Variable Universal Life (VUL) & Indexed Universal Life (IUL) vs Whole Life (WL) Insurance
Variable
Universal Life (VUL) & Indexed Universal Life (IUL) are indexes that payout
according to the performance of the market(s) they deal in. Universal Life (UL) is the basis that VUL and IUL are built on (actuarial tables of term insurance). Whole Life (WL) is
outside of these markets and has continual payouts due to its preset business
and investing model using its own policy holders.
IUL insurance policies have higher risk and reward, if a market goes down then the compound interest gets interrupted and can even negate years of prior successes. More risk – more reward, whereas these whole life insurance companies have been paying dividends nonstop for ~200 years with a constant rate of return. So while nothing is guaranteed in life, this is as close as it gets to that! Mutual funds will show an average rate of return, but it does not reveal the real rate of return. For example, a 10% gain of a $100K investment will result in $10K gained. But the subsequent year may have a 10% loss of the $110K investment which will result in $11K lost. So you now have $1K less than when you started but the mutual funds will report the investment as “0%” technically. See the issue with these riskier investment funds?
On the other hand, Whole Life has guarantees built into it, so if the carrier doesn't pay a dividend that year, they'll still payout a minimum guaranteed rate based on the policy's valuation (i.e. 4% to 5%). All the risk in a whole life policy is on the insurance company. With VUL or IUL, there is no guarantees provided by the insurance carrier so all the risk is placed on the insured.