Can indexed universal life insurance be called an investment? Blog added by Owen Edwards on April 29, 2013
Joined: March 21, 2011
Ranked: #19 (2,508 pts)
Can indexed universal life insurance (IUL) be called an investment? My answer is yes.
Some cry, "heresy!" Or "It's illegal!" I've heard it all. So, how can I do it? Here goes.
First, I must define investment: the use of money or capital in order to gain profitable returns, as interest, appreciation in value or income. So? Indexed universal life insurance builds cash value through premiums that are paid above and beyond the cost of insurance, charges and fees. Interest is credited on that cash value using a method offered by the insurance company that’s chosen by the client and pegged to a financial index. Withdrawals or loans can be taken from the accumulated cash value and, if done correctly, tax-free.
Seems pretty clear: This is the use of money in order to gain profitable returns, as interest, appreciation in value and income. For all the naysayers out there, pardon me, but what part of that isn’t an investment? And if done properly, it's a great one at that!
To be clear, I am not talking about a security. Securities need to be registered with the Securities and Exchange Commission (SEC). An IUL policy is not a security, therefore doesn't need to be registered with the SEC. I say, good. It's best for insurance and securities to be regulated as they have been, by their respective regulatory authorities.
For further clarification: It is misleading and illegal to market IUL as a "security," as defined by the Securities Acts of 1933 & 1934. These Acts of Congress gave birth to the SEC, in reaction to the stock market crash of 1929 that led to the Great Depression. Today, the SEC oversees FINRA, and they both regulate the marketing and sale of securities. IUL is an insurance product and does not meet the definition of a security, so it does not fall under the authority of the SEC or FINRA. Again, I say, good.
Therefore, under the authority of the SEC and FINRA, IUL can not be marketed or sold as a "security," "investment security," "variable security," "variable investment" or "direct investment in a security" (or the stock market), because it is not. However, IUL can be marketed and sold as an investment.
Obviously, the basis of an IUL policy is life insurance. And the basis of life insurance is the death benefit. A minimum-funded policy provides that, but a maximum-funded IUL policy not only provides a death benefit, protecting income and estates, but it can also accumulate cash value that can be used later, tax free.
In conclusion, let's not confuse an investment with a security. I think that's the problem. Put it this way: All securities are investments, but not all investments are securities. There are those who may think an IUL policy is a bad investment or that there are better investments, but make no mistake, it is an investment. And a maximum-funded indexed universal life insurance policy can be the best investment you ever make. Please let me know what you think. All comments and questions are appreciated.
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