Whole Life Insurance vs Indexed Universal Life which is better

Hey it's Matt Decker with Leveraged Wealth Management. So I get asked all the time to compare whole life insurance to index life insurance and if you've watched any of my videos if you've if you've done any amount of research about me and my views at all you'd know that I don't necessarily think one is better than the other but I do think that they are suited for completely different things. So whole life insurance should be more thought of as a bond alternative. A safe way to grow money over time but it is the most expensive form of insurance that you can buy. Indexed life insurance is more suited for maximum cash accumulation and income. So whenever I see people talking about whole life insurance as a product that has the ability to generate tax-free income I have paused because that's just not how these policies are designed at all. The easiest way that I can kind of separate the two and peel back the curtain and talk a little bit about how they work is whole life insurance is essentially a product that has a dividend rate. That dividend rate think of it more as just a fixed rate of return. It can change over time but it's declared annually meaning at the beginning of the year you know what your dividend rate is going to be. You know what the crediting is going to be. It's a fixed rate declared annually. So that's how whole life basically works. What's really interesting is that indexed life policies have the exact same fixed rate declared annually policy provision available on on every single indexed life policy that exists. So I hear all the time people that sell whole life that really have no idea what they're talking about. They talk about indexed universal life being really risky and you can get zeros and and it's not going to perform over time and it's true that you can get zeros. But the bottom line is if you want something that has just a fixed rate that is declared every single year you know exactly what it's going to be that provision exists within indexed life and it exists just like it does with whole life because both of these products are priced off of and based off of interest rates. So as interest rates go up the fixed rates the dividends get higher. As interest rates go down the fixed rates in IUL and the dividend rates in whole life go down. It's a pretty simple equation and what's really interesting is they function nearly identically people just don't talk about it. So what I'm going to do here is I'm going to show you three whole life insurance policies. They're designed for maximum income and I'm going to show you the difference between the income projections if we use basically the dividend rate with whole life which is the only option that you have and the fixed rate in an IUL policy. Now obviously most people do not buy an IUL policy in order to put their money in the fixed They're buying it because they want the potential to get credits when the market performs you know up to 10, 11, 12, 13, 16, 17 percent that they want that upside potential so that's where they're buying IUL. But I just want to show you that if you think that IUL is too risky you can do the exact same thing with IUL that you can do with whole life and that's what we're going to talk about today. So what we're looking at here is our first example first of three of a whole life insurance policy this is One America and you can see here that we basically got some premiums going in for a certain amount of time here and then we're basically we're going to turn this into a lifetime stream of income starting in year 23 age 66 and that income is going to be 21,300 and that basically is going to go for life. Now I will say that the One America policy is the weakest policy here in terms of generating an income but nonetheless that's what it is 21,300 for life based on the premium schedule that we just looked at. Every single one of these policies has the exact same premium schedule there's no funny business there. The next one I want to look at is Penn Mutual and again we're doing the exact same thing that we were before the same premium going in for the exact same amount of years and the income that's generated out of the Penn Mutual policy which happens to be a better product is $28,000 a year and that $28,000 a year basically goes for life out to age 100. So much better than the One America policy but but just focus in on the income because that's that's what we're comparing here $28,000 a year. The last one that I want to look at is going to be Mass Mutual. Now the Mass Mutual got a little bit funny on me with the premium schedule you can see that it's slightly different there first year and remainder years. So what I did in order to compensate for the difference in the premiums is I just ran the income not for life I just ran it to age 85 and then I stopped it and the maximum income that I was getting out of this policy 33.9 okay so 33.9 and again this one this one's a little bit different so the best of the three for this particular example is going to be the Penn policy because we're able to show that lifetime stream of income $28,000 a year. So what's really cool is we can do the exact same thing with an index life policy. So this is an Allianz policy this is their Life Pro Plus Elite and all I'm doing is I'm using the fixed account. The fixed account is paying 4.75 percent so let me show that to you so you can see it and here it is right here fixed account current interest rate 4.75 percent. Now the guys out there selling whole life insurance that have no idea what they're talking about they're going to say well yeah but this rate can change exactly it can change just like your dividend can change the whole life. There's really not much difference between a fixed rate in an IUL policy and a dividend rate in whole life because again they're priced off almost the exact same assumptions. So let's go back to the actual projections here and look at how much income this can kick out and again it's that exact same premium schedule that we're looking at for the same amount of time we start our income in year 23 and what's that income it just so happens to be $28,875 per year for life which is so hilarious because it's almost exactly what the Penn policy is showing in terms of a lifetime stream of income which I just find so interesting because it just goes to show you that these policies really are priced pretty similarly there's not too many differences between the two. What's really interesting though is in the index life policy you're not just confined to the fixed account you have other index options available to you and here are some right here so you've got your S&P index annual point to point with a historical rate of just under seven percent you've got their blended index annual point to point with a historical rate of just over eight percent you've got the true balance index at 6.5 you've got the monthly sum S&P at 8.37 there's all kinds of options on this particular policy in fact every single one historically performs better than the fixed rate and there's more than just this these are simply a portion of them there's way more here and there are your historical numbers what's really interesting about these numbers is none of these factor in the bonus that is a 15% interest bonus that's guaranteed that would just add to the historical numbers that you're seeing here so in every single case the historical rate is better than the fixed account the lowest option on this policy is your trigger method at 4.21 but by the time you go through this and factor in your 15% bonus it's better than the fixed rate at 4.75 which is just so interesting so in a nutshell that's why I prefer index life for income purposes because if you want something safer you always have the opportunity to simply choose the fixed rate of return that choice always exists so why not opt for the policy in index life that gives you the choice of the fixed rate and yet still gives you the choice to lock in higher returns by taking a little bit more risk and participating in the index options that we looked at earlier I hope that this helps just adds color I always say that one policy is not better than the other they just do totally different things if you want clarity on what you currently have something that you currently have purchased you can always go to my website leveragewm.com slash iul-review leveragewm.com slash iul-review I'll link that in the description below and I'll post a comment where you can go there you can get a policy review I'll create a personalized video for you going through the ins and outs of what you have and how we can make it better or maybe it's as good as it can already be if you want to support this channel you can like this video you can subscribe and you can share this video with your friends I appreciate all the love that I get in the comments thanks so much for joining me I hope that this helped this is Matt Decker with Leverage Wealth Management and I'll talk to you soon