Reasons to Say ‘No’ to an 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 trade-offs if you want to buy an IUL, and we hope that you will weigh these and other trade-offs before you purchase to ensure that an IUL is the best solution for you and your particular needs.
For example, the way the return on your cash value in the policy is credited differs from the more “basic” calculations 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 can be 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” 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
- Administrative charges
- 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 to “customize” it for your specific needs and goals. Further, these expenses should be weighed against the real cost of doing nothing and 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.
