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

[17million]

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.

This is opinion what you are saying. Just because you say it passionately and with bold capital letters doesn't make it true. What I am telling you is in print...in company brochures and you can get it from any company if you call and ask or even go to their website. And here comes the comment "Don't believe everything you read", but you know they can't just put bold face lies on any advertising materials...there are strict guidelines as to what can go on printed material.

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.

I accounted for starting with $25,000 less so I basically was using $25,000 as a cost of insurance. Isn't that a fair assessment to show any fees over the time frame stated?

[Petunia 100]

This is opinion what you are saying. Just because you say it passionately and with bold capital letters doesn't make it true. What I am telling you is in print...in company brochures and you can get it from any company if you call and ask or even go to their website. And here comes the comment "Don't believe everything you read", but you know they can't just put bold face lies on any advertising materials...there are strict guidelines as to what can go on printed material.

Ask to see the ACTUAL returns, not projected. Ask how you can verify the numbers.

[disneysteve]

they can't just put bold face lies on any advertising materials.

Sure they can, by calling them "projections" and adding some fine print somewhere that says something like "These returns are not guaranteed. Your account may lose money."

Ask to see the ACTUAL returns, not projected. Ask how you can verify the numbers.

Exactly. The numbers you are looking at aren't real.

[dczech09]

This is opinion what you are saying. Just because you say it passionately and with bold capital letters doesn't make it true. What I am telling you is in print...in company brochures and you can get it from any company if you call and ask or even go to their website. And here comes the comment "Don't believe everything you read", but you know they can't just put bold face lies on any advertising materials...there are strict guidelines as to what can go on printed material.

Clearly you have not seen any commercials with disclaimers. I used to be a financial advisor bud (I left the business because my firm, and other firms, are strict on selling only these types of policies no matter the client situation). I know for a fact that there is a difference between what is advertised and what one really gets.

"Buyer beware."

It is not lies if they put a nice little disclaimer saying that the "returns are not guaranteed." It is like how they get away with mutual fund and variable annuity returns by saying "historical performance is not indicative of future performance."

Get the REAL returns, not some brochure. And more than likely, they will only give you the REAL returns if you are a client and policy-owner (they HAVE to do so in that case).

I accounted for starting with $25,000 less so I basically was using $25,000 as a cost of insurance. Isn't that a fair assessment to show any fees over the time frame stated?

No it is not a fair assessment. That would be like me, as a business auditor, saying "I estimated your payroll, and am charging you as if it were real payroll."

Get the REAL information, then you can make a real assessment. The problem is it is really difficult to get the REAL information without first being a client/policy-owner. They keep fee structures, real returns, and other pertinent information under lock and key.

I do not know why you are so defensive over a product you (supposedly) only have considered purchasing. You say that you want to make a fair assessment, however your words and vociferous defenses tell me that you may actually be a cash value life insurance salesperson. If you are, that is fine. However, hiding it at this point is highly deceptive and unethical.

[17million]

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."

By a legal standpoint, yes I believe that they have to do it a certain way and by the use of LOANS...but Loans with a 0% interest rate that you don't have to pay back...well call it what you want but sometimes you have to read between the lines and take advantage of "loopholes".

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.

Again though, I don't care what it is called if it can benefit me while living or upon death to my kids.

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.

It is a valid comparison in the sense that if I put my money here in product "A" or here in product "B". Of course you can compare 2 different things...that's the whole point.

Also, I wanted to ask...why is there a maximum on the amount you can contribute to your IUL per year? There is a guideline set in place (based on the face amount of the policy) and it allows you up to a certain amount of money that you can overfund the policy with per year before it becomes taxable. It seems that a maximum would be put in place to stop people from abusing the "tax-free" advantages. If there were no advantages of this type of policy, then why would there be strict guidelines and maximums on how much you can put in before it becomes taxable?

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.

And again, I started with $25,000 less to account for that.

You guys are stuck in your ways and very strongly opinionated, I get it, but nobody is debunking the numbers I am showing except you keep saying "it's not real". Why not? I want to see REAL evidence, real numbers. Give me some proof that it is a bold face lie as you say. I gave a very simple scenario with $100K in the "market" vs. $75K in a IUL (plus a $25K cost of insurance). So I had $100K as a Mutual Fund (which is taxable) vs. $100K in a IUL non-taxable which ALSO includes a death benefit...and I accounted for $25K of COI and the numbers still come out better.

Show me somewhere that says somebody was ripped off by dumping a bunch of money in something like an IUL and that it turned into nothing.

I can have someone run a illustration...but like I said, I do not have one of these...it was just mentioned to me around 6 to 8 months ago and then I started looking into it. All I have is a mutual fund in place right now which I've had since the mid-90's. I am mid-30's, married with kids and I have no life insurance. I started looking into this like I said 6-8 months ago because yes, it seemed "too good to be true" to me as well. I just want something in place by the end of this year for me & my family and I was doing some hardcore research to make sure I make the right decision.

I know you have said something a while back like "it's mechanically impossible" for it to outperform the market because it invests in the market. Well every company I talked to made it a point to say that it just "mirrors" the market and they don't actually invest in the market...you are just credited interest based on how the market performs.

So I know that less than 2% of all term policies ever pay out, and I don't feel like googling that right now and finding the source again but I'm sure nobody would disagree about this anyway. So it would seem that insurance companies are profiting 98%, right? Therefore, they can afford to pay you that range of 0.75% to 15% or whatever each policy may be.

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).

Ok, again...all I did was the most recent years since the IUL was invented. It's not some intentional deceit or anything...I'm not trying to sell anything. However, I shall try to run some numbers for a longer time frame when I have some time to suit you...or you could.

[17million]

Ask to see the ACTUAL returns, not projected. Ask how you can verify the numbers.

It wasn't projected...I went backwards with real numbers. Projected would be like an illustration going forward right

[17million]

Sure they can, by calling them "projections" and adding some fine print somewhere that says something like "These returns are not guaranteed. Your account may lose money."

Well that would be the case in any mutual fund or anything for that matter...not just a IUL. Nothing is GUARANTEED unless you get some super low interest rate. However, they DO guarantee the floor of 0.75% which IS in writing.

Again, I am trying to figure out what makes logical sense to me and my family no matter what you want to label it or call it. I've had these concerns and asked these questions...so I am just pointing out facts that I have found out. The guaranteed floor is one of them.

[17million]

Clearly you have not seen any commercials with disclaimers. I used to be a financial advisor bud (I left the business because my firm, and other firms, are strict on selling only these types of policies no matter the client situation). I know for a fact that there is a difference between what is advertised and what one really gets.

"Buyer beware."

It is not lies if they put a nice little disclaimer saying that the "returns are not guaranteed." It is like how they get away with mutual fund and variable annuity returns by saying "historical performance is not indicative of future performance."

Yes, I agree...but that is with any investment or policy or whatever you want to call anything else. The IUL product I mentioned all have guaranteed floors of 0% to 1% and I've been told there are ones with higher floors which I haven't found myself yet. So they guarantee no loss, but of course they can't guarantee some 10% or something like that unless you get a 3% or 4% fixed interest rate.

No it is not a fair assessment. That would be like me, as a business auditor, saying "I estimated your payroll, and am charging you as if it were real payroll."

Lol...that's funny. I just knocked off $25K for a cost of insurance over 16 years for sake of argument. I figured the fees would be much less than this over the course of those years...are you saying it would be astronomically more? Why? Is that an opinion or a fact?

I mentioned a while back that I got a quote for a $500K IUL and I saw the fees and coi was around $1100 the first year. I didn't see the following years but it should be much less, right? I can find out for sure if I call and ask.

Also, maybe I need to put up a craigslist ad for someone who has had an IUL for the last 10 or 15 years and do some research on that.

[Petunia 100]

It wasn't projected...I went backwards with real numbers. Projected would be like an illustration going forward right

Where did you get the "real" numbers?

[17million]

Where did you get the "real" numbers?

The real S&P 500 %s

[Petunia 100]

The real S&P 500 %s

That does not tell you what the insurance product actually paid to policyholders.

[dczech09]

By a legal standpoint, yes I believe that they have to do it a certain way and by the use of LOANS...but Loans with a 0% interest rate that you don't have to pay back...well call it what you want but sometimes you have to read between the lines and take advantage of "loopholes".

All withdraws from a cash value policy are either by loans or surrendering the policy. There is no middle ground. It is either a LOAN because you are borrowing from the insurance company (think of how you borrow your "home equity" from a bank), or it is a surrender in which case the insurance company is required to provide you with any residual value of the policy that is in excess of the mortality charges and fees charged up to the point.

You are charged interest on loans. Either you pay the interest as it applies, or the death benefit will cover when you pass away. Either way, interest will be assessed and you pay it one way or another.

Again though, I don't care what it is called if it can benefit me while living or upon death to my kids.

Again, you are completely missing my central point in all of this. Cash value is mechanically NOT an investment, so treating it as such for even simple illustrations is unfair.

It is a valid comparison in the sense that if I put my money here in product "A" or here in product "B". Of course you can compare 2 different things...that's the whole point.

Also, I wanted to ask...why is there a maximum on the amount you can contribute to your IUL per year? There is a guideline set in place (based on the face amount of the policy) and it allows you up to a certain amount of money that you can overfund the policy with per year before it becomes taxable. It seems that a maximum would be put in place to stop people from abusing the "tax-free" advantages. If there were no advantages of this type of policy, then why would there be strict guidelines and maximums on how much you can put in before it becomes taxable?

You are referring to MEC. The reason why these rules were set forth was because back in the high inflationary periods of the 70's and 80's, rich people were using these policies as a loophole in order to avoid taxes. The government since regulated the practice so as to eliminate the loophole (legal incentive). This does not mean that the product is a good product; it merely means that there was a way to arbitrage the market place and the legal place back in the day. Those days no longer exist under current law.

And again, I started with $25,000 less to account for that.

You guys are stuck in your ways and very strongly opinionated, I get it, but nobody is debunking the numbers I am showing except you keep saying "it's not real". Why not? I want to see REAL evidence, real numbers. Give me some proof that it is a bold face lie as you say. I gave a very simple scenario with $100K in the "market" vs. $75K in a IUL (plus a $25K cost of insurance). So I had $100K as a Mutual Fund (which is taxable) vs. $100K in a IUL non-taxable which ALSO includes a death benefit...and I accounted for $25K of COI and the numbers still come out better.

You cannot merely start with $25,000 less and believe that will cover it. Fees are usually assessed monthly or annually.

Instead of using simply annual figures, I pulled S&P500 index returns from 1998 through 2013 (the same period that you used). I applied the minimums and maximums, and also assumed a 2% annual fee on the IUL (charged once per year). 2% in fees is conservative for such a program, especially in the early years.

Assuming a Roth IRA as an alternative investment with no annual maintenance fees due to account balance incentives (I have such a thing myself), and no investment fees since we are investing in an index fund that is fixed and requires no management...

The Roth IRA ended with a balance of $189,567.61
The IUL Policy ended with a balance of $177,970.94.

AND I even allowed the IUL policy to begin with a cash value of $100,000 (assuming no fees pulled out at the start).

For entertainment's sake, I decided to run the analysis THAT YOU RAN on a daily basis. The Roth IRA still won.

The Roth IRA money is pulled out tax-free. The IUL policy cash value can be pulled out, however there would be a surrender charge and there would be taxes if the cash value exceed premiums paid.

The Roth IRA money can be pulled out tax-free in installments. The IUL policy cash value can only be pulled out in installments as loans against the cash value which costs money in interest (that you would pay out of your own pocket). If the policy is MEC, the loans may be subject to tax as well.

All of this assumes that the insurance company holds to the 0.75% floor and 15% cap. If the insurance company is unable to provide those returns and still remain solvent, or worse yet if the go belly-up, you could lose the cash value which may only be insured to a certain amount (like the original $100,000 investment). So it is not like this is without risk.

Show me somewhere that says somebody was ripped off by dumping a bunch of money in something like an IUL and that it turned into nothing.

I do not have an example right now. However these policies are under increased investigation and many financial advisors offering these policies are in arbitration.

I can have someone run a illustration...but like I said, I do not have one of these...it was just mentioned to me around 6 to 8 months ago and then I started looking into it. All I have is a mutual fund in place right now which I've had since the mid-90's. I am mid-30's, married with kids and I have no life insurance. I started looking into this like I said 6-8 months ago because yes, it seemed "too good to be true" to me as well. I just want something in place by the end of this year for me & my family and I was doing some hardcore research to make sure I make the right decision.

Completely understandable. And I appreciate that you want to make a fair and honest comparison. However, it is very difficult comparing these things apples-to-apples. I did so above for sake of entertainment, however I would like to point out that I did so in protest I still do not believe it is a fair comparison. But, with me using your numbers/time period, you can argue all you want but you would really be arguing with yourself

I know you have said something a while back like "it's mechanically impossible" for it to outperform the market because it invests in the market. Well every company I talked to made it a point to say that it just "mirrors" the market and they don't actually invest in the market...you are just credited interest based on how the market performs.

Exactly. They do not actually invest your cash value; they just mirror the market and credit interest based on the market performance, while using the floor and cap. In the long-term, by applying law of large numbers, and by applying statistical analysis (which is used for project future investment returns), it is impossible for the program to outperform the market as it is indexed to the market. The longer the time frame that we apply, the closer the average annual return of the IUL would equal the average annual return of the index.

In the short term, it could very well over-perform or under-perform, but that would subject any analysis to a bias. We have to use a long time period for a better view (like I stated in a prior post, 40 years as the average working life time for example) as we can then apply law of large numbers.

So I know that less than 2% of all term policies ever pay out, and I don't feel like googling that right now and finding the source again but I'm sure nobody would disagree about this anyway. So it would seem that insurance companies are profiting 98%, right? Therefore, they can afford to pay you that range of 0.75% to 15% or whatever each policy may be.

No need to post your source. Most people on this forum understand that less than 2% of all term policies pay out.

However, isn't that a good thing? That means that people are living longer!

The purpose of life insurance is not about getting a "return on investment." The purpose of life insurance is about protection. Plain and simple. We want to protect our loved ones from financial catastrophe that could result from untimely death. Whether it be protecting from the effects of debt or the effects of a loss of income, we want to protect our loved ones if we do not yet have a sizeable nest egg built up. So we purchase life insurance for that purpose.

The need for life insurance is thusly temporary and is only really necessary while we have people financially dependent on us and we do not yet have enough money saved up to cover the loss.

Financial advisors use the whole 2% thing all the time. It is a VERY common sales tactic, but it completely ignores what the purpose of life insurance is.

[dczech09]

That does not tell you what the insurance product actually paid to policyholders.

This is very true. This is why you need to get REAL numbers which show what a policy really paid. The REAL return will be eroded/reduced by fees.

[dczech09]

Lol...that's funny. I just knocked off $25K for a cost of insurance over 16 years for sake of argument. I figured the fees would be much less than this over the course of those years...are you saying it would be astronomically more? Why? Is that an opinion or a fact?

Based on my analysis, which broke things downs on a daily level and applied an annual 2% fee charged annually on the policy (which is conservative), the total fees paid from 1998 through 2013 would have been $44,646.34.

I assumed no fee up front and assumed that the full $100,000 went to work at the start.

[doingitallwrong]

nobody is debunking the numbers I am showing except you keep saying "it's not real".

You might find these helpful.

http://www.hullfinancialplanning.com/an-evaluation-of-an-indexed-universal-life-plan/

http://www.hullfinancialplanning.com/another-evaluation-of-an-indexed-universal-life-insurance-policy/