Written By — David Shafer

I recently had a call from a young man who was interested in an EIUL. During discussions he kept going back to mutual funds and the fact he thought he could purchase one’s that had very low expenses. Finally, he simply asked how could an EIUL [with its expenses] compete with a mutual fund that had an expense ratio of .18%?

I explained to him the three fundamental flaws in his questions and thought they might help the readers understand the attraction of EIULs.

1. He was comparing apples and oranges. EIULs use a stock index as a benchmark for the interest credited each year, but is not invested in a stock index. The fact is that the investments behind the EIUL crediting policy are a combination of fixed rate interest bearing instruments [in order to cover the minimum guarantee of 3%] and European style options on the index. To properly evaluate an EIUL you can either look at the history of this type of investment mix or the history of EIUL returns. You then compare this to the pure stock index returns. When you do this you see going back up to 30 years an advantage for the EIUL strategy of up to 1%. [Read more...]