- My Forums
- Tiger Rant
- LSU Recruiting
- SEC Rant
- Saints Talk
- Pelicans Talk
- More Sports Board
- Fantasy Sports
- Golf Board
- Soccer Board
- O-T Lounge
- Tech Board
- Home/Garden Board
- Outdoor Board
- Health/Fitness Board
- Movie/TV Board
- Book Board
- Music Board
- Political Talk
- Money Talk
- Fark Board
- Gaming Board
- Travel Board
- Food/Drink Board
- Ticket Exchange
- TD Help Board
Customize My Forums- View All Forums
- Show Left Links
- Topic Sort Options
- Trending Topics
- Recent Topics
- Active Topics
Started By
Message
Teach Me About Indexed Universal Life Insurance
Posted on 10/29/19 at 7:55 pm
Posted on 10/29/19 at 7:55 pm
I was talking with an insurance person today who brought up some IUL product that is both a life insurance policy and a retirement fund (this is how they explained it). She did not really know much about it, so can someone here explain what this is to me?
6
Posted on 10/29/19 at 9:03 pm to LigerFan
Uh, no. Stay far away. The cases where something like this would be useful are remote. You want insurance then get term life. You want to invest then don't do it through insurance. Do not combine these two things. They make money by investing what you give them and then giving you a small percentage of that.
Posted on 10/29/19 at 9:16 pm to LigerFan
What he said. Don't combine the 2, it's almost always a poor deal for the person buying the policy. Get a term life plan for insurance and invest for retirement using the tax advantaged accounts provided...401k, Roth, etc.
Posted on 10/29/19 at 9:33 pm to dlmast87
quote:
What he said. Don't combine the 2, it's almost always a poor deal for the person buying the policy. Get a term life plan for insurance and invest for retirement using the tax advantaged accounts provided...401k, Roth, etc.
Couldn't have said it any better. Universal life insurance is trash.
Posted on 10/29/19 at 10:01 pm to LigerFan
quote:I admittedly know little about Universal Life, but other than HDHP-HSA plans for health insurance—and I think health insurance is unique for a lot different reasons anyways—I can’t think of any other type of insurance where there is any “investment“ added on to it. So why would life insurance be unique?
I was talking with an insurance person today who brought up some IUL product that is both a life insurance policy and a retirement fund (this is how they explained it). She did not really know much about it, so can someone here explain what this is to me?
Furthermore, I can’t think any other insurance (again maybe health aside for certain things), where I want to ever use it or “cash in” on it, as they’re necessary evils to mitigate risks and the goal is to pay as little for as much risk mitigation as possible. So again why would life insurance be any different, not to mention, it’s the last insurance anybody should ever want to “use,” especially since he/she won’t be the person to ever use it?
So combining the purpose of insurance in general, and the lack of an “investment” option
for other types, I don’t really understand how/why Universal Life insurance would be different. And I especially don’t understand how/why that wouldn’t come with one (or more) “catches,” that make(s) it a poor option in most instances.
Besides, there are a wide range of views from “experts” regarding investing, saving, etc., from Dave Ramsey to Warren Buffett and many more, and I can’t recall a single one ever advocating for Universal Life insurance. Not can I recall any major, reputable insurer ever pushing it on me before (e.g., my insurer, State Farm, only brought up term to me, even though it offers Universal). Those to me are red flags.
This post was edited on 10/29/19 at 10:01 pm
Posted on 10/29/19 at 10:42 pm to buckeye_vol
I'm no finance expert and certainly not as skilled as many on here in managing money. However, the benefit I see in Universal Life is 2 things: 1. Being able to withdraw from the policy once you hit 65. 2. Gains range from 0-10%; but can't lose money. So while you won't maximize earning potential in good years, at least won't be losing anything during downturns in the market. At least that's how I understand it.
On paper I don't think UL makes sense, but I can see how it would be beneficial to folks in some cases.
On paper I don't think UL makes sense, but I can see how it would be beneficial to folks in some cases.
Posted on 10/30/19 at 12:08 am to GoldenSombrero
quote:How is that a benefit when you can withdraw from any number of tax-deferred or tax-free (upon withdrawal) investments that can be withdrawn even earlier, and in some cases (Roth), even allow for withdrawal of principal at anytime with no penalty or tax? I guess I can see a scenario where people have maxed out all of their tax-efficient vehicles (IRA, 401k, etc.), and are looking for another investment option to minimize taxes. That said, there are tax-free options available, and even taxable investing that can either limit the tax burden (primarily only pay long term capital gains and primarily upon withdrawal, tax-loss harvest time minimize capital gains, etc), provide income with increasing equity (real estate), provide access to cheap credit, and/or easy access to liquid assets.
Being able to withdraw from the policy once you hit 65.
Apparently there are some situations where it makes sense, but I just don’t see the benefit in any other, and I’m not really sure when it would be beneficial and/or if it really is much of one in the first place.
quote:This doesn’t make sense to me. Nothing is guaranteed, especially something that is presented as an investment intended to provide gains. So to me, the only way it makes sense to guarantee someone a return on their investment, is to make them pay some sort of premium or expense for that opportunity.
Gains range from 0-10%; but can't lose money. So while you won't maximize earning potential in good years, at least won't be losing anything during downturns in the market. At least that's how I understand it.
But whereas a major mutual fund or ETF will report gains after accounting for expenses, I suspect (may be wrong) the guaranteed gains here are not accounting for all, if any, expenses or potential costs (like losing the cash value if you do die) that in reality makes the gains anything but “guaranteed.”
Posted on 10/30/19 at 8:42 am to LigerFan
quote:
I was talking with an insurance person today who brought up some IUL product
quote:
She did not really know much about it,
Never, ever buy something from someone who can't explain what they are selling to you.
quote:
so can someone here explain what this is to me?
"indexed" just means the rate of return is tied to some index. This is opposed to "fixed" and "variable" which are two other options.
Universal Life Insurance is a variant of whole life insurance. Whole life insurance is a hybrid product that ties both life insurance and investing.
Whole Life really shouldn't be considered an option, until you max out all tax-qualified investment vehicles.
If you do max that out, then it may make sense to start looking at whole life. However, there are also alternatives such as index fund that tamp down on current income.
And any whole life product sold by a company that isn't Northwestern Mutual, Mass Mutual, or New York Life, needs to be avoided.
Posted on 10/30/19 at 9:05 am to LigerFan
Latest life insurance product to mingle market returns with indemnity. Keep them separate and you succeed.
Have the agent read the policy documents with you and convince you how you should own this type of policy when the policy outlines the increased expenses over the life of the policy. Look at the Planned Premium and other Premium definitions (minimum and target). Look at the guarantee pages. Typically sold to the consumer as a savings plan for retirement and then you're done because you're sold on not "needing" life insurance after you retire; cash out at the end type talk. I am not a fan but fully understand why it's marketed, sold, and purchased.
Have the agent read the policy documents with you and convince you how you should own this type of policy when the policy outlines the increased expenses over the life of the policy. Look at the Planned Premium and other Premium definitions (minimum and target). Look at the guarantee pages. Typically sold to the consumer as a savings plan for retirement and then you're done because you're sold on not "needing" life insurance after you retire; cash out at the end type talk. I am not a fan but fully understand why it's marketed, sold, and purchased.
This post was edited on 10/30/19 at 9:47 am
Posted on 10/30/19 at 9:08 am to LigerFan
quote:
She did not really know much about it
Missed this one.
If she doesn't understand it, then how can you? This agent isn't knowledgeable, as are most life insurance agents. This type of policy is extremely company favorable. The policy will most likely have a line in it stating that the insurance agent can explain everything to you, so don't call the company. The liability is passed to the agent. Means a lot.
Posted on 10/30/19 at 9:30 am to LSUFanHouston
quote:
"indexed" just means the rate of return is tied to some index. This is opposed to "fixed" and "variable" which are two other options.
Universal Life Insurance is a variant of whole life insurance. Whole life insurance is a hybrid product that ties both life insurance and investing.
Whole life insurance in not an investment. It is a life policy for the whole life of the insured. It's premiums are higher because the IRS allows this type of instrument to be used this way. It's a guaranteed death benefit that offers an over-funding of premium to be accessible during the life of the insured. Guaranteed interest is earned on the overage. Nothing nefarious. Dividends are considered a refund of premium, thus income tax free under current law. Dividends earned also earn guaranteed interest. UL is term coverage with an interest bearing account of sorts.
quote:
Whole Life really shouldn't be considered an option, until you max out all tax-qualified investment vehicles.
This is also incorrect. It's actually backwards planning. Protect assets then invest because of risk of loss. Risking money first and then creating asset protection is opposite to wise planning. You do everything in life to protect yourself and shield yourself from loss, injury, etc, but then are sold on the notion that investing money is most important in the hierarchy of the financial planning process. Flip it. Protect first against the given (death) then invest for growth. Permanent life insurance is an income tax free asset.
quote:
And any whole life product sold by a company that isn't Northwestern Mutual, Mass Mutual, or New York Life, needs to be avoided.
While these mutual companies are good insurance companies, they are not the only ones to use. I personally don't use any of these carriers. Cost of insurance is higher with them, and their dividends offer proof to this point.
Posted on 10/30/19 at 10:43 am to BestBanker
quote:
Whole life insurance in not an investment. It is a life policy for the whole life of the insured.
So is, for most purposes, term to 100.
There has to be a reason why whole life costs more than term to 100. It's because of those features you mention.
Those features are investment features, not insurance features.
quote:
Protect first against the given (death) then invest for growth
This is what term life insurance is for. By the time the term ends for the vast majority of people, so does the need to protect against death.
quote:
Permanent life insurance is an income tax free asset.
Life insurance proceeds, term or whole, is an income tax free asset. And most of the time, so are transactions during the life.
quote:
they are not the only ones to use. I personally don't use any of these carriers. Cost of insurance is higher with them, and their dividends offer proof to this point.
Those companies aren't going anywhere. Perhaps other companies might be a bit cheaper... are they going to be around when you need them?
Posted on 10/30/19 at 10:59 am to LSUFanHouston
What US carrier sells term to age 100 that's not a GUL? Thanks.
Posted on 10/30/19 at 11:06 am to BestBanker
Off the top of my head, I've seen them from Shelter
Posted on 10/30/19 at 11:10 am to buckeye_vol
quote:
How is that a benefit when you can withdraw from any number of tax-deferred or tax-free (upon withdrawal) investments that can be withdrawn even earlier
Agreed but the benefit is compared to term life policies, which only provide a payout at death.
quote:
This doesn’t make sense to me. Nothing is guaranteed, especially something that is presented as an investment intended to provide gains. So to me, the only way it makes sense to guarantee someone a return on their investment, is to make them pay some sort of premium or expense for that opportunity.
I think that's why they cap the earned interest at 10%. They make money on anything above that. So yes you are paying a premium but for the benefit of less risk.
I don't think UL is a great or superior vehicle for investing, but when compared to having a term life policy I can see the benefits.
Posted on 10/30/19 at 11:22 am to LSUFanHouston
quote:
Off the top of my head, I've seen them from Shelter
Nada. They sell GUL, not term to 100. If you come up with some carrier, let us know! Thanks.
Posted on 10/30/19 at 11:42 am to BestBanker
quote:
Nada. They sell GUL, not term to 100. If you come up with some carrier, let us know! Thanks.
Has this changed, recently?
Because I saw a Term to 100 policy, but it was a few years old. Maybe 10 years old. I was surprised when I saw it.
What's the oldest you've seen for term?
Posted on 10/30/19 at 11:53 am to GoldenSombrero
quote:That's not a very fair or valid comparison.
Agreed but the benefit is compared to term life policies, which only provide a payout at death.
If Universal Life is supposed to be both "life insurance AND an investment vehicle," then you can't compare it to something that is only supposed to be life insurance and ignore the investment vehicle component, specifically based on available funds to invest with using the difference in cost of the combined product and the cost of the sole product.
quote:Maybe, but I'm pretty sure there are usually substantial management costs regardless of the gains for any particular point in time. There is just too many risks to limit the costs only to gains above 10%. That's not only fundamentally the opposite of a guarantee for those managing the investments (non-guaranteed revenue to stay in businesses and/or cover the guarantee, incentives riskier investments to get > 10% return, etc.), the idea that they can then guarantee something on top of that is just nonsense.
I think that's why they cap the earned interest at 10%. They make money on anything above that.
quote:As I stated above, the costs and benefits of the dual product need to be compared to the costs and benefits to their alternative single products in combination.
I don't think UL is a great or superior vehicle for investing, but when compared to having a term life policy I can see the benefits
Posted on 10/30/19 at 12:26 pm to BestBanker
This is also incorrect. It's actually backwards planning.
So are you arguing that permanent life insurance is a better return then term plus tax-qualified investment vehicles?
quote:
Protect assets then invest because of risk of loss. Risking money first and then creating asset protection is opposite to wise planning. You do everything in life to protect yourself and shield yourself from loss, injury, etc, but then are sold on the notion that investing money is most important in the hierarchy of the financial planning process. Flip it. Protect first against the given (death) then invest for growth. Permanent life insurance is an income tax free asset.
So are you arguing that permanent life insurance is a better return then term plus tax-qualified investment vehicles?
Posted on 10/30/19 at 2:50 pm to LSUFanHouston
quote:
, term to 100.
This doesn’t work like you think.
Page 1 of 2
Popular
Back to top
Follow TigerDroppings for LSU Football News