Is Your IUL Structured Properly?

Is Your IUL Structured Properly?

About Me

I’m Aju John, a financial strategist and retirement planning specialist with over a decade of experience. My goal is to help individuals optimize their assets, minimize taxes, and build a secure retirement using powerful financial tools like properly structured, max-funded Indexed Universal Life (IUL) policies.

An IUL is not about the death benefit—it’s about maximizing cash accumulation for long-term financial growth. If you have an IUL illustration and want to know whether it’s structured for optimal performance, this guide will help you assess it. If you need expert guidance, I highly recommend scheduling an appointment with me.

Key Components of a Properly Structured IUL

1. The Initial Death Benefit

The goal of an IUL is cash accumulation, not maximizing the death benefit.

Most carriers require a minimum $100,000 death benefit for adults.

The lower the initial death benefit (within IRS limits), the more money goes into the cash value instead of insurance costs.

If your surrender values column shows zeros in multiple early years, your policy is not structured properly. A zero in year one can be normal, but if zeros appear beyond that, your policy is likely inefficient.

Example:

A $400/month premium should have an initial death benefit of $100,000.

A $500/month premium could range from $100,000 to $130,000, depending on age.

A $5,000/month contribution may require an initial death benefit of $1 million.

2. Choosing the Right Death Benefit Option

There are two death benefit options:

 Option A (Level Death Benefit): Keeps the death benefit fixed.

 Option B (Increasing Death Benefit): The death benefit grows as cash value increases.

For optimal performance, choose Option B (increasing) while contributing premiums.

Later, switch to Option A (level) when you stop funding the policy to reduce costs.

Be aware: You cannot switch from Level to Increasing—only the other way around.

3. Selecting the Right Index Choices

The index selection is crucial for long-term growth. Many policies default to the S&P 500 with a cap, which may not be the best choice.

Avoid capped indexes like S&P 500 or Russell 2000.

Choose a volatility control index with:

Daily or monthly rebalancing (not annually).

100% guaranteed participation rate (or higher).

No cap or spread on earnings.

4. Loan Provisions: How You Borrow Against Your IUL

IUL loans allow you to access your cash value without interrupting compound growth. However, not all loan provisions are created equal.

📌 Types of Loans:

1️⃣ Fixed Loan (aka “Wash Loan”)

Available in year one.

Charges 4% interest, but credits 3% back for the first 10 years.

After 10 years, it’s a wash loan (4% charge, 4% credit).

Loan reduces cash value temporarily.

2️⃣ Indexed Loan

Loan stays inside your policy, earning index-based returns.

Performance depends on the market—great in bull markets, risky in downturns.

3️⃣ Variable Loan

Tied to Moody’s corporate bond yield.

Insurance company charges 4.5%, but credits 5% (always 0.5% higher than loan rate).

Loan remains in the account, continuing to earn interest.

✅ Best Practice: Choose a policy with all three loan options for flexibility. Some carriers only offer fixed loans, which limits borrowing efficiency.

5. Participation Rates & Interest Guarantees

You want a high participation rate—preferably 100% guaranteed.

Some carriers, like Allianz, only guarantee a 5% participation rate—which means if the market gains 10%, you may only get 0.5%.

Look for carriers that guarantee a floor above 0%, like Securian, which guarantees 2% even in a worst-case scenario.

6. Hidden Costs: Is Your IUL Too Expensive?

Not all IULs are cost-effective. Many policies are overpriced because agents structure them for higher commissions, sacrificing your growth potential.

🚩 Red Flags to Watch For:

No charge report included in your illustration.

Excessive costs not disclosed upfront.

Contributions scheduled for the entire policy life (instead of stopping when income is needed).

Compare different carriers and request crediting histories for the indexes they offer to see real-world performance.

What If Your IUL Is Not Structured Properly?

If your IUL isn't performing optimally, you have options:

1️⃣ Stop Automatic Payments Temporarily

Contact your insurance carrier and request to pause your EFT (Electronic Funds Transfer).

2️⃣ Lower the Death Benefit

Ask the carrier to reduce your initial death benefit (usually by 25% per year).

3️⃣ File a Complaint

If your policy was misrepresented, file a formal written complaint with:

The insurance carrier

Your state’s Secretary of State

Your state’s insurance commissioner

4️⃣ Legal Action Against the Agent

If your policy was deliberately structured to benefit the agent instead of you, consider filing a lawsuit.

Agents are required to have Errors and Omissions (E&O) insurance, which may cover any mismanagement.

Ensure Your IUL Is Set Up for Success

A properly structured, max-funded IUL can be an incredible tool for tax-free retirement income and financial security. However, poorly designed policies can be expensive, inefficient, and underperforming.

🔹 If you already have an IUL, review its structure carefully.

🔹 If you’re considering a new policy, make sure it’s designed correctly from the start.

🔹 If you need expert guidance, schedule an appointment with me—I’ll ensure your IUL is optimized for maximum cash accumulation and long-term success.

Would you like a personalized IUL review? Let’s connect and make sure your policy is working for you, not your agent.