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Still working on your long post, so can't comment on that yet.

A follow-on to my earlier post, using number from it:

Quick look at my spreadsheet as it is right now.

This illustration (that Dave posted the link to) says "average historical rates". Let's arbitrarily go back 50 years, to 1963, and run it from there. 26 + 50 = 76, which is a not untypical death age.
(BTW, I'm running the spreadsheet as I'm typing, so I don't know ahead of time how the figures will turn out.)

IUL, fee= 22 bps, 0% floor, 12% cap, initial \$15,000, month addition \$150
Value at end of 50 years (Jan 2013): \$1,104,000

S&P500 B&H, E/R= 9 bps, initial \$15,000, month addition \$135 (\$1800 - 90 - 90 per yr), no deduction for life insurance.
Value at end of 50 years (Jan 2013): \$3,280,000
.

Not really fair, since we've ignored life insurance. The premium starts at \$49/yr (age 26) and goes to \$1415/yr (age 65). The 25'th year (age 50) it is \$280/yr, so let's use that as the average.

S&P500 B&H, initial \$15,000, month addition \$112 (\$1800 - 90 - 90 - 280 per yr).
Value at end of 50 years (Jan 2013): \$2,972,000

Note that this assumes no tax on dividends. With a 15% dividend tax the final value is \$2,439,000

*********
Let's check for a 1973 start, just in time to get hit by the 1973-4 bear market -- it took 7 years for S&P500 to recover back to the Jan 1973 level.

IUL, fee= 22 bps, 0% floor, 12% cap, initial \$15,000, month addition \$150
Value at end of 40 years (Jan 2013): \$586,000

S&P500 B&H, initial \$15,000, month addition \$112 (\$1800 - 90 - 90 - 280 per yr).
Value at end of 40 years (Jan 2013): \$1,215,000

*********
For the 1963 start, running 40 years (to Jan 2003)
IUL, fee= 22 bps, 0% floor, 12% cap, initial \$15,000, month addition \$150
Value at end of 40 years (Jan 2003): \$559,000

S&P500 B&H, initial \$15,000, month addition \$112 (\$1800 - 90 - 90 - 280 per yr).
Value at end of 40 years (Jan 2003): \$1,509,000

The fee percentage for the IUL still troubles me. Some people might argue that the fee should be the percentage of the death benefit not the cash value. In that case, 22 bs is too high. Turns out that it doesn't matter. If the fee is only 5 bps, the final value is \$590K -- only a minor improvement over the \$559K at 22 bps.

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