IULs and Annuities
Universal Life insurance is a form of life insurance that allows for flexible payments, but the trade-off is usually a cost of insurance that increases annually for as long as the policy is in effect. Picture buying a house and paying for it over a 30-year period of time. For this example we are going to be talking about the principal portion only, forget about the interest portion of a mortgage. For argument sake, let's assume that the principal portion was spread evenly over the next 30 years. Now imagine that instead of settling on a fixed price for the house, you were going to buy 1/30th of the house each year for the next 30 years--at the prevailing market rate each year for the house you're buying! So on a house that is worth $300k today, the principal portion for the first year would be $10,000. Fair enough you say.
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Now let's say the house appreciates in value $15,000 per year (which is just 5%) so that in 30 years it will be worth $750k. This is certainly a reasonable scenario. This means that the principal portion of your payment will increase by $500 each year (1/30th of $15,000) so that your principal payment the second year would be $10,500. You would pay $11,000 the third year, $11,500 in the fourth, and so on. In the 30th year your payment would be $25,000 (1/30th of $750k), and you would have spent a grand total of $517,500 for your $300,000 house!
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The truth is this might be preferable to paying interest, as often, depending on the interest rate of a mortgage, people end up paying more than the cost of the house in interest alone. But let's say instead of a 30-year arrangement, this was simply the arrangement for the rest of your life! In fact, the older you are, the greater the amount or percentage of "principal" you would need to pay on your house. In other words, instead of $25,000 in year 30, you might be paying $50,000! And then perhaps $52,000 in year 31 and $55,000 in year 32, and so on.
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Would you still take that deal? Of course not! So why would you buy life insurance that way?
There are reasons, but they're not as plentiful as many insurance agents would have you believe.
Why I.U.L.?
The number one reason for buying an IUL is to be able to participate in stock market gains without worrying about market losses. An Indexed Universal Life policy will tie the interest credited to your policy to the performance of one or more popular indices, the most common being the S&P 500. If the market has an up year, you get to participate to varying degrees depending on the IUL you choose and what participation and cap rates it offers. If the market has a down year, you are protected from any loss. Additionally, you get all the benefits of life insurance--including the tax advantages and the peace of mind of knowing that your loved ones are provided for should something unexpected happen. IULs are perfect for those individuals who like the idea of investing in the market, but fear losing their hard-earned money due to economic downturns.
Limiting Volatility
Insurance agents and financial advisors, when they speak about investing, are fond of touting the historical returns that the stock market has provided over the years. They point to charts that start in 1925 and show that even with the Great Depression and other recessions thrown in there, the market has averaged double-digit returns over the past 100 years. I am not interested in average returns, I am interested in actual returns. And you should be, too.
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Recently, with the extended bull runs that the market has enjoyed at various points during the last thirty years, those same advisors are fond of pointing to charts with a starting point of Jan. 1, 1995, the beginning of the dot-com bubble as personal computers began to saturate the market in the mid- to late-1990's. And, yes, the market has averaged a 12% return despite the recession at the beginning of the millennium, the Great Recession that started in 2, Covid, and the post-Covid inflation of the early 2020's.
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But what if your investing career doesn't start with an unprecedented five year bull run? What if it starts with a three year bear market because you finally got tired of watching everyone else make money in the market and decided to start investing right as the dot-com bubble burst? The reality is, as Warren Buffett is always reminding us, when it comes to investing (especially speculating) we can't predict the future. But let me show you the difference between being in the market vs. tying the growth of your cash value in an IUL to the market, but utilizing the protections afforded by the insurance company.
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Americo's uncapped, 86% participation rate interest-crediting option on its Instant Decision IUL is being used for the illustration below. If you are someone whose primary objective is growing your cash value and who wants to MAXIMIZE returns while minimizing risk, this would be one of the top two IULs we would recommend for you.
Note: The "market" demonstrated in the table is the S&P 500, which is also the index used by the IUL for its crediting strategy. Notice how, other than the initial 5-year run for the funds invested in 1995, the IUL outperforms a straight investment scenario because the insurance company protects against loss. In fact, over the 28-year period shown, the IUL nearly DOUBLES the return (and more than doubles the return if you didn't start until Jan. 1, 2000). Now, unfortunately, you can't put $100,000 into an Americo IUL, but you can accumulate more than that in one. For someone who actually has $100k to invest, we have some good options for you, too.
Advantages and Disadvantages of IULs
Many of the advantages (but not all) of whole life insurance can be found in IULs. Advantages include:​
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Most IULs offer multiple indices to choose from and an option to blend them
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The ability to take out policy loans
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Utilizes tax-advantaged growth and withdrawal strategies (including this helpful bit: you don't have to be 59 1/2 to access funds)
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Accelerated death benefit in case of chronic, critical, or terminal illness
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Riders to the policies can provide greater flexibility and opportunity
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And, of course, the death benefit itself
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Disadvantages include:
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Interest-crediting strategies and/or procedures can often be complex
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Usually you can only change strategies on policy anniversary dates
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Lengthy surrender charge periods (some are up to 15 years)
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These lists are not meant to be all-inclusive or complete.
Why these six are our favorites . . .
Number one client benefit: Forget the fact that their children's term rider covers even adult kids (up to age 21 at policy issuance), or that they offer a spousal term
rider. Mutual Trust Life has, hands-down, the best Paid-up Additions rider in the industry. Considering PUAs are what drive the Infinite banking Concept (aka Be Your Own Banker), this means that, for those who qualify, a whole life policy with Mutual Trust may help you grow wealth longer than others. Most PUA riders are a "use it or lose it" deal. MTL eliminates that--which means people can get the coverage they need now while truly planning for the future.
Number one client benefit: Most Accidental Death policies only pay out upon the death of the insured. Most Accidental Death & Dismemberment (AD&D) policies cover the insured only if they lose two of the following: feet, hands, or complete loss of sight in the eye(s). Gerber's AD&D will pay out half the face amount if
the insured loses just one of those. And you're more likely to lose one of those than two. If you need another reason to like Gerber, they also have the cheapest guaranteed insurance policies in the business.
Number one client benefit: Foresters Financial is a Fraternal Benefit Society. In layman's terms, it's a non-profit mutual company. As such, it has a heart to serve. Foresters offers non-medical exam options for both term and whole life, is friendly to Diabetics (including Type-1 Diabetes in
children), and has the best Accelerated Death Benefit (ADB) rider in the industry. The ADB rider allows you to access a percentage of the eligible death benefit in the event of chronic/critical/terminal illness. Foresters allows you to access up to 24/95/95 percent of the death benefit in qualifying circumstances. (Most companies allow 10/24/50.) Their 20-pay whole life policies for children allow you to set your kids up for life without mortgaging their futures. They'll even throw $1,000 to a policy owner's favorite charity upon the death of the insured just because. That's the heart of a non-profit.
Number one client benefit: Yes, they have an accident policy with a return of premium rider. Yes, they have
an instant decision IUL with favorable terms. Yes, they
have a full suite of health insurance products ranging from dental to disability and long-term care. The number one reason they make this list is because of their Long-term Care rider that will essentially turn your fully-underwritten Indexed Universal Life (or IUL) into a tax-advantaged Long-term Care policy if you ever need it. Considering that, statistically-speaking, 70% of Americans will need some kind of long-term care, this rider is a must! And it's cheap, too. Only a few dollars a month--literally--because it's not building up cash in a separate policy; instead the rider allows you to access your life insurance policy for long-term care needs, whether that's a nursing home, assisted living facility, or at-home health care.
Number one client benefit: Let's talk annuities. It used to be that you could start an annuity the same way you could start an IRA or a 401(k), just a small, regular contribution. For the most part, these have all
gone the way of the dinosaur. Annuity companies today typically want a minimum of $5,000 (many require $10,000) to open an annuity. In this arena, National Life Group is a throw-back to the way it was. In the process, the average person can reap the benefits of annuities. NLG allows investors to open an annuity with as little as a $25 per week commitment. Investors can then roll it over to any one of more varied annuity opportunities after the annuity reaches the required threshold.
Number one client benefit: Lafayette Life is probably the most flexible in actually designing policies for clients with specific needs or desires. Whether that's a limited pay period or pre-planning for
large expenditures utilizing the Infinite Banking Concept, Lafayette excels. Additionally, they are particularly good at turning single-premium life insurance (aka Modified Endowment Contracts) into actual life insurance policies with all the tax advantages inherent therein.
NOTE: Of the six companies featured above, five are--in practicality--mutual companies (paying dividends to the policy holders). Only Gerber is a stock company (paying dividends to shareholders), but we don't recommend Gerber for insurance policies except as noted above and, in rare instances, for children's life insurance.
All six companies are rated 'A' or better by the leading insurance company rater A.M. Best.
Carriers with interesting product nuances . . .
Aetna Senior Benefits-- Aetna offers life insurance policies up to the age of 89.
AIG/Corebridge Financial -- AIG's guaranteed insurance has a limited-pay period (usually age 82-88).
Americo -- Looking at IULs? Choose Americo's cap (15.25%) or participation (86%) rate--or blend them.
Baltimore Life -- its Generation Legacy combines two products--a single premium immediate annuity and a limited pay whole life insurance policy--to pass assets tax-free to heirs.
Fidelity & Guaranty (F&G) -- Fixed Annuities with a wide choice of indices (incl. gold and real estate).
Great Western -- GW's guaranteed insurance product allows for applicants as young as 40.
Manhattan Life-- The Affordable Choice health plan may pay you more than the cost of medical services.
Royal Neighbors --Unique riders include a cancer waiver of premium and 80% for chronic illness (ADB).
Transamerica -- Non-med whole life and term policies have higher than normal limits for the industry-- $2mm for those under 45, $1mm for <55.
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Other carriers we are proud to represent . . .
Athene -- has an A+ rating w/ A.M. Best and consistently makes various Top 10 lists.
In addition to Athene, Baltimore Life, F&G, and National Life Group, we are able to offer annuities through these other carriers already noted above: Americo, Lafayette Life, Mutual of Omaha, and Transamerica. We are also able to offer annuities through Genworth. Additionally, two carriers on the list below offer annuity riders on certain life products: American Amicable and Royal Neighbors.
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Life Insurance
Aflac (final expense only)
American Amicable
Ameritas (IUL only)
Ethos
Genworth
John Hancock (term insurance only)
Manhattan Life (group life insurance)
Royal Neighbors of America
TruStage (term insurance only)
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