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What is the best EIUL? January 26, 2009

Posted by shaferfinancial in Finance.
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I have been asked that question much.  The short answer is “it depends upon what you are trying to accomplish.”

But for my needs, which is helping clients to protect their wealth from the taxman and hedge against inflation I have found what I consider the best equity indexed universal life insurance policy (EIUL).  This is not to say that other companies EIULs are bad, just that I strive to find the best one for my clients and recently I have had a change of opinion as to what is best.

First, the insurance companies make it very difficult to compare policies using just their illustrations because they use different assumptions that you have to adjust for.  The internal workings of these products are made needlessly more complicated, and difficult for complete transparency.  I want to thank  Brett A. Anderson, author of Last Chance Retirement,  for his hard work in getting the information needed for comparisons from the various insurance companies.

I also want to note, as a habit, I illustrate policies for clients conservatively, usually 10-15% below the historic based internal rate of return.  But for this post I am using historic based returns.

Mr. Anderson has published rates of return for different policies using a twenty year look back and a quarterly average for re-set.  This makes the policies comparable.

The product that gives the highest rate of return within that 20 years look back is Minnesota Life at 9.00%. Compare this to the Aviva product (2 year point to point) at 8.11%.   The Minnesota Life product, not surprisingly, has the highest cap rate at 16% for a 1 year point to point.

Correspondence from an actuary at Minnesota Life indicated they structured more of the fees into the life insurance costs instead of the cash value side.  Since we structure policies minimizing the life insurance this keeps the fees down and allows for maximizing cash value.  If you maximized the life insurance then this policy would not perform as well for you as others.  It is these little things that make their product superior for what we are trying to accomplish.  Additionally, Minnesota Life charges their interest on policy loans at the end of the year, while Aviva charges at the beginning.  This slight twist makes a difference in the long term performance of the policy.  Minnesota Life is a A+ rated company indicating good company strength (about the same ratings as Aviva). 

Going forward, until the products change, I will be using Minnesota Life’s EIUL for my clients who are looking to maximize living benefits, minimize taxes and have a source of tax-free income.

Comments»

1. Eric - March 18, 2009

Isnt it true that Aviva has a patent that Minnesota life and no other company does, that lets you in your retirement years borrow from aviva instead of your own funds and while borrowing at a less rate than your supposedly saving at still builds your policy even though your borrowing from it and is supposed to give you tax free income that you can not outlive?

shaferfinancial - March 18, 2009

That was a mouthfull! 🙂
Don’t know about any patent. But, that is the way almost all of the EIULs work. You can borrow at a fixed rate [some have a variable rate too] and if the interest credited is more than the interest rate on your loan you get a positive arbitrage. Historical data on the arbitrage indicates you could make 1-1 1/2% on the arbitrage over time. Another reason to like EIULs. By the way the AVIVA product charges you interest on your loans up front while Minnesota Life charges the interest at the end of the year. A little known benefit for Minnesota Life. Look, my personal EIUL is AVIVA so I think it is a fine product. Nothing wrong with it. However, for most cases I have found the Minnesota Life [which is a newer product] outperforms the AVIVA product. These companies are competitive and change their products [usually for the better] over time. So what is in my opinion the best product one year might not be the best the next.

2. Kevin Murphy - May 27, 2009

Dr. Shafer, you might mention what a pain in the rear it is to go over AVIVA’s annual statement with a policyholder. Can you spell “confiscatory” with regard to the cost-per-1000 charges?

Hard to justify, along with all of the other shenanigans AVIVA is pulling with its agents!!…

shaferfinancial - May 27, 2009

The AVIVA EIUL [which I own] is still a solid product in my opinion. It is just not anywhere near the best at this moment. I have not noted their cost per 1000 charges being out of line, but I have been selling Minnesota Life for the last 6 months. However, it is hard to get a hold of the true cost of insurance because some charges are put inside that number for some companies and not for others. Best to look at overall charges to get a true picture.

3. mathsgirl - June 2, 2009

Dr. Shafer,
I received several quotes from different companies on EIUL recently. I didn’t know about Minnesota life EIUL until I found your website. Could you please compare the Minnesota EIUL expense charge with the “Rapid Builder IUL” from North American company. Here is some basic information I know about this product.

0% premium load

Annual unit expense charge = 0.03% * $500K option A death benefit for a 29 year old female, preferred non-smoker. This is fixed for all years.

Annual policy maintenance fee = $96 ($8 * 12)

Annual account value charge = 0.6% * account cash value, this is maximum in the contract, their current charge is 0.6% for 1-10 years, 0.3% for 11-30 years and 0% there after.

COI charge is based on 2001 CSO ANB mortality table for female select-ultimate non-smoker. The first year COI charge is 0.3 per 1000 for 29 year old female.

shaferfinancial - June 2, 2009

If you give me the premium amount and face value I can run a comparison for you. I want to point out that expenses are really only a small point of the performance. NA has a 13% cap compared to Minnesota Life’s 16% which gives an internal rate of return of 7.43% compared to 6.86% for NA. The internal rate of return accounts for both expenses and basic strategy. Minnesota’s 140% option gives a 7.62% IRR for example [using a twenty year look back]. But I bet Minnesota Life’s expenses are competitive if not outright lower, at least that is what I have found every time the company gives me the ability to look at expenses [some companies don’t allow their software to do this].

mathsgirl - June 2, 2009

I agree with you the cap and participation ratio are very important in the long run. The reputation of the company is even more important because there are many things (COI, expense charge, cap, etc.) the company can change in the future. It is important to know whether the company has a good history of treating policyholders fairly. Some companies may have a very competitive new product in the expense of exisitng policyholders of old products.

Here is the number for NA. (29 year old female, non-smoker, preferred class)
Use cash value test assumption, pay $12K premiums per year for 15 years ($0 thereafter), $500K option A face amount
interest rate assumption in the illustration is 6.5% per year.

5 years later, CV=$68,426, DB=$500K
10 years later, CV=$155,408, DB=$741,453
15 years later, CV=$277,147, DB=$1,111,914
30 years later, CV=$698,789, DB=$1,730,201

My interpretation for this is if I put $12K/year for 15 year, my annual return is 5.23% on the cash value. The spread is 1.27% (6.5%-5.23%) if the index credited interest rate is indeed 6.5% per year. The 1.27% is the expense for the insurance coverage and plus tax-free asset growth. 30 years later, the annual return is 5.93%, the annual spread is 0.57%.

shaferfinancial - June 2, 2009

I am on the road for the next few days. Will get back to you either this weekend or early next week.

Dave

shaferfinancial - June 4, 2009

Mathsgirl,

Please send me an e-mail at dave@shaferwealthacademy.com. I tried to use the e-mail address from your comment and it didn’t go through.

Thanks,

Dave Shafer

4. Eric - June 2, 2009

Can you tell me the difference between putting my money in the Aviva IUL and going with a whole life policy with NY Life? They are saying that IUL is so bad they wont even sell them, and also that there dividends is a better way of crediting to your account… Any thoughts on this would be appreciated.

shaferfinancial - June 4, 2009

New York Life is an old-school life insurance company. As such, they don’t innovate until forced to by competition. Their whole life policy is OK, but certainly in my opinion not the best out there.

There is nothing wrong with using this strategy with a whole life policy. Whole life policies credit you with interest from the life insurance company’s general fund, depending on how they do in the market. They usually are conservatively managed and provide steady but unspectacular dividend crediting. Whole life policies require you to make the premium payments as decided on initially. Traditionally, folks make 20 years or so premium payments and then have a “paid up policy” where they can allow the dividends to cover the premiums. Generally, these agents are not particularly good at structuring the policies for maximum cash value because the policy was not designed for such a structure.

Here are the two main reasons I prefer EIULs:

1. History has demonstrated that EIULs outperform whole life policies
2. EIULs allow one to manipulate the face amount of insurance as well as the premium amounts [this is critical in adjusting your policy for maximum performance]

Thanks for the question!

5. Brad Manuel - March 22, 2010

Dave,
I have seen a product advertised known as Revolutionary Life Insurance as the “best EIUL” out there. What are your thoughts on this company? It has a 140% crediting strategy. I noticed you had mentioned Minnesota Life also has a 140% option. I’m assuming this is the same thing. I have had an Aviva policy (properly structured minimizing the DB) for the past 4 years and am unsure if I want to continue with the policy as there are better things out there. I am contemplating on switching to a better product while still young (32). Is it possible to switch from one to another without losing much invested other than the fees I have already paid?

I guess there will always be something better around the corner and probably should just be happy with being with the 2nd or 3rd best EIUL company.

Thanks

shaferfinancial - March 23, 2010

I have looked at this product and there is nothing particularly wrong with it. However, the company’s [LSW] financial ratings is much lower than Minnesota Life’s. Brett Anderson and I run the numbers and we get an IRR for various strategies that is around .8-1% less for the LSW product, which means you will accumulate less, and be able to take out less for income. Feel free to call me for more details; 727.804.9271

6. David - June 28, 2010

Dave, just wanted to comment on your earlier post about NY Life. To be fair, I believe they also have a custom whole life product that makes it very easy to “overfund” the policy up to MEC guidelines. And, many of the big mutuals do have 10 pay policies for maximizing cash value which do not rely on the sketchy “vanishing premium” method of financing future premium payments.

The ONLY issue I have with all ULs, EIUL included, is that you really need to be able to trust management on that cost of insurance thing. If they want to lower caps or raise the COI, the policy holder could find himself in some trouble. Also, that guaranteed column in the UL always scares clients ;o)

7. veronz - July 4, 2010

Dave, just wnat to get your opinion regarding this iul.do you think it is better to start with higher death insurance amount than the lower amount.does it matter at all ? i was quoted for either $750K or $1M life insurance with monthly premium of $800.what do you think of western reserve life? any comment will be appreciated

shaferfinancial - July 5, 2010

The proper way to set up the insurance contract is to minimize the amount of insurance down to the lowest possible and not have a modified endowment contract. The only way for me to tell you what that number is to have your information [age, gender, monthly premium, etc.] I would be happy to do this for you; call me at 727.804.9271 or e-mail me at dave@shaferwealthacademy.com. We could have a full conversation about how to properly structure the policy and what company’s EIUL is the best at this current time. Thanks, Dave

8. Rafael Teran - October 5, 2010

hey david, are you still in the business of EIULS’s ? I am ready to start funding one of these policies but not sure whats the best product currently out there and who to contact. I ‘d appreciate if you could guide me in this regard.

9. Jeff Lezak - November 9, 2010

Is eiul a product to buy for a 61 year old(wife) when we have enough insurance. we have too much in the bank. also the Aviva salesman said to stop our 401K’s.. We are in the 25% fed bracket and will be that also when we retire in 9 years(age70) also, I cannot buy life due to poor health from an insurers point of view. Income 200K, age 63 and 61 six more yrs of full time and then I will keep working p/t.

10. shaferfinancial - November 10, 2010

Jeff,
Possibly. Would have to discuss some other items with you to see if it would make sense. Give me a call 727-804-9271

11. Jeff Lezak - November 24, 2010

My stock broker say this is terrible. I am buying a 61 year old female(wife) either 50K or 100K spread over 5 years. 25-28 fed bracket, 3 state. His point is that we don’t break even till year 8 and our illustration has her taking out 23K plus inflation at age 77. My point to him is this is 5-8% of our monies and we will be working for 6 or 7 more years making her 67(8) and m 70. We already have 1.1 mil in IRA.s 401K’s (535 total) and the other 600K in the bank, life insurance taxable funds etc. With our getting about 60K plus inflation from Soc Sec and 10K from pensions plus having to take a 4% dist from our tax sheltered plans starting in less than 7 yrs for me, why would I even care that the plan doesn’t start looking good for 10 or more years after we reitre. I want this money to be there if we live past 80 and even then, hopefully we leave it to our daugher and grand dauaghter. He wants us to put it into 0 coupon 20 year muni bonds. Last I looked they are paying 4.5% on average They look much better 8 years out but who cares. I must be dumber than a college graduate.

Matt V - February 1, 2011

Seems your stockbroker wants more trails…I am an investment advisor and suggest you look more at IULs…No loss and around 15 percent caps with a 100% participation rate is what you want. The one I sell, Midland Nationl Life’s XL-CV3, has all of this. It also has cronic illness and terminal illness riders that mimic LTC insurance for free.

I focus on tax free investments and this is the way to go…overfund it with a minimum Death Benefit for maximum gain.

G - January 1, 2012

Matt,

What do you think of the XL-CV4 thats out? Any big changes?

Would you still recommended overfunding a EIUL with a minimum Death Benefit for someone who’s 33 vs 61?

Thanks!

12. Scott - February 20, 2011

Hi, I will have $50,000 to invest every year. I am 40 now,want to retire at 55. Should I put it in a Builder IUL? Supposedly I can make $79666 per year for life in untaxed money beginning at the age of 55.I already max out my 401k and my wife and I both max out our roth.Should I put all that money in there,split it with something else, or do something different that makes more sense?Thank you,Scott.

shaferfinancial - February 20, 2011

Scott,
Thanks for commenting. Each persons situation is different so I can only give you a general comment. I prefer to spread investing $$ over several areas if possible, so I wouldn’t put it all into an EIUL. There are timing issues with your retirement date being at age 55 which must be taken into consideration.
Also, I am concerned that you plan to only leave the policy for 15 years before starting to take income when you probably won’t have to do that.
I would be happy to talk to you about these issues and to create a real strategy that takes into consideration the strengths and weaknesses of your various investments.

13. Vic - August 1, 2011

David: Since you wrote this article, do you still believe that Minnesota Life has the best IUL?

shaferfinancial - August 2, 2011

Yes, but North American’s product has moved into a tie with ML. It all depends upon your circumstances to which would work the best for you!

14. valerie de leon - October 4, 2011

my agent is recommending Pacific Life Euil. What do you think about it and do you still like Minnesota life? What about Aviva? Do they stll have 140% part , what’s the upper and lower cap?
Thanks
Valerie

shaferfinancial - October 5, 2011

Pacific Life’s EIUL is not one I recommend because of high expenses and poor performance within the policy. Aviva is one I own personally, but currently there are better products out there.
Yes, Minnesota Life stills has the 140% participation option. Current cap is 14% and the floor is 0% with a 3% overall guarantee. Let’s talk, depending on your age and needs the North American EIUL might be the best fit for you.

15. mdxc90 - October 14, 2011

Can you please comment on the F&G Life-Choice product? My agent tells me that it is the only product with no “per thousand” expense charges built-in. Thank you.

shaferfinancial - October 14, 2011

Replied on “Is ML still the #1 EIUL thread.


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