Home > Finance > Equity Indexed Universal Life (EIUL) – really a good investment tool?

Equity Indexed Universal Life (EIUL) – really a good investment tool?

Every week, there are some free seminars in some fancy hotels – with enticing descriptions of the financial tips/secret they will teach you. I attended one last year.

Essentially they were trying to sell you EIUL – Equity Indexed Universal Life. Now I am a licensed Life Agent in California and have studied this type of product from 4 different insurance companies including New York Life and AIG. My final decision is still not to buy (but it may work for someone else).

There are some books promoting EIUL as a great investment tool. A very famous one is Missed Fortune 101  (Amazon link). There are 2 major benefits:

  • Linked to equity indexed fund so long term performance is very good (usually S&P 500)  – better than 80% of the mutual fund while the expense is very low.
  • You can borrow money from the balance and don’t have to pay back as long as there is still money left to pay insurance premium. This give you tax-free access to you money. Then when you die, you still have death benefit and the loan amount will be deducted from it.

Of course there are many other nice things to say about it. Such as you can enjoy it while you are alive (compare to only your beneficiaries get the money in regular life insurance) and the tax-free growth and withdraw/loan (compare to regular investment tools).

I’ve been thinking about changing career so I decided to give it a try. Getting a Life Agent license isn’t that hard. But I can’t really take a close look at it until I got access to the software that generates the EIUL reports. To compare it with regular investment and IRA-type investment, I made a online calculator (link here but may not work anymore). I have run different numbers to simulate various scenarios.

My final conclusion is that EIUL wins but only at a small margin. But the risk is:

  • Your contribution is locked. The commitment level is very high.
  • The cost to maintain it becomes higher and higher when you go older.

For me, there are still many tax-free/deferred investment options I haven’t taken advantage of yet, such as 529, Roth IRA etc. I should fill them up first before look at this. They are also after tax money and absolutely tax free growth. Then, I can put the rest of the money in an equity indexed mutual fund, it has the same tax-deferred growth benefit but without the high insurance cost (especially when I’m old).

EIUL might be a good estate planning tool but as far as I can see now, I don’t have this problem. 🙂

Since I didn’t buy it myself, I feel hard to sell it to others. Commission on term life is so little that you can only make a living on big volume.  Since I need to pay a few hundred dollars for E&O insurance to keep myself appointed with any insurance company, doing it part-time isn’t practical either. So this career change attempt was over.

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