I’m often asked, “What is the best indexed universal life insurance policy?” The appropriate answer is not as simple as naming a manufacturer and their newest product. If I were to rephrase their question, I think it is best to ask, “How should I select a life insurance product for my client, and what key factors should I consider?”
There are many cash-value life insurance products for clients who are focused on protecting their loved ones, wealth accumulation and tax-free distributions. The differences between these products can significantly impact the wealth accumulation potential of the policies. Let's examine the various cash-value products available and determine the best life insurance product for this purpose.
When I think of a retirement plan, the first thing that comes to mind is often the accumulation of assets and investing strategies. As a fiduciary investment advisor developing and implementing retirement income plans for my clients, I’d argue that investing is the easy part of the process.
You may have seen some pretty large industry movement in decreasing cap rates at carriers, especially in regards to Indexed Universal Life insurance (IUL). It seems like this is an industry wide issue and “carrier chatter” is really heating up across the board.
As advisors, we often look at clients solely through the eyes of an illustration. We assume what a client looks like today will continue into eternity, instead of realizing that life changes over time. One example of this has to do with clients being able to afford higher contributions to an indexed universal life insurance (IUL) policy in the future than what they can afford today.
Until 1982 no statutory rule existed that defined the characteristics of life insurance for federal tax purposes. However, in the early 1980s, Congress was motivated to act by the development of a new generation of Universal Life contracts because these new products provided significantly more cash-value build-up than was needed to support the death beneﬁt.
Once you have made the decision to sell a cash-value policy to cover both the death benefit need as well as providing the opportunity to generate cash values for future distribution, the next question to ask is, "Which cash value policy should you sell? Whole Life, Universal Life, Variable Life or Indexed Universal Life?" The answer is, "It depends on what the client needs."
One of the most common risks in retirement is order of returns risk (also known as: sequence of returns risk). It is well known within the financial services industry that investing in marketable securities exposes clients to this risk. However, do your clients know that many indexed products are not immune from order of returns risk?
Average returns are often called the "simple" average. You just add up the annual returns and divide by the total number of years. While the calculation is simple, when your investment can go up and down in value from year-to-year, this is not always a good representation of real performance because average returns do not take market volatility into account.
Coming out of a bankruptcy or losing a high paying job, people are often put back to square one in a financial sense. As a result, perhaps all of their saving are lost, or even worse, their retirement nest egg. Often they are digging out of a massive financial hole, and in doing so, the client needs to make very hard financial decisions.