IUL vs. Roth 401k/401k vs. Roth IRA/IRA

[17million]

The analysis is also kind of limited in its time frame. Also, how many people sink $100,000 or more into an IUL right off the bat?! So few.

The premiums paid in also factor in commissions, fees, and the cost of insurance. So to be fair, the amount of money put in the IUL would be more than $100,000. If you wanted $100,000 going into cash value, you have something like $200,000+ being the total upfront cost (I am just spit-balling a figure as it depends on many other variables not specified). If you wanted to do a fair analysis, you would have to factor in those other variables. The $100,000 going into cash value is contingent upon the other costs being met, so it cannot be ignored.

Ok so the $100,000 is just a number...change it to $10,000 and just move the decimal over on all the math...same point.

You are saying that the cost of insurance and fees would be over $100K over a 16 year span!? That's absurd. It would be nowhere near that. On that illustration I looked at for a $500K face amount IUL, the fees, cost of insurance, etc. were right at $1100 for the first year and then went down after that (probably because of not having to pay out the big commissions after that first year)...so let's just say the fees were $1100 a year for the 16 year time frame, that would only be $17,600. So therefore by those numbers, you would have to put in the $17K extra to have a return of over $100K more...still seems worth it in that aspect.

Putting aside the math, please consider the fact that many agents sell this stuff as an investment, while most consumers purchasing it are really just looking for insurance. This is a product that is SOLD, not BOUGHT. And it is sold for the wrong reasons.

If you want to sink money into one of these policies, be my guest. However, why are insurance company's so willing to give out the ceilings and floors? Because they will win long-term. The insurance company is not going to put together a contract where they lose money!

In regards to it being SOLD, yes maybe that is the case...but again it doesn't seem like a bad product (once you do a little digging) like most people were originally thinking.

Now in the case where someone was saying about borrowing against your policy and then reinvesting into it...I agree, that sounds ridiculous. That sounds like an agent trying to embellish to make a sale...I'm sure that would not be a recommended strategy and it doesn't even make sense to me.

Of course insurance companies make money...I can't even remember hearing about one "going under". They know what they are doing with the actuary tables and all. Obviously if they are willing to give you certain percentages, then they are making more...just like a bank, just like a bond, just like any investment for that matter...everyone has to make their cut, not just insurance companies.

[dczech09]

17million, you can buy whatever product you want and you can advocate as you wish. However, if you are going to promote IUL on this forum, just know that your audience will provide a lot of opposition.

In the end, my arguments are really summed into the following:

IUL, and other permanent life insurance policies, ARE NOT INVESTMENTS! Plain and simple. It is illegal for them to be sold as investments. So if I ever hear an agent selling these as investments, I will come down with the Hammer of Thor because that is misrepresentation! You cannot argue this fact.

IUL, and other permanent life insurance policies, have their uses for a small subset of people. Even for such people, it can be argued that while a cash value policy may "make sense" for them, it is not the best alternative. Advisors only have to make recommendations that make sense; they are not required to offer the best alternative (largely because it is subjective).

IUL, and other permanent life insurance policies, are not similar to Roth IRAs or other qualified plans. People need to stop conflating life insurance and qualified plans. They are completely different and have different purposes. The word "insurance" should be a clue as to what life insurance is designed to do.

Mechanically speaking, it is impossible for cash value in life insurance to perform better than traditional investments over the long-run. First of all, what are cash value investments based on? In most cases, traditional investments; or the insurance company reserves which are invested in traditional investments. Cash value life insurance also has fees. Yes, some policies offer "floors" and "ceilings." If the market performs well over the long-run, the upside is not captured by cash value insurance policies. If the market performs poorly over the long-run, the insurance company runs the risk of going insolvent thus being unable to honor the "floors" in cash value return.

There is always risk. To say that there is no risk in cash value life insurance is about as foolish as saying there is no risk with investing in certificates of deposit (risk is a two-way street).

Again, you can invest in whatever you want. However, you will face the opposing viewpoints on this forum. To paraphrase Dave Ramsey, about the only people who believe that cash value policies are good products are the people who sell them!

So, who do you sell for?

[solinor]

After reading this thread from beginning until end I've noticed a few things. #1 there are some extremely arrogant and close minded people on this forum. #2 nobody has a respose to 17 million's 100k illustration showing the iul wins in the end. All I heard is "of course the iul would win between 1998 and 2013 because there were two very deep recessions." Guys, this just in, we aren't living in the good old days of the market anymore. The market is artificially propped up right now and we're headed into another crash. The economy is not any better, it's slowly been getting worse and worse, and with all the current events going on in the world that we aren't at risk for another crash soon? I see a lot of optimism here about the current market, it's delusional. Everybody keeps talking about the insurance salesmans commission on an iul, but nobody has mentioned the 2% in fees most "financial planners" will charge. Hey this just in, series 6 financial planners receive commission too. That's not a bad thing imo, if there was no commission there would be no incentive to go out and sell the iul or the Ira! commission is an evil thing or something. In conclusion, my advice to all of you out here, stop listening to the wall Street journal, Forbes, and all those "experts" in finance. Think for yourself, do the illustrations yourself, and come to a logical conclusion based on the facts, not what the mainstream media tells you. Thanks

[feh]

After reading this thread from beginning until end I've noticed a few things. #1 there are some extremely arrogant and close minded people on this forum. #2 nobody has a respose to 17 million's 100k illustration showing the iul wins in the end. All I heard is "of course the iul would win between 1998 and 2013 because there were two very deep recessions." Guys, this just in, we aren't living in the good old days of the market anymore. The market is artificially propped up right now and we're headed into another crash. The economy is not any better, it's slowly been getting worse and worse, and with all the current events going on in the world that we aren't at risk for another crash soon? I see a lot of optimism here about the current market, it's delusional. Everybody keeps talking about the insurance salesmans commission on an iul, but nobody has mentioned the 2% in fees most "financial planners" will charge. Hey this just in, series 6 financial planners receive commission too. That's not a bad thing imo, if there was no commission there would be no incentive to go out and sell the iul or the Ira! commission is an evil thing or something. In conclusion, my advice to all of you out here, stop listening to the wall Street journal, Forbes, and all those "experts" in finance. Think for yourself, do the illustrations yourself, and come to a logical conclusion based on the facts, not what the mainstream media tells you. Thanks

People disagreeing with you does not mean they are close minded. Many of us have examined these products, and come to the conclusion they are a rip off.

You go your way, I'll go mine.

[disneysteve]

nobody has mentioned the 2% in fees most "financial planners" will charge.

Nobody has mentioned it because none of us are stupid enough to pay a "financial planner" 2% to do something we can do just as well on our own.

Most of my money is with Vanguard where expense ratios are extremely low. For example, my S&P 500 fund charges 0.05% in fees. That's 1/40th of what your supposed planner is charging.

Whole life is NOT an investment. It will never, under any circumstances, be a good route for 99.99% of the population. That isn't an opinion. It isn't being arrogant. It is just financial truth.

I so wish the whole life salespeople would just stay off of this site but hopefully having people post periodically gives us a chance to warn everyone else to stay away from these products.

[feh]

Guys, this just in, we aren't living in the good old days of the market anymore. The market is artificially propped up right now and we're headed into another crash. The economy is not any better, it's slowly been getting worse and worse, and with all the current events going on in the world that we aren't at risk for another crash soon? I see a lot of optimism here about the current market, it's delusional.

An accurate article regarding the current market:

http://www.fool.com/investing/general/2014/08/12/an-honest-stock-market-update.aspx

[dczech09]

Guys, this just in, we aren't living in the good old days of the market anymore. The market is artificially propped up right now and we're headed into another crash. The economy is not any better, it's slowly been getting worse and worse, and with all the current events going on in the world that we aren't at risk for another crash soon? I see a lot of optimism here about the current market, it's delusional.... Think for yourself, do the illustrations yourself, and come to a logical conclusion based on the facts, not what the mainstream media tells you. Thanks

This just in: the market crashed a few years ago and is recovering back to normal. Will it drop again? Without a doubt, sometime in the future. But to say that we are not living in the good old days?! I don't know about you, but today I make more money than I EVER have and I have more money in my name than I have EVER had! Many other people are in the same boat.

It is funny that you say come up with a logical conclusion based on facts, yet you're the one spouting off crap from MSNBC and/or Fox News. Pick your poison, I guess.

Just because we do not agree does not mean that we are close-minded. I have admitted that I believe cash value has its uses; my argument has been that of "best alternative," not "makes sense." Make sense?

And 2% to a financial planner?! What are you smoking? I AM my financial planner and I do not charge myself a commission or fee I pay expense ratios less than 1%. Thanks, but no cigar. And yes, financial professionals should make their fees and commissions if they provide a service. But you cannot justify the exorbitant fees on cash value policies in comparison to what would be charged on Class B, Class C, and even some Class A mutual funds.

And even yet, that is a false comparison as cash value policies are not even investments, which is the main argument of my side THAT HAS YET TO BE CHALLENGED BECAUSE IT CANNOT BE CHALLENGED!

[dczech09]

2. No contribution limits like any qualified retirement plans such as 401k, IRA, Roth IRA etc... Your insurance agent can run an illustration for you to see with your age, risk class, gender, mortality table what the maximum you can fund into this policy at the minimum death benefit.

Comparing life insurance to qualified plans is an apples and oranges comparison. It drives me crazy when agents pull this crap.

Sure you get "tax-free growth." But is it really "growth" as investment? I would argue no.

If you do have a real return (cash in a policy for more than premiums paid in), then taxes DO apply on the difference. This rarely, if ever, happens, especially since surrenders usually have hefty charges associated. You're not expected to make money in these. Do you know why? Because it is insurance! It is supposed to cost you money.

If and when a cash value policy executes, the beneficiary only gets the death benefit (not the cash value). The cash value goes to the insurance company to help cover the cost of the death benefit. Sure, you could purchase a rider which allows for the cash value to go to the beneficiary too, however it costs much more money and is really just like purchasing another policy.

Tell me again how this is like a qualified plan, except without a contribution limit? Tell me how that is a fair comparison. Quite frankly, qualified plans such as the Roth IRA or 401k are SO MUCH better!

Do anymore agents want to come on here and try to argue with us? I am really just getting started. I will not stop fighting against the crap because people coming to this forum looking for honest information ought to get honest information.

[17million]

Call it what you want...

It's not about telling me to "buy whatever you want". I am trying to play Devil's Advocate here. I am speaking 100% numbers...and numbers are facts! This has nothing to do with opinions. I ran some more numbers from 1998 to 2013 for an IUL (not Whole Life...people stop saying Whole Life, this is different). Yes, I am comparing an "investment" to an Index Universal Life Cash Value Policy because I don't care what you call it (whether you can say the word "investment" or not) or what name you want to give it...all i care about is the bottom line! If I put my money in, how much can it turn into and can I take it out? That's all that matters, right? So let's just call an IUL "garbage" as the name. So if I put the same amount of money into this "investment" over here in a 401K/IRA/etc. and then same amount in this "garbage" over there...and I make more money in garbage, then I want GARBAGE lol! Get it? Who cares about what you want to call it!

So the numbers I am running are comparing $100,000 into any kind of Mutual Fund/401K or whatever that invests in the S&P 500...and THEN I am going to say that you put $100,000 into an IUL and for some reason you pay a super-high ridiculous cost of insurance of $25,000 from 1998 to 2013 (when the IUL was first created) so we will say that only $75,000 goes into the "Cash Value". So here goes:


Index/Mutual Fund/401K

Starting Cash = $100,000.00

1998 28.58% $128,580.00
1999 21.04% $155,633.23
2000 -9.10% $141,470.61
2001 -11.89% $124,649.75
2002 -22.10% $97,102.16
2003 28.68% $124,951.06
2004 10.88% $138,545.73
2005 4.91% $145,348.33
2006 15.79% $168,298.83
2007 5.49% $177,538.43
2008 -37.00% $111,849.21
2009 26.46% $141,444.51
2010 15.06% $162,746.06
2011 2.11% $166,180.00
2012 16.00% $192,768.80
2013 32.39% $255,206.61


Now the IUL from a company I found with a floor of 0.75% and a ceiling of 15%:


IUL Cash Value

Starting Cash = $75,000.00

1998 15.00% $86,250.00
1999 15.00% $99,187.50
2000 0.75% $99,931.41
2001 0.75% $100,680.89
2002 0.75% $101,436.00
2003 15.00% $116,651.40
2004 10.88% $129,343.07
2005 4.91% $135,693.82
2006 15.00% $156,047.89
2007 5.49% $164,614.92
2008 0.75% $165,849.53
2009 15.00% $190,726.96
2010 15.00% $219,336.00
2011 2.11% $223,963.99
2012 15.00% $257,558.59
2013 15.00% $296,192.38


The IUL wins even though it starts with $25,000 less! Plus if at any time you pass, your beneficiary gets BOTH the Face Amount of the policy AND the cash value (NOT just the face amount). Plus tax free distributions/loans or however you want to word it. 0% to 1% Loans (depending on if the policy has been in effect for 10 years or more) that don't have to be paid back as they will just take away from your cash value (so basically like withdrawing).

Please correct any of my numbers if I am wrong or let me know if I am missing anything. I know some of the old ways that "Whole Life" worked is what most people are thinking about (your beneficiary only gets the greater of the 2...either the cash value or the face amount)...but this is different...I am talking about IULs. I understand if people are stuck in their ways of thinking but I am always trying to look at both sides of any coin and play devil's advocate. This is what I have come up with on the research I have done. I am completely open-minded and open to any way of looking at things...but I need to see facts. Show me the numbers!

[17million]

In case the numbers are showing all jumbled above, I made them look more readable here:


Index/Mutual Fund/401K

Starting Cash = $100,000.00

1998 - 28.58% = $128,580.00
1999 - 21.04% = $155,633.23
2000 - -9.10% = $141,470.61
2001 - -11.89% = $124,649.75
2002 - -22.10% = $97,102.16
2003 - 28.68% = $124,951.06
2004 - 10.88% = $138,545.73
2005 - 4.91% = $145,348.33
2006 - 15.79% = $168,298.83
2007 - 5.49% = $177,538.43
2008 - -37.00% = $111,849.21
2009 - 26.46% = $141,444.51
2010 - 15.06% = $162,746.06
2011 - 2.11% = $166,180.00
2012 - 16.00% = $192,768.80
2013 - 32.39% = $255,206.61


Now the IUL from a company I found with a floor of 0.75% and a ceiling of 15%:


IUL Cash Value

Starting Cash = $75,000.00

1998 - 15.00% = $86,250.00
1999 - 15.00% = $99,187.50
2000 - 0.75% = $99,931.41
2001 - 0.75% = $100,680.89
2002 - 0.75% = $101,436.00
2003 - 15.00% = $116,651.40
2004 - 10.88% = $129,343.07
2005 - 4.91% = $135,693.82
2006 - 15.00% = $156,047.89
2007 - 5.49% = $164,614.92
2008 - 0.75% = $165,849.53
2009 - 15.00% = $190,726.96
2010 - 15.00% = $219,336.00
2011 - 2.11% = $223,963.99
2012 - 15.00% = $257,558.59
2013 - 15.00% = $296,192.38

[disneysteve]

17million can you please provide some sort of documentation of the IUL you are referencing with proof that it actually paid a 15% return in 8 of the last 15 years? I don't mean projections that an agent gave you but actual proof that those returns were actually achieved. Also, a link showing that the benficiary gets the full face value AND the full cash value upon the insured's death.

Since the expenses built into the IUL are phenomenally higher than those of the outside investment, I find it impossible to believe that the numbers you have posted are real but I'm open to being proven wrong.

ETA: The fact that you are choosing the time period encompassing the worst recession in 6 decades to illustrate your point can't be ignored.

[17million]

17million can you please provide some sort of documentation of the IUL you are referencing with proof that it actually paid a 15% return in 8 of the last 15 years? I don't mean projections that an agent gave you but actual proof that those returns were actually achieved.

No agent gave me these projections...I did these numbers on my own...simple math based on the current rates they offer and then just going backwards. I do not own one of these myself but I was "pitched" one about 6 months ago and I was a little reluctant myself. So I got curious and wanted to find out on my own what was the ins and outs of them. As you probably know, almost every company has a form of IUL now. Many people don't know exactly what they are or how they work. I've been calling and asking a lot of questions...and internet searching a bunch. In searching the web, I've been trying to read through all the sales pitchy pushy people and read through all the negative or closed-minded people who still think all perm policies are "Whole Life" and don't know how they really work...basically just trying to cut through all the crap and opinions and find out the real deal. So anyhow, they all have different pros/cons ceilings & floors. I.E. Nationwide I think it was 0% (floor) and a 12.5% (ceiling/cap) but they have a higher participation rate of 140%...so whatever the market is multiplied by 1.4 with a max of that 12.5% ceiling (so this one would seem to perform well if the market is stuck in the single digit percentages). Then there was ING who had a much higher cap and even uncapped on a certain product I believe, but the participation rate was only 70%. The other one was Western Reserve Life that was 15% ceiling and 0.75% floor with a 100% participation rate...but that was just raised to that 15% ceiling recently, it was a 13.5% ceiling before this year. There are also some other options that all of these companies use by combining with the Hang Seng & Euro Stoxx 50 but for simplicity of math, I did "apples to apples" with just the S&P 500.

Also, a link showing that the benficiary gets the full face value AND the full cash value upon the insured's death.

The following should help explain how that works. The way I am talking about where your cash value is immediately added to the face amount and BOTH are paid to beneficiary is called the "Increasing Death Benefit". This link should explain it in detail:

financialhealthblog.blogspot.com/2009/07/cost-of-insurance-and-death-benefit(dot)html

(It won't let me post URLs until I have 15 posts so please decipher what I put above)

Since the expenses built into the IUL are phenomenally higher than those of the outside investment, I find it impossible to believe that the numbers you have posted are real but I'm open to being proven wrong.

Ok, so let's say they are "phenomenally" higher...I factored in $25,000 for this and I think this $25,000 should fit right into what you are saying...as a matter of fact $25K should be "above phenomenal" lol. But still, with me factoring in numbers with that $25K less...the IUL wins...PLUS it's tax free based on staying in the guidelines of IRC code 7702. PLUS it's a $1,000,000 death benefit on top of that cash value. Believe me, I said I was reluctant myself before so I know...but I did a ton of research and now I really just don't see what is so terrible about this that everyone was saying. I think the facts may have all been mixed up and confused with Whole Life (which IS crap lol).

ETA: The fact that you are choosing the time period encompassing the worst recession in 6 decades to illustrate your point can't be ignored.

I don't understand what you want me to do...do you want me to run numbers in the 1960's, the 1970's, the 1980's? If I did that then someone would argue that it was not a good source because it was too long ago. All I did was the most recent years starting in 1998 when the IUL was first created and stopped last year! That's all I can do that makes sense to me...the most recent.

[disneysteve]

No agent gave me these projections...I did these numbers on my own...simple math based on the current rates they offer

That would be great if those returns actually existed. THEY DON'T! Those numbers are fantasy. Go ahead and sign up if you wish but don't say we didn't warn you. If you are lucky, you might see an average annual return of 1-2% and that's pushing it. Far, far more likely is that your cash value will NEVER exceed the amount you paid in. Your projection is based on predictions that they use when they sell these policies but they are not guaranteed and don't actually exist. In fact, it is not unusual for the policies to LOSE value when the market is low because expenses still get taken out so you can and will have years with a net loss which you didn't account for in your illustration. You didn't include any losing years in your example.

[jIM_Ohio]

That would be great if those returns actually existed. THEY DON'T! Those numbers are fantasy. Go ahead and sign up if you wish but don't say we didn't warn you. If you are lucky, you might see an average annual return of 1-2% and that's pushing it. Far, far more likely is that your cash value will NEVER exceed the amount you paid in. Your projection is based on predictions that they use when they sell these policies but they are not guaranteed and don't actually exist. In fact, it is not unusual for the policies to LOSE value when the market is low because expenses still get taken out so you can and will have years with a net loss which you didn't account for in your illustration. You didn't include any losing years in your example.

Steve, add in that if you buy term, then invest the difference in OPTIONS you can mimic the IUL model much cheaper and can manage investments and insurance by de coupling them.

[dczech09]

17million, perhaps there is a disconnect in our communication. My argument has been that whole life, universal life, IUL, and all other cash value/permanent life insurance policies are LIFE INSURANCE POLICIES. They are not investments. They are not recognized as such, legally speaking, and do not run mechanically as investments. On a standard policy, the cash value does NOT go to the beneficiary, surrenders are in fact taxed if they exceed paid-in premiums, and any distributions from the living benefits are LOANS. Cash value is also legally the property of the insurance company unless the policy is canceled early. This is all proof that it is not some "savings account" or "investment."

Your garbage comments do not really carry water here. I can counter that by saying that "you can put a tuxedo on a goat, but it is still a goat." No matter how you dress it, life insurance is life insurance.

Comparing mutual funds within a Roth IRA, 401k, etc, versus "investing" money into a life insurance policy is not an apples-to-apples comparison; it is more like apples and tuna fish. Two completely different product lines; two completely different mechanics; two completely different purposes.

I do not mean to be "close-minded," and I do not think I am being close-minded. In fact, I have stated plenty that I do believe that cash value insurance CAN serve a purpose to small population of people. My view points continue to evolve as I am beginning to even question that as I am seeing that people in situations where cash value may be warranted could still be best served with other means of financial planning.

I appreciate that you are using numbers and trying to use fact. However, your numbers exclude many variables that really cannot be determined. What are the REAL returns provided by an IUL after fees? Fees for these policies are EXTREMELY high, and when you consider an "Increasing Death Benefit" policy which allows both the cash value and face value to go the beneficiary, the fees are simply astronomical as you are in essence buying more insurance. It is not unusual for premiums on those types of policies to be DOUBLE what a standard policy would charge. Think of it as buying a policy with a face value that remains steady, AND a policy with a face value that increases. So we are talking variable costs here.

I do not like the fact that your analysis only covers 15 years, and you are including a massive recession without any longevity for a more accurate analysis. You need to apply the law of large numbers because investing and cash value life insurance are very long-term. At face value, one could argue that you analysis has a selection bias. That could easily be altered by extending the time period to say 40 years (the average working lifetime as an example).

I am simply trying to make sure that people reading this forum are getting good information. And when somebody starts conflating investing and insurance, red flags immediately pop up in my head. Call me a "whistle-blower" but it bugs me when people do this. When someone starts talking about a return on investment within a life insurance policy (even agents who do this), it tells me that they do not understand the product line.

The devils advocate approach is a great element to apply on the forum, but we need to make sure we are using good information while being appropriate with the application of the information. Simply looking at the fact that all cash value life insurance policies, are in fact life insurance policies, should eliminate the need for such a long thread. Unfortunately it does not as many people seem to spout the same trash that I have been fighting against for years.

I apologize if I have come off as harsh; that is not my intention. Life insurance is a great topic and is a lot of fun to study. I truly do enjoy it, but I get tired of people trying to compare it to traditional investments. I catch A LOT of garbage from agents and get hate emails every so often. This subject is very important, but is also very controversial!