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Subject:  Re: 7702 Private Plans (indexed universal life) Date:  3/31/2013  12:04 AM
Author:  Dwdonhoff Number:  71590 of 80509

Hi Ray,

I don't know the sizes of the people you typically see. But if you have a $100K account and lose half, it doesn't matter. Neither 100K nor 50K is going to put you on easy street, or make a significant change in your life-style. (Or maybe it would -- perhaps I'm jaded.)
Its all relative to your net worth, not any particular account size. If $100k is all you have in the world, a 50% haircut is devastating.

Does anybody have a $1,000,000 IUL? Did anybody with a $1M IUL account build it up from zero? Bet not.
Nobody builds up a $1M account from zero on returns, everybody has to make savings contributions, regardless if its in a hedged or naked account.

So, it seems to me that an IUL is functionally useless to somebody with a low net worth. The protection is useless because half of a low number is still just a low number.
Actually, its the exact inverse. Only those who have enough money that they can afford to lose 50% and not have it affect their desired lifestyle can afford to take the risks of substantial drawdowns.

That's a very fine & rare number of folks.

Looking at my equity curve chart, with a $10K initial value ....
dropping from $66K to $40K in 2 years (2000-2002) hurts bad.
It took about 4 years to get back.
But it did.

If 1,000 people ran this plan, statistically how many would get trapped into selling/liquidating during the drawdown? I don't know the statistical answer, but the risks are significantly greater than most people are comfortable with when they are aware of the danger.

And in 7 years from the 2000 peak, 5 years form the bottom, it got to $76K.
Not such as big catastrophe, is it? 6 years to get back to the previous peak.

If you're among the lucky, its OK.

And then the drop from $76K to $40K in 1 1/2 years (2008-2009).
It took 3 years to recover back to $76K.
A little under 5 years to get back to the previous peak.
Not such as big catastrophe, is it?

Again, for those remaining standing, all is hunky dory.

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Hi Sykesix,

Ray showed pretty convincingly that IULs don't