Separating Facts from Myths in the Cash Value Insurance Business

General observation about agent qualification, sales tactics, commission, product benefits, asset diversification and product research.

The cash value insurance products and Annuities have a bad reputation for two reasons: sales tactics and agent commission. While the insurance products have evolved (see “Life Insurance Product Types”) to become complex financial instruments, the credentials needed to qualify as a life agent are surprisingly minimal. Advanced insurance products, such as IULs, come with so many bells and whistles that selecting a product and customizing it for, say, retirement planning, requires a fair bit of proficiency in finance and taxes. The product should fit the plan, and not the other way around. The client interactions that are negligent of this “plan-first” approach are likely to be balked at as too ‘salesy’.

It is true that commissions are lucrative in the insurance business. But, so are realtor fees in the real estate business. That does not stop us from buying homes, does it? These incentives allow agents to not charge a fee for their services. The commission schedules are similar between companies, which removes any product bias. As an independent agent, I have the ability to pick and choose the top-performing products in the market. IUL cost (and the commission) can be reduced by using the cheaper Term Life coverage as part of the IUL policy. All my IUL designs use at least a 50% Term mix in order to lower the cost and enhance performance for my client.

Did you know that the average cost of an IUL investment is ≈1.5% over the life of the policy, even though a quarter of these charges are front-loaded? This is comparable to the 1-2% fees charged by actively managed funds. But, an IUL enjoys tax-free growth and distribution. Assuming a third of the growth rate for taxes, just the tax savings alone would cover more than all the IUL costs.

Moreover, cost is just one side of the coin. Making an investment decision solely based on cost is not very prudent. For example, we buy homes because we see the long-term value in holding real estate as an asset class. Similarly, I urge you to understand the benefits insurance products offer, such as the principal protection, lower volatility and tax-free growth and distribution (read about “IUL Benefits” and “Annuity Benefits”). Quantify these benefits. Only then will you be able to compare your investment options on an even keel. In addition, understand that an IUL/Annuity is just an investment option, like stocks or bonds, to help diversify your assets. It is not a substitute for other asset classes.

Of course, not all the current products in the market reflect the aforementioned benefits equally well; just like how not all stock investments are the same, even though holding stocks as an asset class is still a good idea. Like with most things of value in this world, the devil is in the details. It takes diligence and meticulous research to identify unique investment opportunities. See our guidelines in “IUL Policy Design Considerations” and “Annuity Policy Design Considerations” on how to put together one of these investments. I spent two years researching IULs and Annuities, and modeling growth, risk and cost before making my first recommendation.

We specialize in tax-free retirement strategy and investments such as IUL, Annuity and LTC. Prefer a quick and complimentary consultation? Just email us at

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