Request an IUL quote and many agents will be inclined to show a rosy scenario return assumption. After all, high return assumptions are what the companies provide as their default settings to generate quotes. Carriers often use a 30 year historical look back for the S & P 500 Index that show returns in the high 7% to low 8% range. Showing that level of returns over a span of 20, 30 years or longer runs up the non guaranteed cash values and death benefit. Comparing carriers apples-for-apples with the same high interest rate is one measure of performance, but not the only measure. Since there are good times and bad times with index performance, it’s best to see the plan put under stress and a variety of scenarios to see how may performs. Observing how these affect the internal rate of returns is a good way to see which carrier shows the best cost of insurance charges
In addition to the default setting last week comparing carriers I ran:
Quote at 6%
Quote at 3%
Quote solving $1 cash value at age 100
Quote showing no further premium contributions after 15 years
Quotes assuming a 5% or 6% index return are good to temper expectations more realistically. Cap rates, currently in the 11% to 15% range, are likely bring down return averages regardless of what the historical average may show. Quotes assuming 3% helps reveal which carriers are best with cost of insurance charges. Quotes solving for $1 cash value to age 100 helps show which carrier has higher mortality charges in the later years. Quotes premiums stopping in 10 or 15 years is a method to see how cash values holds up over the years and to to if and when the policy projects to lapse to compare mortality charges.
It’s prudent to request multiple illustrations showing many possible outcomes: low, medium high, over funded and under funed.