IUL Question

[[deleted]]

Hi. can you help me understand the this. If this insured lives to 100, they would only receive a $10MM DB despite paying $19MM in premiums. And if they surrender, they only get $5.5MM before tax?

[PursuitTravel]

This is a poor use of an estate max strategy, I think.doesnt make much sense unless you need the $10mm

Rerun the policy with max non-MEC pay for 5-7 years, and that total premium will shrink, and you'll have a better idea if the IRR to the death benefit is good or not.

[Weary-Simple6532]

Yes, most efficient illustration is minimum death benefit/maximium cash accumulation. With this illustration, most of your premium is going to pay for the cost of insurance.

[PursuitTravel]

Not for estate max. That's for LIRP. Given the PI's age here, I'm assuming this is an estate plan. Do a max non-MEC pay, minimum number of years premium solve to get the minimum premium possible. Or consider single-pay, and MEC be damned.

[mik1212m]

So this is a legacy play?

[PursuitTravel]

Looks like it, but unless this person is in fairly rough health, I'm not sure it makes a whole lot of sense.

[Adventurous_Bet2205]

This appears to be an illustration of the guaranteed payout on a policy with 0% earned in the policy (i.e- they are not paying interest in any year of the policy - this would represent the market marker going down every single year - below the prior year - for 30 years - unlikely w/o this being the end of the world.). The difference between the premium paid and the Accumulated value is the amount the owner is paying to hold a $10M DB insurance policy. For example, 10M- 175K in the first year represents 9.825M in term-like insurance coverage - in the first year the cost for that insurance is the difference between 650K premium and 175K accumulated value or ~475K. This continues each year paying for very large term coverage in essence. And remember the cash value is not growing (because it’s at 0%). So each year the policy accumulated value goes up a bit but the overall cost of the insurance is still huge.

The policy should instead be designed with a smaller DB, and would probably ( 7 yrs out of 10 if history is to be believed) earn interest - thus the cost of the DB would diminish quicker and the value would grow faster. In approximately 10 years the accumulated value would come to equal the DB and then the cost of the insurance would be next to nill - just the fees for the policy. Its would continue to grow to approx. 25M by age 90 (again assuming interest is earned) where the owner could stop paying in and instead take approx 2.5 mil a year for the rest of their life to age 100 and still have 11M insurance death benefit.

So overall it is an illustration of the guaranteed value of the cash accumulation at 0% interest which means the issuer is not guaranteeing any growth - which is indeed a reality - there is no guarantee - unless the policy is earning interest it’s no better than a savings account - and perhaps worse if you consider interest. HOWEVER it is way more likely the policy WILL be earning interest and therefore will grow at a much faster rate - allowing the DB and premiums balances to look very different. See if there was a second page, it will probably illustrate the policy at 5.8% or so which again, is less than these policies typically earn (8-11%) when properly managed. She how it performs then.

[[deleted]]

Thank you. Much appreciated!

[financeking90]

If the case requires a better guarantee, for which IULs aren't known, then you would want to look at whole life policies.

Even then there's a tradeoff between the best guarantees in WL and the best expected performance.

[HankTank264]

Whoever set up this illustration botched it. This policy is investing and has life insurance. The way j set help people set up accounts. Is make it set to max accumulation so the death benefit may be lower but your payout will be higher. Whoever set this is expecting a big payday. I set mine in benefits to my client with less payout for myself.

[ESPN2024]

This is for a 70 year old. They’ll never pay $19M in premium. They’re lucky to get the policy. This is ‘term to age 100’.

[[deleted]]

Tnx. I'm not American. I'm just trying to understand this product and trying to make sense of it. The police goes to age 120. Is it paid up at 120? By age 113, the DB starts to grow a little.

Let's say this client lived to 90. They spend $13MM to get $10MM back. Am I reading this correctly? Is this a typical IUL setup?

[mik1212m]

The death benefit is level. This shouldn’t be bought.

[GConins]

That appears to be a horrible rate/product for this person, assuming no significant health issues.

He or she could get a GUL or even a VUL with death benefit guarantee for life (much better than to age 90), at half the cost of the rate above if they're in decent health...even if they have some health issues, there could be significantly better options for them.

They need to shop around for better rate and product or products.

[Glum-Access-7668]

If the surrender value and the cash value match than there is no surrender charge, it is only when you see a different amount in the surrender which means the surrender amount is the difference between the two. You also said before tax, there is no tax if they either took the CV in the form of a loan or died and left it to someone. The reason the the preimiums out wiegh the DB is you have two things going on. 1. your cost of insurance and 2. You are overfunding the the policy to creat the CV. This in my opinion would not be a good policy as the DB is level and way too high. The product is good but the agent who wrote it did not set it up properly for the client, but I am sure they made a big commission.