Indexed Universal Life Insurance FAQs

This is absolutely true. Insurance is not the same as investing in a stock or mutual fund. Cash value insurance, such as IUL, is an asset that is wholly owned by the individual. Therefore insurance should not be considered an investment but rather the acquisition of an asset that will have guaranteed growth over a specific period of time. IUL cash value is an asset that grows at a significantly higher rate than any money market fund or CD. IUL, therefore, should be considered more of a real estate investment in an area where property value is protected from any loss. Ultimately an IUL performs like a high yielding savings account for the owner.

The short answer is yes. IUL insurance costs are considerably higher than term insurance. The comparison, however, should not be made between the cost of term insurance and the cost of maintaining the IUL death benefit. The comparison should be made between the cost of the insurance component of the IUL versus the myriad of taxes and fees that traditional stock market investments will include. Insurance costs on an IUL policy are absolutely considerable, especially in the first few years that one holds the policy. The IUL is being used for long term gains, and over time the insurance costs associated with an IUL policy will be far less than fees charged by advisors or loads required by some mutual funds. In addition the growth and access to the cash value of an IUL is completely tax free. The savings on taxes alone completely neutralizes the fees required for the benefit of the policy.

Yes it is true that the elements used in the illustration must remain true for the duration of the policy. If an individual is unsure of whether or not they will be able to fund the policy in a manner that was used in the illustration then IUL may not be the best alternative for them. Using IUL as a key retirement income strategy requires discipline, and if the individual is not prepared to leverage the appropriate amount of long term savings discipline required by IUL another option should be considered.

Here is the short answer: Critical illnesses cause financial devastation to millions of individuals and families (even those with health insurance). A product was created that would provide cash at a time it was needed most.

For those who want a lot more information. Consider the following: Medical problems contributed to over 60 percent of all bankruptcies in the United States and a 2008 Harvard University study found that more than three-quarters (77.9 percent) had health insurance at the start of the bankrupting illness. This study was performed prior to the current economic downturn and will likely understate the current burden of financial suffering.

Critical illnesses are striking more Americans every single year. Some 1.4 million Americans are diagnosed with cancer (American Cancer Society). An estimated 785,000 Americans will have a first heart attack and some 600,000 Americans will experience their first stroke (American Heart Association). The vast majority will survive.

The financial consequences of surviving a critical illness are something few people are prepared for. Most health insurance policies come with deductibles and co-pays that can be as much as $5,000 a year. Prescriptions are not just costly, they are rarely fully covered.

And, here is something you likely have not considered; while you are undergoing treatment or recovering for an extended period of time, you will still have to pay your health insurance premiums. You’ll pay insurance, rent or mortgage, credit card bills, school tuition, real estate taxes, food and utilities.

According to the Harvard study, many families with health insurance found themselves under-insured and responsible for thousands of dollars in out-of-pocket costs. The average out-of-pocket cost was $17,749 for all medically bankrupt families. Because most health insurance is linked to employment, a medical event can trigger loss of coverage. For patients who initially had private coverage but lost it, the family’s out-of-pocket expenses averaged $22,568.

In the late 1990s, a new financial product was developed to help consumers cover expenses associated with critical illness. Appropriately, it’s called Critical Illness Insurance. This specialized insurance provides a lump-sum, tax-free payment should a policyholder suffer from certain specific critical conditions.

Some 600,000 Americans now have this protection purchased on an individual basis or through a plan offered by their employer.

Yes you can absolutely have periods of superior performance investing your money in the stock market. But it is critical to understand that we do not offer IUL as a complete stock market alternative, we offer it as an alternative for safe investments. We do compare IUL performance to stock market performance because IUL historically performs within 1% to 1.5% of the market, and we typically use a 7.5% illustration rate for the IUL policies that we issue. The appropriate evaluation of IUL is not against stock market investments but rather today’s current safe investments such as CDs, Money Market Funds, Municipal Bonds, US Savings bonds etc.

This is absolutely true. Insurance is not the same as investing in a stock or mutual fund. Cash value insurance, such as IUL, is an asset that is wholly owned by the individual. Therefore insurance should not be considered an investment but rather the acquisition of an asset that will have guaranteed growth over a specific period of time. IUL cash value is an asset that grows at a significantly higher rate than any money market fund or CD. IUL, therefore, should be considered more of a real estate investment in an area where property value is protected from any loss. Ultimately an IUL performs like a high yielding savings account for the owner.

Yes it is true that the insurance company can change terms of the contract including the cap and floor rate, or the participation rate. It is important to understand how the insurance company sets policy caps and the economic factors that would have to exist for any change in policy cap to be enacted. One key element of IUL mechanics is interest rates. Lower rates typically yield lower policy caps and higher rates typically yield higher policy caps. This is not to suggest that if interest rates begin to increase that policy caps will immediately increase, but to underscore the fact that even with today’s low interest rates most insurance carriers are offering competitive policy caps between 12% and 15%.

Two additional factors should be considered. The first is that insurance companies must operate in a competitive marketplace. While they retain the right to decrease caps or floors they must do so in the context of the overall marketplace. This competitive pressure demands that any movement in policy terms be cautiously considered and conservatively enacted. Large swings in policy terms that negatively affect the policy owners are extraordinarily rare.

Lastly it is important that policy changes also protect the owner. If rising interest rates do allow the carrier to raise caps they do so in order to allow policyholders to benefit from more favorable economic conditions.

It is true that dividends do not get credited to the IUL cash value. This is also true of any safe investment alternative suggested by most financial advisors. CDs, bonds, etc. do not offer a dividend payment. It is important to remember that IUL is used in the retirement income plan that we develop as a safe money alternative. It does not deliver a dividend, but is an asset that will deliver rates of return that have historically performed within 1% to 1.5% of major market indices.