Equity Indexed Universal Life Insurance - pros/cons?

Question

I am looking at using this financial vehicle. Does anyone have any experience with it? Good? Bad?

Great info from all. Thanks. I know I have more to learn. I spoke with a financial planner who gave us some unique investment strategies that made sense, although "out of the box" of what little I had been told. I am always skeptical and like to learn for myself from independent third parties. I heard a segment on the radio from another financial planner with the exact same strategies we had recently heard from our local planner. When I hit his website he had a video explaining it. After watching the video it made more sense. www.cramgroup.com . As this is my families future, I would invite comments from anyone that could tell me why these investment strategies wouldn't work.

In summary, part of the advice is changing to interest only on the home, investing the "principal" into a secured EIUL, the principal is guaranteed, the money is secure, interest is capped, but track record shows it around 7% and you will eventually have enough to pay off the house and then have much more.

Answer 1

Do yourself a favor and read the book Missed Fortune 101 by Douglas Andrew. It is very easy for people to make various speculate about the most effective financially products and strategies. However, it really comes down to the each individuals financial situation and what they are trying to achieve. The author of this book, explains how you can use proper home equity management to create liquid, safety, and a rate of return on the otherwise lazy idle dollars trapped in your house. Buy term and invest the difference was an effective strategy in the 80's and 90's but the financial landscape has drastically changed in the last 5 years. So rather than listen to people speculate about EIUL and the various alternative investment strategies, read Missed Fortune 101 and make your own judgements and decisions on what makes sense for you and your families financial situation.

Answer 2

A lot has changed since this question was asked seeing it was over 7 years ago. The Equity Indexed Universal Life Insurance product is a risk mitigation tool that provides upside potential with downside protection. It is Life Insurance, and a bundled product so there are sales loads, mortality charges and other expenses that come along with it.

Term Life Insurance is a popular and often suggested life insurance product to provide income replacement, financial protection and peace of money for many Breadwinners and families. Today, more than ever it has never been easier finding a great term life insurance policy with low costs.

There comes a time during our lives where the thought of retirement and future expenses (i.e. college tuition if you have children) become REAL and saving money for the future is extremely important. There are many financial vehicles and tools available in today's marketplace to help grow your savings over time. Each vehicle has its purpose and appropriate uses. When used for the right reasons these vehicles can be great, but when abused or misused they are costly. Unfortunately that is the nature of the beast when it comes to the financial services industry. Hopefully someday in our lifetimes that will change. We live in the information age and like you, many research and exercise further due diligence before committing financial resources to any major financial decision.

There are many pros and cons to equity indexed universal life insurance. In full disclosure I am an independent life insurance agent, and have shared a well thought blog about the topic. In my opinion the equity indexed universal life insurance product is oversold based on a sales pitch. These products have not been around long enough to fully test market conditions and overall performance. Only the future will tell.

Ask a lot of questions to anyone pitching these products. It is your hard earned money and you have the right to know. Understand where your money is going and how it might or might not grow in the future. Request multiple scenarios like - what is best case, base case and worst case?

Answer 3

Cons:
1. Long surrender periods.
2. Higher cost of insurance internally, which is usually not disclosed.
3. Complecated vehicle to invest money in and hard to monitor.
4. High internal fees and expenses on the seperate accounts invested in the market.
5. Newer product not yet with a proven track record.

Pros:
1. The agent will get a nice commision.
2. The projections look great, yet rarely come true.
3. If you die the life proceeds are generally income tax free, oh yeah that would be the same for term insurance.

I like term insurance as the place to start. Then if you are maxed out on your retiremnt contributions, fund your Roth IRA and contribute to a non-qualified no-load mutual fund than consider whole life not EI UL.

Whole life has its place in some people's portfolios. As an example if you want to retire at 55, which is just about everyone now a days, then what are you going to live on? You can't get to your retirement account or your annuities until you are age 59 1/2.

You can have a non-qualified side account that was your invest the difference and take money from it. This is a taxable consequence when you pull money out. Non-qualified or after tax money is LIFO, last in (dividends and capital gains) first out, which is a taxable consequence.

This is ok but here is an alternative I have seen people looking at with permanent life insurance. Keep your non-qualified side account but also fund a traditional whole life plan from a good carrier, like New York Life, Northwestern Mutual or Mass Mutual. Over fund the insurance. As an example the premium is $100 month, dump in an extra $50 into a side account in the life policy. The reason I like whole life is that the premiums are locked in from the day you take it out and the cost of insurance will never go up.

This money grows tax deffered and when you do want to take the money out at age 55, life insurance is unique in that it is FIFO, first in first out. So your premium payments are withdrawn first and this is not a taxable situation.

This is a conservative vehicle but it could be a portion of your portfolio that you do not have to worry about it in the market. These projections are usually on par in today's low interest rate periods and the Internal rate of return on most will be 5-6% after 15 -20 years depending on your age, rating and company.

Lastly I see way to many people who are retiring that wish they would have taken out a whole life policy when they were in good health and younger. Why? They have enough assets to live on and their main goal is to leave a legacy to thier family. The best way to do that is with life insurance, bar none. Also the UL policies they have are way underfunded and they will fall apart soon if they have't already.

The equity index life insurance policy looks good but will it be there when you need it the most, at death?

Answer 4

Universal Life if you continue to fund it at the minimum amount owed will blow up on you. What I mean is when this couple was turning 70, the gentleman said it was going to be cancelled. I was called in to help, but I could not help him get his money back. So when you do this be careful.

What I would do, is buy term insurance and on the other side invest in an annuity (go shopping on these, look at the penalty in case you have to pull money out.) If you are self employed check out the SEP annuity.

Mutual Funds may help but when you die it will go through probate, whatever you do try to avoid that.

Answer 5

I agree with Av8r. Your return on this insurance will never match the returns of the equity index it follows, nor will you match the returns of a good mutual fund, either no-low, low-cost managed or index fund. If the return sounds high, check to see if some of it is a return of your principal (your own money). Insurance companies will try to hide that from you, knowing they don't sell the best product. They will prey in your paranoia, warning you about "probate" and making sure you know about the "guarantees." While talking to an 18-wheeler truck driver one day, we watched as another driver tried to fix his GMC truck. As he climbed into his Peterbuilt, the driver I was talking to said "Never buy a truck from a car company." I find that advice useful in many aspects of life. Yes, you can buy a pressed wood, snap together bookcase at Wal-Mart, but if you want a good one, good value that lasts many years, go to a furniture store, like Ethan Allen. Same thing with investments, go to an insurance company for insurance, and Vanguard, T. Rowe Price, Fidelity, Oakmark , etc. for mutual funds.

Answer 6

reading is much better the book maintains u thinking and you get greater detail in what folks are thinking and you simply have more imagination

Answer 7

Reading the reserve instead of viewing the movie is the best way to see what the author meant. Reading uses your imagination, hones your reading skills, and can transform your vocabulary

Answer 8

Waste of money.
First, you are paying a 50% commission the first year, and lower every year after.
Second, level term life insurance will cover your insurance needs, and you can invest the difference in mutual funds, etc.
In the long run, you will be much better off.

Answer 9

Universal life insurance allows you to save up money you may need later. However, the commissions and other expenses of universal life insurance suck away a lot of your money. You will make more money in the long run if you buy term life insurance and invest the money you save in an IRA, 401K, or no-load mutual fund.

If you look at financial sites not run by insurance companies, they are almost unanimous in recommending term life insurance. Look at big name sites like Yahoo, CNN, Motley Fool, SmartMoney.com and Kiplinger's, and they all recommend term life insurance for most people.

Equity Indexed Universal Life Insurance guarantees that you will not lose money if you hold it a long time. You can do this yourself cheaper without paying commissions to the insurance company. Simply put half your money in a money market IRA, and half in a stock mutual fund IRA. Held long enough, the money market IRA will double in value, guaranteeing you won't lose money even if the stock market crashes. This example is somewhat crude, but after reading the exact terms of your specific insurance contract, I bet I could come up with an investment program that would closely mimic it with less expenses. (Note that with the life insurance and this example, you can still lose purchasing power due to inflation.)

Read these sources and make up your mind for yourself. I like the Motley Fool articles best, but include others because I want to show a variety of opinions.

Sources:

Term vs. Universal Life Insurance Articles:
http://finance.yahoo.com/insurance/article/101749/Term_or_Whole_Life?
http://www.fool.com/insurancecenter/life/life06.htm
http://money.cnn.com/pf/101/lessons/20/index.html
http://www.smartmoney.com/insurance/life/index.cfm?story=whichtype0205
http://www.kiplinger.com/basics/archives/2003/03/life3.html


General Information on Life Insurance:
http://www.fool.com/insurancecenter/life/life.htm
http://finance.yahoo.com/how-to-guide/insurance/12823
http://money.cnn.com/pf/101/lessons/20/index.html
http://www.kiplinger.com/basics/archives/2003/03/lifeinsurance.html

Answer 10

That's an interesting question