Need advice on moving forward or not with this offered IUL

[resjudicata]

@missmae Any reason not to go for a Universal Life policy that doesn't have a cap and doesn't have protection from market downs? If you're invested in an index you will reap real benefits in the long term (30+ years) in which case your market lows/highs typically balance out anyways.

With ULs, you should also have flexibility in the premium deposits (one of the benefits vs a Whole Life policy), so I'd check to see what that range is as well. Happy to continue in replies if you have any other Qs or if anything else comes up.

 

[missmae]

@resjudicata Other than the downside protection, not sure what else IUL differs from UL. I understand with UL’s the portfolio manager/insurance company will constantly move the assets depending on the market condition to “ride” a change in market.

 

[resjudicata]

@missmae The reason why caps lower is because option prices get more expensive the more IUL companies and IUL policies are sold. S&P options are priced so highly because literally every insurance company who offered IUL’s have to buy the options.

Options increase in demand = higher IV

Even if it performs well, the expense you are paying for are the Life Insurance expenses: Premium Expense Charge and Cost of Insurances. IUL’s COI(cost of ins) increases every year. And if an IUL underperforms long enough, it’ll cause risk of lapse earlier than anticipated.

If you take tax free distributions via loans, and loans pile up for decades into retirement years, and the cash value is not sufficient to cover the Loan + interest + cost of insurances, it will cause a horrible taxable event on ALL interest gained once the policy can’t pay from the CV anymore.

 

[missmae]

@resjudicata The agent was mentioning that my premiums shouldn’t ever go up. Or is he assuming that the returns will stay high enough to cover any increases in premiums possibly. I am confused.

 

[resjudicata]

@missmae Yes IUL premiums may never go up.
You will maybe even be able to put in more than 12k a year ie 14k maybe depending on policy design if you wanted. The reason why you would do that is to grow cash value.

Even though your planned premiums will stay level, you should also account to knowing that doesn’t mean the % of that monthly premium that goes to expenses stays the same either. As u can see, COI insurance goes up, so more and more of your premiums paid each month will go towards paying for that death benefit.

Your premiums accumulated + interest in the cash value is the source that will pay for the long term insurance expense in the event you decide to discontinue paying premiums and start taking income.

 

[missmae]

@resjudicata Not sure I could quite understand. So if my premium will stay level, how is my COI going up?

 

[resjudicata]

@missmae One thing to note; the illustration shown above is based on S&P, but when does the S&P ever perform the same interest rate every single year for 3+ decades? imo illustrations can have a sense of false sense of security and performance.