GIUL Policy Calculations

Last summer a friend of mine went to work for an insurance company and since I needed life insurance, I said… hey, can you give me a quote for life insurance. The next thing I knew, they were attempting to sell me the following products: A Global Indexed Universal Life Insurance Policy (GIUL), Term with Return on Premium, a Variable Annuity for Roth IRA, and Disability Insurance. They also wanted to manage the rest of my investments. Seriously? All that I asked for was a quote on life insurance.

I explained that all I really wanted was simple term life insurance, but despite asking for this they proceeded to pitch me on all of these services which I didn’t need, and most of which are a horrible, horrible product. I say horrible, and that’s really how I feel.

I sent my friend a number of emails attempting to persuade him that they were a horrible product, but he was too far down the rabbit hole to see clearly, and I ended up not buying anything from them.

Here’s what I wrote to him about the GIUL policy:

GIUL Policy


After really looking at this one, I’ve come to the conclusion that I don’t believe that I can afford this policy because it forces me to invest in the same way for a 30-50 year timespan. I think that I would rather have m

ore control over my investing choices. I’d rather be able to change my mind and invest in different sectors like real estate. It doesn’t appear that I would have th

at control here, but correct me if I’m wrong. Also, it’s like a forced savings plan, and it just feels unsafe in that I’d have to make that payment every month.

Since there’s basically no benefit for the first 7 to 10 years (except the life insurance death benefit which is an important benefit) I felt like the next 7 to 10 years are the ones I would like to have liquid assets (and, working on paying off house).

Assuming a term life policy only cost me $100 month during that period, I would be only down $24,000.

I took the last 20 years of the S&P 500 and it looks like it had an annual rate of 6.24% from Dec 31, 1992 through Jan 2, 2013. Investing $338.06 per month for those 20 years would have resulted in a return of approximately $162,692.37 which is more than the 20 year net surrender value of the GIUL policy. The GIUL policy has a surrender value of $149,307 (page 20) at 20 years (assuming 8.5% return). If I were to die 20 years from now, and carried a term policy at that time, I’d have the death benefit from a term policy + my investment return as well. I am having difficulty seeing why I wouldn’t want to do that. From the looks of it, by going with a GIUL I am running the risk of losing my additional investment if I were to die. But, I understand there’s the tax-free aspect… but not until I’m 70.


From what I can understand about this policy, the death benefit would be all I would get if I were to die before an older age. If I am wrong about this, please correct me. That’s just not a good investment practice from my understanding. Why risk that? For less money, I can have a term life insurance policy that protects me, and then anything I invest I know I will have access to. Way more liquid. I’d much rather wake up 20 years from now having “invested the difference” and have a liquid nest egg than have it be tied up in an insurance policy. I do understand the loan lets me get access to that money, but there are some tax implications there that can’t be overlooked.

I also am having a hard time coming to terms with the idea that if I died within 7-10 years I am not further ahead than if I “invested the difference” (but, I can see that I’m further ahead if I lived to 70 or 80).

On the other hand, I can see the value in a forced investment approach. Will I really invest the difference?

Questions to ask your insurance salesperson: Is there a cap on how much I can earn on the investment? I also read somewhere that dividends earned by the S&P 500 aren’t paid out, is that true? What are my approximate fees? From reading an article, I get the idea that long-term it actually pays off admirably.

Ask yourself if it is wise to place a sizable percentage of your income for the next 30+ years into one investment method.

It might sound like I’m completely against the GIUL but I’m not, I just am having a difficult time accepting such a large monthly expense especially compared against the fact that I want to also fund my Roth IRA to the max ($5,500/year), pay off my house early, and grow my liquid nest egg over the next 10 years. If I had an extra large emergency fund laying around, I would feel a lot safer about a monthly “cost” like this and I’d probably be okay with the costs considering the rewards.

Looking at it further, if I were to die at 63 (age my mom died) after 30 years of investing in the GIUL policy I would have invested $152,444.88 over that time. The death benefit is $500k and the Net Surrender Value is $380,194. If we take the S&P 500 average over the last 30 years we get 8.120% return. After 30 years of investing $338.06 on a monthly basis I would end up with $507,944 which is more than the death benefit. Let’s guess over that period I would have paid out $36,000 for a 30-year term (might be low). Even taking half of the proceeds for taxes and fees, with a term-policy my wife would be left with a term-life death benefit and the “invest the difference” investment of maybe $250,000. I guess in summary the way I understand it, the GIUL looks like a really good deal if I don’t die.

Related articles:

Term Life Insurance with ROP: Is it worth it and why?

My financial advisor (at ING) recommended that I get a Term with ROP life insurance policy. So, I did the math and decided to share some details with you.

From what I can tell, I could simply get term life insurance without a ROP rider and invest the difference. Assuming even marginal returns, I would easily out perform the return on premium.

More importantly, if I were to die and the policy is paid out, my wife wouldn’t get the additional I’ve paid into the policy to get the return on premium rider. But, if I were to invest that money and buy term life insurance my wife would receive a policy payout in the event of my death plus the investment would be safe.

When you put it that way, it seems like a no brainer to not go with a ROP rider.

The objections a insurance product broker will raise will fall along these lines:

  • First, there is an expression in the insurance business: “buy the term and blow the difference.” The reason is that at the end of the day while most people will say, ‘I’ll get the cheapest policy and invest or save the rest,’ yet they will see that extra $100 or so and put it to a night out on the town or, put it towards some other expense (even an emergency expense like car repairs). It is a device for forced savings for those that may lack the time or discipline to manage where the excess ‘premium’ goes.
  • Some brokers will tell you that you would need to locate a fund that returns 5% to hedge inflation AND beat out the tax implication (either now, for a ROTH, or later, for a traditional investment). They’ll say that IF inflation is 60% after 25 years, 40% of premium still beats 0% on a traditional term policy.
  • They’ll tell you that this is a guaranteed return of every dollar put in, and, BEING A RETURN OF PREMIUM, it is not taxed at the end. Premiums or original cash value on life insurance policies is never taxed; you already payed it. The excess ‘premium’ you disciplined yourself to allocate elsewhere WILL be taxed, either at income or capital gains rates.
  • They’ll also tell you they’ve done the math better than you have, saying something like: “From our analysis, given your age (the likelihood that you’ll live to collect the RoP) and moderate risk tolerance (again you have to beat 5%), the RoP fits your plan.”

Don’t listen to any of this! At the end of the day, the only thing that matters is that a ROP rider adds about 40% to the cost of term life insurance and if you were to die during the term of your policy, you don’t get a single penny back. That’s why it’s a bad deal, because you lose the extra you’ve paid in to ROP. How else would the insurance company make money on this? They have to make money somewhere.

Follow the advice of numerous investors, and even Dave Ramsey himself when he says “buy term and invest the difference.”