During the lifetime of ODs on Finance, we have received quite a few messages from doctors, family and friends about Indexed Universal Life Insurance (IULs). IULs are promoted to mimic the Index SP 500 return.
They are basically Whole/University/Variable insurance in disguise and present a variety of unneeded complications. Don't fall for them!
An important rule to employ in your retirement/investing philosophy is:
"DON'T MIX INVESTING WITH INSURANCE."
7 great reasons why Doctors should NOT sign up Index Universal Life Insurance:
1. You Don’t need a permanent expensive death benefit.
Since you are a high income earner and investing through other proven means such as your 401K and Roth IR
A, you will eventually reach a point in life when you no longer need to depend on just your earnings to survive. Here is an alternative: sign up for cheap term life insurance instead.
2. Just because it is complicated, doesn't mean it is worth more money.
In fact, complication in any sort of investment vehicle indefinitely favors the entity offering it rather than individual purchasing it. Keep it simple when it comes to investing.
3. IULs don’t count the dividends.
Even if your policy promotes a high return, it is likely lower than the actual SP 500 Index Fund Return. So if an index mutual fund goes up 10% (including a 2% dividend), an IUL may only credit you 8%.
4. IULs usually have a cap rate.
That means if the stock market has a really great year, such as the 30% index return in 2013, your return is “capped” at some lower figure, often in the 10% to 15% range.
5. IULs have participation rates.
If your participation rate is 80%, that means that if the stock market goes up 10% (not counting dividends) you get 8% credited to your cash value account. After 30 years, a nest egg growing at 8% instead of 10% ends up 42% smaller.
6. Market drops cause a double negative -
less cash value plus the higher costs associated with an IUL.
7. IULs are designed to make both their parent companies and peddlers money.
Think about it, someone is selling you this policy and they often work for a larger company. This means the IUL is helping them meet their bottom line.
Just remember, there are so many other investment vehicles that are more tax efficient! Like maxing out your 401k/IRA/ Roth IRA [Read More The Optometrist's Guide to Retirement] and if you have done all of that (Woot, you are a beast), then just dump the rest in a Taxable Brokerage account (15% tax on long term capital gains).
It is literally that simple.
Remember, "You can put makeup on a PIG, it is still a pig"