Archives For Indexed Universal Life Insurance

I agreed to look at another book about retirement. Last night, the book’s author emailed me and thanked me for agreeing to give his book a look. He included a link to a YouTube video he put together that explains his strategy.

What I found is his strategy is similar to Pamela Yellen’s Bank on Yourself strategy. UH-OH…haha. What’s different is he uses Indexed Universal Life Insurance. I AM NOT an insurance expert. I won’t discuss the intricacies of the policy. What I do want to discuss is how the interest is credited to the account holder (about 5:42 into the video). NOTE: Notice that he uses the average return of 8.12% (I get 8.13% when I calculate it), and not the average annual rate of return, which is 7.98%.

So the way this particular policy works is it will credit the policy holder’s account a maximum of 13% and a minimum of 0%. So, if the market returns 10%, you get 10%. If the market returns -10%, you get 0 (you won’t lose money except for inflation). If the market returns 20%, you get 13%. Pretty straight forward.

What I found interesting is the index they use in order to calculate the annual credit.

If you look, you’ll see a column titled “Actual S&P 500 Growth %”. This column represents the PRICE return of the S&P 500 Index, NOT the TOTAL RETURN. His numbers look like this:

IUL Account Credit

Now, what would the account look like if the insurance company used the S&P 500 Total Return Index? Let’s see:

IUL Account Credit Using SPTR

That’s quite a difference.

It’s important to point out that the insurance company is only using the S&P 500 as a guide for crediting the interest that goes into the account. The problem I have with this is that’s not how it is often sold to the buyer. It’s usually sold as a “What if you could get the return of the stock market without the risk?”

My point in all of this is just to make you aware of the way interest on most of these policies is calculated. They aren’t using the entire index. That’s important to know.

I’ll review the book once I receive it and have read it. Stay tuned…