1. If I buy a term policy as a 35-year-old for $1M, 30 years, $100.00/month, I am indemnified or my family is restored to whole if a pass during that time. It’s a contract that can’t fail. Awesome product.
  2. If I buy a whole life policy, a true permanent policy, my family is indemnified whenever I pass as long as I live. 

2A. A plain-vanilla whole life policy is comprised of two cash value components. One that has guaranteed cash value growth that grows to the death benefit by age 100. The second component is a dividend not missed by the large participating whole life companies in over 100 years, that further grows the cash value and death benefit. 

Note: This means even if they never pay a dividend ever again, the policy still works, always. It doesn’t have to be “properly structured” like every IUL apologist must disclaim in their explanation. More on that in a moment. 

Think This Through IUL/VUL Policyholder  

  • If I buy a $100K, $100.00 per month VUL, I am asking the insurer to indemnify me permanently, regardless how long I live. Forecast at an 8% CD-like rate of return (compound annual growth rate = CAGR) forever, my illustration looks awesome, and I am an easy sale for a “good” VUL advisor. They are literally forecasting to the consumer an eternal bull market. Wow! 
  • The insurer loves my $100 dollar premium, which feels like an annuity being paid to them for the next 40-50 years. 
  • The insurer dislikes the risk of my death, so they transfer the investment risk (the stock market returns) back to me. That’s insane. 
  • That means if the reality returns are 5% or 6% (and lower than the sales illustration of 8% from the point of sale), my cash value won’t suffice to pay the high costs of insurance when I enter the policy “death zone years” of ages 85-95 and beyond and my policy will lapse.  

So, you paid the insurer to indemnify you “permanently” and they transferred the risk of death back to you. That means the insurer did nothing for you. That makes zero sense.  

That makes it an irrational product, that no rational consumer would purchase. 

Who Buys an IUL / VUL (An Irrational Product)? 

Only two types: 

  1. Ignorant to the policy mechanics 
  2. Someone who finds an agent that he/she “knows, likes, and trusts” 

Who Sells an IUL /VUL (An Irrational Product) 

Only two types: 

  1. An advisor ignorant to the policy mechanics 
  2. An advisor interested in commissions 

Properly Structured? The Agent “Target Premium” Conflict of Interest 

“Properly structured” is the disclaimer you will hear from all the YouTube and FB IUL “experts” which is what insulates them from criticism for selling an irrational product. That’s why in every video you will hear, “An IUL when properly structured or correctly designed” is a great life insurance policy…” 

Deciphered, that means it “maximum funded”, where you are paying the most amount of premium into the smallest amount of death benefit. 

But there is a problem. A massive agent compensation conflict of interest. 

Agents get paid fully (100% available compensation) up to “target premium” but maybe only 2%- 3% on any dollars above “target premium”, also known as “overfunded premiums”. Those overfunded dollars in a IUL or VUL circumvent the death benefit costs of cost of insurance, premium loads, riders and mortality and expense (M&E) charges and go directly to the investment.  

If the insurer isn’t getting paid on those dollars, neither can the agent. It’s that simple. Properly designed means the agent would be walking away from around 60-70% of available commission or only get paid on roughly 30-40 cents on the dollar of available compensation. We know that’s not happening. 

My decade-long research (and logic) suggests that “properly designed” occurs less than 2% of the time. I’ll even throw in (my) margin of error of another 3%, and say that 95% of these policies are “target funded”.  

Massive 90% agent failure in the first five years in the business means they aren’t earning well and can’t walk away from $1 of commission, let alone 2/3s of it. I just have an incredibly hard time believing someone you just met for the first time is walking away from $1.00 of commission.  

I am sure there are agents who “structure it correctly”, but they might be somewhat of a unicorn, and I don’t think IUL policyholders found that unicorn. Despite my logic, every IUL/VUL advisor that you and I have ever met, always claims how they “max fund” their policies for all their clients. I think that’s BS. 

Furthermore, the IUL/VUL discussion doesn’t make sense from a financial education standpoint either.  

  1. A whole life 10 pay, (where no further premiums are due or allowed after the tenth year) from the big participating whole life companies will deliver with guarantees a 4.25%-4.50% ROR over 30 years. That’s CAGR, in the WL, not an average. 
  2. Basic financial education says, if you can earn a similar rate safely, why take the risk (in an IUL at 5.5%-6%) with all its landmines and risk that it could be worthless? The IUL idea is dead. 
  3. If you can get the same WL10 at 4.5%, why would you try to earn just 2% more in a VUL (at 6.5% CAGR) that could also expire worthless? I think 6.5% CAGR is also an optimistic rate of return.  

CFAs, please advise what that return would have to be to compensate me to invest in asset that could be worthless? Is it 10%? The VUL idea is dead. 

  1. In option #1 & #2, IULs at 5.5% & VULs at 6.5% do not work at target premiums which is where I think over 98% of policies are issued. Target funded is “poorly funded” and there are simply not enough investable dollars to pay for the massive costs of insurance at advanced policy death zone ages.  

Maybe, they do work for the right person, who found the right advisor, but since that likelihood is less than 5%, but possibly less than 2%, I will treat that likelihood as negligible. 

If a product is injuring 90-95% of their policyholders, it should be abolished. 

The IUL/VUL discussion is dead.