Where do EIULs belong in your Financial Plan? March 16, 2009Posted by shaferfinancial in Finance, Uncategorized.
Tags: EIUL, Equity Indexed Universal Life, Where to fit EIULs into your financial plan?
Let’s assume for a second that you have constructed a financial plan. Now let’s assume you have put that financial plan into action. Where do equity indexed universal life insurance policies belong in that plan, or do they belong in that plan?
First off all plans should have what I call a wealth creating part that goes along with a wealth preservation section. Now others label them differently, for example David Lewis has a great post on his blog on permanent life insurance, where he labels the two parts investments and savings. Now I have some small quibbles with his strategies, but the post really does a great job talking about why permanent insurance is not the bogeyman many so called financial experts think they are. EIULs fit into the wealth preservation side of the equation. Other wealth preservation possibilities are savings accounts, certificate of deposits, annuities, mutual funds, government/municipal bonds, corporate bonds, etc. Since this is the playground for EIULs, you can ask two questions and come up with what is the best product for you:
What are the tax ramifications? and
What is the most likely rate of return vs. risk?
Savings accounts, CDs both are extremely safe but give meager returns. They are also taxable.
Government bonds like the I bond also will barely allow you to beat inflation and is also taxable.
Municipal bonds give low returns but are not taxable and have increased risk in the current environment.
Corporate bonds give better returns, but have a tremendous interest rate risk at the present moment as well as general risk. In fact some of the corporate bonds really belong over in that investment category, paying double digit returns for you taking substantial risk.
Annuities, give meager returns, but have some tax deferral qualities like 401Ks and IRAs. They also have significant fees involved and surrender fees if you want to make a change in the early years.
Mutual funds can be tax deferred, and may give better returns going forward. They have high risk as many folks are finding out now. In fact the latest Dalbar study found that at 5 year, 10 year and 15 year lookbacks the average mutual fund investor actually lost money, while at 20 years they failed to keep up with inflation.
That leaves EIULs in my opinion as the best wealth preservation vehicle. Returns above what one would have gotten in all the other vehicles with a 20 year look back [including mutual funds at this time], legal tax avoidance, financial protection against the grim reaper and easy access to your account no matter what your age are a few of the positives. Now, does it make sense for everyone? No. Does it have front loaded, significant fees? Yes. Will it outperform all the other alternatives at all times? No. But it does most of the time, including a current 20 year look back.
Call me for a more in depth discussion on EIULs. It is a product that is really coming of age in this environment!
727.804.9271 or firstname.lastname@example.org