The most commonly asked questions and their answers.
There are many reasons why people don't do this. Not all of them are good reasons and others are valid.
"Bad Reasons" Not to do an IUL
1. Retirement planning is hard work and can be complicated and intimidating. It's easier to just stick with a 401(k) or IRA because “everyone” is doing the same thing.
2. Advisers recommend alternative strategies or plans because they make more money when they put you into something different.
3. Fear of the unknown or unfamiliar.
4. Hesitancy to give up the tax deduction received when you contribute to your 401(k) or IRA.
5. Enticed by employer match.
Valid Reasons Not to do an IUL
1. Ineligible because of health issues
2. Lack of ability to build up the cash value needed to achieve the best possible rate of return.
There are many different kinds of annuities, the best are something called a hybrid annuity. This annuity offers an option to earn all or part of the gain of the market without the risk of being in the market.
So to answer this question, I took one of the top selling indexed or “hybrid” annuities in the country and ran an illustration for a typical 55 year old inventing $100,000 into that annuity and holding it for 10 years before starting withdraws. Then I took the same company (which also has one of the best IUL’s in the country), used the same index and used the same 55 year old and the same assumptions. After 10 years I compared the projected income from both – The IUL produced almost 100% more income then the annuity.
Life insurance companies are what is known as a legal reserve company. That means they must have at least a 1:1 reserve ratio, meaning for every dollar of liability they have they must have a dollar of assets. The ones I prefer have much more.
Now compare that to your local bank which is only required to have 10% in reserve. Meaning for every dollar you put in the bank they can loan out 10! Let’s also compare the reserves required of insurance companies to those required of your favorite broker. They are only required to have 2% in reserves! That is why you saw banks and brokerages go broke or get bailed out by the government in 2008 but not a single insurance company went broke.
Not true, quite the opposite is true.
One of the things I love about an IUL is that I can see (and disclose) 100% of all fees and expenses within an IUL. That is not true of an annuity and it is not true of a whole life policy. One of the things I despise about how whole life sales are made is the emphasis agents and marketing puts on dividends.
I recently saw an agent explain how they were great because they outperform the interest rate on bonds. He was talking about the policy's "dividends."
In fact, that's not true at all. Consider U.S. Treasury Decision No. 1743, which states, in part “Dividends declared by participating companies (whole life companies) are not dividends in a commercial sense of the word, but are simply refunds to the policyholder of a portion of the overcharge collected. It was necessary, in order to secure new business, to convince the prospective policyholder of the desirability of the same, and that this commercial necessity had resulted in the companies making misrepresentations of the facts as to DIVIDENDS.”
You can work with your current insurance agent or financial adviser. Feel free to share the summary of my book with them to help explain what you want. Many of them have read my book. Please be sure to make certain they are knowledgeable and understand what you want.
Alternatively, you can get started by sending me an email with any questions you may have, schedule a 15-minute conversation or just picking up the phone and giving me a call. I'm happy to help!