The Universal Life vs. Annuity Debate
I'm hoping to get a lively debate going here. Some agents sell Index Universal Life and LOVE IT, but some say the cost of insurance can be too high. I'm not talking about some small fees. I'm talking about if a person is older or in bad health, almost every dime they put into the policy can go towards the actuall expense of receiving that $500,000 death benefit one day. Many sell the I.U.L. as an investment, which of course is illegal. It IS death benefit insurance first. So WHY do some many agents sell the I.U.L. to persons who want to save for retirement? Money can grow quite well and loans can prevent taxation, but the cost of the DB, my God! Then there are those who like to avoid the whole insurance-not an investment-death benefit costs all together and simply sell a person an annuity. The problem... With an I.U.L., you can start a client often with just a $200 a month committment. Most annuities laugh in your face unless your front loading big time! So then, maybe the I.U.L. is better for someone who can just put in a little bit of money each month. My Answer: The I.U.L. MEC! You have no 7 pay rule if it's a MEC, which means you can pack away $2,000 a month into an I.U.L. and keep the death benefit at a measley 50 grand so you don't have the high DB cost. Then again, an I.U.L. does not have the 'Lifetime Income Guarantee' rider that an annuity may have. I think many people would angle to sell an annuity. However, if you sell an I.U.L. with a $200 a month commitment, you can earn about $2,000 in commission. It is my understanding that if you start an annuity with $200 (if they'll even let you, which they WON'T) and a commitment to put in an additional $200 a month, that the commission would be about 50 cents. I'd REALLY like to hear your two cents on this.
annuities are very expensive and at $200 a month, you're ripping the client off and should be putting dca them into some mutual funds. Cheaper for the client, better for them, and a better deal.
I don't understand the debate you're proposing. Index life, index annuities with a 'Lifetime Income Guarantee' rider and investments like mutual funds are all excellent but are tools that provide different solutions. If they want to save for retirement and want guarantees not to lose money and income for life, the rider with an annuity wins. If they can only contribute $200 and want death benefit insurance, the I.U.L. is better. If they want to contribute only $200 a month and saving for retirement or another goal is their primary intention and don't need the guarantees, mutual funds wins. So my answer is all 3 can work until we get more info.
I view them as two completely different products. Yes, some are selling IUL as an investment, and I don't agree with that. The annuity, while an insurance product, is certainly not equipped to be a life insurance vehicle.
If the client needs death benefit -- they should have it.