My Meeting With An Index Universal Life Insurance Agent
Yesterday I met with an agent who specializes in Index Universal Life Insurance, and I want to write about that today because I think this is an important conversation to understand.
He emailed me with concerns about my views on Index Universal Life Insurance and a few other things, and he is connected with some networks I am a part of, so I decided to meet with him and answer his questions.
I will start by saying I do not personally own, use or recommend Index Universal Life Insurance (now referred to as IUL for the rest of this article).
So, we had a discussion.
I do own, use and recommend High Early Cash Value Dividend Paying Whole Life Insurance (I just call it The Sacred Account because that’s shorter and easier to say).
In this article I want to cover the differences I went over with this IUL Agent so you can be a fly on the wall of our discussion.
The first thing I explained to him is that IUL is not “bad”.
It is a financial product and actually. An inanimate object that has no morals or ethics. So, it can’t be “good” nor “bad”.
It either achieves my purpose or it doesn’t. Just because something isn’t the right tool for the job doesn’t make it “bad”.
What is the purpose of IUL?
Well, it is a lot like an alternative to the stock market that you can draw off of or borrow against Tax Free.
Think of it like a Roth IRA that you can put extra money into and that will get some participation with stock market returns, and you can use long term as a source of borrowing or a source of income.
He explained that when he designs an IUL he minimizes insurance costs and usually you will break even (you have more in cash value than you contributed) usually by year 8 and can start taking loans usually after that 8–10-year marker.
I told him, already this is why it doesn’t work for me.
The Sacred Account I can use NOW.
If I put in $10,000, the next day I can go borrow against 70–90% of that money and I don’t have to wait.
IUL is a long-term strategy and often may not provide the ability to borrow against it right away like the Sacred Account does.
The Sacred Account is a short term, mid-term, and long-term strategy because I can borrow right away and use it whenever.
The next thing we discussed is the difference in costs and fees.
IUL has surrender charges that lock my money up for the first several years (often this can be 5–10 years at varying degrees).
The Sacred Account doesn’t.
IUL has increasing insurance costs that must be understood and planned for.
The Sacred Account has level insurance costs that never increase.
We both agreed that an IUL is a long-term strategy and is like an alternative to a Roth IRA.
We also both agreed that the Sacred Account (which was a totally new concept to him) was awesome and totally different than an IUL in design and also the purpose it serves.
I can get into all the technical details and other personal reasons I don’t like or use IUL, and you may or may not understand those reasons as a reader.
But the fundamental difference is that I want to build wealth with my money NOW.
I don’t want to wait.
With the Sacred Account, I can put in $1 and that $1 will grow at 3–5% per year on average, tax free, for the rest of my life.
I can borrow at an actual interest cost of 1–3%, on 70–90% of my dollar, while that entire dollar still grows like it never left.
I can then use that dollar to pay off debt, make large purchases, or invest for passive income.
With IUL, if I put in $1, over the long haul, my compounding annual growth rate may be 5–7% per year long term (New York Life Insurance Company conducted research using numerous market return scenarios, including 1,000 scenarios from the Society of Actuaries Economic Scenario Generator based on the IUL’s being sold on the market today and found that the average IUL will perform at less than a 7% illustrated growth rate more than 90% of the time and will underperform a 6% illustrated growth rate more than 75% of the time).
I will have access to none or very little of my $1 for the first 8–10 years.
After those 8-10 years I may borrow against it.
Lifetime, my $1 might earn 5–7% per year, tax free and I may be able to use this nest egg to draw tax free retirement income from in my later years.
(I keep using words like “may” and “might” simply because there are so many variables with an IUL, and it is based on stock market performance and it is also a really new financial product. Again, that doesn’t make it “bad” it just should be understood and considered)
The Sacred Account is the now and always plan for me. It’s been around 150+ years and has stood the test of time.
IUL is the later plan. It is like a more traditional plan, such as a Roth IRA. The oldest IUL on the market has been around since 1998 or 1999. Most of them have been around only since 2008 or later, and most of them even more recent than that.
I prefer the use of my money now.
I don’t want the extra fees and charges.
I can earn more than 5–7% per year by borrowing against my Sacred Account and investing in Real Estate.
And to put it simple, these are all reasons why I don’t own, use or recommend IUL.
Should you? That’s up to you and what your goals and purposes are.
But like anything:
- I must like it
- I must understand it
- It must fit me as an individual
- It must fit the things I’ll use it for
- I shouldn’t overpay for it
This agent and I had a great conversation and discussed other topics as well and he left with a new idea of the Sacred Account and what it does (he actually thought it was very cool) and I left knowing that he now understands why I am not a proponent of IUL and that I don’t think it’s the devil or some scammy financial product. It just doesn’t work for me and my goals and I don’t like it.
To learn more about the Sacred Account, I want to offer you a free copy of my book The Blueprint to Financial Freedom!
You can click here to grab a free copy!
When you get a copy of my book, it not only provides a wealth of information (pun intended)!
But it also comes with a free Course Supervisor who ensures you understand and finish the book, PLUS a free coaching call with my team to implement what you’ve learned!
Grab your free copy here!
To Purpose, Wealth & Freedom,
Jerry Fetta is the CEO and Founder of Wealth DynamX. He is a nationally recognized financial expert featured in Forbes, Yahoo Finance, Fox, Chicago Weekly News, New York Finance, interviewed on over 45 podcasts with world renowned experts, earning endorsements and affiliations throughout his career with names like Kevin O’Leary, Grant Cardone, Dave Ramsey, and Pamela Yellen.
Jerry’s mission in life is to help create millions of financially educated and solvent families achieving greater financial freedom and sharing the truth about money with those around them.
Learn more at www.WealthDynamX.com
(DISCLAIMER: The information in this content should not be considered tax, financial, investment, or any kind of professional advice. Only a professional diagnosis of your specific situation can determine which strategies are appropriate for your needs. Wealth DynamX can and does not provide advice unless/until engaged by you.)