Understanding the Participation Ratio in IULs

Earlier this year, we wrote about how to illustrate IUL returns in the Accumulation calculator. The reality is, IUL’s are sold as something they just aren’t—there are fewer guarantees, and a lot is still left up to risk.  Now, we have a new button that illustrates another “lesser-known” provision of an IUL policy: participation ratios/rates. The insurance company sets the participation ratio, and is non-guaranteed, which means it can change from year to year.  A participation rate controls how much dividend a policyholder will receive. For example, say the index

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Can You Save More with a 30-Year Mortgage, Refinanced Every 10 Years?

What’s the major reason that people want to have their house paid off? In most cases, people fear a scenario where they can’t pay their mortgage, so they spend more money up front. Too often, this puts them in the scenario they were trying to avoid. It all comes down to control, and a 30-year mortgage simply gives you more control.  We’re going to run an experiment here, and see how you can actually save more money in your own pockets. Setting Up in Loan Analysis To begin, pull up

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Section 7702 Changes: Is Whole Life Insurance Still A Good Savings Vehicle?

By now, advisors in the industry are well aware that the life insurance industry is going through changes. The end of 2020 introduced recent changes to Section 7702 of the tax code, which hasn’t been touched in decades. While we’ve read mixed interpretations, we’re looking at the whole truth. The truth is, first and foremost, that whole life insurance is an incredibly certain asset. Insurance companies have always met guarantees and have a more than century-long track record of paying non-guaranteed dividends. Even through world wars, recessions, and the Great

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How to Demonstrate the Laffer Curve in Cash Flow

Is it possible to reduce taxes by lowering the tax rate? Let’s talk about the Laffer Curve. This theory, posited by Alfred Laffer during the Reagan Era of tax reduction, may hold more water than you’d think. This is a great exercise for webinars where you’re helping clients understand taxes better (and why they should seek to save on that tax bill as much as possible). What is the Laffer Curve? The Laffer Curve theory, as Investopedia explains, is the theory that as tax rates increase, people become dis-incentivized to

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Does IUL Really Offer Stock Market Returns Without Risk?

Since the IUL (Indexed Universal Life insurance) came onto the scene, it’s been sold as a way to get stock market returns without taking any of the risk. In this case, the risk in question is losses in the stock market. Companies often have a guaranteed minimum interest rate. In theory, this should make you rich, right? So how come so many IUL policies collapse? Flexible premiums are not solely to blame. In reality, guaranteed minimum interest rates have to be tempered somehow. For whole life insurance, minimums can be

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