Universal life insurance is often used by so called "same money" salesman and organizations as a viable way to grow money with no risk. However, that couldn't be farther from the truth. In this financial video we talk about universal life insurance and why its counterparts--indexed universal life insurance and variable universal life insurance--are not the safe investments they are being sold as. Although they often might look good on paper, IUL and VUL policies have some major roadblocks that you might not see right away. "Why IUL and VUL are set to IMPLODE!
Hi this is Dan Thompson
We are going to talk about the implosion that could happen by owning any universal life policy, but in particular an IUL or VUL.
For clarification an IUL is an Indexed Universal Life Insurance product and a VUL is a Variable Universal Life Insurance Product.
They both have very similar characteristics in their design.
Both the IUL and the VUL have a growth or a savings component,
both can take flexible premiums
and both of them use one year renewable term to provide the death benefit.
Let me say from the outset that these products have some sizzle to them.
In fact if they actually performed as illustrated, it would be very tempting to use them in my practice and to own one myself.
Before we get there, let’s first discuss the main differences between the IUL and the VUL.
Let’s keep it really simple.
The VUL or the Variable Universal Life is named such because the returns can vary from year to year and you can even lose money.
You essentially choose what are called sub-accounts.
A sub-account you might know better as mutual fund.
Basically a sub-account is a mutual fund.
Whatever funds you choose, you then take the risk that the markets and those funds perform.
You can loose money in the bad years and make money in the good years. The risk is all on you.
The insurance company nor the investment fund’s managers take any responsibility for losses you incur
As said before the IUL and the VUL have some “sizzle.”
The sizzle is to give you the impression that you can get above average return inside of the benefits of an insurance policy, namely tax advantages for both income and death benefit.
But the risks that can be very costly.
The Indexed Universal Life policy is as the name implies an indexed product.
This means your overall return is tied to an index, but you do not invest into sub-accounts or the market directly.
There are several indexes, the most common being the S&P 500 index.
An index UL buys options on the index to benefit when it goes up, but eliminates the downside in the bad year.
Unlike a VUL it can’t lose money due to market declines.
Because your money is not “in the market” you benefit when the index goes up, but in the years it goes down you stay flat or get a Zero for the year.
That is part of the sizzle, that sounds great doesn’t it? You can go up, but not go down.
An Indexed UL is certainly less risky than the Variable UL where you can actually lose money when the market tanks significantly and even get wiped out if it’s bad enough.
So as we move forward know that in the VUL there is no loss protection and in the IUL your worst year is a Zero or no return.
The sizzle and what “sounds” so attractive is this.
1. They go up with the stock market. That certainly sounds good.
2. The cost of insurance is cheap when you are in your 20’s, 30’s and 40’s.
3. There is a death benefit when you die.
4. And if it’s a VUL you can make as much money as the market will give you, but you also bear the brunt of losses as well.
5. In an IUL you will have a cap on how much upside you get, but you also have a floor of ZERO on the downside.
So what’s wrong with that?
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I have been involved in financial planning for over 30 years. I started out as a high volume stock broker. After working with millions of dollars I decided there had to be another way for people to earn money in the market without all the risky ups and downs that leave you where you started, or worse. After reading a ton of books I came across a book on the Infinite Banking Concept and it completely changed my life and the way I view investments. Now I focus on building wealth in safe and predictable ways, like Infinite Banking, Cash Value Life Insurance, and Indexed Annuities to name a few.
I post videos regularly so if you have any questions of comments feel free to email them to...
dan at wisemoneytools dot com
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