Whole Life vs. EIUL

Whole Life vs. Revolutionary Indexed UL
To learn more about Revolutionary Life, please click here

Which Life Policy Will Build More Cash Value?

            There are many advisors in this industry who use whole life (WL) as their primary cash value life insurance policy.  Why is that? There are several reasons.
 

            1) Because that’s what they know and are comfortable with (usually an older advisor who grew up in the industry with WL as the primary option).

            2) Because they got burned using traditional UL in the 1980 when unsustainable interest crediting rates were being used that came back to bite the client and agent when they did not materialize.

            3) Because they use a sales system and are told that WL Is the best tool to use in their system (LEAP, Infinite Banking System, Bank on Yourself, etc).

            4) Because they are not familiar with Revolutionary Indexed UL insurance.

            ECA’s opinion about WL is that is it can be a good product for many clients.  However, it is also ECA’s opinion that Revolutionary Equity Indexed UL insurance is also a very viable wealth building cash value life insurance policy that ALL advisors MUST be familiar with.  It has been ECA’s experience that when clients ages 25-60 are introduced to both WL and Revolutionary Life, that 90% of the time, the client opts for Revolutionary Life NOT WL.  

           
            ECA doesn’t really care which policy an advisors sells so long as it is through ECA and is in the client’s best interest.
           

            With that said, let’s compare WL to Revolutionary Life
 

            What is WL insurance?
 

Most consider WL as an “old school” type of life insurance policy.  Why?  Because it does not lend itself well to new policy designs which can be used to maximize cash values and tax-free borrowing from the policy in retirement.

            To generalize, WL is a stable policy and a decent way for clients to build cash for use in retirement. “Stable” is not an exciting term. WL policy returns are tied to the dividends of the insurance company.  Many advisors explain dividends as the return from the insurance company to the policy holder of an overcharged premium.

Essentially, cash in the life policy will grow well if the insurance company issuing the policy does well financially. WL also happens to be the most expensive type of life insurance policy a client can buy in the early years which depresses the cash value early on.

ECA’s opinion of WL is that it’s stable and conservative and clients won’t be hurt by using it.  However, clients won’t receive returns that that come anywhere near “market rates” of return.

National Underwriter Article (Illustrating the Actual vs. Illustrated WL returns of several insurance companies)

National Underwriter (NU) does an annual article showing the difference between the illustrated rates of whole life companies vs. the actual returns in the policies.  It’s very good information and shows us the problem with being too aggressive with how we illustrate policy returns.

Here are some numbers from the chart you may find interesting.  The chart takes the current illustrated rates and the actual rate of return from 1987-2007 (Dec. 31st).

What jumps out at you? It should be the fact that the policies returned approximately 2-3% less per year as an actual rate of return depending on the policy. 

You can download the charts from the NU article by clicking here.
 

Revolutionary Equity Life Insurance (EIUL)

We at ECA believe that Revolutionary Life (RL) is the policy that over time will help clients build the most wealth in a protective manner over time.  Why?  RL locks in investment gains which are pegged to S&P 500 (with caps that vary per company (10-16% annually). The client will not go backwards due to downturns in the market and they will earn gains that track the market up to the cap.

Additionally, these policies have variable loans which can significantly increase the amount of money that can be borrowed tax-free from them in retirement

Revolutionary Life can also have the following features:
 

            -Free long-term care benefit

            -High cash value option

            -Per 1000 charge waiver

            -140% crediting of what the S&P 500 returns
                        -a 1.25% premium bonus

            -Variable loans that can be switched to fixed loans in any year

Historical returns

Based on the current policy designs (and by the way, equity indexed life policies have been around for over 10-years), the average return going back 20-years has still averaged in excess of 8%. This includes periods of downturns in the stock market of over 40% between 2000-2002 and 50% in 2007-2008.

To read more about EIUL and Revolutionary Life specifically, please click here.

What if the S&P 500 goes flat? Won’t a WL policy be much better?  I seriously doubt it due to the locking feature of the policies, but if clients want to hedge their bet, they can use RL which can credit 140% of what the S&P 500 returns in any given year.

Conclusion

There is nothing wrong with WL insurance. It has worked well for clients for 50+ years. However, it not as flexible as and it does not have near the upside (with protection) that RL has (not to mention the free LTC benefit).

We at ECA strive to educate you on the pros and cons of both WL and RL so you can make an informed decision about what products you should be offering to your clients.

In an effort to further this, we have a password protected educational center that licensed agents can access.  To obtain access, please contact info@ecalife.com.

Sales tools

ECA also has proprietary sales tools that our licensed advisors can use.  Some tools are specifically geared towards educating and motivating clients on RL.  To learn about these marketing tools, please click here.