Indexed Universal Life

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eltron
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Indexed Universal Life

Post by eltron »

Hi all - I have some friends that were approached by a financial advisor about Indexed Universal Life. The pitch was that this policy had a floor and wouldn't go below a certain rate (ideal in the current investing landscape) but also had a ceiling. He also told them you could borrow from this particular policy and this was a low key investment strategy that several wealthy individuals employed.

I'm not overly familiar with Indexed Life as I was burned with a whole life policy years ago and decided to not mix investments with insurance, however this sounds very similar to I-bonds which is a group favorite and would seem to have some value in the current landscape.

I told my friends I'd ask the group about this as this is over my head and figured wiser minds would be able to provide some better guidance.

Link to what was provided to them is below. Thanks for any insight!

https://www.securian.com/products-servi ... rance.html
tbone555
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Re: Indexed Universal Life

Post by tbone555 »

I would run away. I'm not an expert by any means, but these policies usual have very high costs. For instance, yes you get the index return, but the insurance company gets the dividends. Plus there is a convoluted contract that hides all sorts of fees and is almost impossible to fully understand.

Lastly, why do you think this is a good investment in the 'current market?' Because it has gone down recently? This is precisely when sales-people start pushing these types of plans - when people are worried because the market has recently gone down. Run away
Last edited by tbone555 on Tue May 17, 2022 1:00 pm, edited 3 times in total.
Jack FFR1846
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Re: Indexed Universal Life

Post by Jack FFR1846 »

I will let the experts describe this better, but IULs are known to be so bad that the SEC warned consumers not to buy this garbage. If you need life insurance, buy term life. If you want to invest, buy index funds. If you like paying insurance agents 8% up front and 1% a year for several years and the insurance company 3% forever, then have fun with this product.
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HomerJ
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Re: Indexed Universal Life

Post by HomerJ »

eltron wrote: Tue May 17, 2022 12:47 pmI'm not overly familiar with Indexed Life as I was burned with a whole life policy years ago and decided to not mix investments with insurance, however this sounds very similar to I-bonds which is a group favorite and would seem to have some value in the current landscape.
It's completely different from IBonds. It offers no inflation protection.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
cashmoney
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Re: Indexed Universal Life

Post by cashmoney »

eltron wrote: Tue May 17, 2022 12:47 pm Hi all - I have some friends that were approached by a financial advisor about Indexed Universal Life. The pitch was that this policy had a floor and wouldn't go below a certain rate (ideal in the current investing landscape) but also had a ceiling. He also told them you could borrow from this particular policy and this was a low key investment strategy that several wealthy individuals employed.

I'm not overly familiar with Indexed Life as I was burned with a whole life policy years ago and decided to not mix investments with insurance, however this sounds very similar to I-bonds which is a group favorite and would seem to have some value in the current landscape.

I told my friends I'd ask the group about this as this is over my head and figured wiser minds would be able to provide some better guidance.

Link to what was provided to them is below. Thanks for any insight!

https://www.securian.com/products-servi ... rance.html

If this was a food product it would be all of the calories with none of the flavor.Did friend mention if he could detect the " commission breath" emanating in the air as the financial advisor approached ?
smooth_rough
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Re: Indexed Universal Life

Post by smooth_rough »

Its altenative investment category which might or might not be right fit for you. Doug Andrews (Laser Fund) one example. He reps Pacific Life, reputable insurance co. Its way to create tax free income stream. But not sure it makes sense unless you already know that you need sizeable life insurance policy.

For your reference.

https://www.forbes.com/advisor/life-ins ... -problems/
patrick
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Re: Indexed Universal Life

Post by patrick »

Very complex, but here are some additional problems to note:

The floor on returns is before expenses so you could lose after expenses.

The insurance company is allowed to lower the cap in future years.

The cost of insurance charged inside the policy increases as you get older.
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Jon Luskin
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Re: Indexed Universal Life

Post by Jon Luskin »

Clark Howard hates on these - and rightly so.

Clark explains that these products are designed to implode - destroying themselves over several years, as the increasing costs of insurance eats into the product's cash value.

It's hard to think of a situation where this would be the right product for anyone, ever, under any circumstances.

I hope that helps.

Good luck!

:happy
When there are multiple solutions to a problem, choose the simplest one. ~Jack Bogle
adamthesmythe
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Re: Indexed Universal Life

Post by adamthesmythe »

At some point, and investment idea is complicated enough that's it's lots of work to figure it out, to begin deciding that it's a good or bad idea.

You could spend the time...or just give it a pass and go with things that make sense to you.
exodusNH
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Re: Indexed Universal Life

Post by exodusNH »

eltron wrote: Tue May 17, 2022 12:47 pm Hi all - I have some friends that were approached by a financial advisor about Indexed Universal Life. The pitch was that this policy had a floor and wouldn't go below a certain rate (ideal in the current investing landscape) but also had a ceiling. He also told them you could borrow from this particular policy and this was a low key investment strategy that several wealthy individuals employed.

I'm not overly familiar with Indexed Life as I was burned with a whole life policy years ago and decided to not mix investments with insurance, however this sounds very similar to I-bonds which is a group favorite and would seem to have some value in the current landscape.

I told my friends I'd ask the group about this as this is over my head and figured wiser minds would be able to provide some better guidance.

Link to what was provided to them is below. Thanks for any insight!

https://www.securian.com/products-servi ... rance.html
They're a terrible idea for nearly everyone. They're actually worse than whole life. This video goes into some detail: https://youtu.be/HYhfX1g6uYw

In short, the returns are capped AND that cap can change after the fact. The capped returns exclude dividends, which reduces your return and makes the product look more competitive.

The product is basically a one year term life policy that you renew each year. The cost of the insurance rises dramatically over the years. If you don't pay those premiums, the policy eats itself eventually, leaving you nothing. Guaranteed universal life leaves you with insurance but the cash value is 0.

Finally, any gains you do have are recognized as income, not capital gains.
exodusNH
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Re: Indexed Universal Life

Post by exodusNH »

eltron wrote: Tue May 17, 2022 12:47 pm Hi all - I have some friends that were approached by a financial advisor about Indexed Universal Life. The pitch was that this policy had a floor and wouldn't go below a certain rate (ideal in the current investing landscape) but also had a ceiling. He also told them you could borrow from this particular policy and this was a low key investment strategy that several wealthy individuals employed.

I'm not overly familiar with Indexed Life as I was burned with a whole life policy years ago and decided to not mix investments with insurance, however this sounds very similar to I-bonds which is a group favorite and would seem to have some value in the current landscape.

I told my friends I'd ask the group about this as this is over my head and figured wiser minds would be able to provide some better guidance.

Link to what was provided to them is below. Thanks for any insight!

https://www.securian.com/products-servi ... rance.html
Oh, and tell your friends to fire the "financial advisor", who's really just a salesperson. They're trying to sell this policy because they get a huge commission check and with the recent market performance, they're playing on your fear and greed.

The paperwork for this product is probably 50-100 pages. There'd be no need for that level of complication of this were a straightforward product. Do you think companies produce 50+ contracts for the benefit of the consumer?
bsteiner
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Re: Indexed Universal Life

Post by bsteiner »

exodusNH wrote: Tue May 17, 2022 1:47 pm ... tell your friends to fire the "financial advisor", who's really just a salesperson. They're trying to sell this policy because they get a huge commission check and with the recent market performance, they're playing on your fear and greed.

The paperwork for this product is probably 50-100 pages. There'd be no need for that level of complication of this were a straightforward product. Do you think companies produce 50+ contracts for the benefit of the consumer?
I was also wondering whether it was an insurance salesperson rather than a financial advisor.
exodusNH
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Re: Indexed Universal Life

Post by exodusNH »

bsteiner wrote: Tue May 17, 2022 2:51 pm
exodusNH wrote: Tue May 17, 2022 1:47 pm ... tell your friends to fire the "financial advisor", who's really just a salesperson. They're trying to sell this policy because they get a huge commission check and with the recent market performance, they're playing on your fear and greed.

The paperwork for this product is probably 50-100 pages. There'd be no need for that level of complication of this were a straightforward product. Do you think companies produce 50+ contracts for the benefit of the consumer?
I was also wondering whether it was an insurance salesperson rather than a financial advisor.
How he describes it is reminiscent of how I was sold whole life 18 years ago. I met a Northwestern Mutual rep at some networking event. As a 30 year old, with no dependents or a spouse, he convinced me to buy a $200,000 whole life policy.

I didn't really think much of it, other than the automatic monthly withdrawals. It was only after I decided to get my financial life in order that I realized what that policy cost me. (In fairness, my financial life wasn't a disaster. I had a decent 401k, but only a small taxable account, also through NWM, in American Funds, of course.)

After 18 years, it's actually a reasonable fixed income product, which is how I treat it. It still cost me around $180,000 in net worth, if you back-test an 80/20 portfolio. But the 4.4% dividend/interest credit was certainly a nice return over the past 12 months, and matched what they projected in last year's in force illustration. With that slug of FI plus my I Bond purchases, I've been able to go 100% equities in my 401k with new money while maintaining my AA.

The video I linked above does a good job explaining universal life. I found it interesting that the insurance industry invented the product to balance out the risk of their whole life policies.
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Stinky
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Re: Indexed Universal Life

Post by Stinky »

eltron wrote: Tue May 17, 2022 12:47 pm Hi all - I have some friends that were approached by a financial advisor about Indexed Universal Life. The pitch was that this policy had a floor and wouldn't go below a certain rate (ideal in the current investing landscape) but also had a ceiling. He also told them you could borrow from this particular policy and this was a low key investment strategy that several wealthy individuals employed.

I'm not overly familiar with Indexed Life as I was burned with a whole life policy years ago and decided to not mix investments with insurance, however this sounds very similar to I-bonds which is a group favorite and would seem to have some value in the current landscape.

I told my friends I'd ask the group about this as this is over my head and figured wiser minds would be able to provide some better guidance.

Link to what was provided to them is below. Thanks for any insight!

https://www.securian.com/products-servi ... rance.html
There are lots of good comments above on all the negatives of indexed universal life. And I agree with them. Your friends are likely amongst the 99+% of people who should NOT be buying permanent life insurance.

Several thoughts of mine -

—- You say you were “burned” with a whole life policy in the past. IUL is just a more modern version of the same old permanent life policy that burned you.
—- Your friends we’re not talking to a financial advisor. They were talking to an insurance agent, pure and simple.
—- If your friends buy an IUL policy, something like 75-100% of the first year premium will be paid to the agent as a commission. And your friends are ultimately paying that commission, through the internal fees built into the product.
—- If your friends buy the product, it’s likely that they’ll be “in the hole” for a decade or more.

If your friends need life insurance, suggest they buy level term. If they want to invest, suggest they go to Vanguard/Fidelity/Schwab.

Don’t mix investing and life insurance.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
richard.h.gao
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Re: Indexed Universal Life

Post by richard.h.gao »

eltron wrote: Tue May 17, 2022 12:47 pm He also told them you could borrow from this particular policy and this was a low key investment strategy that several wealthy individuals employed.
Think of it like a Roth IRA, your assets grow tax free, but you can also borrow against it tax free.

The government doesn't let you borrow against retirement accounts but does let you borrow against life insurance.

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Brianmcg321
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Re: Indexed Universal Life

Post by Brianmcg321 »

Your friends were approached by an insurance salesman, NOT a financial advisor. Run away.
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.
Parkinglotracer
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Re: Indexed Universal Life

Post by Parkinglotracer »

bsteiner wrote: Tue May 17, 2022 2:51 pm
exodusNH wrote: Tue May 17, 2022 1:47 pm ... tell your friends to fire the "financial advisor", who's really just a salesperson. They're trying to sell this policy because they get a huge commission check and with the recent market performance, they're playing on your fear and greed.

The paperwork for this product is probably 50-100 pages. There'd be no need for that level of complication of this were a straightforward product. Do you think companies produce 50+ contracts for the benefit of the consumer?
I was also wondering whether it was an insurance salesperson rather than a financial advisor.
I, like many, make no differentiation between a salesperson and a financial advisor. it depends on what anyone is selling if it is worth paying for their services. Skepticism is the doorway to the truth. I was my sister’s executor and she was sold a few indexed annuities. There were more terms and conditions in the hundreds of pages of the contract than carter has pills. She got X% of the gains of an index each month and X% of the losses with annual caps. All said and done after fees I think she got an annual return in the 2-3% range over a decade when the SP500 did closer to four or five times that return. She thought she was doing the right thing with her lump sum retirement from Verizon. The financial advisor who advised a lot of people at volunteer fire department in Maryland sold them to her. That was around the same time the fire departments held casino nights and the departments had some serious coin in their accounts. I remember telling her that the fire department casino story would be on 60 minutes someday. They had hundreds of grand; Like enough $ to pay cash for trucks. Someone out there in BH land has better stories than I do about that for sure.
ncbill
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Re: Indexed Universal Life

Post by ncbill »

exodusNH wrote: Tue May 17, 2022 3:20 pm
bsteiner wrote: Tue May 17, 2022 2:51 pm
exodusNH wrote: Tue May 17, 2022 1:47 pm ... tell your friends to fire the "financial advisor", who's really just a salesperson. They're trying to sell this policy because they get a huge commission check and with the recent market performance, they're playing on your fear and greed.

The paperwork for this product is probably 50-100 pages. There'd be no need for that level of complication of this were a straightforward product. Do you think companies produce 50+ contracts for the benefit of the consumer?
I was also wondering whether it was an insurance salesperson rather than a financial advisor.
How he describes it is reminiscent of how I was sold whole life 18 years ago. I met a Northwestern Mutual rep at some networking event. As a 30 year old, with no dependents or a spouse, he convinced me to buy a $200,000 whole life policy.

I didn't really think much of it, other than the automatic monthly withdrawals. It was only after I decided to get my financial life in order that I realized what that policy cost me. (In fairness, my financial life wasn't a disaster. I had a decent 401k, but only a small taxable account, also through NWM, in American Funds, of course.)

After 18 years, it's actually a reasonable fixed income product, which is how I treat it. It still cost me around $180,000 in net worth, if you back-test an 80/20 portfolio. But the 4.4% dividend/interest credit was certainly a nice return over the past 12 months, and matched what they projected in last year's in force illustration. With that slug of FI plus my I Bond purchases, I've been able to go 100% equities in my 401k with new money while maintaining my AA.

The video I linked above does a good job explaining universal life. I found it interesting that the insurance industry invented the product to balance out the risk of their whole life policies.
Any type of (non-guaranteed) universal life (UL) is far worse than a plain-vanilla whole life policy.

E.g., with UL, you can't just pay the stated premium to keep the policy in force...you have to put in far more money (agents often call this "fully funding") or the increasing insurance premium for the underlying annual term insurance will "blow up" the policy down the line.

I've had a couple of UL policies "blow up" on me that way...didn't pick 'em, just got stuck paying for them.

So, IMHO any form of non-guaranteed UL should be banned by law.
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