Index Universal Life (IUL)

[blurpandasg2014]

Noticed that in past few weeks, several local insurers have launched Indexed Universal Life plans that has 0% downside with upside cap.

The notion of not losing money when the index underperforms, and getting returns up to a specific cap (eg. 10%) during period of outperformance sounds like a perfect pitch.

What are some of the potential downsides of such plans, and are they any good for legacy planning?

 

[JuniorLion]

You are capping your upside. If you have a long horizon (eg 20+ years), that's going to make you worse off.

 

[Mephist0pheLes]

The market is fair - lower risk, lower return.

Using US Large Cap data from 1926 to 2023, the average 20-year CAGR of uncapped return is 10.8%, while those capped at 0% and 11% is 7.1% which is 3.7%-pt lower.

If you invested 100k, the uncapped portfolio would have a value of 776k after 20 years, while the capped portfolio would have a value of 396k (about 50% lower).

And this is before we even factor in the high fees that insurers typically charge for their investment products.

If ur goal is legacy planning with a potentially very long horizon and no specific date that you want to use the money, u r much better off jus buying a globally diversified index fund/ETF on ur own. Mix in some bonds if you want to reduce the volatility.

 

[CaptainWu]

Syfe already launched something similar, not sure the fee but should be much lower than the bank, the downside probably you will have to buy a separate life insurance coverage if you need this.

I have studied a bit previously. Market now with ETF available for the purpose instead of create your own option strategy. You can take a look on Innovator and they offers different Buffer ETFs for the purpose and charge around 0.7% fee. If you trust the bank with high reliability then you can go with them but their overhead charge are pretty high in my opinion.

 

[JuniorLion]

Can use leverage on IUL.

Just that your returns must be better than the loan rate.

Then again, you can always use leverage to buy S&P500 in any broker too, such as IBKR.

 

[blurpandasg2014]

This type of plan good for legacy planning for 70yr old?

 

[BBCWatcher]

This type of plan good for legacy planning for 70yr old?

I don't see how. What do you have in mind?

 

[sohguanh]

Syfe already launched something similar, not sure the fee but should be much lower than the bank, the downside probably you will have to buy a separate life insurance coverage if you need this.

I have studied a bit previously. Market now with ETF available for the purpose instead of create your own option strategy. You can take a look on Innovator and they offers different Buffer ETFs for the purpose and charge around 0.7% fee. If you trust the bank with high reliability then you can go with them but their overhead charge are pretty high in my opinion.

Such ETF uses option which means they do not need to hold the underlying index stocks in their holdings isn't it? They are betting on the price of the stock at some future date it rise or fall from a predefined earlier target price. This is no longer the traditional buy index stocks and hold and see the price rise. A very different play game and they package it as ETF smart becuz ETF is the buzz word nowadays. Innocent newbies see ETF whack ar low expense ratio long term sure earn.

 

[CaptainWu]

Such ETF uses option which means they do not need to hold the underlying index stocks in their holdings isn't it? They are betting on the price of the stock at some future date it rise or fall from a predefined earlier target price. This is no longer the traditional buy index stocks and hold and see the price rise. A very different play game and they package it as ETF smart becuz ETF is the buzz word nowadays. Innocent newbies see ETF whack ar low expense ratio long term sure earn.

Yep, purely option. Its been in the market for years so not new, they even advertised it be part of the portfolio for Investors, may be replacing bond as they tend to protect downside with capping on upside. The logic is sounds but so far other than Syfe I have not seen any other brokers referring it.

 

[LawStr]

Sorry to dredge this up a year later, but I just finished a case study with Capital for Life and thought the numbers might help someone still on the fence. On a max-funded IUL for a 65-year-old, their illustration showed net returns settling around 4 % (after all policy fees) if the index averages 6 % and caps stay put. Once we penciled in more conservative caps, 9 % drifting down to 7 %, the IRR dropped closer to 2.8 %. Good reminder that those shiny cap rates in the brochure can’t be taken at face value.

 

[singaporean11]

Sorry to dredge this up a year later, but I just finished a case study with Capital for Life and thought the numbers might help someone still on the fence. On a max-funded IUL for a 65-year-old, their illustration showed net returns settling around 4 % (after all policy fees) if the index averages 6 % and caps stay put. Once we penciled in more conservative caps, 9 % drifting down to 7 %, the IRR dropped closer to 2.8 %. Good reminder that those shiny cap rates in the brochure can’t be taken at face value.

Everybody here should just remember that whatever 'Insurance' named products are just that - main purpose is for 'INSURANCE'!

They should not try calculating getting decent returns with 'insurance' products because returns will always be low!

 

[reddevil0728]

Everybody here should just remember that whatever 'Insurance' named products are just that - main purpose is for 'INSURANCE'!

They should not try calculating getting decent returns with 'insurance' products because returns will always be low!

Not specifically referring to the above product.

If an insurance ensures capital protection of an investment.

Is that still for the purposes for insurance?

 

[DevilPlate]

My own legacy planning is SG FH condos, Gold and lately added BTC

Simi universal life?
Maybe im not HWNI thats why cannot appreciate

 

[reddevil0728]

My own legacy planning is SG FH condos, Gold and lately added BTC

Simi universal life?
Maybe im not HWNI thats why cannot appreciate

HNWI, got so much money liao. they don't need to take risk.

just put in safe safe instruments. earn 1% returns, the $ they get from this 1% probably dunno where to spend also. hence quite different perspective

 

[DevilPlate]

HNWI, got so much money liao. they don't need to take risk.

just put in safe safe instruments. earn 1% returns, the $ they get from this 1% probably dunno where to spend also. hence quite different perspective

They can also consider buying 50y SGS

 

[reddevil0728]

They can also consider buying 50y SGS

you never know. they might.

 

[pruyeo]

Anyone been to Legacy and Inheritance planning talks before? I saw this specific to Real Estate while most others focus on financial liquid assets like stocks and shares.