Why Your IUL's Costs Could Go Up Later (And Whole Life's Can't)

We talked briefly about how there's an offloading of risk. Some of the offloading of risk is not clearly understood and seen, and that is this: policies have charges over time. When the policy is sold, we don't know what the future charges are going to be, so we have to make an estimate. That estimate is what the actuary does, okay? It's like, look, here's a straight line. This straight line is what we hope and view is going to happen if everything goes perfectly based on all of our assumptions. This is the straight line. Well, year by year, we might be above the line, which means we did better than expected. We might be below the line and we did worse than expected. Does that make sense? So any year that you're above the line, that's surplus. And you're, you're below the line, you've got a negative that happens there. And so those have to get accounted for. Whole life insurance, that, that risk is 100% of all those elements— mortality costs, lapse rates, taxes. Literally anything under the sun is taken on and absorbed by the insurance company because they take on that fundamental risk and they are owning and managing it on behalf of everybody. They have to price the product accordingly to that risk. With the universal life contracts, they actually pass those risks back onto the policy owner. So there is the potential that actually rates— the rate on your 1-year cost of insurance or whatever could go up. It could even be higher than expected. And some of the other issues could change because their assumptions weren't accurate. So when they look at the long-term history and they see what's really going on and say, well, actually, we kind of duffed it back in, you know, 2004 when we built this product or 2026. Turns out we have way more death claims than expected. We had way more lapses than expected, which means we didn't get all the premiums coming in that we expected, which means all of our assumptions are off, which means we have to pass that buck forward to the policy owner because that's the contract you signed. People don't understand that that happens, and that right there is a real fundamental risk because it's a lack of knowledge, a lack of education. Many advisors don't know it takes place, and they're not trained on that from their wholesalers or from the life company either. So you have a downstream level of events that takes place that all ultimately come back to the policy owner. At the end of the day, we're here to look after the policy owner. So we have to make sure that they're well informed about these, these types of items.

Yeah, I'm glad you mentioned that. You know, it's like generally we'll be called agents and I just don't like that term agent. It's too broad. Advisor, guide, coach. I mean, you know, there's a lot of complexities in the insurance industry and I would love it. If everybody did their own research. But we know that that's just not going to be the case. So they rely on advisors, guides, coaches like us who have done the research, you know, who do live this day in and day out, who understand the pitfalls, are looking out for the clients, you know, for, you know, trying to do the right thing by the client. And so, you know, you say, Richard, every podcast episode that you do, is a question that one of our clients had that gets an answer without having to ask the question. So hopefully this episode has answered some questions for people around IULs and like, you know, like we started with the questions that we're hearing out there when we're talking to prospects and people who are exploring this concept and considering integrating it into their lives.

So, well, go ahead, Richard. And I want to show a couple of, I'll let you get in here, Garrett, but, before we, we close today, I do want to show a couple of, uh, of elements as well, some screen shares on a couple of things. So just so our listeners and our YouTube viewers have some extra reference points that after this episode they can kind of dig into some more, uh, kind of tied into that a little bit, Josh. So go ahead, Garrett.

Well, I was gonna say, like, so, so I do want to have like a call to action for folks like, like Josh, right? Like, what do you do if you have an IUL and you're exploring infinite banking? Right? Like, what, what would you guys recommend that someone listening who's like researching this, or maybe they're like sold on IUL and are kind of on the fence, like what should they do next? What's the next step?

Um, well, I mean, I think the next step is number one, like, if you're— you, you should have it reviewed and assessed by someone. And you may have a good relationship with your present or current advisor and that person probably was doing their best to look out for you based on the knowledge they had. Doesn't mean that they were trying to do anything nefarious or whatever. People get a bad taste in their mouth when the word insurance comes up, and it's because of things like this that occur. Unfortunately speaking, most of the individuals are really wonderful, amazing, caring people who are doing their best with what they know, right? It doesn't mean that they did anything, uh, negative for you. It just means that they may not have had all the clarity and also that you may not have had all the clarity. And most importantly, if you didn't have all the clarity, that's the thing that needs to be corrected. So you need to seek that clarity. You can book a clarity call. There will be a link down below in the description. You can do that with a member of our team. If that is the case and you want— you have one of these contracts and you want to unpack it, well, number one, you should write down what are your key questions. You need to make sure you show up to that meeting with a statement, or better yet, you email the advisor you're going to be working with, who's going to— you're going to have that meeting with. Send them the statement in advance and say, hey, I'm interested in the infinite banking concept. I want to explore that, but I have this already and I have questions and concerns about it. Can you provide me some guidance? Now, that guidance isn't going to be, wow, get rid of that insurance contract. That's a piece of junk.

Okay.

Like, maybe it is a piece of junk. I don't know that, but it's going to be, hey, look, you have protection for your family. What was the reason you got this? What was the original intent? How well have you been funding it? Have you been doing what the projection shows or not? Like, do you have surrender charges? What are your actual objectives? What have you learned about the infinite banking concept thus far? So it's like, there's a difference between having an insurance conversation and having an infinite banking conversation.

Absolutely.

That's a really good point. Those things, they coalesce. But sometimes before we can have a proper conversation about infinite banking, we have to put that on pause and say, look, the insurance hat's on right now. It's like, you got some issues and some problems happening right here. Can we just address these and triage the situation first? Right? Like step into the emergency room. Let's see what's going on. What's bleeding? What do we need to correct? And then based on that correction and those adjustments, now can we park that for a second and talk about what you've learned about IBC and do we want to incorporate this into the triage process somehow? So there's a well-rounded review that's happening with all this and people should get— yeah, you should have a proper conversation about it with someone with a fresh pair of eyes.

And I think there's no shame in that either. Like, it's perfectly fine to, you know, like ask questions and meet with someone and get help, right? Like, I think Josh is a great example of that, right? Like, he thought he understood it and then once he did understand it more, made a, a better informed decision, right? And, and exactly like Richard said, there are scenarios where it might be a good fit for what you're doing, right? And you might have been properly funding it, and that's great. But, um, just having a good, a good discussion with someone who's an expert in this stuff, I think, is, is really important.

You guys might find this interesting. So, I mean, I have a handful of clients that have UL contracts. They're not indexed contracts, they're just universal life contracts with a few different companies. They had them prior to meeting with me. There's no reason for them to get rid of those contracts, right? For a couple of reasons. Number one, the ones that they have were actually— in Canada, they were sold as a level cost coverage. So there's not an annually increasing term insurance that's going to cause an implosion. Number two, they still serve and satisfy quality death benefit as part of their overall plan. They, they don't— aren't really building any cash value. So we reduce their funding to the minimum level. So it's really just an insurance contract. It's basically like a term to 100 contract fundamentally. There's a little bit of cash values in there, not a lot. They could still do some borrowing very ineffectively, but we preserve the coverage. If it's good coverage, they got it 10 years or 5 years or 8 years before they met me. They locked in a decent insurance rate for that amount of death benefit. It's a logical thing to maintain. So we're not trying to nuke all these things. People show up and they already have good insurance. That's, I mean, that's great, right? I don't need to spend as much time talking about properly insuring your family. We can spend more time about all the other fun stuff, right? Like, that's good. So, you know, the goal isn't to nuke all these good coverages. It's to make sure you have good balance and you also have a depth of understanding. Part of the problem is that the consumer doesn't understand what they have. They show up with a junk drawer full of crap and then they have to ask another person questions about why they have it. But that's because they're not taking responsibility and ownership over the decision to buy the thing in the first place. So we're going to work with you on helping you take that responsibility and that ownership stake in your own financial future. Because if you don't have an ownership stake in it, we most definitely can't.