Opinions on index universal life (IUL)

jyeh74

New member
My friend was sold this product from someone.  He was saving up in a 529.  The problem with the 529 is that if your kid decides not to go to college or receives a scholarship, you are penalized when you withdraw from it.  This IUL product has a $500k death benefit so it's basically a whole life product for his kid plus a college savings component built in.  I think it's about $250/month for a 15 year plan.  You can do 10 years and 20 years also.  So he will pay $45k in 15 years to have a $500k death benefit for his kid (grandkids will get half a mil) and his kid can borrow up to $20k a year for college at age 18.  Tax deferred earnings.  I believe they have caps of a certain percent so you can't get what the market does (participation rates) but they also have floors so you are guaranteed a 3% or so minimum.  Sound good or another Insurance product?
 
irvineboy said:
My friend was sold this product from someone.  He was saving up in a 529.  The problem with the 529 is that if your kid decides not to go to college or receives a scholarship, you are penalized when you withdraw from it.  This IUL product has a $500k death benefit so it's basically a whole life product for his kid plus a college savings component built in.  I think it's about $250/month for a 15 year plan.  You can do 10 years and 20 years also.  So he will pay $45k in 15 years to have a $500k death benefit for his kid (grandkids will get half a mil) and his kid can borrow up to $20k a year for college at age 18.  Tax deferred earnings.  I believe they have caps of a certain percent so you can't get what the market does (participation rates) but they also have floors so you are guaranteed a 3% or so minimum.  Sound good or another Insurance product?

Either you go whole life with the guarantees or just buy term and invest the rest.  The fees on the universal products are high. 
 
Idk about UL products. (Look at the fee structure, high commission fee) Also, my friends and I on separate occasions asked what are the underlying assets and we weren't giving a straight answer.

I'm all about returns. So I believe a good mutual fund/etf/index fund might be a better bet.

irvineboy said:
My friend was sold this product from someone.  He was saving up in a 529.  The problem with the 529 is that if your kid decides not to go to college or receives a scholarship, you are penalized when you withdraw from it.  This IUL product has a $500k death benefit so it's basically a whole life product for his kid plus a college savings component built in.  I think it's about $250/month for a 15 year plan.  You can do 10 years and 20 years also.  So he will pay $45k in 15 years to have a $500k death benefit for his kid (grandkids will get half a mil) and his kid can borrow up to $20k a year for college at age 18.  Tax deferred earnings.  I believe they have caps of a certain percent so you can't get what the market does (participation rates) but they also have floors so you are guaranteed a 3% or so minimum.  Sound good or another Insurance product?
 
Not certain, but I believe you can withdraw from a 529 without penalty, equivalent amounts received in scholarships.

Insurance policies should only be purchased for insurance purposes. Your friend should not be seeking investment advice from insurance sales folk.
 
I've heard of people using life insurance as a mini bank to borrow to invest in other things, almost sounds like borrowing against your 401k, anyone went that route here?
 
Stay in your lane, use products for what they were designed for. All that hocus-pocus never works in the end.  Usually only means a big commission for someone other than the investor.
 
From recent research, I've now read a lot of negativity around these whole life products. Mainly around high costs and the possibility of increasing premiums. The sales agents would say that the interest that you've accumulated would cover your increasing premiums in the future, so you would not have to make as many premiums as you would think.  In a sense, the money accumulated starts paying for the premiums so it becomes self paying over time. Sounds nice but not sure how much of that is true.  With my current life insurance, my accumulated interest over the years has been paying for the premiums so it's been nice not having to make payments.  I wonder if the costs in an IUL offset that notion? But remember, you're not paying it forever like you are with a whole life product. You've essentially paid off a whole life product in 10-20 years.

But let's play devil's advocate.  Let's say he paid it off in one year and wrote a check for $45,000.  Even compounded annually at 12% over 15 years, he still won't turn that $45,000 into $500,000.  His beneficiaries will get $500,000 guaranteed because death is inevitable. He's done paying after 15 years. Yes it's thinking down the line and something only his grandkids will receive, but doesn't it build some sort of guaranteed income stream (at least from the death benefit)?  Imagine if his parent bought him an IUL and his grandparents bought his parents an IUL.  The death benefit proceeds just keep getting passed down from generation to generation.  $500k might not be a lot but better than nothing right?  Plus whatever interest accumulates.  Even the interest, after fees, a $45,000 "investment" to a guaranteed $500,000 payout (not term life but whole life) sounds ok.  Or am I missing something?
 
You're paying far more for a life insurance payout than you would under a simple term policy. You get to borrow from the "savings" and pay the insurance company interest for the privilege, in addition to paying it back. When you die, the cash value goes to the insurance company, not you. You receive solely the policy limit.

It is beyond idiotic to buy whole life insurance. There. I said it.
 
IIRC, there's advantage in using the whole life insurance but it's mainly for the 1%er.

Life insurance payout is tax free, so basically the truly high net worth individual would buy the whole life insurance as a tool to pass on portion of their inheritance (over the current tax free limits of $5.49m, or combine with living trust up to $11m) without tax consequence.

Also a lot of inheritances are in the form of real estate, business, stocks etc. which is not very liquidable. If the amount are significant over the tax-free amount, the heir need to have the money to pay the estate taxes.

If the heirs doesn't not have the fund to cover the tax, they either need to borrow money or sell some of the asset.  And here's where the whole life insurance payout comes in handy, use it to cover the estate taxes without the need to sell some of the inheritance assets. 


 
Never seen a policy that you pay up only that 45K amount for 500K policy. Are you sure?  Are they estimating that the dividends will pay for the policy after that? 
 
lnc said:
IIRC, there's advantage in using the whole life insurance but it's mainly for the 1%er.

Life insurance payout is tax free, so basically the truly high net worth individual would buy the whole life insurance as a tool to pass on portion of their inheritance (over the current tax free limits of $5.49m, or combine with living trust up to $11m) without tax consequence.

Also a lot of inheritances are in the form of real estate, business, stocks etc. which is not very liquidable. If the amount are significant over the tax-free amount, the heir need to have the money to pay the estate taxes.

If the heirs doesn't not have the fund to cover the tax, they either need to borrow money or sell some of the asset.  And here's where the whole life insurance payout comes in handy, use it to cover the estate taxes without the need to sell some of the inheritance assets.

Term insurance achieves these purposes. How does whole life work better in this context than term?
 
Perspective said:
lnc said:
IIRC, there's advantage in using the whole life insurance but it's mainly for the 1%er.

Life insurance payout is tax free, so basically the truly high net worth individual would buy the whole life insurance as a tool to pass on portion of their inheritance (over the current tax free limits of $5.49m, or combine with living trust up to $11m) without tax consequence.

Also a lot of inheritances are in the form of real estate, business, stocks etc. which is not very liquidable. If the amount are significant over the tax-free amount, the heir need to have the money to pay the estate taxes.

If the heirs doesn't not have the fund to cover the tax, they either need to borrow money or sell some of the asset.  And here's where the whole life insurance payout comes in handy, use it to cover the estate taxes without the need to sell some of the inheritance assets.

Term insurance achieves these purposes. How does whole life work better in this context than term?

But term life insurance payout expires after the term period, whole life insurance doesn't. 

In most cases, the beneficiaries of the term life insurance will never receive a dime, but the whole life insurance beneficiaries will guarantee to receive a payout. 

Anyway, majority of people don't really benefit from the whole life insurance.  Us 99%er should just get a term life insurance.
 
lnc said:
Perspective said:
lnc said:
IIRC, there's advantage in using the whole life insurance but it's mainly for the 1%er.

Life insurance payout is tax free, so basically the truly high net worth individual would buy the whole life insurance as a tool to pass on portion of their inheritance (over the current tax free limits of $5.49m, or combine with living trust up to $11m) without tax consequence.

Also a lot of inheritances are in the form of real estate, business, stocks etc. which is not very liquidable. If the amount are significant over the tax-free amount, the heir need to have the money to pay the estate taxes.

If the heirs doesn't not have the fund to cover the tax, they either need to borrow money or sell some of the asset.  And here's where the whole life insurance payout comes in handy, use it to cover the estate taxes without the need to sell some of the inheritance assets.

Term insurance achieves these purposes. How does whole life work better in this context than term?

But term life insurance payout expires after the term period, whole life insurance doesn't. 

In most cases, the beneficiaries of the term life insurance will never receive a dime, but the whole life insurance beneficiaries will guarantee to receive a payout. 

Anyway, majority of people don't really benefit from the whole life insurance.  Us 99%er should just get a term life insurance.

Also if you don't invest at all then whole life is like a savings account.
 
"What Are the Pros and Cons of Indexed Universal Life Insurance?

Universal life insurance plans, including indexed universal life, frankly, aren't good choices for the vast majority of people. There are some tax benefits, but they are almost only of real value for high-wealth/high-income earners or business owners, and often come at too high a cost with too low of potential returns for the tax benefits they provide.

There are other downsides, including caps on potential returns that can make them poor ways for the average person to build long-term wealth and have adequate life insurance, versus separate investment accounts and life insurance policies.

In summary, just like any financial instrument, what makes sense for one person may not be right for you. Take the time to understand the benefits and risks, as well as to look closely at alternatives that may be a better fit.

Before buying complicated insurance products like universal and indexed universal life insurance, make sure you're taking full advantage of other tax-deferred investing alternatives such as traditional or Roth IRAs, combined with stand-alone term life insurance first. For most people, this will be a more affordable choice, and potentially a better long-term value. "
https://www.google.com/amp/s/www.fo...cons-of-indexed-universal-life-insurance.aspx
 
lnc said:
But term life insurance payout expires after the term period, whole life insurance doesn't. 

In most cases, the beneficiaries of the term life insurance will never receive a dime, but the whole life insurance beneficiaries will guarantee to receive a payout. 

Anyway, majority of people don't really benefit from the whole life insurance.  Us 99%er should just get a term life insurance.

The way I understand it is if you invest the difference of the premiums between term and whole, after the period of time (20/30 years etc), your investment should come out ahead.
 
I have both Vanguard and Fidelity.  Any recommendations on low cost index funds you all invest in?  What have the returns been?  Is there a minimum required monthly minimum?
 
irvineboy said:
I have both Vanguard and Fidelity.  Any recommendations on low cost index funds you all invest in?  What have the returns been?  Is there a minimum required monthly minimum?

I recommend asking the question at Bogleheads forum:https://www.bogleheads.org/forum/index.php

I don't personally buy index funds, but my retirement account (managed by others) probably does.  I buy Vanguard Health Fund, and Healthcare related REIT's (i.e. Griffin American Healthcare REIT III) that invest in medical, senior living, and nursing real estate.

Why healthcare REITs?  Because senior housing tend to have 100% occupancy rate with wait list.  Just don't expect high yields.
 
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