An IUL Will Outperform The Stock Market? *Ahh NO IT WILL NOT*

 An IUL or Whole Life Insurance plan will not outperform the stock market!  

Life Insurance products, when structured properly can be an awesome tool to grow tax-free retirement income, but it’s not a replacement for stock market growth!  

The cash value building policy plan of choice for my clients is an IUL indexed universal life insurance product. 

There are those who use a whole life insurance policy however because of the loan mechanisms and the potential for higher gains in an IUL along with the over loan protection rider IULs end up being the product of choice for Max Funding a Life Insurance policy for maximum retirement income. That is why my recommendation is for an IUL as a supplement to an overall investment portfolio. 

A properly structured IUL will not outperform a growth stock portfolio, however it can and will outperform the bond portion of the portfolio. 

When looking at a 60/40 split 60% stock 40% bonds, generally I’ll use a properly structured IUL policy to replace the Bond portion of the portfolio. I view a properly structured whole life insurance policy as a good replacement for Bank CDs and money markets. However, because of the flexibility of the IULs, typically I just stick with using an IUL as my bond market and bank CD / money market replacement. 

Any advisor or insurance agent suggesting that an IUL is the only investment tool you should be using or that you should use an IUL or whole life policy to replace the stock portion of your portfolio probably has an agenda and don’t truly understand the way the math works out. 

An IUL historically has performed between the 5 3/4% to 7%, net of fees.. with the majority of the plans coming in at around 6.5% net of fees. 

My rule of thumb is this: when you are young you have time to recover from a stock market crash or a series of down years such as the 44% loss in 2002 the 44% to 54% loss in 2008 along with the 33% combined loss of 2021 and 2022, when you are young you have time to recover from these types of stock market losses therefore typically I recommend someone who is young to have an aggressive stock market portfolio plan while adding a safe money tool such as an IUL as a supplement to your plan overall plan. After you enter what’s known as the Retirement Redzone the amount of risk you take should start to decrease and that’s when Safe Money Alternatives begin to take the Forefront of your portfolio. 

You don’t want to wake up the day you turn 60 to find out that the market dropped 44% and that you lost 35 to 40% of your money, you don’t have enough time to recover from those kinds of losses. If approaching retirement, at retirement or in retirement…. suffering a stock market loss of this magnitude could prevent you from staying retired or result in you running out of money during retirement. 

 Think of Safe Money products as a fill in the Gap kind of strategy, to provide you with tax-free income that will not disappear due to a market decline.  An IUL is well positioned to go along with any other retirement income you’ve established. 

To recap, an IUL is a good supplement to your overall Investment Portfolio, it’s an awesome replacement for the bond portion of your portfolio. An IUL or any cash value building policy is not meant to replace the stock portion of your portfolio. 

You Should Only Take Money From The Basis In The Form Of A Withdrawal First?

Not true it should be taken as a loan.

Taking money out of a life insurance or annuity contract is almost like having an auto catch up provision in your portfolio in the sense that these products have unique features that allows you to take advantage of various IRS rules to increase your overall income withdrawals. 

When it comes to the longevity of your income it matters how you access your money. 

With regards to an IUL indexed universal life insurance policy you can remove all your money as a lump sum but this option will trigger a taxable event. 

You can withdraw the money. Withdrawals are generally treated as coming out of your policy basis first, this is your premium dollars coming out prior to interest earnings. You can also remove money by way of policy loans. 

My preferred method of accessing the cash in an equity index universal life insurance policy is by way of policy loans. 

Obviously, you don’t want to pull all the money out of the policy triggering a taxable event unless you’re faced with a dire emergency. 

Clients are often advised to withdraw the basis first in an attempt to recover all premiums paid, basically creating a Return of Premium scenario. This method is flawed and I’m assuming the original design of a Max Funded IUL isn’t just to have a return of premium styled plan.  The purpose of a Max Funded IUL is to create as much tax-free retirement income as possible. 

When you pull from the policy basis first you are depleting your overall account value faster just like withdrawing money from your traditional market-based accounts when you start withdrawing money from your market-based accounts you deplete your money at a faster rate than you would if you were pulling out the same amount of money from an equity index universal life insurance policy in the form of policy loans. 

Withdrawing money from the policy basis directly lowers the overall account value when you take money out in the form of a loan the money is paid out to you from a different account the loan money is not considered to be removed from the policy even though you’re being paid the money from the loan therefore the entire account balance to include the loaned money is still earning crediting interest 

Pulling money from the basis you will spend down on your money faster than spending down on the exact same amount money by way of a policy loan. 

For example: 

We have two buckets of money but with each bucket holding $1,000,000. For simple math let’s say each account is earning 10% 

 With each account we’ll spend or take out $100,000! 

So both accounts earned 10%, which left each account with $1,00,000. With the withdrawal account you remove $100,000. You now only have $900,000 that will be earning 10% 

With the loan account when you remove $100,000, because this money is a loan from the policy the entire account value will earn crediting interest.  

In this example the withdrawal account will earn 10% interest based on $900,000 while the loan account value will earn interest based on its entire account value of $1,000,000. 

The insurance company is loaning you the money from a separate account and then makes adjustments as necessary if the loaned money isn’t repaid, as a result, this allows you to spend down on monies inside of an IUL by way of a loan a lot slower than you would if you were simply withdrawing from the bases first and then switching to a loan. 

You could potentially cost yourself thousands of dollars potentially 200,000 plus over a 20-year retirement time frame and that is a 100K plus mistake you don’t want to make. 

Allow your money the best opportunity to continue working for you while providing you the maximum amount of income during retirement, always use income tax free policy loans. 

Loan Provision Options In A Whole Life Policy Doesn’t Compare  to an IUls Loan Provisions. 

The Indexed Universal Life (IUL) insurance policy is my preferred choice for growing tax-free income as compared to the Whole Life Insurance policy. However, for individuals who are extremely conservative, the Whole Life policy may be a more suitable option. 

Advocates of Whole Life policies emphasize the withdrawal differences between a traditional stock portfolio and a Whole Life policy. However, they fail to recognize the advantages of withdrawing money from an IUL policy, which provides greater flexibility as compared to a Whole Life policy. In essence, the loan features of a Whole Life policy are incomparable with those of an IUL policy. 

Every Whole Life insurance loan provision incurs an interest rate to withdraw money from the policy. In most cases, the charge to remove money from the policy is higher than the interest being credited to the loaned amount. Additionally, a Whole Life insurance policy does not offer different loan provisions to choose from. 

On the other hand, an IUL policy allows for withdrawing money from the policy, not only income tax-free but loan-free as well. This is a provision that a Whole Life insurance policy does not possess. It is evident that an IUL policy provides the most spendable income, especially when compared to a Whole Life policy that charges a fee to remove money. 

With an IUL policy you have 4 different loan options. Option 1 is a fixed rate loan, option 2 is a wash loan or zero percent loan, option 3 is a participating fixed loan & option 4 is a participating variable loan.   

Loan option 1 is like a whole life insurance policy loan. You are charged a fixed rate on the loaned money. In a whole life policy, you have a guaranteed interest rate of (let’s say 4%) the loan interest rate or charge is usually 7% fixed. The real interest charge in this example would be 3%. 7% charge minus the 4% guaranteed credit. Loan option one in an Index Universal Life Insurance Policy works the same way.   

Loan option 2 inside of an Index Universal Life Insurance Policy allows you to receive what’s referred to as a “Zero Percent Wash Loan.” Whole Life Insurance Policies don’t have a zero percent wash loan.  

When you receive loaned money from an IUL policy after year 10, the insurance company gives you a preferred loan (zero percent wash loan) loan option 2.   

The loan provision in an IUL switches from option 1 to option 2 after 10 years. With a zero percent loan or wash loan, the insurance company will charge the loaned money (let’s say 3%) while also crediting the loaned money the same amount… 3%. This results in a zero percent loan or wash loan.   

Loan option 3, a participating fixed loan, gives you the option of earning interest on the loaned money.  Most of the time the fixed loan rate is 5%, with the opportunity of earning 6.5% or higher it could reach 10% or higher but I’m more comfortable counting on a 6.5% rate of return on my loaned money! Many advocates of “Whole Life Insurance along with the Bank On Yourself Concepts” often talk about paying themselves interest instead of paying interest to the banks. 

 If you don’t have a loan provision which gives you the ability to earn a positive interest rate on your loan, an interest rate higher than what you are being charged to use the money, well, it’s impossible for you to pay yourself interest. It’s correct you are not paying interest to the bank; however, you are paying interest to the insurance company. Lol 

A whole life policy doesn’t offer you a participating loan of any kind and whole life insurance policies don’t even offer you a zero percent wash loan. As such, the claim of paying yourself interest instead of the banks is absolutely false. 

An IUL with a participating fixed loan is the only product that can make such a claim!  

The 4^th loan option is the participating variable loan. An option I don’t recommend. With the participating fixed loan (the 3^rd option) only the crediting interest rate varies, with the participating variable loan both the crediting interest rate and the fee interest rate will fluctuate. This option requires a much higher risk tolerance, a risk I’m not willing to take. 

With an IUL, many companies give you the option of switching loan options each year. A few companies will only allow you to switch loan options 3 times over the term of a loan with even fewer companies not allowing you to switch at all. I typically recommend using IUL companies that allow you to switch at the end of each year. If the market is booming you can switch to the Participating Fixed Loan option, if the market is headed towards some down years, simply switch to the zero percent wash loan.  

Hopefully you understand why loaned money from an IUL policy has a much better longevity outcome than a whole life insurance policy. It’s easy math! If you have $1,000,000 in a whole life insurance policy and $1,000,000 in an Index Universal Life insurance policy. The money in the account with no loan fees will last longer than the account with a 3% fee! 

If you take a loan of $100,000 each year for 10 years at 3% that’s a fee of $3,000 each year for 10 years a total of $30,000 (With this example I’m not accounting for the simple interest calculation which would make the ongoing fee higher)  

With the IUL account you don’t have to pay this $30,000 fee! Over time you’ll draw down money faster with a whole life insurance policy verse an IUL policy as a result of having free loans! 

In conclusion, between a properly structured Whole Life insurance policy and a properly structured IUL policy, my preferred method is to opt for an IUL policy with much more potential gain and much more favorable loan options.  

Compare the expenses of removing money from an IUL during the first 10 years or 20 years with removing money from a traditional stock portfolio prior to age 59 and a half  

Removing money from an IUL – Index Universal Life Insurance Policy, whole life insurance policy or any cash value building policy during the first 10 years can be quite expensive. 

HOW SOON WILL YOU NEED TO ACCESS YOUR MONEY. This question should be answered before recommending an IUL or any cash value life insurance policy. Building tax-free income inside of an IUL or whole life insurance policy should be viewed as a long-term commitment.   

A growth period of 20 years or longer is typically recommended, obviously there are exceptions to this rule. Life insurance policies are front loaded with a huge chunk of the fees paid during the first 10 years. The way you access your money also plays into the overall cost of the plan. The primary way to access monies inside of a life insurance policy is by way of a loan. With an IUL policy you have 4 different loan options. Option 1 is a fixed rate loan, option 2 is a wash loan or zero percent loan, option 3 is a participating fixed loan & option 4 is a participating variable loan.  

Loan option 1 is like a whole life insurance policy loan. You are charged a fixed rate on the loaned money. In a whole life policy, you have a guaranteed interest rate of (let’s say 4%) the loan interest rate or charge is usually 7% fixed. The real interest charge in this example would be 3%. 7% charge minus the 4% guaranteed credit. Loan option one in an Index Universal Life Insurance Policy works the same way.  

Loan option 2 inside of an Index Universal Life Insurance Policy allows you to receive what’s referred to as a “Zero Percent Wash Loan.” Whole Life Insurance Policies don’t have a zero percent wash loan. 

When you receive loaned money from an IUL policy after year 10, the insurance company gives you a preferred loan (zero percent wash loan) loan option 2.  

The loan provision in an IUL switches from option 1 to option 2 after 10 years. With a zero percent loan or wash loan, the insurance company will charge the loaned money (let’s say 3%) while also crediting the loaned money the same amount… 3%. This results in a zero percent loan or wash loan.  

With a huge chunk of fees dropping off by year 10 along with surrender charges vanishing to include receiving a preferred loan or zero percent wash loan, it makes absolute since to wait at least 10 years before accessing money inside of an IUL policy.  

My strategy for any kind of investing is for long-term purposes the same truth is valid if you have money in a 401k or any other kind of traditional investment accounts the only difference is you might have to wait 10 20 30 or 40 years if you don’t want to incur an extra penalty for removing the money prior to age 59 ½.  If you start investing in a 401k account at the age of 20 and 35 years later, you decide you want to remove money from your account you’ll be penalized not only with the income tax that you’re going to pay you’ll also be assessed an additional 10% penalty because you’re not 59 and a half yet. 

In fact, this penalty exists to help discourage you from using this pool of money without it being a dire emergency to help encourage continued retirement savings for your “Uncle Sam”… I’m sorry, I meant to say…. to help encourage your continued retirement savings.  

In both a cash value building policy and traditional investment accounts you will be penalized and pay high fees for accessing your money early. 

I include this article because I heard a financial Guru say that one of the reasons why you don’t want to purchase a cash value building policy is because if you access the money after you’ve had it for 4 or 5 years it’s going to be very expensive to do so I was waiting for this financial Guru to also say the same when accessing money and a traditional investment account but they failed to mention that part that’s why I decided to do this article because it does not matter if you access the money from a cash value building policy or a traditional investment account both accounts are going to charge you a boatload of money, technically when you access money from a cash value building policy during the first 10 years you will pay fees however you will not pay income taxes, but when you access money from a typical investment account not only will you incur a 10% penalty fee but you will also pay income taxes and if you were receiving an employer match from an account such as a 401k and you were not vested you will also lose your vesting money as well. If you move money from a traditional investment account early, it’s going to cost you a boatload of money, and if you move money from a cash value life insurance policy, it’s going to cost you a boatload of money.  

When considering max funding an IUL – Index Universal Life Insurance Policy, a long-term commitment will help ensure income-tax free cash value growth success.  

How the loan fees are charged in an IUL  either in advance or in arrears 

I only recommend indexed universal life insurance policies that charge the interest in the arrears. 

Without this feature you will not have a true no cost zero percent wash loan, if the interest is not charged in the arrears, you will still pay a small admin fee to pull out the money. 

When you remove money from an IUL in the form of a loan, the insurance company will charge the loan account interest in advance or on the back end. 

The scenario is this (assuming you qualify for the zero percent wash loan): you will be charged 3% for the loan, however the insurance company will credit you 3% on the same loaned money which makes this a 0% wash loan. The 3% credit will wash away the 3% charge, however if the interest is charged in advance, you will pay an additional 40 basis point administration fee. 

I get it… 40 basis points is only 4/10 of a percent not even a half percent, but it’s still a charge you don’t have to pay if structured properly.  

The goal of a Max Funded IUL is to squeeze out as many of the fees as possible which allows you to receive better results. Most agents and advisors who sell cash value building policies are not aware of this minor glitch, and you are now empowered with information that 99% of the financial sector who offers these products simply don’t know or understand. 

Not sure if the plan you have charges you in advance or in arrears, more than likely you’re not aware of it because your agent or advisor doesn’t know about it. When going over the pros and cons of the different IULs, the loan features are high on my checklist.   

The loan feature will literally determine how long your money will last during retirement, so it’s important to get this step right! 

Please feel free to reach out to my office [email protected] 

Bank on yourself infinite banking your personal bank these are all awesome sounding strategies however I’m not the biggest fan of them. 

I will be honest full disclaimer when these Concepts first caught my attention I was highly interested until I broke open the calculator and that’s when my interest changed. 

The idea behind these Concepts is to use a whole life insurance product that has a guaranteed interest rate you overfunded policy for five six seven years and then you withdraw money to make large purchases for cars and things of that nature and then you quickly paid a loan back you keep repeating this process for every large purchase you want to make. 

The idea is that instead of paying the bank’s interest you are paying yourself interest, that’s why they call it Bank on yourself. 

The only problem with this or shall I say one of the problems with this is that you’re not paying yourself interest when you pay it back, you’re paying the interest to the insurance company. 

The typical scenario is well earning a guaranteed 4% return on your whole life insurance policy when you loan the money out you will then be charged a 7% interest rate to do so 7 – 4 is 3 how can you be paying yourself back interest if you are paying 3% interest to the insurance company the only way you would truly be paying yourself back interest is if your account is being credited of 4% guarantee while the interest to loan the money is only 3%. That leaves a 1% Arbitrage in that scenario you kids sort of say you’re earning or pain yourself interest or your earning money on your loaned money. 

You are not banking on yourself with the strategy, you are simply banking with the insurance company. 

There is only one product that would allow you to earn interest on your loan money and that is to use an indexed universal life insurance policy with a participating fixed loan that is the only scenario using a cash value building life insurance policy to where it would be safe to say you’re earning money on your loaned money. Yes and IUL does have a participating variable loan but that involves Morris than what most people would like to take when it comes to loaning money from your policy that is why I mentioned the participating fixed loan because the interest rate you are charged is guaranteed but it’s a participating Loan in the sense that you could earn more on that money than what you’re actually being charged with the market is up. 

The loan functionality of a whole life insurance policy is one of the reasons why I’m not a big fan of the infinite banking Bank on yourself strategies the other reason is pretty simple if you’ve been reading any of the previous articles in this segment I talk about how life insurance policies are front loaded the majority of the fees will be assessed during the first 10 to 15 years of the life of the policy using the bank on yourself strategy requires you or the idea is that you can overfund it over five to seven years and then take some amount of money out to purchase an item and then try to quickly pay it back.. with the scenarios you are removing money from an account that is front loaded and removing money during the time when the fees are the highest that is why my primary use for cash value building life insurance policies more specifically and iul index universal life insurance policy is to use it as a supplement to your retirement income allowing the policy 20 years or more to grow which is the same thing you would do with a typical stock based investment you don’t dump a bunch of money into a stock based investment with the idea of taking the money out in two three or four or five years and therefore incurring a bunch of fees and penalties more specifically the 10% penalty you would receive for removing money prior to age 59 and a half you put money in an investment account with the idea of a long-term strategy that’s the same thing or the same approach you should use when it comes to placing money in an indexed universal life insurance policy or any cash value building policy I am a fan of long-term strategies not short term secondly the more money you have sitting in a pot the more interest you are going to earn so if you are always pulling money out of the policy in short intervals theoretically you are reducing your overall achievable games by just letting it sit and not touching it for a minimum amount of time and again my minimum amount of time is 20 years. 

The next thing I would like to point out is this if you have a guaranteed interest rate of 4% and a loan rate of 7%, this leaves a 3% charge to the money you are loaning out if you have good to great credit you can simply go to a credit union or to or use unlock financing and secure a rate under 3%, so this begs the question as to why you would pull money out of your life insurance policy to pay 3% interest rate to do so when you can get a lower interest rate from your bank or auto loan company l. 

The client who can afford to dump hundreds or thousands of dollars per month into a cash value building life insurance policy more than likely has good to great credit and can obtain zero percent financing at just about any dealership.  

Don’t get me wrong, I like making money while using other people’s money. That’s what the banks do and that’s why they’re filthy rich, at least the majority of them.. 

I like using other people’s money to make money when there is positive Arbitrage. 

It’s certainly not a positive cash flow scenario when you are being charged to use money when you could pick the option of not being charged to use the same money. 

The same goes for using this concept to get out of that and become debt free if you have that kind of positive cash flow to dump that kind of money into a cash value building policy a you could just simply use that money to pay those debts off B more than likely you could get another loan with the lower interest rate than what the whole life insurance policy will charge you so again it sounds.  

It looks good but does it really taste good, is it going to be one of those dishes that looks and smells good but leaves a bad taste in your mouth after you actually eat it. I’m a huge proponent of using cash value life insurance policies more specifically index universal life insurance policies as a way to bro tax free income for retirement while avoiding the risk of losing your money due to stock market decline implementing the strategy for the long-term 20 years at the minimum however, I am not a fan of Dipping into the cash values when the cost to do so is at its highest. 

Also, I’m not a fan of using my money to purchase an item while being charged a higher interest rate than what I would normally be charged if I used someone else’s money to do so that flat out doesn’t make sense to me. 

The other scary part to this concept is many agents and advisors are jumping on this bandwagon and none of them understand any of the concepts I’ve went over in the series of newsletters therefore they don’t understand how to truly properly stretcher a cash value building life insurance policy they don’t understand why you should use the different indexes they don’t understand the different crediting strategies they don’t understand the sweep strategies they don’t understand the loan functionality strategies and all of these things together and more than likely you’re left with a ticking time bomb. 

If you have a bank on yourself whole life insurance policy and infinite banking whole life insurance policy a be your own Banker whole life insurance policy please feel free to reach out to my office for a second look review no cost [email protected] 

Another attractive feature of an indexed universal life insurance policy is the point-to-point annual reset.

The annual point-to-point in essence allows you to lock in the current year’s gain while preventing your account value from going backwards regardless of how the market performs.

If you’ve ever been on a roller coaster, then you will understand how the annual point to point works in a life insurance product.

As you are ascending the roller coaster tracks there’s a very loud clicking noise, this mechanical clicking noise is the coaster locking you into place preventing you from going backwards. If there was ever a malfunction with the coaster you would be automatically locked into place with the very last click…. you can only go forward.

The annual point to point with an index universal life insurance policy works the same way, each year your account has a gain, there’s a clicking noise automatically locking your gains into place preventing your account values from going backwards.

This autopilot functionality Works 24 hours a day even while you’re sleeping.

 An index universal life insurance policy doesn’t directly invest in the market. The interest is credited to the account by the insurance company linked to the gains of an index without directly investing in the market….  This allows you to enjoy the upward movement of the account without ever have having to worry about a decrease.

When the market is doing good you will see an increase in your account.  If the market drops by 44% like it did in 2002 and again in 2008 or like it dropped 33% between 21 and 2022….. You simply will not be credited with any gains; your credit will be zero. 

You will not lose 44% or 33% or even 1%, you will lose nothing if the market goes south, doesn’t matter if it’s down for 3 years or more you will not lose any money due to market decline.  When the market rebounds you’ll again start to receive a portion of the gains.  

The annual point to point is your best friend when the market is down, it’s a security blanket against financial loss.

No contribution limits no age limits on withdrawals no RMDs

A few awesome benefits of an index universal life insurance product is this: there are no contribution limits so you can contribute as much money as you want up to the original design of the policy and it will always be taxed advantaged.  No age limits you just have to qualify medically and there are no distribution limits, remove as little or as much as you like “No RMDs!”

These attributes make it very attractive for high Network earners, individuals who’ve already maxed out other sources.

Traditionally this is a very attractive tool for high-net-worth earners…. individuals who are not high net worth earners can take advantage of these benefits as well however I do have personal qualifications I place on my clients when it comes to recommending an IUL – index universal life insurance product for Max funded tax-free retirement income purposes.

Investing should be looked at as a long-term commitment. Investing in an indexed universal life insurance product is no different, it should be looked at as a long-term goal not short-term.

The goal of using an IUL for retirement purposes is not to worry about what the monthly premium is if you are not able to afford a regular monthly premium, you’re certainly not going to properly Max Fund an IUL.

If you are living paycheck to paycheck Max funding and IUL should not be on your radar now.

If you don’t already have at least 5 to 6 months of living expenses saved up sitting in your savings account, you might not be a good candidate for Max funding and IUL.

At the moment, you might not be a good candidate to Max Fund an IUL if your total expenses exceed 50% of your total take-home pay. I will say that most people have the ability through sacrifice to wipe out two and $300 worth of needless spending, but again do you have the discipline to make that sacrifice.

The ideal candidate should have at least $12,000 to $18,000 per year they can commit to for at least 7 to 10 years. 

If you don’t have 12,000 or $18,000 at the minimum, you can commit every year, but you are a highly disciplined individual we can devise a mini plan based upon an annual commitment of $5,000 and yes this 5000 can be broken down into monthly contributions.

I don’t want to put clients in a position of potentially losing money as a result of not being able to follow through with their commitment for this type of plan.

95% of all cash value building policies to include whole life insurance along with index universal life insurance 95% of policies designed for any kind of Max accumulation strategy will lapse within the first 19 months when money allocated to these accounts equal less than $5,000 a year.

Obviously, you don’t have to be a high-net-worth earner in order to take advantage of an indexed universal life Max funding strategy. However, you should be able to however you should have Financial stability in your household with an already existing rainy day emergency fund. 

Another key component I look at is this: are you taking advantage of your employer 401K match if not I insist on you take advantage of your employer’s 401K Match up to the maximum before embarking on an IUL Max funding Journey.

One of the issues I have with agents and advisors pushing the infinite banking your private bank on yourself strategies is that there’s very often there’s very seldom any kind of client suitability standards in place because many of these individuals are more about trying to make a quick commission as opposed to making sure you are an excellent fit for their strategies.

There’s no shortage of advisors and agents willing to take less than normal minimum standards to create a plan like this for you. I came across a client who said that they were Max funding a policy and they were only paying $75 per month.

I asked a client was it just for death benefit or were you trying to grow income to supplement your retirement.

The response was according to the agent they should be able to have a nice supplemental income to their retirement plan in 5 to 6 years these clients were in their very late 50s based upon their current financial profile certainly not ideal clients for a max-funded strategy.

If you think contributing $75 per month into any kind of plan for six and a half years is going to yield you a nice supplement to your retirement income, (well let me just leave it at that)

Recap

And I you will for the right client can be an awesome tool to grow income tax free retirement income there are no age requirements no minimum distributions no contribution limits and if structured properly no fees to access your money.

The Fees Are Too High For An IUL To Be An Adequate Cash Building Tool!

 

In this article I want to go over a comment made that said “fees inside of an IUL Index Universal Life Insurance policy or any cash value building policy to include whole life insurance, are too high so therefore it’s not a good source for building income. 

Hopefully this article will be an eye-opening moment for you as we dive into the fees of an IUL or cash value building policy. 

When I hear it an anti IUL or anti whole life Guru talk about the fees being high the first question I ask and the first question you should ask is this:  

The fees are high compared to what? 

This is the first question that you should ask, the second question is this: 

Are the fees high during the life of the policy compared to the life of a managed market investment account?  

For the record, I already know when the “Gurus” are talking about the fees being high in an IUL, they’re only looking at the first few years of a life insurance policy. They are assuming you have no idea life insurance policies are front loaded while overlooking an essential part of the argument in that most of the fees paid on a brokerage account is paid on the back end.  

They fail to mention many of the fees drop off after a certain amount of time…  maybe they just don’t know and if they don’t know that brings into question their Guru status. They fail to mention that although the per unit cost of insurance increases as you get older, the overall cost of insurance decreases drastically. The fees over the life of a properly structured IUL can be as low as 1% or less.  

Either these gurus don’t understand how these policies work or they are purposely misleading you to keep you paying their investment and money management fees. 

Typically, an example given to prove the fees are high in an IUL policy is done using a contract that is not structured properly using a high death benefit.  

The goal of using an IUL or any cash value building policy for maximum cash accumulation is not to see how large of a death benefit you can purchase for a given amount of dollars, it’s the exact opposite. The goal is to purchase the least amount of death benefit while contributing the maximum amount allowed under IRS regulations. 

For example, I reviewed a poorly structured policy with a $1 million death benefit and the premium was $2,000 per month.  

After reviewing the client’s age and health conditions, although the plan is being overfunded, it was still structured improperly. 

A Max Funded IUL must resemble a spigot, squeezing out every drop of Life Insurance you can. 

With this approach it lowers the fees per dollar spent as a result of lowering the overall death benefit.  

If a policy isn’t structured properly, you will not be able to change or correct the issues later so it’s imperative that you’re dealing with an agent or advisor who knows how to properly structure these plans. 

I created a new plan using the same $2,000 monthly payment, dropping the death benefit to $421,000 while eliminating more than half of the fees associated with the original plan. 

Using the least amount of death benefit is the first step in properly structuring an IUL for maximum cash value accumulation, get this part wrong and the plan will not produce the results as advertised by your agent or advisor. 

As a side note I offer an IUL and whole life insurance rescue plan. I will review your plan free of charge giving you the Peace of Mind of knowing your plan is set up correctly. 

Now let’s look at some hypothetical numbers. 

This example calls for $100,000 Max Funded into a properly structured IUL policy. 

The fees for this policy over the first 30 years would equal $86,549. 

I will admit $87,000 is a lot of money to pay in fees but the real question is this:  if the fees are considered high, what are we comparing the $87,000 in fees with? 

To avoid this policy turning into a Mec-modified endowment contract the $100,000 was dumped into this policy over a 7-year period. 

FYI when you look at the illustration it will detail the fees you pay in the policy. 

Next, we’re going to look at what you might pay in a managed brokerage account assuming the same $100,000 over a 30-year window. 

The Famous Financial gurus recommended advisors charge an average fee of 1.5%, so we’re going to look at $100,000 with a 1.5% fee charged over 30 years. 

In the first year with the managed brokerage account, 1.5% charged on a lump sum of $100,000 equals $1,500. 

Using my example of spreading $100,000 over 7 years in the properly structured IUL the first-year fees equal around $11,859 

If you only look at the first year of both accounts’ hands down the fees in the managed brokerage account are considerably less. The fees in the first 3 years of this IUL will top $25,000+ 

But keep in mind, I mentioned earlier that life insurance policies are front loaded to pay for the cost of insurance. 

The fees in the first year is much higher in the life insurance policy as compared to the brokerage account, however if you died prematurely your beneficiaries would receive a $302,725.00 income tax free death benefit or if you developed a chronic Illness, you would receive a tax-free lump sum payout of $250,000. Also, the death benefit by age 75 would increase to $674,465 These benefits are active the very same day the coverage is started….. with the brokerage account after the first year and assuming a 10% growth you would 108,350 before taxes. 

Someone might be thinking that a 10% gain on $100,000 is actually $110,000 you are correct however in a managed brokerage account the fee is charged on the front end not the back end which means the 1.5% fee is charged before you even invest the money in the market, this leaves you with $98,500 to be invested in the market and 10% of 98,500 is $108,350. 

Now for the numbers. 

If you invested $100,000 in a managed brokerage account with a 1.5% fee over 30 years assuming a10% return.  

The fees would total. 

$589,115.07  

The ending value (net with fees) is $1,155,825.16. 

Ending Value (Gross) $1,744,940.23 

Cost of fees %589,115.07 

I know someone right now is thinking, “But I only pay 1.25%. 

At 1.25% the numbers are: 

The ending value (net with fees) is $1,238,448.55. 

Ending Value (Gross) $1,744,940.23 

Cost of fees %506,491.68 

There’s another person saying they only pay 1% 

At 1% the numbers are: 

The ending value (net with fees) is $1,326,767.85. 

Ending Value (Gross) $1,744,940.23 

Cost of fees $418,172.38 

When these Financial gurus are bragging about how the fees are so high in an IUL and the first thing they say is if you invest $100,000 with us, we’re only going to charge you 1.5%, they fail to mention the 1.5% will be compounding over 30 years for a total of almost $600,000 

Now I think it would be silly for me to ask which sum of money you would rather pay almost $600,000 over 30 years or almost $90,000 over 30 years. 

When an Investment advisor / financial advisor /money manager/ Entertainer, says the fees in an IUL or cash value life insurance policy are really high…you should follow that statement with: ( the fees are high compared to what) 

Even if we only use the 1% money management fee, you’re still paying $419,000 over a 30-year period. 

The answer is yes when asked if the fees in an IUL policy are high but the real question to ask is…. compared to what? 

In closing I want to look at potential Commissions an insurance agent might earn for selling a policy with premiums of $100,000 spread over 7 years. 

I wasn’t going to include this section but at the last minute I decided why not let’s go ahead and talk about it. 

One of the reasons why according to various financial gurus that an insurance agent is trying to sell you a whole life insurance policy or an IUL policy is because they’re going to make big fat commissions by doing so. 

And of course, you might have already guessed it, just like they misguide you on the fees of an IUL compared to what the money managed accounts they recommend charge over the life of the two different accounts… these same gurus certainly misguide you on the money an insurance agent will make for selling a Max funded policy versus the money they will earn for managing your money.  

Hint, I’ve already displayed what they’re going to earn over 30 years but let’s look at it again and do a comparison. 

Let’s first look at what an insurance agent might potentially earn and to do so I ran an illustration showing $100,000 placed into an IUL over 7 years the same example I’ve used in this article. 

With a Max funded IUL policy insurance agents and advisors will earn $99.5% of their money off of the Target Premium and half percent of their money will come from the excess premiums paid. 

Let’s just assume the agent or advisor is on a 100% contract level. 

The commission for excess premiums is more than likely 1%. However, in this example I’m going to use 3% as the excess premium commissions earned. 

This means as you can see in this example the agent would earn $3,747.74 upfront which is 100% of the first-year premium. 

Along with 3% of the excess premium which equals 316.16 for a total of $4,063.91. 

The typical payout for future income for this policy is typically 3% of the target monthly premium plus an additional half percent of the excess monthly premium. 

The monthly premium for this plan for 7 years is $312.31 the commission for this monthly Target Premium would be $9.36 monthly for as long as the premiums are paid and in this example the premiums will be paid for 7 years if you were to divide out the annual excess premiums by 12 months that would make the monthly premium $878.16 a half percent of that number is $43.90 for a grand total of $53.27 monthly for 6 years  $3,835.30. 

Add the additional 6-year payout to the first-year commissions for a total of $7,899.21. 

I’m sorry for asking you another silly question, however I feel the need to do so. 

Would you rather earn $7,899.21 over a 30-year period or would you rather receive as a payout of 589,115.07 over 30 years and at the minimum $418,172.38. 

Who knew that a 1% fee charge could generate so much money in commissions or fees. 

The moral of this story is when you hear someone talking about the high fees that are charged in an IUL or whole life insurance policy the next question you should ask is compared to what? When you hear a financial advisor talking about the fat commissions that an insurance agent or advisor is going to earn as a result of selling you a whole life or index universal life policy the next question you should ask is, compared to what? 

Before I end this segment, I would like to compare the commissions using the same 100k deposit spread over 7 years only instead of using a Max funded strategy we’ll simply use a target premium. 

This example will show you the commission a huge difference using the same amount of money. The max funded example I used above is the correct path towards a properly structured IUL, the following example is what you want to avoid if the goal is for maximum cash value.  

In my previous example $100,000 spread over 7 years purchased only $302,775 of life insurance coverage. If the goal was to purchase as much life insurance as possible $100,000 spread over 7 years at the target premium would provide you with $1,663,132 of life insurance death benefit.  

The first goal of properly structuring a Max funded IUL is to eliminate as much life insurance as possible while contributing the maximum amount of cash into the policy.  

In my max funded example I was able to get rid of $1,360,407. In my example instead of paying the cost of insurance on 1.6 million dollars I’m now only paying the cost of insurance on $300k.  

You certainly don’t have to be a math genius to figure out, this one simple adjustment will save you thousands of dollars over the life of the policy along with allowing more of your money to work on your behalf.  

99.9999% of the time when a critic is illustrating why using an IUL or cash value policy for isn’t a good idea, typically they are using an example that matches the use a target premium designed plan or they’ll present an example of a slightly overfunded policy and not a correctly structed max funded policy. 

Let’s look at the commission difference between the max funded policy and the target premium example:  

$14,285.71 Is the annual premium for 7 years to equal 100k. I’ll use the same commission percentage as above.  

The first-year commissions on this plan assuming a 100% first year contract is $14,285.71 Assuming the same 3% monthly premium payout, add an additional $2,571.42 for a total 7-year payout of: $16,857.14. 

Compare earning $16,857.14 vs only earning $7,899.21. An agent or advisor selling a max funded policy with a target premium will earn more than double.   

It’s important to note: Earning almost double in this scenario is still no comparison with the amount of money you’ll pay using a 1% -1.5% ($400k – $580k)   

I’m simply using this example to illustrate the Agent payout differences compared with how much money management fees will cost you. 

When using a Max funded IUL strategy, it’s imperative the policy is structured properly from day one.  Once the policy is active and you realize it wasn’t set up correctly, you could always call the insurance company and have them reduce the life insurance death benefit amount, however doing so will not reduce the overall fees. The only option you really have is to create a new plan with an Advisor who understands how to correctly structure a policy for Max Funded Purposes.  

If you have any questions, contact my office at: [email protected] 

I’m sorry for asking you another silly question, however I feel the need to do so. 

Would you rather earn $7,899.21 over a 30-year period or would you rather receive as a payout of 589,115.07 over 30 years and at the minimum $418,172.38. 

Who knew that a 1% fee charge could generate so much money in commissions or fees. 

The moral of this story is when you hear someone talking about the high fees that are charged in an IUL or whole life insurance policy the next question you should ask is compared to what? When you hear a financial advisor talking about the fat commissions that an insurance agent or advisor is going to earn as a result of selling you a whole life or index universal life policy the next question you should ask is, compared to what? 

Cash value life insurance policies provide asset protection against creditor claims. When a creditor obtains a judgment or a debtor files bankruptcy, the debtor’s assets can be seized and liquidated to satisfy debts. However, each state has exemption laws that identify specific asset categories that are immune or partially immune from attachment. The cash value and death benefits of life insurance policies are exempt in whole or in part in almost every state.

Exemption laws vary by state, with some states offering complete exemptions for life insurance, and others capping exemption amounts. Most states have one or more conditions for taking advantage of life insurance asset protection, such as requiring the beneficiary to be a third party. Exclusions to exemptions exist, such as when life insurance is purchased to defraud creditors or when the claim asserted against the policyowner is a domestic support obligation.

In bankruptcy cases, exempt assets like cash value life insurance are held outside of the bankruptcy estate and therefore not subject to attachment. The exemptions applicable to bankruptcy are usually the same as creditor exemptions, with federal exemptions allowing for an exemption of up to $15,000 for whole life and universal life cash value.

Most states exempt life insurance policy proceeds, with some requiring that proceeds be payable to a third-party beneficiary. Additional protections against creditors of both the insured and beneficiary can be gained through an irrevocable life insurance trust (ILIT).

There are substantial differences in the life insurance exemptions available throughout the fifty states, with Florida offering one of the most generous exemption schemes. New Hampshire and Washington do not provide some cash-value exemption for an insured policyowner but permit filers to apply federal exemption rules.

__________________________
North Carolina Rules:
NC
EXCEMPTION AMOUNT (CASH VALUE)
Unlimited

EXEMPTION CONDITIONS

Complete exemption if beneficiary is insured’s spouse and/or children. N.C. Gen. Stat. §58-58-95.

EXEMPTION SAME FOR BK & CREDITORS

Yes.

EXEMPTION OF DEATH BENEFITS
Lawful beneficiaries have right to proceeds as against creditors of policyowner / insured unless beneficiary is insured or insured’s estate. N.C. Gen. Stat. §§58-58-95, 58-58-115.

Need updated information on your state… Please send an email: [email protected]

As of 2023 49 million Americans are retired and only 7.5 million has some kind of long-term care plan in place.

With only 14% of retired Americans possessing some kind of long-term care coverage along with 10,000 people turning age 65 everyday, we could be in for a long-term care crisis.

A recent poll discovered many retirees are worried about Long Term Care Medical Cost wiping out their retirement nest egg.

The median retirement income for married couples over 65 was about $72,800 in 2020.

It’s important to understand the financial impact a few years of long-term care can have.

According to AARP.

Nursing Home Care: The average cost of a year’s care in a private Medicare-certified long-term nursing home room is $107,000.

Home Care: The average in-home care costs $50,918 a year for 40 hours of help per week.⁴

Assisted Living Care: A year in a 1-bedroom assisted living care facility averages $57,000 per year.

^{With the median retirement income for married couples at $73,000 it could be financially devasting just to pay for the least expense type of care, which is “Home Care” at an average of $51,000 each year.  The average long-term care need as of today (2023) is around 3 to 5 years.} 

^{For home care that’s an average of $153,000 – $255,000. For nursing home care, it could be dramatically more, $321,000 to $535,000.}

Typical Long Term Care Insurance simply doesn’t fit the needs of most retirees.

Most financial gurus advise their clients not to purchase LTC until age 60 or 65 but ask yourself this question. How many 60-65-year-olds “ARE NOT TAKING SOME KIND OF PRESCRIPTION DRUG” as a result of a preexisting condition?

The facts are clear, many Americans aged 60 and older have a preexisting condition. As a result, it makes obtaining coverage at a reasonable price very difficult, I’m assuming that’s part of the reason why only 7.5 million retirees have LTC while 41.5 million retirees go without coverage.

The next issue is this…. After considering several premium rate increases from age 65 to age 85 paying around $70,000 over this 20-year span, if you were to die without ever needing to use the LTC policy your beneficiaries would receive nothing. There’s no return of premiums, there’s no built-in death benefit to the beneficiaries. The money is simply gone!

GOOD NEWS!

Fortunately, there is a better way. With a Long-Term Care Strategy Plan, we can double or triple your long-term care coverage, while protecting your retirement nest egg. If after 20 -25 years you decide you no longer need the coverage and assuming you didn’t use any of the benefits, simply request a 100% return of all your money. If you die without needing the coverage, rest assured your beneficiaries will receive an inheritance. Make sure you contact our office today for more information!