Is this a good investment? equity indexed universal life policy for retirement income?

Question

Is this a good investment for retirement? It does cost to get the policy, but you will have income for life that you can loan out tax free w/o having to pay back. Seems almost too good to be true. Anyone knowlegeable on this?

Answer 1

Be very careful of annuities offered by insurance companies.  They often come with high fees and exaggerated return.

Answer 2

yes it will return you 15to 40percent for twent years but you can withdraw any time after three years

Answer 3

It's principal is correct that it can work, however all the illustrations that you will be presented with showing the numbers are linear.  They do not represent how the equity markets really move.  

The strategy has been around for a while especially with variable life.  I have seen it work.  However, the policies that I've seen are quite different than what the ordinary person purchases.  Most policy's sold under this scenario are sold on the basis that you can fund your retirement and your death benefit as well.  In reality, unless you put a ton of money into the policy, this isn't the case.  

For an individual to use this vehicle as a retirement option, a few things must be considered.  The individual who is to purchase this policy should already be maxing out their qualified plan contribution.  That is 401(k), SEP, or IRAs.  After they have maxed out the limits of contributions for these accounts I would consider using insurance.  For this to work again the policy owner must be committed to making those annual premiums.  The contract doesn't force you to make those premiums, but if you can't the expenses in the policy will work against you.

Now the next question would be indexed life.  Yes, indexed life is a FIXED product.  By this it means that the policy in itself does not puchase equities.  If you don't understand this, that is probably a clue to whether you would like to get one of these or not.  The indexed annuity market has seen some abuse and rough times lately and for a couple of years.  Some of that is now spilling over to the life insurance industry.  Some insurance comapanies are reputable and have done a good job, but before you get one of these contracts you had better have a good agent and a good understand of what the guarantees are. For example the statement may be made that you have a 3% guarantee.  Gounds good, but that guarantee could actually be an average.  If you had a great year in the market one year and the next year you didn't do so well your guarantees will come into play.  If the policy is one that averages the rate then if you take the 2 years and average the rate and it comes in above 3% then in that second year you would receive 0% return.  This example is for the policies that use averages in their guarantees.  Remember, not all companies use this, but some do.

The other thing would be to consider the participation rates.  Those rates are not set in contractually for the life of the policy.  If you enjoy 100% participation today in the market next year the company is free to move that to perhaps 75%.  You are limited on your upside potential.

Anyways, a long post.  Sorry, if you are looking for that route please find someone who is well versed in the industry.  Also, don't be afraid to ask for references.  It's your $$

Answer 4

Insurance is a good investment product, for people who are really, really bad at math.  

It's the most expensive way possible, you can invest.  The "loan" is tax free, because it's YOUR MONEY.

Example - you give me $10,000.   I will lend you $5,000 back, AND, you get to pay me interest on it, which I will keep forever!   Good deal?

Answer 5

This is a good investment for the broker selling it to you. That's why he can think of lots of cool sounding reasons to choose it.

For you it's not a good investment. Ask for a complete sales illustration before you buy. Then ask the sales person the following questions, and to show you in the sales illustration where the answers are.

When will I begin accumulating cash value?

Answer is likely to be 2-3 years from the start. Would you put $100 a month into an investment account and be happy if after two years you had accumulated $0?

Why do I have to "borrow" my money?

It is likely that if you canceled the policy when you retired you would be subject to surrender fees to get your money back. Would you put money into an investment account that charged you to take it out?

If I have $20,000 accumulated value and a face amount of $100,000 and I die how much do my beneficiaries receive?

The answer will be $100,000. Would you save money at a bank that takes it when you die?

When I get to age 65 how much money will I have accumulated?

The most you can borrow is the accumulated value and it's likely to be far less than the total face value (death benefit amount). Also when you compare how much you are putting in compared to how much you can get out at that time, the rate of return will likely be dismal as the insurance company will charge you extra fees that wouldn't be in an investment account.

If the chosen index is up 20% in that year, how much does my accumulated value increase?

A number of equity indexed investments only provide you with a portion of the equities increase, say 75%, in order to provide the never-go-down features. So in this example you would only be up 15%.

There are plenty of other reasons why financial gurus only recommend term (http://www.daveramsey.com/the_truth_abou... If you would like a real apples to apples comparison, get the complete sales illustration from the sales agent and contact a local rep of a term only company (I work for Primerica: http://www.primerica.com/akuch) for a comparison to a 'Buy Term and Invest the Difference' approach.

Answer 6

Life insurance is not an investment!

Investments earn very little commission.

Life insurance earns a very nice commission.

If anyone uses the word investment when selling life insurance they are trying to make a big commission.  My guess the person selling you this is with a captive career agency and is going to earn in commission 50% of the annual premium.

Try this,  take the premium they gave you and multiply it by the number of years and the % of return they are showing you and see what the real value would be. You can use this calculator http://www.scottcommonsense.com/toolbox_...

In a true investment  you should have enough money to pay your taxes and still be ahead of the equity indexed UL.

I suggest you get a second opinion from a non career agent. Try using yellowpages.com to search for life insurance brokers in your area.

Don't call your auto and home agent they specialize in property and causality insurance. You need someone that specializes in Life insurance.

A Broker represents multiple carriers and can help you sort through all the different insurance companies and plan options in your state