An Attempt to Understand My EIUL

cemetaryWhen I published my financial network map I didn’t think that 1.) people would associate my blow money as being money for blow, and 2.) that people wouldn’t know what Equity Indexed Universal Life insurance was.  This is kind of a sore spot for me because I have been a believer in term life insurance due to the vast difference in the cost of the insurance. I signed on to this whole life insurance policy back when I was not really involved my my families finances, my wife was in control and being led by her mom who is in the financial planning business.  I was more than happy to allow others to influence my decisions and now I am trying to figure out what it was that I signed up for.

What it is

EIUL is a form of whole life insurance which includes an investment portion where your earnings are tied to a market index. I use the term tied very loosely. This is not a true index fund like you would find at Vanguard or Fidelity but just tied to the fluctuations in the market and in no way actually invests in any stock or equity investments.

The Guarantee

You cannot lose money with the policy, except the money you pay for the insurance, but you could possibly not make much either. The cost for the insurance is pretty steep, I still haven’t quite figured out how much of the $300.00 per month I pay goes towards the actual cost of the insurance.  You are charged a decreasing surrender fee for the first 7 years so there is a good chance you wouldn’t be able to get anything out of it if you were to give up on the idea, this is where I am.

Earning Interest – Tied to an Index

You earn “interest” on the net premium you pay into the policy, in my case I pay $3600 a year into the policy, they take out their cut of fees and costs for the insurance and then the rest is part of the cash value portion of the policy. That cash value is where you are going to earn you potential returns.

Keeping in mind that I own this I am trying to see it in the best light possible, it just isn’t working. The way the indexing works should be illegal.   The percentage gain for any given month is capped at a predetermined percentage rate which is set at the beginning of each policy year. For the 2008 year I was capped at 3.7% per month. No matter what the “index” did for that month I could not make more than 3.7%. Unfortunately this cap doesn’t go in the other direction so you lose with the market but you only gain up to your cap. If for the first 6 months of the year you earn 3.7% each month you would be at 22.2% earnings for the year, if the following month the index falls 22.2% you are at 0.  The following table shows you the actual summation of my rate for the 2008 year:

Month S&P500 Index Capped Rate
03/08 1304.34 -
04/08 1370.40 3.700%
05/08 1418.26 3.4924%
06/08 1360.68 -4.0599%
07/08 1262.90 -7.1861%
08/08 1289.19 2.0817%
09/08 1242.31 -3.6363%
10/08 1056.89 -14.9254%
11/08 904.88 -14.3827%
12/08 876.07 -3.1838%
01/09 934.70 3.700%
02/09 868.60 -7.0717%
03/09 683.38 -21.3239%
S&P500 Total Cap Rate -62.80%

As you can see from this table the negatives have a much bigger affect on the cumulative total than the positives. If the market makes a 20% crazy swing up one month I get 3.7% but if it makes a -15% correction the next month I get -15%.  You can start to see where the odds of making a 3.7% every month may be asking a lot.

Why I Don’t Like It

The two biggest reasons I am unhappy with this whole thing are

  1. no matter how much I look at the contract and the paper work I still don’t understand how much this is costing me.  I pay $300.00 and some of that goes to an actual insurance premium the rest goes into crazy index investment land.
  2. The whole indexing concept is just WHACK. Add to my previous explanation the fact that the insurance company sets the cap and it can go as low as 1% and you can really start to worry.

I don’t know what I should do, if I should just stick it out for the long haul and hope I actually start to build some cash value or if I should just chock up the $6200 + I am already into this for as a learning experience and close it out. What do you think, what are your thoughts and experiences with EIUL’s?

Photo: (Mike Boehmer)

{ 35 comments… read them below or add one }

1 Jeff Rose April 30, 2009 at 11:15 am

Kyle-

With my current firm, I have the option to “sell” these to my clients. Notice that I didn’t say “recommend”. Personally, I would never touch these and would feel guilty selling one to somebody I didn’t like. It’s hard for me to say that knowing that this was sold to you by a family member.

The closest experience I’ve had with this is with people that have been funding whole life policy’s with the same premise “That cash value is where you are going to earn you potential returns.” Every case I’ve seen has paid their fair share of premiums, but has little of “cash value” to show for it. Most of that premium goes to pay for the insurance instead of growing for your benefit.

It sounds like you’ve done your research well and see the cap that these type of insurance products will put on you. At your age, you have no business being in this investment. I don’t know how much you have invested or what the surrender would be to get out, but I would run. Run really fast. Or at least stop funding it. I can list 100 different things that would be a better investment for $300/mo. Hope that helps!

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2 Baker @ ManVsDebt April 30, 2009 at 11:28 am

I still don’t know much about these. But they do make me tingle in a spot that’s uncomfortable.

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3 Jeremy April 30, 2009 at 11:39 am

Ugh, sorry about your EIUL. You’re in a tough situation to be sure. To sum it up, an EIUL, VUL, or VA and the like are usually terrible investments for younger people.

Usually the only reason to consider one of these types of vehicles is if you’ve already exhausted all other tax-deferred/tax-free investment options. And even then, the benefits are debatable.

It looks like you’ve already identified many of the negatives of this investment. You’re paying for insurance plus investing, you’re capped on the upside. Over time, this is not going to work to your advantage. While it’s possible to start to recover over time if the market recovers, you’re never going to be able to take full advantage of a strong market.

IMO, if you aren’t currently maxing out your 401k, still qualify for a Roth IRA, and are insurable, you can do far better than to keep dumping money into this product.

You could pick up a term life policy for about 25% of what a comparable premium would be on any cash value policy, and you can still invest in your retirement accounts or with low-cost fund companies like you mentioned. Your $300/month will go a LOT farther.

Without a doubt, it sucks to take a loss. But being so young you really don’t need the features that this product claims to offer, so the longer you stay with it, the more money you’re going to end up losing to fees or miss out because of the cap.

As a side note, if I’m not mistaken the cash value of an EIUL doesn’t increase due to dividends. If you were to invest in an index fund on your own, you would be receiving and could reinvest those dividends. Over 30+ years that is huge, which you’d completely miss out on with your current policy.

So, that’s just my opinion, but I think you can do a lot more with your $300/month. You hate to lose money by bailing out, but at the same time you have to think about what’s best for the long-term since you have so much time on your side.

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4 Kelly April 30, 2009 at 12:38 pm

Cut your loses and RUN!
Call it a stupid tax.
What would it take to get out of the policy?
If you don’t have term life I would start shopping for it now. I like Accuquote (and USAA if you’re a member)

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5 Michael @ The Life Insurance Insider April 30, 2009 at 12:50 pm

I’m an actuary and I actually priced these products at the last company I worked for.

Back in the 90′s these actually used to be pretty cool products. They offered a legitimate happy medium between fixed and variable products. You could usually lock in a guaranteed 2% return and take advantage of about 75% of the stock market gains.

With the big booms and busts this decade the stock options and hedges that insurance companies buy to back this product got more and more expensive. Stock hedges are expensive when the market goes up and when it goes down and we have had a lot of very steep ups and downs recently.

Given that the hedges are now so expensive they have had to set so many restrictions and caps on the EIUL products that they are pretty bad products now. If you had bought one of these products back in the 90′s you probably would have had one of the best sit and hold investments over the past decade. You could have enjoyed 75% of the tech and real estate booms and earned your 2% during the tech and 9/11 busts and the current recession.

The way your product sounds you are basically guaranteed to earn 0% whether the market is trending up or down because we all know that even in good times the market will still take big dives from month to month. Until the surrender charges run off you are probably better holding on to it and then 1035 exchanging it into a better product.

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6 Kyle April 30, 2009 at 8:44 pm

Here is my next problem, if I want to get rid of this policy I need to also convince my wife that this is not the best option. This quandary is made more difficult by the fact that her mom is the one who sold us on this. I don’t want her to think I am attacking her mom or her decision but I want to get the point across that this is not the best thing for us.

How can I explain that this is not the best thing for us and the $6k we have sunk in it isn’t worth staying with the policy to get back?

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7 MB April 30, 2009 at 9:37 pm

Do you guys listen to/read Dave Ramsey? You could email him or call into the show and tell your situation and then he’s sure to bag it (he hates whole life policies) and to tell you to cut and run and call it a stupid tax (just like Kelly said!) and then if your wife hears that, maybe she will listen and agree.

Just an idea. Good luck!

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8 Aaron May 1, 2009 at 11:26 am

Usually, people buy life insurance for the death benefit and they expect to have some high level of guarantees if they make their premium payments on time.

Having said that, I have seen Equity Indexed Universal Life policies from quality companies with guaranteed premiums below or near the competition. If you need or want permanent life insurance, an EIUL with this type of guarantee might make sense because it allows you the possibility of making more cash value on the side (potentially reducing future required premiums to keep the guarantee).

Outside of that scenario, I’m not sure it makes sense. Buying one of these to try to “make money” is crazy because the highest average credit to your account *might* be 7% – and that’s before the charges come out. The thing about Universal Life policies is that the internal costs can change at any time for any reason the company sees fit. Company quality and stability has nothing to do with it. I’ve seen high quality companies jack up the internal costs on 5 or 20 year old policies.

To really see what’s going on, ask for a few “in force” illustrations. Make sure one of them shows 0% crediting to your account and “maximum” or “guaranteed” charges to see how guaranteed your contract really is. (Oh, and please notice the huge swing in cash value between 0% and current charges and 0% with guaranteed charges.) In force illustrations are speculative, but should help put things in perspective.

I won’t comment on what you should do now – I’m not in the business of giving advice. If you were to consider moving to another policy before the surrender charges were up, you might be able to save your cash value. See if you could do an “internal 1035 exchange” to a non-qualified annuity with the same company and get them to waive the surrender charge on the transfer. Annuities have significantly lower costs than life insurance policies, and your only hope to avoid the surrender charge is to keep it with the same company.

If that sounded confusing, hit me back. Good luck.

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9 Ed Hinerman May 1, 2009 at 1:43 pm

Find an agent that can fully illustrate all of the prudent ways out of your dilemma. You’re going to need a lot of factual information in order to walk from your mother in law and salvage your marriage. But also keep in mind that our wives are very savvy partners and she may have just gone along with the IUL because of family pressure. She may be right on board for looking for a way to cut your losses and get into something more sane.

Aaron’s idea of an internal 1035 exchange has some merit but isn’t a likely happening. Companies can be extremely bull headed to the point of blowing off perfectly good money rather than bend a bit and hang on to the cash flow.

Stupid tax may be the best way out and remember, there is a pretty good chance that your wife is already thinking in that direction.

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10 Brad Manuel October 18, 2009 at 2:21 am

These are three different people who have no interest in each other that I have followed over a few years regarding Indexed Universal Life Insurance. This is a comment from David’s article “So financially astute executives own it, banks own it, corporations own it, why do the so called experts tell you not to own it? Even some of the corporations that own a lot of it (GE), have their employees giving out advice not to own permanent life insurance!!” By the way, this is an honest guy who checked on our life insurance policies to make sure they were structured properly without trying to sell me anything. Douglas Andrews is a short 3 minute youtube. Wayde’s presentation is an hour. It gives an in depth explanation on the policy you have.

The 401K/Trad. or Roth IRA/Mutual funds have more downsides than the EIUL. When choosing an investment put it through this test.
1) Is it liquid? Can I access the money when I need it? EIUL=YES; Trad. investment=NO
2) Is it safe? Will I lose my principal? EIUL=Cannot lose principal; Trad. investment=Can lose principal (as seen during dotcom bust, during 9/11, and this recession) I know the stock market is coming back but remember…if you lose 50% of your money, it takes 100% to get back to even. Even though it has recovered, it has not recovered fully so a lot of people out there are not back to even. And what is to say that this won’t happen again in the future if triggered by something else.
3) Is there a good rate of return? EIUL may average 7.5% at this time but I would take that all day knowing I will never lose any principle and have a good banking system. And you have to realize that this policy is not about getting rich or being a great investment…it is a great investment tool when used as a banking system which is the part that all of those financial gurus like Dave Ramsey, Susie Orman, and David Bach don’t understand.
4) Will I incur taxes? How much? In a 401K, you can’t take money out until you reach a certain age and when you do take it out, you get taxed on it. Roth IRAs don’t get taxed on withdrawal, but you have to wait until 59 and a half to access it without penalty. Taxes in the future will stay the same, increase, or decrease. I really don’t think they will decrease. There is a good chance they can only increase. With the EIUL, you can borrow money tax free.

http://shaferfinancial.wordpress.com/2008/05/27/life-insurance-who-owns-it-and-why/

http://www.youtube.com/watch?v=JSi5_qooDZw&feature=player_embedded

http://contacttracs.com/uploads/users/3/2009-05-27-1902-Creating-Your-Own-Personal-Banking-System-Can-Make-You-Rich-.wmv

Take the time to learn what you don’t know before following the sheeple. I suggest you stick with your policy as long as it has been structured properly with a minimized death benefit. Like I said, this is a very powerful banking system when used properly. And by the way, I don’t sell these things in case anyone else is wondering.

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11 Kyle October 18, 2009 at 10:45 pm

I certainly understand the “banking” aspect of the account. I liked the YouTube video and I appreciate the additional information and links on the subject. I would love to see a response from some of the professional advisers out there. I am still not sold on the concept entirely but we are sticking with it for now.

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12 susan December 29, 2009 at 11:02 pm

i have an EIUL with Western Reserve Life. My cap is 12.5% and floor is 1%. Who do you have yours with?

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13 Brad Manuel January 23, 2010 at 6:22 pm

I have my EIUL with Aviva. It’s funny because my sister-in-law just talked to some guy trying to sell her whole life insurance, and he was saying that I had a risky policy. It reminded me to check this post. Aviva actually has a 313 year history surviving 9 panics, 8 recessions, 3 depressions, 11 bubbles, and 10 crashes. The caps depend on what indexed strategy you are talking about. I have mine set up on a 2yr. point to point with the cap being 27%. I don’t see any earnings every year though. It is only every 2 years that I see my earnings. The minimum guaranteed is 2%.

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14 Chun February 10, 2010 at 9:19 am

I currently have an EIUL at the age of 27. I’m thinking about bailing out since I don’t see anything going on with it. I can put that money towards investment towards a business or savings. Any thoughts on bailing?

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15 Brad February 28, 2010 at 10:13 pm

How long have you had your EIUL policy?

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16 David Shafer March 4, 2010 at 4:16 pm

Feel free to contact me on your policy. I own an EIUL, sell them, and understand how they work [an unfortunate rare occurrence among their sales people]. Usually critics don’t understand how they work so they try to compare them to other products like 401ks funded with mutual funds [buy term and invest the difference advocates].
By the way the AVIVA product is in my opinion not the best out there. However, my personal EIUL is an AVIVA, which I bought before I started to sale them and really learned about them.
PS You might look at the Dalbar studies on mutual fund investing returns to get an appropriate comparison for any savings strategy. It is very hard to strip away all the hype from financial products and strategies, but it is possible.

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17 Santo Roberti March 15, 2010 at 9:26 pm

The EIUL product was very powerful back when the market was powerful. I see many people now trying to get out of these types of policies. A much better, more predictable, safe environment is the Dividend Paying Whole life policy. Given that they are Dividend paying you are an actual owner of the company tied to mutual funds, the company’s have been paying on this product for over 100 years, and have not missed paying a dividend. They do not need to answer to shareholders only to policy holders. Makes sense. Still have the banking feature, tax free withdrawals and a death benefit for your heirs. Really great stuff, check out this website there are some short videos to watch. If this doesn’t get you excited about a life insurance policy nothing will. It is a great, safe place to put your money and let it grow, providing a shelter, tax benefits and protection for your family.

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18 Den Lobach April 20, 2010 at 9:27 pm

First, there a multitude of ways you could keep the existing policy and pay little or nothing.
Second i can’t imagine you think you’re wifes mother would sell her a policy that was not in her best interest…do you? If not then why not get her to explain why she didn’t sell you buy term and invest the difference, mutual funds, etc. If you actually listen to her you’ll be suprised that what you have in your hand could be the swiss army knife of financial vehicles. In the bad years(when everyone else is loosing in their 401k’s … trillions lost in retirement accounts recently) the policy keeps it’s value and can’t go down in value, in the good yeas it makes a profit.

I personally own 5 of these and what i would recomend you do before you throw the baby out with the bath water is do some research and reading then make up your own mind. In the end the only question you should have should be.. do I use a dividend paying whole life or an inexd ul to build wealth safely. Personally I never met a person that said other options are better than a life policy that had ever run a spread sheet to compare them, it they had they would own it themselves. i’ve run out of time but if your interested I’d be glad to give you a list of books to read that should open your eyes.

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19 Vindice May 4, 2010 at 12:37 pm

I’m always impressed by the number of people who advocate for whole life insurance, and then just happen to be insurance salesmen themselves. Salesmen plus their families and friends make up a pretty sizable chunk of the pro-insurance population.

You discovered one of the amazing “small-print” pitfalls on these products: your losses are capped at zero for the year, but only your gains are capped from month to month. So very good months don’t do anything for you, but very bad months eat up all your gains. Your chart is worth ten thousand words.

What I don’t think you’ve talked about is the “moving parts” that are in every–and I mean every–indexed life product I’ve looked at closely. You say your annual returns are capped at, say sixteen percent? But it turns out the insurer can lower that cap to as low as one percent, and you don’t get any say in the matter. Whoops! It’s not a “guaraneee” if they don’t actually have to pay it. Similar “moving parts” can be found all over these policies–especially in fees. (“But Minnesota Life (or whoever) has never used those clauses,” say the snake-oil salesmen. “Fine,” I say. “Then let’s take them out of the contract.” Silence.)

Bottom line, these are terrible, terrible products–deliberately confusing, with lots of little sharp edges that will cut you to ribbons. When even an insurance salesman is admitting the complexity of these products in the comments, you know something’s not right.

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20 Kyle August 19, 2010 at 10:57 am

Hi Kyle,

Do you still own the EIUL policy and how has that been working out for you? I would love to hear periodic reviews (and I’m sure others as well) as I’m thinking about getting an EIUL policy myself. Thanks for your time

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21 Caution-on-EIUL September 10, 2010 at 6:45 am

Kyle – after the fees/expenses how much of the actual amount goes into the investment EIUL. I heard that the fees (policy fee, agent fee, min. monthly fee, etc.) will eat up all the returns. I have an agent that is trying to sell me and each of my family member EIUL. The demo he provided looks great and all, but i doubt he knows the ins-and-outs of how the policy works.

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22 Thomas Quinlin November 4, 2010 at 6:48 am

Hello to everyone on this blog. I have read every comment above with great interest. I do not sell any insurance products, but I am a registered investment advisor (Read: SEC slave) but the topic of EIUL has come up with several of my clients now.

Additionally, I have been interacting with an attorney who has taken the position (extreme position in my opinion) that the advisor who does not recommend EIUL products will be subjecting themselves to potential liability down the road. While I suspected his comments were tainted (I found out that he has affiliate programs with insurance carriers and thereby financially benefits from the relationship), I decided to complete my own research into this product.

I have been scouring the internet for several weeks looking at the pros and cons of universal life insurance and specifically EIUL. I have also discussed the topic with other advisors in the following industries:

1) Insurance
2) Financial
3) Legal and
4) Accounting

As you might suspect, I have either received either glowing comments from category 1 above, scathing comments from category 2 and most surprisingly, not much help from categories 3 and 4 when trying to get technical data on how the guarantee claims are base and how exactly the underlying investments are constructed.

Michael (Michael@theinsuranceinsider) above gave what I thought were very useful hint at how the underlying investments in the EIUL product worked and did much to confirm some of my initial concerns with the EIUL product, especially when he discussed the origins of the development and how the original assumptions were made. Essentially, I knew that investment structure was probably similar to products produced by the large wire houses such as Goldman Sachs in the 1980′s.

What was created was either a mutual fund or unit trust that claimed that the investor could have the best of both worlds; no loss of principal while sharing in market gains. The investments all had similar basic designs; they essentially took a series of discounted fixed income investments such as treasury bills and set them up in such a way that once the discounted bonds came due, the fully matured value was equal to roughly the original investment. The remaining portion of the investment was then set up in a series of what Michael above called “hedges”.

What I believe what he was referring to more specifically were option hedges (these were the primary investment vehicles used by the brokerage industry). For example, one type of hedge could be selling a covered call on an underlying investment or index. However, another strategy could simply be buying (going long) option calls and/or puts. Without getting into whether these strategies made any sense, they were ways that the money manager could take advantage of market returns while capping market risk. This also allowed for a large degree of leverage as options positions had lower carrying costs then holding the actual securities.

The suspicions I had about the EIUL guarantees is this: During periods of generally rising markets, the above mentioned strategy has a large probability to produce some kind of small yet positive gains. While poor months definitely have an impact on your overall gain capture (I thought Kyle made a great observation here as this was something I had –embarrassingly- not considered), my primary concern was what would happen if we were to experience a long period of market decline.

And this is what I have concluded (and decided to share in this forum). It is my opinion (for whatever it’s worth) that we are currently in an economic decline that will affect the traditional capital markets (stocks, bonds and real estate). If I am correct, than the underlying investment structure supporting the EIUL product is not simply flawed; it is seriously flawed.

In declining markets, hedges such as covered calls will expire worthless. Buying calls with options will end with the same result. I also agree with Michael’s assessment that the cost of putting on these hedges will go up. Keep in mind that unlike simply holding the underlying stock, the simple act of increasing volatility results in higher hedging costs. Finally, I would be very curious to know if the insurance companies are really “hedging” for the worst case scenario by offsetting the portfolio with discounted t-bills.

While put buying would present possible gains, that further assumes that whoever is managing these assets will be as astute as the rest of us professionals in the industry (that includes money managers as myself, mutual funds or any other prognosticator out there) to know when to essentially sell the market short. From my own experience, that person or company is a truly rare breed.

I would love to hear any feedback from anyone on this blog, whether from in or outside the insurance industry. All I ever intended to do was to try to understand how the EIUL works, and not whether is was a “better” or “worse” investment than anything else. What I found is that there is a serious learning curve here and that the industry that created has been around for a long time. This same industry also possesses (like the securities industry) a very strong lobby.

I do not believe (unless someone can convince me otherwise) that there is enough full disclosure to investors about the risks associated with EIUL. It is also easy for me to understand how it is very likely that most sellers of this product don’t really understand it (I am not certain I still have managed to get my arms fully wrapped around the concept), but whenever any industry starts using words like “guarantee” or “…no loss of principal”, I begin to wonder how solid the guarantor is.

I have no problem with companies wanting to make money. And while there has been much said about abusive sales practices in the insurance industry, I can tell you all from personal experience that they pale compared to what the securities industry (both from broker-dealers as well as government bureaucrats) has subjected the everyday investor to over the past 80 years.

If I am right (and hell, that hasn’t always occurred) then the EIUL contracts will potentially face many lapsing issues that were experienced by many insurance contracts in the 1990s and beyond. I personally acted as an arbitrator in one insurance related case where the contract basically blew up because it was bought during a period of higher interest rates and therefore the illustrations were very optimistic. I see no difference in the EIUL that bases its claims of guarantee on the bet that the stock market will tend to yield positive returns in the long run.

If the insurance industry ends up being wrong (as they have in the past) it’s going to be a busy time for litigators and arbitrators. In the end, it will be the investors that take the loss.

To that I would respond: Nihil Nova Sub Luna.

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23 Charlie June 22, 2011 at 12:02 am

The whole point of this is to compare what is the better investment tool. To qoute Thomas Quinlan “All I ever intended to do was to try to understand how the EIUL works, and not whether is was a “better” or “worse” investment than anything else.” If your not going to compare it with the current investment tool than you won’t see any value…..you will come to a full circle of understanding how it works without seeing the benefit of how it works better than other options. If we are in for tough economic times as he eludes to…..than this is the best tool for the future.

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24 AP July 3, 2012 at 1:58 pm

This is a great product if used correctly. I have one with a 12.5% cap and 1% floor tied to the SP500. This product will work well if you heavily fund the cash value portion early on, if your intention is to only fund it the minimum then in the long run this will not yield as many gains as it could of, and cost of insurance/fees will eat up most of what your putting in. This is a great way to earn a little more money tax deferred if your already maxing your roth or 401k and also have a death benefit.

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25 Jonathan January 22, 2013 at 6:23 am

#1. The author of this blog is mistaken……EIUL is NOT whole life
#2. Mortality costs is based on the 2001 CSO table, which caps the the cost of insurance per $1K of face amount. Call the ins. company or agent to determine this
#3. There is reason why term insurance is so cheap……statistically, 92% of term policies never pay a death benefit. Insurance companies LOVE term
#4. STAY AWAY FROM WHOLE LIFE INSURANCE. THIS DIVIDEND NONSENSE PROMOTED BY WHOLE LIFE MARKETERS IS A SCAM. In U.S. Treasury ruling 1743 (early 1900s), several life insurance company executives declared to the government that dividends should not be taxed since they are merely a return of premium overcharges. GET IT? They rape you upfront & give a small percentage back to you down the road. Ask yourself why you aren’t paying capital gains taxes on dividends like stocks/bonds.
5# By the way, the cost of insurance (per $1K of death benefit is the same for term just as it is for whole life, EIUL, UL, & VUL).

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26 alfonso February 18, 2013 at 12:51 pm

Hi I am a 46 year old man and I am close to signing a universal life insurance tied to s/p500 whit minimum 1% and max 13% I am not a smoker and I am in excellent physical condition my monthly payments will be $207 and the benefits if I die will be 250.000, I did all of my calculations and if I pay $207 x 12 months = 2484 x 60 years= $149,049 out of my wallet. I put 60 years because I want the most out of paying long term just in case I last over 100. If I am going to put $150k over a 60 year period out of my wallet and if I die anytime before these 60 years my benefits will be $250k, so if my math doesn’t fail I should be over $100k, considering 0% gains from the market s/p500. Am I right or wrong? Please help, thank you!

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27 Rich March 19, 2013 at 2:00 pm

Shop around a little more. There are AAA companies that have a floor of 3% and cap of 14%. 0 loan cost by contract, 3 companies I know of. I did the numbers for @46 non-smoker, good health and with two other companies the number are more favorable.

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28 rich March 19, 2013 at 2:15 pm

alfonso, did more checking. If your numbers are correct, the structure of your policy is way off. Structure is the key, a number of sales people have no idea how to structure a IUL. Structure can either be a winner for the insured or on the other hand a lost for the insured. You asked the question are you right or wrong, the answer is somewhat right but mostly wrong, its all in the structure.

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29 Deryl April 3, 2013 at 3:53 am

Alfonso

As someone who owns and sells this product and I would like to think I understand them as well. A key piece of information is missing from your summary. Does your policy Illustration endow at age 100? In other words, is the assumed cash value equal to or higher than the death benefit. If not, you risk underfunding this product for the long run and you are not taking full advantage of the cash growth potential allowed by the tax code.

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30 Tim April 11, 2013 at 11:34 pm

I’ve been in my EIUL for two years now. I didn’t get in it to make money…this is my retirement vehicle. Without getting too specific, I put a significant amount in each month and here’s what I would like to understand. If I take the total “real” money that I contributed minus the fees and premiums plus the little I make each month…well let’s just say i’m in the hole. If I had taken that total “real” money contribution and put it under my mattress, I would still have the exact same amount instead of being in the hole and i’m not going to pay taxes on it when I pull a few bucks out from under my mattress to buy a new tv for example. What is the upside of investing in this EIUL? Thanks in advance for your comments.

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31 Tim April 11, 2013 at 11:54 pm

Just a clarification…I meant I didn’t get into it to get rich. Obviously I expect to make money or I wouldn’t be complaining about it.

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32 Deryl April 24, 2013 at 3:52 am

I’m puzzeled by your “under the mattress” comparison of saving money versus the tax deferred growth of an EIUL. I can almost guarantee you that anything found under the mattress is losing about 4-5% of its value each year to inflation.

The primary value in life insurance (and you pay for it) is the added value it brings to your estate in the event of your death. People do die, and the money paid out in a death claim is real. Added long term value can be attained (notice the emphasis on “long term”) when you properly overfund your policy to take advantage of the tax deferred growth properties of an EIUL. Money placed into a life policy over and above what’s required to fund the basic death benefit will grow compounded and tax deferred. Herein lies the real (and often misunderstood) advantage of life insurance and I think this is where your interest lies; as it should.

A properly overfunded EIUL can be structured that will match the growth of many annuities in about 20 years and still give you a death benefit. To maximize your cash value your level of funding should give you policy cash value at least equal to your total premium outlay over a 10 to 20 year period as shown in your policy illustration. The quicker you can fund a policy without creating a MEC, the better, if indeed your interest is in growing cash. Remember, your level of funding must be sufficient to pay the death benefit while supplying a pool of cash that is compounding tax-deferred. Anything less than this will reduce the “investment” side of your premium payments and shift it more to the death benefit side.

An important consideration, however, you must be in very good health to take advantage of these options and have a very good agent to walk you through it.

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33 Tim May 3, 2013 at 12:54 am

Deryl,
Thank you for the information. There is much I obviously don’t understand, hence the question. I understand that I have to fund the premium, but I guess what i’m seeing is the fees and premiums easily outpacing the monthly credit…in my case it’s a $0 floor with a 14% cap. My expectation was that the credit would at least keep up with the fees and premiums. No doubt, this is where my misunderstanding of the value enters the picture.

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34 Ed July 25, 2013 at 2:12 pm

So how do you “properly structure” a EUIL. Or at least have a basic understanding of if one is right. I have been considering some and just feel like I can’t trust any of these companies. I was searching for ones at usaa when I found this blog.

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35 Dery Bear October 4, 2013 at 5:07 am

ED
The younger you are the better and your health must be good for this to work. Find an agent with at least 2 or more years of experience. Determine the appropriate amount of Death benefit, then ask your agent to quote you the premiums required to endow this policy at age 100. This is the starting point. Now ask your agent to determing the premiums required to return your premiums paid out (cash value) over a 10 to 20 year period. At the extreme, you could fund your policy in 7 years and have cash value equal to your total premium outlay in year 10, then watch your cash grow without ever paying another premium. Your ability to pay premiums will determine the time table for making these premium payments. Just don”t create a MEC in the process. If you post your age I could give you an idea of the costs involved and the cash values you could expect.

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