Robert Powell at MarketWatch wrote about the boom in indexed universal life insurance, and who should and should not buy one. Insurance is sold, not bought, and that is especially true of IULs, which come with caps, participation rates, surrender periods, policy expenses and rising insurance costs that many buyers do not fully understand.
I told Robert I have spent years reviewing IUL illustrations and watching clients make decisions based on projections that do not survive contact with the policy they actually own. The illustration assumes a steady index return, a stable cap and level costs. The real policy delivers a capped return in good years, zero in bad ones, and insurance charges that climb every year the client ages. The gap between the two shows up in year eight or ten, when the cash value is far below the chart and the premium cannot be reduced without the policy lapsing.
That does not mean nobody should own one. The best candidates are usually people who have already maxed out traditional retirement accounts and can commit to funding the policy aggressively for at least 15 years. That last condition is the one most salespeople skip. An IUL that is underfunded is an expensive way to own a small death benefit.
If you are being shown one, ask for the illustration at a 4% assumed return and at current cost of insurance. If the policy still makes sense, it may be right for you. Usually it does not.
Read the full article at MarketWatch →
