How To Buy Equity Indexed Universal Life Insurance
Don't tell your stockbroker or mutual fund company
, but the cash value portion of equity index linked universal life insurance (IUL) policies can be used to replicate a diversified portfolio, with lower cost and less volatility. James Garfinkel, founder and CEO of New Amsterdam Life has been extolling the virtues of equity
Indexed universal life insurance for years, however it wasn"t until the recent market downturn that demand for these products really exploded. "People are gravitating to products that can deliver above-average returns with lower risk," observes Mr. Garfinkel.
Model stock portfolio returns are based on always being in the market, and consistently buying, even in times of market turmoil. The reality is most of us are not always in the market and we typically sell during a financial crisis rather than buy, and then we buy after the market is "safe" -- sacrificing much of the upside of a post-crisis bounce.
Is it any wonder your portfolio performance doesn't match up to your fund company's model?
IUL policies are linked to the performance of a specific index, like the S&P 500, so that if the index is up over a one-year period, the account will be credited a corresponding percentage up to a cap, currently in the range of 12% to 20%. If the index is down, the account will be guaranteed a certain base, or floor, usually zero to 2%. The policy does not directly participate in the market.
The combination of the cap and floor reduce volatility as opposed to owning the basket of stocks outright. Furthermore, there are no additional management or account fees.
While the S&P 500 is the most popular index, carriers provide the possibility of exposure to the S&P MidCap 400, Dow Jones Industrial Average, NASDAQ 100, Russell 2000, Dow Jones EURO STOXX 50, Hang Seng Index, commodity price indexes and others. Fixed-income exposure can also be added to the mix.
You can choose what portion of your cash value is allocated to any particular index, and how much is maintained in fixed income.
Further, you can choose to have your allocation made in equal monthly installments, so that you have a constant market exposure, as advisors suggest.
Books like The Investment Answer underscore that the best long-term performance is found in indexed funds, consistently invested and diversified, not in higher-cast actively-managed accounts.
IUL policies can provide such performance, along with tax-free internal cash value build-up, and, of course, death benefit protection that your beneficiaries will receive tax-free.
Try getting all that with your model portfolio...
by: James Garfinkel
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