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Why I basically never sell a Max Funded IUL?

Updated: 6 days ago


Max funded IUL
What is a Max Funded IUL


What is Max-Funded IUL?

What is a max-funded iul? A max-funded Indexed Universal Life Insurance (IUL) is a type of permanent life insurance policy that builds cash value by crediting interest based on a market index allocation like the S&P 500.


A max-funded IUL is designed to maximize the cash value accumulation by minimizing the amount of life insurance purchased with the policy. In essence, maximizing the premium payments into the cash value account of an IUL policy to accelerate the effect of compound interest on the account value growth while minimizing the cost of insurance but does this approach always maximize the cash accumulation?


I have come to the conclusion this is NOT always the best strategy to earn interest and maximize cash value growth despite all the buzz around max funded IULs. We should not apply this financial plan as a one-size fits all approach .


Most of the time, my clients choose the level-option IUL over the max-funded, increasing option IUL. This is the choice they make almost always. Only rarely does the client choose the max-funded IUL. 


Why is EVERYONE discussing Max-Funded IULs?!

People on YouTube, TikTok, and social media are calling a "properly set up" IUL a "MAX-FUNDED" IUL. I see this term being used everywhere.


It seems to be a very popular trending topic on social media. Well “properly set up” is a bit relative and should really be considered on a case-by-case basis. Most of my prospective clients are calling me and asking me implicitly for a “max funded” IUL.


When I hear that, I know they have been researching. That's good, so I'm glad that IULs have caught their attention.


But I will explain why a "max funded" IUL may not be suitable for everyone. In fact, it’s not even for most people. I would say the majority of my clients do better with a level policy. And it comes down to one really small detail that can’t go overlooked.


How a Max-Funded IUL works

Max-funded indexed universal life insurance is simply maximizing the premium payments to grow the accounts cash value over consideration of the death benefit. The net death benefit will increase slowly over time. However, believe it or not, designing an IUL with this strategy can actually backfire for most working class people.


I lay out an example in the video below  but first, what's the leading alternative to a max-funded IUL?... A level option IUL.


So what is a a level-option IUL?

A level option IUL has a level net death benefit throughout the life of the policy. Usually for at least the first 2025 years, the net death benefit is the same as the initial death benefit. This policy design gives you more life insurance protection from day one and this often presents a slight advantage to the working class person.


So who is the max-funded IUL good for then?

This is a very broad, generalized definition, but I would say if you have twice as much money in liquid assets as you have liabilities, you are a good candidate for a max-funded IUL, but with the caveat, that you have at least $100,000 in cash or other immediately liquid assets. So let me unpack that qualification.


If you own a house and the outstanding mortgage balance is $100,000 and that is your only financial liability, then if you have $200,000 in cash or other immediately liquid assets, I think a max-funded IUL might be okay for you.


If you were to unexpectedly transition to the heavens, your $200,000 in liquid assets could pay off the $100,000 mortgage debt. The remaining $100,000 could be used to cover your funeral expenses and buy your family a little time to make lifestyle adjustments.


Imagine $10$20K spent on your funeral and about $80,000 for your family to figure out their future income. That is probably enough money to buy a working class family time to survive one to two years without new income and without cutting expenses. In that time, they will need to come up with a new financial strategy.


Assuming this same policy owner above held a max-funded IUL policy upon death, then there was likely at least an additional $25,000$50,000 of life insurance to help the family stretch their finances above. Depending on the age of the family members, this might be fine as a minimum.


If your outstanding mortgage balance is $300,000 or more, it becomes more challenging to have twice as much in liquid assets ($600,000+) for a rainy day fund hence life insurance is probably more valuable.


But if your asset-to-liability ratio is much more favorable for example, $250,000 in liabilities and $1million in liquid assets then life insurance is arguably less important. And you are probably better-suited for a max-funded IUL than most people. But each family's financial portfolio is going to be different. At IULaccount.com, we will write max-funded IUL policies when it's clearly in your best interest.


If you fall in a less favorable asset-to-liability ratio, you could still do a max-funded IUL and also get mortgage protection insurance to cover the mortgage balance on your house to protect your family in the case of your premature death. Even if you chose this route though, there are still a few inherent advantages of a level option IUL versus a max-funded IUL.


A Case-Study


Let's look at a case study. My sample client is 25 years old and desires to open an IUL policy at $300 monthly premium.


I will show you two scenarios. In the first scenario, I design a max-funded IUL policy with increasing death benefit (option B), that minimizes the amount of insurance purchased. The second policy design uses a level policy design (option A).






With the max-funded IUL policy, my sample client receives an initial face amount of $100,481 in return for $300 per month. This is the initial value of the policy. Each year, the face amount increases, raising the net death benefit amount every 12 months on the illustration.


The policyholder cannot borrow against the face amount or net death benefit. The “initial face amount” is the “death benefit” of the policy on day one. As the policyholder ages gracefully, the death benefit rises as the number of years pass. In an increasing option, max-funded policy, the net death benefit = the initial face amount + the account value - outstanding loans/fees.  


In this example below, if the policy owner contributes to their IUL for 40 years, through age 65, with an average rate of return of 6.03%, they have accumulated $575,434 in cash value. They could take all this money out at once, but most people would not have any practical purpose for doing that. So most people will slowly annuitize their cash value and use it to supplement their retirement income.


Assuming the policy owner lives 25 years and dies at the age of 90, they could take a yearly loan, or annual salary, of $52,764. So, from a lifetime contribution of $144,000, they created a potential retirement income of over $1.3 million tax-free nearly 10 times their total contribution.



max funded iul
max funded iul


Comparison to a Level IUL Policy

Now what if this client instead chooses a level-option IUL for $300 per month, even though everything else about their profile remains the same? The policy now offers more life insurance coverage with an initial face amount of $317,372. You will have three times as much coverage and protection against premature death starting from day one. It would take 23 years for the max-funded policy to offer at least the same amount of life insurance protection.


Now, picture this client as married and expecting a baby. Suddenly, the day one life insurance amount seems much more appealing than the previous policy. But here is the real kicker! After 40 years, just like the other design, this client can start taking an annual salary of $53,746!


How did this happen?! That's more than the client receives from the max-funded policy! Isn’t that the point of a max-funded policy? How could this be? They are not paying higher premiums.



level option IUL
not a max funded iul


Well, circling back to the small detail I mentioned earlier  many insurance companies will reward clients with higher market index caps when they purchase more insurance. So, in this case, the max-funded policy received 6.03% interest with an 11.5% cap but the level option IUL policy received 6.35% interest with a 12% cap.


Over 2040 years, that half percent difference in the cap can make a difference. And when I design a max-funded IUL for my clients and compare it to the level death benefit IUL, my clients choose the level death benefit option 99% of the time.


Even if the max-funded policy gives the client a higher annual salary, it might not be significantly enough higher to overlook all the insurance protection the client can receive. Sometimes the difference is 3x, 5x, or almost 10x more life insurance protection.

If the salary is only $5000 more per year ($5000 / 12 months = $417), often the policy owner would prefer to have the insurance rather than the extra $400$500/month in salary. 


Every person is unique, so every situation is different. It's important to analyze the numbers and determine what is best for the policyholder. Most of the time, my clients choose the level option policy over the max-funded policy because it offers more benefits beyond the cash value growth.


Insurance policy holders can use the death benefit while they are alive if they become seriously ill. This benefit is known as a "living benefit" and is provided by many insurance companies.


Having a higher death benefit means you have more financial protection. This can be used for nursing home expenses or medical bills not covered by medical insurance. Clients could even use the money to take that dream trip on an African safari if they wanted.


But the key takeaways are that you would be making a mistake to assume a max-funded policy will grow the cash value higher 100% of the time more than a level-option policy. I’ve already proven that to be false in the video above. But even if the max-funded policy does have a higher annual salary, it may not be that much more to dismiss the extra insurance protection.


You may talk to a lot of financial professionals that may not even think about this at first. But the bottom line is often insurance companies will give higher interest rates or caps for purchasing more life insurance and this can be better for clients' cash value component in the short- and long-term financial run. 


I hope that cuts through all this hype about max-funded IULs. You can't put every IUL inside of the same max-funded wrapper and call it a day. At IULaccount.com, we would love the opportunity to work with you on your IUL design.


How do I open an IUL? Step-by-step


Step-by-step instructions to open an IUL


1. Call us for a quote: 844.711.1130 



2. Locate your government ID. You'll need that.



3. Locate your Social Security number, ITIN, or W8-BEN. You will need one of these.



4. Find your employer's address and phone number.



5. Find the name, address, and phone number of your medical provider (i.e. doctor, hospital, or clinic) if you have one.



6. Roughly, when was the last time you saw a medical professional, if ever? Why did you see them? What was the final result? (For example: Annual physical last March)



7. Decide who will be the beneficiaries of your life insurance.



8. Locate your bank account information. Is it a checking or savings account? We will eventually need the routing and account numbers to set up automatic payment for the insurance company.



9. Prepare to submit your IUL application to the insurance company.



10. The insurance company evaluates the application while we wait for an approval.



How to know we are legit, and not a scam.


At IULaccount.com, we can write policies in all 50 states and Puerto Rico. Each Life Insurance Agent / IUL Specialist. We would love to work with you …Take a few minutes to:



To verify my resident license, visit the California Department of Insurance website at this link: https://cdicloud.insurance.ca.gov/cal/LicenseNumberSearch 


Enter my resident CA license number by entering 4181215 in the box and click "SEARCH." You will see my ACTIVE license to help you with your IUL. So you can have 100% confidence when working with us.


Thank you all so much for visiting IULaccount.com. Please share this webpage with others. They will thank you for it!



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