Important Question Before Buying IUL

Important Question Before Buying IUL

What do you need to know; more specifically what is that one question you should ask before buying an IUL?

If you started looking into using an IUL (index universal life insurance) as an asset to grow and protect your money, you should have a lot of questions. There is conflicting information everywhere you look and there are all kinds of pitfalls to building an IUL strategy correctly.

If it’s done wrong, you can really end up wasting your money. What is exciting about this is when properly structured, properly sold, and properly used, IUL can be a great financial vehicle

So what is that one question…How much does it cost, how much are the fees? 

What you will find is that fees in the IUL are driven by two factors. First is the company you use, and second is the structure of the policy. 

You want to find a company who is an IUL specialist. These companies buy options in volume and know how to price the product properly. You can choose which insurance company best suits you based on macro and micro needs.

When you structure these policies for the lowest cost structure you buy the lowest death benefit or face value allowed, and the death benefit is what drives the fees. The higher the death benefit, the more commission the agent earns, and the higher the insurance and internal policy costs.

When structured for a lower death benefit, the fees usually decrease and the total fees for the policy can end up costing 1-1.5% averaged over the life of the policy when structured correctly.

But here’s the kicker, there are three important things to consider when it comes to fees in these policies. 

First with an IUL you are actually getting a product for your money. Your family or estate actually gets a death benefit paid to them when you die. What other financial tools can say that?

Second, if you get a policy with an index crediting bonus after a certain year , this can effectively help cover your insurance costs after that point throughout your lie (so you want a policy with that kind of cash value bonus). 

Third, unlike money management fees, where the more you make, the more you pay, you aren’t paying a percentage of your cash value in fees…so you aren’t penalized by having your nest egg grow. 

One of the downsides of these policies is that in the first several years the fees are high. It’s kind of like a mortgage, where in, the first few years are much more expensive than the rest. It’s a temporary cost for a long-term solution with protection along the way. This article is for informational and educational purposes only and is not a recommendation to buy cash value life insurance.