A man in his 60s came back to me after four years of silence. He wanted to put about $400,000 into an indexed universal life policy over five years. By the time he called, he'd already been approved on a design from another agent, so I rebuilt his numbers to compare the two.
The approved design took $70,000 a year for five years, which is $350,000 total. It carried a $650,000 death benefit that grew over time, and it had no supplemental term insurance blended in. Term insurance is temporary coverage that costs very little per dollar of coverage. When a designer stacks some of it on top of the permanent policy, less of your premium counts as base premium. Base premium sets the target premium, and the target premium is the number a carrier uses to pay the agent and to size many of the policy's expenses. A fair rule of thumb is that an agent's first-year commission runs close to 100% of target premium. On the approved design that number was about $38,000.
Over 15 years the policy's charges added up to $223,000. Four pieces make up that total: a premium load, a documentation fee, the cost of insurance, and a per-unit charge that pays back commissions and underwriting costs. You can't design around the first two. You can design around the last two. The per-unit charge ran over $6,000 a year, and the cost of insurance was almost $7,000 in year one.
My version used a level $600,000 death benefit and about $67,000 in the first year. At 66, insurance costs climb fast, so a death benefit that doesn't keep increasing matters. Squeezing the money into the first five years under the seven-pay test (the limit on how much you can pay in during the first seven years before the policy turns into a MEC) made the level benefit possible. The MEC line works as a funding speed limit, and this design stayed under it. With blended term, the target premium fell to $5,873. The per-unit charge dropped to about $1,000 a year, and 15-year charges came to about $51,000. That's roughly $172,000 less than the first design.
The cash side looked different, too. After year one the policy showed about $57,000 of cash value on $67,000 paid in, with a surrender charge of only $6,000, so most of the money was reachable as a line of credit. I ran both designs at a 6% index projection. At year 15 the higher-expense design showed about $439,000 of cash value, and the lower-expense design showed over $700,000. Those are projections, not promises, since index credits aren't guaranteed and a carrier can change some charges. Part of the gap also comes from limits in how the first design was built.
Both illustrations sit side by side, with every charge line visible, in a video on how one client avoided $171,678 in policy expenses, with every charge line on screen.
Cost of insurance in the later years does grow, and a policy that's underfunded or loaned against too hard can lapse. In this design the yearly charges stayed under $2,000 through age 86 while the projected cash value kept climbing, so lapse risk was low as long as he didn't pull out far more than he paid back. A policy loan reduces both cash value and death benefit while it's outstanding.
If you're holding an illustration right now, find the target premium on it and ask the designer what that number becomes with term insurance blended in. The target premium explainer shows where to look.