index annuities:
http://www.onefpa.org/journal/Pages/Real-World%20Index%20Annuity%20Returns.aspx
This is probably the most unbiased article one can find, and I highly recommend it. Even though they find that during the periods they studied a good number of index annuities outperformed S&P500, this is only part of the story. I’m all for finding the best product to fulfill a particular need, and if index annuities happen to be that product, I’m always happy to use it (since I do recommend various insurance products that fit some people’s needs).
The questions/comments I have are the following:
1) How can one tell whether a particular product will perform well into the future? Is that even possible given that most of the old products are not available?
2) A study like that is incomplete as it compares index annuities to S&P over a period when S&P significantly underperformed many assets, including CDs and bonds. A more convincing study would actually have advisers pick specific products (as best in class) and then track them over several decades to determine whether their outperformance could have been predicted.
Other than that, I say it is a gamble at best, given the fees, liquidity issues and tax consequences that can alter the total return significantly, since presumably these products are bought with the intention of being used for income sometime in the future given that annuitization rate is tiny.
Let’s try to keep this thread about indexed universal life. I’ll have an upcoming post soon on indexed annuities.
No problem, I didn’t mean to put you on the spot, and I apologize if that caused you any discomfort. This is an anonymous forum, so typically comments do get dissected (just as you are dissecting mine), and I’m glad for that, because there is always someone who can contribute something interesting to the discussion (and sometimes I hope I’m that someone). Thank you for the opportunity to say a few things about myself and my firm, by the way.
I’m indeed a Registered Investment Adviser (series 65), and one does not have to be a CFP to be fee only. In fact, most CFPs charge asset-based fees, and I do not – my compensation is strictly flat fees, so I do not have a conflict of interest that comes from wanting to grab as much assets as possible, so my clients don’t need a minimum level of assets (or in fact, to have any assets) to receive comprehensive financial and investment management advice. As an RIA, I’m able to go above and beyond for my clients, as well as to be a fiduciary, since having your own firm allows me to be truly independent of any entity, and to answer only to my clients.
I started managing investments in 2000, and decided to make it my career around 2007, and registering around then. I actually spent a number of years building my expertise in investment management while working as an engineer. I did a lot of work in simulation development, so I spent a good amount of time working with stock market models and understanding the mathematics behind the stock market and investment. Before managing client’s portfolios for money I had to be sure that I knew what I was doing, and I learned from the very best in the business.
I totally agree with you about experience. However, most advisers who have been in business for 25 years still repeat the same mistakes, and never learn from them (many of those who made a mistake in 2000 repeated it in 2008). I was one of those who messed up in 2000, but in 2008 everything was very different based on a better understanding of how the market works. I do have a couple of clients who are nearing retirement, so I’m grappling with these problems daily.
My rule is simple. Do no harm. That’s why I’m so conservative that often some prospects and other advisers think I’m a little off. I’ve gotten this way after 2000, because I learned my lesson that I do not want to rely solely on the stock market for returns. I’m also fully versed in using annuities for income because I do have several clients who are on fixed income, so I sometimes have to recommend immediate and fixed annuities (and I get to study all kinds of insurance products since some of my clients are often pitched these products by the banks).
If you mean that ‘cheap’ is lower quality than ‘expensive’, there we have to disagree because quality does not depend on cost but on core principles and fundamental values. For someone just starting out I might be a little expensive. For someone who has amassed some assets, I might be very cheap (compared to asset-based fees). I think that investment management and financial planning industry needs some competition because it is possible to deliver high quality services relatively cost effectively without overcharging the clients. Yes, some clients might be better served by family offices, but the thresholds for such clients usually start at around $10M or so in investible assets – anything before that can be more than handled by advisers such as myself.
Thanks for sharing your experience. I’d be interested in seeing the annuities as well. For the life insurance policy, using the numbers you’ve given, I see 14 years of contributions. $457,328/14=$32,666.29 per year. I calculate an annualized return of 7.35%. I’m not sure how you ended up with 5% unless your cash flows weren’t even each year. I don’t even think paying monthly would have dropped it to 5%. By way of comparison, the S&P 500 from Jan 2001 to Jan 2014 was 4.59% (it would be slightly better July to July.) Over a similar time period Vanguard’s small and mid cap indices returned something in the 9.5-10.5% range, total bond market returned 4.71%, TIPS returned 6.35%. Diversified portfolios were probably in the 5-9% range over that time period encompassing 1 1/2 big bear markets and a couple of bull markets.
All my Life Policies are front loaded as much as possible so the returns are lower than what you are projecting.
Regarding the annuities, you can not even purchase these types of annuities any more so I think it is a mute point. However, out of respect for your site I will lay it out for you.
I am not a fan of SPIAs regardless of period certain payments. I do not mind having surrender periods where I have to hold an “investment” for a while but I have no interest in surrendering my asset.
I have two contracts with a 6 and 7 percent compounding “income guarantee”, not asset guarantee. I can draw the guaranteed income without annuitizing the contract. I can draw less than the guarantee to make sure that I do not deplete cash value too aggressively. If contract goes to zero, it automatically annuitizes. However, the part I like most is that as long as I keep a dollar in the contract (which of course will take some managing), my beneficiary gets trued up to the higher of the cash value or income value at the peek of the contract when I pass.
Please keep in mind this is a portion of my portfolio. I understand you are not a fan of insurance and I get that. I like the products that I purchased and I do not feel like divulging my full portfolio on this site to try and justify why I chose them. The bottom line is they had benefits that I was willing to pay for and I am happy with them.
Thanks for sharing your experience.
5% seems about right for what I would expect over that time period for one of these policies. Thanks for sharing your experience.
I have to agree with Floss regarding real estate and precious metals. I’ve had I share Silver Trust and SPDR Gold Shares since the beginning of 2008. The Silver is relatively flat and the Gold has averaged around 4% return annually at this point.
I have real estate that I purchased in 1997. Even with leverage, the return on investment there is also very negligible. I’m curious white coat investor, do you have any portion of your portfolio that has lower than average returns? If so, what is your strategy? The longer I hold a non-performing fund, the greater the required return to make it worth while. Should I sell of my silver and gold?
My crystal ball is cloudy. I don’t hold silver or gold but do hold real estate directly, via REITs, and in a syndicated form.
I’m not sure what you mean “lower than average” returns. My approach is generally to capture the market return, so in some ways, my returns are never above or below average. In reality, most investors don’t capture the market return due to costs, so I suppose in that respect I beat the average in everything. I certainly have some assets classes with lower returns than others over my investment timeline. I’ve discussed my portfolio here:
https://www.whitecoatinvestor.com/evolution-of-the-white-coat-investors-portfolio/
LungDoc – You got the wrong agent or you specified what you wanted and the agent sold it to you. You didn’t overfund a max cash value minimum death benefit IUL. And you didn’t do business with the right agent. An IUL can certainly crash and burn due to mismanagement of the fees inherent in the insurance product.
I picked my agent because he knows finance and is an investor like myself, and he specializes in “investment grade” (my words) IUL’s. I also studied IUL’s and Whole Life infinite banks for over 2 yrs before I pulled the trigger on my first one. That was a year ago and our first one maxed out at 13% crediting for it’s first segment. It (Female 54) illustrates to be at parity around year 7, at which time our insurance is virtually free and we are growing our private pension with zero risk.
Do your research and think for yourself to cut through the term whole life insurance agent critics who don’t have enough experience to see an IUL that is set up correctly and is knocking it out of the park. Ask the right questions when you search for an agent. All the equity in your home is just dead money safely saving the mortgage company any lending risk.
I guess if your definition of “knocking it out of the park” is breaking even at year 7, then you’ll probably be very happy with your IUL.
I do agree with you that if you’re buying a cash value life insurance policy as an investment, the best way to get a good return is to minimize the costs of the insurance.
Most people who are into infinite banking/bank on yourself advocate to use a whole life policy instead of an IUL. What made you decide to use an IUL to do it?
Hello,
I will keep this short, read all of Patrick Kelly’s books, contact me and lets compare my companies IUL “Living Benefits” and Annuities “Indexed”.
Stop spamming the website or I’ll block you from commenting on it altogether. It is inappropriate to post the same thing over and over again.
I’m also not sure why you think you’re “keeping it short” when you tell someone they have to read a bunch of books.
The Tax-Free Retirement Book by Patrick Kelly was given to me by a financial “adviser” who tried to put me in underperforming actively managed funds that had 5.75% sales loads, as well as a IUL where she got 5% commission without disclosing her compensation. I actually wasted a few hours of my life reading through that book, and all it has are generalities without actual breakdowns of sample universal life plans or comparison to other investment vehicles. Just a gimmicky sales book trying to appeal to emotions and ideals without substance in practicality or a pulse on reality. Lol and I did a internet search on the guy and he’s mysteriously nowhere to be found or mentioned on reputable business and investing sites, or life insurance sites for that matter.
Nice review, however you left out the values of the insurance as well. Its not just about the investment but also the insured value.
To really make a comparison though you would have to look at this historical over the last 25 years for this policy of $5500 at 9.17% minus fees ($570,889-$137500 = $433,389) vs. the same $5500 at 9.04% minus the cost of a 30 year term policy for the same insured amount ($558,856 – XXX = ???). You didn’t actually quote what the insured amount of the policy in question was so I can’t do the math for you.
Given that you can today buy a Term 1 million dollar policy (I suspect the policy in question was for less) for a healthy 30 year old male at a cost of about $17,600 for 25 years. I think one would come out significantly ahead with Term and Index funds.
Using the above numbers, the difference is about $100,000 and thats using today’s cost for term not the cost 25 years ago.
While accounting for the cost of necessary term insurance is reasonable when making comparisons, the fact remains that most docs still need a huge term policy in addition to any permanent policy they buy. The cost of term (for the period of time it is actually needed by someone saving 20% of their income) is so cheap, it doesn’t change the calculation much.
Just wondering how do you calculate the cash value return rate?
for example, 8.6% rate at 10 yrs. Premiums paid $55000, cash value $71749. Gain of $16749. $16749/$55000 x 100 = 30% return. 30%/10 = 3%/yr?
What am I missing?
Thx
Peter, you are missing the difference between annualized compounded returns and simple interest returns.
The first $5500 has 10 years to earn a return, the 2nd $5500 has 9 years to earn a return, the 3rd $5500 has 8 years to earn a return ……
See https://en.wikipedia.org/wiki/Future_value
Use the XIRR function with excel. Here’s a tutorial:
https://www.whitecoatinvestor.com/how-to-calculate-your-return-the-excel-xirr-function/
WCI, first, great job! [Ad hominem attack deleted.]
Very confused in regards to permanent life insurance. I’m doing some planning and in my research I have found two books and one article written by attorneys (who I don’t think sell insurance) who stated that in regards to asset protection that cash values of life insurance and annuities are overlooked as an appropriate asset protection vehicle.
I live in a state where by state statute 100% of cash values in life insurance and annuities are protected. I also ran across an article from Marketwatch that talked about the tax advantages, which I had heard before but dismissed as sales rhetoric.
I have never found an article that ever said anything positive about life insurance other than buy cheap term until this one.
Excerpt:
6. This is one heck of a tax shelter.
Unlike other kinds of income or inheritances, the benefits of a life insurance policy are tax-free, and in some policies, any investments or cash-value also grow tax-free. So while most people buy life insurance primarily to replace the income they currently contribute to a household, 11% cite tax savings as one of their reasons to buy, and 22% say transferring wealth (tax-free) is a motivation, according to a 2010 survey by Limra.
In fact, those tax savings are significant. The Tax Foundation estimates that the tax exemption on certain life insurance contracts totaled a whopping $1.68 billion in 2011. The tax benefit is one reason financial advisers often recommend them to wealthy clients: Policies worth $2 million or more – typically with annual premiums over $20,000 – accounted for nearly 40% of permanent policies sold in 2007, according to the Wall Street Journal; a decade ago, they represented 10% of policies. The insurance industry rarely touts its service to the wealthy, in part out of concern that Congress could limit the tax-free status of life insurance benefits. Dolan acknowledges the possibility, but says he thinks it’s unlikely: The majority of policies are still owned by people earning less than $99,000.
End excerpt.
I still was not interested in cash value life insurance until I spoke with a couple of other older physicians. They basically told me that when your young, healthy and a master of the universe, you only need term to protect you from an accident. They recommend getting these products in place and “front loading” them. This means maxing out the cash value to the regulated levels so as to take maximum advantage of the tax code.
My qualified accounts are all maxed out but I have very little tax free income for retirement. Thanks WCI
Lastly, please note I am not a beat the market guy. Slow and steady wins the race for me in regards to return on investment. I’m specifically interested in asset protection and tax advantaged accounts in retirement. Thanks again.
In many states cash value life insurance does provide significant asset protection and some tax benefits. If you value that more than the higher returns generally available in more traditional investments, then you may wish to put some portion of your money there.
If you would like more tax-free income in retirement, I would consider doing back-door Roth IRAs each year and perhaps some Roth conversions in retirement. Tax diversification in retirement is very useful, but you certainly want to be smart about how you get it. Don’t let the tax tail wag the investing dog. Here’s an article I wrote about why having a 0% tax rate in retirement probably isn’t such a hot idea:
https://www.whitecoatinvestor.com/is-a-zero-percent-tax-bracket-in-retirement-a-good-idea/
I don’t think I can be accused of saying cash value life insurance has no benefits. I contend that those benefits aren’t worth the cost.
Thanks WCI. Back door Roth is great but $5,500/$6,500 is not going to make much difference in regards to my overall portfolio. I can put that much away every other week. In that case, what would you suggest for tax advantages in retirement and asset protection. At this point I’ve maxed out my qualified options
Just because it’s a small chunk, doesn’t mean you should ignore it. $11K a year (personal and spousal) over 30 years growing at 8% will be $1.3M of tax-free retirement money. If that’s truly insignificant for you, that’s a definite first world problem. You don’t mention your employment situation, but a great option to put more in retirement accounts is an HSA ($6450) + Backdoor Roth IRAs ($11K) + 401(k)/profit-sharing plan ($52K) + Defined Benefit Plan ($15-$200K+). Beyond that, taxable investing accounts (investment real estate has lots of tax advantages and broad based equity index funds are very tax efficient) or if you’re more concerned about asset protection and taxes than return, perhaps even cash value life insurance (although I usually recommend against it.) $11K a month is only $132K a year. If you get a pretty good set-up, you can get that much into tax-protected accounts. Now, if you want to put away $400K a year, it’s going to be pretty tough to avoid the taxable account at some point.
Truly appreciate the response, but how are you getting past the 415 limits? I’m w2 with minimal 1099. DB is not an option for me. Thanks in advance.
DB doesn’t count toward 415 limits. Neither do Roth IRAs or HSAs. And of course remember the limit is per employer. So if you have two jobs, you get two $52K limits. Your employee contribution limit, is just $17.5K no matter how many employers, of course.
If we are discussing what cash value insurance can be compared with, I’d say that municipal bonds compare favorably with cash value insurance, especially if you have a very long time horizon (and can benefit from buying longer term bonds). Historically, municipal bonds did very well with respect to inflation, and on a tax adjusted basis they would be a great tool to use if you want a tax shelter for your future money. The proceeds can be made into an income stream, can be reinvested and paid out tax free.
[Editor’s Note: This comment is posted by an IUL salesman who has used sock puppets on this site, including masquerading as a physician on multiple occasions. It provides a good lesson in why you should be very skeptical of anything you’re told by commissioned salesmen as they are clearly ethically challenged and willing to lie in order to present their products in the best possible light.]
FiDoc: I have this same policy from Midland National, but the Midland XL-CV3, and to be honest I could not be happier! I’ve been using the monthly point to point strategy and I have done very well. I like it because of the asset protection from civil suits and the tax advantages. I’m in a 39.6% tax bracket, 3.8% surtax and subject to a 20% capital gain tax, so this is the perfect vehicle for the rest of my cash, and I get a tax free death benefit to boot! I utilize the backdoor Roth IRA for both my spouse and I, but as you said, “That’s just a drop it the bucket.”
I know the folks at WCI are going to attacking me for saying this, but the question was asked, “Do you own an IUL, and what’s your experience.” I’m answering the question, so I’m not looking for a debate.
Thanks for sharing your experience. Do you mind sharing when you bought it, what your cash flows have been, and the current surrender value?
The idea that you want tax free income is a mistake. You want the most money taking into consideration the tax angle. That’s rarely the case with insurance even if it’s tax free.
Rex, thanks for your interest in my posts but I really do not understand what you mean. If you have time, please explain. Lastly, I understand there is a general sentiment against insurance (cash value) and the myriad of reasons why. I’m curious about your statement “rarely”. What is that “rare” occasion when it is not a mistake? I find most people dismiss insurance summarily.
As a rough example, the typical situation is you could have 2 million in index funds in retirement and pay taxes or 300k in insurance and get it tax free. Those lower returns really drag over decades. Of course accessing the money has costs. People who promote the tax free angle typically don’t understand taxes or try to use fear to get you into a bad purchase. The rare example would be a VUL with super low costs within it. Unfortunately the investment costs and insurance costs that are illustrated are not the guaranteed costs and there are other factors. In my view, and I’m a physician, the only reason to purchase this stuff is IF you highly value the insurance component (either death benefit or asset protection) and are willing to lose money bc you value it so much. Not enough people summarily dismiss this stuff and get talked into it and then 80% or more wind up surrendering it later on.
As Rex mentioned, cash value life insurance is definitely on the “optional” list when it comes to financial products. Even for the rare person for whom it works out better than investing in a taxable account (because it really looks terrible when you compare it to a retirement account) it isn’t likely to work out A LOT better. Combine that with a literal army of people out there selling it, and you can see why starting with a relative bias against it is probably the right thing to do for doctors.
Thank guys. Really appreciate your insights. I agree with you both and certainly when I was younger had no interest in CV insurance. As I get older, my philosophy is changing. I don’t think it is a black and white issues. Zero tax strategy being black, non zero tax being white as one example. We as intelligent humans seem to find comfort in identifying one metric to base our analysis of off and then make all decisions based on that metric.
CV insurance for someone who can not afford it early in their career with large debt burden certainly would not make sense. Not everyone is looking to keep up with the indexes nor beat them. Certainly CV does not make since when compared with low ER index funds. But when you get to the stage when you have assets or excess cash flow (after exhausting tradition qualified options), are looking for more of a conservative return with your funds, looming health issues (as most of us will experience at some point), I starting to feel a blend of financial vehicles including CV makes sense for a myriad of reason.
WCI, I don’t know if you’ve addressed this but I have a few friends, most older and a couple younger who had term insurance who developed health issues and are not underwritable. some of my friends let their term policies lapse even after their health issues not understanding the conversion privileges, a couple tried to convert an inexpensive term product and found their options of permanent products were limited.
It’s a bit confusing but I find as I get older there is very little black and white except on paper. Life throws many varying pitches at us and I feel it is important to have as many different bats in the dugout and as many different swings to face different pitchers.
No non-sports fans I apologize!
I don’t think “some people let their term policies lapse” is a very strong argument for permanent insurance. But if you value the other benefits of life insurance more than a higher return on your savings, then sure, buy some. I’d rather spend money I don’t need for future use on a boat instead of unnecessary insurance, but not everyone thinks the same I do.
Does cash value insurance work out okay for some people? Sure. But I think the place to start from is to be very skeptical of it. The reasons for buying it ought to be overwhelming given how long you have to hold it for it to work out well for you.
The problem is that there is no magic in this world. Insurance companies invest in the same products you and I could invest in but have higher costs although they are required to be more conservative. Its like a very highly expensive managed bond fund with lower returns. That is just rarely going to work. Term will protect almost everyone who creates a reasonable plan and sticks to it. If you don’t stick to it then you wont with permanent insurance either. Insurance companies know very well what percentage of people will develop health problems at what ages and they price accordingly. There is no myriad of real reasons why it makes sense. It only makes sense if you want the insurance component meaning things like the asset protection in your state or the chance that you beat the insurance companies numbers on death and die prematurely.
It isn’t a different bat. Its a bond bat made out of plastic instead of wood or aluminum. Feel free to use it.
Disclosure, I work in health care but have family members in the financial field.
Insurance companies do invest in many of the same things we invest in but I think it I an oversimplification. From my understanding insurance companies execute a lot of structured financing, hence one reason for the added expenditures. I also believe they are required to hold a portion of their portfolio in reserves to pay claims which is a two fold expenditure, opportunity cost of the reserves and death claims. Plus, I believe they are entitled to try and make a profit as well a pay their staff. My family members worked for a mutual company and without a profit, it would hurt everyone including their customers.
On thing I also thought I recognized when I was younger listening to them talk about work was that most people did not buy insurance, it was sold to them. I did hear stories both ways. The person who bought and something happened to them and the person that didn’t and something happened to them. It dawned on me one time that without all these sales people selling or advocating protection products that there would not be a sizable enough pool of funds to even pay any claims.
Auto insurance is required. I can not imagine anyone buying it if it was not. I understand that I am biased because I grew up around it. One last biased point. My family members worked extremely hard. On weekends and weeknights and many hours. They were told “no” more than I can count even after they spend hours preparing for a client and travelling to meet them numerous times. I think that is why I went into healthcare!
While I don’t dispute that selling insurance policies is hard work and that policies are often sold and not bought, that doesn’t necessarily mean buying them is a good idea for the client.
I disagree that a mutual structure necessarily hurts customers (owners.) Vanguard’s clients, for instance, seem to be doing just fine.
I also disagree that NO ONE would buy life insurance without agents selling it. Lots of us recognize the value and buy from a company online or by phone. Legally there is an agent who gets the sale but there’s really no selling going on when I call up USAA and buy some life insurance. Same with auto insurance. Not only did I purchase the legally required amount of auto liability, I bought even more and capped it with an umbrella policy despite not being legally required to do so.
While I’m sure there are a few investments that an insurance company can make that Joe Q. Public cannot, it isn’t hard to see what insurance companies are investing in. The vast majority is just bonds, bonds, and more bonds. Active management in bonds is a loser’s game. You can buy a bond fund at Vanguard with dramatically lower expenses.
Not trying to be argumentative or “nit picky”. I didn’t mean a “mutual structure” hurts owners/customers. I meant the lack of profit hurts everyone including mutual companies where by the policies holders are also owners. Without profit, new products can not be developed, staff and client claims can not be paid, etc.. In regards to Vanguard, when I said “mutual structure”, I meant for an insurance company.
When I was talking about insurance being sold. It is surprising how many people need to be directed to protect their love ones as opposed to proactively doing so.
Working in hospice, I see nearly on a daily basis that once medicine fails as it always does, insurance benefits or lack there of is often the next most important issue. Insurance companies have their short comings but they also provide a thankless but valuable service to families and societies in capitalist system.
There is little evidence that the mutual has any effect on this situation and both mutual and for profit exist in the life insurance business. While some like to pretend that the mutual companies perform better and are the place to be, none of them have the cheapest term. If it were really for the benefit of the client owners then at least one would have a term policy that could be considered in the inexpensive category. The additional “Features” of their term policies and conversion factors certainly don’t justify the much higher prices. I like how you felt you needed to add the medicine always fails part which has nothing to do with this topic. That says so much.
That’s always been a mystery to me as well. Why isn’t the insurance dramatically better with the mutuals (meaning cheaper with regards to term)? I don’t get it.
And of course “medicine always fails.” Nobody’s immortal! He works for a hospice company so I wouldn’t read too much into that comment.
You’re probably right that even good insurance that people really need still has to be sold to many people, even if not the financially sophisticated.
I disagree that profit is necessary to develop new products (although I don’t think most of the new products developed by insurance companies need to be developed at all) or pay claims.
There is absolutely nothing wrong with selling insurance for profit – this the basis for capitalism. And also nothing wrong with having brokers sell insurance (good and bad). This is their job and they are paid to do it (and have incentives to do it).
However, I wish there were more fiduciary advisers who would help their clients select the right insurance and work with the brokers to make sure that the right insurance is sold. This will eliminate the issues that many clients are facing when they realize (sometimes too late) that they were sold inappropriate products by brokers who are not fiduciaries and who therefore are in no position (and cannot be expected) to make sure that the products they sell are in the best interest of the client.
White Coat Investor. I like your site and I feel you are objective which makes me value your opinions. I meant nothing derogatory by my “medicine always fails” comment, my apologies. That can be extremely insensitive.
I’m curious about your comment about not needing profit to develop new products or pay claims. Long Term Care is an area where the insurance companies did not accurately estimate cost, premiums and claims. The policies that my grandfather peddled door to door are not the same products today.
Our needs as a society will evolve over time as healthcare improves, costs increase and people live longer. If these companies are scrambling just to keep the lights on, how can they address these other issues?
My family worked for both mutual companies and public companies. I only pointed out the mutual companies because of the perception of them being better do the their structure. I may know more about this topic than the average person due to my family members in the business but I am by no means an expert (obviously!).
You don’t have to be “scrambling to keep the lights on” to be mutual. I’ve been by Vanguard. The lights were plenty bright. Same with NML buildings I’ve been by. Those expenses obviously get passed on to the clients/owners.
By taking away profit, you’d expect a mutual company charging the same thing as a for-profit company to have more money to do something with- either paying more dividends, reducing costs for clients/owners, or decreasing premiums. But they don’t (at least in the insurance industry.) I’m not sure why. I find it interesting. Could it be simply that the drive for profit creates efficiency? Dunno. Perhaps.
I agree that the original LTC companies blew it. In my opinion, the product still isn’t ready for prime-time. My point is that we don’t need research about term life policies. Just lower the price as much as possible while still ensuring the claims are all paid. You’d think a mutual could do that better than a for-profit.
Hey Rex, thanks again. I just wanted to point out that the “myriad of reason” was not for CV insurance. There were a number of reasons I was interested in CV insurance. There is a myriad of reasons I am interested in a “blend of financial vehicles”.
Thanks guys. I think in my case the choice is really not mine. “Some people let their term policies lapse” was not the main point, “not being underwritable” was my point.
Truth be told, I have an old term policy that is not convertible. Insurance company told me my health rating is an “H”. I think at that cost it truly is not an option. I am not a good business person and do not have a lot of time or interest in finances so I really appreciate your help.
This is a good example of why it is important to get your insurance in place relatively early (assuming there is a need) but most importantly to make sure it’s going to last long enough. One big beef I have with insurance agents is they sell policies that are 5 or 10 year term policies to 30 year olds (or 24 year olds, like me). The policies are convertible to a whole life policy but the reality is the purchaser would have been a lot better off if he had been sold a 30 year level term policy that wasn’t convertible because then he is faced with lousy choices at 40-pay the rapidly escalating term premiums, try to qualify for a new term policy despite dangerous hobbies or worsening health, or convert it to a lousy whole life policy.
I had a very inexpensive 25 year term. I’m in my mid 50s. I’m not in a dire financial situation but things happen. I do wish I had structured things differently. The real challenge is we do not have a crystal ball. Thanks again.
I have this similar Midland National IUL policy recently obtained several months ago, I’d like to point out the premium load is 5% until age 100, and that there is a .75% interest bonus on the fixed account in years 11+. Evidently, the one-time sale commission to the financial adviser were not coming out of my premiums is what was indicated to me on the record. Great post, thanks WCI!
5% loads on every premium paid…ouch. Of course, the agents are right that what matters is what you get out of the policy, but all those costs and commissions have to come from somewhere, and they’re always indirectly coming from you.
[Editor’s Note: This comment is posted by an IUL salesman who has used sock puppets on this site, including masquerading as a physician on multiple occasions. It provides a good lesson in why you should be very skeptical of anything you’re told by commissioned salesmen as they are clearly ethically challenged and willing to lie in order to present their products in the best possible light.]
That is a false statement, I have the same policy with Midland National and it’s for the first 10 years, not the life of the contract.
I imagine actually both are true statements meaning since he isn’t paying a premium after the 10th year if its a 10 pay, thus there is no load at that point. IF there were a premium for whatever reason such as it not being a 10 pay then I wouldn’t be surprised if there were a load. Nice to see all these “physicians” post……I’ll leave it at that.
[Editor’s Note: This comment is posted by an IUL salesman who has used sock puppets on this site, including masquerading as a physician on multiple occasions. It provides a good lesson in why you should be very skeptical of anything you’re told by commissioned salesmen as they are clearly ethically challenged and willing to lie in order to present their products in the best possible light.]
No you’re absolutely wrong, it say right on the front page of the contract, “Premium load: 5% years 1-10.” So it doesn’t matter how one would choose to fund the policy.
You’re right, it’s nice to see others than myself that are taking advantage of the tax shelters and, asset protections afforded to them via cash value life insurance.
Maybe but not likely bc if he or she was overrunning or allowed to overfund past year 10 then likely there still would be premium load.
Almost all of my colleagues who have purchased permanent insurance wish they didn’t (including myself). Glad you are happy with your purchase/sales.
Well Rex, as usual your skepticism has paid off. “Michael” is Fred Brisker, an IUL salesman who is no longer welcome to post comments on the site. More concerningly, Michael isn’t his first sock puppet on this site. If there was any doubt as to how low IUL salesmen would go in order to sell these policies to physicians, I think that is now quite clear. Seriously Fred, you should be ashamed of yourself.
Although I am still investigating, “Floss” is probably also a sock puppet and has posted here under various names in the last few days. He may also be guilty of identity theft. Time will tell.
Here is a snapshot of the fine print on the front policy page from my XL-CV4. http://i62.tinypic.com/24kzl0l.jpg
I think that speaks for itself, up to year 100, Michael. WCI you might also be interested in some of that fine print too.
[Editor’s Note: This comment is posted by an IUL salesman who has used sock puppets on this site, including masquerading as a physician on multiple occasions. It provides a good lesson in why you should be very skeptical of anything you’re told by commissioned salesmen as they are clearly ethically challenged and willing to lie in order to present their products in the best possible light.]
Talk about painting with a broad brush….fee vs. commission is a tired argument, if you adhere to a fiduciary standard and are transparent with all fee/commission income the consumer is well served in either scenario.
By the way this post was taken apart piece by pice by Brandon Roberts over at the insurance Pro blog http://theinsuranceproblog.com/indexed-universal-life-insurance-just-doctor-ordered/
i’d love to see a serious reply.
Best, Jim Tobin, CFP
I disagree that there is any argument when it comes to fee vs commission when it comes to investing products. Good products don’t require a commission to be paid to get them sold.
Nice to see that I’m attracting some attention from Brandon. I wish all insurance agents had his claimed 0% policy surrender rate. If that were the case, I’d be getting a lot fewer emails from doctors who are angry at the insurance agent who is masquerading as their financial advisor.
Is there a particular point you would like me to reply to? I’m not really interested in swapping ad hominem attacks, which this particular post of Brandon’s disappointingly mostly consists of.
Serious reply completed: https://www.whitecoatinvestor.com/a-serious-reply-more-arguing-about-iul/
That’s bc you are right and he is limited to personal attacks.
Unfortunately if all agents had zero lapses, all the insurance companies would likely go under. The poor returns are with most people lapsing.
Hey Doc, I just got sold an IUL policy. (yesterday) so it’s not necessarily too late to turn back now. But I want to figure something out. I’ve been researching somewhat obsessively about whether I’ve made a mistake or not. I’ve gone through a ton of info but still haven’t completely come to a conclusion (but I still feel 60-70% sold on the product).
My first question is this (not sure if you would know):
What is the insurance company’s cost that they charge (is it a flat amount or % based?). Why I ask is b/c I finally found a merchant services company that charges a per transaction flat fee recently, rather than charging their fees plus adding on additional charges to interchange fees. It will save us money but more than that, I hate not knowing what I’m being charged and this transparency is a breath of fresh air. But I can’t figure it out for IULs. The broker told me that the cost is based on me (my health, age, etc) but that seems neither here nor there. He also said that they’re regulated by the insurance commission so, of course, all the fees will be disclosed, blah blah etc. But how come he didn’t show many any breakdown of the fees, costs? He just showed me that page similar to your analysis but they showed 1% and 8% that had the costs deducted. I don’t really care what this guy is making in terms of commission (since it’ll be relatively minimal compared to the big picture) if he can save me real money in the long run but I’d like to know what the insurance company is charging as far as fees/costs and whether that will change as a percentage or whatever in the future. I just want to see something fully disclosed.
The other problem is that I can’t really find any real life examples of people having cashed in (towards the end) with good earnings. I’m guessing it has to do with the fact that it takes a really long time show a benefit or the figure that I’ve been seeing thrown around is that 80% of people drop out without getting to the end? So I’m having a hard time getting solid info. (and most of the info comes from IUL agents) (armies of them).
I also watched this video. (can you please watch? I’m not affiliated whatsoever). But it’s giving me a bit of a headache thinking through this. https://www.youtube.com/watch?v=Bajo7_aZc1k&list=WL&index=28
The point is that spreadsheet and what it calculates as far as opportunity cost from the tax payments. So the 3% expense fee is ridiculous, I have a 0.05% fee in VTSAX so that 3% is overdone but the capital gains tax of 15% (and 3.8% for ACA) puts me at 18.8%. He’s saying that that client gets an actual return of 3.87% (overdone due to the 3% expense fee plus he’s not accounting for dividends I think). It seems pretty straightforward aside from the 3% but is this true? I just need someone else “on our side” to tell me if this is true.
What I’m asking is, I’m trying to potentially legitimize in my head the IUL based on the tax-deferment savings. Or conversely, I need good reason to cancel out the policy but I need to go back to the guy with some ammo, no loose ends. I know that there’s a death benefit and all that “good stuff” with the tax free “loan” but I want to just look at it strictly as an investment vehicle (at least as much as possible).
What do you think? If, and only if, there’s not a big difference basically btw the VTSAX and the IUL, then I could legitimize in my head by saying that I’m just paying for “term insurance”.
If IUL really did (calculating after costs, fees, etc) net me 8% (even 7%) then I think I’d be ok with that. But I’m confused on that figure too, whether it’s real. Let me know what you think. Thanks.
I wouldn’t expect 7-8% over the long run with IUL. I’d expect 3-5%. Maybe 6%, but don’t count on it. But remember that to get what you get, you need to be fully committed to this thing for life. If you’re going to surrender it prior to death, better to do it today than any other day the rest of your life. And don’t feel like you need “ammo” to do so. All you have to say is “I want to surrender it and I’m in the free surrender period. Give me my money back.” IMHO, 60-70% sold isn’t good enough.
You seem to be expecting higher after tax returns out of IUL than out of TSM. I think that’s unlikely. You may have less volatile returns, but I doubt that after tax you’ll actually have higher returns. And while it obviously depends on the policy, for many policies, the interest costs for borrowing your own money (that’s how it’s tax free) are about the same as just paying taxes.
Good luck with your decision. I wish you’d done your research prior to purchase. You still can, of course. Just get your money back on this one, then spend 3 months researching it, and if you still want it, you can then go buy another policy. It won’t cost you much more since you’ll only be 3 months older.
I am glad I found this website couple of weeks back. I also got a IUL policy recently and I am thinking of cancelling it too. I have exact concerns about IUL. I am not getting clear answers about the cost of insurance and I am thinking it would eat up the cash value in long run (especially if I don’t overfund it). When I asked questions, I was told that I am overanalyzing the cost of insurance. I would really appreciate if you could post on what decision did you make regarding the IUL and how did you come with your decision. It would definitely help newbies like myself to think carefully before getting into IUL.
I didn’t get an IUL. In fact I never even really considered it. Life insurance is really expensive for me given my hobbies. Plus, as a general rule I don’t think mixing insurance and investing is a good idea. I also don’t find the expected returns to be as good as I can get with other investments and I have plenty of life insurance already (bought at a period in time when I wasn’t doing any climbing.)
Hey white coat investor,
I hope I may still get a response from you since this page hasn’t had movement since Jan. I just want to start off by saying your book and info has been very helpful for me. I find my story quite similar to yours, as I just started a military residency in EM. I saw your quote of $180,000 that you “paid our country” to serve our country, and while I joined the army to strictly serve and I like to say I would do it again despite the financial expense, being forced to military match, not civilian defer into better programs because I was competitive for the military match, and being pulled away from my significant other (since she’s not a military spouse, doing civilian ophtho). So if you ever write anything else about HPSP, I have that other aspect of the military match –> make yourself competitive in med school, and then be forced to try and match only average to above average programs with no consideration of your personal well being and desires.
Anyway, what I really wanted to ask was about my IUL. I got an IUL before I went to med school 4 years ago because I was joining the military, wanted some extra life insurance (since I was thinking operational and for some reason I thought the $400k SGLI wasn’t good enough), thought I would be the healthiest for medical underwriting, and most importantly, I had no understanding of finances at all.
I’m currently 25 yrs old, and I saved a lot with my stipend, and did all the priority stuff you talked about before (maxing roth ira, going to low cost index funds). So my IUL was another way to save. After 4.5 years, I now have a guideline single premium of $18,900 (this is the total I ever put in, not minus expenses, right?), total premium issue to date of $16,400, a cash value of $15,950, and surrender value of $12,400. During this time, I have already experienced a cap drop from 13.75% to 11.25%, almost without warning, and exorbitant fees. It is a $250,000 plan, with a 0% borrowing rate 10 years in (with maximum of 90% tax-free loan when I want it) and no cash surrender value at 10 years as well. At 10 years, the policy fee (something like $51 right now), will drop to half that. I am thinking of the following options, and have already talked to upwards of 3 different financial advisors, and I’m not sure what I should do:
1) Keep the policy and continue putting in $280/mo in –> (not good)
2) Keep the policy until 10 years and drop the premiums down to the bare minimum, ~$60 to cover the cost of the policy fee per month and NOT cash out now –> at that point, I can take 90% of the loans tax free (I have no idea what the fees may be and nobody is being transparent about how much of that loan is subject to charges) – the plan here would be to, for example, when I need a mortgage, if I have $100,000 cash value, take out $90,000. Never pay any premiums after that (other than to keep the “term life” aspect of it even though that’s expensive), and keep the $10,000 in the plan (or just cancel the policy with no cash surrender value and pay taxes on it).
3) D/c the policy and try to do what you mentioned about VULs 1035 exchanging into VA (I don’t know if an IUL is really that bad)
Sorry for the long post, and I hope you can find some time to help me out a bit. I’m a bit confused as I just started to really learn about all this since I graduated med school. Thanks ahead of time!
The good news is you can walk away with only a $6500 loss. If you can deduct a big chunk of that, you’ve lost even less money.
The first thing you need to decide is whether or not you still want this thing. Get an in-force illustration to really decide that. Kind of sad that you’re so unhappy with this policy after 4.5 years of a bull market! As the casual reader can see, despite markets going up dramatically, you can still lose money in these policies 5+ years into them.
I see no reason to wait until 10 years. Either get rid of the thing very soon, or keep it for life.
Yeah, I have in-force illustrations, I may just have to keep the plan, and take the death benefit at this point. I’m definitely not paying premiums into it anymore.
Thanks, WCI.
If you don’t want to pay premiums, I’d just take your cash value and run. Otherwise, the cost of the insurance will gradually erode the cash value. There’s no reason you can’t just buy a term policy for your insurance needs, right?
Running right now definitely seems like a very viable option, but do you really think I can do better with the ~12.4K in something else, and regain $6500 faster in that something else? Is the death benefit not worth it when the policy fees drop down to $25, almost comparable to a term life insurance at 250k when I get out of the military. I’ve learned from your blog that IULs are definitely not what they seem, but do you mind elucidating how the cost of the insurance will drive down the cash value when I start pay nothing into the “investment” portion – just $51/mo, while the cash value comes back up? I’m still a bit hazy on this.
Why not get an illustration showing what would happen if you dropped the premiums? That should show you what it looks like. But suffice to say, the insurance has to be purchased. It can either be purchased from premiums or from cash value, your choice.
Yeah, I asked for that illustration, but they only gave me until 2020, me paying minimal premiums. I’ll call them back Monday. Anyway, I think after that I’ll have enough information to make a sound decision. Thank you very much WCI!
What does the illustration say? How long will it take you to make $6500 from $12,400 on the guaranteed scale and on the projected scale? What return do you expect from your alternative investment? Be sure to calculate in the value of the tax write off.
White coast investor- You seem to have an extreme bias against insurance because you know you can’t afford it with your hobbies.
here is my 10 cents.
Arguments can be made for buying insurance or just investing. Likewise for whole, term or universal life insurance. Most of the information out there has some kind of bias to it.
Lets talk about insurance real quick. There are two kinds of whole life insurance that includes something like a Indexed universal life policy. I recently saw a traditional whole life policy that was doing 4% with dividends though the market at the time was up about by over 10%. An Indexed Universal Life policy following a global index such as one from Transamerica is averaging 9.03% over 20 years. Term policies end coverage at the specified term. After that period if you are still desiring life insurance you have to buy a new policy for much higher premiums. IUL’s have flexible premiums and if there is significant cash value built up it can self fund the insurance portion should you not be able to at the time. On a side not the IUL came out in a time when normal whole life insurance was under federal investigation for only have a 1% return on it.
http://www.lifehealthpro.com/2007/07/06/indexed-universal-life-a-product-whose-time-has-co
As far as investing goes it is true that you could be better off investing because of the opportunity to have higher returns. Life insurance policies have a cap and a floor on the returns. Why? Well what good would a life insurance policy be if it lost 40-50% of its value like what most peoples 401k’s and other investments did during 2008? The Transamerica IUL that follows the global index has a cap and a floor of .75-15% returns. Like every IUL it also grows tax deferred.
Here is another reference to IUL’s from someone who is actually a certified financial planner. The CFP is something I am working towards at this moment.
http://www.investopedia.com/advisor-network/articles/062016/using-indexed-universal-life-retirement-income/
I personally believe that everybody should have adequate protection before investing. A good place to start may be the 7Twelve portfolio. However, I am a huge fan of the core satellite investment strategy. The core diversified investments being passively traded while the satellites (usually more risky investments) are actively traded. This allows you to take advantage of above average returns while protecting (to a degree) your core investments from the riskier ones. The riskier satellite investments usually have about 20% of your total investments in it won’t effect the rest of the 80%.
Keep studying and I suspect you’ll eventually arrive at the same opinion of cash value life insurance that I, and most of the rest of the financial services industry that doesn’t sell cash value life insurance, shares.
I think it’s hilarious that you think I can’t afford to invest in cash value life insurance as a multi-millionaire with a 6/7 figure annual income. Kind of ironic too, since part of the reason I CAN afford it is precisely because I DIDN’T buy it, instead investing my money into smarter investments.
Listen, if you love IUL and feel like you truly understand how it works, then buy as much of it as you like. I truly don’t care. But you’re not going to convince me that it is a good investment, especially by citing articles written by an insurance agent and a CFP who gets paid commissions to sell cash value life insurance.
If active investing works for your satellite, you ought to invest your core in it. However, the truth is it doesn’t work for either. If you look at the evidence objectively, you’ll reach that same conclusion eventually. Hopefully that belief doesn’t cost you too much between now and then. I wish they covered that in the CFP curriculum. It would solve a lot of the issues physicians run into with their “advisors.”
What a joke. Totally slanted article. Midland’s products are bar none the best out there.
Secondly if you’re getting into this for a short term investment your agent misguided you.
Interestingly enough I do this FOR A LIVING and I own this Midland product, best of it’s kind, if you study all the moving parts, you can’t find anything like it anywhere. OVER the long term it’s cheaper than ANYTHING else out there. What are you suggesting White Coat? Paying someone to manage the assets paying fees to them, fees to the fund company, and paying taxes if it’s not qualified? Or if it is qualified for those who don’t need the qualified income to be forced to take it out at 70.5? You’re like a Ford dealer talking about a Chevy truck.
This article is totally slanted. Again, it’s like talking about a car and saying it’s a terrible machine because x amount of people die in cars per year.
Ask me ANY QUESTION and I’ll answer it and beat whatever you’re selling. Try me out. I’ll answer back.
Weird. Someone who sells it who thinks its a great product. I wouldn’t have expected that.
This is the fun part. I’m not actually selling anything. Great isn’t it? I can actually tell people what I think without it affecting how much I make. You should try to get yourself into a job like that some time. You may find your opinion of high-commission, complex, poorly performing permanent life insurance policies changes.
Thanks for stopping by and illustrating to my readers what they are up against.
What’s funny is I OWN IT..[Ad hominem attack removed and commenter’s IP address blocked-ed]
I’m sorry you own it. I sincerely hope it works out well for you. Good luck!
[Ad hominem attack deleted] you’re not including the positive FIUL policies that actually exist and are not at all what you have described. There are some LIRPs that actually provide more of the bwnwfits you pretend to summarily dismiss out of hand…
[Derogatory comment deleted] just dismissing all IUls out of hand…there are some that actually perform the way they’re supposed to….there’s good for everyone and not every one thing that fits every thing. Even if you’re a hammer, not everything is a nail!!!
Easy to say if don’t like FIULs, there are some that work well. [I don’t think it’s wise to] summarily dismiss them out of hand!!! Test each one to see if it works or not!
You think people should “test” each IUL on the market? That sounds rather expensive and time consuming. It’s also not clear why you think you can show up on a blog, call the author an idiot multiple times, and expect to be able to stick around.
If there were “positive” IULs, I’d be more than happy to describe them. Haven’t seen one yet. The way they are supposed to perform, in the long run, is about the same as a whole life policy. The guarantees, such as they are, simply cost too much.
You miss a major point if you compare an IUL to an investment account. One is a safe money savings vehicle and the other is speculative where you can lose some or all of your principal. They are completely different parts of a balanced portfolio.
What you also failed to consider is that even in your example of a poorly structured IUL or an old product, when the premiums paid in equals the cash surrender value, you have obtained free life insurance. That beats the pants off of term insurance, and you have asset protection, a ready source of funds for an investment opportunity or life crisis, living benefits that approach the value of disability insurance, shelter/shielding from consideration by schools for financial aid means testing, and in essence, a private pension if you live to retirement age. And it’s tax-free.
When I considered purchasing one on my high school senior, the forecast was for about $150K of premiums paid in over his lifetime until a 66 yr-old retirement age, at which time he would be drawing $150K/yr out in addition to his heirs receiving a lump sum of nearly $2M in death benefit. It’s insane what the product structured properly does illustrated at a modest %7 crediting rate.
The other elephant in the room is the rule of 100. What does a gambler do with the portion of his money he does not place into the stock market as he ages? Where else can he get anywhere near 7% tax free?
It’s only free if you are unaware of either inflation or the time value of money. In other words, it’s not free.
Everything is tax-free to borrow against. Borrow against your truck- it’s tax free. Borrow against your house- it’s tax free. Borrow against your mutual funds- it’s tax free.
The only interesting tax break that life insurance gets is a tax-free death benefit. But that’s not all that different from passing any other asset along at death- all your real estate and stocks are passed tax free too thanks to the step up in basis at death.
A crediting rate of 7% does not equal a return of 7%. If that’s not clear to you, just take a look at what your cash value is compared to your premiums after year one in the illustration despite a crediting rate of 7% (or whatever.
$150K in premiums paid over 50 years = $3K a year. At 10% a year, that grows to be $3.8 Million. At a 4% withdrawal rate in retirement, you could pull off about $150K a year and leave, on average using historical data, about $10 Million behind to heirs. Now that $2M doesn’t look so hot, does it?
I mean, if you understand how this stuff works and like it, buy as much as you like. It doesn’t bother me a bit. But the arguments and comments you’re making suggest to me that you don’t really understand how it works. Very few, including those who sell it, really understand how it works. Very few of those who do think it’s a great idea. The reason why is that you have to give up too much for the benefits and guarantees.
Ryan, have you compared Midland’s overfunded cash value IUL to MN Life?
Sounds to me there is a lot of desperate securities guys trying to bash a product that people are utilizing not to outperform the stock market but to have a place that they can not lose money, receive living benefits, and have the possibility of having a tax free income and if funded correctly having a pension like payout.
There is enough people investing in Wall Street to where you are going to always have a portion of funds to invest, however you guys are so greedy that you make these foolish arguments on an IUL where your strategies cannot perpetuate income if people live 30 plus years after they stop working. That is not what Wall Street does, so keep on pretending like you care about the welfare of people’s future, and no that our bi-polar market can implode and hurt people vastly if you fully depend on the market.
Qualified plans are a joke, the designer of the product went on record saying it was a big mistake, and if he could do it over again, he would blow the entire thing up and start over. The death of Pensions is why people will have a retirement crisis in the future, and the number 1 cause of not being able to continue your lifestyle during your earning years is longevity of life, number 2 will be inflation.
In conclusion, the IUL is a great product and is currently adding more and more features to make it optimize and give people that 5-8% return over a 15-30 year period if funded correctly will outlast most the traditional retirement accounts. So quit being so threatened by the product, quit hating, because soon IUL agents will start bashing the market, and that is quite easy to do, but the IUL kind of depends on the performance of the market so keep on giving bad advice.
Did this post find its way onto an insurance agent forum or something? You’re like the third true believer this week on a post that’s years old.
I agree the retirement system could be better than what we have now, but an IUL is certainly not the answer to that.
Looking at your book it looks like you’ve been drinking Doug Andrew’s Koolaid- pull all the money out of your retirement accounts, leverage up your house, and use the proceeds to buy all the IUL you can. I debunked all that in this series of posts:
https://www.whitecoatinvestor.com/missed-fortune-a-critique/
Doug Andrews failed not because of the IUL, he failed because he was encouraging people to go from fixed interest rate mortgages, and going into option 1.95% loans and invest the difference in the IUL when the collapse happened and the interest rates adjusted, the people got screwed on a mortgage they couldn’t handle as well as an IUL that they couldn’t maintain.
Are you really going to hold your hat on that case when there are dozens of security fraud cases that are retirement scams in the Wall Street world. Bottom line that still doesn’t have any fault other than the fact that he gambled on Wall Street not screwing up the mortgages.
If I’m the 3rd person or the 10th person doesn’t change the fact that if you claim to know actuarial type of knowledge what is under the hood of the IUL and you believe it’s so inferior then people won’t buy it. The illustrations that are provided have to pass the smell test of a third party actuary that approves these products from each state department of insurance.
I laugh at you securities guys now are all experts in the IUL all of a sudden. I still would like to get an answer for any security guy and you can’t offer a VUL either since you are dogging the permanent life insurance. Scenario is a guy who is 40 years old going to retire at 70, and let’s say he lives until he is 95, he is making a base of 100k right now, adjust his income for inflation at 3%, he has about 12% of his salary he can save from walk me thru how you will perpetuate that for 25 years. If you can answer this Mr. White Coat Investor, you will answer a question I posed to Warren Buffett himself in an open letter I wrote to him on my Linkedin account.
I saw you talk about commissions in a thread, are you really going to go there? We make commissions for selling insurance, they actually get something for what we get paid, when they die, their next of kin is looking for their insurance policies first. What do securities guys charging “management fees” and all the other fees that are on their statements? Top 25 Hedgefund Managers made more money than all the kindergarten teachers in the U.S combined. I’ve sold the IULs since 2002, so pose whatever you want to ask me. By showing individuals how to properly fund their IUL, I will embarrass any of your projections at 5.5%.
Wait…Doug Andrews failed? He’s still all over the radio around here. Different name for the scheme, but it’s the same old thing. Not surprised of course, but you’re the first one to mention it.
Sounds like the same thing you’re peddling. If you start with the premise of “How can I sell the most insurance possible” then you end up where you are at- getting people to get as much money from elsewhere in their lives (mortgages, retirement accounts etc) and plunk it down into insurance. It’s a terrible strategy and you should be ashamed of yourself for pushing it.
I have no idea why you’re calling me a “securities guy,” and that’s Dr. White Coat Investor to you. I’m not surprised that Mr. Buffett didn’t answer the letter you wrote to him on your Linkedin Account. Were you?
And one last word on Doug Andrews, he was 100% correct on qualified plans. He was correct on the vehicle of the IUL, he failed on betting on the market and having folks go into option arms and interest only loans. He made the mistake that an IUL is a long term strategy, and adjustable rate mortgage can adjust itself based on certain indexes very foolish!
I see you read my entire book in a few minutes to let me know that “I’ve been drinking koolaid” You securities guys feel like you have all the answers but the several questions, you have no answer to, how can I perpetuate my clients lifestyle for 20-30 years, account for inflation, rising taxes, catastrophic illnesses all this while the client ultimately not outliving their income? I”m creating a disclosure for guys like you that will have my 8 points that I will suggest that clients can have their financial advisers sign off on that they ultimately believe their strategy will protect them from what I forecast is coming with a Retirement Crisis, the securities guy will sign it along with the company or firm they represent so the clients will have someone to sue in the future!
I have no idea why you think I have “no answer” to your question. There’s an entire website containing the answer. I assure you it isn’t to mortgage your house, raid your retirement accounts, and buy a life insurance policy and assume it will carry you to retirement bliss. It sounds stupid when I say it like that, doesn’t it, but that’s really your plan isn’t it?
How about this plan instead? Save a decent chunk of your money, invest it in high returning investments, insure only against financial catastrophe, and then spend it in a reasonable way throughout retirement, leaving what’s left to your heirs and favorite charities. I know. A novel concept. Yet it seems to work for millionaire after millionaire, all without buying cash value life insurance. Amazing how of the hundreds (thousands?) of millionaires I’ve met, none of them did it by mortgaging their house, raiding their retirement accounts, and putting it all in IULs. The only people that plan is going to make millionaires are the insurance salesmen.