Indexed Universal Life Insurance | TigerDroppings.com

Posted byMessage
Ex-Popcorn
Member since Nov 2005
955 posts

Indexed Universal Life Insurance



Anyone know anything about this? I'm in my mid-30s and thinking about investing in this product with a lifetime income benefit rider.

In essence, I would pay a yearly premium ($15-20K) for the next 20 years and then use the guaranteed lifetime income benefit to spit off $50K-75K of yearly retirement income starting at age 60.

Any concerns or risks I need to be aware of?







Back to top
Share:
Broke
LSU Fan
AKA Buttercup
Member since Sep 2006
57287 posts

re: Indexed Universal Life Insurance


quote:

investing in this product


It's not an investment. It's insurance.

quote:

In essence, I would pay a yearly premium ($15-20K) for the next 20 years and then use the guaranteed lifetime income benefit to spit off $50K-75K of yearly retirement income starting at age 60.


So you'll put in $400,000 and draw out $75,000. That's 19% not including gains.

It's crappy of an agent to pitch this an investment. If you want insurance, buy insurance. Annuities will give you a lifetime income benefit rider also. But they will be expensive just like life insurance.






Back to top
Ex-Popcorn
Member since Nov 2005
955 posts

re: Indexed Universal Life Insurance


quote:

So you'll put in $400,000 and draw out $75,000. That's 19% not including gains


Not total...it would be yearly.






Back to top
  Replies (0)
Vols&Shaft83
Georgia Tech Fan
Member since Dec 2012
18764 posts

re: Indexed Universal Life Insurance


Or you could just buy an index fund for the same time period and have distributions of only 5.45%, equaling $75,000/year beginning at age 56.

Universal and Whole Life policies suck






Back to top
  Replies (0)
GoCrazyAuburn
Auburn Fan
Staring up at Vulcan's ass
Member since Feb 2010
15632 posts

re: Indexed Universal Life Insurance


No. I cannot stand universal life products in general. The income rider can be breached. The index part defeats the whole purpose of permanent insurance. I'm one of the few here, who do like permanent insurance, but universal life is not traditional whole life and long term it is terrible.


This post was edited on 4/1 at 7:58 pm


Back to top
LSUgolf04
LSU Fan
Member since Aug 2009
255 posts

re: Indexed Universal Life Insurance


All depends on you and your situation.





Back to top
Vols&Shaft83
Georgia Tech Fan
Member since Dec 2012
18764 posts

re: Indexed Universal Life Insurance


quote:

All depends on you and your situation.


This is the standard response of somebody who either sells Universal/whole life products, or someone who has no idea what they are talking about and wants to sound intelligent. NO it really doesn't depend on him and his situation, no person or situation conforms to a piece of shite product.






Back to top
Vols&Shaft83
Georgia Tech Fan
Member since Dec 2012
18764 posts

re: Indexed Universal Life Insurance


quote:

No. I cannot stand universal life products in general. The income rider can be breached. The index part defeats the whole purpose of permanent insurance. I'm one of the few here, who do like permanent insurance, but universal life is not traditional whole life and long term it is terrible.


Normally you and I hover around the same financial philosophies, but just for fun, I'm gonna start some shite with you . Give me a logical, mathematical reason for whole life insurance.







Back to top
wasteland
LSU Fan
ya mother
Member since Apr 2011
2014 posts

re: Indexed Universal Life Insurance


Read the fine print on those riders. I'd be willing to bet that most of that shite is not guaranteed. There's only so much guarantees that any type of UL policy can offer and I don't trust indexed products at all. Those things are loosely regulated and will get hammered one day. What company is the policy through? If its not a highly rated company then don't bother.

If you want guarantees in insurance, use whole life from a mutual company. If you want an investment, buy funds or have someone manage a portfolio.

I like your thinking and ambition but I would be very cautious of that product.







Back to top
  Replies (0)
Blakely Bimbo
Alabama Fan
Member since Dec 2010
1134 posts

re: Indexed Universal Life Insurance


The VERY WORST financial decision my husband ever made was buying a Universal Life Insurance Policy years ago.

There was even a class action lawsuit re: his policy.






Back to top
wasteland
LSU Fan
ya mother
Member since Apr 2011
2014 posts

re: Indexed Universal Life Insurance


Not the same animal but probably has all the same guarantees





Back to top
  Replies (0)
GoCrazyAuburn
Auburn Fan
Staring up at Vulcan's ass
Member since Feb 2010
15632 posts

re: Indexed Universal Life Insurance


quote:

Vols&Shaft83


Sorry, just saw your post.

I mean, as part of an overall portfolio, there are tons of reasons. Do want just examples for individuals? If so, estate planning is one realm I can go into detail if you want.

Many of the big banks use them as executive bonus/compensation plans.

As far as just overall reasoning why traditional whole life (not universal), it is an asset that is guaranteed to never lose you money. Conceptually, if I brought a business plan to you with the pitch that you would lose money for the first couple of years, and then guarantee to make you money every year for the rest of your life, would you want that on your balance sheet? I would say that is a pretty logical reason to have some as a part of your overall portfolio.






Back to top
GoCrazyAuburn
Auburn Fan
Staring up at Vulcan's ass
Member since Feb 2010
15632 posts

re: Indexed Universal Life Insurance


quote:

This is the standard response of somebody who either sells Universal/whole life products, or someone who has no idea what they are talking about and wants to sound intelligent. NO it really doesn't depend on him and his situation, no person or situation conforms to a piece of shite product.



No situation conforms perfectly, but plenty of situations exclude certain products, so his response is not baseless.






Back to top
  Replies (0)
GimmieSomeGlitter
Ole Miss Fan
GreenBOW ALABAMA!
Member since Aug 2011
491 posts

re: Indexed Universal Life Insurance


quote:

Indexed Universal Life







Back to top
GoCrazyAuburn
Auburn Fan
Staring up at Vulcan's ass
Member since Feb 2010
15632 posts

re: Indexed Universal Life Insurance








Back to top
  Replies (0)
Vols&Shaft83
Georgia Tech Fan
Member since Dec 2012
18764 posts

re: Indexed Universal Life Insurance


quote:

Conceptually, if I brought a business plan to you with the pitch that you would lose money for the first couple of years, and then guarantee to make you money every year for the rest of your life, would you want that on your balance sheet? I would say that is a pretty logical reason to have some as a part of your overall portfolio.



I assume you're talking about the commission fees and expenses with traditional whole life, so just to simplify it I'm gonna say I forfeit the first 3 years of premiums ( if I'm wrong, I apologize). Now with a 20 year term policy, I forfeit 20 years of premiums if I don't die, right?

Here's the difference (again, these aren't exact, I'm using industry standards, I understand that individual rates vary) :

I'm 30, male, in good health. If I have $100/month to spend on life insurance, I go and compare whole life rates and find out that $100 will buy me $125,000 of cash value permanent life insurance.

The same $125,000 in a 20 year term would cost me about $7/month.

$93/month or $1116/year savings for the same death benefit.

Now let's look at the next 20 years (although it usually takes at least 30 for most Whole life products to mature). For the first 3 years, the extra $93/month pays fees and commissions so it earns nothing. After that, the return will average 2.6% per year for whole life, 4.2% for universal life, and 7.4% for the new-and-improved variable life policy that includes mutual funds, according to Consumer Federation of America, Kiplinger's Personal Finance and Fortune magazines. If I die, the death benefit is still $125,000.

$24,000 invested over 20 years, for a maturity value (assuming I get the top of the market) of $40,618.58, if I surrender the policy. Minus penalties, etc. Remember, the investment is completely illiquid.



Term Policy costs $7/ Month. Over the same 20 year period, the cost of the death benefit of $125,000 is $1680.

So what if I take the $93/month savings and invest it on my own.

Same $24,000 invested over 20 years, same $125,000 death benefit, and let's say I just suck as investor and only average 7.4% per year. My Maturity value is $50,868.89. No surrender fees, no penalties, and the investment is liquid.







Back to top
Janky
LSU Fan
Team Primo
Member since Jun 2011
9316 posts

re: Indexed Universal Life Insurance


quote:

and let's say I just suck as investor and only average 7.4% per year. My Maturity value is $50,868.89. No surrender fees, no penalties, and the investment is liquid.


Averaging 7.4% would be pretty good. You would also have to pay taxes along the way and at liquidation of your $50k.






Back to top
Vols&Shaft83
Georgia Tech Fan
Member since Dec 2012
18764 posts

re: Indexed Universal Life Insurance


quote:

Averaging 7.4% would be pretty good. You would also have to pay taxes along the way and at liquidation of your $50k.





7.4 after taxes would be below average. 7.4 before taxes is WAY below average.

Whether it's whole life or term life, you still invest with post tax income. And if you are investing with post tax income, you pay capital gains and/or dividend tax at a max of 23.8% (which is very tough to reach btw, most likely you'd qualify for the long term rates of 0-15%, and only dividends are taxed as income, most likely capping at 15%, 20% if you're in the maximum tax bracket) along the way, not at liquidation.









Back to top
Janky
LSU Fan
Team Primo
Member since Jun 2011
9316 posts

re: Indexed Universal Life Insurance


So, you don't pay LT cap gains at liquidation? Pretty sure that is incorrect. Now your basis is increased due to dividends but if your super duper return is 10%, then you most certainly will owe taxes at liquidation. BTW, the average investor doesn't do anywhere near 7.4%.

quote:

According to an analysis by Dalbar, the average investor earned 2.1% over the twenty year period ended Dec. 31, 2011.






Back to top
BestBanker
LSU Fan
stuck in a moment
Member since Nov 2011
3484 posts

re: Indexed Universal Life Insurance


1. Don't do it.

If you want to answer your question properly, ask for a specimen policy and READ it. If you understand the contract and still like it, then go ahead and do it.
But, if you cannot understand it, then you will have to ask yourself "why don't I understand this", and then decide whether to do it.

I am willing to bet that the agent doesn't fully understand the policy.






Back to top
  Replies (0)


Back to top