Trying to decide on life insurance policy. Need help. : LifeInsurance

comparing all 3 with the same premium is just going to make the IUL look fabulous.

Whole life (if doing whole life find a participating wl carrier) will give you a guaranteed minimum scenario with conservative cash value growth. Add in the dividends (which are not guaranteed) and it will look pretty attractive over the long haul. WL will cost more as anytime you have guarantees in something the price goes up.

UL and IUL are basically the same vehicle with the only difference being who decides the interest rate being applied to your account values. In a regular UL the carrier has a board of directors and actuaries that come up with a specified current interest rate that they set year by year (most of these are currently mid 3% up to mid 4%) and have a minimum guaranteed interest rate of 3% contractually. Many agent will tell you that back in the late 90s UL’s were being illustrated with interest rate of near 10% or higher on the current assumption as that is what insurance carriers were crediting. IUL was not around until 97 and didnt gain a ton of traction until well into the 2000’s.

In an IUL you remove most of the human element from it. The carrier buys options against whatever indexes they offer…for instance say an IUL from ABC insurance company offers an S&P 500 annual pt to pt option with a 0% floor and a 11% cap. The carrier buys options on the S&P 500 for a 1yr pt to pt. This is the carrier “insuring the cash value crediting” via options. The options cost a small fraction of the total premium. The rest of the premium (aside from the fees and expenses associated with both IUL and UL) go to the companies general account where they invest those monies through their normal business operations and turn a profit. Assume your buy date was jan 1. On the last day of the year they look what the start value of the S&P was and compare it to the value on the last day…if there was a gain, they figure out what the percentage gain was and apply that to your account value (up to whatever the cap was(11% in my example)…if there was a loss, then you get whatever the policy specified minimum was(0% in my example). Illustrations are a fairly bogus tool as they usually make an assumption of a certain rate of return EVERY SINGLE YEAR of the same number. Most IUL’s are illustrating between mid 5 to 7% curretly which is conservative compared to historical 30 yr averages. However we will never see returns of 5.96% (for example) every single year for the next 10, 20, or 30 years.

Bottom Line is WL offer predictability and growth.

UL offers lower cost with a min guaranteed rate

IUL offers lower cost with chance for large upside returns with a minimum guaranteed floor

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