Understanding Costs in Indexed Universal Life (IUL) Policies

Introduction

• Speaker: Doug Andrew
• Background: Financial strategist and retirement planning specialist with over five decades of experience.
• Objective: Explain why a properly structured max-funded Indexed Universal Life (IUL) is cost-effective for long-term financial goals.

Why Costs are High in Early Years

1. Initial Perception:
   • Many people are concerned about high initial costs in IUL policies from illustrations and proposals.
   • Common example: Depositing $100,000/year for 5 years, totaling $500,000.
2. Purpose of IUL:
   • Designed primarily for living benefits, not just life insurance.
   • Aim is to fund the IUL with the most money allowed under IRS rules while minimizing the insurance.
3. Long-term Investment:
   • Ideal for financial goals that are 5 years or more down the road.
   • Not suitable for short-term financial goals.

Common Investment Mistakes

• Mismatch in Goals and Investments:
  • Using long-term investments for short-range goals and vice versa.
  • Example: Using bank accounts for retirement savings instead of long-term investments.

IUL as a Long-term Financial Vehicle

1. Comparison with Other Investments:
   • IUL outperforms IRAs, 401ks, mutual funds, and annuities for long-term goals.
   • Generates tax-free income and accumulates tax-free.
2. Rate of Return:
   • Historically averages around 11% gross to net 10% income tax-free.
   • Can produce $100,000/year tax-free income from $1 million in retirement.

Managing Early Costs

• Acquisition Costs:
  • Includes underwriting expenses and agent compensation.
  • Paid on new money deposited, not on interest earned over time.
• Surrender Value vs. Accumulation Value:
  • Surrender charges may apply for the first 10-15 years.
  • Options available to waive surrender charges for full liquidity, but may reduce net returns slightly.

Benefits Over Asset Management

1. Cost Efficiency:
   • One-time commission on new deposits versus annual asset management fees.
   • Example: $500,000 initial could grow to $8 million over 30 years with minimal ongoing cost.
2. Illustration:
   • Acquisition costs seem high initially, but they are recouped over time.

Conclusion

• Recommendation:
  • IUL is a cost-effective solution for long-term retirement planning when structured correctly.
  • Offered free book "The Laser Fund" for more detailed insights.
  • Additional resources and webinars are available for understanding and setting up an IUL correctly.