Today's IUL is very different - in design and use - from many of the UL products of the past.
But a recent Wall Street Journal article, "It's the Hottest Thing in Life Insurance. Are Buyers Aware of the Risk?" seems to miss that point altogether.
Below is a Letter to the Editor I sent, highlighting some of the key differences the WSJ overlooked:
Dear Editor,
Your January 4 article, “It’s the Hottest Thing in Life Insurance. Are Buyers Aware of the Risk?,” overlooks a critical difference between today’s Indexed Universal Life products and the old Universal Life the article critiques.
Unlike the legacy-focused UL policies of the past, today’s IUL policies are typically used for both death benefit protection and tax-free retirement saving. Because of this, IUL policies are typically “overfunded,” meaning more premium is paid into the cash value than is needed to support the death benefit.
This is a critical difference. Today’s IUL has the cash-value buffer to weather bad markets – with less long-term impact to growth.
Further, since IUL’s index floor resets annually, the cash value grows as long as the market grows – even if the market is stuck below its previous high. As students of the market know, every major market decline has been followed by a few years of significant growth. That’s why during the worst decade in S&P 500® history (2000-2009), the market lost an average of 1% a year, while many IUL policies credited an average of 4.5% or more.
It’s for these reasons many actuaries – myself included – not only recommend IUL, but own it ourselves.
Martin H. Ruby, FSA
Actuary
Louisville, Ky.