IUL Life Insurance used as retirement

Not really an expert, but here are my two cents:

1) for it to pay as much as 12.5%, I would guess the overall performance of that index would be much higher than 12.5%. By giving you that downside protection, it seems to me they must drastically limit the upside potential. I don't see the fine print, so take that thought for what it's worth.

2) I believe there is some potential value in having tax benefits associated with that policy shown to you. You asked why more people don't do it. Although that's hard to answer, I would guess it has something to do with most people not being able to maximize their retirement accounts to which they have access. In that situation, they get all the tax advantages they can have without needing extra ways to find tax deferral. Just a nonqualified brokerage account can work for accumulating assets, but when you look at ways to bring your provisional income down in retirement (for some of your retirement years at least, probably not all), an insurance policy like that can reduce the amount of taxes you'll pay on social security and maybe even lower medicare costs. That insurance money is only tax free up to the amount of premiums you paid into the policy though. Hope this helps.

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for it to pay as much as 12.5%, I would guess the overall performance of that index would be much higher than 12.5%. By giving you that downside protection, it seems to me they must drastically limit the upside potential. I don't see the fine print, so take that thought for what it's worth.

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Thanks for the input, Belly. If I understand the policy, the "up to 12.5%" is immediately reflective of the market that you tie it up to (my guy reccomends the S&P500). So if the S&P sees a 10% increase in that particular period (I don't remember if it's compounded monthly quarterly or annually, but I have that written down to confirm) then that 10% is compounded onto the cash value of my account.

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So if the S&P sees a 10% increase in that particular period (I don't remember if it's compounded monthly quarterly or annually, but I have that written down to confirm)

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It's annually.

Break it down into both the investment and the life insurance first. You can get 30 year term life for $25-30 for $1 mil.

Then truly look at the retirement.

Lastly, how long do you HAVE to fund it and what happens if you momentarily stop? That's the big kicker. It's a decent product in 40 years IF you fund it for 40 years, but how many people make it that long?

It's been awhile since I learned the mechanics of UL products, but I'm pretty well versed on the financial side of things

Not in sales, don't know sh*t about what the salesperson pitched

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It's tied to the S&P500, and pays as much as 12.5% interest (depending on the market),

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This likely means there is a 12.5% return cap on the product. So if the market earns 40%, you'll only get 12.5%

Something to look for is that there is a high potential you pay some margin on that 12.5% returns in fees for something along hte lines of "asset management". Whether it comes before/after the cap I believe is a contractual item

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simply doesn't pay you when the market dips/falls.

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So this is likely significantly more complex than you realize depending on how it is built. If my memory serves me right there are multiple ways to do this

You can have a ratchet option that sets an account value floor for every period. Every investment period is separate and you can't have a negative return.

There are floors on return that means if a negative stock market event occurs, the return has a minimum %

There are minimum account value guarantees, which means your account value is the higher of the minimum guarantee or the S&P return value

I want to say there is a high water mark as well where your account value is either S&P 500 returns or your maximum ever AV

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It seems apparent to me that the risk involved

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Say your investment is a homerun and your UL account makes a ton of money, you'll end up being hit with what are called corridor factors


Basically, to qualify as a tax qualified life insurance plan, the company has to have a certain Net Amount at Risk otherwise it isn't life insurance anymore. That means your cost of insurance for death benefits increases

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How's everyone not doing this if it's as good as it was pitched to me?

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Because it isn't as good as what is being pitched to you. The guy is selling something, not giving something away

Yeah the biggest two things to find that I can't find online are the minimum caps on the annual S&P 500 point to point option and the current and potential maximum fees.

A 12.5% cap in year one could become a 6% cap in year 5.

Also, it's worth noting that the Midland National agent guide specifically warns agents not to focus too much on the investment side of the product, even though that's usually the biggest part of the pitch.

ETA - perhaps you can get an illustration, black out your personal and agent info, then post a few pictures of it.

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Lastly, how long do you HAVE to fund it and what happens if you momentarily stop? That's the big kicker. It's a decent product in 40 years IF you fund it for 40 years, but how many people make it that long?

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He showed me clients that had stopped contributing, and as long as the cash value exists for them to take their fees however often they take them, it's all good.

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Just make sure your agent isn't selling you too much life insurance. Buy the bulk of your life insurance on a term chassis. Heavy on the cash funding and light on the COI. I always design my supplemental retirement plans with the most premium the regulators will let my clients stuff in there.

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Whats COI?

We're gearing this up as a retirement account. I have life insurance with another agent and don't really want to mess with that at all.

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ETA: depending upon the product, you could be paying a 7.5% premium load. I like the no load products but my clients are significantly older. No load has a lower cap than loaded product.

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I wish I understood this. Max percentage that they can take from me is 6%, in addition to the "cost of insurance" that was estimated to be roughly 30 dollars. Haven't run an illustration yet. Will update you guys once I get numbers that relate to me.

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wife's company doesn't offer a 401K, and my agent feels that this investment is better than a roth or traditional IRA.

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That's bad advice.

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Love this idea. Thanks so much.

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Make sure they explain the minimum cap. I can't stress this enough.