The Secret to a Properly Designed IUL: Don't Get Scammed

A properly structured IUL is a fantastic retirement savings vehicle, but not all IULs are created equal. Any index product is all about the index, how it performs, and what it guarantees. But there are other elements that are just as important. Before you sign for a policy, go through your illustration and make note of the following. Because once the free look period is over, which is typically seven to 10 days after your policy is issued, just depending on your state, you're stuck in that IUL for the duration of the surrender period, which is at least 10 years, unless you're willing to lose most, if not all the money you put into the policy. For the sake of simplicity, I will be using Securian's Balance Growth Accumulator II with a three-year S&P 500 Index. and Allianz's LIFE Pro Advantage, which is typically run with 50% PIMCO and Bloomberg index. I created an IUL comparison checklist in Excel, which you can find in the video description down below. The number one issue is whether or not the IUL is structured properly. For the maximum cash accumulation for you, the lowest death benefit the IRS will allow, and that is the lowest commission for the agent. As you can see, if you are contributing $500 a month, your initial death benefit should be $100,000 or just depending on your age and gender, a little bit more. $800 a month would be around $134,000 initial death benefit and so forth. And you can see it doesn't get up to a million dollars until you're putting in $6,000 a month. The death benefit option should be increasing to level, or option B to option A. Some agents will design it with a level death benefit for all years, but that significantly raises the initial death benefit, and then you pay fees on that increased death benefit. You want to have the increasing death benefit option while you're contributing a premium, even though it is a little bit more expensive than the level death benefit option. But the level death benefit option limits how much of your premium dollars can go into the index. So once you are not contributing a premium anymore, we want to switch to level because it is less expensive. If your policy has a level death benefit option, you cannot switch from level to increasing, only from increasing to level. How long is the surrender period? 10 years is the norm. But Allianz, for example, has a 13-year surrender period, and I have seen surrender periods as much as 20 years. You can find this on your illustration when you see the cash value and the surrender value the same for the first time. When you purchase an IUL, you are signing a contract. One of the things you are agreeing to is the length of the surrender period. In the case of Securian, you would be agreeing to a 10-year surrender period. So in year 10, the surrender value and the cash value are the same. So you are agreeing to the fact that you understand that you are in this policy for 10 years. And if you want to get out of your contract before that 10 years is up, you understand you will pay a surrender charge. The surrender value column is how much you would get back if you wanted to get out of your contract early. It is also, by the way, how much you can borrow. What is the maximum illustrated rate? This is a number that the National Association of Insurance Commissioners comes up with and is the maximum interest rate at which the illustration can show your money growing. This rate varies significantly with each carrier and index. On your illustration, if you cannot find anything that specifically mentions what the maximum illustrated rate is, you will find it in the ledger under non-guaranteed values. As an example, Securian's maximum illustrated rate is only 5.22% versus Allianz's at 7.08%. And when you add the 0.9% bonus, Allianz is able to show your money growing at 7.98% or 52.87% higher than Securian. And an Allianz illustration will also show a much higher income because of that. In this case, the Allianz illustration is showing an income double that of Securian's. But the maximum illustrated rate is totally meaningless. What matters is how the indexes actually perform. Securian's three-year S&P PRISM index average annual return is 250 to 350% greater than the maximum illustrated rate of 5.22%, whereas Allianz's PIMCO and Bloomberg indexes average Annual returns. are just 2.63 to 13.41% higher than the illustrated rate. So you can see that even though an Allianz illustration looks better, the actual performance of the indexes are not much higher than the illustrated rate. An indexed product is all about the index. Some carrier choices are limited to indexes like the S&P 500 and do not offer a volatility control index. Is the index capped or uncapped? Really, there's no reason to be in a capped index these days when there are plenty of uncapped indexes out there. If the index is uncapped, what is the participation rate? A participation rate is how much are they going to allow you to participate in the gains of the index. With Securian's three-year S&P PRISM index, there are two participation rates. You have the 115% par rate and the 210% index allocation, which is a second participation rate. So you would be credited 115% of any gain in the index, as well as 210% of any gain in the index. With Allianz, these illustrations are typically run with 50% PIMCO and 50% Bloomberg indexes. Bloomberg has a 175% participation rate and PIMCO 170%. What is the participation rate guaranteed at? Securian's three-year PRISM index participation rates are both guaranteed at 100%. So, worst case scenario, you are guaranteed to receive no less than 100% of any gain in the index. Allianz, on the other hand, only guarantees their participation rates at 5%. So, worst case scenario, you could only receive 5% of any gain in the index. What does the carrier guarantee above the 0% floor, if anything? You will find this in the Guaranteed Values ledger. But sometimes it is difficult to find. Allianz only guarantees 0.10% in the worst-case scenario. Securian, on the other hand, guarantees you 2% interest. What loan types are available? Some carriers only offer fixed-rate loans. Most offer fixed and indexed, but a few offer the additional variable loan. When you take a fixed loan they're going to charge you approximately one percent more than what they charge for the loan in the first 10 years. After that they will credit you back the same as what they charge you so it's a wash. The fixed loan is typically the only loan available in year one and you do not want to take this loan if you can help it because when you do that loan amount comes out of your policy altogether. The index loan is going to be more expensive. But that loan amount goes into an indexed loan account and then you are credited interest based on the performance of that account over the past year. The indexed loan account is typically a blended index and it's all in the stock market. So you do not want to take this loan when the stock market isn't performing well. If you took an indexed loan and then the stock market goes into correction, You may not be credited any interest, but they're going to charge you around 5% for that loan, and this is how you can lose money in an IUL. Allianz is one of those carriers that only offers fixed and indexed loans. Securian offers fixed, indexed, and variable loans. When you take Securian's variable loan, that loan amount never leaves your policy. It continues to earn interest in, in this case, the three-year PRISM index as if you hadn't taken a loan at all. Plus, because Securian always credits you back a half a percent more than what they charge, you also earn an extra half a percent. Obviously, the variable loan is the loan of choice. And with Securian, you can switch loan types once a year. Is there a cost report attached showing what this IUL will cost you? Most agents choose not to attach it because they don't want you to know that an IUL has fees. IUL fees are front-loaded for the first 10 years. At the end of the day, if all else looks good, but it's an expensive product, the fees will eat you alive. Certain carriers' IULs are prohibitively expensive, especially in the later years, and Allianz is one of those expensive IULs. Securian, on the other hand, is the lowest cost IUL in the industry. So, as you can see, one carrier's illustration can look really good on paper, but it's clearly the inferior product. Few life insurance producers are authorized to offer Securian's BGA2, and the fallback is usually Allianz. There are videos circulating out there by life insurance agents who misrepresent the facts regarding Securian's BGA2 and make false promises when comparing it to Allianz. Unfortunately, there are unethical agents out there who will do anything to get a sale. So be careful. The facts matter.