1. Money that needs to be set aside as collateral, even if it’s in brokerage accounts. In theory, they want EVERY dollar utilized. In practice, that rarely ever happens, and really shouldn’t happen because cash reserves should be a priority. Its kinda of like a HELOC where you have to put some some on the sidelines. So that’s that con. Most people not an issue cause they are very inefficient but likely different story for folks like you and me.

2. Rate risk – Either the Libor increases, or the indexed return of the market doesn’t do well. With the libor, shorter term, it’s not expected to do much. But who’s to say what it will look in 5-10 years? The stock index would do great in an IUL if you have bipolar movement where, if we go into a recession, the market falls quickly. The worst case scenario would be the market going flat for a decade.

Ways to mitigate rate risk? First, you have the option to move into the fixed fund at 4% if you foresee a market correction, or it somehow goes stagnant. And then later switch back to the indexed fund when the market begins to move again. For the LIBOR, there’s not a lot we can do. However, looking forward, there’s a higher risk of the rates still dropping. And you’ll notice on their illustrations, they raise the LIBOR rate over time to account for that risk. You can also have them stress test the policy by showing 0% index returns for 2 years in a row, in case the market tanks. From what I’ve seen in those scenarios, it just pushes back the timeline a few years. But the policy doesn’t implode.