Hey everyone, I was offered this IUL offer (following S&P500) from a reputable Insurance company. My main driver is a long-term investment (10 years+), this is capped at a 10% gain and has protection from market downs. I asked for the options to contribute $500/month and $1000/month, below is the breakdown of both. Please let me know your thoughts if it's a good investment (I understand it's not possible to predict the market performance) with respect to costs and fees. Thank you all.
@missmae The cap is never fixed for the life of the contract, it’s always variable for a new “bucket” after the last one ends. And there should be language in the illustration to show what the minimum they can offer is.
I used to review a lot of these each week and I still review a few a month. I have never seen a cap rise (though it’s theoretically possible) and I’ve never seen it stay the same either.
@missmae No offense to the agent but they have no idea what they are talking about. They may have seen caps rise for new clients but that’s a completely different phenomenon.
What’s happening behind the scenes is the people designing the buckets are taking a budget, going out to the options market and buying puts and calls to build out the options. It’s why you don’t get dividends- you aren’t actually an owner.
If the budget shrinks (companies general account yields less, company wants to budget more to capture new clients) or if the price of the options is higher the cap goes down. And both happen routinely.
@missmae If accumulation is important. Ask them to show you an illustration with the death benefit level and a max-blended supplemental coverage rider.
@missmae Yes. I suggested you ask for an additional different illustration. You can ask your agent for exactly what I wrote.
The level death benefit will increase the cash value accumulation but the death benefit will not grow like the illustrations you provided. There isn’t a wrong or right answer here - it’s a trade-off of accumulation for death benefit.
The supplemental coverage rider is used to drive down the cost of insurance which will make your cash value grow faster. (Side note: it also reduces your agent’s commission.)
@tabinek Honest question: why level death benefit? Increasing benefit allows for OP to purchase a smaller death benefit with the same budget which should lower the overall internal fees.
With DBO 2, the net amount at risk (NAR) is fixed so every year the COIs are 269 x COI. So in the example above the year 20 costs are 269 x Age 57 COI.
With DBO 1 the calculation would be 39 x Age 57 COI and that really gets magnified in later years. (I used the values from the $500/mo example).
My example may be flawed because the MEC calculations for guideline level premiums varies by the death benefit option. That’s why it’s important to see both designs.
@tabinek Agreed that both need to be looked at and we can’t see MEC levels here. In my experience, best course of action to maximize cash growth, is increasing DBO in the funding years then switch to level DBO in the withdrawing years.
1. Do you need a life insurance policy as an accumulation vehicle? Maxed out all other tax advantaged saving options? Life insurance can work well in this respect but if you ever need flexibility in premium payments then it's going to hurt the efficiency of the strategy.
If you have a good understanding of long term investment strategies and are not an emotional investor you should understand you'd be far better off with just an s&p 500 index fund vs the iul version of it. If the insurance accumulation strategy is a good fit a vul will be better for investors comfortable with risk and long term investment goals.
@mykell To your first question yes, looking at it as an accumulation vehicle. Maxed out my roth 401K.
I agree, I am also not 100% bought because of the lack of flexibility.
I also have long term index funds (such as ETF’s), but I don’t know if there is a way to cut the taxes down other than holding them long enough to avoid short term gains.
@missmae So the design would be similar to the iul. Instead of being tied to just a few index options, you'd have like 80-100 mutual fund like options to build a portfolio
