Many Americans are concerned about future tax rate increases and potential stock market losses. While IUL is a great option to offset these risks, the cost of insurance per unit is currently decreasing, and the overall unit requirement is going up.

In this episode of Money Script Monday, Brian illustrates why high-income earners should consider securing an Indexed Universal Life policy as a part of their overall financial plan.

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Video transcription

Hi. Welcome to another episode of Money Script Monday. My name is Brian Manderscheid.

Today we're going to talk about how to lock in today's low IUL costs before they increase.

Now, I can remember vividly back to 2007, 2008, where we were in a very similar situation as we are today. We knew that in 2009, the IUL policy costs were set to increase.

The stock market was at or near an all-time high.

At that time, we were urging all of our clients, especially those who are high income earning, concerned about taxes, concerned about stock market losses, to place a portion of their assets or income into an IUL policy to hedge against tax rate increases, stock market losses, and to lock in the rates of the time.

Now we're in a very similar situation today.

Where, again, we know that next year the policy costs are going up, the stock market is at or near an all-time high, and again, we're urging all of our clients, especially those who are high income earning, concerned about taxes, concerned about stock market losses, to put a portion of your assets or income into an IUL as your overall financial plan.

Today what I want to talk about is, first, what's happening, second, the effect on IULs, and lastly, how to lock in today's rates.

What’s Happening?

First, what's happening.

It's no secret that people are living longer, and that has an affect on life insurance pricing.

Insurance companies use mortality tables to estimate the life expectancy of their insurance.

Currently, we're using the 2001 CSO table and, based on the fact that people are living longer, and the better underwriting experience from the insurance companies, they'll actually be forced to use the 2017 CSO table, starting January 1, 2020.

Any policy that's put in force on that date or beyond will be forced to use the new 2017 CSO table

That's what's happening.

Affect on IUL?

How will this change, affect IUL policies?

You may be thinking, "Well, people are living longer, that should have a positive impact on pricing, and actually reduce it."

You're actually somewhat correct, that the cost of insurance per unit is actually going down, which is a good thing.

The downside is, the cost of insurance unit minimum requirement is going up, which is a downside.

Wile the cost of insurance per unit is going down, the unit requirement is going up.

The net effect is we project roughly 2% to 4% less cash value in income due to the higher cost structure of the 2017 CSO table.

Now, to put things in a more visual aspect, let's say we have a client who wants to maximum fund $250,000 as quickly as possible up to the 7 pay MEC guidelines into an IUL policy.

With the current CSO table, based on the client's age, gender, and health, the minimum death benefit requirement from the IRS in this example is $1 million.

However, on the new CSO table change, the same $250,000 in cumulative premiums would require roughly 10% more death benefit.

In this example, we'd have to buy roughly $1.1 million in death benefit from the same $250,000 in cumulative premiums.

Again, while the cost of insurance per unit is going down, the overall unit requirement is going up.

That effect will be higher policy costs, and 2% to 4% percent less projected cash value in income.

We’ve talked about what's happening and how that will affect IULs.

Locking in Today’s Rates

Let's talk about how to lock in today's rates before they are set to expire.

So, I mentioned January 1st, 2020. Any policy put in force on that date or longer will have to use the new mortality tables.

However, any policy put in force on December 31, 2019 or before will be eligible for the current pricing.

You may be thinking to yourself, "Well, I have plenty of time before the end of the year to get a policy enforced."

Well, there's definitely some considerations you need to be made aware of.

First, is the underwriting time frame. It typically takes between 4-8 weeks to get a policy issued, placed, and put in force.

Potentially, it could be shorter if, let's say, you're healthy and working with a company who has accelerated underwriting.

It could take longer if you have health problems, or if there's an APS requirement, or 1035 exchange.

It can actually take well over 8 weeks to get a policy enforced.

Additionally, the insurance companies are not going to wait around 'til next year to roll out their new products.

Depending upon the carrier, most companies are targeting between August and September to roll out the new products with the new pricing of a 2017 CSO table.

The insurance companies really have two options.

One is we're going to roll out the new product and discontinue the old one and require everyone to go on the new pricing when they roll it out.

Or, they may keep both, the new version and the old version, but have a cut-off date of, let's say, October or November, to get the application submitted.

So they have ample time to get the policy enforced before the end of the year.

If you've been thinking about purchasing an IUL policy, the time is definitely now to get a policy submitted to make sure you can get a policy enforced before the end of the year to lock in today's rates.

So again, if you're a high-income earner, especially if you're concerned about future tax rate increases, or a recession and stock market losses, and have a need for life insurance for your family or business, please consider an IUL policy as part of your overall financial plan.

Thank you very much. We'll see you next time.

The information presented here is not specific to any individual's personal circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. Guarantees provided by insurance products are backed by the claims paying ability of the issuing carrier. Annuity guarantees rely on the financial strength and claims-paying ability of the issuing insurance company.