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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75377  
Subject: Re: Hi gang... wow!!! Date: 9/14/2013 12:34 PM
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Dave, thanks for the Policy sheet data. I'll have to read your long post carefully before commenting on that.

I'm not familiar reading a sheet like you posted, but trying to puzzle it out. Check me out.

Looks like the life insurance is $250,000 level term, with the premium increasing each year. BTW, I thought it cute that they ran the illustration out to age 120. ;-)

Cross-checking .... the insurance premium is $280 at age 50. That seems in the ballpark for a pure term policy.

Therefore the investment is not actually $1800 ($150/mo). It's $1520 ($127/mo) for the investment part and $280 for the life insurance.

Starting at age 67, the life insurance premium is LARGER than the $1800 deposit, so rather than adding to the investment, the investment is being drawn down to pay for the life insurance. Nonetheless, that's more-or-less okay. When you retire that's when you switch from accumulation to decumulation -- so that's the point at which you stop adding to the investment account and begin withdrawing from it.

This brings up the question of why a 67 year old would want to have life insurance at all. The purpose of life insurance is to replace the paycheck income in case somebody dies early, but once you've retired there is no paycheck and hence no income that needs to be replaced. But that's not really pertinent here.

Now, going back to look at age 50 ..... the total fees are $180 (premium charge + policy fee). Um, that's 10% -- TEN PERCENT -- of $1800. Or 12% of $1520. That seems like a lot.

Now, that's the fee as a percentage of the deposit, but we need to figure the fee as a percentage of the account value -- that's the definition of Expense Ratio.

Age 50, (NG)CV is $207,769. $180 is 9 BPS. Including the insurance, $460 is 22 BPS. True, life insurance is a separate issue and shouldn't really be included -- but it's an inextricable part of the IUL policy so you can't really exclude it. So logically, in order to compare like to like, you should add an insurance premium to the non-IUL S&P500 alternative -- even though nobody rational would keep life insurance after they retire.

So, anyway.... for IUL, age 50, E/R is 22bps. Or should we do the percentage of $460 to the death benefit amount of $457,769? I think not. The death benefit goes to the heirs not the insured, so the amount that belongs to the insured is the cash value.

Age 65. Retirement age. Fees $1595, CV $769,585. E/R = 21 bps.
Age 75. Fees $3796, CV $1,785,422. E/R = 21 bps.
Age 45. Fees $344, CV $130,325. E/R = 26 bps.

After paying $280 for life insurance and $180 for fees, the actual investment deposit is $1340 ($112/mo). To be fair, you have to account for the life insurance premium for the (non-IUL) S&P500 alternative, so the amount invested in the S&P500 wouldn't be $150/mo either -- it would be $127.

There are some amusing things in the data. I chuckled at the thought of the 90 year old owner of a $6,000,000 account studiously making her annual $1800 deposit so she could keep her $250k life insurance in effect.
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