Is an Equity Index Universal Life Insurance Policy a good investment?
Oh, so you are selling inferior investment products because you have the widow’s welfare at heart! Wrong, you are selling inferior investment products because you want to take advantage of the poor widow’s investment ignorance. Let’s work through the original poster’s example. He pays $250 per month in premiums for 30 years. Let’s also assume that he get an unusually high market return of 12% as his salesman claimed. Of the $250, 5% or 12.50 goes for commissions leaving only $237.50 for investment. The annual expenses are 2% leaving a 10% compounded return. We plug the numbers ($237.50 @ 10%) into ikkyu2’s handy little calculator and get a total of $541,340 at the end of 30 years. Now compare that to the person who goes to a flat fee, honest financial advisor who has him buy $1 million of term life for $50 a month and puts the remaining $200 in a low cost Total Stock Market mutual fund. The fees are only 0.1% per year. The dividends are 1.5% per year but fully qualified at the 15% rate
I agree with you completely ikkyu2! If someone invested in the fund you have listed, at 25 years old without enough money for diversification, and no saavy for analyzing markets, economic trends, and especially with 40 years to go until age 65, that idea is a good one. And back to the original question – and my backtracking a bit – if the 25 year old did need insurance, I would put him in Term and wouldn’t help him decide if he needed any permanent life insurance until his children were out of college. Then we would take a look at everything, i.e. investment and savings to that point, net worth, projected SSI and pension if any, spouse contributions and career history, beneficiary needs and contribution to the family support, and all other proper planning already in place. I got off track with the argument of the product – EIUL; which would be my ONLY choice entertaining any kind of investment associated with life insurance. (by the way, the tax deferral benefits and compound interest
The bottom line with your scenario is if the client was paying $50 per month for $1M in coverage, it would have been long lapsed at age 55 at that price, by the time the widow needed it. With the extra $140,000 that you skim off the top, one could buy term life for a long as necessary. You find me an honest Financial Advisor that can take $200 per month at a 1% flat fee without an initial deposit, making $2 per year from it. Anyone can put $200 per month in a no-load life-cycle mutual fund without any advisor at all. Look, I rarely get personal on the internets, but this is an exceptional case that really ticks me off. This guy invokes his concern for the widows when he knows that he is ripping them off with inappropriate investment products. For someone who is mid-20s, no dependents, and just started contributing to his 401k this product is a license to steal for the salesman. (Maybe that is one of mrannuity’s 11 licenses he keeps talking about). Anyone who tries to sell this product
