Indexed Universal Life: The Dangerous Truth About IUL’s

Indexed Universal Life: Let's talk about the risks of an IUL policy. https://themoneyadvantage.com/indexed-universal-life-dangerous-truths-about-iul-risks/

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If you're considering using an IUL policy for privatized banking, I want you to watch this video first.

I want to outline the risks of an IUL policy that make it incompatible with privatized banking.

The father of Infinite Banking himself, Nelson Nash, said there was only one type of policy to for this concept.

Whole life insurance with high cash value that pays dividends, with a mutual company.

The reason for that is that you need guarantees. You need a guaranteed premium, guaranteed cash value dollar amount, and a guaranteed death benefit, and that's what a whole life policy delivers.

However, indexed universal life is trying to take advantage of the growth in the market without loss.

That's at least the assumption and the perception that's communicated when you hear upside potential and downside protection.

But here's what's happening within an IUL policy.

First, you pay your premiums. It's called a flexible premium, meaning that you can pay late or you can pay less, or you can pay not at all, and the policy is still supposed to work out for you.

The premium dollars go to pay your costs.

One of those costs is annually-renewable term insurance. With annually-renewable term insurance, you have an increasing cost of insurance every year as you age and get more expensive to insure.

So you have this rising cost inside the policy. Flat premiums, rising cost, means less premium dollars are left over at the end of that premium payment period.

The premiums leftover go over into the cash value component, which grows then at a rate of return that's associated with an index. That index is usually the S&P 500, but it can be another index as well.

If the index performs well, you'll earn a high interest rate, and if the index performs poorly or even drops in value, you'll have a floor, which means that you can't go negative in your crediting rate.

How does it apply to those guarantees we talked about in whole life insurance?

First, let's talk about the premiums. The premium inside of an IUL policy is not guaranteed. What do I mean by that? Well, an IUL policy shows that you have a premium due every single year, and they show that not increasing.

It sounds attractive that I can pay less or different than what's illustrated.

However, the insurance company also has the right to change premiums and not always in my favor.

They can raise premiums above what's illustrated, meaning that if I've committed to paying $30,000 per year to keep this policy in force, the policy still may require additional premiums to fulfill that commitment.

The reason is the rising internal costs in the policy.

If and when the premiums become inefficient to pay that rising cost of insurance, the cash value is your stopgap or the second source of paying for that cost of insurance.

If the cash value has grown sufficiently because you've hit the cap crediting rate every single year, you're probably good to go. But we can't guarantee that the market will perform that well (It's never happened).

If you perform at a mediocre level, you probably still will not have enough cash value.

Certainly, if you are coming down to the floor or a minimum crediting rate of maybe zero to 2%, you are not going to have sufficient cash value to cover those internal costs. Which means there's nothing to support the death benefit.

In that case, you don't have a life insurance policy.

If that happens, you need to pay additional premiums to keep this policy in force, or you're going to have to surrender the policy.

That's not where you want to be, especially in the later years of your policy like your 60s, 70s, and 80s when you are closer to the timeframe of needing it to pay out to your beneficiaries.

You also don't have a guaranteed cash value dollar amount.

Inside an IUL policy, yes, indeed you have a guaranteed minimum crediting rate. But if the minimum crediting rate is zero, your cash value isn't growing. If it's 2%, but your internal costs are 2 1/2%, your net growth rate is negative .5%.

You can go backward and lose money in your cash value.

A policy that I cannot count on paying out a death benefit is certainly not a policy that is compatible with privatized banking.

With infinite banking, you get predictable values in the future. Sure, they might be lower because you're not attached to the market, but having guarantees is much more valuable to your financial future.

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Видео Indexed Universal Life: The Dangerous Truth About IUL’s канала The Money Advantage