Whole Life vs Indexed Universal Life (IUL) – Which Is Better?

IUL or whole life insurance? Which will make you rich?

Newsflash, neither alone are going to make you a millionaire, but one is a better tool to accelerate your wealth creation journey.

Listen now to hear the pros and cons of both life insurance products.

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Speaker 1 (00:00):

Hello, my fellow Ripples. This is Chris Miles, your cashflow expert and anti financianal advisor.

Speaker 2 (00:07):

Chris Miles was able to retire twice by the time he was 39 years old, but he’s not content to just enjoy his own financial freedom and peace of mind. Chris wants you to have your own ripple effect so you can live free today. He’s not the financial advisor you expected. He’s the anti financianal advisor you deserve. He’s jumping behind the mic right now, ready to make waves. Here’s Chris Miles

Speaker 1 (00:37):

Walter show. It’s for you. Those that work so hard for your money and you’re now ready for your money to start working hard for you today. You want that freedom. You want the cashflow right now, not 30 or 40 years from now, but you want it today so you can live that life that you love with those that you love. But guys, I know it’s not just about making a lot of money, although that doesn’t hurt. It’s about living a rich life because as you’re blessed financially, you have a greater capacity, the blessed of lives of those that are all around you. Thank you for allowing me to create a ripple effect through your life as well, as well as your family’s life, and thank you for binging sharing and guys putting us into the top percentile. Now, the top of the one percentile of shows out there today, that’s all because of you.

Thank you so much for being a part of this and being part of this mission today. If you haven’t done so already, I invite you guys, if you want to learn more about how you can actually create passive income, go check out our website, money ripples.com. We’ve actually revamped it a little bit, so go check that out. You might find some new information there that could really be helpful for you, especially if you want a passive income to become work optional. Go check that out right now. Okay, so I want to talk about a subject that I really want to give good, fair value to, right? Because I get this question all the time about what’s better. Is it whole life insurance? Is it index universal life insurance variable universal life insurance, even by term invest the difference, right? We get all these questions, but the real debate often is now lately becoming down to index universal life versus whole life insurance.

Now, if you’re not sure the difference between the two because they do get confusing, I actually had somebody say, Hey, I want to get an indexed whole life policy. Well, in a lot of ways that is okay, although there’s technically something that’s called that. Most people that’s not the case or index universal whole life, that’s not true. They don’t mix and blend together. They are two very separate things. Now, most of you understand term insurance. Term insurance is just death insurance. You pay a small premium in it does go up over time, so it does get more and more expensive until you get so old and it gets so expensive you don’t want it anymore. There’s term insurance that just pays out in case of your death. But then there’s other insurances that have what’s called cash value. This is a tax-free savings account within the life insurance.

So you have the death benefit, but then they have the savings account, and these things have been around for many, many years. This is not the first time it’s been around. In fact, whole life itself has been around for a few hundred years, but this cash value component is something that you can use while you’re alive, making it more life insurance versus death insurance. Now I really want to focus on this index, universal life versus whole life. Now index universal life and universal life in general, right? There’s variable universal life. Variable universal life means that it goes up and down with the stock market. You could actually lose money and you also make money, but you could also lose at the same time. There’s costs coming out there, insurance costs, plus there’s market swings that can happen, but more people are going away from that because the stock market, if it does go down even for a few years, and I watched this happen in the early two thousands around Y 2K, so many people lost their policies or had to pay a lot more out of pocket than they’re expecting because they had to make for the market losses.

So what became popular in the early two thousands, and this is actually when I started really getting into it more too, was index Universal Life. Now, index universal life is like every other universal life policy. It’s basically like a term assurance with a cash value component. It really is by term vested difference in one vehicle. If you think about it, I remember you’ve probably seen different cars like this. I’m not a big car guy, but if I remember before I remember Lexus was the popular thing. Then I remember in the early two thousands around the time I was looking at these kind of policies, the Lexus was the hot thing, but then I saw the Toyotas were basically the same exact car. They were using the same parts as a Lexus, but they didn’t have the brand. Lexus was way more expensive than Toyota, but I could buy that Toyota for a lot less with the same kind of parts as what I was buying for that Lexus.

So that’s the thing is that Lexus obviously has the name, but it really has a Toyota chassis to it. Index, universal life is very much the same thing. It’s term insurance that goes up every single year. It’s like one year term insurance that goes up every single year. So those costs go up, but it also has a cash value component that’s tied to the stock market. But there’s parameters. There’s limits here. One, this is a big benefit is that if the market goes down, you don’t go down with it. So for example, they’ll have what’s called a floor, that guaranteed floor there that usually is at least zero or 1%. So if the market drops 20%, you still at least make either nothing or at least make 1%, but you don’t lose money that’s better than the variable universal life where that could be the case.

You could lose a lot of money, but on the upside, they also cap you at how much you can make. So if the market goes up 20%, you might only make that eight, nine, maybe 10% cap, although most companies don’t even go up that high anymore. And so there’s that cap. So you have a four and a cap usually between about zero and one to up to eight to 10% as a cap. So you make anything in that range. Now, if the market does 5%, you get paid 5%, it does 7%, you get paid 7%. If it does negative 10%, you get paid that zero or 1%. If it does 25%, you get paid that cap at eight or nine plus percent, and so it gives you a little bit more stability and it does allow, you still have some market involvement, but without all the market volatility, without all the crazy bipolar nature of it, it still can bounce up and down, making it more unpredictable, but at least now you’re not going to easily just tank the money.

So that’s when index versus life is. So remember, insurance costs keep going up over time while you also can participate in certain limits of the market, but again, you’re not invested in the stock market. That’s why it’s separate. It’s just based on an actual index like the s and p 500 or something like that. So that’s why they call it indexed universal life based on an index like the s and p 500. Now here’s the other thing too. Now, what are the cons? Now, when I was a financial advisor, these were pretty new, and at the time the caps were awesome. Most of the caps were at least 10, 12. There was even one company that was doing a 17% cap. So after Y 2K, people were nervous. They were nervous about being in the stock market. Well, this gave them another alternative to say, listen, guess what?

If the market goes down, you’re okay. People were nervous about that. Well, I started selling those. Now, while I was doing that, I was also training the new guys in the office about different things. I was helping ‘EM study for their life insurance exams and then Index Universal Life would come up and I would talk to ’em about it. I started switching from variable Universal Life, which was one of the options I had along with other mutual funds that I would sell my clients. But then I went to this index universal Life because I knew when we looked at the numbers from 1995 to 2005, we would’ve had more money in those index policies than we would in actually being an invested stock market because we had those floors that kept us from losing money. Well, in 2005, this is about the time right before I left the next year, well, a lot of these new agents would ask questions.

They would say, okay, so help me understand the cost, the insurance costs of these. The insurance costs go up over time. I said, yeah, unless you get this kind of death benefit, but then you can’t put in as much money, so you don’t usually make as much either. Okay, so insurance costs go up. I’m like, yeah, it’s basically term insurance. It goes up every year. They’re like, well, what if it doesn’t do well do as well in the stock market? Well, you could potentially lose money if you only get that floor rate, but the insurance costs are higher. You could actually lose some money. And I realized, oh, that could be a bad thing. They’re like, yeah, but what if? Can they change the caps? Can they change the numbers of how much the cap is or how much the floor is? Well, yeah, legally they can do that anytime they want.

Oh, okay, Chris. Well, what if the market doesn’t do as well? Could something happen here or here? And when they started to ask more and more questions, I started to realize there could be a lot of weaknesses with the IUL as well with this index universal life. Because the truth is you really can’t predict when they say, Hey, we’ll illustrate at 6.41%. They’ll say something like that and they’ll even try to show you historical saying, well, the markets average this, but the one thing that they don’t tell you is that those caps could go down. So we were illustrating sometimes like seven or 8%. Well, when you have a 12% cap that limit, upper limit, it can hit or even 17% cap. It might be more believable, but what happens if they lower that cap? It affects the numbers they go down too. And so the problem with this is is that one, you can’t control the stock market anyway, so you don’t know how much you’re going to make.

And then two, well, what if it doesn’t do well, for example, if you ever ask those people that have IOLs, and we can do it too, but we tend to, you’ll see that as we go on. I tend to shy away from this now because there are a lot of risks here. If things don’t quite go the way they plan or they change the numbers, it can also change the averages. And heck, even if you ask them to illustrate, say, show me that the next two years, say the market goes down for the next two years, show me if I only got the floor rate of that zero 1% and then after that maybe I got that average 6%. If you just show two years where you only get the four bottom rate and then you get the average after that, you’d be shocked how much different the numbers are sad.

It’s really sad, and I’ve seen a lot of people, especially lately, a lot of people have been in these kind of plans and they’ve been upset. Why? Because when the stock market goes down and they don’t get a very high return, if any return at all on their money and the insurance costs still come out, they can actually lose cash value unless they keep pumping more money in. So it’s not even making as much as what they’re paying into it. Not to mention, we talk about fees and everything else, insurance costs. There’s a variety of ways to do it that pay the agent more and you less. I even remember there was a time that insurance agents taught me, they said, listen, if you get a death benefit that you put it at 499,000, you’ll make more money than if you put the death benefit at 500,000 because they get a cost break at 500,000.

So doing it like four 90 instead, you’ll make more money, but they still get the basic same coverage. I mean, that kind of crap is out there. Guys, this is one of the reasons I left being a financial advisor because there are people, I’m not saying all of them, but there are definitely people out there that know these little levers to pull that could possibly pay them more money while not really making you any more money. In fact, it could make you a lot less. So be careful of that. Now, here’s the one thing I will say positive. When we talk about the returns of index universal life, the positive is this. There is a chance that if the stock market does well or if you get into the right time of the stock market, like for example, you bought one of these in 2010, you would actually do better than whole life insurance because whole life, although it’s steady and guaranteed and it can make decent returns, still if you get some good market years, it could actually beat it.

So yes, you could have more cash value in the IUL and that indexed universal life. You could have more money, but it’s not guaranteed. In fact, there’s a chance that it might be less, and there’s been many chances that even when I’ve shown people apples to apples comparisons between the two of index universal life versus whole life, we still beat it with the iul. Why? Because it’s about how you design the policy. Can you lower the cost as low as you can go while also getting good stable returns? Slow and steady can actually win the race here, especially if you can adjust the costs, the insurance costs more. Some companies will let you do it more than others, which is why sometimes it doesn’t work. And even with the same insurance company, I can still sometimes get it to beat with the iul versus the IUL and let’s lead the iul.

Now, let’s talk about that. I know I’m kind of talking about what I’m, I’m leaning towards. It’s no secret if you’ve listened to this show or seen any of our masterclasses, we do on this topic, and I’ve even shown comparisons on some of these masterclasses, the infinite banking masterclasses. But if you look at it whole life, for example, it is guaranteed it is much more conservative on the numbers. The returns don’t vary very much. Right now, they’re at about 6% currently. Yes, you can still borrow from it. One of the nice things is when you borrow from it, you can still earn money in two places at once, where with the index universal life, there isn’t option to do it with some other policies, but it sometimes will cost you more too. So it’s kind of a give and take thing, but most of the time, index universal life, you don’t have the ability to get that double dip factor I talk about where you can actually make money in the policy and invest it at the same time and still make money in two places at once.

So that’s something that’s more unique to whole life than is Index Universal life, even though you can do it with an IUL sometimes. The other thing that you can do with whole life too. Now, here’s the negative with whole life, right? Whole life is front loaded in insurance costs. Remember how the IUL, it starts in the insurance costs, like term insurance? Well, it starts cheaper, but then it gets more expensive as time goes on. That’s one of the big things I see as a danger with Index Universal Life is that if you don’t grow your money enough over that period of time before you get into especially your fifties, sixties, and seventies, you can actually start losing money. You start eating the money out of the policy, and they’re the ones telling you you can take out for retirement. Well, if you try to take out for retirement while it’s eating itself alive, you’ll rent out of money fast.

So be careful. Whole life doesn’t have that. They really don’t have the raising insurance costs. Now, they are front loaded, so the insurance costs are heavier upfront, sometimes even more than the IUL. Even with our design sometimes they can be still more front heavy on those costs, but the costs go down over time versus going up with IUL. As time goes on, you can actually still have more money with the whole life where it pays for itself more quickly versus the index universal life. The other thing too is you don’t have to worry about market swings. The death benefit sometimes can even be higher just depending on how it’s set up, even though that’s not a big focus all the time, you can actually get more out of it. The other thing is too is that you have this guaranteed death benefit and guaranteed cash value.

There are guarantees. Usually the floor is at least 3% a year is what you can earn. And by the way, just so you know, those guarantees is a considered a quote, no dividend scenario. However, we actually have policies where, or companies that we work with where they’ve always paid a dividend. They’ve always paid higher than their minimum guarantee. One of ’em actually has been paying for over 175 years straight through depressions, recessions, multiple World Wars, civil Wars, even not revolutionary, not that far back necessarily, but at least Civil War Times and beyond. They’ve still paid out a dividend. And so think about that. That is pretty significant. That gives you a lot more peace of mind. Now, like I said, it’s not as sexy as the IUL. It doesn’t have the potential big market swings that you might get if the stock market does really well or those years.

It does do well, but it’s more consistent. It definitely doesn’t change as much. So the numbers when you run projections are a little bit easier to say, this is pretty close or it’s going to be relatively close in how the results are, where the IULI show numbers the next year, those numbers can be completely obsolete, right? In fact, it happen all the time. That’s why you have to do annual reviews with your financial advisor or insurance agent because they have to give you brand new numbers the next time to say, oh, well, it changed. It was either better or it was worse. And so it just gets tricky. Okay. Here’s the last point, and this is going to be a pretty big point for me, is that with whole life, there are no surrender charges. What does that mean? Well, if an IUL, they might have cash value that’s in there saying, Hey, well look, we got cash value.

But when you look at the net surrender value, that’s a different story. The surrender value is the money you can actually touch and access. Well, with Index Universal Life or any universal life for that matter, they have what’s called surrender fees. If you try to cancel your policy, you get paid whatever cash you have minus the surrender fees. In those first few years, it’s very possible you would have a zero net cash surrender value. Now, there are a lot of people that are doing it more like infinite banking. They’re trying to do infinite banking, even though it’s not exactly it. They’re trying to create something like infinite banking with these index universal life policies, and so you might have cash from day one, but it’s a lot less because the surrender fees are factored in. So if you want to access cash, you won’t be able to early on.

They incentivize you to hold it long term, not use it in the short term. That’s the one advantage I love with whole life is that I can access that money in 30 days and all that money is there. There are no surrender fees or charges. So yes, they might be more expensive in the first year or two, sometimes not always, but sometimes. However, when you factor in the surrender fees, almost every time they’re better. You have access to more cash right away with whole life. So if you need it for emergencies, you need it for opportunities, whatever it might be. I have quicker access to cash with whole life than indexing universal life. Now, let me just kind of bring this back together again, because I’ve been on both sides of this fence. I’ve been on both sides of this debate. I used to think whole life was horrible.

I would tell people, you only make one or 2% a year. Well, what was I basing that on? Just what other financial advisors told me I didn’t have any evidence. In some cases, they’re still right. There’s still some really badly designed whole life policies out there, just like there’s badly designed index and universal life policies out there. I’ll tell you this. I can do either strategy, but for myself, I still do whole life. Now, you might say, well, is that because you make more commissions? No, honestly, insurance companies love incentivizing people to do index universal life. They want to do universal life because it locks the money up longer. You don’t want to touch it, so they love it. I get paid just as much if not more, on Index Universal life as I do with whole life. The reason I do it for myself and my family is because one, I like certainty.

Two, I like to know that my money is actually there, that I don’t have to wonder what the whims of the market are going to do. And then three, I like that double dip aspect. I like to be able to make money in my policy while also making money outside of the policy when I invest in things like real estate, allowing me to create more passive income. Now, that’s why I like using it index. Universal life is always bad. No, I think the best time for using Index Universal Life is if you can go back in time, go back to 2009, buy a policy, then you’ll probably feel like you’re a hero. You probably feel like your financial advisor or insurance agent’s a hero at that point because you would’ve done better than what they predicted. But right now, the market’s at all time highs, like the sps hovering around 5,000, I wouldn’t dare want to buy one of these policies because they’re already at those heights.

You’re not going to make as much money. In fact, you could possibly lose money depending on how it’s designed and set up. So there are reasons you could be doing it, and again, I just like the flexibility. I like not having surrender charges. I have to worry about that crap. There are some that do get rid of surrender charges, but they usually give you have a little bit more cost coming out to offset that. So it’s kind of the same in some ways. So that’s why I personally go with whole life, for myself, for my family, and even for our clients. We can do either we are licensed to do either of these strategies, but at the end of the day, I want you to love me and I’m a lovable guy. I already know that, but I don’t want you to get ticked off.

I don’t want any clients to say, Hey, I thought I was getting this. I’m not getting this. I’m hearing that more lately, especially after 2022, and even with 2023, the market recovering. There are people saying, holy cow, I bought this policy, or I bought even worse this premium finance policy with an IUL, and I’m now paying double the interest of what I’m earning inside this policy. What do I do? I’m losing money right now. I would hate to be that agent that has to answer those questions. I’d much rather be in that thing that’s boring and sexy to me because boring is sexy, right? At least that’s what my wife tells me. She tells me I’m boring all the time. Wow, she really thinks I’m sexy. Anyways, so the thing is this is that I like to know where my money is. I like predictable, so I don’t have to put energy towards it.

I like to know it’s there. I like to be able to leverage it and make more money with it. That’s why I use whole life over I ls. Again, there could be a reason for both, but if I were to buy more policies on me and I want to do an IUL, I would wait for a market crash and then I would buy one. I would more likely buy it after the market’s crashed pretty badly for a few years, then I might buy into it. I’m not saying that’s what you do. That’s just my own personal preference is that if I go in the market, I like to wait for market crashes with something that’s market based, right? I like to go for that and then capitalize on those swings when they swing back up the other direction. So anyways, if you guys have questions, you can always reach out to us.

We have a whole infinite banking section on our website on money ripples.com. You could check that out, get more information there. But you know what? Here’s the thing, guys. The debate is, is that there’s a purpose for everything, but I lean more towards whole life because of those reasons I gave earlier here. So you make up your own call, you decide which is best for you and your family. I know it’s best for mine. Go and make a wonderful prosperous week and we’ll see you later. A lot of people that are doing it more like infinite banking, they’re trying to do infinite banking, even though it’s not exactly it. They’re trying to create something like infinite banking with these index universal life policies, and so you might have cash from day one, but it’s a lot less because the surrender fees are factored in. So if you want to access cash, you won’t be able to early on. They incentivize you to hold it long term, not use it in the short term. That’s the one advantage I love with whole life is that I can access that money in 30 days and all that. There are no surrender fees or charges.


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