Indexed universal life insurance vs. whole life insurance: A heavyweight match up
There appears to be two types of cash-value insurance agents. The first type prefers to sell index universal life policies. The other type prefers to sell whole life insurance policies.
In many of the insurance agent chat rooms, the discussion eventually turns into a “my product is better than your product” boxing match, with each participant trying to land a knock-out punch in the first round. Unfortunately, some of the participants are knocked out in the first few minutes of the first round, while only a few are able to go the entire distance.
As the conversations in the chat rooms would suggest, on the surface, there appears to be two types of cash-value insurance agents. The first type subscribes to what I call the wealth-without-risk heavyweights. This group prefers to sell index universal life policies.
The other type may be referred to as the private banker contenders. This group prefers to sell whole life insurance policies. Both challengers subscribe to the tax-free income philosophy. Each one believes that his or her way is best. And based on chat room discussions and FMO/IMO marketing campaigns, IULs offer a more compelling story and therefore should be crowned heavyweight champions.
So, how are IUL agents trained to sell? What do they see as a weakness in the WL product? How do they exploit it? How does WL compete? And does IUL deserve to be crowned cash-value heavyweight champions?
For starters, the IUL delivers a great one-two punch by simultaneously offering upside growth in the market and downside protection. However, WL counters with an unbeatable cash value guarantee and steady growth rate combination.
The IUL contender then decides to throw an upper-cut by saying that his product offers fixed or variable loan rates, while WL only offers a fixed loan rate. Not to be out-boxed, WL counters with a my-costs-do-not-go-up-every-year uppercut. This is a damaging blow to IUL, and as time will tell, prevents it from going the distance without some additional assistance down the road.
Weakened, but still a formidable opponent, IUL digs deep into its past performance bag and unleashes a flurry of non-guaranteed, superior historical-rate-of-return performance wins as a way to prove superiority. This razzle-dazzle attack does not stun WL, as it, too, digs just as deep and clocks IUL with a stiff dose of reality by showing verified cash-value wins.
The winner is?
With the fight over, the judges announce WL as the winner by a split decision, citing WLs solid cash-value guarantees, steady growth rate and all-in lower policy costs. The judges also state that while IUL looked impressive in the early stages of the fight due to its higher death benefits, superior return rate potential, flexible loan rate provisions and flexible premium payments, the annual increase in policy expenses, lack of dividend potential and cash-value guarantees, however, led to their decision to once again crown WL as the tax-free heavy weight champion of the world.
Before recommending one product or strategy over another, always remember that there is more than one way to solve a problem. The key is to determine the safest and most cost efficient and tax efficient method to accomplish the goal at hand. Therefore, set aside your biases and highlight the good, bad and the ugly aspects of at least two opposing view points, and let the client decide what works best for them. Now that is a knock-out punch every single time.
Author's note: A whole life comparison