Reasons to Say No to IUL
While indexed universal life insurance policies can offer many benefits, it is not the right option for everyone. And, because these policies can be somewhat complex, it is important to understand how an IUL policy may or may not work for you and what other options might serve you better.
With that in mind, there are some factors that you should consider before moving forward with the purchase. You will need to accept certain tradeoffs if you want to buy an IU and we hope that you will weigh these and other tradeoffs before you make a purchase to ensure that an IUL is the best solution for you and your particular needs.
Here are a few of them:
For example, the way that the return on your cash value in the policy is credited differs from the more “basic” calculations that are used in other forms of permanent insurance such as whole life, or even in a traditional universal life insurance policy.
Depending on the situation, having a “Cap” on your policy’s return may also be viewed as a drawback – especially in years when the underlying index performs exceptionally well. Conversely, though, in years when the underlying index performs poorly, your cash value will not incur a negative return. In this regard, there is a type of “tradeoff” in order to keep your principal safe.
Also, just like with other forms of life insurance, IUL policies do have expenses. Some of the that every IUL policy is likely to have, include:
Premium expense charge
Cost of insurance
Surrender charge, etc.
These fees are likely to differ depending on the policy itself and the insurance company that you purchase it through. Your age, gender, and coverage amount are also components in the costs that you will experience, as will whether or not you have included any additional riders on the IUL policy in order to “customize” it for your specific needs and goals. Further, these expenses should be weighed against the very real cost of doing nothing, and then also the fees associated with alternative investments. You may find that Caps and Premium charges are not that significant when compared to the benefits.
Going over your options with a very knowledgeable financial expert who has experience with indexed universal life insurance can be beneficial in helping you better understand how these policies work, and how they may or may not work for you.