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IUL Fees – Everything You Need to Know

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Reviewed By: Rob Pinner

Rob Pinner Rob Pinner is the founder and CEO of Pinner Financial Services servicing all 50 states. Rob started his insurance career in 2002.

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Fact Check By: Holly Mitchell

Holly Mitchell’s background in life insurance insurance goes back to 1985 when she worked for her father who was a New York Life agent. Holly has a marketing degree from Auburn University and has had a life insurance license since 2008. In addition to advising life insurance for customers all around the country, Holly is our website fact checker.

If you’re looking for a type of insurance that offers more freedom and considerable upside potential, you should consider indexed universal life insurance (IUL). This type of coverage gives you a chance to experience the upsides of the stock market without the risk when the markets go down.

To make understanding IUL fees easier, we have a calculator that gives the fees in the form of a percentage.  Much like your brokerage accounts show fees as a percentage.

We can run these numbers for you before you decide on which IUL company to go with.

In this article, we’ll discuss fees that are part of every life insurance policy with a cash component.

How will IUL Fees Impact My Policy?

This question should always be asked if you are considering Indexed Universal Life Insurance. Oftentimes, brokers who are obsessed with selling you an IUL talk about rainbows and fairy dust and somehow leave out the part about the fee snake slithering around in your policy.

Without getting too far out in the weeds, let’s take a look at IUL fees and how they will impact your policy’s cash account but first, you need to understand that the amount of fees you’ll pay varies from company to company. Understanding these fees and how an insurer you are considering charges them should be in the top 3 questions you fire at an insurance professional. The fee expenses you’ll bear will fall into two categories:

Fixed Expenses

Fixed expenses are predicated on the policy you purchase and the insurer you purchase it from and will not change over the life of your policy:

  • The Premium Load – The premium load is taken right off the top of your premium payment and is used by the insurer to cover things like premium taxes and the insurer’s profitability. The premium load will usually go away after the 10th year.
  • Policy Administration Fee – This fee pays for the administration of your IUL and will exist over the life of your policy.

Variable (fluctuating) Expenses

As the term states, variable expenses are made up of three components and will fluctuate over the life of your IUL policy:

  • Policy Expenses – Your policy expense charge is generally spread out over the first 10 years of your policy’s existence. These charges are used by the insurer to cover things like underwriting costs, agent commissions, and acquisition costs (the money spent to entice you to become a policyholder.
  • Mortality Expenses – Mortality charges is the money spent to process and then pay the benefit to the designated beneficiary(s)
  • Surrender Charges – The surrender charge represents the money an insurer has invested in underwriting, issuing, and managing your policy. This charge only applies if you walk away from your IUL policy early on. Typically, surrender charges are spread out over the first 10 years of the policy on a declining basis and then go away. This means if you want to cancel and cash out of your policy in the 6th year, your surrender charge will be deducted from the cash settlement.

Understanding how expense fees will impact your cash accumulation is critical if your intentions are to create an income stream for retirement using your IUL. Additionally, it kind of dispels the notion that you cannot lose money in a down market because of the 0% floor rate. Although your cash account isn’t negatively impacted by a down market, your fees are still deducted from your account.

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