A viewer asked whether an IUL is a good choice for a 30-year-old client sitting on a lump sum. I answered this for him in a video on IULs for 30-year-olds and premium loads on a 1035 exchange. For a young person, I like it a lot, as long as it's designed correctly.

Three things work in a young person's favor. The cost of insurance, the monthly charge for the death benefit, is small at 30. The growth potential is good, because an IUL ties growth to an index. And it has a floor, which means a down year credits zero instead of a loss. Picture someone who puts everything in the stock market and sees it drop the next day. They find out then whether they have the stomach for it. An IUL still charges its costs in a flat year, so cash value can dip, but the index credit never goes below zero.

Access matters too, and so does what the money is for. Many annuities hold surrender charges that limit how much you can pull out in the early years, so check the contract. A properly designed IUL gives you access to its cash value through loans.

The first question I ask is about the death benefit. An IUL is designed to start with low cash value and a high death benefit, then move toward high cash value and a small death benefit in old age. I try to shrink the death benefit as far as possible. That works well if the person isn't relying on it to protect a family. If they are, I'd blend in some whole life, because whole life's death benefit keeps growing instead of shrinking, and that's what passes wealth to the next generation.

A lump sum also runs into the funding limit. You can't put the whole amount into a policy at once without causing a MEC, so it usually goes in over several years, as why your policy has a funding speed limit covers.

The viewer's second question was whether a 1035 exchange carries a premium load. A premium load is a percentage the company takes off each payment before it reaches your cash value. In my experience, a 1035 exchange does usually get some load. It's lower than in other places, but the cash value won't match your old policy dollar for dollar. The new company has costs to receive and invest the money. I don't know the exact amount for any given company, so ask for it in writing. The 1035 exchange explains the tax side.

Before you move a lump sum, ask for an illustration with the year-one cash value and the death benefit at ages 40, 50 and 65.