Category: IUL

Indexed Universal Life (IUL) case study age 50

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August 23, 2023

12:00 PM

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IUL

Indexed Universal Life (IUL) #1 carrier

design: Male, age 50, preferred non-tobacco, $250 monthly planned premium, solve for minimum face amount (no MEC or guideline premium violation), index strategy: S&P 500 cap rate account, 100% allocation, assuming 5.00% all years (maximum illustrative rate 6.27%); death benefit option: increasing; death benefit compliance test: guideline; no optional riders.

Initial death benefit: $50,000
premium outlay: $3,000 annual

Initial Guideline Level Premium: $3,575.61
Initial Guideline Single Premium: $19,939.36
Seven Pay Premium: $4,000.56

Results

non guaranteed values: year 20 @5.00% all years
cash surrender value $74,991
death benefit $124,991
total premium outlay $60,000 ($250/month)

non guaranteed values: year 20 @5.50% all years
cash surrender value $79,132
death benefit $129,132
premium outlay $60,000 ($250/month)

non guaranteed values: year 20 @6.00% all years
cash surrender value $83,539
death benefit $133,539
premium outlay $60,000 ($250/month)

Maximum non-MEC results

Guideline Level Premium: $3,575.61 annual
non guaranteed values: year 20 @5.00% all years
cash surrender value $91,039
death benefit $141,039
premium outlay $71,510 ($297.96/month) (297.96 x 12 = 3,575.52 no MEC)

Guideline Level Premium: $3,575.61
non guaranteed values: year 20 @6.00% all years
cash surrender value $101,434
death benefit $151,434
premium outlay $71,510 ($297.96/month)

IUL comparison for maximum cash value accumulation and tax-free loans

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April 27, 2023

12:42 PM

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Age 44, In your 40's, Increasing death benefit, IUL, tax-free loans

Male, age 44, standard non tobacco

$200,000 annual premium years 1-10, zero premium years 11+: total premium $2,000,000
5.00% interest crediting S & P 500 index annual point-to-point, all years.  This is not the maximum crediting allowed but helps compare carrier performance apples-to-apples.

structured maximum cash value accumulation, guideline level premium, minimum face amount, increasing death benefit, non-MEC guideline level premium test

Cash Value Accumulation (non guaranteed based on 5%)

Company A: $2,967,294 initial death benefit, year 20 cash value: $3,749,106, age 79 no lapse guarantee 
Company B: $3,255,183 initial death benefit, year 20 cash value: $3,352,877, age 93 no lapse guarantee 

Tax-Free Loans

Same structure as above except an increasing death benefit years 1-20, level death benefit years 21+, variable loan rate 4.50%

Company A: $803,212 loans years 21-25, total loans $4,0116,060  net outlay ($2,016,060)
Company B: $680,000 loans years 21-25, non guarantee lapse age 86

Comments: Even though company A projects clear advantages in cash value accumulation and policy loans, company B with its age 93 no lapse guarantee (NLG) indicates a fundamentally stronger product impervious to cost of insurance (COI) increases in or cap reductions, any carrier undermining of product support in the future.

Indexed Universal Life (IUL) quotes run April 2023. Please contact me to discuss these two competitive carriers.

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IUL for retirement income

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August 29, 2014

9:51 AM

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Cash accumulation, Cash Value, current interest, Increasing death benefit for cash accumulation, indexed life insurance, IUL, maximizing cash value, Maximum cash accumulation Indexed UL, MEC, MEC limit, Modified Endowment Contract, Modified Endowment Contract

What is the best way to compare Index UL (IUL) companies for cash value accumulation and loans for retirement income?  Request illustrations be emailed to you. All life permanent life insurance, whole life, UL, or IUL with non guaranteed assumptions require illustrations for the insured’s review and signature.  A competent life broker has the ability to email multiple carrier illustrations for comparison purposes.  Make specific requests for the illustration’s structure, especially index interest rates assumptions. Insist each and every carrier use the same assumptions . Then compare cash value accumulation and loans for retirement income. Relative performance of the carriers, identifying the top performer, matters more than the figures themselves, which lack validity since they are projections over too long a period of time. To overfund an IUL request:

1.  Identical  assumptions: rate classification, premium amount, index rate, number of years paying premium, loan years

2. S & P 500 Index annual point-to-point; interest assumption of 5% or at most 5.50%

Commonly presented index interest rate returns of 7% to 8%+ each and every year over 20, 30, 40 years and longer are unrealistic and highly speculative

3. Minimum face amount. Guideline annual premium: Guideline premium test  (maximum non-MEC)

Work backwards from the amount of money intended for premiums to solve for the minimum face amount that’s still within the limits as a non modified endowment contract (MEC).  Come to the agent with a figure, as in, for example, wanting to put in $15,000 a year for the next 20 years.  The initial face amount will be solved from there; it will be made as low as possible to meet IRS guidelines.  

4. Increasing death benefit for premium payment years.

5.  Set the premium payment years from 20 to 30 years.  If older, allow at least 15 years, but usually a relatively short period of time, like 15 years, isn’t enough time to build sufficient cash value to allow for retirement income loans.

This is the accumulation period.  Compare cash accumulation after the accumulation period ends.  

6. Level death benefit all years in distribution period and thereafter to age 100 or age 120

7. Loans at fixed rate or maximum variable capped rate

Ask if variable loan rate is capped. Variable loan rates are frequently based on Moody’s Corporate Bond Yield index and those rates have been much higher in the past than currently.

8. Distributions starting at age 65 or after set number of years of accumulation

9. Limited distribution period to 5, 10 or 15 years

Compare which carrier has the higher values, but do not place weight in the amount which is not a reliable value when the index interest rate return assumption is a constant

10. Solve for cash value of at least $1,000 at age 100 or $1 at age 120

Example:  male, age 35, preferred plus, $12,000 premiums 30 years at increasing death benefit; zero premiums thereafter at level death benefit; 5.50% S & P 500 annual point-to-point, minimum Non-MEC, guideline premium test, solve for maximum distributions 15 years, variable loan option at cap 5.5%, monthly loans, solve for $1,000 cash surrender value age 100

key figures to review in the illustration’s yearly summary charts:

  • year 30 – most cash value accumulation
  • years 31-46 – highest annual loans

Mt. Hood, Illustration by R.S. Gifford

Cash Value Life Insurance Choices

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September 25, 2013

10:40 AM

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Age 120 guarantee, Cash Value, cash value life insurance, cost of insurance, Increasing death benefit, IUL, lapse guarantee, No Lapse Guaranteed Universal Life, No-lapse guarantee, par whole life, Whole Life, whole live vs indexed universal life

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Whole Life: life insurance participating, or par

  • Dividends
  • Builds Cash Value
  • Guaranteed Cash Value Accumulation
  • Endow, worth face amount in cash, at age 100 or age 121
  • Increasing face amount
  • Cash dividends option, after a period of years
  • Paid Up Insurance
  • Cash value protects policy if payments are missed
  • Coverage guaranteed to age 100 or age 121

Pros: Since it builds on top of guaranteed cash value, par whole life has highest potential for cash value accumulation, flexible to changing circumstances; good to start for children, in 20’s, 30’s or upper income
Cons: much more expensive than Universal Life (UL) or Indexed Universal Life (IUL)

Indexed Universal Life:  IUL

  • Builds Cash value, higher upside potential with index crediting then current assumption UL
  • some guaranteed cash value accumulation, not all years
  • Flexible on payments
  • Option for increasing face amount, option B
  • Cash value protects policy if payments are missed
  • Policy lapses with zero cash value

Pros: less expensive than Whole Life, flexible to changing circumstances
Cons: if underfunded and or performs poorly can lapse without additional premium; higher cost of insurance charges than UL, periodic review is advisable, more complex, more choices to make than current assumption UL

Universal Life: UL, current assumption UL

  • Builds Cash value
  • Flexible on payments
  • Option for increasing face amount, option B
  • Cash value protects policy if payments are missed
  • Policy lapses with zero cash value

Pros: less expensive than Indexed UL, flexible to changing circumstances, lower cost of insurance charges than Indexed UL
Cons: if underfunded and or poor interest credited can lapse without additional premium

Whole Life: non-participating, non-par

  • guaranteed cash value accumulation

Pros:  fixed premium, guaranteed cash value accumulation, endow at age 100 or age 120; good for final expense
Cons: level death benefit; cash surrender value matter little compared to death benefit

Guaranteed Indexed Universal Life: GIUL

  • cash value accumulation, generally not in 80’s and older

Pros:  lifetime guarantee, or set guarantee year
Cons: lower casher value accumulation than Indexed UL

Guaranteed Universal Life:  Guaranteed UL, GUL,  no lapse guarantee UL

  • Little to no cash value accumulation

Pros: least expensive lifetime guarantee age 120+, also least expensive setting guarantee to age 90, 95, 100, 105, 110 or whatever length desired;  ability to structure longer guarantees, and at older ages than term life, for example 30 year guarantee at age 59
Cons: missed premium payments lapse policy, little to no cash value accumulation
Return of Premium Term:   ROP term

  • guaranteed cash value accumulation
  • reduced paid up insurance with some carriers

Pros:  At the end of the term you get all your premiums back; builds cash value, mostly in the last years of the term period
Cons:  death benefit same as term if you pass away, cash value not included; more expensive than term, especially after mid 40’s

Trigger Method Fixed Indexed Universal Life (IUL) with Allianz

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May 30, 2013

10:36 AM

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Henryk_Weyssenhoff_Spring_1911

Allianz recently announced enhancements to their Fixed Indexed Universal Life (IUL) product Life Pro+.  Why does Allianz call it fixed?  Well, that’s their terminology.  Known mostly as Indexed Universal Life (IUL) or sometimes as Equity Indexed UL (EIUL), the name may differ, but all these Indexed UL products have interest returns tied to a market index, most commonly the S & P 500 Index, and have a floor guarantee of at least 0% as downside protection against losses. That’s why Allianz presumably uses the word fixed as opposed to Variable UL which does not have a 0% floor.

One noteworthy feature in Allianz’s enhancements is a trigger method of interest crediting. If the S & P 500 Index annual point to point hits anywhere greater or equal to zero, will trigger 9% credited to the policy. This Trigger Interest Rate is subject to change on an annual basis but is guaranteed never to go below 2.50%. In years the S & P goes below zero, the floor crediting rate is 0%, and if the index measures in that annual point to point above 9%, the credit remains at 9%.

Most of the Indexed UL product caps are currently in the 11% to 13% range and in this strong market those higher caps make them a more alluring crediting strategy. Historical data does not show that 0% to 9% range to be as prevalent as 10% or higher. Allianz still offers the higher capped S& P 500 annual point-to-point option. Their trigger method is an added option in times when S & P 500 performance expectations were not very high.

AIG pays back TARP funds and its effect on American General Life Insurance Company

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January 7, 2013

1:42 PM

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Conversion, guaranteed universal life, indexed life insurance, Indexed Universal Life, IUL, No Lapse Guaranteed Universal Life, no lapse universal life, No-lapse guarantee, Universal Life, universal life insurance

I saw one of AIG’s “Thank You America” commercials this weekend, and that’s how I found out that AIG had paid back in full their TARP bail out money.  That’s good news for American General Life Insurance Company.  I’ve been an agent for American General for over a decade, well before they were acquired by AIG back in 2001.

American General’s independent ratings have declined since AIG’s liquidity crisis 2008 and now have stabilized.  2008 exposed the ratings system to be very flawed, and since the rating system has not been reformed, it is a tenuous means to judge a carrier.  From a life insurance agent’s point of view, to recommend a carrier is in part observing a life insurance company’s price and product changes, underwriting practices and rules for term conversion. It’s also telling how much interest they are crediting on current policy holder’s permanent plans.

There is also a distinction between recommending a life product that’s guaranteed, and those that are non guaranteed, that depend on crediting interest to the policy for cash value.  A guaranteed no-lapse universal life, G-UL, is very straight forward, as opposed to a performance based product like indexed universal life, IUL, or a traditional UL.  Term or return of premium term has a guaranteed level rate for a fixed period of time, but conversion options to a permanent plan without evidence of insurability is another key consideration, especially since so many people run into health problems in the 10, 20 or 30 years after their policy is taken out.

I will take a wait and see approach to American General.   They can prove their worth by proportionately crediting of their UL policy holders and expanding conversion options.

Indexed Universal Life (IUL) vs. Guaranteed UL vs. Term: the ages of man

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December 14, 2011

11:47 AM

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guaranteed universal life, Indexed Universal Life, IUL

After reviewing a number of consumer brochures for Indexed Universal Life (IUL), here are some thoughts on appropriate life insurance products.

30’s, 40’s and 50’s
The most basic and inexpensive life insurance product is term.   If you have children, make sure your death benefit figure is adequate to cover lost income and to provide for college.  A sense of obligation and prudence directs many parents pick up a $250k, $500k , $750k or $1m term coverage.   Really, 10 year term is not expensive.

It may be a great idea to start an Indexed UL, (IUL) for retirement planning,  but one compelling strategy involves a minimum death benefit to maximize cash value.  If you happen to get into killed in car wreck, die from cancer or whatever tragic early demise in your 30’s, 40’s or 50’s, the unspoken big question at the funeral will be, “How much did he leave?” or “she leave?”  not, “How much cash value was in the policy?”  What to cover both bases?  Consider two life policies: a term to replace lost income, and a permanent for retirement and estate planning.

55 and over
It’s simple.  Get a Guaranteed Universal Life, (GUL) also called No Lapse Universal Life.  Lock in coverage a fixed premium to age 121.  Put it on bank draft and let it run.  Rock solid guarantee.  It’s a competitive market, so premiums are favorable.  Death Benefit starts at $25,000.  The better quality GULs build a fair amount of cash value, and that may be used in your declining years to offset premiums.

Best Indexed Universal Life (IUL) for retirement income: How does AXA Equitable measure up?

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November 22, 2011

4:29 PM

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Cash accumulation, Cash Value, Guideline level premium, In Your 20's or 30's, In your 40's, Increasing death benefit, Increasing death benefit for cash accumulation, Indexed Universal Life, Internal rate of return, IUL, Maximum cash accumulation Indexed UL, Maximum cash accumulation IUL, policy illustration, Transamerica Life Insurance Company

Which is the best Indexed Universal Life (IUL) carrier for tax-free policy loans for retirement income?   AXA Equitable has been in 2011 a consistently leading seller for Indexed UL.  Let’s compare AXA side-by-side with other carriers to see how it performs.  AXA product features include four index options.  But beyond reviewing specs like rate caps and guarantees, the most useful way to evaluate carriers is to run policy illustrations using the the same premium and death benefit and compare projected returns.

The Indexed UL structure employed here is to overfund premiums with the minimum amount of death benefit to stay within IRS rules for tax advantaged life insurance.   Then in retirement income take the maximum amount of  tax free loans while still retaining a lifetime death benefit.

This Indexed UL strategy is an alternative for someone in their 30’s, 40’s and 50’s to directly investing in equity markets for retirement.  IULs allow you to take advantage of market gains without the downside risk.

Here’s what it looks like for a male age 44 putting in $25,000 a year for 20 years, and then starting at age 65 taking the maximum out in tax free policy loans for retirement income for the next 20 years, while retaining at least a $100,000 death benefit to age 121.  The death benefit starts at about $540,000 for each carrier and increases for years 1 – 20.

Carrier Cash Value
Year 20		 Death Benefit
Year 20		 Loan Amount
Years 21-40		 Cash Value
Year 41		 Death Benefit
Year 41
Lincoln  1,072,791  1,611,714   145,602  826,476  1,115,403
North American  1,144,104  1,683,029   147,248  658,775     981,056
Minnesota Life  1,100,898  1,655,898   137,217  584,737     876,987
John Hancock  1,085,171  1,323,908   139,719  614,556    913,093
Transamerica  1,065,637  1,630,637    95,000  215,254    346,582
AXA Equitable     995,284  1,534,207    86,402   98,473    212,604
Aviva     972,524  1,527,524   120,188 *
*yrs. 21-31 only		    83,677    204,366

I quoted AXA Equitable’s S & P 500 current rate which assumes 7.55% which is below the 8% plus range of S & P 500 rates assumed by other carriers, and that does have something to do with its lower cash value and death benefit accumulations on the chart at year 20.

Regardless,  AXA only uses a variable  loan rate which is currently illustrated at 3% policy yeas 1-10 and 2% thereafter.   The rate is the greater of 3% or published monthly average Moody’s Corporate Bond Yield.  Guaranteed not to exceed 15%.  They do not offer a fixed rate.

Since those loan payouts are not competitive with Lincoln’s 5% fixed rate or higher variable rates assumed by the other carriers, AXA Equitable does not appear be competitive.  Best way to find out which carrier is right for you is to request that I email you free quotes in the form of policy illustrations.

Carriers & Products quoted:

Lincoln National Life Insurance Company:  “Lincoln LifeReserve Indexed UL  (2011)”
North American Company for Life and Health Insurance:  “Rapid Builder IUL”
Minnesota Life Insurance Company:  “Eclipse Indexed Life”
John Hancock Life Insurance Company:  “Indexed UL”
Transamerica Life Insurance Company:  “Freedom Global IUL II”
Aviva Life and Annuity Company:  “Advantage Builder Series IV”
AXA Equitable Life Insurance Company:  “Athena Indexed Universal Life”

call Sean (910) 328-0447
email: spdrummey@gmail.com

Disclaimer:  Information and quotes are current and accurate to the best of my knowledge on November 22, 2011.  Product features and rates are subject to change.  Quotes are non-guaranteed projections based on current interest rates and cost of insurance. Tax information is general information only. Please seek professional tax advice for personal income tax questions and assistance.

Indexed Universal Life (IUL) compared to a ship’s journey

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November 17, 2011

10:38 AM

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California, Cash Value, Equity Indexed Universal Life Insurance, Estate Planning, Indexed Universal Life, Internal rate of return, IUL, Modified Endowment Contract, policy illustration, Variable Life Insurance, variable universal life, VUL

Think of IUL as a means to achieve desired goals: to build cash value and to provide a death benefit.  It is like going by yacht across the Pacific from California to Tahiti. This is a long journey, under many weather conditions, and this vessel is particularly designed to be safe and to reach its destination.

Prior to this life insurance that captured stock market, equity, returns was a more perilous journey.  Variable Universal Life, a VUL class yacht, was favored.  It is a sleek craft with the potential of performing very well (direct stock market participation), but like a yacht without an engine, it has proved to be risky for loss of cargo (cash value) and to capsize and sink (lapse).

So along came Indexed Universal Life as a safer alternative. It is like a powered yacht.  Call it a IUL class yacht.  She is backed by the ship builder (carrier) with no direct participation in the stock market.  She has a sail or multiple sails (Index Account).  Sails are designed for use when the winds are favorable (bull market) to build up the cargo (cash value) and ship’s value (death benefit).  If there is a typhoon (bear market) approaching, the ship’s owner can use the engine instead (Fixed Account).  If there are varying winds or doldrums, the owner may use both sail and engine (Participation Rate).  The owner must decide in advance which mode to use for a period of time (Segment).  This segment is generally one year.  When the segment is over, the yacht owner is awarded for its performance (Interest Rate Crediting ) that increases the value of the cargo (cash value) and yacht (death benefit).

Now this IUL yacht has a very sturdy deck (Floor).  Generally this deck is totally protected against leakage (0% market losses).  It may even a raised deck (1% or higher Floor).  As with a double hull, there are also guarantees in place for the ship not to sink (lapse).  These guarantees may be for a set period of time like 10 years, 20 years or for life.

There are, however, certain restrictions placed on the ship’s speed in favorable conditions.  The height of the mast is limited by the ship builder (Cap) or the top mast lowered (Spread).  The yacht owner may gain extra by increasing the volume of sail (additional premiums).   There are however certain rules as to how much sail is permitted (IRS rules for Modified Endowment Contract or MEC).

With an Indexed Universal Life cash value is built higher by increased premium contributions, and by gauging the direction stock market performance.  Ideally, when the market is in an upward trend, the owner has directed premium into a high performing index, and when the market is in a downward trend, premium is directed into a fixed account.  Regardless of choice or performance, the policy is protected against any losses by the floor.  It is similar to a powered yacht that sets the maximum amount of sail with favorable winds, and uses the engine when conditions are unfavorable.  There are various possible coverage goals.  Some may use an IUL for early cash value accumulation for retirement, others can use the cash value for premium payments in retirement and estate planning.

Keep in mind when reviewing Indexed UL products
Just as yacht makers may brag about the boat’s sails, engine and design, life insurance carriers will promote their Cap (e.g. 13%), Fixed Account guarantee (e.g. 3%), Floor guarantee (e.g. 1%) and other bonus features.   What is not evident is the product’s cost of insurance, expense and policy charges, the ship’s drag, how that affects the performance over a long period of time, especially 20, 30 or 40 years out.

How to Evaluate Competing Indexed UL Products
Fortunately, you don’t have to buy this IUL yacht after just reading the specs and trusting that it sails well.  Request from the agent a policy illustration to test the product’s projected future performance.  This will simulate how load and expense charges affect policy values, and compare that side-by-side with other carriers.  This will help determine the all important internal rate of return.  It’s similar to computer modeling a yacht race factoring each boat’s design, tonnage and various wind conditions.  The carrier’s financial strength and viability is another important consideration because cost of insurance and other expense charges are subject to change, and you are also selecting which carrier will perform best and deliver the best results over time.

Sean Drummey
Contact for a free quote
Phone: (910) 328-0447
Email:  spdrummey@gmail.com

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