The latest life insurance craze of the last 5-10 years focuses on a product known as indexed universal life insurance or IUL. Life insurance companies are promoting the hell out of these plans, touting their supposed ability to give policy owners all the benefits of stock market gains, without the downside risk of market losses. Agents use terms like ‘zero is the hero’, referencing instances where the market is negative, policy owners are saved by the zero floor in their policies. So your cash value can only go up right? Well, not so fast.
The missing piece of the puzzle that is critical in the equation, that is usually never talked about by agents trying to make a sale, is the fact that these policies are basically ‘one year renewable term policies’, which is important because each year the cost of insurance inside the policy is recalculated as you age up and each year those internal fees will continue to rise. Why is this important? Because cost of insurance remains fairly low for those in their 20’s and 30’s, but increases dramatically as you get into your 40’s, 50’s, and 60’s. Because these policies are being taken out as a long term savings strategy, it’s important to know that it is definitely possible for your cash value to drop as you age up. And especially in years when the market doesn’t perform well.
While the premium flexibility is attractive along with the potential cash value returns, the more stable retirement income approach is offered through a participating whole life insurance policy, offered by a mutual life insurance company. Contact us to learn more about these advanced savings strategies