What's wrong with indexed universal life?
Asked by: Alexandria Hintz V | Last update: January 5, 2026Score: 4.3/5 (69 votes)
Is it a bad idea to have an IUL?
Is IUL insurance a good option for retirement? An IUL is a very bad option for retirement planning. As with any investment tied to an index fund, your returns will be mediocre at best. About the most you can expect the cash value to do is beat inflation over time—and even that's iffy.
Can you lose money with an IUL?
You typically cannot lose money in an Indexed Universal Life (IUL) policy due to a 0% floor, which prevents cash value losses from market downturns. However, fees and policy costs can reduce cash value over time, especially if credited interest is low or nonexistent in certain years.
Do rich people use IUL?
Family Protection (19%): HNW individuals with complex estates and significant wealth often use IULs to provide a financial safety net for their loved ones, ensuring their financial legacy.
What does Suze Orman say about universal life insurance?
One of my key life insurance rules is this: Stick with term life insurance. Unless you have someone in your family with special needs, there is typically no need to buy whole life, or universal life, which are referred to as “permanent” policies and cost a lot more.
This Is Why Universal Life Insurance Is CRAP!
What are the disadvantages of universal life insurance?
Some of the drawbacks include caps on returns and no guarantees as to the premium amounts or market returns. An IUL insurance policy may be canceled if you stop paying premiums. IUL policies are generally best for those with large up-front investments who want options for a tax-free retirement.
What does Dave Ramsey say about term life insurance?
With the money saved on term insurance, you can attack debt and grow your assets to the point where you don't need life insurance at all. Dave recommends a policy amount of 10-12 times your annual income with a 15- to 20-year term, or up to 30 years for younger families.
Which is better 401k or IUL?
A 401k might be more suitable for those who prioritize high growth potential and are comfortable with market risks. An IUL could be better for those seeking a combination of life insurance protection and tax advantages, with more stable, albeit potentially lower, investment returns.
What life insurance do billionaires use?
An Irrevocable Life Insurance Trust (ILIT) is a popular strategy for wealthy individuals seeking to remove life insurance proceeds from their taxable estate. When the policy is owned by the ILIT, the death benefit is not included in the individual's estate for tax purposes, which can help reduce estate taxes.
Can you cash out an IUL?
You can take money from your IUL anytime, but fees and surrender charges may be associated with doing so. If you need to access the funds in your IUL policy, weighing the pros and cons of a withdrawal or a loan is essential. A withdrawal will reduce the cash value in your policy and may trigger surrender charges.
What is the 7 pay rule for IUL?
What is the 7 pay rule for IUL? In simple terms, the IRS “7-Pay Test” states that if the cumulative premiums paid during the first seven years exceed the amount needed to have the policy paid up in seven level annual payments, the policy becomes a Modified Endowment Contract (or MEC).
Which is better, IUL or Roth IRA?
They also provide tax-free income in retirement. Therefore, investors concerned about their family's welfare after they're gone may prefer an IUL, while those who want a tax-free income stream during retirement can opt for a Roth IRA.
Can I cancel my IUL?
An IUL policy may be canceled if you stop paying premiums. In general, these policies are best for those with a large up-front investment who are seeking options for a tax-free retirement.
How much money do you need to start an IUL?
The minimum amount you need to start an IUL life insurance policy varies between insurers and depends on your chosen coverage amount and premium payment method. Annual payments for an internationally indexed universal life policy start at around US$20,000 yearly and rise to $100,000 or more in premiums.
Who has the best IUL?
- IUL with the Best S&P Strategies + Guarantees: Penn Mutual.
- IUL with the Best Company Strength: Nationwide.
- IUL with the Widest Selection of Strategies: Allianz Life.
- IUL with the Best Response to Rising Rates: Columbus Life.
- IUL with the Best Chronic Illness Rider: National Life Group.
Can I use my IUL to buy a house?
IUL Policy Loans
For example, you may take a policy loan from the cash value account to help buy a property, pay school fees, or expand your business. Keep in mind, if you take a policy loan you are borrowing from issuing insurance company with your own money.
Does Elon Musk have life insurance?
But what he always did was protect the big risk with life insurance. Because by all accounts, Elon Musk was a healthy man who was almost taken down, all because he took a vacation.
How did the Rockefellers use life insurance?
Trusts as beneficiaries
They also established trusts2, a legal mechanism that outlined how their assets should be managed and distributed. Instead of directly naming their children as beneficiaries of the life insurance policies, they designated trusts as the recipient of the funds.
What does Warren Buffett think of life insurance?
Warren Buffett described the insurance business as particularly enticing. “It's so much fun because you get the money at the start, you know, and then you find out whether you've done something stupid later on,” he quipped.
Why do rich people use IUL?
Indexed universal life (IUL) insurance offers several compelling advantages for estate planning: Large, Tax-Free Death Benefit: The money paid to your beneficiaries is generally tax-free, allowing for the efficient transfer of a greater portion of your wealth.
What is the average return on an IUL?
IUL policies typically allow you to grow a portion of your premiums through allocation to an index. Insurers often offer a growth cap of 8-9% and floor of 0%. This allows for upside potential with downside protection.
Can I convert my 401k to an IUL?
An IRA Rollover to IUL is the process of withdrawing money from an IRA or 401k over a period of time and contributing the net amount to an IUL. A Roth conversion, which is a process of moving money from a qualified account to a new tax-free Roth IRA account are both very similar processes.
What does Suze Orman think about life insurance?
In her opinion, she feels you would be better off investing the money you save by buying cheaper term life, than by investing in life insurance. Even if you don't invest the entire difference, her claim is that you are would do better to spend it elsewhere to avoid what she sees as the high fees of whole life.
At what age should you stop buying term life insurance?
At What Age Is Life Insurance No Longer Needed? Life insurance is no longer needed for many people once they reach their 60s or 70s. At this point they have retired, their kids have grown up, and they've paid off their mortgage and other debts.
Why is whole life better than term?
The most significant is that while both pay a death benefit to your beneficiaries, term life only covers you for a set period. In contrast, whole life offers permanent (lifelong) coverage as long as you pay premiums.