Consumers looking to supplement their retirement income often settle on an indexed life insurance policy. These policies build cash value based on market performance and allow your heirs to enjoy a tax-free death benefit. Let’s take a look at Transamerica’s indexed universal life insurance policy and see what makes it stand apart from other such policies.
- Pros & Cons of Transamerica IUL Product
- Key Features of Transamerica Indexed Universal Life Insurance Product (IUL): 80/100
- The Details of Transamerica IUL Illustration
- Financial Strength: 80/100
- Customer Satisfaction: 40/100
- Consumer Complaints: 40/100
- Digital Experience: 60/100
Pros of Transamerica IUL Product
- Flexible options, including the option to increase the death benefit or to increase cash value to support supplement retirement income with cash withdrawals
- Included riders are Accelerated Death benefit and Concierge Planning rider
- Tax-free death benefits to your heirs
- Choice of S&P index, Global index, or basic interest for cash accumulation
Cons of Transamerica IUL Product
- Transamerica as a life insurance company is ranked below average by J.D. Power
- Class action lawsuit over insurance fees
- Higher than average consumer complaint scores
If you consider an IUL policy, it is important to comparison shop with several companies or a digital broker who specializes in IUL product such as Amplify. They are able to pull quotes from several partner companies to help you compare and select the best one for you.
>>MORE: The Pros and Cons of Indexed Universal Life Insurance (IUL)
Key Features of Transamerica Indexed Universal Life Insurance Product (IUL)
Transamerica offers a number of different options for their IUL policies. Below are the three options that they offer:
- You can choose to earn interest through a basic, interest earning account with a guaranteed rate of at least 2% and a cap of 3.5% for those who want steady, reliable growth.
- Or you can choose to earn interest based on either the S&P 500, with a cap of 13.75% and a floor of .75.
- You can even choose to base your earnings on a global index account, which is based on the averages of the EURO STOXX 50 (based on European market performance) or the Hang Seng index (based on Hong Kong market performance). The Global index has a cap of 15% and a floor of .75%.
You can also choose from several death benefit options, depending on your goals.
Increasing death benefit option: Your death benefit will rise over time keeping pace with inflation. Choose this option if your goal is to leave a hefty death benefit to your heirs.
Level death benefit: If you want to supplement your retirement income with cash from your policy, the death benefit isn’t as important to you, so go with the level death benefit.
Graded death benefit: This turns into a level death benefit after a certain number of years. If you die within the first year of the policy, your heirs get the premiums refunded, plus a certain percentage of the policy. This percentage increases until it’s 100% of the death benefit.
Many people buy IUL policies to supplement their retirement income. If you set your policy up this way, you can focus on building enough cash value to pay yourself a certain amount starting at age 61. This means that the policy is set up to maintain a minimum death benefit while most of the premiums you pay each month is allocated to grow the cash value account.
>>MORE: Understanding Indexed Universal Life Insurance (IUL) – Why Is It Good for Retirement Savings?
The Details of Transamerica IUL Illustration
In order to illustrate how Transamerica IUL product works, we obtained an illustration for a woman, 36 years old, living in California, with good health, from the company.
If you go with a IUL policy from Transamerica with an initial death benefit of $127,000 and an annual premium of $3600, you will potentially be able to supplement your retirement income with $10,564 per year for 20 years, from 61 to 80 years old, assuming you bought the policy when you were 36 and paid premiums until you reach 60. You can also withdraw a large amount of cash from the policy, tax free. This sum amount varies as you get older. For example, with this Transamerica IUL policy, below are the amount you can withdraw at different ages:
- Age 60: $157,630
- Age 65: $203,853
- Age 70: $262,820
- Age 80: $426,147
If you would like to leave your heirs as much money as possible, you can choose to increase the death benefit and not take loans or withdrawals. In the illustration of Transamerica IUL, you could have a death benefit of $674,809 by age 85 and if you live to be 101, your beneficiaries will inherit a little over $1 million.
All of this depends on market performance if you decide to go with that option. You could just earn somewhere between 2-3.5%, but if you look back at the S&P 500’s performance over the last 20 years, you’ll see that you would earn an annual average of 4.02%. However, because you have a cap of 13.75% and a floor of .75%, you would actually earn 7.36%, which isn’t a bad rate of return. The market returned better than 13.75% in some years, but in many years, it lost money. That’s why many people prefer to invest in IUL policies, rather than the market itself.
Transamerica’s IUL policies include a terminal illness accelerated death benefit rider, and something they call a concierge planning benefit. This is rather unique to Transamerica, and helps your heirs plan your funeral.
Something to be aware of Transamerica is that they just settled a class action lawsuit about their “cost of insurance” fees. This is the second such lawsuit Transamerica has settled in the last few years, and both were filed over fees on universal life insurance policies. In 2018 they settled for $195 million and in 2020 they settled for $88 million. They’ve also agreed not to incur additional increases for the next seven years, unless ordered to do so by state regulators.
By sure to shop with a few companies or a digital broker who specializes in IUL policies such as Amplify. They are able to pull quotes from several companies to help you compare and select the best one for you:
>>MORE: The Best 6 Companies for Indexed Universal Life Insurance (IUL)
Financial Strength Rating of Transamerica IUL
Transamerica earns an A from A.M. Best, so they have plenty of financial strength to meet their obligations.
>>MORE: IUL vs. Roth IRA: Which One is Better for Your Retirement Savings?
Customer Satisfaction Rating of Transamerica IUL
Transamerica ranks “among the rest” or below average on J.D. Power’s 2020 Life Insurance Study. They rank below average in every category, which are:
- Overall satisfaction
- Billing and payment
- Policy offerings
- Application process
>>MORE: IUL for Retirement Income: Is It a Good Idea?
Consumer Complaints Rating of Transamerica IUL
Transamerica gets a complaint index score of 1.26 by the NAIC. This is higher than the number of complaints you would expect for a company of their size. The average score would be 1. They also scored higher than average for the past few years.
>>MORE: Cash Value Life Insurance: Everything You Need To Know
Digital Experience Rating of Transamerica IUL
If you want to purchase an IUL policy from Transamerica, you’ll have to contact an agent. They do have online quoting for term insurance, but there’s a lot of variables in an IUL policy, so that makes sense. You can read a hypothetical illustration of the policy online, though. If you do choose to go with the IUL policy, be prepared for medical questions and a possible assessment to determine whether or not you qualify for coverage.
Transamerica’s IUL policy does offer a good amount of flexibility. You can tailor the policy so that you either supplement your retirement income or increase your death benefit. This way your beneficiaries get a nice lump sum tax benefit. They seem to have settled their lawsuits, although customer service scores are not as high as we would like. But they may work for you if you value flexibility and choice.
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