Author Topic: Can some breakdown IULs for me?  (Read 544 times)

MrsCoolCat

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Can some breakdown IULs for me?
« on: January 14, 2021, 07:38:44 PM »
Are u indexed universal life insurance policies worthwhile for young children to be locked in at a young age? I saw a very general post about it and was curious. Thanks in adv.

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secondcor521

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Re: Can some breakdown IULs for me?
« Reply #1 on: January 14, 2021, 08:14:38 PM »
I think they're only worthwhile for the life insurance agents who sell them.  For the purchasers, I think they're very rarely worthwhile.  The only situation I can imagine is that you're uber-wealthy and you know your kids will be too.  Even then, it's hard to know if your kids will be uber wealthy (they could squander it all), and so I think an IUL for a young child would be poor risk management.  Of course the life insurance agent will tell you it's great risk management.

maizefolk

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Re: Can some breakdown IULs for me?
« Reply #2 on: January 14, 2021, 10:35:14 PM »
Yes, I've yet to come across a case where a universal life policy actually makes financial sense once someone who wasn't trying to sell it dug into the numbers. (Except maybe as a tax dodge for the extremely wealthy, like secondcor521 says.)

If you take the same money and just invest it in index funds for your young children they'll be much better off over the longer term.

Telecaster

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Re: Can some breakdown IULs for me?
« Reply #3 on: January 14, 2021, 10:45:19 PM »
IULs are a great option for people who would otherwise put their money in a big pile and set it ablaze.  Other than that, not so much. 

MustacheAndaHalf

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Re: Can some breakdown IULs for me?
« Reply #4 on: January 15, 2021, 07:29:57 AM »
What are you insuring against?

Normally spousal life insurance covers the lost income, but for a child, that's just not the case.  And if there's a specific amount you need to cover (like, sadly, funeral expenses), you can buy term life insurance at a lower cost.

Financial.Velociraptor

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Re: Can some breakdown IULs for me?
« Reply #5 on: January 15, 2021, 11:35:09 AM »
They only really make sense for the superwealthy who need to convert their estate from "assets" to "insurance" for estate tax avoidance reasons.  Otherwise,  you are overpaying for insurance and underperforming for your investment component.  Avoiding a punitive tax bill at death makes it worthwhile for old money though.

GoCubsGo

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Re: Can some breakdown IULs for me?
« Reply #6 on: January 18, 2021, 10:30:08 AM »
There must be something in the water lately as I've seen a few posts on IUL's  around the forum and now my own bro & sis in law are asking me about them.  They are high earners probably $500K a year and she is set to meet with a salesperson set up through her company I believe. 

They have a pretty lavish lifestyle so I know they save a good chunk of that, but are nowhere near Mustachian levels (they have every toy an adult male could possibly want and travel extensively). They have been fully invested through the years in 401ks and SEP Ira's so I know my sis in law has some investing knowledge.  It sounds like someone got her to drink the Kool Aid despite the fact she is a highly educated C-suite person.

They do have a unique need in that they have a special needs child that will need to be taken care of in event of their death so I get wanting a lot of insurance.  Unless there is a special benefit for that, I'm not sure why she thinks it's a good idea.

Is the main argument against these the fact that you are giving up the ability to earn more through investing in the market without caps on gains the insurer has in place?  I know fees are probably high with these products.  If they do want it managed, it would probably make more sense for them to just place that money with a solid financial advisor and pay the 1% fee (I know one who is a fiduciary and uses mostly low cost funds and etf's and is pretty conservative with his allocations). I feel like that would be an better option along with upping the size of their term life policy if need be.

Any other big flags they should ask about?