Indexed Universal Life (IUL) FAQ

Shouldn’t insurance just be insurance and not an investment?
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.

Isn’t it true that IUL insurance costs are high?
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.

Isn’t it true that my policy illustration assumes I will stick to the assumptions under my control?
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.

Won’t my money perform better in the stock market?
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.

Shouldn’t insurance just be insurance and not an investment?
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.

Isn’t it true that IUL insurance costs are high?

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.

Isn’t it true that a life insurance company can change contract terms?
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.

Isn’t it true that dividends do not get credited to IUL cash value?
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.

What is a Fixed Index Annuity?

A Fixed Indexed Annuity (FIA) is a fixed annuity that provides a guaranteed lifetime income and interest rate while preserving and protecting your premium. You do not pay taxes on your premium or interest until you take withdrawals or receive income. Unlike traditional fixed annuities, additional interest may be earned based on positive changes in commonly used financial indices such as the S&P 500 or the Dow Jones Industrial Average. Because the annuity you purchase is indexed, your premium and credited interest can never be lost due to an economic downturn.

How do I know if a Fixed Indexed Annuity is for me?

As I like to point out, there isn’t a perfect investment tool. It is our belief that investors should be safer with their money as they grow older. Our average client is at or nearing the age of retirement and wants to preserve and protect their assets. If you want unlimited growth potential and are willing to assume the risk of unlimited loss, then a fixed indexed annuity is probably not the right choice for you. If you are concerned about protecting your principal and enjoying a reasonable rate of return on your investments, then we feel you should join our family.

Aren’t there other options with unlimited growth potential?

Aren’t there other options with unlimited growth potential? Yes, there are; however, most of these options carry with them the corresponding potential for unlimited loss. We have never had a client lose one penny of their annuity product. Also, in addition to being free of management and administrative fees, fixed indexed annuities have the potential to earn more interest than traditional fixed annuities and other safe money alternatives.

Why is my existing broker trying to talk me out of this?

Current advisors are not going to agree with our recommendations because, in doing so, they would have to admit that their recommendations were not appropriate. All financial firms have conservation units to try to conserve your business because, once the asset is transferred, the advisor and firm no longer generate any income from this asset. Most risk advisors cannot sell indexed annuities. These annuities are offered by insurance companies; therefore, they will not bring up these tools in client meetings.

Is diversification the key to safety?

Consumers have been told time and again that diversification is the key to safety. Although diversification may assist in reducing the risk of total loss, it is not a “foolproof” plan to safety. As Lisa Smith reports for msnbc’s TODAY Money, diversification doesn’t always work. Consumers are encouraged to appropriate at least a portion of their portfolio to annuities and other products that are not directly linked to the stock market.

Source: Plan carefully to make sure your 401(k) doesn’t flounder
By: Lisa Smith
http://today.msnbc.msn.com/id/4309997

Can I liquidate my annuity?

There are many options available for withdrawing your money. The annuities we offer allow you to withdraw up to 10% after the first year – without penalty. In the event of premature death, your beneficiaries can choose to receive your annuity’s accumulated value as a monthly or lump sum payment.

Are there really rate caps that limit the gains I can make?

FIAs are designed to provide an increased level of protection against prolonged market downturns. Although the rate of growth is limited, your principal and subsequent market gains are not at risk of loss due to bear markets or weak economic conditions. If the index upon which your annuity is based performs well, you will receive a percentage of that growth. Should the market take a nosedive, your principal and interest earned will not be lost.