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EIUL vs. Whole Life

Whole Life (WL) vs. Equity Indexed Universal Life (EIUL)
Which one Builds More Wealth For Retirement?

            National Underwriter does a study each year where it compares the illustrated returns in WL policies vs. the actual returns.  It’s my favorite article each year that another entity puts out.  It’s hilarious because the illustrated internal rate of return (IRR) on WL policies going back 20 years is typically 2% more than the actual IRR. 

             To view a summary of the NU report or to download the numbers, please click here.


            I have multiple calls a month with what I call Whole Lifers (WLers). What are WLers? Advisors who have the following characteristics:


            1) They use WL as their primary wealth building tool for clients

            2) They know nothing or very little about EIUL

            3) They have an uniformed opinion that EIUL is a "new type of policy" without a track record (even though they've been around for over 10 years).

            4) They don’t know what variable loans are or how beneficial they can be (click here to learn about variable loans).

            5) They don’t know about the living benefits offered by EIUL policies (like a FREE LTC benefit)


            As a general statement, agents who use the following systems typically recommend WL NOT EIUL as a wealth building tool: Infinite Banking Concept (IBC) or Become Your Own Bank (BYOB), LEAP system, and agents who are “captive” (or act like they are) at companies that do not offer EIUL policies (Northwestern Mutual, New York Life, etc).


            Why do the above named types of agent typically use WL vs. EIUL?


            Because they don’t know any better. Why? Because some are lazy (they don’t want to do research), or too trusting (trusting a company, sales system or IMO/GA that WL is the best/only way to build wealth with cash value life (CVL) insurance).


            Offering the best options to clients


            I don’t care what type of policy a client buys as a wealth building tool. What gets me upset is when agents blindly sell clients the same policy (WL or EIUL). I believe clients should be offered both WL and EIUL when discussing life insurance as a wealth building tool.


            The numbers


            Enough pontificating, let’s get to the historical internal rate of return (IRR) of various WL policies using a 20-year look back:

            The above numbers are staggering in what is supposed to be a conservative wealth building life policy (click here to view the full NU chart). 

            IRR is not the greatest measuring stick because it simply measures cash accumulation. As you know, the power in using CVL insurance is in the ability to borrow money tax free from the policy in retirement.  This is where WL really gets destroyed by EIUL and specifically Retirement Life™ policies. 

WL vs. EIUL for tax-free dollars in retirement


            I will use the moderately conservative Retirement Life™ (an EIUL policy) for this comparison.  Assume our example client is 40 years old, pays a $10,000 premium each year for 25 years and then max borrows from the policy from ages 65-84 (20-years). The following chart shows some of the WL numbers.

(Why National Underwriter didn’t publish numbers on Mass Mutual or New York Life, I don’t know).

             How much tax free income could be removed from an EIUL policy (Retirement Life™) over the same time period using the back tested rate of return of 8.79%? An incredible $90,125 each year.


            If I lowered the assumed rate of return in the Retirement Life™ policy down to 7% over the life of the policy to make it a more conservative forward looking example, you’d think the numbers would be terrible right?  Wrong.  The conservative number is $49,926 each year.


            Wake up call?


            If you think I get some weird satisfaction from putting out this newsletter, you would be correct. That said, this newsletter is not really about whether EIUL or WL is the best cash accumulation or tax free retirement wealth building tool.


            The point of this newsletter is to remind advisors that they should be offering their clients ALL the viable options when discussing CVL insurance as a wealth building tool. Clients deserve this so they can make an informed decision about which policy to use (WL or EIUL)


            Do you want to learn more about EIUL/Retirement Life™?


            If so, please click here and you can sign up to listen/view a webinar I did where I explain how EIUL/Retirement Life™ works and why you should be offering it to clients.


            If you want to read about EIUL/Retirement Life™, the best written material in the industry today is in my book Retiring Without Risk. Click here to learn more about this book.


            Bottom line


            Clients deserve advisors who understand ALL the viable CVL policies in the market. That includes both WL and EIUL and Retirement Life™. 


Roccy DeFrancesco, J.D., CWPP™, CAPP™, or MMB™
Founder, The Wealth Preservation Institute
Co-Founder, The Asset Protection Society
3260 S. Lakeshore Dr.
St. Joseph, MI 49085


Are you a CWPP™, CAPP™, or MMB™?


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Author of The Doctor's Wealth Preservation Guide, The Home Equity Management Guidebook: How to Achieve Maximum Wealth with Maximum Security, The Home Equity Acceleration Plan, and Retiring Without Risk.

Circular 230 disclaimer: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.


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