by Guest » Fri Sep 07, 2007 09:20 am
Hi friends, I've heard that Equity indexed universal life insurance can be a very good investment option. I want to purchase a policy that will give me some investment benefits along with life coverage. Shall I consider buying EIUL or something else? Pls. suggest.
Jeremiah
Jeremiah
Posted: Mon Aug 06, 2012 08:32 am Post Subject:
Don't misunderstand my comments about universal life (or any of its variations). The product is not necessarily one to be avoided, and it could be the right product for your needs. A policyowner must simply UNDERSTAND how the policy works, and what their responsibilities to the policy are. Most agents do not understand that well enough to market it properly, so their clients don't understand how it works either -- but they buy it anyway. Their attorneys often don't understand it either when they decide to sue the insurance companies years down the road.
Every UL policy will work if it is funded properly. You receive an annual report/statement that tells you what has happened inside your policy during the last 12 months. When you learn to read that statement and understand what it is telling you, you may realize that the policy is off-track from the illustrated value and it's time to start paying more premiums to restore it.
The problem comes when a person doesn't have that kind of money, or the amount of money it now takes to do that doesn't make sense -- trying to make the corrections at later ages is most painful. I have illustrations for persons in their 70s whose policies were about to lapse, and the amount it would have taken to keep the policy going for just 10 more years was $7,000 to $10,000 more than the death benefit. At that point, one simply might have to say, "The heck with this!" and terminate their insurance -- with no remaining cash value. Not exactly what they were sold 10-12-15 years earlier.
On the other hand, properly funding the policy from the first day (closer to maximum premiums than minimum premiums or even the "planned" premiums) can set the policy up for success compared to failure. EIUL is almost always promoted for its cash accumulation, and minimum funding is not likely to produce the long-term illustrated results. Maximum funding cannot guarantee the outcome of the policy many years down the road, but it starts the policy with a great foundation, and might only require small course corrections along the way.
Because market/index performance is neither static nor predictable, no UL policy will exactly earn the non-guaranteed straight-line rate of return which is originally illustrated, and it might not be possible to earn enough interest in the future through the Index performance alone, due to the limitations of rate caps and/or participation rates, to overcome the shortfall without the addition of more premium. The longer that condition persists, the more money it will take to overcome the shortfall in the future.
No-lapse guarantees help to avoid this in the near term, but missing just one payment or borrowing from the cash value (either depends on the contract) can terminate the guarantee. And the guarantee itself may only exist for 20 or 30 years into the future, which could result in a person having to make very large payments down the road to prevent a lapse after the guarantee naturally disappears.
Your "otherwise honest" agent is probably still honest. But if he cannot explain the intricacies of any policy to your satisfaction, it probably means he doesn't know what they are or how they work. That's his problem, but not necessarily his fault. Most insurance companies don't properly train their agents when it comes to marketing UL products.
If you have specific questions or concerns about any product your agent is "pushing" in your direction, you may write to me. Click on the email link "Send me your questions . . ." below. You can scan and attach any illustrations you have been given and I can tell you about the numbers they are showing.
Posted: Wed Aug 08, 2012 10:11 am Post Subject: equity indexed universal life question
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[Link removed - Admin]
Posted: Thu Aug 09, 2012 08:52 pm Post Subject:
has not given me a clear answer on exactly how much I would be paying out in fees and insurance costs!
The reason is that he probably doesn't know. Look at an illustration, what is the cost of insurance at every age? Look at all of the marketing material, what is the cost of insurance at every age? (If this was a variable universal life policy, look at the prospectus, what is the cost of insurance at every age?)
Those are all three trick questions. Why? None of them will tell you the cost of insurance. The cost of insurance is going to show up in the contract which you don't get until after you buy the policy.
This post isn't designed to talk negatively about the product, but it makes zero sense to buy an insurance product without knowing the future cost of insurance.
The agent probably has no idea of the answers. If the death benefit remains static, which means that the net amount at risk will decrease, he won't know the future costs of insurance, but he certainly should know the cost per thousand.
Posted: Thu Aug 09, 2012 10:37 pm Post Subject:
I am in complete agreement with the post by "Guest" above. He/she only leaves a few things unsaid, and makes only one small mistake when he writes, "Look at an illustration, what is the cost of insurance at every age?" This information is not shown in the illustration, and it's not shown in most VUL prospectuses either, because the insurance company technically has the freedom to give each person a different COI in their contract -- as long as they are not discriminating in some prohibited way. The only thing the illustration shows is the premium paid, the cash value, and the death benefit amount. COI is completely hidden from view. (Maximum COI rates are governed by the CSO Mortality Tables. The insurance company has the ability to use statistics more favorable to its insureds.)
he certainly should know the cost per thousand.
Although this might be known on the first day of the policy, it will not be known for certain on any other day. But ask the agent what the COI is on even that very first day of the policy, and he/she probably cannot tell you -- because it just isn't disclosed in advance. It sometimes isn't even disclosed in a court trial (or in discovery leading to a trial). Some corporate clients might be told what the COI is in certain COLI policies that would lapse without payment of a premium otherwise.
The cost of insurance is going to show up in the contract which you don't get until after you buy the policy.
The poster of this statement is correct, except that what is shown in the policy is only the Guaranteed Maximum rate per $1,000 per month (or year). The actual cost of insurance cannot exceed that, and in most years will probably be less than that (once a person reaches age 70 or so, the COI will probably be very close to, if not at, the maximum stated COI.
But not even your agent can tell you with any certainty what it will be on Day 2 or any other day in the future. Worse yet, even the insurance company probably won't tell you what it is when you ask -- they'll tell you how much was taken from your cash accumulation to pay for COI and other policy charges, and leave you to do the math -- which most people could not do without a little training in the subject.
You will only be able to calculate the cost of insurance AFTER THE FACT -- at the end of the year after you've received your annual statement, and even then your calculation could be off slightly (but not enough to matter much). This is one of the real hazards of Universal Life -- in all its forms.
Your cash value could be eroding daily even though you are paying the same premium in year ten that you were told was the "planned premium" on Day 1. The UL policyowner who fails to read and understand what the annual statement is telling them is in danger of losing their cash value and their life insurance -- or paying significantly higher premiums later in life.
UL is not a product that everyone can (let alone realizes they must) manage properly. The insurance companies know this and count on it to a certain extent when setting the Cost of Insurance each year. If too many people are not lapsing their policies -- which is the current problem for many insurance companies -- they are heading toward paying more claims than they initially expected, and that costs money. The get the money from the policyowners through the higher, and mostly hidden, COI charges each year.
Posted: Fri Aug 10, 2012 10:12 am Post Subject:
makes only one small mistake when he writes, "Look at an illustration, what is the cost of insurance at every age?"
Max, what is my mistake?
Did you miss that I wrote, "Those are all three trick questions. Why? None of them will tell you the cost of insurance."
Posted: Fri Aug 10, 2012 02:52 pm Post Subject:
OK, I guess I did not read the post as rhetorical (or "trick") questions. Obviously, the illustrations don't disclose the actual COI, just like the annual statement does not disclose the actual COI, and just as the policy only discloses maximum/guaranteed COI.
You have to remember, others who may stumble on this thread might also misunderstand what you wrote. I didn't chastise you over it, but I may have "overcorrected" you at the same time.
We're on the same page on this one.
Posted: Sat Sep 22, 2012 04:15 pm Post Subject: I have an IUL
I bought into a policy when I was 23 and now 28 years old. I have been "heavily" funding my policy. But certain things are not adding up when I try to do the math. I keep a watchful eye on it and watch my statements every year.
It made sense I fund this as much as I can to take advantage of it. I am already maxing out my other retirement accounts. Not trying to show off... but I make pretty good money and saving a lot. An I am having a hard time on where to put my money for growth. I have looked into the other options like stocks, mutual funds etc. But it can get very confusing to go at it a lone.
The only complaint is, once you get your policy. Good luck getting a hold of your agent for any follow up questions or concerns you may have in the future.
Posted: Sat Sep 22, 2012 10:07 pm Post Subject:
I have been "heavily" funding my policy. But certain things are not adding up when I try to do the math. I keep a watchful eye on it and watch my statements every year.
Watching your annual statements is one of the keys to making sure your policy is performing properly.
Unfortunately, your idea of "heavily funding" may be quite different than what is really required by the contract, especially at a relatively young age as yours.
You can use the email link below to contact me about a complete and unbiased analysis of your policy and its performance over these past five years. If you need a course correction, it will be much easier to accomplish now instead of 5-10-20 years from now when you might not be happy to hear the numbers that would make your contract work. Or, worse yet, discover that you cannot afford to keep the policy in force and cannot cancel or lapse the policy without a huge unfunded tax liability.
The only complaint is, once you get your policy. Good luck getting a hold of your agent for any follow up questions or concerns you may have in the future.
Unfortunately, this is one of the sad realities of the insurance industry. Most agents are more responsible -- and responsive -- than this. But some also know they misrepresented things to folks and do not want to confront those persons in the future.
If you are unhappy with the communication from your agent, you can always find another agent who represents the same company, have them take over the servicing of the policy, and see if you don't get the help you deserve.
And you can always contact the insurance company directly and get their help -- which may not be any better than that of the agent who isn't doing anything for you either.
Posted: Wed Oct 31, 2012 07:48 am Post Subject:
Eiul is probably the worst cash value insurances. In fact, as a licensed agent and a parent, I could never ever in my entire career will sell any cash value(even thoughwe offer it). Personally I couldn't take any money from these large commissions from these policies. I've broken down all cash values, and it never made sense how people can sell them as an investmental. Term and invest is what I advise my clients even though it pays me the least commission. At least I could sleep at night
Posted: Wed Oct 31, 2012 10:04 am Post Subject:
Katt, the problem may be that you don't understand insurance well enough. Not owning cash value insurance as an investment is not equivalent to not owing cash value insurance.
There are plenty of instances where it can make sense.
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