We follow the blog of a competitor who has called out agents that sell indexed universal life policies because they are selling the policies as retirement and investment instruments and openly claiming that yields of 8%-10% are very likely. At Risk Life we agree that it is absurd and unseemly for life insurance agents to go around claiming investment results that clearly can’t happen on a consistent basis. The discussion has been entertaining and we think very telling in that our competitor just keeps asking agents that disagree with him to show him the proof. And we have yet to see anyone take him up on it.
So let’s put a fence around this IUL thing. The way the policies are structured it is certainly possible to imagine a scenario where an 8% average annual increase in cash value could be attained. All that would have to happen is that you would put a policy in force using the right crediting method that will work in the future starting on the date you start. If you happen to start when your crediting index of choice is high, you aren’t off on the right foot. If you choose the wrong index you may have blown it. Anyone that is still buying into the same song we listened to 30 years ago that while there have been ups and downs, the markets have always and will always continue to rise. That was before our country was $16 trillion in debt. That was before we became a part of a global economy in which we have no control over the other 95% of the economic world.
Proponents of IUL will point to the S&P and brag about how even in the down economy of the last 10 years it has managed significant gains. There is no arguing that gains have been made, and there is no arguing that if you picked the right date to start and the right crediting method an 8% annual increase in cash value is possible, but looking at an S&P 10 year or 20 year graph tells us that there is a high likelihood of missing the mark simply because you or your knowledgeable agent picked the wrong start date and the wrong crediting method. The real risk is that these products really perform poorly if they don’t hit their high assumptions.
P.S. We are watching life insurance companies be shy about taking large amounts of cash dump ins because they are having trouble meeting 3-4% guarantees. If they could put that money somewhere that made 8% and they only had to pay 4%, don’t you think they would do that. If you have any questions or think you have an IUL that really does make the grade, call or email us directly. We can help and we can also learn.
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