Dave Ramsey and other financial gurus claim that indexed universal life insurance(IUL) is expensive and a ripoff. Are they right? 

Suzie Orman even says you should never work with an advisor that recommends IULs as a possible investment option. 

According to David, when someone tells you that IULs are expensive, the first question you should ask them is, compared to what? 

David compares the fees you would likely pay in a traditional tax-free investment versus a lifetime IUL. 

David explains that judging IUL fees only makes sense if you calculate the expenses over the product's lifetime and not the first 5 years when the fees are the highest. 

In today's example, David uses a 40-year-old man investing $20,000 a year into an IUL and compares the fees if the same man followed Dave Ramsey's investment advice. 

In the first year, the man will pay $3502 for the IUL compared to $300 on Dave Ramsey's SmartVestor Pro program - maybe Dave Ramsey was right, after all.

However, by the 10th year, IUL expenses will have gone down to $2702, while the SmartVestor Pro will have risen dramatically to $3962. 

David reveals that it gets worse for the SmartVestor Pro by the 40th year - while IUL fees remain low at $2964, SmartVestor Pro fees will have gone to an astronomical amount of $31,263. 

This just proves that the expenses of an IUL are higher as a percentage of the balance in the earlier years but are much lower as a dollar amount in the later years. 

In contrast, David explains that the SmartVestor Pro fees are much lower as a percentage in the earlier years but become much higher as a dollar amount in the later years of the plan. 

David points out that IULs are meant to replace bonds and not the stock portion of your portfolio, as Dave Ramsey claims. 

Mentioned in this episode:

David's books: Power of Zero, Look Before Your LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code

DavidMcKnight.com

PowerOfZero.com (free video series)

@mcknightandco on Twitter 

@davidcmcknight on Instagram

David McKnight on YouTube