Does the IUL REALLY Work?

The internet is full of naysayers that are convinced the Indexed Universal Life Insurance Policy (IUL) is a ticking time bomb, but the question is “what does the evidence show?”.

Over the last fifteen years we’ve seen catastrophic market declines and near-zero interest rates for a protracted period of time. This has created the perfect conditions to measure the effectiveness of the IUL.

The stock market is one of two things that drives the return of the IUL, the second and more important factor is interest rates.

You should expect target rates of return between 6% and 8% within your IUL, and the last 15 years have been a great laboratory to measure the effectiveness of accomplishing that goal.

The first example is a company that dates back to 2006, and despite the ups and downs of the market, the IULs have managed to keep pace with that projection.

The second example uses a set of historical returns back to 2006 as well, and averages them out to show a return of just over 7%.

The third example is a policy that goes back to 2009, enduring the ups and downs of the market and still showing a return of 8.03% over that time frame.

When you subtract the 1% in fees in the life of the program, you will be netting 5% to 7% over the life of the contract. This is why the IUL is not a replacement for the stock market portion of your portfolio, but is great as a bond replacement.

Reach into your portfolio and remove the bonds. Replace it with IUL and you will increase your return, lower your risk, and lower the standard deviation of your entire portfolio, and experience a better outcome over time.

Assessing the success of your IUL is a matter of tempering your expectations and making the right comparisons.

They only really work if you keep them for your entire life but they do that admirably by providing a death benefit that doubles as long-term care, as well as the ability to grow tax-free wealth safely and productively.



Mentioned in this episode:

David’s books: Power of Zero, Look Before You LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code (free video series)

@mcknightandco on Twitter 

@davidcmcknight on Instagram

David McKnight on YouTube

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