Need advice on moving forward or not with this offered IUL

[missmae]

@superdan I have a Roth 401K, almost maxed out. What is a mega backdoor roth option?

 

[superdan]

@missmae You need to have a 401(k) that allows you to make after-tax contributions. If yours allows this, you can use these to contribute up the annual max of employee+employer contributions, which is $66k in 2023. Then you take the after-tax contributions and do an in-service non-hardship withdrawal, if your plan allows these. Then you immediately roll over that money to a Roth. It’s kinda complicated so you’ll want to find a better explainer. You can also do a regular (non-mega) backdoor Roth. It’s a lot easier and I would do it first for that reason, then consider mega. But you may not even have the option.

 

[888_apologetics]

@missmae What rate of return is this illustrated at? This is very, very important… What is the floor? 0% or 1%?

What kind of bonuses are being illustrated? Are they guaranteed bonuses or non-guaranteed bonuses? Non-guaranteed bonuses would mean the carrier can make changes to them (usually means they lower the bonus, or stop paying it all together)

What does this look like when it’s stress tested? Run at a lower rate of return and/or hitting floors once or twice every 10 years? Average floor would hit 2-3x every 10 years.

Cap rates - what kind of carrier, stock or mutual? How has the carrier adjusted their caps in the past on both inforce business and new products? Some carriers lower caps on inforce business in order to prop up the caps on new products for better marketability / better illustrated values. Aka - drive new sales.

Again, stock or mutual? - do you understand the difference between the two? Stock carriers have stock holders to answer to (profitability) and mutual carriers do not.

Piece all of that together and ask yourself if you are comfortable with it.

At the very least you should be shown more than one carrier of the same product type if you’re really dead set on IUL.

IUL can be great, I own one myself - but it is one of the most complex financial products that exists… seriously. And it’s very important, at least in my eyes - that the policy holder understands it’s basics, the moving parts, and variability in outcome.

 

[missmae]

@888_apologetics It’s calculated as an estimate at 8.9% from the average past 20 years. The floor is 0%.

Not sure there are any specified bonuses though.

I understand it’s index fund on S&P500, don’t know if it’s mutual or stock. I dont understand the difference.

Although I asked my agent many questions, I still don’t feel I quite understand it. I feel as if they want people to decide/sign with the least amount of information.

 

[888_apologetics]

@missmae Mutual carrier vs stock carrier

A Mutual company is policy holder owned
A Stock company is just like any other publicly traded entity

 

[888_apologetics]

@missmae Is this all you’ve been shown/given? These are only ledger pages.

I could be wrong about this.. but these appear to be extracted values from an excel and put into their own ledger presentation but it is missing critical info — like the illustrated rate of return. The full illustration is very important for disclosure purposes and your education.

 

[rayeli]

@missmae As others have stated, eloquently, I would not move forward until you understand every disclosure in the illustration inside and out.

These illustrations are sold on the sizzle, but the steak is often over cooked, tough, and likely to give you a bad stomach ache.

This is why I hate IUL - insurance companies are more concerned with selling policies than actually providing a worthwhile product and providing value.

 

[javelinda]

@missmae Stay far away from anyone who tries to sell insurance as an investment! IULs are essentially a ticking time bomb. See you're only concern is a safe place to grow your money as an investor. However IULs have a life insurance component that makes it so you're paying for 2 things and only using one if your main aim is an investment the you don't need the life insurance part. Here's the other problem it's against state insurance regulations to sell life insurance as an investment. But the agent who's attempting to sell you this policy suggested it as an investment anyway. That's because they don't have a securities license to give you better more viable options so instead they try and make IULs fit every clients situation and they don't. Did you know as you get older the insurance premiums inside that policy will go up every year slowly eating away at your cash value untill one day you'll get a call from the company saying your premiums are now 2000-3000 a month to keep this policy in force and by the way your cash value balance is zero. Have a great day. That's why these illustrations never play out the way they show you because of the fees and mortality cost. There's way better options to achieve the same goal for much less money. I'm a financial advisor and I help clients with this everyday. Stay away from these unless you are wealthy and have maxed out every other plan available to you on Earth.

 

[missmae]

@javelinda That would be a nightmare. Thanks for providing this perspective.

 

[resjudicata]

@javelinda Correct me if I'm wrong, but the way certain permanent insurance policies are structured could allow for consistent premiums for the lifetime of the policy. I know this is 100% true for Whole Life policies and I've seen it for certain Universal Life policies as well.

Regardless, I agree that you should not be buying a policy strictly for investment purposes unless you've exhausted the majority of other vehicles. However if you do require insurance, having a policy that builds cash value as an investment is a win for some!

 

[javelinda]

@resjudicata Yes whole life policies are definitely safer than IULs but that's also the problem. The growth, while gaurenteed is very low especially now given that interest rates are rising. For example if I have a brokerage account with Public they are paying 5% on money just parked in your brokerage account and the beauty is I don't need to borrow my own money. If you take money out of a whole life policy it's a policy loan because they don't allow partial surrenders so now if I bought just enough coverage to pay for everything I need after I die but I manage to save 20k in my whole life policy and I borrow that money and die 2 weeks later guess what? My death benifit at is reduced by the size of the loan I took out plus interest. And alternatively if I die and don't take a policy loan my beneficiary only gets the greater of the cash value and the death benifit not both. So again at the end of the day cash value and IULs absolutely have a place in the echelon of ones portfolio and that's at the very bottom after all other possible options have been exhausted.

 

[kim5398]

@missmae If the IUL’s best historically performing index choice is a 10% capped S&P account then there are better IUL options out there.

 

[missmae]

@kim5398 There is also the option of 50% gains/50% loss protection. Not sure if this is common.