The Holy Grail for Investment

Chapter 8 Summary:

A properly structured IUL life insurance plan can provide a superior long term investment performance that is isolated from stock market declines and comes with significant tax, liquidity, and retirement advantages. An overfunded IUL life insurance plan, with a minimum but growing death benefit can provide these benefits. To structure a life insurance plan as a superior, long-term investment and retirement vehicle, it needs to have the following features.

  • High interest crediting methods
  • Low internal cost of insurance
  • Zero or near zero interest policy loans
  • Index or arbitrage policy loans 
  • The ability to have a minimum but increasing death benefit
  • The ability to maximize premium with the minimum death benefit the IRS allows
  • Automatic provisions to prevent the policy from becoming a MEC

Some but not all IUL policies have these above features. 

To properly structure such a plan, insurance salespeople must also minimize their sales commission. Because insurance agents are rarely willing to point out a strategy that reduces their commission, these insurance structures are seldom presented or at least not presented in an optimized manner. Many insurance agents are happy to point out the cash value growth of permanent life insurance, but without optimizing it in ways that also reduce their commissions. 

Most insurance agents find it’s easier to sell life insurance with minimum premiums. Often, when cash value accumulating life insurance is presented, it is shown with a level death benefit that will significantly increase the sales commission and the cost of insurance, retarding the growth of the cash value. If an initial higher death benefit is needed until the permanent death benefit grows, it is far less expensive to buy a term policy for the short-term, coupled with permanent IUL.

Let’s reconsider Jamie and Paris, the conservative couple from chapter 3, whose 401(k) account previously valued at $100,000 was cut in half due to the market decline in 2008. Then they were laid off from their jobs. They had to liquidate their 401(k) in order to survive. After penalties and taxes, only $25,000 was left to support them, and their 401(k) account balance had been drawn down to zero with no balance left to grow back.

In contrast, if Jamie and Paris had invested in an IUL, using the strategies described in chapter 8, the outcome would have been quite different. Specifically, they would not have participated in the 2008 stock market decline. Their $100,000 balance would still have been intact when they were laid off from their jobs. They could have borrowed, interest-free, the $25,000 needed to support themselves without paying taxes or penalties. That would have left a $75,000 balance that could resume growing as the market resumed growing in 2009. After becoming reemployed, they could have paid themselves back the money they borrowed or could have chosen not to, depending on their circumstances and desires. Wow, what a different outcome! A desperate situation that wiped out all their retirement would have been only a mild setback, and they could have easily recovered using the strategies in chapter 8.