Traditionally designed IUL products are built on the idea that zero is your hero. Conversely, “High Bonus, High Charges” IUL products are built to produce high returns in years of significant economic growth, but clients can see negative returns as high as -6% in years of modest growth. In this episode of Money Script Monday, Marcus presents 4 economic scenarios and reviews the potential financial impact of purchasing non-traditional IUL products.
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Hello, my name is Marcus Kiel. Welcome to another episode of Money Script Monday.
Today we'll be covering IUL trends: “high bonus, high charges” products.
I'll tell you a tale of four markets, so with IUL trends, AG49 was passed to level out the field for illustrations.
There were illustration wars where carriers were illustrating at 10%, 11%, 12%, and the client really didn't have uniformity.
After the legislation came out and there was a more uniform number, right around 7% or slightly under, carriers fought back and created this high bonus, high charge IUL products.
Okay, with an access fee and a high bonus, and you can't have one without the other. You have to have both.
Please take a look at Money Script Monday 118 for a more in-depth education on IUL policy credits and how they all work, the index returns and credits.
Today, we're going to take a look at how four different markets is depicted using an IUL that has these high bonus high charges, so let's get started.
The first year we're going to look at large gains, where there's still that negative fee of 6% but there's a large index return of 9%.
So, you take the multiplier of 200%, double the 9%, and now we're at 18%, but we had the -6%, and so the net result is 12%.
Yes, you did receive interest credit of 18%, but because of the fee of -6%, the net result becomes 12%. 12% is fantastic. It's really great.
You'll see what these products in great years. They're going to outperform traditional products. That's banking on having large years and large returns.
Let's take a look at a modest year. A modest year where we have small gains.
We still have that -6% to start, right off the top and then the index credit, let's say it's 4% with the multiplier 200% and multiply that, double it.
We're at 8%, okay, so 8% sounds good but wait, you forgot to factor in that -6% and so the net result is 2%.
You have your annual review, you see the 8% index credit, but wait, we have that -6% fee, and it's only really a +2%, so that's in a modest year of a 4% return initially with the index.
4% it's pretty good. It's almost where the fixed products are. If you put it in a fixed account, I should say with IUL product.
A modest year, only a 2% return.
Now, let's take a look at a zero year, a negative year.
So once again, we have the fee and -6% at start, index returns 0%, 0 times anything is 0. We have a -6%.
Okay, so 0 year, -6%. The clients probably looking at, "Oh man, -6%. Oh, I hope I don't have too many years of that."
Gone are the days were "Zero is your Hero" with these products, the high bonus high charge products.
Now you're -6%, and that's not to mention the other fees that are with the IUL product. There's cost of insurance, premium load, so on and so forth.
So, this -6% is really just on the index allocations.
Last but not least, another story is a negative year.
Let's say, you still have a -6%, -3% but once again IUL product it's tied to the market but not in the market, so we're not going to see that -3%.
We're actually going to see a 0, but with the -6% fee, so we're at -6%, so you know, -3%, we're at really -6%.
Okay, so that's your zero negative year. It looks great in the large gains, great market, but not so much in a modest, small, or zero and negative year.
So if that's the case, it really only fits a small percentage. Someone younger that has a long span of time to put money in, and someone that has a really aggressive risk profile.
Someone's closer that's looking more closer to maybe a VUL but still want the IUL.
This can be something that fits them, but for the majority of IUL client holders, age 35 to 55, 0 can still be your hero with a traditional IUL.
So that's our philosophy. We like to stay traditional, conservative, "Zero as you're Hero".
Even maybe a -1% with a smaller bonus, not the 200% but a smaller bonus with the exit fee of maybe -1%, so that's where our philosophy is.
Please check in with your financial representative and see what kind of cash value life insurance you have if you'd like to move into a more traditional product where "Zero is your Hero" with an IUL.
My name is Marcus Kiel. Thank you for watching.