It’s been twenty-one years since Transamerica Life Insurance Company released and sold their very first Indexed Universal Life Insurance Policy (IUL). Today there are over 40 insurance companies that have followed suit realizing, that by taking Transamerica’s lead, they can increase their profits (the insurance company’s profits) while assuming less risk. And while this means higher revenues for the insurance companies, it has NOT been so advantageous for IUL policyholders.
IUL policyholders are not allowed to develop equity in their death benefit but instead are forced to lease their death benefit from year to year or lose their coverage.
Premiums paid for IUL policies are assessed a fee by the insurance company. These fees are based on a percentage of what is paid in premium, and so the costs of fees rise as the premiums paid increase.
The guarantees offered in IUL policies do NOT guarantee continual cash value growth. They merely limit the losses that can occur in accumulated cash values due to poor market performance.
Your cost of insurance does not remain level for life in an IUL policy. As with renewable term insurance, which is the type of insurance that IUL policies are based upon, the cost increases annually.
The assumed values in an IUL illustration are based on Average Market Returns (AMRs). However, AMRs without dividends are much lower than AMRs with dividends, and many insurance companies only use AMRs without dividends, to figure the rate of return you can earn on your IUL policy cash values.
Participation, when mentioned in IUL policies, refers to how much you have allotted of your cash values to mirror a certain Index. Participation does not allow you, the policyholder, to participate in the profits of the company.
Cash Value gains in an IUL policy never increase your death benefit nor do they increase the equity you own in your death benefit.
Most IUL policy illustrations utilize AMRs which are greater than Actual Returns (ARs). This is misleading and can lead to policy lapse in the future.
Many IUL policyholders forfeit the minimal guarantee provided in their IUL contract if they miss a premium payment deadline.
Lastly, premiums are variable and flexible in IUL policies. This leads many to believe that they can simply pay less in the early years of an IUL policy without having the policy suffer. Nothing could be further from the truth. Not paying the full premium which an IUL policy was illustrated with, will lead to that IUL policy requiring much higher premiums in the future.
The list could go on but in this short space, there isn’t enough room. The simple fact is obvious, IUL policies expose policyholders to many more risks than Participating Whole Life Insurance Policies (PWLIP). It all comes down to the guarantees provided in a PWLIP contract. These guarantees are simply UNAVAILABLE in IUL policy contracts.
In 1984, Clara Peller, a 4-foot-10-inch 81-year old women, stood up and asked the obvious, “Where’s the beef?” That declaration increased the sales of Wendy’s hamburgers by 31%. Wendy’s hamburgers actually did have more beef than their competitors. Peller simply called attention to the obvious fact.
Twenty-one years since Transamerica released the very first IUL policy, it’s time to stand up and loudly ask, “Where’s the guarantee?” Because PWLIP really does have more guarantees than IUL policies can ever have. And you need to pay attention to this obvious fact if you want to keep more of the money you make.
Dr. Tomas P. McFie
Most Americans depend on Social Security for retirement income. Even when people think they’re saving money, taxes, fees, investment losses and market volatility take most of their money away. Tom McFie is the founder of McFie Insurance which helps people keep more of the money they make, so they can have financial peace of mind. His latest book, A Biblical Guide to Personal Finance, can be purchased here.
