Indexed Universal Life Good or Bad?

Indexed Universal Life is so misunderstood. Is IUL good or bad?

The answer is never crystal clear.

There are however some clear pros and cons. Lets go through them.

Indexed Universal Life Pros and Cons

Pro

Fees

Fees are inverted. Meaning over the life of the contract (30-50 years) you pay much less than you would pay to a money manager.

If done properly your average fees can be comparable to a low cost index fund.

If properly designed fees can reduce over time. (annually renewable term)

Tax Benefits

Money accumulates tax deferred.

Money can be accessed Income tax free through policy loans.

Income from an IUL does not count towards taxing your social security or surcharging your medicare!

Money passes income tax free through the death benefit.

No cap on how much you can put in.

No 59 1/2 rule

No income limits

Loans and Arbitrage

Policy loans allow you to continue earning interest on the money you are loaning yourself.

Crediting

Zero percent floor and no market risk.

Some options allow uncapped gains.

No need to adjust your risk tolerance throughout life of contract

Living benefits

Can be used for income, critical illness (heart attack stroke, cancer, burns, paralysis, Long term care, etc)

Con

Fees

A poor policy design done by a bad agent can wreck your indexed universal life.

Bad agents can juice their commission which hurts policy performance.

Bad agents can design a policy so that fees do not decrease over time. (annually renewable term)

COI can change (adverse mortality)

Interest Rate Risk

If interest rates go down these policies perform worse

Performance Risk

Investment performance is not guaranteed. Some bad agents would have you believe otherwise.

S&P performance does not include dividends (you are trading the floor for dividends and upside)

Crediting

Caps are not guaranteed. But they are tied to interest rates.

Loan Provisions

Some Loan Provisions are terrible and lack flexibility.

Others give you no idea on what you will be charged to access your money in the future.

Early Liquidity

Indexed Universal Life policies should be a long term play.

They are typically not suitable for short term liquidity plays.

Most policies have surrender charges in early years.

Conclusion

What Are you trying to accomplish with this Indexed Universal Life policy?

What is your time horizon?

Do you have discretionary income?

What is your risk profile?

Is your policy designed the right way?

Contact Me

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