I’m going to break down in an unbiased way the differences between the IUL, GUL, and Whole life. In the video below you can see illustrations of different carriers, I show you numbers and I’ll explain biases that exist and I’ll even tell you my biases.
Biases in the Industry
First off, let’s talk about biases. You may have found when you do research that some people love IULs, some hate them. Some love term only, and some promote only whole life. Why are there so many biases?
Some agents are not trained on all the different carriers and products out there because some agents are captive and work for specific insurance companies that sell only their insurance products. This is what I mean: Primerica sells only term. They have a philosophy: buy term and invest the difference. A Primerica agent will talk negatively about whole life and IULs. Since they don’t sell IULs, they aren’t fully educated on how the product works. They won’t encourage you to buy a whole life or IUL because they can’t sell it to you. It’s like walking into a Nike store. What shoes are they going to push on you? Adidas? No, probably Nike. What if you walk into a Foot Locker? They have different brands of shoes so you can walk in and get a shoe that best fits your needs. Maybe you don’t want a Nike or maybe Nike doesn’t solve your needs. It doesn’t mean Nike is bad, right?
Other examples of captive agencies include State Farm, Farmers, New York Life, and Northwestern Mutual. They will generally sell term life, whole life, universal life, variable universal life, and long-term care or disability insurance. They don’t sell IULs and they don’t have living benefits.
Although there are more than 40 other companies that sell IULs. Some of these companies have been around for over 100 or 150 years.
Some companies don’t sell term like ANICO or Allianz. Primerica has been around for 47 years. ANCO has been around for 119 years and Allianz for 134 years. Can we conclude that since companies which have been around for more than double as long as Primerica has been around, and don’t sell term life insurance, then term insurance is bad? No, we can’t conclude that. We also can’t expect all insurance companies to all sell the same products. That’s why when you work with a broker who has access to all different types of carriers, you’ll have more options and usually unbiased options.
Living Benefits Versus Long Term Care (LTC)
Genworth is an Long-term care company, and they say that in 2020 the median cost for a private room in a nursing home is $105,852 per year. Medicare doesn’t cover all healthcare expenses, and social security might be depleted by 2037. Most people, especially Millennials and Gen X and beyond, don’t have pensions, and they sadly haven’t been saving enough for retirement. That means they need a solution in case of unforeseen health emergency arises, they have money to pay for living and not have to dip into their retirement or savings. That’s where living benefits come in, but not all companies offer living benefits. They offer long-term care.
Some insurance companies like NY Life and Northwestern Mutual offer long-term care, not living benefits. Other companies, like National Life Group, offer living benefits which include terminal illness for 2 years, chronic illness, critical injury, critical illness, and Alzheimer’s.
Primerica offers terminal illness for 1 year and that’s it. With LTC, you have to qualify for the benefit, but the caregiver will need to specify which 2 of the 6 activities she helped you with in order for the insurance company to pay out. With living benefits, as long as you qualify, you get the money to use however you want. With LTC, if you don’t use it, you lose it. With LB, if you don’t use it and die in your sleep, great! You weren’t paying for something that you never ended up using. I’ve heard of people qualifying for LB, then they take their money and go to Mexico to do alternative healing and heal themselves. You have more flexibility with living benefits, and it allows you to have money in case of illness so you don’t have to dip into your savings or retirement.
Financial Advisor Biases
Financial advisors also have biases. I usually hear financial advisors suggesting term or whole life, and of course they want you to invest in the stock market. On average, financial advisors charge between 0.59% to 1.18% money under management. That means that whether or not you lose money or gain money, you have to pay that money under management fee. They get paid for managing portfolios, whereas life insurance agents get paid from the insurance company a commission and residuals, which are calculated into the cost of the policy. Also, if you were to roll over your 401k into an indexed annuity, we agents don’t get paid from your balance, and we don’t charge management fees for you to keep your money in an indexed annuity. This is also why a lot of financial advisors don’t want to sell annuities because they make more money managing your portfolio for your entire life than putting your money in an indexed annuity and getting paid a commission one time.
Other times a financial advisor is appointed with a captive agency like NY Life or Northwestern Mutual or partnered up with someone working at a captive agency so they have the same biases as I mentioned before. Since they’re limited on what they can sell, they will promote what they can sell and find faults in the things they can’t sell.
My Biases
What are my biases? Here are my biases. I carry my life, accident, and health insurance license. I don’t have my security license now. That may change in the future, but I’m not interested in that license. Being securities licensed limits you on how you’re able to market. You basically need to have everything approved by a compliance team, which I have no desire for. I like my freedoms. Additionally, I don’t want to deal with my clients potentially losing money in the stock market. While I know that investors know that to invest in the market means potential for loss, I just don’t want to have the burden of these families’ retirement sitting on my shoulders. Also, there was a time called the lost decade from 2000-2009 when the S&P had a negative return. The only other decade in the US to have a negative total return was during the Great Depression in the 1930s. I see that we’ve got to move towards a bear market and a recession is bound to happen, so I like to diversify my money and have most of it in guaranteed accounts. I also like to diversify my money in the different tax boxes. I personally have IULs, terms, some money in stocks, and crypto, and I’m a homeowner.
On top of that, I have experienced being a recipient of life insurance. My husband was the one who recruited me into the industry and trained me. He passed away while our twins were 11.5 months old, so I understand the value of having life insurance. Life insurance is just a check to you that you don’t have to pay taxes on. I like that life insurance can provide tax-free income to you while you’re alive in case of illness, emergency, retirement, vacations, and also tax-free legacy passed down to your family.
I think everyone who can get approved should have some form of life insurance.
Life insurance isn’t competing against the stock market. When people say that investing in the stock market will get you higher gains, yeah, that’s true. Life insurance solves different things. There’s plenty of other ways to make higher gains—real estate, crypto, stock market; you can invest in companies, for example. But you can also lose a lot of money too. If that’s okay with you, then absolutely invest. Invest in different things. I do. But, life insurance offers different benefits and solutions, and they are tax-free income, guarantees, income replacement, and legacy. It’s one of the best ways to pass down tax-free money to the next generation and to use tax-free money while you’re alive, which is diversifying your tax consequences.
My Non-Biases
Since I have access to over 40 insurance carriers, I can shop around and find the best product for your needs. We have access to IULs, term, whole life, and universal life. I don’t sell variable annuities. While variable annuities can give you higher gains than an IUL, for example, you have the potential to lose money and pay on top of it. If you received a quote for an insurance company that is available only to captive agents and you want to compare what’s out there, show me the illustration, and we will compare. I will show you some illustrations in the video below as well as a side-by-side comparison of the history of dividends from different whole life carriers.
Breaking Down Different Coverages
Term is the most affordable insurance. Think of term like this: term is temporary unless you convert it to a permanent type of coverage, which is available with carriers that offer both term and permanent. Primerica is an example of an insurance that doesn’t offer permanent life insurance, so all of their terms will expire. You may also want to take a look at a carrier’s options for permanent life insurance and compare those so you know what your options are when converting. Also, different term products offer different living benefits as well.
Guaranteed Universal Life Insurance
Cheaper than final expense
Can get approved without medical for someone who’s healthy
Pay the premium, get the death benefit, guaranteed for life
The goal is to pay the lowest premium to guarantee the maximum death benefit for life
Cash value isn’t building up in the same way although you can take loans against the policy when the net cash surrender value is available
Final Expense
Purpose is to just cover the funeral costs so this is for someone who’s a senior and needs burial insurance
Most expensive and coverage is usually $25,000 or $30,000
Good for people who have health issues because you can generally get coverage even though health isn’t the greatest, although you can get rated level or graded. Meaning that depending on the rating you received, if you pass away within the first 2 years, your family will get your premiums back plus a percentage like 10%. If you pass away beyond the 2 years your family will get the entire death benefit. There may be some variances depending on the carrier.
Indexed Universal Life Insurance (IUL)
Indexed universal life insurance has flexibility in premiums and flexibility in the death benefit.
Maximize premium to maximize cash accumulation and minimize death benefit
Cash accumulation based on index credits
The more premium you put in, the more potential for cash accumulation
Premium dollars are going toward the cost of insurance and cash value rather than the guarantees of the policy
The fees are also front-loaded with an IUL so you’ll see heavier fees in the first 10 years of the policy, whereas a whole life policy has fees spread out through the life of the policy.
Potential to grow more CV versus whole life, which will be more rigid, but you can stop paying premiums earlier because it’s growing cash value at a higher rate. You can also choose when you want to stop paying an IUL like 25 years or sooner, but bear in mind that the premiums will be higher the earlier you want to stop paying.
While the cost of insurance continues even though you’ve stopped paying into your premiums, the cash value continues to compound and grow so you’re still outpacing the cost of insurance and I’ll show you an illustration with policy charges.
Depending on the index you select for your IUL, you can return a 0% gain for that year. If you’re still paying premiums at that time, the premium will go into the cost of insurance.
You can loan against your policy in different ways like a wash loan or participating loan, to name a couple. A wash loan would allow you to get that loan at zero net cost. In a participating loan, you might be able to still get a gain on your cash value. So let’s say your loan interest rate is 4% and your IUL returns 5%. Not only did that loan cost you nothing, but you also got a gain of 1%. Whole life policies have fewer options when taking out loans.
There’s a strategy called Kaizen, which I’ve done a video on. It’s a strategy where a lender funds your IUL for 10 years while you fund it for the first 5 years. After the contracted term, the lender will get their money back from the cash value and you will keep the remaining cash value and death benefit. This allows you to grow your cash value using leverage to create for yourself tax-free income.
Whole Life Insurance
If you’re looking for a guaranteed death benefit, then whole life is for you
Grows cash value, but not tied to the stock market.
Instead, you receive dividends, so the potential for cash value growth will be less than with an IUL.
Since a whole life policy is guaranteeing your death benefit and they’re giving you dividends annually, it’s going to be more expensive, and I will show you some examples for comparison.
A whole life policy will be more of a slow and steady growth compared to an IUL.
Cash accumulation based on dividends, which is determined by the insurance carrier. Meaning that at one time a certain carrier could have given 12% or 8%, but now is below 5%, and they have the choice to drop or increase.
While whole life insurance companies have historically not missed paying out a dividend, their averages do not beat the S&P average in an IUL.
While some financial advisors may give the objection that a whole life policy will give you a yearly dividend while an IUL can return 0, that can be true. With an IUL, you can change the strategy so you have some or all of your money in the fixed account, which can be lower than the dividend gain. But, when you look at averages, then the IUL will outperform the whole life. Again, different products have different strengths.
Mass Mutual is great for guarantees if that is the client's main goal. Lafayette has more flexible product options that include a focus on accumulation, short-pay designs, or early cash value.
I’ll show you a snapshot comparison of historical dividend rates from several WL carriers.
Keyword with whole life is guaranteed. With any guarantee comes high cost, which doesn't make the cash accumulation as aggressive as an IUL.
When it comes to paying a whole life policy sooner, you can have the option for that.
Whole Life usually has pay-to-100 or pay-in-10-years, but it will be super expensive. You can pay off a Whole Life in 25 years, and to do that, apply dividends to reduced premiums, unless a carrier has premiums prebuilt to be done in 25 years. So you’re having to choose either to reduce premiums/pay it off faster, but the CV will be a little limited.
A whole life death benefit can be more rigid than an IUL, which can be structured with an increasing or level death benefit.
I hope you were able to get some good information. If you have a policy or quote from any other carrier, we can always compare to other options. If you have a good policy, I’ll let you know. I’m not in the business of canceling people’s policies if they have good policies. If your term is coming near its end and you want to see options for another term or even a different permanent policy, let me know. You can always request a quote here.
Comments